Allegation of Suppressed Turnover and Bogus Discounts: ITAT accepts HP India Sales’ Evidence as Genuine Business Practice [Read Order]

The Income Tax Appellate Tribunal (ITAT), Bangalore, overturned the Assessing Officer’s allegation of suppressed turnover and bogus discounts, accepting the company’s evidence, including reconciliations, customer ledgers, and program policy documents. The Tribunal upheld the Commissioner of Income Tax(Appeals)’s [CITA(A)] decision that trade discounts and sales adjustments were genuine business practices under the Income Tax Act, 1961.

The assessee, HP India Sales Pvt Ltd, is an Indian company engaged in IT hardware trading and support services. For the Assessment Year 2010–11, assessee has disclosed the sales of ₹683,96,20,218. However, Assessee submitted that gross sales as per sales tax return was ₹77,023,098,793 and as per service tax return was ₹8,161,729,987. Therefore, the gross turnover of the assessee was ₹85,184,828,780.

The assessee explained the difference stating that a sum of ₹165,86,78,346 is cash discount which was not considered in sales tax returns , sum of ₹6,729,421,699 is a post sales discount, and a sum of ₹1,085,284,444 was booking in discount account. Thus, there is no difference in the sales shown in the income tax return. The turnover was selected for scrutiny.

The Assessing Officer (AO) held that if discounts were genuine, the assessee ought to have recorded gross sales in the profit and loss account and separately debited the discounts. Instead, the assessee had reduced sales figures directly, which he treated as suppression of sales. He also questioned whether the discounts were actually passed on, pointing out that in two cases verification from vendors did not conclusively establish their genuineness.

Thus, AO concluded that such claims were unsupported and served as a means to suppress sales via bogus discounts. Consequently, he made an addition of ₹ 9,473,384,489/- as a suppression of sales. In addition, he disallowed adjustments aggregating ₹1,223,122,856, which included credit notes, service tax reversals, sales returns, sale of capital assets, toner expenses, and write-offs.

Before the CIT(A), the assessee produced additional evidence including party-wise discount details, program policy letters, customer ledger extracts, and bank payment details. After verifying these records, the appellate authority held that the discounts were genuine and part of normal business practice.

It was noted that 95% of discounts were concentrated among six large customers and were supported by program letters and bank payment evidence. Accordingly, the additions for suppression of sales and disallowance of discounts were deleted.

Representing the Assessee, Percy Pardiwala argued that the AO had wrongly concluded that discounts were unverifiable. It was submitted that discounts were structured under well-documented sales programs and were a standard feature of the company’s business.

It was highlighted that discounts were settled through banking channels and therefore were fully verifiable. It was further contended that in AY 2009–10, similar additions were deleted, and in AY 2008-09, no appeal had been filed by the revenue, showing that the method was accepted.

Representing the Revenue, Shivanand Kalakeri argued that the AO had correctly treated the discounts as unverifiable, as confirmations were not available for all customers. It was stressed that the assessee failed to establish that the discounts were not merely accounting adjustments but actual payments or reductions.

It was submitted, the CIT(A) admitted fresh evidence such as program letters and ledger extracts without giving the Assessing Officer an opportunity to verify them. It was further contended that the absence of full third-party confirmations justified the disallowance, and the order of the AO should be restored.

The Bench of Prashant Maharishi, Vice President and Keshav Dubey, Judicial Member, ruled that the company’s accounting for discounts and recognition of expenses follows established mercantile principles. It was found that the AO did not bring any evidence demonstrating the discounts or expenses were bogus or fraudulent.

Simultaneously, it was observed that the assessee had produced sufficient evidence to show that discounts were genuine and integral to its business operations. Further, the tribunal noted that the evidence included customer-wise ledgers, bank payments, and program policy letters, all of which supported the reconciliation.

Thus, ITAT held that the additions made towards suppression of sales and disallowance of discounts were unsustainable.

Consequently, the revenue’s appeal was dismissed.

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