2023 (5) TMI 469 - AT - Income Tax

Accrual of income - Addition on account of commission income - gross commission v/s net income - CIT-A deleted the addition - HELD THAT - There is no dispute to the fact that the assessee has earned gross income by way of commission which was reduced by the following amounts Commission given to sub- agents and Discount given to the customers. As such the assessee adjusted the gross commission against the above amount of commission given to the sub- agents and the discount given to the customers. The balance amount was shown in the books of accounts of the assessee. There was iota of doubt raised by the revenue with respect to the commission given to the sub- agents of A1,86,23,609 which was adjusted against the gross commission income. Commission income was shown net of the commission given to the sub- agents which was also accepted by the revenue. Revenue did not accept the manner of showing the gross commission income after adjusting the discount given to the customers which seems to be contrary to the stand of the revenue. It is since that the revenue accepted the commission given to the sub- agents which was not shown in the books of accounts but did not believe on the discount given to the customers despite the fact, the necessary sample invoices were furnished by the assessee having passed on discount to the customers. Genuineness of the discount offered by the assessee to the customers has nowhere been doubted by the AO. What has been doubted is that the commission income was accrued to the assessee on a gross basis, but the assessee has shown commission income in the books of accounts on a net basis i.e. after adjusting the discount given to the customers. To our understanding, it is a manner of presentation of the income of the assessee. Even, if we follow the version of the AO, then also there would not be any change in the income offered by the assessee in the income tax return as far as discount offered by the assessee to the customers is concern. As such, the assessee will show the gross income in the profit and loss account and against which it would claim the discount offered to the customers as an expense which will lead to the tax neutral exercise. Thus, we do not find any infirmity in the order of the learned CIT-A. Hence, the ground of appeal of the revenue is hereby dismissed.

Summary

Issues:
The judgment involves the deletion of addition made by the Assessing Officer (AO) on account of commission income for Assessment Year 2012-2013, as challenged by the Revenue.

Issue 1 - Addition of Commission Income:
The primary issue raised by the Revenue was the deletion of the addition of Rs. 53,89,163 made by the AO on account of commission income. The Revenue contended that the AO's order should have been upheld by the Commissioner of Income Tax (Appeals) (CIT-A).

Facts and Decision:
The assessee, a partnership firm in the tours and travel business, earned gross commission income of Rs. 3,45,63,260 but showed net commission income at Rs. 1,05,50,448 in its books. The difference was due to commissions to sub-agents and discounts to customers. The AO added back the discount amount to the total income, considering it as application of income. However, the CIT-A, after reviewing the details provided by the assessee, found the AO's contention not tenable. The CIT-A observed that the net commission shown in the profit and loss account was legitimate, as the discount to customers was a valid expense. The CIT-A allowed the grounds of appeal raised by the assessee and deleted the addition made by the AO.

Analysis and Conclusion:
Upon hearing both parties, the Tribunal noted that the assessee adjusted the gross commission against commissions to sub-agents and discounts to customers, resulting in the net commission shown in the books. While the revenue accepted the adjustment for sub-agents, they disputed the treatment of discounts to customers. The Tribunal found no issue with the assessee's presentation of income, even if considered on a gross basis. The genuineness of the discounts was not questioned by the AO. Ultimately, the Tribunal dismissed the Revenue's appeal, upholding the CIT-A's decision. The Tribunal found no flaw in the CIT-A's order, leading to the dismissal of the Revenue's appeal.