S.40A(2)of Income Tax Act not Applicable to Trade Discount given in Sales Invoice: ITAT [Read Order]

The Chennai Bench of Income Tax Appellate Tribunal  (ITAT) has held that Section 40A(2) of the Income Tax Act 1961, would not be applicable to trade discounts given in sales invoices.

The above-mentioned observation was made while disposing of an appeal filed by the revenue challenging the order of Commissioner of Income Tax (appeal) CIT (A).

In the instant case assessee who was engaged in the business of air conditioners had given trade discounts to many parties on sale including ETA star appliances Ltd, who got a higher discount. Since the paid capital was more than the limit, the assessee applied for the approval of the central government, but the same did not get approved.  Then the Assessing Officer (AO) invoked the procedure under Section 37(1) and applied disallowance of deduction on expense under Section 40A(2) of the Income Tax Act 1961.

Aggrieved revenue filed an appeal before the ITAT. As per the direction of ITAT issued a notice under s 143(3)  of the Income Tax Act 1961 to check whether the discount bill was separate or in the sales invoice itself.

It was submitted by  G. Baskar on behalf of the assessee that the trade discounts were given in the sales invoices themselves and contended that  Section 40A(2) of the Income Tax Act would not be applicable.

The Chennai bench of Income Tax Appellate Tribunal of judicial members Durga Rao and Manoj Kumar Agarwal held that Section 40A(2) of the Income Tax Act would not be applicable to the assessee as the trade discount had been given in the sales invoices itself.

To Read the full text of the Order CLICK HERE

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