TaxTMI 
TaxTMI 
2015 (3) TMI 884
X X X X Extracts X X X X
X X X X Extracts X X X X
....l justice, is liable to be quashed. (3) The learned CIT(Appeals) has erred in overlooking and in summarily rejecting the detailed statement of facts submitted along with memorandum of appeal, various documents and evidences placed in the written submissions filed, while accepting the lopsided and factually incorrect version of the AO and hence, the disallowance of trade discount confirmed by the CIT(Appeals) on misleading, misconceived, baseless and conjectural observations, is unjustified. (4) Both the lower authorities ought to have consider in the right perspectives that the trade discount, deducted in each individual sale transaction and actually passed on to the respective customers by the appellant firm and therefore, being actually incurred wholly and exclusively for the purposes of business, is an allowable deduction for computation of business income. (5) Your appellant further reserves his rights to add, alter, amend or modify any of the aforesaid grounds before or at the time of hearing of an appeal. 2. The only effective ground in this appeal is against the confirmation of disallowance of trade discount expenses amounting to Rs. 49,90,640/-. 3. Briefly st....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er appeal has been filed by the appellant firm showing the total taxable income of Rs. 3,10,170/- accompanied with the tax audit report u/s 44AB (in Form No. 3CB and 3CD) of the Act, audited financial statements such as Trading A/c, Profit & Loss A/c and Balance Sheet with annexures/schedules and the statement of Computation of Total Income. The books of accounts are duly audited by the independent auditor and nowhere in the audit report, the auditor has pointed out/reported any discrepancy/defect in the books of accounts maintained with all the supported vouchers, bills, statements, etc., following the same method of accounting as that of in the earlier years. (2) Being the dealer in the business of tractors of Eicher Brand, the appellant has to allow the trade discount to the purchasers who are basically the agriculturists as the practice prevailing in this line of business. In other words, the appellant has to maintain the target of sales/turnover for its survival and for that purposes, the trade incentive under the sales promotion programme has been given on catalogue price of tractors, to the purchasers of tractors only on prompt payment received through Demand Drafts from ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d not before or after the sales as alleged by both the lower authorities. Your honours kind attention is invited to the pages 1 to 15 being the detailed statement showing the transactions of sales and trade discount thereon establishing direct co.-relation with the demand drafts deposited in the bank account, which amply demonstrate that there is not a single instance of allowing trade discount to the customers before or after the date of sale of tractors and thus, the allegations of both the lower authorities has no weightage in the eyes of law. As a matter of fact, both the lower authorities have grossly failed to understand in the right and proper perspectives the crucial facts of the case that the buyers of the tractors are purely the agriculturists purchasing tractors through bank loan (agriculture loan) to carry out the agriculture activities and to earn agriculture income. For that purposes, the Bank has issued the Demand Draft on the same date of the invoice issued and presented by the customers to their Bank for loan purposes and only after depositing the Demand Draft on sale of tractors, the appellant firm has given the trade discount in cash to all the customers at the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... find in the audited Trading A/c attached herewith at Pages 16 to 49 that the appellant firm has, completely under bonafide impression, from the initiation of the business, shown the Gross Sales of tractors at Credit side of the Trading A/c and separately shown the trade discount given to the purchasers in the debit side of the Trading A/c. Merely because, the trade discount has been shown separately in the audited books of accounts, it does not tantamount to the claim of an expenditure as alleged as an afterthought, moresowhen, both the lower authorities have rightly accepted the sales of tractors made to the various customers during the relevant year. To put it differently, both the lower authorities have failed to understand and appreciate in the right perspectives that the trade discount is only at the instance of sales, based on the quantum of sales, which could not be denied simply because it has been shown separately in the audited books of accounts. It is further enlightened to your honours that the books of accounts are the audited books of accounts and nowhere in the audit report, the independent auditor has pointed out any discrepancy/defect