DARSHAN MEKANI,KOLKATA vs. DCIT, CIRCLE - 10, KOLKATA , KOLKATA

The only issue that arises for consideration in this appeal is as to whether the revenue authorities were justified in disallowing 20% of the discount expenses claimed by the assessee as a deduction while computing income from business.

The Assesee is an individual. The assesse carries on three separate businesses under three different names viz. Weaver’s Studio, Rangeen and Black Circle Studio. Weaver’s Studio is engaged in the business of selling ready made garments. Rangeen Studio is engaged in the business of dyeing and printing textiles and Black Circle Studio is engaged in the business of music recording studio. In the course of assessment proceedings the AO noticed that in the profit and loss account of Weaver’s Studio the assessee had debited a sum of Rs.30,06,615/- under the head ‘ discount’, Rs.3,44,156/- under the head ‘ sales promotion expenses’ and Rs.3,88,538/- under the head ‘exhibition charges for exhibiting assesee’s products in various cities of India.

Before CIT(A) the assessee claimed that it had filed complete details of discounts given and it had also filed books of accounts for verification of the AO. The assessee also filed the percentage of discount sales promotion and exhibition charges to gross sales. The assessee pointed out that in the present assessment year the deduction claimed under the aforesaid heads was 8.77% of gross sales whereas it was 8.13% and 9.69% respectively in the preceding two years.

The CIT(A) called for a remand report from the AO. In the remand report the AO issued notice to 60 parties u/s 133(6) of the Income Tax Act, 1961 (Act) to whom Discount was claimed to have been given by the assessee. Some of the notices were returned as addresses were not correct. In respect of some of the notices issued parties did not respond. Some parties denied having received any discount from the assesse. The assessee filed a rejoinder to the remand report of the AO in which the assessee pointed out that the payment for the entire net sales (Sale value – Discount) were received by cheques and that proved that the net sales figures shown in the bills have alone been paid and received by the assessee and therefore the discount allowed by the assessee had to be accepted.

The CIT(A) however did not agree with the aforesaid submission of the assessee and he confirmed the order of AO by observing as follows :- “I have carefully considered the facts of the case and the submissions of the assessee. Many of the clients have made payments through cheques and in those cases assessee's claims may be verified. But there are still a large number of 2

Aggrieved by the order of CIT(A) the assessee has preferred the present appeal before the tribunal.

The ld. Counsel for the assessee reiterated the submission as were made before the lower authorities. The ld. DR relied on the order of CIT(A)

I am of the view that the plea of the assessee cannot be rejected in toto. Before the AO it appears that the assessee was not given any show cause notice on this issue. In the proceedings before CIT(A) a remand report was called from the AO. The AO issued notice u/s 133(6) of the Act to 60 parties. What is the material in the remand report of the AO is the denial of some of the parties of having received any discount. It is not disputed that the sales were to numerous parties and notice u/s 133(6) was issued by the AO was only to some of the parties on random basis. It is not clear from the order of CIT(A) as to how may parties denied having received any discount from the assessee. The fact that the net sales disclosed by the assessee in the profit and loss account and the sales bills were received by cheques would go to show that the assesse had not received any amount over and above what is mentioned as sales in the books of accounts supported by bills. Keeping all the facts and circumstances of the case, I am of the view that it would meet the ends of justice if 10% of the expenses under the various heads claimed by the assessee is disallowed. I hold and direct accordingly.