Income Tax Appellate Tribunal - Hyderabad
M/S Bhanu Automobiles Limited,, ... vs Department Of Income Tax on 29 January, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "A", HYDERABAD
BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
AND
SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
I.T.A. No. 1677/HYD/2013
Assessment Year: 2004-05
Deputy Commissioner of M/s. Bhanu Automobiles Ltd
Income Tax, Vs HYDERABAD
Circle-1(3), [PAN: AABCB4419Q]
HYDERABAD
(Appellant) (Respondent)
For Revenue : Shri M. Sitaram, DR
For Assessee : Shri A. Chandra Mohan Rao, AR
Date of Hearing : 18-01-2016
Date of Pronouncement : 29-01-2016
ORDER
PER B. RAMAKOTAIAH, A.M. :
This is Revenue's appeal against the order of the Commissioner of Income Tax (Appeals)-V, Hyderabad, dated 26-08-2013. The main issue in this appeal is with regard to disallowance of claim of discount to its customers on sale of two wheelers of amount of Rs. 46,69,869/- made by the Assessing Officer (AO) vide assessment order u/s. 143(3) of the Income Tax Act [Act], but allowed by Ld. CIT(A).
I.T.A. No. 1677/Hyd/2013
:- 2 -: M/s. Bhanu Automobiles Ltd.,
2. The brief facts of the case are that assessee is engaged in the business of dealer of automobiles. For the AY. 2004-05, the assessee-company filed its return of income on 28-10-2014 admitting taxable income of Rs. 22,38,540/- and the same was processed u/s. 143(1). During the course of assessment proceedings, AO found that an amount of Rs. 46,69,869/- towards discount given on sale of motorcycles has been debited by assessee-company in P&L Account. Vide letters dt. 05-07-2006 & 08-11-2006, AO asked the assessee-company to furnish the details of discount given along with ledger extract of sales & sales invoices. The AR of assessee-company appeared on 13-11-2006 before the AO and failed to produce the same. AO has given further time till 20-11-2006 to furnish the same. On the said date, AR of assessee- company appeared before the AO and furnished some of the sales invoices. After verification of the same, AO has given time to AR of assessee-company to produce full details as per letter dt. 01-12-2006. On verification of the details furnished, AO noticed that there was no mention of discount given to the customers on the sales invoices. When the same was asked, AR of assessee-company replied that the discount portion was shown separately. On further verification, AO found that the same were not signed by the customers who had said to have received the discount. AO has given a final opportunity to assessee-company to prove the discount allowed to customers as genuine. For this purpose, assessee-company has to produce sales register, discount account along with sales invoices and discount given vouchers which possesses customers' signature. Assessee-company could not substantiate its claim with any supporting evidences. It was also mentioned by the AO that in cases where the payment was collected in the form of cheques, discount was shown to be given in I.T.A. No. 1677/Hyd/2013 :- 3 -: M/s. Bhanu Automobiles Ltd., the form of cash. In view of the aforementioned and also in the absence of any cogent evidence to support the claim of allowance of discount, AO disallowed the claim of Rs. 46,69,869/-. Aggrieved, assessee filed an appeal before the Ld.CIT(A).
3. During the course of proceedings before Ld.CIT(A), assessee- company had filed 41 bills and confirmations in respect of sale invoices of the customers, who have received discounts on sale of two wheelers and requested that the same may be taken as additional evidence under Rule 46A of the I.T. Rules. The same was forwarded by the then CIT(A) to the AO vide letter dt. 04-12- 2007. On receipt of the same, AO has submitted that assessee has furnished confirmations in respect of discount paid in 41 cases involving discount amount of Rs. 32,070/-as against discount debited at Rs. 46,69,860/- involving 11,515 cases of sale invoices. AO has reported that enquiries were made in case of two persons i.e., Shri P. Srinivasa Rao and Shri V.V.R. Subramaniam and Shri P. Srinivasa Rao was not aware of getting discount when the vehicle was purchased one of his relatives, but he admitted that his signature on the confirmation letter was obtained by the person from company stating that their records were misplaced. Like- wise, Shri V.V.R. Subramaniam also confirmed that he has no idea of discount, but somebody has obtained the confirmation letter. Further, AO also reported that he has contacted some people on phone, who confirmed partly whereas some of them have reported that they have not received discount. Out of the twenty people contacted, extracted by the Ld. CIT(A) in page 5 of the order, ten people admitted to have received discount. Whereas other ten people have stated that they have not received the discount. In fact, one person received a gold ring as prize but not cash I.T.A. No. 1677/Hyd/2013 :- 4 -: M/s. Bhanu Automobiles Ltd., discount. Thereafter, assessee against obtained confirmation letters from those ten persons and submitted before the CIT(A). On the basis of the same, Ld. CIT(A) considered the whole issue and gave relief in his order.
