Case Law Details

Case Name : Regent Granito India Ltd. Vs ACIT (ITAT Ahemdabad)
Appeal Number : ITA No. 2908/Ahd/2009
Date of Judgement/Order : 17/06/2011
Related Assessment Year : 2006- 07
Courts : All ITAT (4238) ITAT Ahmedabad (321)

Regent Granito India Ltd. Vs ACIT (ITAT Ahmedabad)- Dis allowance for the discount offered against defective materials supplied can not be sustained- In the present case, the A.O. has merely doubted that the assessee is writing off the amount and giving credit to the customers to reduce its profit but the A.O. could not corroborate the same by bringing on record at least some corroborative evidence. It is also to be noted that it is not a case of allowing discount simplicitor. Discounts were allowed on account of breakage or defects in quality.

If we purchase some thing & when the goods are delivered to our house and if we find that the goods delivered is in broken condition or is not of agreed quality, we will not settle for anything less than replacement of such broken / defective goods by a proper goods in proper condition and quality or to refuse the goods and return of price if already paid or nonpayment. Broken tiles have no scrap value and in fact, some cost has to be incurred for its disposal. As per the details noted by the A.O. on pages 4 – 5 of the assessment order, it is seen that in many cases, discount allowed is less than the sale value. The contention of Ld. A.R. of the assessee is that discount was allowed after reducing the scrap value from sale value where it was on account of such defect that it can fetch some scrap value. It is not a case of transaction with a related party and hence in the absence of any adverse corroborative material on record, it cannot be accepted that the assessee has allowed unreasonable/excessive discount that too to an unrelated party.

Dis allowance for the discount offered against defective materials supplied can not be sustained

Once the assessee had written off the amount receivable from the customer as bad debts in its books of account no dis allowance can be made on the ground that the assessee could not establish that the debts have become bad-  It has been held by the Hon’ble Apex Court in the case of TRF Ltd CIT that after 01.04.1989, it is not necessary for the assessee to establish that the debt in fact has become irrecoverable. It is also held that it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Hence, this objection of the A.O. is not valid that the assessee could not establish that the debts have become bad and therefore, deduction claimed by the assessee is not allowable. It is not the case of the A.O. that the assessee had not written off the debt in question in its books of accounts. Hence, by respectfully following this judgement of Honourable Apex Court, we hold that he dis allowance made by the A.O. and confirmed by the Ld. CIT(A) is not justified because the assessee has actually written off the debts in its books of account. We delete this dis allowance and the ground No.2 of the assessee’ s appeal stands allowed.

 M/s. Regent Granito India Ltd.Vs. ACIT, TDS Range

Decided by – ITAT Ahemdabad

I.T.A. No. 2908/Ahd/2009

(Assessment year- 2006- 07)

ACIT, TDS Range, Vs. M/s. Regent Granito India Ltd.

I.T.A.No. 3329/Ahd/2009

(Assessment year- 2006-07)

Decided on – 17.06.2011

O R D E R

PER SHRI A.K. GARODIA, AM:-

These are cross appeals by the assessee and the revenue which are directed against the order of Ld. CIT(A) X, Ahmedabad dated 01.09.2009 for the assessment year 2006-07. Since one issue involved is common, both these appeals were heard together and are being disposed of by this common order for the sake of convenience.

2. Ground No.1 raised by the assessee and the grounds raised by the revenue in its appeal are interconnected. A dis allowance was made by the A.O. of Rs.85,87,31 1/- on account of expenses claimed by the assessee in respect of damage and discount. Out of this, Ld. CIT(A) has deleted the dis allowance of Rs. 21,46,828/- i.e. to the extent of 25% of the total dis allowance and had confirmed the balance amount of dis allowance to the extent of Rs. 64,40,483/-. The revenue is in appeal for the deletion of part dis allowance whereas the assessee is in appeal for the confirmation of the part dis allowance.
3. The brief facts of the case regarding this issue till assessment stage are noted by the Ld. CIT(A) in para 4 of his order and hence para 4 of the order of Ld. CIT(A) is reproduced below:

“4. The first two grounds of appeal are directed against addition of Rs.85,57,311/- on account of rejection of appellate claim for damage or discount given to various parties. During the assessment proceedings the A.O. noted that the appellant had allowed discount to various parties out of sales made to them. He examined the details of these parties and the reasons for allowing such discount by the appellant. After analysing such detail he came to the conclusion that the discount allowed to 22 parties was not justified. He accordingly rejected the claim for such discount and added Rs. 85,87,311/- in the income of the appellant. The detailed analysis and the reasons for rejection of appellants claim of discount can be seen on pages 15 to 24 of the assessment order.”

