M/S SANJAY CHEMICALS,MUMBAI vs. OLD (ITO - 30(3)(2), NEW (ITO 30 (1)(1)), MUMBAI

This appeal by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals)-41 dated 16.09.2020 and pertains to assessment year 2014-15.

2. The Learned Commissioner of Income Tax (Appeal) erred in confirming the addition of Rs.6,50,000/- on account of commission income. 3. The Learned Commissioner of Income Tax (Appeal) failed to appreciate that the addition made by the learned assessing officer is illegal and bad in law

Ground No. 1 of the appeal against the addition made on account of commission of Rs. 6,50,000/- received by appellant. In the written submission dated 07.09.2020, the appellant has accepted that the appellant failed to show commission income of Rs. 6,50,000/- in the return of income. In view of the admission by the appellant and the facts of the case, the addition made by the is confirmed and the ground of appeal is "Dismissed". Ground No. 2 of the appeal against the adhoc addition made by the AO amounting to Rs.69,280/- (10% of the certain expenses debited to the P & L Account). Vide para 3 of the written submission dated 07.09.2020, the appellant has stated that the appellant do not want to press this ground of appeal. Therefore, the addition is confirmed and the ground of appeal is "Dismissed"

GROUND NO 1 and 2: The main and only ground of appeal is with respect to addition of Rs.650000/- on account commission income received and not accounted by the appellant. The learned AO upheld that reasoning of AR was not acceptable as the commission was not credited to AR and loss account but was credited to purchase account as discount receivable. While making addition the learned AO advanced the logic that if nature of receipts is receivable TDS would not have been deducted, Hence the sum of Rs.650000/- is added to the total income of the assessee as commission income not offered to tax. The leamed CIT A 41, dismissed the appeal rejecting the ground appeal on following findings. Ground No 1 of the appeal made on account of commission of Rs.650000/-received by the In written submission dated 07.09.2020, the appellant has accepted that failed to show the commission income of Rs.650000/- in the return of income. In of the admission and the facts of the case, the addition made by the is confirmed and of appeal is "dismissed". In this connection the appellant submit that the learned AO did not consider the submissions made vide letter dated 21/11/2016 explaining that the commission received from the Fine Organics Industries Private Limited, Rs.650000/- (TDS deducted under section 194H Rs. 65000/-) was reduced from the purchases hence correctly offered the said commission income to the taxation as far as revenue was concerned. The copy of Purchase Ledger attached herewith for your kind perusal. (Refer page No 13 -20 of paper Book).

Regarding the fact of the case, it is submitted that appellant is engaged in the business of trading in chemicals and also act in the capacity of the commission agent. In respect of purchase from various suppliers including Fine Organics Industries Private Limited the appellant received trade discount on sale of products on achievement of certain business volume and that trade discount was credited to the purchase account. The appellant also received the sales commission income Rs.650000/-. for referring business on supply of 13000 Kgs material through the assessee, earned @ of Rs.5.00 per KGS from Fine Organics Industries Private Limited. The copy of the credit note 143/ Mrach-14/13-14 dated 31st March 2014 from Fine Organics Chemical Industries Private Limited is attached herewith. (Refer Page No 24). The only inadvertent accounting mistake was that instead of crediting Rs.650000/- commission income separately to the Profit and Loss Account, it was reduced from purchase as if it was discount receivable from the customers and that did not have any impact on the revenue as the income was duly recognized. The appellant also claimed the the TDS on such income in the return of income. It was not the case of the assessee that no income was recognized in revenue and IDS was claimed. The appellant further explained that since the commission income Rs.650000/-was receivable, Rs. 585000/- (Rs.650000- Rs. 65000/- TDS) was shown under the head loans and advances as per Schedule 8 of Balance Sheet as on 31.03.2014 (Refer Page No.3 of paper book). It is further to be noted that amount was received by the Appellant in subsequent year by account year by account payee cheque (refer page No 43 to 44 of paper Book). T earned AO did not considered submissions fully and arrived at the conclusion that "If nature of receipt is discount receivable, TDS would not have been deducted, the sum of Rs.650000/- is added to the total income of the assessee as commission Income not offered to tax. (Emphasis supplied) the learned AO completely disregarded the fact that commission, through inadvertence, was treated in the books as discount receivable and hence was duly offered to tax. This inadvertent mistake was committed by the accountant due to mixture of business activity with the Fine Organics Industries Private Limited, and instead of crediting the commission income Rs.650000/- to profit and loss account, it was credited to purchase account as trade discount.

