Income Tax Appellate Tribunal - Delhi
Ctc Air Carriers Pvt. Ltd., New Delhi vs Department Of Income Tax
ITA NO. 145/Del/2012
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "B", NEW DELHI
BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER
AND
SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
I.T.A. No. 145/Del/2012
A.Y. : 2003-04
Asstt. Commissioner of Income Tax, vs. M/s CTC Air Carriers Private
Circle 3(1), Limited,
New Delhi 289, Satya Niketan,
New Delhi - 110021
(PAN/GIR NO. : AAACC0813C)
(Appellant ) (Respondent )
Assessee by : Sh. Aseem Chawla, Adv., Sh. Jyoti
Bagga/ Ms. Shweta Kapoor, CA
Department by : Sh. J.S. Ahlawat, Sr. D.R.
ORDER
PER SHAMIM YAHYA: AM This appeal by the Revenue is directed against the order of the Ld. Commissioner of Income Tax (Appeals)-VI, New Delhi dated 25.10.2011 pertaining to assessment year 2003-04.
2. The grounds raised read as under:-
i) The Ld. Commissioner of Income Tax (A) has erred on facts and in law in deleting the addition of ` 7310193/-
on account of undisclosed income relating to mismatching of TDS receipts with P&L account.
ii) The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of 1 ITA NO. 145/Del/2012 appeal at any time before during the hearing of this appeal."
3. Briefly stated facts of the case are that the assessee is an approved IATA Commission Agent which is engaged in the business of handling outgoing freight of the Carriers /Airlines on behalf of the consignors. The nature business of the assessee is to facilitate Air Cargo Movement as a Commission agent for various airlines by booking cargo for them, issuing airway bill, collecting freight on their behalf in respect of prepaid freight paid consignments and consequently reimbursing the same in a consolidated manner to the airlines. The assessee is getting business directly as well as through sub agents. The return for the A.Y. 2003-04 was filed on 27.11.2003 declaring an income of ` 1832894/- which was processed u/s. 143(1) of the I.T. Act, 1961 on 8.3.2004. No scrutiny assessment u/s. 143(3) of the I.T. Act was carried out in this case. Later on, discrepancy to the tune of ` 48,99,461/- was noticed by the Assessing Officer between the commission income shown by the assessee in its profit and loss a/c and the commission income as per TDS certificates. The discrepancy noticed by the Assessing Officer was as follows:-
Commission income Income as per P/L Difference as per TDS Certificate account ` 1,06,15,785/- ` 57,16,324/- ` 48,99,461/-
In the opinion of Assessing Officer, this difference of ` 48,99,461/- was liable to be added back to the taxable income of the assessee. Again the record for the same year revealed that the contractual income shown by the assessee as per TDS certificate and as per P&L account was as under:-2
ITA NO. 145/Del/2012 Income head TDS Income as per P/L Less income shown in Certificate account P/L account ` 2410732/- Nil ` 2410732/-
Thus, there was a difference of ` 2410732/- between the contractual income shown by the assessee as per TDS certificate and as per credits in P/L account and the same was found to be liable to be added back to the taxable income of the assessee.
Subsequently, the assessment was completed u/s. 147/143(3) of the I.T. Act, 1961 for the relevant assessment year and an addition of ` 73,10,193 (` 48,99,461 on a/c of difference in commission receipt + ` 24,10,732 on a/c of contractual receipt) was made to the income of the assessee company.
4. Upon assessee's appeal Ld. Commissioner of Income Tax (A) elaborately considered the business and accounting principles of the assessee. Before the Ld. Commissioner of Income Tax (A), it was submitted that while paying commission to the assessee the airlines etc. deduct TDS u/s. 194H of the I.T. Act. During the relevant assessment year, TDS ` 6,19,228/- u/s. 194H on the commission of ` 1,06,15,785/- was deducted by the airlines etc. It was further submitted that assessee in the normal course of business is making balance sheet and profit and loss account, where commission income is shown after netting off direct expenses on account of commission paid to sub agents, rebate and discount allowed and TC charges (i.e. terminal charges) paid at the airport. It was further submitted that accounting entries in the books of accounts of the assessee are made in the following manner:-
3ITA NO. 145/Del/2012 (A). On receipt of commission from the airline following accounting entry is passed in respect of commission income:
Debit : Airline (Commission net of TDS amount) Debit : TDS (TDS on Commission) Credit : Commission on Freight (Commission amount) (B). When the commission become due to sub-agents:
Debit : Commission on Freight (Sub Agent Commission amount) Credit : Sub- Agent Account (Sub Agent Commission net of TDS amount) Credit : TDS payable (TDS on sub agent commission) 4.1 Assessee further submitted before the Ld. Commissioner of Income Tax (A) that during the relevant assessment year assessee company received commission income of ` 1,23,28,528/- (including the amount of ` 17,12,743/- as petty commission on which no tax was deductible) and the same was credited in the books of account.
