January 2009
S. 40A(2)(b) — Discount on sales given to sister concern not covered.
By Jagdish D. Shah, Jagdish T. Punjabi, Chartered Accountants
Reading Time 2 mins
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Part B — Unreported Decisions
(Full texts of the following Tribunal decisions are available
at the Society’s office on written request. For members desiring that the
Society mails a copy to them, Rs.30 per decision will be charged for
photocopying and postage.)
20 DCIT v. Orgo Chem Guj. Pvt.
Ltd.
ITAT ‘H’ Bench, Mumbai
Before K. C. Singhal (JM) and
A. K. Garodia (AM)
ITA No. 7872 /Mum./2004
A.Y. : 2001-02. Decided on : 17-8-2007
Counsel for revenue/assessee : D. K. Rao/
Mayur A. Shah
S. 40A(2)(b) of the Income-tax Act, 1961 — Payments to
relatives — Discount on sales given to sister concern — Whether covered under
the provisions — Held, No.
Per K. C. Singhal :
Facts :
The assessee had given sales discount of Rs. 19.3 lacs to its
sister concern. Since no such discount was given to other parties, the AO
treated the same as unreasonable and disallowed it u/s.40A(2)(b). On appeal, the
CIT(A) noted that the sales to other parties were only of meager amount, while
the sale to sister concern was in bulk. Accordingly, the assessee’s appeal was
alllowed.
Held :
According to the Tribunal, a bare reading of the provisions
reveals that such provision could be invoked only where an expenditure was
incurred in respect of which, payment was to be made to the sister concern. In
case of discount on sales, no payment was made by the assessee as it only
reduced the sale price. Therefore, relying on the Madhya Pradesh High Court
decision in the case of Udhaji Shrikrishanadas, it held that the assessee’s case
was not covered u/s.40A(2)(b).
Case referred to :
Udhaji Shrikrishanadas, 139 ITR 827 (M.P.)
