ALL INDIA HANDLOOM FABRICS TAX MARKETING CO. OP. SOC. LTD, MUMBAI vs ITO WD 2(1)(1), MUMBAI

Income Tax Appellate Tribunal, “A” BENCH, MUMBAI

Before: SHRI SAKTIJIT DEY, JM & SHRI MANOJ KUMAR AGGARWAL, AM

For Respondent: DR Assessee by :

Per Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year [AY] 2010-11 contest the order of the Ld. Commissioner of Income-Tax (Appeals)-4 [CIT(A)], Mumbai, Appeal No.CIT(A)-4/IT-84/ITO.2(1)(1)/2012-13 dated 10/06/2014 qua confirmation of certain additions. The assessment for All India Handloom Fabrics Marketing Co-op Soc.Ltd Assessment Year 2010-11 impugned AY was framed by Ld. Income Tax Officer Ward-2(1)(1), Mumbai [AO] u/s 143(3) of the Income Tax Act,1961 on 24/01/2013. Before us, the assessee has raised the following effective grounds of appeal:-

1. On the facts and in the circumstances of the case and in the law the Learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of Rs. 72,265/- under section 14A read with rule 8D of the Income Tax Rules. The Appellant prays that the disallowance of Rs. 72,265/- made under section 14A read with Rule 8D of the Income Tax Rules be deleted.

2. On the facts and in the circumstances of the case and in the law the Learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of provision debited to Profit and Loss account of Rs.2,76,870/-. The Appellant prays that the disallowance of Rs.2,76,870/- made in respect of provision debited to Profit and Loss account be deleted.

3. On the facts and in the circumstances of the case and in the law the Learned Commissioner of Income Tax (Appeals) has erred in partly allowing discount which was actually given by Bangalore Handloom House to the extent of 36.62% on sales as against 18.87% on sales allowed by the Learned Assessing Officer which is arbitrary and baseless. The actual discount given by Bangalore Handloom House was 54.81%. The Appellant prays that the disallowance of 18.19% on sales made in respect of Bangalore Handloom House be deleted.

4. The Learned Commissioner of Income Tax (Appeals) has erred in overlooking and in rejecting the detailed statement of facts submitted along with the memorandum of appeal, various documents and evidences placed in paper book filed, the sales invoices produced and the remand report submitted by the Learned Assessing Officer while partly allowing the discount given by the Bangalore Handloom House. 2.1 Facts in brief are that the assessee is a nationalized cooperative organization set up and sponsored by Govt. of India. The society is an Apex Marketing Institution of Handloom Cottage Industries of Weaver’s cooperative societies. The main role of the society is to provide marketing support to the poor weavers and artisans throughout the country. The society had set up retails showrooms, popularly known as Handloom Houses in various parts of the country to market the products of the weavers.

All India Handloom Fabrics Marketing Co-op Soc.Ltd Assessment Year 2010-11 2.2 For impugned AY, the assessee e-filed its return of income at ‘Nil’ on 29/09/2010 which was picked up for scrutiny assessment u/s 143(3). As evident from the quantum assessment order dated 24/01/2013, the assessee has been saddled with following additions, which are the subject matter of this appeal:-

No. Particulars Amount (Rs.) 1. Disallowance u/s 14A 72,265/- 2. On Account of Provisions 2,76,870/- 3. On Account of Discount 1,37,68,261/- Total 1,41,17,396/- The disallowance u/s 14A comprise-off of expenditure disallowance under Rule 8D(2)(iii) @0.5% of average investments against exempt income of Rs.18,750/- earned by the assessee during the impugned AY. The disallowance of Rs.2,76,870/- has been made against provisions for expenses debited by the assessee in the Profit & Loss Account. The details of same as extracted in the quantum assessment order reveal that these provisions are against Bonus, Audit Fees & Sales Commission. The last addition pertains to rate of discount allowed by the assessee during impugned AY. It was noted that the ratio of discount to sales in the impugned AY was 16.31% as against 11.08% in immediately preceding AY 2009-10. The assessee, vide its reply dated 27/12/2012, explained the circumstances under which higher discount was allowed to the customers. However, not convinced, Ld. AO noted that Bangalore showroom allowed excessive discount to the extent of 54.81% as against average discount of 18.87% allowed by other showrooms. Therefore, applying this average rate All India Handloom Fabrics Marketing Co-op Soc.Ltd Assessment Year 2010-11 of 18.87% to turnover of the Bangalore showroom, Ld. AO worked out impugned disallowance of Rs.1,37,68,261/- in the hands of the assessee.