4. Being aggrieved, the assessee carried the matter in appeal before CIT(A). Ld. CIT(A) has held that it would be appropriate that 25% of sale value may be allowed as discount in case of such 22 parties and accordingly, he directed the A.O. to restrict the discount up to 25% of the sales price in respect of these parties and where the assessee has itself allowed discount of less than 25%, it will not be disturbed while giving effect to his order. Now,the revenue is in appeal for the dis allowance deleted by CIT(A) whereas assessee is in further appeal before us for the dis allowance confirmed by the Ld. CIT(A).

5. Ld. D.R. supported the assessment order whereas it is submitted by the Ld. A.R. that no pat of dis allowance made by the A.O. should be confirmed and the whole of the disallowance should be deleted because such discount was allowed on the ground of business expediency as envisaged u/s 28 read with Section 37 of the Income tax Act, 1961. It is also submitted that when a manufacturer or supplier sells the goods, there are cases of complaint/non satisfaction by the recipient / traders. It is also submitted that in normal circumstances, as per accounting practice, such shortfall of amount billed as per sale bill, should be reduced from the sale by issuing credit note because there is no effective sale affected by the assessee in as much as goods received by the buyer were not as per the specification or were damaged. It is submitted that in ceramic tiles business, such damaged tiles have no scarp value at all and in fact, recipient / dealer had to incur cost to dispose it off. It is submitted that proper accounting practice should have been to issue credit note and reduce the value of this from the sales. It is submitted that because a different treatment has been given by the assessee in its books of accounts by debiting the same to damage/discount account, no adverse inference should be drawn and the entire dis allowance should be deleted. It is also submitted that in the subsequent years also, on similar basis, deduction for total damage and discount was claimed by the assessee as under:

 

Assessment year  

Amount (Rs.)

2007- 08 148.01 lacs
2008- 09 114.91 lacs
2009- 10 145.56 lacs
2010- 11 144.80 lacs
6. It is submitted that in assessment year 2007-08, the assessment was completed by the A.O. u/s 143(3), and he submitted a copy of the assessment order of this year dated 23.12.2009 and pointed out that as per this assessment order, there is no dis allowance on this account. It is submitted that for the assessment year 2008-09 also, assessment has been completed by the A.O. u/s 143(3) and he submitted a copy of the assessment order for this year also which is dated 24.11.2010 and pointed out that in this year also there is no dis allowance on this account. He pointed out that since no dis allowance was made by the A.O. himself in the subsequent yeas under identical facts, in the present year also, no dis allowance is justified.
7. We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that the assessee has submitted copies of assessment orders for two subsequent years i.e. assessment years 2007-08 and 2008-09. In both these years, the assessment has been completed by the A.O. u/s 143(3) and no dis allowance has been made by the A.O. on this account in these two subsequent years. As per the details submitted by the assessee before us, the assessee has claimed similar expenses in those two years also to the extent of Rs.148.01 lacs and Rs. 114.91 lacs respectively. Regarding further two subsequent years, being assessment years 2009-10 and 2010-11, it has been submitted by the Ld. A.R. before us that although no scrutiny assessment had been made in these two years, but there is no dis allowance on this account in those two years also. Ld. D.R. could not point out any difference in facts in the present year and the subsequent years and hence, we are of the considered opinion that the dis allowance made by the A.O. in the present year is not justified because similar claims of the assessee under similar facts have been accepted by the A.O. in the two subsequent years in the course of scrutiny assessments u/s 143(3). Moreover, we find force in this submission of the Ld. A.R. that the claim made by the assessee is this that discount was allowed by the assessee to the buyers because of business expediency. It is by now, a settled position of law that the A.O. cannot sit on the chair of businessman and decide as to how to run the business. It is for the assessee businessman to decide as to how much discount or credit to be given to which party and at what rate and what amount and under what circumstances. Unless the A.O. establishes that the claim of the assessee is bogus, he cannot reject such claim of the assessee. In the present case, the A.O. has merely doubted that the assessee is writing off the amount and giving credit to the customers to reduce its profit but the A.O. could not corroborate the same by bringing on record at least some corroborative evidence. It is also to be noted that it is not a case of allowing discount simplicitor. Discounts were allowed on account of breakage or defects in quality. If we purchase some thing & when the goods are delivered to our house and if we find that the goods delivered is in broken condition or is not of agreed quality, we will not settle for anything less than replacement of such broken / defective goods by a proper goods in proper condition and quality or to refuse the goods and return of price if already paid or nonpayment. Broken tiles have no scrap value and in fact, some cost has to be incurred for its disposal. As per the details noted by the A.O. on pages 4 – 5 of the assessment order, it is seen that in many cases, discount allowed is less than the sale value. The contention of Ld. A.R. of the assessee is that discount was allowed after reducing the scrap value from sale value where it was on account of such defect that it can fetch some scrap value. It is not a case of transaction with a related party and hence in the absence of any adverse corroborative material on record, it cannot be accepted that the assessee has allowed unreasonable/excessive discount that too to an unrelated party.
8. In view of above discussion and particularly in the light of this fact that the A.O. himself has allowed similar claims of the assessee in full in subsequent two years, we are of the considered opinion that no part of dis allowance made by the A.O. is justified. Hence, we delete the entire dis allowance made by the A.O. on this account. Accordingly, ground No. 1 of the assessee’ s appeal is allowed and grounds raised by the revenue are rejected. There is no other issue raised by the revenue.
9. The assessee has raised one more ground i.e. ground No.2 regarding confirmation by Ld. CIT(A) of addition made by the A.O. by way of dis allowance of the claim of the assessee regarding write off of bad debts of Rs. 76,40,471/-.