The learned AO wrongly distinguished between commission and trade discount and arbitrarily concluded that No TDS would have been deducted on discount hence commission income of Rs.650000/- remained unaccounted but in fact the TDS of Rs. 65,0000 was in respect of discount income duly offered to tax.

The appellant reiterated above facts to the learned CIT A-41, in its submission dated 07/09/2020 (Refer Page No 30+33 of paper book.) The relevant para 2 of the letter dated 07/09/2020 is reproduced as under: 2.1 The learned Assessing officer erred in making as addition of Rs. 650000/- by way of undisclosed commission income.

2.2 Your honour will appreciate that the appellant regularly purchase goods from m/s Fine Organics Industries Pvt. Ltd and Fine Speciality surfactants pvt. Ltd.. Sir, this two companies grant turnover discount to the appellant every 3 months ans it is the policy of the appellant to reduce the said discount from purchase Account. The Credit notes are issued the company very late and hence they are booked accordingly. Sir, during the financial above companies had supplied goods directly to the parties of the appellant In turn the company issued credit not for the commission but, the accountant by oversight credited the purchase account treating the same as discount and thus reduced the purchases by Rs. 650000/ - instead of showing the same as commission income. (Purchase ledger and copy of Audited accounts attached at sr no. 14 to 22 of paper book.)

2.3 Sir. your honours will appreciate that there is no revenue loss nor there was of the appellant to avoid tax on the same, as the impact on net profit is Nil as to that extent is shown less.

Considering the above facts it is prayed to your honour take as lenient view a the book results and delete the addition made by the Assessing officer on account commission income not shown separately in profit and loss account as the same w weed from purchases and net purchases are reflected in audited accounts, thereby there is no understating of income in the return of income.

The Ld.CIT(A) without appreciating the fact, capriciously concluded as under:-

Ground NO. 1 of the appeal made on account of commission of Rs.650000/-received by the appellant. In written submission dated 07.09.2020, the appellant has accepted that appellant failed to show the commission income of Rs.650000/- in the return of income, view of the admission and the facts of the case, the addition made by the is confirmed and ground of appeal is "dismissed". The appellant already offered the said commission income of Rs.650000/- in the form of discount and credited to profit and loss account hence the addition of Rs.650000/- is against the cardinal principle of taxation that there cannot be double taxation on the same source of income.

In the light of above submissions the appellant prays your honour to drop the addition of Rs.650000/- being commission income not offered to tax as confirmed by CIT A 41 and Direct learned AO delete the addition of Rs.650000/- made as the commission income not offered to tax or such other directions as your honour deem fit.

"Your honour will appreciate that the appellant regularly purchase goods from M/s. Fine organics Industries Pvt. Ltd. and fine specialty surfactants Pvt. Ltd. Sir, this two companies grant turnover discount to the appellant every 3 months and it is the policy of the appellant to reduce the said discount from purchases Account. The credit notes are issued by the company very late and hence they are booked accordingly. Sir, during the financial year the above companies has supplied goods directly to the parties of the appellant in-turn the company issued credit note for the commission but, the accountant by oversight credited the purchase account treating the same as discount and thus reduced the purchases by Rs. 6,50,000/-instead of showing the same as commission income. Sir your honours will appreciate that there is no revenue loss nor there was any intention of the appellant to avoid tax on the same as the impact on net profit is Nil as the purchases to that extent is shown less.

Considering the above facts, it is prayed to your honour take a lenient view and accept the book results and delete the addition made by the assessing officer on account of commission income not shown separately in profit and loss account as the same was reduced form purchases and net purchases are reflected in audited accounts, thereby there is no understanding of income in the return of income. The assessing officer has made addition of Rs. 69,280/- on account of disallowances. In response to the same was state that we do not want to press this ground before your honour and request for withdrawal of this ground of appeal."

7. I note that from the submissions, it is emanating that assessee has submitted that it was an error in accounting. The said receipt was actually entered as adjustment to the purchase, instead of separate credit receipt. It is submitted that there is no effect on the profit reflected. This submission need factual verification. If the submission is found to be correct, the contention can be accepted that there is no effect on profit shown and addition again would result in double taxation. Hence, in the interest of justice, I remit the issue to the file of the AO. The AO shall examine the issue afresh after giving the assessee proper opportunity of being heard.

Pronounced in the open court on 06 .01.2022