as to the genuineness of trad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....habad, Lucknow Bench in the case of Asstt.CIT Vs. Vikram Tractors reported in (2008) 5 DTK (All.) Page 323 (copy attached) (5) Without prejudice to the above, I would like to further submit that in accounting principles, considering the nature of transaction of sales of goods (i.e. tractors), the appellant could have directly deducted trade discount from sales, since, it is on the sales of goods and accordingly, the sales or turnover could have been shown "net of trade discount. It is the settled law position that the trade discount is not forming part of the sales or turnover and as clarified in the guidelines of tax audit issued by The Institute of Chartered Accountants of India. As held by the Hon'ble ITAT, Calcutta in Ahmed Hassan & Co. Vs. ITO reported in (1993) 44 ITD 669 (Cal.) (SMC), the amount of trade discount of forming part of sales or turnover in so far as levy of penalty u/s 271B of the Act. Sir, the appellant firm has followed the same method of accounting consistently in as much as the gross sales of goods and trade discount has been shown separately in Trading A/c, which has been accepted by the department in the earlier as well in the subsequent ye....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed for taxation. Your honour will certainly agree with the contention that the income assessed by the learned AO and the disallowance confirmed by the CIT (Appeals) has resulted into unimaginable and unrealistic net profit of Rs. 53,00,810/- i.e. Net Profit ratio at 14.22%, which could never be earned by any dealer of such type of vehicles in this line of business. Moreover, if the quantum of trade discount incurred for Rs. 49,90,640/- disbelieved on such vague grounds raised by the AO, the Gross Profit would be Rs. 76,30,901/- and the G.P. ratio would be 20.47% which is unrealistic, unfair, unreasonable and irrational looking to the income tax records of the appellant firm and much less, the normal Gross Profit margin prevailing in this line of business as dealers in tractors. It is further enlightened here that the purchases and sales as recorded in the audited books of accounts supported by the invoices/bills are duly accepted by the sales tax authorities under the Gujarat VAT Act, 2005. Considering the facts and circumstances and legal position involved in the appeal, I have, to request your honour to allow the appeal fully and oblige. Thanking you in anticipation and hop....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ledger book and confirmations letters from the customers that the cash discount shown by the appellant in the books of accounts was not genuine and afterthought. In rebutting the finding of the AO, the Id. AR argued mainly on three counts i) the customers are from far off villages and prior to purchase of tractors, they have no bank facilities, and therefore, cash was paid, ii) the discounts are paid to the customers to help them get full amount of loan, iii) the cash discount recipients have confirmed which were given at the time of assessment proceeding. I have considered carefully the arguments raised by the Id. AR. 1 have also perused the ledger account of trade discount given and the confirmation letters filed by the customers for having received the cash discount. The details of cash discount given by the appellant along with the date of sale of the tractors to the customers are given below: Sr.No. Name of the Purchaser Cost of tractor & date of purchase Discount paid in cash Dates between discount paid 1. Rameshbhai Babarbhai Patel 504000/- 60000/- 29.4.2006 to 15.05.2006 2. Gamanbhai Maganbhai Choudhary 593000/-26.04.2006 75000/- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vices. It is also fact that in few cases discounts are given in cash for some genuine cause. In the instant case, the appellant has not able to demonstrate, why it has offered cash discount to the customers sometimes after one month from the sale effected. It is also seen from the discount offered that the rate varies from 8 to 8.5%. This kind of cash discount is naturally unusual in this trade. More so, the appellant is a dealer and the margin for sale of tractors would normally will not be more than 10 to 15%. The appellant also heavily invested which incur interest component of such capital. Ina the tight scenario offering it 8 to 8.5% cash discount definitely not a viable business proposition. As the AO rightly observed that entry in ledger account do not tally with the cash book clearly indicates that the cash discount expenses was invented by the appellant much after the sales were affected. When the tractors were sold to the customers, they had already had bank accounts then why the appellant did not pay them in cheques the discount instead of paying in cash. The contention of the Id. AR that cash discounts are offered to the customers to avail full bank loan and to facilita....