INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Allowability - Discount provided to customers - AO arbitrarily disallowed discount on ad hoc basis without doubting books of account

AO after verifying assessee's books of account, arbitrarily disallowed expenditure claimed on account of discount provided to customers on ad hoc basis. Further, Tribunal upheld the said disallowance alleging that the assessee was not entitled to the deduction claimed for allowing discount as it was disproportionately higher to the percentage of discount granted in earlier year though there was increase in turnover of the assessee. Held: Once it is established that there was nexus between the expenditure and the purpose of business, which need not necessarily be the business of the assessee itself, the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. In instent case, it was found that the books of account of the assessee as well as the material produced by the assessee were not disputed by the AO. Therefore, merely because there was variation in previous and subsequent year with regard to discount provided by the assessee to its customers, the AO should not have disallowed the claim of the assessee with regard to the discount provided by it. Hence, the Revenue erred in disallowing the amount claimed by the assessee on account of discount provided by it.

REFERRED : SA Builders Ltd. v. CIT (2007) 288 ITR 1 (SC) : 2007 TaxPub(DT) 0833 (SC)

FAVOUR : In assessee's favour

A.Y. :

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