However, the assessee also incurred expenses on account of commission of ` 58,42,946/- paid to sub agents, rebate and discount ` 4,41,757/- and TC charges ` 3,27,500/- during the relevant assessment year and these expenses were netted off from the commission income and net figure of ` 57,16,324/- (` 1,23,28,528) - (` 58,42,946 + ` 3,27,500) was shown in the profit and loss account for the assessment year 2003-04. It was further submitted that assessee accounted for all the income and receipts as per the TDS certificates in the books of accounts. This method of the netting off the commission income with 4 ITA NO. 145/Del/2012 related expense was as per the accounting method and the same method has regularly been followed by the assessee.
4.2 Regarding freight receipts, it was submitted that the freight payable to the airlines is billed to the client on whose behalf assessee handles outbound consignments. Since freight collected for carriage of goods on behalf of airlines is only a receipt against liability already incurred and credited to airlines account this does not represent the income of the assessee. As per the CBDT Circular No. 715 dated 8-8-1995 (regarding payments made to clearing and forwarding agent for carriage of goods) the consignors/ clients deduct TDS U/s 194C of the Income Tax Act 1961 on the freight amount. During the Assessment year 2003-04 TDS ` 54,493/- u/s 194C on freight amount of ` 24,10,732/- was deducted by the clients. In this case TDS is deducted by the consigner on the freight amount U/s 194C. it was submitted that this receipt of freight cannot be construed as the income of the assessee. On the contrary, the same is simply a receipt on behalf of the Airline. Assessee further explained the accounting entries made by the assessee regarding the freight receipts in the books of a/c of the assessee are as under:-
A) When the assessee is issuing an Airway Bill to the consigner, the following entry is passed:
Debit: Consignor/Shippers account (Freight amount) Credit: Airlines Account (Freight amount) B) For booking TDS amount in the Books, the following accounting entry is passed:
Debit: TDS(TDS on Freight)
5
ITA NO. 145/Del/2012
Credit: Consignor/Shippers account (TDS on Freight
It was submitted that as per the books of accounts assessee has accounted for amount of freight received from the consignors including on which TDS has been deducted as liability towards the respective airlines and such receipts are only recoveries on behalf of the Airlines and the same are not the income or the assessee. It was further submitted that as per the Income tax Act only the real incomes are taxable and not all the receipts. It was further submitted that Assessing Officer has made the additions in these case simply on the basis of TDS certificates received without pointing out any defect in the accounts/ method of accounting, which has consistently been followed by the assessee. It was further submitted that during the reassessment proceedings, the assessee company furnished the reconciliation statement of commission as per TDS certificates vis-a-vis the books of A/c, the copies of ledger accounts of commission receipts and payments along with the ledger account of parties concerned, the copies of bank statement etc vide letters dated 26.10.2010 and 29.10.2010 before the AO. It was submitted that the AO also failed to appreciate the difference between income & receipt. It was further submitted that books of accounts were also produced. Assessing Officer did not consider them before making the additions. Assessee further submitted that what was taxable in the hands of assessee was the commission earned less commission paid. The facts about the netting of commission was also disclosed by way of note to the balance sheet for the relevant assessment year. The assessee had been adopting this method of accounting right since inception and the same was accepted by department in the past. Considering the above Ld. Commissioner of Income Tax (A) held as under:-6
ITA NO. 145/Del/2012 "6.2 Keeping in view the aforesaid trend of the business and the accounting principles, the case of the appellant was examined. It is seen that the appellant has credited the "net" commission income in it's profit and loss A/C A note in this regard was found to be given by the auditors of the appellant in the notes to the accounts to the balance sheet as on 31.3.2003 (as per clause 3). The Assessing Officer's finding in the assessment order is found to be incorrect in this regard. It is further seen that during the re-
assessment proceedings before the AO, the appellant has duly furnished the reconciliation statement of commission as per TDS certificates vis-a-vis the books of a/c, the copies of ledger a/c of commission receipts and payments along with the ledger a/c of parties concerned and the copies of bank statement etc vide letters dated 26.10.2010 and 29.10.2010. Besides, the books of A/C was also produced by the appellant before the AO. But, the AO has neither controverted/ disputed the materials on record nor has pointed out any defect in the method of accounting. From the perusal of the commission a/c, it was observed that commission to sub-agents, TC charges etc. were paid by the appellant company through cheques from it's bank a/c. Even the AO has not disputed the same. Similarly, it was found that the freight collected on behalf of Airlines was also remitted to their a/c's through the bank of the appellant company.
