VST MOTOR LTD.,CHENNAI vs. ACIT CORPORATE CIRCLE 3(2), CHENNAI

आदेश / O R D E R

PER MANISH BORAD, AM: ITA Nos.968 & 969/Chny/2018 filed by the assessee namely M/s.VST

Motors Ltd., for AYs 2009-10 & AY 2011-12 are directed against the

separate orders of the Commissioner of Income Tax (Appeals)-13, Chennai,

evenly dated 20.09.2017, and ITA No.970/Chny/2018 is filed by another

assessee namely M/s.VST Auto Agency Ltd., for AY 2010-11 is directed

against the order of the Commissioner of Income Tax (Appeals)-13,

Chennai, dated 21.09.2017 and ITA No.19/Chny/2021 is filed by the

Revenue pertaining to AY 2010-11 is directed against the order of the

Commissioner of Income Tax (Appeals)-13, Chennai, dated 22.09.2020 and

pertains to assessment year 2010-11.

relates to same group of assessee’s, at the request of both the parties,

these appeals were heard together and are being disposed off by way of

this common order for the sake of convenience and brevity.

ITA Nos.968-970/Chny/2018 & ITA No.19/Chny/2021 :: 3 ::

No.19/Chny/2021 is delayed by 61 days. An affidavit has been filed by

the Revenue stating the reasons for the said delay and the application has

been made to condone the delay. On perusal of the affidavit, we find that

said delay in filing of appeal is mainly due to lockdown imposed by the

Govt. on account of spread of Covid-19 infections and which needs to be

excluded for computing limitation in view of judgment of the Hon’ble

Supreme Court in Miscellaneous Petition No.21 of 2022 in suo motu Writ

Petition (C) No.3 of 2020 and if the period of delay is covered within the

period specified in the order of the Apex Court , then same needs to be

condoned in view of specific problem faced by the public on account of

Covid-19 pandemic.

3.1 The learned AR, on the other hand, fairly agreed that delay may be

condoned in the interest of justice.

3.2 Having heard both sides and considered reasons given by the learned

DR, we find that the Hon’ble Supreme Court in Miscellaneous Petition No.21

of 2022 in suo motu Writ Petition (C) No.3 of 2020, has extended limitation

applicable to all proceedings in respect of courts and tribunals across the

country on account of spread of Covid-19 infections w.e.f. 15.03.2020, till

28.02.2022. We note that delay noticed by the Registry pertains to the

period of general exemption provided by the Hon'ble Supreme Court

extending limitation period applicable for all proceedings before Courts and

ITA Nos.968-970/Chny/2018 & ITA No.19/Chny/2021

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Tribunals and thus, considering facts and circumstances of the case and

also in the interest of natural justice, we condone the delay of 61 days in

filing of the appeal by the Revenue.

No.968/Chny/2018 for the AY 2009-10:

2.1. The Commissioner of Income tax (Appeals) ought to have appreciated that as per Section 14A only the actual expenditure incurred in relation to exempted income, which is included in the total operational expenditure, would be disallowed under section 14A.

2.2. The Commissioner of Income tax (Appeals) ought to have appreciated that the dividend income were earned on the investments made in the earlier years out of share capital and reserves and surplus. No part of the interest expenditure could be correlated to the earning of the exempt income.

3.2. The Commissioner of Income tax (Appeals) ought to have appreciated that the selling price of the motor vehicles to the customer is fixed by the Principal/Tata Motors.

3.2. The Commissioner of Income tax (Appeals) ought to have appreciated that in order to attract more customers from other competitors, Appellant provided discounts based on the market conditions to the purchaser by way of (a) cash discount (b) Accessories discount charges by providing additional accessories (c) Insurance discount given on the insurance premium.

3.3 The Commissioner of Income tax ought to have appreciated that during this financial year assessee passed on the discount to 13,450 customers by way of credit note to the extent of Rs.23,89,45,387/- which was received from Tata Motors Ltd.

3.4 The Commissioner of Income tax (Appeals) ought to have appreciated that the discount was passed on by way of A/C payee cheques amounting to Rs.1,50,89,0687- to the customers who had paid the full amount, and for customers who had paid lesser amount, to the extent of credit note value, assessee had passed the credit note and adjusted their account.

3.5 The Commissioner of Income tax (Appeals) ought to have appreciated that all the expenses have been incurred to promote the sale of products by the company in the course of their business. Discounts so offered have been accounted in the books of accounts and the amount received by the assessee from the customers from sale of products is only net of these discounts offered to the client.

ITA Nos.968-970/Chny/2018 & ITA No.19/Chny/2021

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4.1 The Commissioner of Income tax (Appeals) ought to have appreciated that assessee gets reimbursement of service charges from the principal only in respect of trucks and not in respect of cars.

4.2 The Commissioner of Income tax (Appeals) ought to have appreciated that the PDI/Free service charges paid to sister concern consists of payments in respect of trucks and cars hence the addition is unwarranted.

