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1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 12TH DAY OF MARCH 2020
PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE
AND
THE HON’BLE MR. JUSTICE M. NAGAPRASANNA
I.T.A.No.69/2011
BETWEEN:
M/s TRISTAR MOTORS REP. BY ITS PARTNER SRI SHARATH M. REDDY NO.370, AMARJYOTHI LAYOUT, KORAMANGALA INNER RING ROAD, BANGALORE-560071
… APPELLANT
(BY SRI A.SHANKAR, SENIOR ADV. A/W SRI M.LAVA, ADV.)
AND:
THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-7(1), 4TH FLOOR, C WING, KENDRIYA SADAN, 17TH MAIN, II BLOCK, KORAMANGALA, BANGALORE-560034
… RESPONDENT
(BY SRI E.I.SANMATHI, ADV. FOR SRI K.V.ARAVIND, ADV.)
THIS ITA IS FILED UNDER SECTION 260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 19.10.2010 PASSED IN ITA No.79/BANG-2010, FOR THE ASSESSMENT YEAR 2004-05, PRAYING THIS HON’BLE COURT TO FORMULATE THE SUBSTANTIAL QUESTION OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BENCH ‘A’, BANGALORE IN ITA No.79/BANG/2010 DATED 19.10.2010 VIDE ANNEXURE-A.
2 THIS APPEAL COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING:
JUDGMENT This appeal has been filed by the assessee under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), which was admitted by the Division Bench of this Court vide order dated 22.11.2011 on the following substantial question of law:- “Whether the finding of the lower authority that the assessee is not entitled to the deduction claimed for allowing discount to the customer as it is disproportionately higher to the percentage of discount granted in earlier year though there is increase in the turnover and the rate of tax paid, is perverse and arbitrary?”
The case leading to filing of this appeal briefly stated are that the appellant is the partnership firm engaged in the business of selling TVS Mopeds, Bikes and spare parts and servicing of
3 vehicles. The appellant filed the return of income on 01.11.2004 for the Assessment year 2004-05 declaring income of Rs.42,57,690/-. The case of the appellant was selected for scrutiny and the Assessing Officer also issued statutory notice to the appellant and called for the details. The Assessing Officer after verifying the books of accounts, arbitrarily disallowed certain expenditure incurred by the appellant on ad-hoc basis and passed an order of assessment under Section 143(3) of the Act on 30.11.2006 determining the total income of the appellant as Rs.76,05,020/-
Being aggrieved, the appellant filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals), after considering the written submissions filed by the appellant, partly allowed the appeal and partly sustained the additions in regard to the amount of Rs.4,04,101/- and a sum of
4 Rs.12,12,452/- on account of discounts and rebates claimed by the appellant, vide order dated 13.11.2009. The appellant approached the Income Tax Appellate Tribunal (hereinafter referred to as ‘Tribunal’) by filing an appeal. The Tribunal vide order dated 19.10.2010, partly allowed the appeal and sustained 25% of the amount claimed in regard to the amount of Rs.2,02,050/-. Being aggrieved, this appeal has been filed.
Learned Senior counsel for the appellant submitted that the authorities below have failed to appreciate that the claim of expenditure is wholly and exclusively for the business purpose. It is further submitted that the books of accounts produced by the appellant as well as other documents were not disputed. It is also submitted that the uniform policy with regard to grant of discount cannot be adopted and the Assessing Officer grossly erred in disallowing the amount in
5 question on ad-hoc basis, while taking comparison with the earlier year. It is also submitted that there is nexus between the expenditure and the purpose of business and the Revenue cannot claim to put itself in the arm-chair of the businessman. It is also submitted that the reasonableness of the expenditure could be gone into for the purpose of determining whether the amount was spent. It is also contended that there is nexus between the expenditure and the purpose of business. In support of his submission, the learned Senior counsel for the appellant has placed reliance on the decision of the Supreme Court in the case of Sassoon J. David and Co. Pvt. Ltd., vs. Commissioner of Income Tax, Bombay, reported in 118 ITR 261 (SC) and the another decision in the case of S.A. Builders Ltd., vs. Commissioner of Income Tax (Appeals) and another, reported in (2007) 288 ITR 1 (SC).
On the other hand, the learned counsel for the Revenue submitted that the burden was on the assessee to prove that it had incurred business expenditure. It is further submitted that no material was produced with regard to the amount incurred by the appellant with regard to discounts and rebates and therefore, the Assessing Officer as well as the Appellate Authority and the Tribunal have rightly disallowed the amount in question. It is further submitted that the aforesaid question is a question of fact and no substantial question of law arises for consideration in this appeal.
We have considered the submissions made by the learned counsel for the parties and have perused the records.
In S.A. Builders Ltd., supra, the Hon’ble Supreme Court has held that once it is established that there was nexus between the expenditure and the purpose of business, which
7 need not necessarily be the business of the assessee itself, the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. It is further been held that the Income- tax Authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act.
In the instant case, from perusal of the order of assessment, it is evident that the Assessing Officer has not doubted the books of accounts of the appellant. The Assessing Officer has held that there is nothing on record to say that assessee was adopting any uniform policy in respect of discount and it was being given in the uniform way to the customers. Therefore, the amount on account of discounts and rebates has been disallowed.
8 Similarly, the Commissioner of Income Tax (Appeals) has held that the burden of proof lies on the assessee in order to claim that the expenditure falls under Section 37(1) of the Act. Therefore, it has been further held that the claim of the assessee under this head is not fully verifiable in nature. The Tribunal vide impugned order negatived the assessee’s contention on the ground that because the turnover has increased in the subsequent year therefore higher rate of discount is to be allowed cannot be accepted because the discount and rebate is at percentage basis and not on the basis of the turnover.
It is pertinent to mention here that the books of accounts of the assessee as well as the material produced by the assessee was not disputed by the Assessing Officer. Therefore, merely because there was variations in the previous and subsequent year with regard to the discount
9 and rebates, the Assessing Officer should not have disallowed the claim of the appellant with regard to the discount and rebates and profits. It is pertinent to mention herein that in the subsequent year, even though the amount incurred by the appellant on account of discount and rebates was Rs.26,33,892/-, however, the profit has increased to Rs.42,50,777/-, which was accepted by the Revenue. Therefore, in the absence of any material on record, the Assessing Officer as well as the Commissioner of Income Tax (Appeals) and the Tribunal erred in disallowing the amount claimed by the assessee on account of discount and rebates.
In view of the preceding analysis, the substantial question of law framed by this Court is answered in favour of the assessee.
In the result, the order dated 30.11.2006 passed by the Assessing Officer as well as the order dated 13.11.2009 passed by the
10 Commissioner of Income Tax (Appeals) and the order dated 19.10.2010 passed by the Tribunal, insofar as it pertains to disallowing the claim with regard to discount and rebates by the appellant are hereby quashed.
Accordingly, the appeal is disposed of.
Sd/- JUDGE
Sd/- JUDGE
PMR.