M/s Rana Wines (L-1), Nangal V. Addl. CIT, Chandigarh

ITA 599/CHANDI/2011

• Counselvise Citation: 59921514 RSA 2011
• Duration Of Justice: 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 30-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAI SHREE SHARMA
• Assessee Lawyers: AJAY JAIN
• Keywords: Business income; Commercial expediency; Set aside
• Section: 2; 143(3); 40(a)(ia); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE MS SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 599/CHD/2011 ASSESSMENT YEAR: 2007-08 M/S RANA WINES (L-1), V ADDL.CIT, R-1, HO KILN AREA, CHANDIGARH. NANGAL. PAN: AAGFR-1854B (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI AJAY JAIN DEPARTMENT BY: SMT.JAISHREE SHARMA DATE OF HEARING : 10.10.2011 DATE OF PRONOUNCEMENT : 17.10.2011 ORDER PER MEHAR SINGH, AM THE PRESENT APPEAL FILED BY THE ASSESSEE IS DIRECTE D AGAINST THE ORDER DATED 25.03.2011 OF THE LD. CIT(A ) U/S 143(3) OF THE INCOME-TAX ACT,1961 (IN SHORT 'THE AC T'). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THAT THE ORDERS OF LD. CIT(A) IS BAD, AGAINST T HE FACTS AND LAW. 2. THAT THE LD. CIT(A) HAS WRONGLY CONFIRMED DISALLOWANCE OF REBATE AND TRADE DISCOUNT EXPENSES AMOUNTING TORS.12,85,891/-. 3. THAT THE LD. CIT(A) HAS WRONGLY CONFIRMED DISALLOWANCE OF FREIGHT AND CARTAGE EXPENSES AMOUNTING TO RS.47965/- U/S 40(A)(IA) 2 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEN D OR WITHDRAW ANY GROUNDS OF APPEAL BEFORE THE FINAL HEARING. 3. GROUND NO. 1 & 4 ARE GENERAL IN NATURE, HENCE NE EDS NO ADJUDICATION. 4. IN GROUND NO.2, THE ASSESSEE CONTENDED THAT LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF REBATE AND TRADE DISCOUNT EXPENSES AMOUNTING TO RS.12,85,891/-. IN THE COURSE OF PRESENT APPELLATE PROCEEDINGS, LD. AR C ONTENDED THAT 70% OF TOTAL SALES ARE MADE TO THE SISTER CONC ERNS AND HENCE REBATE AND DISCOUNTS WERE ALLOWABLE IN THIS C ASE. LD. AR REFERRED TO PARA 2.7 OF THE ASSESSMENT ORDER. HE ALSO CONTENDED THAT CERTAIN QUANTUM OF DISCOUNT IS PASSE D ON, TO THE DEALERS. HOWEVER, THE LD. AR FAILED TO FURNIS H SPECIFIC AMOUNT PASSED ON TO SUCH DEALERS IN RESPECT OF DISC OUNT RECEIVED BY THE ASSESSEE. 