AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (6) TMI 119
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....e Ld. CIT(A) has erred in giving relief of Rs. 53,26,762/- without appreciating the fact that AO correctly made addition to the assessee's total income on account difference between the Gross Receipts as per Form 16A and Gross receipt as per P&L account on mercantile method of accounting which is followed by assessee and reported in TAR" 2. Rival contentions have been heard and record perused. Facts in brief are the assessee, a proprietor of a concern named M/s Vaishnavi Industrial Services, is a labour contractor providing labour to two companies namely, M/s Century Textile Mills and M/s Anandji Haridas & Co. During the course of scrutiny assessment the AO made addition of Rs. 53,26,762/- on account of difference between the gross receipts as per Form No.16A and gross receipts as per P&L account. By the impugned order, CIT(A) deleted the addition after observing as under :- "2.6 A perusal of the above reveals that labour charge of Rs. 32,21,205/- and the productivity allowance of Rs. 16,50,325/- received from the above two companies, were in fact paid back. The total of these two works out to Rs. 48,71,530/-. This is the reason why these two figures were not shown in the....
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....ition was deleted by the CIT(A). The department was in appeal before ITAT which was dismissed. The finding of Hon'ble ITAT in para-5 is as follows : "We have heard both the sides at some length and also carefully peruse the orders of the authorities below in the light of a short compilation filed and the case law cited. The short legal issue before us is that whether the receipts shown as per the TDS certificate is the income of the assessee to be taxed wholly without any adjustments. To answer this legal question, we have examined the nature of business activity of the assessee and it was found that the assessee-company is carrying on transportation business. Broadly speaking two types of business activity being carried out by the assessee, one, supply of its own trucks on hire for transportation of goods and the hire charges are credited in the books, second, trucks are arranged for the customers on commission basis end the payments were being made directly by the customer to the truck-owners and the assessee only obtained commission. It was explained to Revenue Authorities that though as per the TDS Certificate, the amount mentioned was Rs. 34,24,868/- on which TDS of Rs. 35,....
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....mputation of income. An income of a taxpayer is not required to be computed merely with reference to the TDS Certificate but assessment of an income is altogether an independent exercise. With this understanding of law if we compare the facts of the case, and then it is evident that the amount which was certified on the TDS Certificate could or could not have been subject to tax in the hands of the assessee recipient. The deductor had chosen a safe procedure of deduction of tax on the entire amount of freight. Otherwise the freight was to be paid to the truck owners and not to the assessee-company, who is only a conduit in arranging the hiring of the trucks. The freight was to be passed on to the trucks owners, therefore, the freight was not subject to tax in the hands of the assessee. Nevertheless, accounts of the assessee have also demonstrated the same. With the result, the amount on which the TDS was deducted had not matched with the figures of the income disclosed by the assessee in respect of those transactions. Such a business transaction can be dealt with in two ways; i.e. either to be treated as the receipts with overriding liability or secondly that the freight receipts w....
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....rted in 126 TTJ 240. It was held by the Hon'ble Bench that only the embedded portion of the profit is to be considered as taxable and not the entire amount in the case of discrepancies between the sale or receipt amount as per books of accounts and the amounts shown in the TDS certificate for taxability purposes. Accordingly, the Tribunal has directed the Assessing Officer to adopt GP rate declared by the tax payer for the assessment year under consideration and compute the addition. 2.13 The facts in the appellant's case is identical to that of the above mentioned cases. what needs to be taxed is only the income element and not the gross receipt. As mentioned above, what was received by the appellant has been totally paid and they were only contra entries. In spite of the reconciliation statement filed, clearly explaining the discrepancy, the AO has added the gross receipts to the total income. The appellant has duly disclosed the income related to the transaction above as mentioned earlier in this order. The fact that the receipts and payments have not been brought through the P&L account has not affected in any way the income and the profit out of the above transactio....
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....ng Officer. Exhibit -4 of the paper books explains this difference which is as under: Statement showing reconciliation between Gross income accounted in books of accounts and TDS certificate. The above reconciliation filed by the appellant is self explanatory and the difference has been explained. However it is relevant to point out the submission of the appellant made before the AO on 24/12/2010 at this juncture. Para 8 of the submission is as under: "Method of accounting : The method of accounting is mercantile as reported in TAR. The wages of every month become due and payable on 7th of next months. E.g. March 2007 wages are payable to the works on 7th of April 2007 and the bill is raised on 5th to 7th of April, amount received and paid to the workers. Thus, the wages of March 2008 are due only on 7th of April 2008 and they do not become receivable and payable in March 2008. Your contention that March 2008 wages receivable should be shown as receivable is not correct for two reasons. Firstly if the wages receivable are shown then wages payable will also will have to be shown. In the accounts, both wages receivable and payable for March 2008 are not shown. In the acco....