2018 (8) TMI 1419 - AT - Income Tax

Undisclosed commission income - assessee is a firm and is a distributor of recharge vouchers, SIM Card of Bharti Airtel Limited. - validity of additions without rejecting the books of account - Held that - A perusal of the papers on record as well as the assessment orders, demonstrate that figure of purchase recorded in the books of account, as well as audited statements do not reflect the correct expenditure incurred by the assessee for purchases. The income receivable by the assessee from Bharti Airtel Ltd., which is paid in kind, is included in the cost purchases. Contra entries eliminating the commission from the cost of purchases have not been passed. Thus in my view the Assessing Officer as well as the Ld. CIT(A) were right not accepting the purchase figure disclosed by the assessee as correct. When certain addition on account of inflation of purchases has been made, there is no legal requirement of rejection of books of account. Though we agree with the findings of the Ld. A.O. has confirmed by the Ld. CIT(A), we are of the considered opinion that the valuation of closing stock has to be re-done by the Assessing Officer, by excluding the commission part from the total purchases. Coming to the issue of commission, the assessee has not demonstrated with the evidence its claim that the amount in question is not commission but reimbursement of expenditure incurred on behalf of the Bharti Airtel Ltd. Hence this ground of the assessee is dismissed. Decided partly in favor of assessee.

Issues:
1. Correct computation of income based on purchases and sales figures.
2. Rejection of trading account submitted by the assessee.
3. Inclusion of commission in purchases and its impact on profit calculation.
4. Valuation of closing stock.
5. Accrual basis for sales and cash basis for purchases.
6. Reimbursement of expenditure claimed as commission.
7. Appeal against additions confirmed by the CIT(A).

Analysis:
1. The appeal was filed against the CIT(A)'s order for the A.Y. 2010-11 regarding the assessment completed by the Assessing Officer under section 250 of the Income Tax Act, 1961. The assessee, a distributor of recharge vouchers and SIM cards, disclosed income of &8377; 1,38,763/-, but the AO determined the total income as &8377; 11,66,730/- based on discrepancies in purchases and sales figures.

2. The CIT(A) rejected the assessee's trading account due to discrepancies in accounting for purchases from Bharti Airtel Limited. The AO added &8377; 55,414/- as gross profit and &8377; 3,73,845/- as undisclosed commission based on information from Bharti Airtel Ltd. The claim of receiving easy load recharge vouchers as expenditure reimbursement was rejected.

3. The assessee raised grounds of appeal related to the rejection of purchase and sale figures, claiming that the closing stock was not revised, and the commission was included in purchases. The DR argued that the commission was part of purchases and no evidence supported the reimbursement claim.

4. The Tribunal found that the purchase figures did not reflect actual expenditure due to inclusion of income from Bharti Airtel Ltd. The valuation of closing stock needed revision to exclude commission. The commission accrued at the point of purchase, not sale, and the claim lacked evidence, leading to rejection.

5. The Tribunal set aside the issue of suppressed profit for fresh computation by the AO. The assessee failed to prove that the commission was not reimbursement or pertained to an earlier period. Consequently, the appeal was dismissed, upholding the additions confirmed by the CIT(A).

6. The judgment highlighted the importance of accurate accounting, proper valuation, and substantiated claims in income tax assessments, emphasizing the need for evidence to support deductions and expenses claimed by taxpayers.

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