5.1 The Commissioner of Income tax (Appeals) ought to have appreciated that the expenses were incurred during the year in the course of business and hence the disallowance is unwarranted.

No.969/Chny/2018 for the AY 2011-12:

2.1. The Commissioner of Income tax (Appeals) ought to have appreciated that as per Section 14A only the actual expenditure incurred in relation to exempted income, which is included in the total operational expenditure, would be disallowed under section 14A.

2.2. The Commissioner of Income tax (Appeals) ought to have appreciated that the dividend income were earned on the investments made in the earlier years out of share capital and reserves and surplus. No part of the interest expenditure could be correlated to the earning of the exempt income.

2.3 The Commissioner of Income tax (Appeals) ought to have appreciated that though expenditures were incurred with reference to the business activities of the assessee in no way it is related to the investment activities.

2.4 The Commissioner of Income tax (Appeals) ought to have appreciated that he himself in the computation has held that the amount of expenditure directly attributable to earning of exempted income is Nil. He has only computed disallowance of interest and other expenses which is not directly attributable to earning of dividend income.

3.1 The Commissioner of Income tax (Appeals) ought to have appreciated that during the current financial year assessee offered discount to the customers to the extent of

ITA Nos.968-970/Chny/2018 & ITA No.19/Chny/2021

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Rs.35,28,86,440/- out of which TATA Motors reimbursed their share of Rs.32,51,70,846/-.

3.2 The Commissioner of Income Tax (Appeals) ought to have appreciated that the discount has actually been granted and only the net income after the discount was received on sale of vehicles and only such net income is taxable.

3.3 The Commissioner of Income tax (Appeals) ought to have appreciated that the total margin on sale of 21,443 vehicles is Rs.32,52,17,635/- and the discount passed on from assessee's margin is Rs.2,77,15,594/- which works out to 8.52% of margin only which is a allowable reasonable normal business expenditure.

3.4 The Commissioner of Income tax (Appeals) ought to have appreciated that all the expenses have been incurred to promote the sale of products by the company in the course of their business. Discounts so offered have been accounted in the books of accounts and the amount recovered by assessee from the customers from sale of products is only net of these discounts offered to the client.

4.1 The Commissioner of Income tax (Appeals) erred in holding that the payment to Tata Motors Ltd is in the nature of professional and technical services and hence provisions of sec.40(a)(ia) are attracted.

4.2 The Commissioner of Income tax (Appeals) ought to have appreciated that M/s.Tata motors Ltd has developed a Web enabled software in Siebel in which all marketing related information can be stored for which charges are collected based on the number of vehicles sold by the dealers

4.3 The Commissioner of Income tax (Appeals) ought to have appreciated that payment is only in the nature of sharing the expenses and does not constitute fee for professional and technical services and hence the provision of section 40(a)(ia) are not attracted.

4.4 The Commissioner of Income tax (Appeals) ought to have appreciated that as per 3rd proviso to sec 40(a)(ia) where an assessee fails to deduct the whole or any part of the tax on any such sum, but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.

No.970/Chny/2018 for the AY 2010-11:

ITA Nos.968-970/Chny/2018 & ITA No.19/Chny/2021 :: 7 ::

2.1 The Commissioner of Income tax (Appeals) ought to have appreciated that only a sum of Rs.1,07,62,085/- out of the total sum of Rs.1,64,96,450/- alone represents the discount paid on vehicles sold to the customers. The balance amount represents the payment made to sister concern and other dealers towards warranty and free service charges, expenses paid towards vehicle demonstration and discount paid to customers who have purchased spares parts.

2.2 The Commissioner of Income tax (Appeals) ought to have appreciated that in order to attract more customers from other competitors, Tata Motors Ltd use to announce various discount schemes for each model based on the market conditions to the purchaser by way of cash discount, Accessories discount charges by providing additional accessories, Insurance discount given on the insurance premium.

2.3 The Commissioner of Income tax (Appeals) ought to have appreciated that during the relevant financial year the appellant passed on the discount by way of credit note to the extent of Rs.1,04,18,099/- which was received from Tata Motors Ltd.

2.4 The Commissioner of Income tax (Appeals) ought to have appreciated that all the expenses have been incurred to promote the sale of products by the appellant in the course of their business. Discounts so offered have been accounted in the books of accounts and the amount recovered by the appellant from customers from sale of product is only net of these discounts offered to the client.

No.19/Chny/2021 for the AY 2010-11:

& ITA No.19/Chny/2021 relates to assessee namely M/s.VST Motor Ltd.,

and ITA No.970/Chny/2018 relates to another assessee namely M/s.VST

Auto Agency Ltd. It was brought to our notice that M/s.VST Auto Agency

Ltd., has been amalgamated with M/s.VST Motor Ltd.

