Tribunal upholds classification as pakka arahtia, mandates audits & TDS deductions

SHRI KRISHAN MOHAN Versus INCOME TAX OFFICER, WARD-11 (3), FARIDABAD

SHRI KRISHAN MOHAN Versus INCOME TAX OFFICER, WARD-11 (3), FARIDABAD - TMI Issues Involved:
1. Whether the appellant-assessee should be treated as a principal or an agent.
2. Whether the appellant-assessee was required to get his books of accounts audited under section 44AB of the Income-tax Act, 1961.
3. Whether the appellant-assessee was required to deduct TDS on the amount of Rs.3,04,511 under section 194H of the Income-tax Act, 1961.
4. Whether the addition of Rs.3,04,511 to the total income of the appellant-assessee under section 40(a)(ia) of the Income-tax Act, 1961 was justified.
5. Applicability of section 44AB of the Income-tax Act, 1961 to the appellant-assessee for the assessment year 2007-08 (FY 2006-07).

Detailed Analysis:

1. Principal vs. Agent:
The primary issue was whether the appellant-assessee should be treated as a principal or an agent (kacha arahtia or pakka arahtia). The appellant claimed to be a kacha arahtia, acting only as a commission agent. However, the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] found that the appellant was registered as a pakka arahtia, had control over the goods, and conducted transactions in his own name. The CIT(A) upheld the AO's findings, stating that the appellant's actions and the nature of transactions indicated he was a pakka arahtia, thus acting as a principal.

2. Requirement to Audit Books under Section 44AB:
The appellant argued that he was not required to get his books audited under section 44AB, claiming his turnover did not exceed the prescribed limits. However, the AO and CIT(A) determined that the appellant's turnover, including all sales and commissions, exceeded the threshold. The CIT(A) noted that the appellant's gross turnover was Rs.1,46,27,433, far exceeding the limit, thus necessitating an audit under section 44AB. The appellant's registration as a pakka arahtia further supported this requirement.

3. Requirement to Deduct TDS under Section 194H:
The appellant contended he was not required to deduct TDS on commissions paid, as he was not obligated to audit his books under section 44AB. The AO and CIT(A) disagreed, stating that because the appellant's turnover exceeded the prescribed limits, he was required to deduct TDS on commission payments. The CIT(A) confirmed that the appellant failed to deduct TDS on commissions totaling Rs.3,04,511, thus violating section 194H.

4. Addition of Rs.3,04,511 under Section 40(a)(ia):
The appellant challenged the addition of Rs.3,04,511 to his total income under section 40(a)(ia), arguing that he was not liable to deduct TDS. The CIT(A) upheld the AO's decision, stating that the appellant's failure to deduct TDS on commission payments necessitated the addition under section 40(a)(ia). The CIT(A) found no infirmity in the AO's action, confirming the disallowance of the commission expenses.

5. Applicability of Section 44AB for AY 2007-08:
The appellant argued that he was not required to audit his books for the assessment year 2007-08, as his turnover in the preceding financial year did not exceed the limits. The CIT(A) noted that the appellant's turnover for FY 2005-06 was Rs.2,68,26,128, exceeding the prescribed limits, thus making section 44AB applicable for AY 2007-08. The CIT(A) dismissed the appellant's claim, citing the consistent findings of turnover exceeding the threshold.

Conclusion:
The Tribunal dismissed the appeal, upholding the findings of the AO and CIT(A). The appellant was deemed a pakka arahtia, required to audit his books under section 44AB, and obligated to deduct TDS on commission payments. The addition of Rs.3,04,511 to the appellant's income under section 40(a)(ia) was justified, and the provisions of section 44AB were applicable for AY 2007-08. The Tribunal found no merit in the appellant's arguments and confirmed the lower authorities' decisions.