5. LD. DR ON THE OTHER HAND, CONTENDED THAT THE DISALLOWANCE HAS BEEN RIGHTLY MADE AS THE DISCOUNT AND SPECIAL REBATE WAS ALLOWED TO SISTER CONCERN WITHOU T ASSIGNING ANY REASONS OR FURNISHING ANY PLAUSIBLE EXPLANATION . HE REFERRED TO PARA 9 OF THE CIT(A)S ORDER IN THE MATT ER. 6. WE HAVE CAREFULLY PERUSED AND CONSIDERED THE FAC T- SITUATION OF THE PRESENT CASE. WE HAVE ALSO REFERRE D TO THE SUBMISSIONS MADE BEFORE THE FIRST APPELLATE PROCEED INGS AS ARGUED BY THE LD. AR, IN THE COURSE OF PRESENT AP PELLATE PROCEEDINGS. THE RELEVANT FINDINGS OF THE LD. AO A RE REPRODUCED HEREUNDER, FOR THE PURPOSE OF PROPER AP PRECIATION 3 OF THE SAME : 2.7 FURTHER, THE ASSESSEE HAS GIVEN A SPECIAL REBA TE OF RS.12,85,891/- TO M/S ASR & CO. SOLAN OVER AND ABOV E THE DISCOUNT OF RS.44,32,560/-. IT MAY BE MENTIONED HERE THAT THERE IS NO WRITTEN AGREEMENT BETWEEN THE ASSESSEE FIRM AND M/S ASR &CO., SOLAN REGARDING REBATE AND DISCOUNT TO BE GIVEN TO M/S ASR &CO., SOLAN. FURTHER, THERE IS NOTHING ON RECORD TO SUGGE ST THAT M/S ASR & CO. SOLAN HAS LIFTED A CERTAIN NUMBE R OF LIQUOR CASES TO BE ELIGIBLE FOR REBATE. ALSO, TH ERE IS NOTHING ON RECORD TO PROVE THAT THE OTHER PARTIES H AS FAILED TO LIFT THE AGREED NUMBER OF LIQUOR CASES AN D HENCE WERE NOT ELIGIBLE FOR REBATE. 2.8 IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, THE SPECIAL REBATE GIVEN BY THE ASSESSEE FIRM AMOUNTING TORS.12,85,891/- OVER AND ABOVE THE NORMA L REBATE OF RS.44,32,560/- IS CONSIDERED AS EXCESSIVE . IT IS HELD THAT THIS AMOUNT HAS BEEN PAID FOR NON- BUSINESS AND EXTRA COMMERCIAL CONSIDERATIONS. THE ASSESSEE HAS NOT BROUGHT ON RECORD THAT THERE WAS A NY SPECIAL OCCASION OR COMPELLING CIRCUMSTANCE, WHICH REQUIRED PAYMENT OF SPECIAL REBATE IN ADDITION TO T HE NORMAL REBATE. AS DISCUSSED ABOVE IN DETAIL, THE ASSESSEE HAS BEEN SELLING THE GOODS AT THE SAME RAT E TO ALL ITS CUSTOMERS. IT IS ONLY M/S ASR & CO., SOLAN, A SISTER CONCERN OF THE ASSESSEE FIRM, TO WHOM SUCH H UGE REBATE AND DISCOUNT HAS BEEN GIVEN. SINCE M/S ASR &CO. SOLAN IS A RELATED CONCERN, IT IS BASICALLY A CAPTIVE CLIENT OF THE ASSESSEE FIRM AND AS A PRUDEN T BUSINESSMAN, THERE WAS NO NEED FOR PAYMENT OF SPECI AL REBATE IN ADDITION TO REBATE ALREADY GIVEN TO M/S A SR & CO. SOLAN. IN VIEW OF THESE FACTS AND CIRCUMSTANC ES, IT IS HELD THAT THE AMOUNT OF RS.12,85,891/- PAID T O M/S ASR & CO. SOLAN IS WITHOUT ANY BUSINESS CONSIDERATION AND COMMERCIAL EXPEDIENCY. THUS, THE AMOUNT OF RS.12,85,891/- IS DISALLOWED U/S 37(1) OF 4 THE IT ACT, 1961 AND IS ACCORDINGLY ADDED BACK TO T HE INCOME OF THE ASSESSEE. 