ITA Nos.968-970/Chny/2018 & ITA No.19/Chny/2021 :: 8 ::

Ltd., for AY 2009-10.

in the business of purchase and sale of trucks and motor cars and its spare

parts. Income of Rs.5,44,68,360/- declared in the return filed on

29.09.2009 for the AY 2009-10. Case selected for scrutiny through CASS

followed by serving of notice u/s.143(2) & 143(1) of the Income Tax Act,

1961 (in short “the Act"). Ld.AO carried out the assessment proceedings

considering the submissions filed by the assessee, made disallowances

under various heads which mainly included disallowance of 15% of the total

discount offered during the year and accordingly, assessed the income at

Rs.9,12,24,765/-.

but failed to succeed on any of the issues.

u/s.14A of the Act at Rs.66,730/-. At the outset, the Ld.Counsel for the

assessee did not press this ground due to smallness of the amount and

hence, the same is dismissed as not pressed and the disallowance u/s.14A

of the Act, at Rs.66,730/- is confirmed and Ground No.2 raised by the

assessee is dismissed.

ITA Nos.968-970/Chny/2018 & ITA No.19/Chny/2021 :: 9 ::

service charges not recovered at Rs.2,21,635/-. We notice that the

assessee received Rs.23,08,676/- as service charges, but paid

Rs.25,30,311/- as service charges to its sister concerns. Both the lower

authorities disallowed the excess amount paid at Rs.2,21,635/- on the

ground that no prudent businessmen would disburse the entire receipts

towards expenses. We do not find any merits in the observations of the

Ld.CIT(A) for the reason that these transactions have been carried out in

regular course of business. No defect has been pointed out in the

documentary evidence maintained and filed by the assessee. Looking to the

quantum of turnover achieved by the assessee and regular procedures

followed for carrying out such type of business, we cannot ignore the

possibility of excess payment towards service charges as there are many

minor repairs, replacement of damaged parts, etc., which are to be carried

out by the retailer at their cost. It is also brought to our notice that the

assessee gets reimbursement of PDI service charges from the principal only

in respect of trucks, but no such reimbursement is granted for cars.

Considering these facts, we delete the addition of Rs.2,21,635/- made

towards free service charges not recovered. Ground No.4 raised by the

assessee is allowed.

advertisement expenses of Rs.2,53,311/-. At the request of the Ld.Counsel

for the assessee requested for not pressing this ground for the reason that

ITA Nos.968-970/Chny/2018 & ITA No.19/Chny/2021 :: 10 ::

it is related to next year. We therefore dismiss Ground No.5 raised by the

assessee as not pressed.

the discount/subvention paid debited in the P & L A/c. We notice that

similar issue has also been raised by one same assessee for the AY 2011-

12 in ITA No.969/Chny/2018 and for the AY 2010-11. Revenue has filed

the appeal rising the same issue in ITA No.19/Chny/2021. We also

notice that almost similar issue has also raised by another group assessee

i.e. M/s.VST Auto Agency Ltd., for the AY 2010-11 in ITA

No.970/Chny/2018. Since the issues are common, the same are being

adjudicated together.

price of the motor vehicles is fixed by the principal i.e. M/s.Tata Motors Ltd.

In order to attract more customers from other competitors, M/s.Tata Motors

Ltd., use to announce various discount schemes for each model based on

the market conditions for its customers by way of cash discount,

accessories discount, charges, insurance discount, etc. The sale price at

which various motor vehicle is to be sold by the distributor, is fixed by

manufacturer by way of MRP and such discounts announced by M/s.Tata

Motors Ltd., are passed on by the assessee to its customers.

company debited a sum of Rs.24,03,79,590/- as discount/subvention

ITA Nos.968-970/Chny/2018 & ITA No.19/Chny/2021 :: 11 ::

expenditure. The assessee was asked to explain said discount. It was

submitted that such discount constitutes various items in which in some

cases discount is given outrately in the bills, in some cases, out of the sum

received towards sale, the discount portion is given back to the assessee

through proper banking channel. It is also stated that against the said total

claim of discount, assessee has credited income received from M/s.Tata

Motors Ltd., towards discount to be offered to the customers at

Rs.11,75,65,765/-. However, for lack of evidences, confirmation, terms &

conditions, Ld.AO made an ad hoc disallowance @15% of the total discount

of Rs.24,03,79,590/- and disallowed the expenditure at Rs.3,60,56,939/-.

i.e. M/s.VST Motors Ltd., has debited P & L A/c of Rs.30,78,73,067/-. The

amount passed by the M/s.Tata Motors Ltd., towards discount expenses

was Rs.17,92,82,676/-. For the remaining amount of discount expenditure,

Ld.AO was not satisfied with the details filed by the assessee and he

completed the assessment disallowing 15% of the total amount of discount

and addition was made at Rs.4,61,80,960/-.

discount passed by M/s.Tata Motors Ltd., to the assessee for being further

passed on to the customer’s amounts to Rs.3,251,70,846/-, but the

discount debited in the P&L A/c is Rs.35,28,86,440/-. The AO noticed that

the assessee has passed the additional amount of discount at

Rs.2,77,15,594/-. The AO asked the assessee to explain with evidence the

ITA Nos.968-970/Chny/2018 & ITA No.19/Chny/2021 :: 12 ::

genuineness of the claim. However, for lack of sufficient evidences, Ld.AO

disallowed the claim of discount expenditure at Rs.2,77,15,594/-.

