INCOME TAX APPELLATE TRIBUNAL
Whether in the facts and circumstances of the case, the Commissioner of Income tax (Appeals) has erred in law and facts in deleting the disallowances of Rs.707376/- made by the A.O. on account of discount of sale ignoring the fact that said discount was neither supported by any documentary evidences nor it was supported by circumstantial evidences.
Additional Commissioner of Income Tax, Aayakar Bhawan, Range-2,Meerut. Vs. M/s Pyarelal Coir Products Ltd., Bhola Road, Multan Nagar, Meerut. PAN: AABCP1157E.(Appellant) (Responden)
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH ‘F’: NEW DELHI
BEFORE SHRI G.D.AGRAWAL, VICE PRESIDENT AND
SHRI RAJPAL YADAV, JUDICIAL MEMBER
Assessment Year: 2006-07
Additional Commissioner of Income Tax,
Aayakar Bhawan, Range-2,
M/s Pyarelal Coir Products Ltd.,
Bhola Road, Multan Nagar,
Appellant by: Shri J.S.Minshas, DR.
Respondent by: Shri Sunil Kumar, FCA.
PER G.D.AGRAWAL, VP:
This appeal by the Revenue is directed against the order of learned CIT(A), Meerut dated 3rd August, 2011 for the AY 2006-07.
2. Ground No.1 raised by the Revenue reads as under:-
“Whether in the facts and circumstances of the case, the Commissioner of Income tax (Appeals) has erred in law and facts in deleting the disallowances of Rs.707376/- made by the A.O. on account of discount of sale ignoring the fact that said discount was neither supported by any documentary evidences nor it was supported by circumstantial evidences.”
3. At the time of hearing before us, it is stated by the learned DR that the assessee derives income from manufacturing of PU, coir and rubber foam products. During the year under consideration, the assessee gave discount at the rate of 3.5% to M/s Capital Power System and at the rate of 3.3% to M/s Capital Meters. That the assessee made sales to at least 50 other parties exceeding `1 lakh and no discount was given to the said parties. The net profit of the assessee is only 0.27%. In the above circumstances, the Assessing Officer rightly disallowed the discount paid to only two parties, viz., M/s Capital Power System and M/s Capital Meters. That the learned CIT(A) deleted the disallowance without properly appreciating the facts.
4. The learned counsel for the assessee stated that sales to M/s Capital Power System and M/s Capital Meters were in bulk i.e. `94,54,408/- and `1,14,03,519/- respectively. That sales made to other parties were much less as compared to these two parties. That the total sales of the assessee were `4.80 crores while sales made to these two parties were `2.09 crores and remaining sale of `2.71 crores was made to more than 50 parties. That no credit was allowed to these two parties and, in fact, money was received in advance. Therefore, discount was allowed on account of bulk purchase and cash payment. That the genuineness of discount is not doubted. The discount was for the purpose of business and, therefore, the learned CIT(A) rightly allowed the same.
5. We have carefully considered the arguments of both the sides and perused the material placed before us. We find that learned CIT(A) allowed the relief with the following finding:-
“4.3 I have considered facts, AO's order and AR’s submissions carefully. It is seen that of the total sales of PU Foam Unit, Meerut, the sales made to the two parties to whom the discounts were allowed amounted to 43.43%. Thus, there is no doubt that these two parties were the bulk purchasers of assessee’s product. The AO's reference to gross profit rate and net profit rate vis-a-vis the rates of discount allowed, in my considered view, is not relevant.
As argued by the AR, the gross profit would have been still lesser and net profit negative if these sales to the two parties would not have been made. On these facts, the prudence and business expediency of the assessee for allowing the discount cannot be questioned. On similar facts, the Hon’ble Delhi High Court in United Exports vs. CIT (2009), 185 Taxman 374 has held the same view. The addition made by the AO is deleted.”
6. After considering the arguments of both the sides and the facts of the case, we entirely agree with the above finding of learned CIT(A). The learned Assessing Officer disallowed the commission mainly on two grounds:-
(i) that similar commission is not paid to other parties and
(ii) commission paid is much more than the net profit. The assessee has explained before the learned CIT(A) as well as before us that the sales made to these two parties were in bulk which were almost 43% of the total sales. Moreover, no credit facility was allowed to them. Thus, their case is clearly distinguishable from other buyers. So far as net profit rate is concerned, it is wholly irrelevant for the allowability of the discount. The genuineness of the discount is not in dispute. In our opinion, the discount allowed to these two parties was clearly for the purpose of business. We, therefore, uphold the order of learned CIT(A) on this point.
