Income Tax Appellate Tribunal - Delhi
Sierra Industrial Enterprises (Merged ... vs Department Of Income Tax on 14 September, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH "G" DELHI)
BEFORE SHRI G.E. VEERABHADRAPPA, HON'BLE VICE
PRESIDENT AND SHRI A.D. JAIN, JUDICIAL MEMBER
ITA NO. 1951(Del)2010
Assessment year: 2004-05
Asstt.Commissioner of Income Tax, M/s. Sierra Industrial Enterprises,
Cir.9(1), CR Bldg., New Delhi. V. (merged into SSPL Retail Ltd.)
B-1/F-4, Mohan Coop. Indl.Area,
Main Mathura Road, Badarpur,
New Delhi.
(Appellant) (Respondent)
Appellant by: Shri Rakesh Gupta, Sr. DR
Respondent by: Shri Sumant Chadha, CA
ORDER
PER A.D. JAIN, J.M.
This is Department's appeal for the assessment year 2004-05. The only ground raised is as under:-
"Ld. Commissioner of Income Tax(Appeals) erred, in law and on the facts and circumstances of the case, in restricting the disallowance of ` 43,24,615/- made by the AO on account of additional sale proceeds of the customer claims and defectives to 5% and thereby allowing relief to the assessee amount to `41,08,384/-".
2 ITA 1951(Del)2010
2. The original assessment order in this case was passed on 15.12.2006. The assessee had claimed ` 55,76,982/- as expenses on account of defective damaged goods under the head 'Customer Claim and Defective'. The assessee submitted that the defective goods were stretched and destroyed outside the jurisdiction of Delhi following the laid pollution norms for industries. The AO rejected the assessee's stand and made a disallowance of ` 43,24,615/-. The matter traveled upto the Tribunal, which restored it to the AO, directing the AO to examine the issue. The AO passed order dated 14.9.2009. The claim of the defective goods was allowed. However, a sum of ` 43,24,615/- was added to the assessee's income on account of additional sale proceeds, taking the maximum discount of 40% given by the assessee company on such sale and by adding gross profit rate.
3. Before the ld. CIT(A), it was submitted on behalf of the assessee company that it had two types of sale, i.e., A grade sale and B grade sale; that the A grade sale pertained to the goods which were not subject to any manufacturing defect, whereas B grade sale was regarding the goods having some minor manufacturing defect; and that however, the goods sold in the B grade sale were first hand sales not used by anyone else; that there were two separate MRPs for both kinds of goods; that apropos B grade goods unused products having minor manufacturing defects were being sold by the 3 ITA 1951(Del)2010 assessee company through its distribution channel; that such goods when received by the assessee, were earmarked B in the purchase invoices and such MRP of B category goods are lower than the MRP of same article without any manufacturing defect, following under A category; that as per the terms and conditions, the customer buying A category goods, had the right for the claim of defective goods, which were not found up to the mark of quality associated with 'NIKE'; and that accordingly, if the customers after using the goods found that the goods are not upto the quality or having some defect would lodge a claim with the company.
4. The learned CIT(A) following the decision on the same issue in assessment year 2000-01, wherein it was held that since the assessee was quality conscious and was committed to ensure satisfactory services for roughly used products, the percentage of defective/returned goods was high. Thus, following the first appellate order for assessment year 2000-01, the ld. CIT(A) restricted the disallowance to 5%.
5. Aggrieved, the Department is in appeal.
6. The ld. DR has contended that the ld. CIT(A) has erred in restricting the disallowance to ` 43,24,615/- made by the AO on account of additional sale proceeds of the customer claims and defectives to 5%, thereby allowing relief to the assessee, amounting to `41,08,384/-.
4 ITA 1951(Del)2010
7. The learned counsel for the assessee, on the other hand, has strongly relied on the impugned order. Besides, he has placed before us a copy of Tribunal order dated 18.3.2010, in the assessee's own case, for assessment year 2000-01, in ITA No. 4171(Del)04. Therein, while dismissing the Department's appeal on the issue at hand, the Tribunal has observed as follows:-
"3. Rival submissions have been heard and record perused. Facts in brief are that assessee is engaged in the trading of sports footwear, apparels and accessories. A claim was made on account of defective/damaged goods under the head 'customer claim and defectives'. Contention of the assessee before the AO was that defective goods were shredded outside Delhi. Not being satisfied with the assessee's contention, AO disallowed the assessee's claim. By the impugned order, CIT(A) allowed assessee's claim by recording a finding that assessee has furnished complete details of defective goods returned, as a percentage of its sale invoices containing each outlets claim, complete photo copy and documents of customers claims and their treatment in the books of accounts, copy of distribution/franchisee agreement and names and addresses of customer claim, settlements slip and credit notes. The CIT(A) had verified the same and observed that the assessee is selling product by the brand name of 'NIKE'. They are extremely quality conscious and response to customer's service/complaint is ensured. The nature of product being footwear and apparel minor defects/some defects may emerge on use of the products. Considering that the assessee has a sale of approximately 33 crore under reference the goods debited under this head of 'customer claim and defectives' appear to be minimalstic, however, since itemwise selling of returned product is not possible, the disallowance made by the AO at 50 per cent is reduced and restricted to 5 per cent.
5 ITA 1951(Del)2010
4. The finding recorded by the CIT(A) has not been controverted by the ld. DR. We also found that no material was brought on record by the AO to suggest that any sale price was being fetched by such defective goods returned by the customers. Since the assessee was selling the product by the brand name 'NIKE', they are extremely quality conscious and every complaint of the customer is being met with. Keeping in view the nature of the product being footwear and apparels, some defects are inevitable and the assessee's claim for such defective goods is very negligible looking to its total turnover. We, therefore, do not find any infirmity in the order of the CIT(A) for restricting the disallowance to the extent of 5% in place of 50% made by the AO."
8. It is thus seen that the first appellate order for assessment year 2000- 01 relied on by the ld. CIT(A) in the order under appeal, to decide the issue in favour of the assessee while restricting the disallowance on account of customer claim of defective goods, to 5%, stands confirmed by the Tribunal by its aforesaid order dated 18.3.2010.
9. For the year under consideration, the facts have not been shown to be any different from those present in the assessee's case for assessment year 2000-01. Therefore, following the Tribunal order (supra) in the assessee's case for assessment year 2000-01, the ground raised by the Department is rejected.
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10. In the result, the appeal filed by the department is dismissed.
Order pronounced in the open court on 8.10.2010.
Sd/- sd/-
(G.E. Veerabhadrappa) (A.D. Jain)
Vice President Judicial Member
Dated: 8.10.2010
*RM
copy forwarded to:
1. Asstt.Commissioner of Income Tax,
Cir.9(1), CR Bldg., New Delhi.
2. M/s. Sierra Industrial Enterprises,
(merged into SSPL Retail Ltd.)
B1/F-4, Mohan Coop. Indl.Area,
Main Mathura Road, Badarpur,
3. CIT
4. CIT(A)
5. DR
True copy
By order
Deputy Registrar