M/S CHITTOSHO MOTORS,PATIALA vs. THE ADDL COMMISSIONER OF INCOME TAX, PATIALA

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH’A’, CHANDIGARH

BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER

ITA No. 343/Chd/2016 Assessment Year: 2011-12

M/s Chittosho Motors, Vs. The Addl. CIT Sirhind Road, Patiala Patiala Range, Patiala PAN No. AACFC8334M

(Appellant) (Respondent)

Assessee By : Shri. Tej Mohan Singh Revenue By : Smt. Chandrakanta Date of hearing : 07/03/2018 Date of Pronouncement : 22/05/2018

ORDER PER DR. B.R.R. KUMAR:

The present appeal has been filed by the Assessee against the order of the Ld. CIT(A), Patiala dt. 26/03/2016.

the assessee has paid commission of Rs. 27,44,688/-. On enquiry regarding the

company name and address of the person to whom the commission was paid

the assessee could not submit complete details on the ground that the

dealership at Mohali Branch was disposed off due to recurring losses and owing

to the closure the assessee is not in touch with the employees working at the

Branch. Since complete address genuineness of the commission paid remain

unverifiable, the commission payment was disallowed.

3.2 Ld. CIT(A) confirmed the addition on the grounds that the assessee could

not prove the genuineness of his claim.

3.3 Before us the Ld. AR argued that out of Rs. 27,44,688/- an amount of Rs.

9,40,072/- was on account of discount / subvention to customers and Rs.

18,04,616/- is on account of sales commission to employees and the assessee

has duly deducted TDS on the sales commission paid as per section 194H. The

Ld. AR has also filed the details of TDS deducted before us (Paper Book- Page

380-387). In most of the cases the addresses have also been given.

3.4 Ld. AR argued that in automobile trade it has been buyer’s market for the

last many years. More and more options are available for the customer as

international auto majors have flooded the market with their products.

Customers shop around for the best deals. The auto companies have been

offering new dealership in the already served areas to retain customer base.

3.5 In the case of assessee, there were only three Maruti dealers in and

around Mohali and all three discouraged discount on sales. However in year

2010-11, Maruti Suzuki Ltd. allowed four more dealership in the area within a

radius of 8-10 kms. namely Autopace, Tricity, Berkely, Mohali and CM Auto

Kharar. There was race to wrangle business away from competitors. All the

dealers offered discounts / incentives out of their margins to customers in one

form or other. In tough times, temporary price cuts attract more customers than

sales promotion like advertisement etc.

3.6 It was argued that the assessee had to offer price cut in the form of

discount on sale and subvention on finance charge ranging between Rs.

2000.00- Rs. 3500.00 in the interest of business. The discount and subvention has

been allowed against sale and routed through respective a/cs of customers.

There is no cash or cheque payment to customer. Copy of individual a/cs of

customer was enclosed.

3.7 As regards commission to employees, it is submitted that practice was

introduced keeping in view the interest of business as well to cement their loyalty

to the organization. Paying commission provided employees with an excellent

incentive to focus on increasing firm’s profitability.

3.8 The Ld. DR relied on the orders of the authorities below.

3.9 Now the issue, is whether commission is payable and discounts on

account of subvention paid to the customers and if so whether the assessee

has produced sufficient documents to prove the same.

3.10 Having gone through the record we find that the commission payment

and subvention discounts are a part of the business practice followed in the

automobile industry. Regarding the evidences to prove sufficiently the

payments, the assessee has submitted list of customers to whom subvention

discounts have been given. Further the assessee has also submitted the details

of the employees alongiwth the addresses before the Assessing authorities. The

Assessing Officer has not examined any of the employee pertaining to the

receipt of commission nor any of the customer pertaining to subvention. The

disallowance of this amount grossly, consisting of two parts i.e; payment to

employees and discount to customers cannot be held to be valid in the

absence of bringing any proof or enquiry details by the Assessing Officer.

3.11 The Assessing Officer’s/ Ld. CIT(A) contention that the complete details

like addresses have not been given, genuineness of the payments have not

been proved is contrary to the facts on record as addresses of most of the sales

persons and also details of the TDS deducted and list of customers is available

with the assessing authorities. Hence the disallowance made by the Assessing

Officer on this ground is liable to be deleted.

3.12 Appeal of the assessee on this ground is allowed.

4.1 The Assessing Officer has disallowed 1/8 of expenses claimed under the

head Telephone, Car , Repair & Maintenance which was upheld by the Ld.

CIT(A).

4.2 Before us, the Ld. AR and Ld. DR fairly conceded for 10% of disallowance.

Hence, the disallowance stands modified to the extent of 10%.

4.3 Appeal of the assessee on this ground is allowed for statistical purposes.

5.1 The Assessing Officer made disallowance of 20% of the business

promotion, festival, staff welfare, tea and drink, tour & travel and general

expenses on adhoc basis, which the CIT(A) restricted to 10%.

5.2 It was argued before us by the Ld. AR , that the books of accounts have

been properly audited hence no disallowance is called for and pleaded that

the disallowance is highly excessive.

5.3 Before us, the Ld. AR and Ld. DR fairly conceded for 5% of disallowance.

Hence, the disallowance stands modified to the extent of 5%.

5.4 Appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open Court.

Sd/- Sd/- (DIVA SINGH) (DR. B.R.R. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 22/05/2018 AG Copy to: 1.The Appellant, 2. The Respondent, 3. The CIT(A), 4. The CIT, 5. The DR