2018 (3) TMI 1093 - AT - Income Tax

Tribunal decisions on credit, discounts, and Section 40A(3) upheld. Appeals finalized on 05.03.2018.

Assistant Commissioner of Income Tax Versus Shri Roshanlal Ramdeo Jaiswal And Vice-Versa

Assistant Commissioner of Income Tax Versus Shri Roshanlal Ramdeo Jaiswal And Vice-Versa - TMI Issues Involved:1. Restriction of addition by CIT(A) based on peak credit method.2. Disallowance of discount on commission received from BSNL.3. Application of Section 40A(3) of the Income Tax Act concerning purchases of sim cards and recharge coupons.4. Credit for income surrendered during the course of survey.Detailed Analysis:1. Restriction of Addition by CIT(A) Based on Peak Credit Method:The primary issue was whether the CIT(A) was correct in restricting the addition of Rs. 41,17,986/- made by the Assessing Officer (AO) to Rs. 13,88,604/- by adopting the peak credit method on a monthly basis rather than a daily basis. The AO had noted a peculiar pattern in the assessee's sale account, recording cash sales of Rs. 20,000/- per day or less, leading to unexplained negative cash balances. Upon appeal, the CIT(A) partially accepted the assessee's claim and estimated the negative peak on a monthly basis. The Tribunal found that the assessment should be based on daily peak credit rather than monthly, necessitating a remand to the AO for fresh consideration. Hence, the issue was allowed for statistical purposes.2. Disallowance of Discount on Commission Received from BSNL:The AO had disallowed Rs. 6,67,480/- of the discount claimed by the assessee on BSNL commissions, arguing that the discount was inflated to reduce taxable income. The CIT(A) reduced this disallowance to Rs. 1,78,009/- based on the assessee's claim that 80% of the commission received from BSNL was passed on to retailers. The Tribunal found that the AO's disallowance lacked basis and that the CIT(A)'s restriction was not the right procedure. It concluded that the detailed break-up of discounts and commissions provided by the assessee justified no disallowance. Thus, the Tribunal deleted the addition entirely, dismissing the Revenue's appeal on this issue.3. Application of Section 40A(3) of the Income Tax Act:The AO disallowed Rs. 1,48,02,811/- under Section 40A(3) for purchases made in cash. The CIT(A), referencing the Kerala High Court's decision in Vodafone Essar Cellular Ltd. vs. ACIT, held that the relationship between the assessee and BSNL was that of principal and agent, not buyer and seller, thus Section 40A(3) was not applicable. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal and allowing the assessee's cross-objection.4. Credit for Income Surrendered During the Course of Survey:The assessee contested the CIT(A)'s decision not to allow credit for Rs. 5 lakhs surrendered during the survey. The Tribunal noted that the assessee failed to demonstrate how the surrendered amount related to the additions made by the AO for negative cash balance and disallowance of interest. The CIT(A) found no grounds to telescope the surrendered amount with the additions made by the AO. The Tribunal upheld the CIT(A)'s findings, confirming that the surrendered income was unrelated to the issues raised by the AO.Conclusion:The Tribunal remanded the issue of peak credit to the AO for fresh consideration on a daily basis, deleted the disallowance of discounts on BSNL commissions, upheld the CIT(A)'s decision regarding the non-applicability of Section 40A(3), and confirmed the CIT(A)'s refusal to allow credit for the surrendered income. The appeals were disposed of accordingly, with decisions pronounced in the open court on 05.03.2018.