2019 (10) TMI 634 - AT - Income Tax

Addition as salary income instead of business income - The claim of the assessee is that the income earned by way of commission for expansion of business of the Principal - tax (TDS) has been deducted u/s.194H 194D - HELD THAT - Assessee could not substantiate its claim before the AO, therefore, the AO treated the commission receipt as income of the assessee from salary. CIT(A) relying on the decision of Kanwaljit Singh 2012 (12) TMI 168 - DELHI HIGH COURT upheld the action of AO. Before us, the assessee produced ledger account of staff salaries, meeting expenses ledger account, business promotion expenses ledger account, rent and electricity charges ledger account etc. In respect of computation of income submitted by the assessee before the revenue authorities, he has himself considered ₹ 7,50,000/- under the head income from salary and rest amount has been taken as business income which is not accepted by the revenue authorities. The assessee has submitted profit and loss account in which he has shown commission received of ₹ 11,12,211/- and in the debit side he has debited some expenses which has not been examined by lower authorities. We also noticed that the assessee has been issued Form No.16 for the salary received and Form No.16A for the commission paid to the assessee in which the applicability rate of TDS has been deducted. The assessee submitted before us copy of ledger accounts which has not been considered by the lower authorities. In our opinion, to arrive the correct profit from the above activity carried out by the assessee, the expenses need to be verified on the part of the AO. Therefore, this issue is sent back to the file of AO for verification of expenses debited into the profit and loss account. Reasonable opportunity of being heard shall be given to the assessee and the assessee is directed to appear before the AO and cooperate in the assessment proceedings and he also directed to substantiate the expenses claimed with credible evidence before the AO. Accordingly, the issue raised by the assessee is allowed for statistical purposes.

Summary

Issues:
- Confirmation of addition under the head "salary income"

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) confirming the addition made by the Assessing Officer under the head "salary income." The assessee, a salaried employee of a company, had filed a revised return of income declaring a higher total income. The Assessing Officer selected the case for scrutiny and passed an assessment order computing the total income of the assessee. The assessee then appealed before the CIT(A), who dismissed the appeal. The sole issue raised in the appeal was the confirmation of the addition made by the AO under the head "salary income."

The assessee argued that the entire receipt was commission income and not salary, as wrongly categorized by the authorities. The assessee was appointed as a marketing staff by the company to expand business and incurred various expenses related to the commission income earned. The assessee also engaged in marketing another product for investment, incurring additional expenses. The assessee's income was dependent on achieving business targets, and expenses incurred to earn income were deductible under Section 37(1) of the Income Tax Act, 1961. The assessee contended that the expenses were wrongly disallowed by the lower authorities based on incorrect categorization of income.

After considering the submissions, the Tribunal found that the assessee's remuneration was linked to business targets and not fixed salary, indicating a business or trading activity. The relationship between the assessee and the company was characterized as employer-employee, but the nature of income received was deemed to be business receipt and not salary under the IT Act. The Tribunal observed that the expenses debited in the profit and loss account needed verification to determine the correct profit from the activity carried out by the assessee. Therefore, the issue was sent back to the Assessing Officer for further examination and verification of expenses, with the assessee directed to substantiate the claimed expenses with credible evidence.

In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the need for verification of expenses to arrive at the accurate profit from the business activities undertaken by the assessee. The decision highlighted the importance of correctly categorizing income and allowing deductions for expenses incurred to earn that income, in line with the provisions of the Income Tax Act, 1961.