4. As far as discount is concerned, Ld.CIT(A) held that 'discount is reduction to a basic price of goods or services. They can occur anywhere in the distribution channel, modifying either the manufacturer's list price (determined by the manufacturer and often printed on the package), the retail price (set by the retailer and often attached to the product with a sticker), or the list price (which is quoted to a potential buyer, usually in written form). There are many purposes for discounting, including:
a. To increase short-term sales;
b. To move out-of-date stock ;
c. To reward valuable customers;
d. To otherwise reward behaviors that benefits the discount issuer.
The Ld.CIT(A) further held that 'some discounts and allowances are in the form of sales promotion. Basically, automobile industry prefers non-cumulative quantity discounts. These are price reductions based on the quantity of a single order. The expectation is that they will encourage larger orders'.
5. On careful consideration, Ld.CIT(A) finally held as under:
"6. I have carefully considered the submissions of the appellant and the remand reports of the Assessing Officer. The appellant had submitted a copy of the Proceedings of the Commercial Tax Officer, Hyderabad, dated I.T.A. No. 1677/Hyd/2013 :- 5 -: M/s. Bhanu Automobiles Ltd., 12-09-2005 for the F.Y.2003-04. In the order, in Form AR-II as per books, the following figures were shown:
Particulars Gross Turnover Net Turnover
1st Sales of vehicles 39,56,72,207 39,56,72,207
1st Sale of CSD 1,59,60,267 1,59,60,207
2nd Sale of vehicles 1,32,218 1,32,218
TOTAL: 41,17,64,693 41,17,64,693
The Profit and loss Account filed before the Commercial Tax Officer for the F.Y.2003-04 reveals the total turnover from sale of Motor Cycles at Rs. 41,64,33,382.03 and after debit of Rs.46,69,869 towards discounts to customers, the net turnover was arrived at Rs.41,17,64,692. Finally, after verifying the information submitted by the appellant, the Commercial Tax Officer determined the final turnover as follows:
1st sale of vehicles : Rs. 39,56,72,207
1st sale to CSD : Rs. 1,59,60,267
2nd sale of vehicles :Rs. 1,32,218
--------------------------
Rs. 41,17,64,693
--------------------------
6.1 From the above order, it is clear that the Commercial Tax Officer, a local authority, assessed the income from sale of motor cycles at Rs.41,17,64,693/-, by considering the discount amount debited to P&L A/c of Rs.46,69,869/-. This fact cannot be brushed aside while taking the above decision. As per Books, also the appellant has shown net turnover of Rs.41,17,64,693 on sale of 1st sale of vehicles, 1st sale to CSD and 2nd sale of vehicles, which is the same as adopted by the Commercial Tax Officer.
6.2 It is a common knowledge that in this line of business of sale of motor cycles, it is not unusual to give discounts to attract the customers to withstand the competition from other vehicle dealers and to successfully run the business. If the discount is not offered to the customers, he would go to other dealers, sub-dealers and other brands due to which the appellant is bound to lose its business. It is also a common practice that customers depend on local mechanics and other free lancers etc. to purchase the vehicles, who receive the discounts. These representatives/ local mechanics bargain and receive discounts and pay the amount and take delivery of the vehicle on behalf of the actual user. In this process, the actual customers are not aware of the details of discounts but purely procure the vehicles only after verification and certification of the I.T.A. No. 1677/Hyd/2013 :- 6 -: M/s. Bhanu Automobiles Ltd., mechanic/person he believes. Under these circumstances, it may not be possible to prove each and every details of discounts offered to the customers/local mechanics etc. 6.3 The A.O.'s report dated 3-12-2008 also reveals that out of 20 customers enquired about receipt of discount on purchase of motor cycles, 10 have acknowledged the receipt of discount and balance 10 stated that they have not received the discount. Subsequently, the appellant submitted 8 affidavits out of 10 customers, confirming receipt of discount from the appellant company, except two. This may be due to non- availability of two customers for obtaining affidavits for confirming receipt of discount.
6.4 Thus, based on the above discussion, I am of the opinion that the AO has not brought anything concrete to prove that no discount was provided in cash by the appellant to its customers on sale of two wheelers. Accordingly, the ground taken by the appellant is thus allowed".
Aggrieved by the orders of CIT(A), Revenue has come before us.
6. Ld. DR contended that the Ld. CIT(A) has erred in giving relief when there is evidence that assessee has not properly given the discount nor substantiated the claim of discount. It was further submitted that only enquiry about 41 cases does not result in confirmation of discount given by assessee to all and that too without giving opportunity to AO when assessee submitted further confirmation letters before the CIT(A). It was submitted that entire Modus Operandi is not verifiable and there is no genuineness of the claim made by assessee.
7. Ld. Counsel however, relied on the orders of the CIT(A) and also submitted that Commercial Tax authorities have accepted the discounts and reduced the turnover accordingly. He reconciled the amounts. On a query whether assessee can submit proper evidences and the rate of discount on each vehicle, Ld. Counsel I.T.A. No. 1677/Hyd/2013 :- 7 -: M/s. Bhanu Automobiles Ltd., submitted that there was fire accident subsequently and information was not available.