AY 2010-11, the disallowance has not been made towards discount

expenditure, but Ld.AO examined the claim of vehicles sales expenses at

Rs.1,64,96,450/-, but for lack of necessary details placed before Ld.AO

disallowance @15% was made and sum of Rs.24,74,468/- was disallowed.

M/s.VST Motor Ltd. is concerned, the disallowance made for the AYs 2009-

10 & 2011-12 was confirmed and for the AY 2010-11, the disallowance is

deleted by the Ld.CIT(A). However, in the case of M/s.VST Auto Agency

Ltd., disallowance has been confirmed by the Ld.CIT(A).

against the findings of the Ld.CIT(A).

the clients/customers were given. The invoice value offered as income and

amount of discount offered by M/s.Tata Motors Ltd., reduced from

sales/expenses. Ld.AO has doubted expenses like insurance incurred and

actually paid by the assessee under discount scheme stated that difference

between the cost and amount realized is the discount passed on to the

clients. Reference was also made to the Paper Book dated 22.04.2022

containing the details of discount and for test check purpose some of the

ITA Nos.968-970/Chny/2018 & ITA No.19/Chny/2021 :: 13 ::

copies of tax invoice, debit note, bank receipt, cash receipt, bank payment

credit notes were filed for FY 2009-10. It was further submitted that books

of accounts of the assessee are duly audited. Ld.AO has not filed any

discrepancy in such books and therefore, such ad hoc disallowance should

be deleted. It was also submitted that for the AY 2010-11 similar

disallowance has been deleted by the Ld.CIT(A) who has dealt the issue in

detail and held that the assessee has maintained all necessary details to

explain the said expenditure. On the other hand, the Ld.DR submitted that

the assessee has failed to file proper details to prove the claim of discount

expenditure and there is no proper and regular system for passing such

discounts and even the assessee failed to file any confirmation for passing

such huge discounts. It was also submitted that the discounts are normally

passed on by the M/s.Tata Motors Ltd., to the assessee which is to be

further passed on to its customers and to this extent, there is no dispute.

However, for the discount passed, over and above, the amount received

from M/s.Tata Motors Ltd., needs to be properly documented. Ld.AO is fair

enough to make ad hoc disallowance and the same should be confirmed.

record placed before us. The common issue regarding disallowance of

discount expenditure /vehicles sales expenses is raised before us by the

assessee namely M/s.VST Motor Ltd., for the AYs 2009-10 & 2011-12 by

another assessee M/s.VST Auto Agency Ltd., for the AY 2010-11 and by the

Revenue in the case of M/s.VST Motor Ltd., for the AY 2010-11.

ITA Nos.968-970/Chny/2018 & ITA No.19/Chny/2021 :: 14 ::

but we find that the said disallowance can be bifurcated into two categories

(i) disallowance out of discount expenditure and, (ii) disallowance out of

vehicle sales expenses.

disallowance of discount expenses, the same has taken place only in the

case of the assessee namely M/s.VST Motors Ltd. In this type of

disallowance which is emanating out the discount expenses booked by the

assessee for the AYs 2009-10 & 2010-11. Ld.AO made an ad hoc

disallowance of 15% of the total amount of discount claimed by the

assessee and for the AY 2011-12, Ld.AO disallowed only the amount of

discount offered by the assessee in excess of the amount received by it

from M/s.Tata Motors Ltd.

of discount claimed as an expenditure i.e. netting off against the Revenue

stood at Rs.24,03,79,590/-, Rs.30,78,73,067/- & Rs.35,28,86,440/-

respectively.

discounts have been offered to the customers by way of credit notes. It is

further submitted that the assessee sell the trucks and motor vehicles of

M/s.Tata Motors Ltd., which is principal of the assessee. Goods are sold at

the MRP fixed by the manufacture i.e. M/s.Tata Motors Ltd. Further, in order

ITA Nos.968-970/Chny/2018 & ITA No.19/Chny/2021 :: 15 ::

to promote the sales, various discount schemes for each model based on

the market conditions are floated by the principal i.e. M/s.Tata Motors Ltd.,

and such discounts are offered by way of cash discount, accessory discount,

additional accessories, insurance discount, loyalty scheme, exchange

scheme, corporate scheme, etc. On one end, the principal charges the

assessee with MRP of the vehicle and on the other hand, for the discounts

offered by M/s.Tata Motors Ltd., the credit notes are given. Ld.AO while

examining these details has commonly observed that the assessee has

passed discount over and above the discount schemes offered by M/s.Tata

Motors Ltd., and for such excess amount booked as an expenditure,

assessee has unable to provide proper details. During the course of

assessment proceedings, for the AY 2009-10, Ld.AO issued letters to some

of the customers, but in some cases, there was no satisfactory reply. For

better understanding, we will reproduce the contents of the replies given

by some of the customers.

