VENUS EXPORTS,MUMBAI vs. ACIT 13(2), MUMBAI

I heard the parties and perused the record. The Ld A.R submitted that the assessee is engaged in the business of export of diamonds. The Ld A.R submitted that the sales invoices raised by the assessee were discounted with the bank and the discounting charges of the bank were included under the head “Bank interest/charges”. The assessing officer initially completed the assessment u/s 143(3) of the Act allowing the above said claim of the assessee. However, the audit party seems to have expressed the view that the discounting charges do not pertain to the period under consideration, since the realisation of bills extended to the next year. Accordingly the audit party has expressed the 2 M/s. Venus Exports view that the discounting charges should be considered as “advance payments for the succeeding year”. Based on the view taken by the audit party, the AO passed a rectification order u/s 154 of the Act by disallowing the expenditure related to discounting charges. The Ld CIT(A) also confirmed the same on the reasoning that the assessee has disclosed the same as “Bank interest and charges” and the auditors also accepted the same.

The Ld A.R placed reliance on the Circular No.065 dated 02-09-1971 issued by the CBDT, wherein it was stated that the discounting charges is not in the nature of interest and hence tax is not required to be deducted at source u/s 194A of the Act. The Ld A.R placed reliance on the following observations made by the CBDT in the above said circular:- “...Where the supplier of goods makes over the usance bill/hundi to his bank which discounts the same and credits the net amount to the supplier’s account straightaway without waiting for realisation of the bill on due date, the property in the usance bill-hundi passes on to the bank and the eventual collection on due date is a receipt by the bank on its own behalf and not on behalf of the supplier. For such cases of immediate discounting the net payment made by the bank to the supplier is in the nature of a price paid for the bill. Such payment cannot technically be held as including interest and therefore no tax need be deducted at source from such payments by the bank...”

On the contrary, the Ld D.R submitted that the assessing officer has found the expenditure as relating to the succeeding year and hence he has disallowed the claim of the assessee.

Having heard rival submissions, I am of the view that the tax authorities have disallowed the claim of the assessee without properly appreciating the nature of expenditure claimed by the assessee. I notice that the assessee has been consistently accounting the discount charges under the head “Bank interest/charges”. It is settled proposition that the entries made in the books of account are not relevant for computing the total income and the exact nature of expenditure needs to be considered to decide about its deductibility. The Ld A.R has taken the support of the Circular issued by CBDT in order to explain the nature of “discounting charges”. I also notice that an identical disallowance made by the AO in the assessee’s sister concern’s case has since been deleted by the Ld CIT(A). Under these set of facts, I am of the view that this issue requires fresh examination at the end of the AO. Accordingly I set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to examine the nature of “discount charges” claimed by the assessee in terms of CBDT circular cited above and also the decision rendered by Hon’ble Delhi High Court in the case of CIT Vs. Cargill Global Trading P Ltd (ITA No.331 of 2011 & ITA 204 of 2011 dated 17-02-2011, which case was also relied upon by Ld A.R. The assessee is also directed to furnish all the details relating to the claim as may be called for by the AO. If the discount charges are not in the nature of interest as discussed in the circular, I direct the AO to allow the claim of the assessee.

In the result, the appeal of the assessee is treated as allowed for statistical purposes. Order has been pronounced in the Court on 2.5.2017.