Aggrieved, the assessee contested the same with partial success before Ld. CIT(A) vide impugned order dated 10/06/2014 where Ld. CIT(A) provided partial relief to the assessee by enhancing estimated discount rate of Bangalore showroom to 36.62%. Aggrieved, the assessee is in further appeal before us.

The Ld. Auhtorized Representative for Assessee [AR], Sh. Haridas Bhat, by drawing our attention to the documents placed in the paper-book contested the additions as confirmed by Ld. CIT(A) which were controverted by Ld. Departmental Representative [DR], Ms. N.Hemalatha.

We have carefully heard the rival contentions and perused relevant material on record including documents placed in the paper-book. So far as the disallowance u/s 14A is concerned, it is noted that the assessee has suffered disallowance of Rs.72,265/- against exempt income of Rs.18,750/-, which, as per settled judicial pronouncements, is not justified. Therefore, without delving much deeper into the issue, we restrict this disallowance to Rs.18,750/-. This ground of assessee’s appeal stand partly allowed.

So far as the disallowance of provisions of expenses is concerned, we are of the opinion that the assessee, following mercantile system of accounting, was eligible to claim the expenditure which accrued and crystallized during the impugned AY. It is noted that these expenses are in the nature of Bonus, Audit Fees & Sales Commission. The Ld. AR has All India Handloom Fabrics Marketing Co-op Soc.Ltd Assessment Year 2010-11 submitted that these expenses have accrued during the impugned AY and subsequently paid by the assessee and hence, no disallowance u/s 43B is called for in this regard. Therefore, considering the same, the matter stand remitted back to the file of Ld. AO for re-adjudication with a direction to the assessee to substantiate the same with documentary evidences. The ground stand allowed for statistical purposes.

Regarding discount allowed by Bangalore showroom, we find that the lower authorities are making additions merely on estimated basis without pointing out any fallacy in the financial results reflected by the assessee. The assessee was engaged in retail activity through Handloom Houses spread across the country and offered customary discounts to its customers from time to time. The only contention of the revenue to make this addition is the fact that discount offered by Bangalore showroom was much higher than the average discounts offered by other showrooms. The revenue authorities, in our opinion, has proceeded on wrong footing in this regard and could not step into the shoes of the assessee so as to adjudge the quantum of discount which could be offered by the assessee to its customers. No instance has been brought on record to suggest over statement of discount in the books of accounts or suppression of sale in any manner or allegation of receipt of any sale consideration over and above the books of accounts. No fault has been found in the sales invoices raised by the assessee. As noted by Ld. CIT(A), the Bangalore showroom had opening stock of more than 103.65 Lacs and it received stock transfer from All India Handloom Fabrics Marketing Co-op Soc.Ltd Assessment Year 2010-11 other showrooms / units amounting to Rs.149.82 Lacs which demonstrate that the assessee had huge accumulated stock for disposal. The assessee had also contended that such stock consisted of old, damaged and shop- soiled items, some of which had no commercial value. It was also contended that the assessee was in the process of closing down Bangalore showroom and therefore, in the process, it offered heavy discount to the customers to clear the stock. The same is evidenced by the fact that the assessee published several newspaper advertisements offering discount of more than 50% by Bangalore showrooms. All these facts / submissions / evidences remain un-controverted by the revenue and the lower authorities, in our opinion, erred in proceeding to estimate the discount rate offered by the assessee. Therefore, finding strength in the argument of Ld. AR, we delete the impugned addition. This ground of appeal

stand allowed.

8. Resultantly, the assessee’s appeal stand partly allowed in terms of our above order. Order pronounced in the open court on 29th June, 2018.

ALL INDIA HANDLOOM FABRICS TAX MARKETING CO. OP. SOC. LTD, MUMBAI vs. ITO WD 2(1)(1), MUMBAI