7. LD. CIT(A) UPHELD THE FINDINGS OF THE AO AFTER APPRECIATION OF THE OBSERVATIONS OF THE AO, AS REPR ODUCED IN PARA 6 OF THE IMPUGNED APPELLATE ORDER, AND ALSO TH E SUBMISSION FILED BY THE ASSESSEE IN THE MATTER BEFO RE THE CIT(A), THE RELEVANT FINDINGS OF THE CIT(A) ARE ALS O REPRODUCED HEREUNDER FOR THE PURPOSE OF PROPER APPRECIATION : 9. AFTER TAKING RIVAL SUBMISSIONS AND MATERIAL ON RECORD INTO CONSIDERATION I FIND THAT:- THE CONTENTION OF THE APPELLANT AS TO HOW THE AO COULD REJECT RS.12,85,891/- WHILE ACCEPTING RS.16,85,044/- GIVEN TO M/S RANA & CO. ANOTHER SIST ER CONCERN IS MISPLACED, AS RS.12,85,891/- WAS OVER AN D ABOVE THE NORMAL DISCOUNT RS.44,32,560/-, WHICH WAS PASSED ON TO M/S ASR & CO. IT IS ALSO OBSERVED THAT NO DISCOUNT HAS BEEN GIVEN TO ANY OTHER CUSTOMER EXCEPT THE TWO SISTER CONCERNS. DESPITE THE FACT THAT NO DISCOUNT AND REB ATE WAS GIVEN TO ANY OTHER CUSTOMER, STILL THE NORMAL DISCOUNT GIVEN TO SISTER CONCERNS WAS ACCEPTED AND IT WAS ONLY THE EXCESSIVE OR UNREASONABLE PORTION WHIC H WAS DISALLOWED. THE CONCEPT OF BUSINESS EXPEDIENCY WOULD BE NEGATED IF THERE IS NO MATERIAL/EVIDENCE TO SHOW WH Y AND HOW ONE PARTY WAS SINGLED OUT FOR HUGE DISCOUNT S. IF THE APPELLANT WAS COMMERCIALLY EXPEDIENT, HE WOU LD HAVE GIVEN SIMILAR REBATES AND DISCOUNTS TO ALL THE CUSTOMERS TO ENCOURAGE THEM TO PICK UP MORE STOCKS. 10. THE APPELLANT RELIED UPON THE CASE OF CIT V SIY A RAM GARG, HUF, ITAO NO.679 OF 2010 DATED 14.12.2010 IN WHICH THE HON'BLE ITAT CHANDIGARH 5 BENCH HELD AS UNDER : 15. ON THIS ISSUE, WE FIND THAT INDEED THE DETAILS FILED BY THE ASSESSEE SHOWED THAT ITS SISTER CONCERNS WERE BEING TAXED AT THE SAME RATE IN WHICH THE ASSESSEE WAS BEING TAXED, PROVING THAT THERE WAS NO REASON FOR THE ASSESSEE TO SHOW HIGHER RATE PURCHASES MADE BY THE ASSESSEE FROM ITS SISTER CONCERN. THE ASSESSEE'S SISTER CONCERN HAD OFFERED THEIR INCOME FROM SUCH SALES, WHICH FACT HAS NOT BEEN DISPUTED. THEREFORE, THE AO ERRED IN INVOKING THE PROVISIONS OF SECTION 40A(2) OF THE ACT AND THE LD. CIT(A) HAS CORRECTLY DELETED THE DISALLOWANCE. 11. WHILE THE CASE QUOTED BY THE APPELLANT RELATES TO THE PROVISIONS OF SECTION 40A(2) IN THE CASE UNDER APPEAL, THE ISSUE IS MORE OF A DISALLOWANCE OF EXPE NSES FOUND TO BE UNREASONABLE U/S 37(1) OF THE INCOME-TA X ACT,1961. IN VIEW OF ABOVE DISCUSSION, I HOLD THAT THE APPELLANT HAS NOT BEEN ABLE TO ESTABLISH THE REASON AND GENUINENESS OF SUCH EXCESSIVE DISCOUNT TO M/S ASR &CO. THE ADDITION MADE ON THIS ACCOUNT IS THEREFORE CONFIRMED DISMISSING THE APPEAL ON THIS GROUND. 