7ITA NO. 145/Del/2012 Therefore, the Payments received on account of freight cannot be considered to be the income of the appellant. It is a receipt against liability incurred. Thus, in the absence of any contrary material, the additions made by the AO cannot be sustained on this account. It was further observed that the appellant is following this method of accounting consistently and the department has been accepting the same. For example, assessment in the case of appellant was completed for the assessment year 2006-07 u/s 143(3) of the IT Act in which the same method of accounting was accepted by the AO. As per sec.145, income must be computed in accordance with the method of accounting regularly employed by the assessee. The choice of method of accounting lies with the assessee. In this regard the decision of the Hon'ble Supreme Court in the case of UCO Bank V CIT 240 ITR 355 (SC) and the decision in the case of BCGA (Punjab) vs. CIT 5 ITR 279) may be referred to. So long he is adopting the same regularly. In this case, the AO has also failed to appreciate the difference between income & receipt. Generally income accrues first and receipt follows on accrual; a right to receive must come in to existence before the actual receipt takes place. But a receipt by itself is not sufficient to attract tax."
Ld. Commissioner of Income Tax (A) further placed reliance upon the following cases laws:-
8ITA NO. 145/Del/2012
- C.I.T. vs. Punjab Tractors 234 ITR 105
- C.I.T. vs. Industrial Engineering 202 ITR 1014
- State Bank of Travancore vs. C.I.T. (1986) (SC) 158 ITR 10
- BV JKM Ltd. vs. C.I.T. (1982) 135 ITR 91.
Ld. Commissioner of Income Tax (A) concluded as under:-
"6.3 On these facts and circumstances of the case, I am of the considered opinion that the AO has erred in considering all the amounts received by the appellant 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. The learned Assessing Authority has considered entire payment made 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. Profit is income less expenditure."
5. Against the above order the Revenue is in appeal before us.
6. We have heard the rival contentions in light of the material produced and precedent relied upon. We find that Ld. Commissioner of Income Tax (A) has given a finding that assessee has credited the net commission income in profit and loss account. A note in this regard was found to be given by the auditors of the assessee in the 9 ITA NO. 145/Del/2012 notes to the accounts. We further note that assessee has duly furnished the reconciliation statement of commission as per TDS certificates vis-a-vis the books of a/c, the copies of ledger a/c of commission receipts and payments along with the ledger a/c of parties concerned and the copies of bank statement etc vide letters dated 26.10.2010 and 29.10.2010. Besides, the books of a/c were also produced by the assessee before the AO. But, the AO has neither controverted/ disputed the materials on record nor has pointed out any defect in the method of accounting. It was further noted that from the perusal of the commission a/c, it was observed that commission to sub- agents, TC charges etc. were paid by the assessee company through cheques from it's bank a/c. That similarly, it was found that the freight collected on behalf of Airlines was also remitted to their a/c's through the bank of the assessee company.
6.1 We agree with the Ld. Commissioner of Income Tax (A) view that the payment received on account of freight cannot be considered to be the income of the assessee. It is a receipt against liability incurred. We find that in view of the above discussion, Ld. Commissioner of Income Tax (A) observed that 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. That as per sec. 145, the income must be computed in accordance with the method of accounting regularly employed by the assessee.
6.2 In the background of the aforesaid discussion and precedents referred, we agree with the finding of the Ld. Commissioner of Income Tax (A) that Assessing Officer has erred in considering all the 10 ITA NO. 145/Del/2012 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. Thus, we hold that the 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. Accordingly, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (A), hence, we uphold the same.
7. In the result, the appeal filed by the Revenue stands dismissed.
Order pronounced in the open court on 20/7/2012.
Sd/- Sd/-
[R.P. TOLANI]
TOLANI] [SHAMIM YAHYA]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date 20/7/2012
"SRBHATNAGAR"
Copy forwarded to: -
1. Appellant 2. Respondent 3. CIT 4. CIT (A)
5. DR, ITAT
TRUE COPY
By Order,
Assistant Registrar,
ITAT, Delhi Benches
11