As the assessee has not maintained any evidence to substantiate the credit notes stated to be given to its clients, it is pertinent to note that the claim made by the assessee could not be considered favourably. Even though the assessee could not able to file the evidences, letters were sent to 200 numbers of the clients of the assessee asking them to file the evidences in the form of receipts for credit notes / discounts / cheque obtained from the assessee. Out; of this, 80 letters returned unserved and 120 letters served properly. But only 4 customers filed their letters along with ledger copies. Some of the letters were also sent to the clients who have received the credit note / discount through cheque from the assessee also not responded to the same. The replies of the customers who have responded is as follows: Sl.No. Name of the Amount as Amount Remarks customer per confirmation offered as letters furnished per confirmation by the letters Assessee furnished by company (after customers discount) and directly in as per books of response to

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account of the this office letter assessee (VST (CUSTOMER) MOTORS LTD) 1 M/s.Sri Total cost of Rs. 292104/- The customer has clearly Bhuvaneswari vehicle 292104 mentioned in its letter dt. Tiles, Chennai (-) Discount 27.07.2011 that expenses 12500 with regard to registration, road tax and insurance, have been met only by it. It is claimed by the Assessee company that it has been offered as discount to the customer. However, the customer has not mentioned about receipt of any discount in the above letter. 2 Mr.Prem Kumar, Total Cost Rs.783000/- The customer has clearly Chennai 783000 mentioned in his letter (-) Discount dated 31.10.2011 that he 75000 was not in receipt of any discount on the purchase of the said vehicle. It is claimed by the Assessee company that it has been offered as discount to the customer. However, the customer has not mentioned about receipt of any discount in the details furnished. 3 Dr.D.Balaraman, Total cost Rs. 1961 560/- The customer has clearly Chennai 19615160 mentioned in his letter (-) Discount dated 31.10.2011 that he 50060 was not in receipt of any discount on the purchase of the said vehicle. It is claimed by the Assessee company that it has been offered as discount to the customer. However, the customer has not mentioned . about receipt of any discount in the details furnished. 4 M/s.Amarjyothi Total cost Rs. 1376227 There is no discount offered Carrying Corpn. 1376227 for it also whereas it is Chennai (-) Discount evidenced from its letter 77680 dated 12.10.2011. 5 Mrs.M.Aruna Total cost Rs.708912 The customer has clearly 708912 mentioned in its letter dt. (-) Discount 07.11.2011 that expenses 102258 with regard to registration, road tax and insurance, have been met only by it. It is claimed by the Assessee

ITA Nos.968-970/Chny/2018 & ITA No.19/Chny/2021 :: 17 ::

company that it has been offered as discount to the customer. However, the customer has not mentioned about receipt of any discount in the above letter.

has only mentioned the details about the discounts offered by way of giving

cheque to the customers or by way of depositing the insurance on its behalf.

The overall submission of the Ld.Counsel for the assessee, in this regard,

can be summarized in the following manner:

(a) The assessee company stated clearly that the discount offered to the customers is nothing but corresponding discount offered by the manufacturer on their sale price either by ways of Scheme discount or by purchase invoice. In this case the manufacturer is Nl/s. Tata Motors Limited.

(b) The credit notes are passed in Schemes where discounts were announced by M/s.Tata Motors Ltd. (Manufacturer). These discounts are passed on to customer at the time of sale of vehicle by way of credit notes. The balance sum of sale value only collected from the customer. Later, these discounts got reimbursed by M/s.Tata Motors Ltd., upon furnishing all the documents and approvals. Passing of discounts by way of Credit notes is a procedural issue.

(c) The assessee company claims that discounts are passed on to the customers from year to year by following the same procedure of passing credit note separately and got reimbursed from the manufacturer up to assessment year 2011-12. From the Assessment Year 2012-13, the assessee-company started passing these discounts in the sale invoices itself. Passing of discounts by way of Credit notes is a procedural issue.

(d) Further, the assessee-company claims that some discounts are passed on to the customers from its portion of margin.

(e) Hence, the assessee-company claims that the discount passed are genuine.

submissions and made 15% ad hoc disallowance for the AYs 2009-10 &

2010-11. However, for the AY 2011-12, it was not ad hoc disallowance,

but the excess discount offered by the assessee was disallowed in total. In

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the impugned order for the AY 2011-12, the Ld.CIT(A) has categorically

dealt with this issue by observing as follows:

The details filed by the assessee-company are carefully examined and the issue is decided as under:-

(i) The analysis of discounts reimbursed by M/s. Tata Motors Limited (Manufacturer) and the discount passed on to the customers, reveals that the assessee-company had accounted discounts passed on to the customers by way of credit notes over and above the discounts reimbursed by M/s. Tata Motors Limited. The details are extracted as under:

Vehicles Sold Nos. 21,443 Discounts reimbursed by Tata Motors Ltd and offered as income. by way of Credit note - Scheme discount Rs. 19,59,18,176 by way of Discount in Purchase Invoice Rs. 12,92,52,670

Total Discounts reimbursed by Tata Motors Ltd and Rs. 32,51,70,846 offered as income Discount Paid to Customers by way of Credit Note 35,28,86,440 The total discount offered to customers during AY 35,28,86,440 2011-12 (by Credit Note) Tata Motors Ltd. share 32,51,70,846 VST Motors Ltd. share 2,77,15,594 35,28,86,440

From the above, it is clear that the assessee company has passed on discount amount of Rs.2,77,15,594/- over and above the reimbursement by the Manufacturer.

