TaxTMI 
TaxTMI 
2016 (10) TMI 1340
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.... dealers, which is only a provision. 3. The facts of the issue are that the assessee claimed Service Commission in these assessment years as the expenditure, when the air conditioners were sold to the dealers. According to AO, the expenditure which is booked at the time of sale is only a provisional expenditure. The actual expenditure will accrue, only when the particular unit is sold by the dealer and installed at the customer's premises. There is no certainty that all the units sold to the dealer would in turn be sold to the customer within the same year. Therefore, only the total expenditure incurred on the issue of credit notes to the dealers at the time of selling by the dealer to the customer is allowable for deduction. In this case, the provision so created during the year was disallowed by the AO. Aggrieved by the order of the AO, the assessee carried the appeal before the Ld.CIT(A). 3.1 On appeal, the Ld.CIT(A) allowed the claim of assessee with the following observations. (a) The liability is created out of the event of sale. In the case of the assessee company, 'sale' is the 'obligating event'. The event of sale has created the present obligation of Servic....
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....s for a particular period and for which the assessee is providing free maintenance warranty, which involves the cost to be borne by the assessee for which the assessee is making the provision in the books of account of assessee. Further, he submitted that when the assessee recognized the income on the sale of the air conditioners at the same time on provisional basis, provision towards services created by the assessee. According to him, the Department cannot disturb the consistent method of accounting followed by the assessee. In our opinion, if the Service Commission is directly attached to sales made by the assessee and as soon as sales are accounted corresponding service charges/commission to be incurred by the assessee to be booked in the books of account of assessee. Accordingly, we are inclined to remit the issue to the file of AO to verify the books of accounts of assessee whether the Service Commission is debited when the sales made and if the assessee charges service commission as soon as the sales is made, the claim of assessee is to be allowed, as it is related to the sales of air conditioners. With this observation, we remit the issue to the file of AO for fresh co....
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.... M/s. Cheminvest Limited Vs. DCIT, Ld.CIT(A) allowed the appeal of assessee holding that since assessee is having no exempt income, there is no question of disallowance u/s.14A of the Act. Against this, the Revenue is in appeal before us. 7. We have heard both the parties and perused the material on record. The Hon'ble Madras High Court in the case of CIT Vs. M. Ethurajan (273 ITR 95) considered this issue by following the judgement of Supreme Court in the case of CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 (SC) and in the case of Pradeep Kar Vs. ACIT reported in (2009) 319 ITR 0416(Karnataka High Court) wherein held that:- "5. The assessing authority considered the decision in Rajendra Prasad Moody' s case [1978] 115 ITR 519 (SC) relied upon by the learned counsel and held that it is not applicable to the fact situation. The reasons assigned for such a conclusion in the assessment order are extracted hereunder : "The decision is with reference to deduction allowable under section 57(iii) of the Income-tax Act. The decision relates to an assess ment year where dividend income was taxable in the hands of the assessee. With the introduction of section 10(....
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....ingly, this ground of the Revenue is allowed. 8. The next ground in Revenue's appeals in ITa Nos.473 & 474/Mds./2016 is with regard to deletion of disallowance of trade discount given to the sister concerns. 8.1 The facts of the case are that the assessee has paid discounts to various parties. This includes M/s ETA Star Appliances P Ltd, a related party who have received a discount. Since the paid up capital of the Company exceeds Rs. One Crore, transactions with such parties are covered u/s 297(1) of the Companies Act, 1956 which stipulate that prior approval of the Central Government is to be obtained in respect of such transactions. The AR was asked by A.O whether any such approval was received from the Central Government. In response, the AR furnished a document dated 15.9.10 from the Regional Director, Southern Region, Ministry of Corporate Affairs wherein the approval was granted u/s 297(1) for the period from 13.8.10 onwards for specified amounts.' There was no approval for the Financial Year 2009- 10, pertaining to the AY 2010-11. It is clear that the discounts granted to M/s ETA Star Appliances P Ltd did not have the approval of the Central Government as stipula....
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....sidered by the Commissioner of Income Tax (Appeals) with reference to the findings of the Assessing Officer and the submissions of the assessee and following the various High Court decisions including the decision of jurisdictional High Court in the case of A.K.Subbaraya Chetty & Sons (supra) held that discount allowed to sister concerns were not unreasonable and cannot be excessive having regard to the market rate. Commissioner of Income Tax (Appeals) also held that Assessing Officer was in error in disallowing the trade discount under section 40A(2)(a) since trade discount allowed to sister concerns cannot be considered as an item of expenditure incurred by the assessee observing as under:- "6.1.2 I have considered the findings given by the assessing officer in the assessment order and also submissions made by the AR of the appellant along with the judicial pronouncements cited on this issue. It is an admitted fact that the Trade Discount allowed to the sister business concerns of the appellant was by way of book adjustment and that the appellant has realized the sale amount net of Trade Discount. Therefore, the appellant cannot be stated to have incurred any e....
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....question of applicability of section 40A(2)(a)....12.(ii) The provision section 40A(2) did not apply to the facts of the present case inasmuch as the Trade Discount is not an expenditure which is incurred or with respect to which a payment is made. The facts of the case decided by the Delhi High Court and the facts in the case under appeal are identical. In both cases the Trade Discount allowed was by way of reducing the discount allowed from the sale amount. Hence, it is a case of less realization of sale, rather than incurring any expenditure. Similar issue came up before the Madhya Pradesh High Court in CIT v Udhoji Srikrishnadas reported in 139 ITR 827. In this case the assessee appointed M/s Lalchand Shyamsundar, as the sole selling agent for the Beedis manufactured by the assessee. The firm was entitled to receive a commission of 10% on the sales. The AO noticed that this firm could be considered as a 'person' within the purview clause (b) of sub-section (2) of section 40A and that, since the assessee had sold goods to this firm at a rate lower than the market rate, the profit of Rs. 6,81,987/- earned by the firm would amount payment of additional c....
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....dered as an item of expenditure incurred by the appellant. also no payment on the part of the appellant to the sister concern on this score to attract the provisions of section 40A(2)(a). The cases cited by the AO are not applicable to the facts of the present case. As pointed out by the AR of the appellant, in all those cases, payment of commission or interest to 'persons' referred to in clause (b) of section 40A(2) was clearly established attracting the application of this provision. it is seen that out of the total sale of Acid Slurry of Rs. 56,67,70,241/-, sales to the sister concerns were Rs. 55,65,16,559/- which works out to Rs. 98.19 percentage of the total sales. Further even after allowing discount, the rate at which the qoods were sold to sister concerns was more than the rate at which the sale was effected to others. Only in the case of M/s. Ultramarine & Pigments Ltd the rate was slightly more. It is seen that, the purchaser was relatively new to the appellant and longer credit was allowed. It needs hardly any emphasis that bulk purchasers enjoy better bargaining power and therefore are able to get lower rate and discount. It is seen that the rate at which the g....