DCIT CC-2(1), CHENNAI vs. M/S ETA GENERAL PRIVATE LIMITED, CHENNAI

आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeals by revenue for Assessment Years (AYs) 2010- 11 & 2011-12 arises out of the common order of learned Commissioner of Income Tax (Appeals)-6, Chennai [CIT(A)] dated 17.03.2020 in the & 964/Chny/2020 - 2 - matter of assessments framed by Ld. Assessing Officer [AO] u/s. 143(3) r.w.s. 254 vide separate orders dated 28.04.2017. The common grounds raised

by the revenue for both the years read as under: -

1. The order of the CIT(A) is contrary to law, facts and circumstances of the case.

ITA No.963 & 964/Chny/2020 - 3 - 3.3 Since there was no approval for this year, explanation to Sec.37(1) was invoked by Ld. AO to hold an opinion that the expenses were incurred in violation of the provision of statutes. 3.4 In the alternative, it was noted by Ld. AO that ESAPL was allowed higher discount as compared to the other parties and therefore, the provisions of Sec.40A(2) would also apply. Since the entire amount was disallowed u/s 37(1), no separate disallowance was made on this count. 3.5 Upon further appeal, Ld. CIT(A) allowed the appeal by relying upon the decision of Delhi Tribunal in Jai Surgicals Ltd. V/s ACIT (150 ITD 60). In this decision, the Tribunal had held that non- obtainment of prior approval would amount to non-compliance of Company Law provisions but the same would not be a matter that is covered by disallowance under explanation to Sec.37(1) of the Income Tax Act. The discount offered to related party was neither an offence nor prohibited by law. The assessee merely failed to comply with the procedural requirement under the Companies Act. Therefore, the addition was to be deleted. 3.6 Regarding application of Sec.40A(2), Ld. CIT(A) relied on the decision of Hon’ble Delhi High Court in United Exports V/s CIT (330 ITR 549) which held that trade discount is not an expenditure which is incurred or with respect to which a payment is made. Therefore, trade discount given by the assessee do not attract the provisions of Sec.40A(2) of the Act. Accordingly, Ld. CIT(A) further held that the provisions of Sec.40A(2) would not apply. 3.7 Without prejudice, it was noted by Ld. CIT(A) that ESAPL achieved sale volume of 12219 numbers of air conditioners which & 964/Chny/2020 - 4 - corresponds to 9% of total sales of the assessee. The next biggest dealer achieved volume of only 3279 numbers. The average net discount offered to non-related dealer was 18%, the discount to premium unrelated dealers was in the range of 20 to 22% whereas the discount to ESAPL was approx. 26%. The same stood justified from the fact that the sale volume of ESAPL was far higher than other dealers. Therefore, the discount could not be said to be excessive or unreasonable. 3.8 The revenue assailed the findings of Ld. CIT(A) before this Tribunal in &ors., common order dated 05.10.2016. The Tribunal, in para 8.4, rendered the following findings: - In our opinion if the expenditure is debited to the P&L A/c and claim it as an expenditure in computing the income of the assessee, provisions of Section 40A(2) of the Act is applicable. Before us, Ld. A.R. submitted that it is only the deduction in the sales value made to the sister concerns, and it is not claimed as expenditure in the books of accounts of assessee and discount was passed by the assessee while making the sale itself, and there is no separate discount was claimed by the assessee. However, we find that this fact has not come from the orders of lower authorities. In our opinion, unless entire facts are brought on record, we are not in a position to appreciate the findings of the Ld. CIT(A), so in the interest of justice we remit the issue to the file of AO whether the sale discount is given to the sister concern in the sales bills itself or separate credit has been given after the sales have been effected. If the separate sales discount is given after the sales, then the provisions of the section 40A(2) be applied. With this observation, we remit the issue to the file of AO for fresh consideration.

It could be seen that the issue was remitted back to the file of Ld. AO for fresh consideration u/s 40A(2) with certain directions. However, the findings rendered in the impugned order qua alternative disallowance by invoking explanation to Sec.37(1) was not disturbed. The revenue assailed the directions of the Tribunal before Hon’ble High Court of Madras in TCA Nos. 656 & 657 of 2017. TCA No.656 of 2017 for AY 2010-11 was not entertained by Hon’ble Court vide order dated & 964/Chny/2020 - 5 - 13.12.2017 whereas in TCA No.657 of 2017, Hon’ble Court only admitted question of law no.1 which assails the directions of Tribunal in remitting the matter back to the file of Ld. AO. Proceedings in the second round 4.1 Pursuant to the aforesaid directions of the Tribunal, an order u/s 143(3) r.w.s. 254 has been passed by Ld. AO on 28.04.2017. The assessee submitted that trade discounts was given in the sales invoices itself. The sales volume of ESAPL justifies higher discount and therefore, no addition u/s 40A(2) is warranted. 4.2 However, rejecting the same, Ld. AO held that the assessee itself submitted that higher discount has been given to related parties and therefore, the provisions of Sec.40A(2) are applicable. Further, the assessee could also not prove that the Explanation to Sec.37 was not attracted. Therefore, the impugned disallowance was retained in the order. 4.3 The ld. CIT(A), noted that Tribunal had directed Ld. AO to specifically verify whether the trade discount was given in the sales bill itself or separate credit was given after the sales were affected. If separate sales discount was given after the sale, then the provisions of Sec.40A(2) would apply. A clear direction was given to see whether the discount was shown in the sale bill / invoice. If so, the trade discount was to be allowed. The Ld. AO did not remain confined to this examination and travelled beyond the directions given by the Tribunal. Since the assessee has shown the trade discount in the sales invoice / bill itself, the trade discount was to be allowed as per the directions of Tribunal. Aggrieved, the revenue is in further appeal before us. & 964/Chny/2020 - 6 - Our findings and Adjudication 5. As noted by us in para 3.8, the adjudication of Ld. CIT(A) as given in first round qua applicability of Explanation to Sec.37(1), has attained finality since these findings were not disturbed by the Tribunal. Therefore, this Explanation could not have been invoked by Ld. AO in the second round. This being so, Ld. CIT(A) has clinched the issue in correct perspective and carried out the directions of the Tribunal correctly. It is undisputed fact that the trade discount has been given in the sales invoices itself and therefore, as directed by the bench, the provisions of Sec.40A(2) would not apply in both the years. We order so. The adjudication in the impugned order, for both the years, do not require any interference on our part.

Order pronounced on 19th October, 2022.