2012 (9) TMI 366 - AT - Income Tax

TDS on commission/fee paid to Consortium Members - Disallowance under Section 40 a)(ia) - Held that - In this case the assessee entered into a consortium agreement with 12 other members who are travel agents for booking air tickets through the platform provided by M/s Amadeus Pvt. Ltd. - As is evident from the terms and conditions of the consortium agreement, the payment by the assessee to other consortium members is not voluntary .The assessee is under a legal obligation in terms of the agreement to pay the amount to other consortium members in accordance with settled terms. There is nothing to suggest that the assessee rendered any service to Amadeus. It is the settled legal position that income accrues when an enforceable debt is created in favour of an assessee. The terms of the consortium agreement do not reveal any such right in favour of the assessee, thus income of 52,22,326/-rightfully belonged to the other consortium members, to whom the amount was distributed by the assessee - Since the assessee only distributed the income in terms of the agreement and this did not amount to incurring of an expenditure no infirmity in the findings of the CIT(A) in deleting the disallowance u/s 40a(ia). As the notices issued by the ld. CIT(A) were never served upon it and the issues raised in ground nos. 2 & 5 in this appeal having not been adjudicated by him, it is fair and appropriate to vacate the findings of the CIT(A) and restore the matter to his file with the directions to readjudicate the issues in the light of aforesaid decision of the ITAT on identical facts in the AY 2006-07 after allowing sufficient opportunity to both the parties

Summary

Issues Involved:
1. Confirmation of assessment at an income of Rs. 1,42,15,482/- against the returned loss of Rs. 9,09,780/-.
2. Consideration of returned income of Rs. 2,16,880/- instead of the declared loss of Rs. 9,09,780/-.
3. Addition of Rs. 16,01,970/- based on the difference between TDS certificates and the amount credited in the P&L account.
4. Addition of Rs. 1,21,84,199/- under section 40(a)(ia) of the Income-tax Act, 1961.
5. Initiation of proceedings under section 271B for non-filing of the Tax Audit Report under section 44AB.

Detailed Analysis:

1. Confirmation of Assessment at an Income of Rs. 1,42,15,482/-:
The assessee contested the confirmation of the assessment made by the Learned Assessing Officer (LAO) at an income of Rs. 1,42,15,482/- against the returned loss of Rs. 9,09,780/-. The LAO considered the returned income of Rs. 2,16,880/- instead of the declared loss, resulting in an addition of Rs. 11,26,660/-. The CIT(A) did not adjudicate this ground of appeal.

2. Consideration of Returned Income Instead of Declared Loss:
The LAO erred in considering the returned income of Rs. 2,16,880/- instead of the declared loss of Rs. 9,09,780/-, leading to an addition of Rs. 11,26,660/-. The CIT(A) failed to adjudicate this ground of appeal.

3. Addition of Rs. 16,01,970/- Based on TDS Certificates:
The LAO added Rs. 16,01,970/- as additional income, being the difference between the amount as per TDS certificates issued by various entities and the amount credited in the P&L account. The assessee argued that the amount credited in the P&L account represented amounts belonging to various travel agents and received by the appellant as the lead agent for distribution. The lower authorities failed to consider the method of accounting employed by the assessee. The CIT(A) upheld the addition, treating the income based on TDS certificates and parting further with the commission without deducting TDS, thus committing a default under Chapter XVII-B.

4. Addition of Rs. 1,21,84,199/- under Section 40(a)(ia):
The LAO invoked the provisions of section 40(a)(ia) of the Income-tax Act, 1961, disallowing Rs. 1,21,84,199/- on the plea that the amount constituted commission paid by the appellant to various travel agents. The assessee argued that the distribution between consortium members of receipts collected by the appellant on their behalf was not in the nature of commission, hence the provisions of section 194H were not applicable. The CIT(A) disagreed, holding that the appellant committed a default by not deducting TDS on the commission paid to the 13 travel agents, thus attracting the provisions of section 40(a)(ia).

5. Initiation of Proceedings under Section 271B:
The LAO initiated proceedings under section 271B for non-filing of the Tax Audit Report under section 44AB, treating the total receipts of Rs. 1,67,64,152/- as part of sales, turnover, or gross receipts. The CIT(A) did not adjudicate this ground of appeal.

Conclusion:
The ITAT noted that the impugned order was passed ex parte as the assessee did not appear before the CIT(A). The ITAT referenced its previous decision dated 18.05.2012 in the assessee's own case for AY 2006-07, which concluded that the payment by the assessee to other consortium members was not voluntary and did not constitute income for the assessee. The ITAT vacated the findings of the CIT(A) and restored the matter for re-adjudication in light of the previous decision, allowing sufficient opportunity to both parties. Ground no. 1 was dismissed as general in nature, and no additional grounds were raised. The appeal was allowed for statistical purposes.