2017 (8) TMI 728 - HC - Income Tax

Taxation on actual income received - assessee had received only 95% of the invoice price and that the assessee could not have been taxed for an income which they have not received - Held that - There are circumstances which are capable of creating a reasonable suspicion about the existence of the Agency, M/s. Lovely Enterprises, fact remains such a concern had CST Registration. There were transactions between the assessee and the said concern and the invoices which were raised by the assessee in the name of the Agent also contained the gross sale price and the net amount payable, after recovery of 5% towards commission and other expenses due. Based on such transactions, the amounts were realised by the assessee through banking channels and F forms under the CST Act were also obtained by them from the Agent. These admitted facts, therefore, shows that the assessee had received only 95% of the gross price and the Revenue has no material before it that the assessee had received anything in excess thereof either directly or otherwise. The principles laid down by the Apex Court in Godhra Electricity s case (1997 (4) TMI 4 - SUPREME Court) clearly indicate that the assessee could be taxed only for the income that it has derived. If that be so, despite the contentions raised regarding the doubtful existence of the agent, the assessee having received only 95% of the gross value, could have been taxed, only for what it had actually received. We are inclined to think that in the facts of this case, the Tribunal was justified in coming to the factual conclusion that the assessee could not have been taxed anything more than what it had received. No substantial question of law.

Summary

Issues:
1. Disallowance of sales commission claim by Assessing Officer.
2. Existence and validity of the agreement with the agent.
3. Interference by Tribunal in the assessment order.
4. Burden of proof on the assessee and the Revenue.
5. Taxability of income based on actual receipts.

Analysis:

1. The Income Tax appeals were filed by the Revenue challenging the order passed by the Income Tax Appellate Tribunal, which allowed the respondent's appeals concerning the assessment years 1997-98 and 1998-99. The Assessing Officer disallowed the claim of substantial sales commission paid to an agent, citing doubts about the agent's existence. The first Appellate Authority upheld the assessment order, leading to further appeals before the Tribunal.

2. The Tribunal reviewed additional documents provided by the assessee, revealing that only 95% of the invoice price was received. Relying on the judgment in Godhra Electricity Co.Ltd. v. Commissioner of Income-Tax, the Tribunal concluded that the assessee could only be taxed on income actually received. The questions of law framed by the Revenue included concerns about the traceability of the payee and the validity of the agreement with the agent.

3. The High Court observed that while there were circumstances raising suspicion about the agent's existence, the agent had CST Registration, and transactions with the agent were conducted, with invoices reflecting the net amount payable after deducting commission. The assessee received 95% of the gross price through banking channels, supported by F forms under the CST Act. The Court noted that the Revenue lacked evidence that the assessee received any excess amount, emphasizing the principle that taxation should be based on actual income derived.

4. Considering the factual findings, the High Court concluded that the Tribunal was justified in determining that the assessee should only be taxed on what it had actually received. The Court found no legal questions warranting consideration, leading to the dismissal of the appeals.

5. In summary, the High Court upheld the Tribunal's decision, emphasizing the importance of taxing income based on actual receipts and dismissing the Revenue's appeals challenging the disallowance of the sales commission claim.