(ii) Passing of discount from its margin to the customers is remote since the profit margin in this industry itself is very thin which is evident from Form-SCO report, i.e., 4.94% (Gross Profit/Turnover) and 0.55%(Net Profit/Turnover).

(iii) The assessee-company has not clearly proved in each and every case about the discount passed on to the customer from its profit margin.

(iv) The assessee-company admits its inability to furnish the confirmation from all the parties since the number of vehicles sold were huge.

(v) The assessee-company failed to take signatures from customers in all the cases at the time of sale in the said credit notes.

(vi) Considering the quantum of vehicles sold during the year (more than 21000) and the assessee-company's inability to prove in each of the case where it had parted away its profit margin as discount to the customers, it is unlikely that the assessee-company could have passed such discounts out of its profit margin, over and above the reimbursement.

Under these circumstances, the assessee-company's contention that it had passed on the discounts over and above what the Manufacturer, M/s. Tata Motors Limited had passed on to the assessee-company is not acceptable. Hence, this sum of Rs.2,77,15,594/- relating to discounts claimed by the assessee-company by way of

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Credit notes over and above the reimbursement is disallowed. (Disallowance: Rs.2,77,15,594/-)

From the above, it is clear that the assessee company has passed on discount amount of Rs.2,77,15,594/- over and above the reimbursement by the manufacturer.

Passing of discount from its margin to the customers is remote since the profit margin in this industry itself is very thin which is evidence from Form 3CD report, i.e. 4.94% (Gross Profit/Turnover) and 0.55% (Net profit/turnover).

The assessee-company has not clearly proved in each and every case about the discount passed on to the customer from its profit margin.

The assessee company admits its liability to furnish the confirmation from all the parties since the numbers of vehicles sold were huge.

The assessee company failed to take signatures from customers in all the cases at the time of sale in the said credit notes.

Considering the quantum of vehicles sold during the year (more than 21000) and the assessee's company's inability to prove in each of the case where it had parted away its profit margin as discount to the customers, it is unlikely that the assessee company could have passed such discounts out of its profits margin, over and above the reimbursement.

Under these circumstances, the assessee company's contention that it had passed the discounts over and above what the manufacturer, M/s. Tata Motors Limited had passed on to the assessee-company is not acceptable. Hence, the sum of Rs.2,77,15,594/- relating to discounts claimed by the assessee company by way of credit notes over and above the reimbursement is disallowed."

The AO has accordingly analyzed discount reimbursed by M/s. Tata Motors Limited and discount passed on to the customers and has given a clear finding that assessee company had accounted discounts passed on to the customers by way of credit notes over and above the discount reimbursed by M/s. Tata Motors Limited. From such analysis as given in detail in the assessment order the AO clarified that the assessee company has passed on to the discount of Rs.2,77,15,594/- over and above the reimbursement by manufacturer. The assessee company has such has not furnished the confirmation from the parties. That is to say the assessee company has clearly not proved in each and every case about discount passed on to the customers from its profits. Considering this specific finding the reliance on the appellant on case laws do not find any force in the assessee's case, therefore, as the AO has disallowed the sum of Rs.2,77,15,594/- for want of evidences and during the appeal proceedings the appellant has not substantiated his contention with supporting evidences, therefore, disallowance made by the AO for the sum of Rs.2,77,15,594/- relating to discounts claimed over and above of reimbursement is confirmed. The ground of appeal is therefore not sustainable on facts, hence dismissed.

disallowance made by Ld.AO and for coming to the conclusion, firstly he

called for Remand Report from Ld.AO, which was not favourable to assessee

ITA Nos.968-970/Chny/2018 & ITA No.19/Chny/2021 :: 20 ::

and thereafter considering rebuttal filed by the assessee, the Ld.CIT(A) held

that the assessee has furnished details of discounts given to 12543

customers and there is nothing on record to say that Ld.AO had made

enquiries with each one of them or at least with some of them before he

made this sweeping comment encompassing every customer.