7. Ground No.2 of the Revenue’s appeal reads as under:-
“Whether in the facts and circumstances of the case, the ld.Commissioner of Income Tax (Appeals) has erred in law and facts in deleting the addition of Rs.3,82,278/- made by the A.O. on account of bad debts ignoring the facts that the debtors were Government Department and debt was always recoverable. Reliance is placed on the judgment in the case of South Indian Surgical Co.Ltd. Vs. Asstt.CIT (2006) reported in 287 ITR 62 (Mad) by the Hon’ble Madras High Court.”
8. Ground No.3 is only argumentative in nature and is in support of above ground No.2.
9. With reference to these grounds, it is stated by the learned DR that during the year under consideration, the assessee claimed deduction for bad debts in respect of amount receivable from
Maharashtra State Road Transport Corporation (hereinafter referred to as MSRTC), the details of which is as under:-
M.S.R.T.C. Aurangabad Rs.60,679.00
M.S.R.T.C. Nagpur Rs.61,635.47
M.S.R.T.C. Poona Rs.2,59,964.22
10. He stated that the debtor is a state government undertaking and it cannot be believed that the amount receivable from the state government undertaking has become bad. He, therefore, stated that the Assessing Officer rightly disallowed the deduction claimed by the assessee as bad debt.
11. The learned counsel for the assessee, on the other hand, stated that the assessee is making regular supplies to various depots of MSRTC. That several times, they make the deduction from the bills issued by the assessee on account of quality of the goods supplied, shortage in the quantity and some times, even delay in the supply of goods. That the above sum was outstanding with various depots of MSRTC since more than five years. When the assessee could not recover the said amounts, the same were written off in the books of account. That as per the decision of Hon’ble Apex Court in the case of T.R.F.Ltd. Vs. CIT – (2010) 323 ITR 397, for allowing the deduction of bad debts, the writing off in the assessee’s books of account is essential and that the assessee need not prove that the debt has become bad. He stated that the above decision of Hon’ble Apex Court would be squarely applicable to the facts of the assessee’s case because the assessee was not able to recover this amount since past many years and then only, the same was written off in the books of account. He, therefore, submitted that the order of learned CIT(A) on
this point may be sustained.
12. We have carefully considered the arguments of both the sides and perused the material placed before us. Hon’ble Apex Court in the case of T.R.F. Ltd. (supra) held as under:-
“After the amendment of section 36(1)(vii) of the Incometax Act, 1961, with effect from April 1, 1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable : it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee.”
13. Thus, as per the decision of Hon’ble Apex Court, for claiming the deduction of bad debts, the assessee need not prove that the debt has actually become bad. Mere writing off in the books of account is enough. In the case under appeal before us, the assessee has explained that the above amounts were outstanding since many years from various depots of MSRTC and they were not paying the amount because perhaps they have deducted these amounts from the assessee’s bills for various reasons, viz., defect in the material supplied, variation in the quantity or delay in supply of goods. Whatever may be the reasons for deduction or non-payment, the fact remains that the assessee was unable to recover the amount from the above depots of MSRTC since long period and thereafter, the assessee wrote back the amount in its books of account. Therefore, in our opinion, the decision of Hon’ble Apex Court in the case of T.R.F. Ltd. (supra) would be squarely applicable. Respectfully following the same, we uphold the order of learned CIT(A) on this point.
14. In the result, the appeal of the Revenue is dismissed.
Decision pronounced in the open Court on 31st August, 2012.
(RAJPAL YADAV) (G.D.AGRAWAL)
JUDICIAL MEMBER VICE PRESIDENT
Copy forwarded to: -
1. Appellant: Additional Commissioner of Income Tax, Aayakar Bhawan, Range-2, Meerut.
2. Respondent: M/s Pyarelal Coir Products Ltd., Bhola Road, Multan Nagar, Meerut.
5. DR, ITAT