8. We have considered the issue and perused the rival contentions. Even though Ld. CIT(A) allowed the discount by analyzing the general Modus Operandi of granting discounts and necessity of discounts in a business, we are not convinced with the orders of the Ld. CIT(A). First of all, the claim of assessee about discounts itself is very peculiar. Generally, on two-wheelers discounts are given for some period, either during festivals or during phasing out of certain model of vehicles. If there are special promotional sales, the discounts are allowed at a particular percentage and these are given in the invoice itself. Assessee has not shown any particular pattern of discounts. On every vehicle sold, assessee claimed discount. What is interesting to note is that this discount is not given to the customer in the invoice. It is also surprising to note that assessee claims discounts even on hire purchase sales/installment sales and also on the payments received by way of cheques to the full extent. This discount is claimed at a round sum amount, irrespective of the cost of vehicle and on all vehicles sold throughout the year. Another interesting feature which arose the suspicion of the AO is the fact that there is no signature of the customer on any of the discount vouchers prepared by the company. Therefore, the genuineness of the claim itself is not verifiable and it leads to suspicion that assessee may be claiming discount without granting any discount to the customers. Initially, when AO enquired, only the details were furnished without any other evidence. AO after due examination, disallowed the amounts as the claim was not substantiated to the satisfaction of the AO. Before the Ld. CIT(A), assessee could I.T.A. No. 1677/Hyd/2013 :- 8 -: M/s. Bhanu Automobiles Ltd., furnish only 41 confirmations out of 11,515 motorcycles sold during the year. As rightly contended by the Revenue, this is very small number. On enquiry by the AO, more than 50% have denied the receipt of amount and one has reported receipt of gold ring as prize. No evidence was placed on record before us whether there is any particular rate of discount granted to a customer or there is any policy by the company to grant discounts on each of the vehicles sold. The fact that customers are not acknowledging the voucher at the time of purchase of vehicle itself shows that company is not issuing the discount to the customer, but is claiming it in its Books of Accounts. We are not convinced with the order of the CIT(A) that assessee has genuinely given discount to the customers, when there is no evidence of those customers getting the discount and acknowledging the same. On the basis of 41 samples in which 50% of the people denied receipt of discount when enquired by the Department, even though subsequently filed confirmation letters which was not put to verification by the CIT(A), that claim itself could not have been allowed in full by the Ld. CIT(A).
9. One factor which might have led the CIT(A) to allow discount was reduction in turnover acknowledged by the Commercial Tax Department. We are not sure how and in what circumstances, Commercial Tax Department reduced the discount from the gross turnover. For the purpose of income tax, what is material is the genuineness of the expenditure which is for the purpose of business. Here in this case, the genuineness is not established by the evidence that assessee sought to rely upon. We are of the opinion that on the basis of the sample evidences furnished by assessee, in the absence of any policy of discount or I.T.A. No. 1677/Hyd/2013 :- 9 -: M/s. Bhanu Automobiles Ltd., acknowledgement by the customers in the invoices, the Modus Operandi adopted by assessee seems peculiar. Therefore, in the interest of justice, we are of the opinion that the claim of discount is required to be examined fully and if necessary by detailed enquiries by the Department on the basis of the evidence available on record. If assessee is not in a position to substantiate the claim, AO is free to examine whether the same Modus Operandi is followed in earlier years or in later years and can examine the current customers whether any discount is genuinely offered by assessee on each and every motorcycle being sold. Only after proper enquiries and satisfying, whether assessee's claim of discount is genuine or not, the claim can be allowed. Consequently, we set aside the orders of CIT(A) and AO on this issue and restore the entire claim of discount to the file of AO to make necessary and proper enquiries and then consider the allowance of the same on the facts of the case. Assessee should be given due opportunity to substantiate the claim. Grounds are accordingly, considered allowed for statistical purposes.
10. In the result, appeal of Revenue is allowed for statistical purposes.
Order pronounced in the open Court on 29th January, 2016 Sd/- Sd/-
(P. MADHAVI DEVI) (B. RAMAKOTAIAH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated 29th January, 2016
TNMM
I.T.A. No. 1677/Hyd/2013
:- 10 -: M/s. Bhanu Automobiles Ltd.,
Copy to :
1. Deputy Commissioner of Income Tax, Circle-1(3), Room No. 413, 4th Floor, Aayakar Bhavan, Hyderabad.
2. M/s. Bhanu Automobiles Ltd., 3-6-478, Anand Estates, Himayatnagar, Hyderabad.
3. CIT (Appeals)-V, Hyderabad.
4. CIT-I, Hyderabad.
5. D.R. ITAT, Hyderabad.
6. Guard File.