AI Drafter 
TaxTMI 
TaxTMI 
2009 (8) TMI 60
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....rn from 8% as allowed by the CIT(A) to 5% and as against 11% claimed by the assessee and 3% allowed by the Assessing Officer. 2. The facts of the case are that the appellant is a partnership firm engaged in the business of export of rice. A return of income for the year 2004-2005 was filed on 01-11-2004 declaring a total income of Rs. 87,47,807/-. In the profit and loss account filed along with the return the assessee firm had debited an amount of Rs. 1,26,45,614/- on account of trading discount allowed during the year under consideration and which amount was mainly on account of the trade discount of Rs. 1,25,05,062/- allowed to its sister concern M/s. United Overseas. The Assessing Officer required the assessee to justify the trade dis....
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....balance with the assessee or M/s. United Overseas it was said to be only a self-serving statement and as regards the other justification of higher sales the Assessing Officer held that its explanation was too general to justify discount allowed at substantially higher rate. 4. In appeal the CIT increased the amount to 8% from 3% taking note of the fact that the discount was in conformity with the discount given in the earlier assessment year 2003-2004 and allowed under Section 143(3). The assessee had also contended before the CIT that it is normal market practice to give bulk discount besides normal discount. It was also submitted that the gross profit rate of the assessee firm had gone up from 18.5% as shown in the last year to 19.6% d....
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....cussed above. In other words, the discount to sister concern is to be allowed to the extent of 8% which is 5% more than the trade discount given by the appellant to other parties. Hence, the addition made by the AO is upheld to the extent of 3% and deleted to the extent of 5%." 5. On further appeal by the assessee to the ITAT the Tribunal reduced the trade discount from 8% as granted by the CIT(A) to 5%. The Tribunal held in this regard as under: "11. We have considered the rival submissions and also perused the relevant material on record. It is observed that even though discount was allowed by the assessee firm to M/s. United Overseas during the year under consideration at the same rate of 11% as was allowed in the immediately prece....
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....o Rs. 13.20 crores in the year under consideration as compared to Rs. 10.89 crores in the immediately preceding year as pointed out by the AO on page No. 9 of his order and as the discount at the rate of 3% only was allowed on such domestic sales made in the immediately preceding year to other parties, the increase in such discount to 11% as allowed by the assessee firm on domestic sales made to M/s. United Overseas appears to be quite excessive." The ITAT further gave no weightage to the issue of credit balance of M/s. United Overseas the sister concern in the book of the assessee firm and further held that the expenditure as claimed fell under Section 40A(2) inasmuch as expenditure in question on account of discount was separately clai....
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....sing Officer, 8% by the CIT and reduced to 5% by the ITAT. The counsel contended that there is no rationale and valid basis for this ad hoc disallowance. It was contended that once the justification of the assessee was accepted by the Tribunal in paragraphs 11 and 12 of the judgment quoted above, then, in such circumstances there was no reason for making an ad hoc disallowance by reducing the trade discount to just 5%. 7. The learned counsel for the respondent/Revenue has supported the order of the Tribunal by relying on the same and referring to its paragraphs. 8. We feel that the Tribunal has clearly erred in law and, therefore, the appellant clearly deserves to succeed. At the time of admitting the appeal, the following questions o....
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....ar. Secondly, it is not unknown in trade circle to give bulk discount for bulk sales. The very fact that out of the total domestic sales of 13.20 crores, the sales to the sister concern is Rs.11.11 crores clearly justifies giving a trade discount of 11% to the sister concern as compared to 3% to the others. Further, there is no rationale or basis or any logic of the authorities below in unilaterally deciding a disallowance by reducing the entitlement from 11% as claimed by the assessee to 3% (by the Assessing Officer), 8% (by the CIT(A) and 5% (by the ITAT). This ad hoc rough and ready method without any basis to support the same especially when in para 12 the Tribunal has accepted the contentions of the assessee that there was justificatio....