2018 (2) TMI 1773 - AT - Income Tax

Addition on account of advance commission received in its profit and loss account - method of accounting followed - Held that - Assessee s method of accounting of recording the commission on the basis of receipt of material is accepted by the revenue in earlier as well as subsequent assessment years. The assessee has submitted the copies of the account of the various parties from whom the commission has been received from various suppliers during the financial year. The above details are also supported by the invoices of the suppliers where it is clearly mentioned that the material, which had been ordered by the appellant in the month of March 2010, had actually been received by the appellant during the next financial year and booked as purchases by the appellant. Even otherwise, the assessee has offered the income in the subsequent year and the company does not have differential rate of taxation for both the years. Therefore, as such the issue is tax neutral. However, despite the tax neutrality factor, we do not find any infirmity in the order of the Ld. CIT (A) in deleting the above disallowance on its own merit. In the result, the solitary ground of appeal of the revenue is dismissed.

Summary

Issues:
Appeal against deletion of addition of advance commission in P&L account for Assessment Year 2010-11.

Analysis:
The revenue appealed against the deletion of an addition of advance commission in the profit and loss account by the CIT (A). The assessing officer disallowed ?5,418,000 as advance commission received by the company, which was not treated as income and offered for taxation. The AO questioned why the advance amount should not be treated as commission income accrued, as the company followed the mercantile system of accounting. The company explained its accounting treatment, but the AO rejected it, considering the purchase details did not reflect the system. The CIT (A) found the company, a trader, received commission from manufacturers upon meeting targets for supplies, and the commission was adjusted based on actual material receipt. The CIT (A) supported the company's accounting treatment, citing a High Court decision on taxation based on accrual or receipt time.

The departmental representative supported the AO's order, arguing that the commission income should have been accounted for when the material was dispatched. The authorized representative reiterated the company's accounting method, emphasizing consistency, accrual concept, and matching principles. The Tribunal considered whether the advance commission income should be taxed in the current year or the subsequent year. The Tribunal found that the income accrued when the goods were received and booked as purchases, aligning with the accrual system and matching concept. The revenue could not prove discrepancies in the company's accounting or show a right to receive commission when goods were not received. The Tribunal upheld the CIT (A)'s decision to delete the disallowance, noting the company's consistent accounting method and tax neutrality.

In conclusion, the Tribunal dismissed the revenue's appeal, affirming the deletion of the addition of advance commission income in the profit and loss account for the Assessment Year 2010-11.