assessment years, one in favour and another is against and also considering

the enquiries called for by the AO from some customers, which did not give

any favourable results confirming the quantum of discounts allowed by the

assessee, we further move on to examine various details filed by the

assessee in various Paper Books. Ongoing through these Paper Books, we

notice that the some of the documents are relating to the policies of

M/s.Tata Motors Ltd., regarding service schedule and other discounts

related to offers which we are not doubting, since the company M/s.Tata

Motors Ltd., on one hand, directs the assessee to book sales on MRP and

on the other hand, direct the assessee to allow various types of discounts

as discussed in preceding paras and only the net amount is charged from

the assessee. Going through the details i.e. ledger account, cash receipts,

details of payments made to various customers on account of discount, we

notice that there is no straight jacket formula / method adopted by the

assessee. In some ledger accounts, discounts are equivalent to the

insurance amount. In some ledger accounts at some places cash is

received against sale and this discount is given as a balancing figure to

ITA Nos.968-970/Chny/2018 & ITA No.19/Chny/2021 :: 21 ::

square up the ledger accounts. There is no confirmation of the customers

on such ledger accounts. Though, it is claimed by the Ld.Counsel for the

assessee that in the subsequent AYs 2014-15, 2015-16 & 2016-17, no such

disallowance has been made, but on perusal of the P & L A/c filed by the

assessee for FYs 2012-13, 2013-14 & 2014-15, which are not pertaining

the year under appeal before us, but since the assessee has referred to the

same, we notice that during FY 2011-12, the discount to customers is at

Rs.42.36 Cr. and has been shown under the head ‘Revenue from operation’

and reduced from sale figure. But on the very same schedule, income from

cash offtake discount has been shown at Rs.4.76 Cr. Similar type of

expense head, has been shown for FYs 2012-13 & 2013-14. But during FY

2014-15, the P&L A/c for the previous year i.e. 2013-14 has been re-casted

while framing financial statement for FY 2014-15. We observe that for FY

2013-14, discount of 23.34 Cr. was reduced from sale, but in FY 2014-15

for showing the figures of the preceding year, this discount of 33.34 Cr. is

missing and it has been adjusted under other heads, also the cash and

offtake discount figures has been changed. In other words, for FY 2014-15,

the presentation of discount figures has been completely changed and only

the net off discount passed on to the customers is shown as income. It is

also noticed that major portion of the discount expenditure is the amount

received from the principal i.e. M/s.Tata Motors Ltd., but the assessee has

failed to prepare proper details of these discounts. The assessee is required

to maintain the separate details for the discounts passed on behalf of

ITA Nos.968-970/Chny/2018 & ITA No.19/Chny/2021 :: 22 ::

M/s.Tata Motors Ltd., and the discount it offers from its own side i.e. from

the gross profit margin. There is lack of such details. However, it is also

not in dispute that the assessee maintains regular books of accounts which

are duly audited and the same have not been rejected by Ld.AO. It is also

pertinent to note that the amount of discount i.e. Rs.24.03 Cr. for the AY

2009-10, Rs.30.79 Cr. for AY 2010-11 & Rs.35.29 Cr. for the AY 2011-12

approx. almost accounts for 3% of the gross turnover. Considering the fact

that gross margin of the assessee is around 5%, the discount amount is

fairly large and proper documentation of such huge claim is necessary on

the part of the assessee. We therefore under the given facts and

circumstances of the case, being fair to both the parties considering the

factual aspect of the cases and lack of proper details maintained by the

assessee, but simultaneously considering that the ad hoc disallowance

made by the AO is on much higher side for the AYs 2009-10 and 2010-11

& for 2011-12 disallowing the excess amount of discount passed to the

customers over and above the amount received from M/s.Tata Motors Ltd.,

and also considering that almost 21000 vehicles are sold during the year,

we direct the AO to sustain the disallowance @1% of the total discount

amount shown by the assessee in the Revenue under the head ‘Revenue

from operation’. To make it more clear, the disallowance of discount

expenditure are sustained at the following amount:

ITA Nos.968-970/Chny/2018 & ITA No.19/Chny/2021 :: 23 ::

Assessment Year Discount amount Disallowance sustained @1% 2009-10 240379590 2403796 2010-11 307873067 3078731 2011-12 352886440 3528864

hereinabove for the AYs 2009-10, 2010-11 & 2011-12 and accordingly, this

issue raised by the assessee for the AYs 2009-10 & 2011-12 and that by

the Revenue, for the AY 2011-12 are partly allowed.

another assessee namely M/s.VST Auto Agency Ltd., for the AY 2010-11,

we notice that these are the normal vehicle sales expenses of

Rs.1,64,96,450/- which were incurred during the year for selling vehicles.

In this case also, the assessee failed to satisfy Ld.AO with necessary

evidences, we therefore in order to end the dispute and being fair to both

the parties sustaining the disallowance @2% of Rs.16,49,650/-. Thus,

disallowance is sustained at Rs.3,29,930/-. The assessee gets part relief

and the sole issue for the AY 2010-11 is partly allowed.

In ITA No.969/Chny/2018 for the AY 2011-12, the assessee has raised the

issue regarding disallowance u/s.14A of the Act, at Rs.5,49,107/-. It is

claimed before us by the assessee that interest disallowance should not

have been made as the assessee has sufficient own funds. However, for

the disallowance u/s.14A of the Act r.w.r.8D(2)(iii) of the Income Tax

ITA Nos.968-970/Chny/2018 & ITA No.19/Chny/2021 :: 24 ::

Rules, 1962, @0.5%. the Ld.Counsel for the assessee accepted that the

same, may be confirmed.

authorities.

record placed before us. We notice that the assessee earned exempt

income of Rs.75.84 lakhs during the year and in the computation of income,

a sum of Rs.60,000/- was disallowed suo moto u/r.8D of the IT Rules.