8. WE HAVE CAREFULLY PERUSED AND CONSIDERATION RIVA L SUBMISSIONS, FACTS OF THE CASE AND RELEVANT RECORD IN THE MATTER. IT IS UNDISPUTED FACT THAT M/S ASR & CO. I S A SISTER CONCERN OF THE ASSESSEE AND ALSO ONE OF ITS MAIN CU STOMERS. THE ASSESSEE ALLOWED NO REBATE OR DISCOUNT MUCH LES S SPECIAL DISCOUNT, TO OTHER CUSTOMERS VIS-A-VIS THE DISCOUNT AND SPECIAL DISCOUNTS ALLOWED TO THE SISTER CONCERNS. T HE AO AND THE CIT(A), HIGHLIGHTED THAT M/S SKYLARK WINE, L-1 PAONTA SAHIB IS A MAJOR CUSTOMER OF THE ASSESSEE BUT NO RE BATE OR DISCOUNT HAS BEEN ALLOWED TO THIS PARTY. IT WAS AL SO HIGHLIGHTED IN THE FINDINGS OF THE LOWER AUTHORITIE S THAT GOODS 6 WERE SOLD TO SISTER CONCERN NAMELY M/S ASR & CO. AN D OTHER PARTIES AT THE SAME RATE AND THERE WAS NO VARIATION IN THE RATE OF GOODS SUPPLIED TO VARIOUS PARTIES. THIS FACTUM W AS CONFRONTED TO THE ASSESSEE DULY SUPPORTED BY THE SA LE BILLS ON 13.11.2009 BY THE AO, WHILE EXAMINING THE BOOKS OF ACCOUNT. THE ASSESSEE FAILED TO ESTABLISH HIS CASE OF GIVING A SPECIAL REBATE OF RS.12,85,891/- TO THE SISTER CONCERN. THE AO GAVE HIS CATEGORICAL FINDING IN THE MATTER, AS REPRODUCE D IN THE ORDER OF CIT(A). THE ASSESSEE PLACED RELIANCE ON TH E DECISION OF THE TRIBUNAL, IN THE CASE OF M/S TRIVENI SILK MI LLS V ITO AS RENDERED IN ITA NO. 791/CHD/2011 DATED 22.09.2011 T O SUPPORT HIS CONTENTIONS. HOWEVER, A CAREFUL PERUSA L OF THE DECISION RELIED UPON BY THE ASSESSEE REVEALS THAT T HE SAME IS NOT APPLICABLE BEING FACTUALLY DIFFERENT AND DISTIN GUISHABLE. IT IS PERTINENT TO HIGHLIGHT THAT THE ASSESSEE FAIL ED TO ESTABLISH HIS CASE THAT THE DISCOUNT RECEIVED BY TH E SISTER CONCERN WAS PASSED ON TO OTHER DEALERS. THUS, HAVIN G REGARD TO THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES OF T HE CASE AND CLEAR FINDINGS OF THE AO AS WELL AS OF THE CIT(A), WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE CIT(A) AN D HENCE THE SAME ARE UPHELD. 9. IN GROUND NO.3, THE LD. AR CONTENDED THAT THE ADDITIONS MADE U/S 40(A)(IA) ARE UNWARRANTED AS ONLY REIMBURS EMENT OF FREIGHT AND CARTAGE EXPENSES ARE INVOLVED IN THE MA TTER. LD. DR PLACED RELIANCE ON THE ORDER OF THE LOWER AUTH ORITIES. 10. WE HAVE CAREFULLY PERUSED THE FACTUAL MATRIX OF THE CASE, RELEVANT FINDINGS AND RIVAL SUBMISSIONS. WE ARE OF THE CONSIDERED OPINION THAT IT IS A CASE OF REIMBURSEME NT OF 7 FREIGHT AND CARTAGE EXPENSES. HENCE, THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE IN THE PRESENT CASE. T HEREFORE, FINDINGS OF THE LD. CIT(A) ARE SET ASIDE AND THE AS SESSEE SUCCEEDS IN THIS GROUND OF APPEAL. 11. RESULTANTLY, THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH OCTOBER,2011. SD/- SD/- (SUSHMA CHOWLA) (MEHAR SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 17 TH OCT.,2011 POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT ,DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH