2025 (3) TMI 761 - AT - Income Tax

Addition made on account of suppression of sales - differences between the sales of tickets as per books of accounts and various other parameters - differences between the sales of tickets as per books of accounts and various other parameters - CIT(A) deleted addition - HELD THAT - Since the sales were done electronically online then if the same has been received in some bank account then how the same was accounted for in the books of accounts. If the sales were received in a separate bank account then the same has not been brought on record. The receipt of suppressed sales in a different bank account is not possible since the entire payment towards sale will be credited in a single bank account and it is not possible to receive the proceeds of sales in 2 separate bank accounts. The data taken from IATA has been compared with Busy data but the IATA data was never provided at any stage to the assessee. The addition in respect of ADM (Agency Debit Memo) has been made based upon entirely incorrect understanding of facts. ADM is an expense for the company and is not in the nature of income. Hence if the contention of the ld AO is accepted then difference between ADMS entries found in IATA and not recorded in Busy software would result in increase of expenditure and not sales. This itself proves the fallacy in understanding of the entire gamut of the case by the ld AO and also proves that the additions have been made without any cogent material and without any basis. There is no dispute that the ld AO during assessment proceedings has not carried out any independent investigation and solely relied upon the appraisal report for making the addition and no details regarding mode and method of computation of suppressed sales are available the same has been confirmed in the remand report furnished. In the absence of basic details like the method and mode of computation and PNR wise details of suppression of sales and absence of mode of receipt of the alleged suppressed sales the addition made is not justified. No infirmity in the order of the CIT-A deleting the additions made on account of alleged suppression of sales for all the years under consideration. Disallowance on account of inflated commission expenditure - CIT(A) deleted addition - HELD THAT - It is not the case of the ld AO that the commission was paid to related persons or the company received back the commission paid in form of cash or the commission paid was not genuine or bogus. The only allegation is that the commission paid in excess of 10% is not justified. No basis was reflected by the ld AO even to arrive at the Arm s length rate of commission at 10% or 5% as the case may be. It is pertinent to note that the commission percentage obviously would vary from party to party depending upon the volume of sales sourced by the said agents. The rate at which commission is to be paid is solely the prerogative of the company if the same is not bogus. In this case the genuineness has not been challenged by the department. Hence the ld AO was not justified in holding that commission expenditure upto 10% would be at Arm s length and any percentage over and above the same would be excessive or unreasonable. Either way the business prudence need to be looked into from the point of view of the businessman and not from the point of view of the revenue. The law is very well settled on this aspect by the decision of Hon ble Supreme Court in the case of CIT vs Dhanrajgiri Raja Narasingirji reported in 91 ITR 544 (SC). Further no deduction was claimed towards commission expenditure and hence there is no question of any disallowance thereon. No infirmity in the order of the ld CITA deleting the additions. All the appeals of the revenue are dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the Commissioner of Income Tax (Appeals) was justified in deleting the additions made on account of suppression of sales for the assessment years under consideration.
• Whether the deletion of disallowance on account of inflated commission expenditure was justified.

ISSUE-WISE DETAILED ANALYSIS

Suppression of Sales

• Relevant Legal Framework and Precedents: The assessment was carried out under sections 153A and 143(3) of the Income-tax Act, 1961. The legal framework requires the Assessing Officer (AO) to independently verify facts and reach conclusions based on evidence.
• Court's Interpretation and Reasoning: The Tribunal found that the AO did not provide sufficient evidence or detailed workings to substantiate the additions made for suppression of sales. The AO relied heavily on an appraisal report without independent verification or evidence.
• Key Evidence and Findings: The AO identified discrepancies between sales reported on the company's online portal and accounting software, leading to an addition of Rs. 39.81 crore across six assessment years. However, the Tribunal noted that no evidence of undisclosed bank accounts or cash was found during the search, and no detailed workings were provided to support the additions.
• Application of Law to Facts: The Tribunal applied the principles of natural justice, emphasizing the need for evidence and the opportunity for the assessee to rebut findings. The lack of evidence and failure to provide the basis for the additions led to the conclusion that the additions were unjustified.
• Treatment of Competing Arguments: The Tribunal considered the revenue's arguments but found them unsubstantiated due to the absence of evidence and detailed workings. The assessee's arguments about the lack of evidence and the nature of online transactions were found compelling.
• Conclusions: The Tribunal upheld the deletion of additions by the Commissioner of Income Tax (Appeals), finding no basis for the alleged suppression of sales.

Inflated Commission Expenditure

• Relevant Legal Framework and Precedents: The issue was assessed under the provisions concerning the disallowance of excessive or unreasonable expenditure, specifically sections 40A(2)(b) and principles of arm's length transactions.
• Court's Interpretation and Reasoning: The Tribunal found that the AO did not provide any basis or evidence for determining that commission paid in excess of 10% was inflated. The AO's determination of arm's length rate lacked substantiation.
• Key Evidence and Findings: The AO disallowed commissions paid above 10% without providing a rationale or identifying related parties. The Tribunal found no evidence of the commissions being excessive or unreasonable.
• Application of Law to Facts: The Tribunal emphasized that business decisions, such as commission rates, should be assessed from the perspective of the business, not the revenue. The lack of evidence for the AO's claims led to the conclusion that the disallowance was unjustified.
• Treatment of Competing Arguments: The Tribunal considered the revenue's arguments but found them unsupported by evidence. The assessee's position that no commission expense was claimed in the Profit & Loss Account was upheld.
• Conclusions: The Tribunal upheld the deletion of disallowance by the Commissioner of Income Tax (Appeals), finding no basis for the alleged inflated commission expenditure.

SIGNIFICANT HOLDINGS

• The Tribunal emphasized the requirement for evidence in making additions or disallowances, highlighting the principles of natural justice and the need for independent verification by the AO.
• The Tribunal held that business practices and decisions should be evaluated from the perspective of the business rather than the revenue, especially in the absence of evidence indicating excessiveness or unreasonableness.
• The final determination was that the additions and disallowances made by the AO were unjustified due to the lack of evidence and failure to provide the assessee an opportunity to rebut the findings.

In conclusion, the Tribunal dismissed all appeals by the revenue and the cross objections by the assessee as infructuous, emphasizing the importance of evidence and proper procedure in tax assessments.