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Facts
The assessee, Ramesh Keshri, claimed a trade discount of Rs. 36,52,199/- on his purchases of newspapers from M/s Neutral Publishing House Limited for the Assessment Year 2016-17. The Assessing Officer disallowed this discount and added back Rs. 34,83,349/- to the assessee's total income, treating the difference as commission income.
Held
The Tribunal held that the trade discount was a legitimate business practice, verified by the supplier, and had not been disproven by the revenue. The addition made by the Assessing Officer was deemed arbitrary and excessive.
Key Issues
Whether the trade discount claimed by the assessee on the purchase of newspapers is allowable as a deduction or should be treated as commission income.
Sections Cited
Section 133(6), Section 44AD
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Income Tax Appellate Tribunal, RANCHI BENCH(SMC
Before: SHRI PARTHA SARATHI CHAUDHURY
Assessee represented by Shri J.P. Sharma, A.R. Department represented by Shri Khubchand T. Pandya, Sr.DR Date of hearing 22/01/2025 Date of pronouncement 04/02/2025 O R D E R PER: PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER: 1. This appeal preferred by the assessee emanates from the order of National Faceless Appeal Centre, Delhi (NFAC)/learned Commissioner of Income Tax (Appeals) [in short, the ld. CIT(A)] dated 04/01/2024 for the Assessment Year (AY) 2016-17 as per the grounds of appeal on record.
2. This is a case of disallowance of trade discount. At para four (4) of the assessment order, it is noted as follows: "4.0 A letter under section 133(6) of the Income Tax Act, 1961 was issued to M/s Neutral Publishing House Limited on 20/09/2018. The contents of the letter are reproduced as under: "The case of Shri Ramesh Keshri, PAN: AFTPK 1039 B, has been selected for scrutiny relevant to A.Y. 2016-17. The assessee has claimed commission income from sale of newspaper in the name and style of M/s Rupes News Agency, Birsa Chowk. You are requested to kindly confirm the genuinity of the assessee and also furnish the following details:
1. Total transaction made by you and discount thereon during the F.Y. 2015-16, after considering the unsold newspaper etc.. Please provide the consolidated figure of the whole year." Vide letter dated 25.09.2018, M/s Neutral Publishing Housing Limited submitted the details called for. As per their submission, they have paid no commission, instead, total discount (trade) allowed by them to the assessee against Ramesh Keshri Vs ITO purchase of Rs. 10230561/- during the financial year 2015-16 is Rs. 36,52,199/- . They have submitted copy of the agreement made between the two parties which is placed on record." That as evident, the trade discount of Rs. 36,52,199/- had been given to the assessee by M/s Neutral Publishing House Limited. That on the relevant date before the Assessing Officer, the assessee was not able to comply and was absent from hearing and accordingly, the Assessing Officer added a sum of Rs. 34,83,349/- (difference between the total discount received and the amount already offered to tax by the assessee as commission income) was added back to the total income of the assessee.
3. Before the ld. CIT(A), it was observed and held as under: "5.3 During the appellant proceedings, the appellant has stated that during the period, he was engaged in reselling newspapers. He had purchased newspapers from Neutral Publishing House Limited @ MRP less 36% and sold @ MRP less 30% and thus difference of 6% was his margin. However, the appellant had failed to produce the documentary evidence in respect of the commission received from newspaper business. 5.4 Carefully considering the above facts, I hold that the appellant had failed to furnish any proof of commission received from newspaper business during assessment proceedings as well as during appellant proceedings. Therefore, the addition of Rs. 34,83,349/- made by the AO is hereby confirmed."
4. At the time of hearing, the learned Authorised Representative (ld. AR) of the assessee submitted that with regard to total addition, the trade discount was Rs. 36,52,199/- @ 36%, less Rs. 1,68,850/- (profit already shown by the assessee as per Section 44AD of the Income Tax Act, 1961) which comes to Rs. 34,83,349/-, this is the total addition made by the Assessing Officer for which the tax effect is Rs. 13,67,270/-. The ld. AR of the assessee further submitted that the assessee has recorded purchases after giving effect to trade discount. 2 Ramesh Keshri Vs ITO 5. Per contra, learned Senior Departmental Representative (ld. Sr.DR) for the revenue supported the findings of the revenue authorities.