Income Tax Appellate Tribunal - Madras
Income-Tax Officer vs Sivalingam Agencies on 27 April, 1994
Equivalent citations: [1994]50ITD509(MAD)
ORDER
S. Kannan, Accountant Member
1. This departmental appeal is directed against the order dated 8-12-1988 of the CIT (A)-I, Madurai relating to the assessment year 1986-87.
2. In the course of the assessment proceedings relating to the assessment year 1986-87, the Assessing Officer found that the assessee had debited an aggregate sum of Rs. 2,60,980 under the head 'Discount and allowances'. On going through the details of the expenses under the said head, the Assessing Officer found that the assessee had purchased "gold dollars" (gold medallions carrying the likeness of Gods and Goddesses) and distributed them to its clients as and by way of trade discount. He disallowed the assessee's claim for revenue deduction in respect of the said sum observing: "There is no provisions in the Act the payment of discount in the form of gold dollars could to be allowable and therefore the claim is disallowed".
3. On his part, the CIT(A) allowed the assessee's claim. In this regard he found that the discount in the form of gold medallions ranging in weight from 2 gms. to 4 gms. each were given by the assessee to its clients as and by way of trade discount; and that the aggregate value of the gold medallions purchased was Rs. 2,00,435.65, the rest of the expenses aggregating Rs. 60,000 and odd being attributable to (a) bank discounting charges, and (b) cash discount allowed by the assessee to its clients. The CIT(A) further found that the discount given in kind had a direct bearing on the quantity of a particular item of pesticide, namely Cymbush, sold by the assessee. What was more, other distributors of the pesticides manufactured by IEL Ltd. were following the same procedure for giving trade discounts. Again, whereas in the immediately preceding year of account IEL Ltd. had given commission of 15%, in the relevant previous year the said manufacturer had given the assessee an additional discount of 8%.
Keeping in mind the foregoing factors, the CIT(A) held first that there was nothing wrong in trade discount being given in kind. In this regard he relied on the comments contained on page 1261 of the Commentary by Chaturvedi & Pithisaria (Vol. 2 of 3rd Edn.). Secondly, the quantum of the discount is also reasonable, if regard be had particularly to the fact that the assessee itself has received a higher percentage of discount from the manufacturer. He, therefore, allowed the assessee's claim in toto.
4. Shri Vinay Mohan, the learned Departmental Representative, strongly contended that the CIT(A) was not justified in allowing the assessee's claim. Going on the basis of the grounds of appeal, he contended first that the assessee had not led any proof of purchase of gold medallions in question. Secondly, in any event, the aggregate expenditure of Rs. 2,00,435 incurred by the assessee in purchasing the gold medallions should be treated as sales promotion expenses and on that basis brought under the pale of the provisions of Section 37(3A) of the Act.
5. On his part, Shri V.S. Jayakumar, the learned Counsel for the assessee, strongly supported the impugned order of the CIT(A). He drew our attention to the fact that the excerpts from the commentary of Chaturvedi & Pithisaria (referred to supra) are to be found in page 1490 (last para) of the 4th Edition of the said Commentary. It has been clearly stated therein that a business expenditure can also be in kind. Further, as has been rightly held by the CIT(A), the quantum of the expenditure incurred by the assessee in distributing the gold medallions is reasonable.
6. We have looked into the facts of the case. We have considered the rival submissions.
7. At the outset we may point out that we are not impressed by the argument of the learned Departmental Representative to the effect that the assessee had not proved the genuineness of the purchase of gold medallions. As we see it, this argument is very much in the nature of second thoughts. It is clear from the assessment order that the assessee had, at the instance of the Assessing Officer, filed details of the expenditure incurred under the head 'Discount and allowances'. It was with reference to these details that the Assessing Officer found that the assessee had given gold medallions as and by way of trade discount. Nothing prevented him from making necessary inquiries into the genuineness of the purchases. He went on the footing that trade discount could only be in cash and not in kind.
8. In support of the assessee's claim for revenue deduction, one of the arguments advanced by the assessee's representative before the CIT(A) was that the purchase of gold medallions was paid for through cheques. The CIT (Appeals) accepted this argument, obviously because he was satisfied with the genuineness of the purchases. He then went on to hold that trade discount could be given in kind; that the outlay on the distribution of gold medallions was reasonable; and that, therefore, the assessee was entitled to revenue deduction in respect of the sum of Rs. 2,00,435.65. We do not find any reason to interfere with the line adopted by the CIT (Appeals).
9. This brings us on to the contention of the learned Departmental Representative that the outlay in question must be treated as sales promotion expenses, and as such brought under the pale of the provisions of Section 37(3A) of the Act. We are unable to agree. First, the CIT (Appeals) has recorded a finding that in the case before us the assessee had given trade discount in kind. He also found that the quantum of the outlay on such trade discount in kind was reasonable, if regard be had to the fact particularly that the assessee in its turn had received larger quantum of discount from the manufacturer of the pesticides. But as we see it, cash discount, trade discount, sales commission, which are essentially post-sales phenomena, cannot be treated as 'Sales promotion', which is clearly a pre-sales exercise. Conceptually speaking, sales promotion signifies and encompasses concerted and organised activities directed towards the market in general, the public at large. The aim may be to push a totally new product. The aim may even be to obtain a larger market share for an existing product. The target population will naturally vary according to the product whose sales is sought to be promoted. Even so, the focus of such promotional activities is the market as a whole, and not an individual buyer or an individual item of sale.
10. Sales discount/sales commission, on the contrary, are paid when sales actually take place. Here the focus is on a particular sale, a particular buyer. For a fact, the aggregate quantum of discount allowed or commission paid may indeed be a direct measure of the success of the sales promotion drive undertaken earlier. It should, therefore, follow that sales/ discount/sales commission cannot be brought under the blanket head of sales promotion.
11. In view of the foregoing, we decline to interfere in the matter and dismiss the departmental appeal.