Relief to Traders: Discounts not mentioned in Invoice are allowable as Expenditure, says ITAT [Read Order]

The cash/ trade discounts to the customers are allowable as business expenditure even if the same is not reflected in the invoice, said the Income Tax Appellate Tribunal, Hyderabad bench.

The decision would be a great relief to the traders as the earlier VAT and sales tax laws and the present GST laws do not grant tax relief to the post-sale discounts not mentioned in the invoices.

Assessee, a partnership firm is an authorized dealer of Mahindra & Mahindra Tractors in part of Medak District, is in the business of sale of tractors and its spare parts and is also offering after sales services to the customers. During the relevant period, the assessee has debited an amount of Rs.1,33,44,000/- towards “owners discounts” to trading account. When asked for the details, the assessee submitted that the discount offered at the time of discussion of the price of the tractor and that the invoice includes the discount offered, temporary registration, insurance and extra fittings.

The AO observed that discount is not reflected therein, even though as per the AP VAT Act, 2005 and Sale of Goods Act, 1930, it is mandatory that all discounts and rebates should be mentioned in the invoice. The Assessing Officer had made some enquiries from the customers to find out if they received any discounts from the assessee and found that no such discounts were received by the customers.

On second appeal, the Tribunal found that the assessee has not been confronted with the findings of Assessing Officer’s ex-parte enquiry report.

 “This is in clear violation of principles of natural justice. The assessee has now filed the confirmation from the parties and also relevant material in support of his claim that he has given cash discount to the customers and his explanation as to why it is not included in the invoices is that Mahindra & Mahindra does not allow such discount to be given and therefore, it could not be included in the invoices, but only to ward off the competition, the assessee was constrained to give the cash discount. We find that this evidence goes to the root of the matter and if it is proved that the assessee has given cash discounts, the same is allowable as expenditure. This material is filed before us for the first time. Therefore, we deem it fit and proper to admit the same and remand the issue to the file of the AO for verification and adjudication in accordance with law. Needless to mention that the assessee should be given a fair opportunity of hearing,” the bench said.