Mak Pump Industries v. Ito

Anil Chaturvedi, A.M:— This appeal is filed by the Assessee against the order of CIT(A)-XVI, Ahmedabad dated 08.11.2010

2. The relevant facts as culled out from the material on record are as under.

3. Assessee is a partnership firm engaged in the business of manufacturing and trading of Submersible Pumps and Components. Assessee electronically filed its return of income for A.Y 2007-2008 on 29.10.2007 declaring total income of Rs. 5,36,612/-. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 18.12.2009 and the total income was determined at Rs. 8,27,910/-. Aggrieved by the order of A.O, Assessee carried the matter before CIT(A). CIT(A) vide order dated 8.11.2010 dismissed the appeal of the Assessee. Aggrieved by the order of CIT(A), the Assessee is now in appeal before us and has raised the following grounds:—

1. That on facts and in law the learned CIT(A) has grievously erred in holding that the turnover discount of Rs. 1,71,349/- and service discount of Rs. 1,19,944/- is not allowable and that it pertained to earlier assessment year.

2. That on facts and in law, it ought to have been held that the turnover discount and service discount are legitimate business expenditure and the same is allowable as it had crystallized in the year under consideration.

4. Though 2 different grounds have been raised by Assessee but the since both the grounds are interconnected therefore both the grounds are considered together.

5. During the course of assessment proceedings, on perusing the ledger accounts of Jai Balaji Submersible (Haryana), A.O noticed that Assessee had granted Turnover discount of Rs. 1,71,349/- and Service discount of Rs. 1,19,944/- to it. A.O also noticed that though the Turnover discount and Service discount was granted during financial year 06-07 but was on the basis of performance of party during earlier financial year i.e 05-06. He was therefore of the view that the expenses did not pertain to the year under consideration more so when the account of the party was credited with Turnover discount and Service discount on the first day of the financial year 06-07. A.O also asked the Assessee to furnish documentary evidences in respect of scheme of turnover discount and Service turnover allowed to Jai Balaji Submersible as well as the details of other party to whom such discount was given during F.Y 05-06 & 06-07. The Assessee was therefore asked to justify its claim of expenditure. A.O has noted that instead of giving the details along with the evidences to prove the genuineness of the discount, the Assessee had merely filed an affidavit of its partner to substantiate the claim. A.O also noticed that during the financial year 05-06 another purchaser namely Mak Pump Industries (Ludhiana), though had made purchases of amount in excess of Rs. 1 crore as against the purchase of Rs. 35 lac by Jai Balaji Submersible (Haryana), but no Turnover discount or Service discount was allowed to Mak Pump Industries (Ludhiana). He therefore considered the claim in respect of Turnover discount and Service discount as the non genuine expenditure. As as alternate, he considered the discount to be prior period expenses and therefore also the same could not be allowed for the year under consideration. He accordingly disallowed the Turnover discount and Service discount aggregating to Rs. 2,91,293/- (Rs. 1,71,349 + Rs. 1,19,944). Aggrieved by the order of A.O, Assessee carried the matter before CIT(A). CIT(A) upheld the order of A.O by holding as under:—

4.1 I have considered the submission made by the appellant and observation of the AO. I agree with both the conditions in respect of which the AO has disallowed the claim. It is very clear that the claim pertains to the earlier year and not to the current year. The appellant itself has credited the discount on the very first day of the current year i.e 01/04/2006, which shows that the story of the party earlier agreeing to return the goods and later on agreeing not to return the goods is bogus because if it was so, the discount could not have been decided on the very next day. The expenditure is clearly in respect of earlier year and not for the current year.

4.2 Secondly, even on merit, it is very clear that the appellant has failed to bring any document to show that the party was eligible for turnover discount and service discount. On the other hand the other party whose sales were for more than 25 Lacs has not been given the discount. Even though its sales were three times more the sales of Balaji. The piece of paper stating to be the terms and conditions does not inspire any confidence at all as it is a computer printout, bearing no mark of genuineness. Even the stamp of Balaji is not printed. The name of Balaji is not printed. The appellant has failed to show how Messrs Mak Pump Industries failed to qualifies for the discount, whereas Messrs Balaji succeeded in any case, the appellant has failed to show any evidence that giving the discount was as per the agreement. Hence, even on merit, the disallowance made by the AO is correct. The disallowance is confirmed, the grounds of appeal are dismissed.

6. Aggrieved by the order of CIT(A), the Assessee is now in appeal before us.

7. Before us, the ld. A.R reiterated the submissions made before A.O and CIT(A). He further submitted that the Assessee has been consistently following the policy of crediting the Turnover discount and Service discount in the month of April of succeeding year and it is calculated on the basis of the total sales, sales return, prompt payment etc. made in the immediate preceding financial year. He therefore submitted that the expenses crystallized during the year under consideration and therefore it was allowable. He further submitted that the Assessee was having taxable income even in the earlier years and in the year under consideration and therefore any motive to evade the tax cannot be attributed to the Assessee. He therefore submitted that the expenses be allowed in the year under consideration. In the alternate he submitted that if the expenses is considered to be pertaining to previous year, necessary directions may be given for allowing the same in the previous year. He also placed reliance on the decision of Saurashtra Cement and Chemicals Industries Ltd. v. CIT, (1995) 213 ITR 523. and the decision in the case of Perfect Equipment v. DCIT, (2003) 85 ITD 50 (Ahmedabad). The ld. D.R on the other hand relied on the order of A.O and CIT(A).

8. We have heard the rival submissions and perused the material on record. The issue in the present case is allowability of Turnover discount and Service discount. It is an undisputed fact that the turnover discount and Service discount which has been offered to Jai Balaji Submersible (Haryana) was with respect to the sales made to them in financial year 05-06. It is also a fact that the entry for credit of Turnover discount and Service discount have been passed on the first day of financial year i.e on 1.04.2006 i.e in F.Y 06-07. While disallowing the expenses, A.O has noted that Assessee did not furnish any documentary evidence in respect of Turnover discount and Service discount or details of other parties to whom such discounts were given during the financial years 05-06 & 06-07. A.O have also noted that during financial year 05-06 though the sales to another party Mak Pump Industries (Ludhiana) was to the extent of Rs. 1 crore and far more than that of Jai Balaji, but no turnover discount or service discount was offered to it. CIT(A) while upholding the order of A.O has given a finding that the claim pertains to earlier year and not to the current year. CIT(A) has also held that the terms and conditions submitted by the Assessee does not inspire any confidence and has no mark of genuineness. He has also noted that Assessee has not brought any material on record to show as to how Mak Pump Industries failed to qualify for discount whereas Jai Balaji succeeded in getting discount. Before us, the ld. A.R could not bring any material on record to controvert the findings of A.O and CIT(A). Even before us, the Assessee has not produced any evidence to show that the discounts which were allowed to Jai Balaji was also allowed to other parties in the past or in subsequent years. Before us, the ld. A.R has also raised on alternate plea that if the expenses pertain to previous year, the A.O be directed to allow it in the previous year and for which he relied on the decision in the case of Perfect Equipments (supra). However we find that in the decisions relied by the ld. A.R, it was not the case where the expenditure was held to be non genuine. However in the present case, A.O and CIT(A) has held the expenses to be non genuine and we are therefore of the view that the decisions relied by the A.R are distinguishable on facts and cannot be applied to the present case. In view of the aforesaid facts, we find no reason to interfere with the order of CIT(A) and thus these grounds of Assessee are dismissed.

9. In the result, the appeal of the Assessee is dismissed.