M/S Chittosho Motors, Patiala V. The Addl Commissioner of Income Tax, Patiala

ITA 343/CHANDI/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4948 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 07-03-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 11-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHANDRA KANTA
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCHA, 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 A GAINST THE ORDER OF THE LD. CIT(A), PATIALA DT. 26/03/2016. 2. IN THE APPEAL ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THAT THE LD. CIT(A) HAS ERRED IN UPHOLDING THE D ISALLOWANCE OF THE EXPENDITURE OF RS. 27,44,688/- CLAIMED UNDER THE HEAD COMMISSIO N / DISCOUNT IN UTTER DISREGARD OF THE EXPLANATIONS RENDERED WHICH IS ARB ITRARY AND UNJUSTIFIED. 2. THAT THE LD. CIT(A) HAS FURTHER ERRED IN UPHOLDI NG THE DISALLOWANCE OF 1/8 TH OF THE EXPENSES CLAIMED AT RS. 14,90,911/- UNDER THE H EADS TELEPHONE, CAR REPAIR AND MAINTENANCE, DEPRECIATION RESULTING IN AN ADDIT ION OF RS. 1,83,363/- WHICH IS ARBITRARY AND UNJUSTIFIED. 3. THAT THE LD. CIT(A) HAS FURTHER ERRED IN UPHOLDI NG THE DISALLOWANCE OF RS. 6,68,601/- BEING 10% OF THE EXPENSES AS AGAINST RS. 13,37,202/- BEING 20% OF THE EXPENSES CLAIMED UNDER THE HEADS BUSINESS PROMOTION , FESTIVAL, STAFF WELFARE, TEA & COLD DRINK, TOUR & TRAVELLING, GENERAL & MISC. EX PENSES, MISC. & GENERAL EXPENSES, REPAIR AND MAINTENANCE, VEHICLES RUNNING & MAINTENANCE AND WORKSHOP EXPENSES TOTALING RS. 66,86,011/- WHICH IS ARBITRARY AND UNJUSTIFIED. 3. DISALLOWANCE OF EXPENDITURE COMMISSION / DISCOUNT 3.1 DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT 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 2 THE ASSESSEE COULD NOT SUBMIT COMPLETE DETAILS ON T HE 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 TH E EMPLOYEES WORKING AT THE BRANCH. SINCE COMPLETE ADDRESS GENUINENESS OF THE C OMMISSION PAID REMAIN UNVERIFIABLE, THE COMMISSION PAYMENT WAS DISALLOWED . 3.2 LD. CIT(A) CONFIRMED THE ADDITION ON THE GROUND S 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 EM PLOYEES 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 B EFORE US (PAPER BOOK- PAGE 380-387). IN MOST OF THE CASES THE ADDRESSES HAVE A LSO BEEN GIVEN. 3.4 LD. AR ARGUED THAT IN AUTOMOBILE TRADE IT HAS B EEN BUYERS MARKET FOR THE LAST MANY YEARS. MORE AND MORE OPTIONS ARE AVAILABL E FOR THE CUSTOMER AS INTERNATIONAL AUTO MAJORS HAVE FLOODED THE MARKET W ITH 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 DEALE RSHIP IN THE AREA WITHIN A RADIUS OF 8-10 KMS. NAMELY AUTOPACE, TRICITY, BERKE LY, MOHALI AND CM AUTO KHARAR. THERE WAS RACE TO WRANGLE BUSINESS AWAY FRO M COMPETITORS. ALL THE DEALERS OFFERED DISCOUNTS / INCENTIVES OUT OF THEIR MARGINS TO CUSTOMERS IN ONE 3 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 PR ICE CUT IN THE FORM OF DISCOUNT ON SALE AND SUBVENTION ON FINANCE CHARGE R ANGING BETWEEN RS. 2000.00- RS. 3500.00 IN THE INTEREST OF BUSINESS. T HE DISCOUNT AND SUBVENTION HAS BEEN ALLOWED AGAINST SALE AND ROUTED THROUGH RESPEC TIVE A/CS OF CUSTOMERS. THERE IS NO CASH OR CHEQUE PAYMENT TO CUSTOMER. COP Y OF INDIVIDUAL A/CS OF CUSTOMER WAS ENCLOSED. 3.7 AS REGARDS COMMISSION TO EMPLOYEES, IT IS SUBMI TTED THAT PRACTICE WAS INTRODUCED KEEPING IN VIEW THE INTEREST OF BUSINESS AS WELL TO CEMENT THEIR LOYALTY TO THE ORGANIZATION. PAYING COMMISSION PROVIDED EMP LOYEES WITH AN EXCELLENT INCENTIVE TO FOCUS ON INCREASING FIRMS PROFITABILI TY. 3.8 THE LD. DR RELIED ON THE ORDERS OF THE AUTHORIT IES 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 TH E COMMISSION PAYMENT AND SUBVENTION DISCOUNTS ARE A PART OF THE BUSINESS PRACTICE FOLLOWED IN THE AUTOMOBILE INDUSTRY. REGARDING THE EVIDENCES TO PRO VE SUFFICIENTLY THE PAYMENTS, THE ASSESSEE HAS SUBMITTED LIST OF CUSTOM ERS 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 EMPLO YEE PERTAINING TO THE RECEIPT OF COMMISSION NOR ANY OF THE CUSTOMER PERTA INING TO SUBVENTION. THE DISALLOWANCE OF THIS AMOUNT GROSSLY, CONSISTING OF TWO PARTS I.E; PAYMENT TO 4 EMPLOYEES AND DISCOUNT TO CUSTOMERS CANNOT BE HELD TO BE VALID IN THE ABSENCE OF BRINGING ANY PROOF OR ENQUIRY DETAILS B Y THE ASSESSING OFFICER. 3.11 THE ASSESSING OFFICERS/ 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 LI ST OF CUSTOMERS IS AVAILABLE WITH THE ASSESSING AUTHORITIES. HENCE THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER ON THIS GROUND IS LIABLE TO BE DELETED. 3.12 APPEAL OF THE ASSESSEE ON THIS GROUND IS ALLOW ED. 4. DISALLOWANCE TELEPHONE, CAR, REPAIR & MAINTENANCE 4.1 THE ASSESSING OFFICER HAS DISALLOWED 1/8 OF EXP ENSES CLAIMED UNDER THE HEAD TELEPHONE, CAR , REPAIR & MAINTENANCE WHICH WA S UPHELD BY THE LD. CIT(A). 4.2 BEFORE US, THE LD. AR AND LD. DR FAIRLY CONCEDE D FOR 10% OF DISALLOWANCE. HENCE, THE DISALLOWANCE STANDS MODIFIED TO THE EXTE NT OF 10%. 4.3 APPEAL OF THE ASSESSEE ON THIS GROUND IS ALLOWE D FOR STATISTICAL PURPOSES. 5. DISALLOWANCE FESTIVAL, STAFF WELFARE ETC. 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) RESTRICTE D TO 10%. 5.2 IT WAS ARGUED BEFORE US BY THE LD. AR , THAT TH E BOOKS OF ACCOUNTS HAVE BEEN PROPERLY AUDITED HENCE NO DISALLOWANCE IS CALL ED FOR AND PLEADED THAT THE DISALLOWANCE IS HIGHLY EXCESSIVE. 5 5.3 BEFORE US, THE LD. AR AND LD. DR FAIRLY CONCEDE D FOR 5% OF DISALLOWANCE. HENCE, THE DISALLOWANCE STANDS MODIFIED TO THE EXTE NT OF 5%. 5.4 APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTIC AL PURPOSES. 6. AS A RESULT, APPEAL OF THE ASSESSEE IS ALLOWED F OR 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