2013 (2) TMI 264 - AT - Income Tax

Profits chargeable to tax - assessee has acted as commission agent for the transaction - addition invoking provisions u/s 41(1)(a) - Held that - Sec.41(1) is a deeming fiction and seeks to tax receipt or benefit which may not strictly be income , the burden to prove that a particular benefit or receipt falls within the four corners of the provisions of sec.41(1) lies upon the revenue. The conclusion drawn by the CIT(A) by invoking u/s 41(1) are purely on surmises. There is no evidence on record, to show that a sum of Rs. 25,30,792.86 which was admittedly, liability payable by the assessee to M/s IMC was adjusted towards the commission payable to the assessee by M/s IMC. The fact that no confirmation was filed from M/s IMC cannot lead to the conclusion that there was a cessation or remission of liability of the assessee warranting invocation of provisions of sec.41(1). The reliance placed by the Assessee on the decision of CIT v. Shri Vardhman Overseas Ltd. 2011 (12) TMI 77 - DELHI HIGH COURT supports the plea of the Assessee. In that case the Assessee wrote of the liability by crediting the amounts outstanding in the profit and loss account but showed them as liability in the Balance Sheet confirming a fact that the liability is reflected in the balance sheet of the Assessee was an acknowledgement of liability which can be relied upon by the credit for saving limitation of time for action by legal proceedings u/s.18 of the Limitation Act, 1963. In the present case there is not even such a write off in the profit and loss account. In such circumstances, the action of the revenue authorities in brining to tax the disputed amount by invoking provisions of Sec.41(1) cannot be sustained. Even assuming that the Commissioner has sustained the addition on the basis that a sum of Rs. 25,30,792.86 is commission income of the assessee, the same is without any evidence and is purely on surmises, therefore deserves to be deleted - in favour of assessee.

Summary

Issues:
- Whether the revenue authorities were justified in making an addition to the total income of the assessee under sec. 41(1)(a) of the IT Act, 1961.

Analysis:
1. The only issue in this appeal was whether the revenue authorities were right in adding Rs. 25,51,792.86 to the total income of the assessee under sec. 41(1)(a) of the IT Act, 1961. The assessee, an individual engaged in trading and commission agent activities, had a dispute with M/s IMC, USA regarding a sum of Rs. 25,30,792.86 shown as payable in the balance sheet. The AO added this amount to the assessee's income, alleging that it was appropriated towards commission receivable, invoking sec. 41(1)(a) of the Act.

2. The CIT(A) upheld the AO's decision, stating that the amount was retained by the assessee as commission for services rendered in connection with a transaction between M/s IMC and M/s Synergy, Vishakapatnam. The CIT(A) inferred that the assessee withheld the sum due to expected commission. However, the CIT(A) also noted the absence of confirmation from M/s IMC regarding the outstanding dues.

3. The Tribunal analyzed sec. 41(1) of the Act, emphasizing the burden on the revenue to prove that a benefit or receipt falls within its provisions. The Tribunal found the CIT(A)'s conclusions to be based on assumptions without concrete evidence. It highlighted that no proof existed to show the adjustment of the liability towards commission payable. The Tribunal referred to a Delhi High Court case to support the assessee's position.

4. Ultimately, the Tribunal held that the revenue authorities' action in taxing the disputed amount under sec. 41(1) was not sustainable. It concluded that the addition made by the AO and upheld by the CIT(A) should be deleted. The Tribunal directed the deletion of the addition, thereby allowing the appeal filed by the assessee.

In summary, the Tribunal ruled in favor of the assessee, finding that the revenue authorities failed to provide sufficient evidence to support the addition to the assessee's income under sec. 41(1)(a) of the IT Act, 1961. The Tribunal emphasized the lack of concrete proof regarding the adjustment of the liability towards commission payable and held that the addition was based on assumptions rather than facts.