Case Number: ITA 1437/DEL/2020
Appellant: ACIT Circle-2(2), New Delhi
Respondent: AIS Distribution Services Ltd, New Delhi
Assessment Year: 2012-13
Case Filed On: 2020-07-23
Order Type: Final Tribunal Order
Date of Order: 2023-05-25
Pronounced On: 2023-05-25
The case involves an appeal by the ACIT Circle-2(2), New Delhi, against AIS Distribution Services Ltd for the assessment year 2012-13. The appeal is part of a series of appeals concerning similar issues for different assessment years, including 2011-12 and 2013-14.
The Assessing Officer (AO) had made additions based on a perceived difference in the Gross Profit (GP) rate due to the treatment of trade discounts in the accounts. The AO argued that the trade discounts should be part of the trading account rather than the profit and loss account, leading to a recalculation of the GP rate.
The Assessing Officer found that the trade discount is being directly deducted from the sale value and VAT is calculated on the reduced sale amount. The AO concluded that trade discounts should be included in the trading account and not the profit and loss account, leading to an adjustment in the GP rate for the year under consideration.
The AO also disallowed expenses claimed under the head “Scheme Expenses,” arguing that the assessee did not provide sufficient details or justification for these expenses. The assessee argued that these expenses were for business purposes and should be allowed.
Another point of contention was the disallowance of an amount claimed as overriding commission. The AO disallowed this amount, questioning the justification and basis for the payment.
The Tribunal found that the GP rate adopted by the AO for the assessment year 2010-11 was not comparable to the GP rates for 2011-12 and 2012-13 due to changes in the billing method from Dealer List Price (DLP) to Maximum Retail Price (MRP). The Tribunal agreed with the CIT(A) that the sales accounting method had changed, making the comparison invalid.
For the scheme expenses, the Tribunal noted that while the revenue cannot question the justification of the business expenses, the quantum of the expenses can be questioned for lack of supporting evidence. The Tribunal partially allowed the disallowance by restricting it to 10% of the claimed expenses.
The Tribunal found that similar disallowances made in previous years had been deleted by the CIT(A) and upheld the deletion for the current year, following the rule of consistency.
The Tribunal upheld the deletions and adjustments made by the CIT(A) for the assessment years in question. The appeal by the revenue was partly allowed, with specific directions to restrict the disallowance of scheme expenses to 10%.
This case highlights the importance of consistent accounting methods and the need for sufficient documentation to support business expenses. The Tribunal’s decision reflects a balanced approach, allowing legitimate business expenses while ensuring that they are adequately substantiated.
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