2012 (9) TMI 63 - AT - Income Tax

Tribunal dismisses Revenue's appeal, upholds CIT(A)'s decision on income vs. receipts distinction

The Revenue's appeal against the Commissioner of Income Tax (Appeals) was dismissed by the appellate tribunal. The tribunal upheld the CIT(A)'s decision ... Addition on mismatching of TDS receipts with P&L account - unaccounted income - CIT(A) deleted the addition - Held that:- The AO has erred in considering all the amounts received by the assessee company from airlines (towards commission) & from Clients (towards reimbursement of expenses) as income and erred in adding back a sum of Rs. 48,99,461/- as income on account of commission and sum of RS. 24,10,732/- on account of contract income. Assessing Officer has considered the entire payment as per TDS certificate as income and has failed to appreciate what is liable is income, real profit and not payment received by the assessee. Thus agreeing with the CIT(A)'s view that the payment received on account of freight cannot be considered to be the income of the assessee as it is a receipt against liability incurred, thus additions made by the AO cannot be sustained on this account. That assessee has been following this method of accounting consistently and the department has been accepting the same, thus as per sec. 145, the income must be computed in accordance with the method of accounting regularly employed by the assessee - in favour of assessee. Issues Involved:1. Deletion of addition on account of undisclosed income related to mismatching of TDS receipts with the Profit & Loss (P&L) account.Issue-wise Detailed Analysis:1. Deletion of Addition on Account of Undisclosed Income Related to Mismatching of TDS Receipts with P&L Account:The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which deleted an addition of Rs. 73,10,193/- made by the Assessing Officer (AO) for the assessment year 2003-04. The AO had identified discrepancies between the commission income shown in the assessee's P&L account and the commission income as per TDS certificates, amounting to Rs. 48,99,461/-. Additionally, a discrepancy of Rs. 24,10,732/- was noted between the contractual income shown by the assessee as per TDS certificates and the P&L account.The assessee, an IATA Commission Agent, contended that the commission income was shown after netting off direct expenses such as commission paid to sub-agents, rebates, discounts, and terminal charges. The assessee provided detailed accounting entries and reconciliation statements to the CIT(A), demonstrating that all income and receipts as per the TDS certificates were accounted for in the books. The method of netting off commission income with related expenses was consistently followed and disclosed in the balance sheet notes.The CIT(A) found that the AO did not dispute the materials on record or point out any defects in the accounting method. The CIT(A) emphasized that the freight collected on behalf of airlines was a receipt against liability incurred and not the income of the assessee. The CIT(A) also noted that the department had accepted this accounting method in previous assessments, citing the Supreme Court decision in UCO Bank v. CIT and other precedents.The appellate tribunal agreed with the CIT(A), stating that the AO erred in considering all amounts received by the assessee from airlines (towards commission) and clients (towards reimbursement of expenses) as income. The tribunal upheld the CIT(A)'s decision, concluding that the AO failed to appreciate the difference between income and receipt, and that only real income or profit is liable to tax, not mere receipts.Conclusion:The appeal filed by the Revenue was dismissed, and the order of the CIT(A) was upheld, confirming that the additions made by the AO were not sustainable. The tribunal emphasized the importance of distinguishing between income and receipts and upheld the consistent accounting method followed by the assessee.