2016 (7) TMI 106 - AT - Income Tax

Method of accounting - Disallowance u/s 40(a)(ia) - short accounting of receipts in the books of accounts vis- -vis in the TDS certificates - rejection of books of accounts - Since the assessee working as sole selling agent make direct payment to principal which was received from various parties without reflecting in its books of accounts - assessee booked only its commission in its books of accounts - Held that - Assessee was acting as sole selling agent of M/s S S Films and make payment to M/s S S Films after deducting various expenses which were of the nature of dubbing, mixing and recording etc. including the publicity and his commission. Since the assessee is working as sole selling agent of M/s S S Films the provisions of section 194J or 194C and 40(a)(ia) of the Act were not attracted and the observations of the AO that ₹ 60,33,735/- was paid without deduction of TDS and disallowed u/s 40(a)(ia) is wrong and against the provisions of law. Order of AO set aside and addition deleted - Decided in favour of assessee

Summary

Issues:
Challenge to rejection of books of account and addition to income under section 40(a)(ia) of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Rejection of Books of Account and Addition to Income
The appellant contested the rejection of books of account and the addition of ?60,33,735 to income under section 40(a)(ia) of the Income Tax Act, 1961. The Assessing Officer (AO) observed a variance between the total receipts as per TDS certificates and the amount accounted for by the appellant. The AO added the difference to the appellant's income, citing non-compliance with tax deduction provisions. The appellant argued that the gross receipts did not belong to them but were diverted by overriding title, making it impermissible to show them as income. However, the appellant failed to provide concrete evidence to support this claim. The AO and the CIT(A) upheld the addition, emphasizing the lack of proof of income diversion. The appellant's contention that they only accounted for commission income was dismissed, as the receipts should have been subject to TDS if that were the case. The Tribunal found that as a sole selling agent, the appellant collected payments on behalf of the principal, accounting for commission on the total sale value. The Tribunal disagreed with the lower authorities, concluding that the rejection of books and the addition were unjustified. Given the appellant's role as an agent, the provisions of section 194J or 194C and 40(a)(ia) were deemed inapplicable. Consequently, the Tribunal directed the AO to delete the added amount from the appellant's income.

This detailed analysis provides an insight into the issues raised in the legal judgment, the arguments presented by the parties, and the Tribunal's decision based on the interpretation of relevant provisions of the Income Tax Act, 1961.