10. The brief facts of the case regarding this issue till assessment stage are noted by Ld. CIT(A) in para 5 of his order which is reproduced below:

“The third and fourth grounds of appeal are directed against the dis allowance of appellants claim for deduction for bad debts amounting to Rs.76,40,471/-. During the assessment proceedings, the A.O. analysed the claim of the appellant with regard to bad debt in respect of various parties. He issued various show cause notices to the appellant and obtained his explanation with regard to malleability of such claim in terns of the provisions of Sec. 36(1)(vii) of the Act. After such detailed analysis he found that the appellants claim for bad debt in respect of 44 parties did not fulfil the criteria as laid down in section 36(1)(vii) of the Act and the guidelines laid down by the Honourable jurisdictional High Court of Gujarat for allowance of such claim in the case of Dhall Enterprises Engineers Pvt. Ltd. Vs CIT 207 CTR 729. He accordingly disallowed the appellants claim for such deduction amounting to Rs.76,40,47 1/- and added the same in its income for the relevant period. The A.O.’s analysis in this regard and the findings can be seen on pages 25 to 47 of the assessment order.”

11. Being aggrieved, the assessee carried the matter in appeal before CIT(A) but without success and now, the assessee is in further appeal before us.

12. Ld. A.R. of the assessee placed reliance on the judgment of Hon’ble Apex Court rendered in the case of TRF Ltd CIT as reported in 323 ITR 397. Ld. D.R. supported the orders of authorities below.

13. We have considered the rival submissions, gone through the material on record and the orders of authorities below and the judgement of the Hon’ble Apex Court cited by the Ld. A.R. In the present case, the objection of the A.O. is that the assessee could not establish that the debt in question has become bad. The specific objection of the A.O. is this that only debit of the amount in the books of accounts is not sufficient reason to claim the bad debt. Now, we have the benefit of the judgement of Honourable Apex Court rendered in the case of TRF Ltd (supra). In that case, it has been held by the Honourable Apex Court that after 01.04.1989, it is not necessary for the assessee to establish that the debt in fact has become irrecoverable. It is also held that it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Hence, this objection of the A.O. is not valid that the assessee could not establish that the debts have become bad and therefore, deduction claimed by the assessee is not allowable. It is not the case of the A.O. that the assessee had not written off the debt in question in its books of accounts. Hence, by respectfully following this judgement of Honourable Apex Court, we hold that he dis allowance made by the A.O. and confirmed by the Ld. CIT(A) is not justified because the assessee has actually written off the debts in its books of account. We delete this dis allowance and the ground No. 2 of the assessee’ s appeal stands allowed.

14. In the result, appeal of the assessee is allowed and the appeal of the revenue is dismissed.

15. Order pronounced in the open court on 17th June 2011.

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Category : Income Tax (25041)
Type : Judiciary (9899)
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