Decided on April 27,1994



S. Kannan, Accountant Member - (1.) THIS departmental appeal is directed against the order dated 8-12-1988 of the CIT (A)-I, Madurai relating to the assessment year 1986-87.
(2.) In the course of the assessment proceedings relating to the assessment year 1986-87, the Assessing Officer found that the assessee had debited an aggregate sum of Rs. 2,60,980 under the head 'Discount and allowances'. On going through the details of the expenses under the said head, the Assessing Officer found that the assessee had purchased "gold dollars" (gold medallions carrying the likeness of Gods and Goddesses) and distributed them to its clients as and by way of trade discount. He disallowed the assessee's claim for revenue deduction in respect of the said sum observing: "There is no provisions in the Act the payment of discount in the form of gold dollars could to be allowable and therefore the claim is disallowed". On his part, the CIT(A) allowed the assessee's claim. In this regard he found that the discount in the form of gold medallions ranging in weight from 2 gms. to 4 gms. each were given by the assessee to its clients as and by way of trade discount; and that the aggregate value of the gold medallions purchased was Rs. 2,00,435.65, the rest of the expenses aggregating Rs. 60,000 and odd being attributable to (a) bank discounting charges, and (b) cash discount allowed by the assessee to its clients. The CIT(A) further found that the discount given in kind had a direct bearing on the quantity of a particular item of pesticide, namely Cymbush, sold by the assessee. What was more, other distributors of the pesticides manufactured by IEL Ltd. were following the same procedure for giving trade discounts. Again, whereas in the immediately preceding year of account IEL Ltd. had given commission of 15%, in the relevant previous year the said manufacturer had given the assessee an additional discount of 8%. Keeping in mind the foregoing factors, the CIT(A) held first that there was nothing wrong in trade discount being given in kind. In this regard he relied on the comments contained on page 1261 of the Commentary by Chaturvedi & Pithisaria (Vol. 2 of 3rd Edn.). Secondly, the quantum of the discount is also reasonable, if regard be had particularly to the fact that the assessee itself has received a higher percentage of discount from the manufacturer. He, therefore, allowed the assessee's claim in toto.
(3.) SHRI Vinay Mohan, the learned Departmental Representative, strongly contended that the CIT(A) was not justified in allowing the assessee's claim. Going on the basis of the grounds of appeal, he contended first that the assessee had not led any proof of purchase of gold medallions in question. Secondly, in any event, the aggregate expenditure of Rs. 2,00,435 incurred by the assessee in purchasing the gold medallions should be treated as sales promotion expenses and on that basis brought under the pale of the provisions of Section 37(3A) of the Act.;

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