Ld.AO, however, made disallowance at Rs.6,09,107/- which constituted two

portions. Firstly, the interest disallowance at Rs.5,70,766/- and

disallowance of Rs.39,041/- @0.5% on average investment. However,

Ld.AO gone set off of Rs.60,000/- offered by the assessee and made

disallowance of Rs.5,49,107/- u/s.14A of the Act. The assessee did not get

any relief from the Ld.CIT(A).

notice that reserves & surplus of the assessee stood at Rs.32.15 Crs.

whereas, investment as on 31.03.2010 are only at Rs.78.08 lakhs. It has

been consistently held by the Hon’ble Courts that in case surplus funds

available with the assessee in the form of capital and reserves & surplus

are more than the investments fetching exempt income, then in the

absence of nexus being established by Ld.AO that borrowed funds have

been applied for the purpose of making investments in tax free funds, then

ITA Nos.968-970/Chny/2018 & ITA No.19/Chny/2021 :: 25 ::

it is to be presumed that interest free surplus funds available with the

assessee have been applied for making such investments. Thus, we find no

justification in the findings of Ld.AO making interest disallowance of

Rs.5,70,066/- under Rule 8D(2)(ii) of the Income Tax Rules, 1962.

Therefore, to this extent, the findings of the Ld.CIT(A) is reversed and the

interest disallowance u/s.14A of the Act, is deleted.

u/r.8D(2)(iii) of the IT Rules, are concerned the Ld.Counsel for the assessee

has not objected for sustaining of the said disallowance. We therefore,

confirm the same and thus, in addition to the suo moto disallowance of

Rs.60,000/- offered by the assessee in the computation of income, further

disallowance of Rs.39,041/- is sustained. In the result, Ground No.2 raised

by the assessee for the AY 2011-12 is partly allowed.

concerned, the same relates to disallowance u/s.40(a)(ia) of the Act, for

non-deduction of TDS on sum of Rs.16,31,558/- paid by the assessee to

M/s.Tata Motors Ltd., towards web enabled software which contains

marketing related information.

this issue to AO, so that necessary details can be filed and evidence can be

placed to prove that alleged sum has been offered to tax by the M/s.Tata

Motors Ltd., in their regular return of income. To this request, Ld.DR did

ITA Nos.968-970/Chny/2018 & ITA No.19/Chny/2021 :: 26 ::

not oppose. We therefore under the given facts and circumstances of the

case are of the view that since the alleged payment of Rs.16,31,588/- has

been paid by the assessee to M/s.Tata Motors Ltd., towards professional

and technical services for developing of web enabled software SIBIL for

marketing related information, which in our view is payment for technical

services and the same is subject to deduction of tax at source, however,

since assessee has not deducted TDS and the amount has been adjusted

in the overall accounting of other transactions of purchase of goods from

M/s.Tata Motors Ltd., we restore this issue to the file of Ld.AO for carrying

out necessary verification and examine the issue in the light of the

documents to be placed by the assessee demonstrating that the alleged

payment has been offered to tax by the recipients i.e. M/s.Tata Motors Ltd.,

and certificate to that effect from Chartered Accountant as per Rules

prescribed under IT Rules needs to be procured. In case, the assessee is

unable to file these details, Ld.AO can proceed in accordance with law. In

the result, Ground No.4 is raised by the assessee for the AY 2011-12 is

allowed for statistical purposes.

allowed for statistical purposes.

by the Revenue and that of the assessee in the case of M/s.VST Auto

Agency Ltd., for the AY 2010-11 as we have already dealt with these issues

in the preceding paras while dealing with common ground relating to

ITA Nos.968-970/Chny/2018 & ITA No.19/Chny/2021 :: 27 ::

discount/vehicle selling expenses and partly allowed the said issue,

therefore, the effective grounds raised in both the appeals are partly

allowed.

consequential in nature, which need no adjudication

and ITA No.970/Chny/2018 are partly allowed, appeal filed by the assessee

in ITA No.969/Chny/2018 is partly allowed for statistical purposes and

appeal filed by the Revenue in ITA No.19/Chny/2021 is partly allowed as

per our terms indicated hereinabove.

Order pronounced on the 26th day of April, 2023, in Chennai.

Sd/- Sd/- (मनोमोहन दास) (डॉ. मनीष बोराड) (MANOMOHAN DAS) (DR. MANISH BORAD) �याियक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER चे�ई/Chennai, �दनांक/Dated: 26th April, 2023. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 4. आयकर आयु�/CIT 5. िवभागीय �ितिनिध/DR 2. ��यथ�/Respondent 3. आयकर आयु� (अपील)/CIT(A) 6. गाड� फाईल/GF