INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Allowability - Expenses on account of discount given to distributors and dealers -

Assessee-company claimed expenses on account of discount given to its distributors and dealers. AO found that the assessee had given discounts at various rates however the rate of discount was not reflected in its policy manual and the discount ranged between 5% to 10% to few selected distributors and dealers. Further, he found that normally higher discount was offered for non-standard products where the prices were quoted on higher price and the margin was also good. Thus, he concluded that there was not any compelling necessity to the said expenditure and accordingly, made disallowance of the same. Held: It was found that assessee's distribution policy manual provided complete and exhaustive list of responsibilities of distributors, which would enable them to earn the discount. Though rate of discount was not mentioned but the understanding that the rates would be finalized on transaction basis could not be rejected on mere surmises. Further, the assessee as businessman had taken business decision to make policy for distribution of its goods and to pay discount to different dealers in that regard and such business decision could not be negated on the surmise that as per the AO, the discount paid by the assessee was higher. Therefore, the assessee being best judge of its business arrangement and in absence of any evidence found that the expenditure on account of discount was not incurred; the said expenditure could not be disallowed merely on the ground that the rate of discount was higher.

REFERRED : CIT v. Walchand & Company Pvt. Limited (1967) 065 ITR 0381 (SC): 1967 TaxPub(DT) 0323 (SC)

FAVOUR : In assessee's favour

A.Y. : 2012-13

INCOME TAX ACT, 1961

Section 37(1)

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