2022 (8) TMI 1576 - AT - Income Tax

Addition on account of commission which was never received by the assessee and reversal of the entry made by the payer - HELD THAT - Though the financial statement of the payer company shows that the company has paid total commission of Rs. 11 lakhs then the statement of the counsel is that the payer company could not have debited Rs. 48.56 lakhs commission in the name of the assessee. If that being so then how come the assessee has accounted for commission of Rs. 20.12 lakhs when the payer company has shown commission of Rs. 11.08 lakhs in his financial statement. These contradictory facts are emanating from the records. Therefore it becomes necessary to ascertain true facts and therefore we deem it fit to restore the entire issue to the file of the AO. Assessee is directed to demonstrate that the payer company never paid commission by bringing cogent material evidence on record. AO is directed to examine the same and if satisfied with the claim of the assessee then the AO is directed to make addition being TDS amount on which credit has been taken by the assessee in her return of income. We restore the matter to the file of the AO to be decided after affording reasonable and adequate opportunity of being heard to the assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

- Whether the addition of Rs. 28,43,801/- to the assessee's income on account of commission, which was reflected in Form 26AS but allegedly never received by the assessee, was justified.

- Whether the Assessing Officer and the CIT(A) erred in relying solely on the TDS credit reflected in Form 26AS and ignoring the assessee's contention and supporting evidence that the payer company did not actually pay the commission.

- Whether the assessee is entitled to claim that the payer company wrongly filed the TDS return showing commission paid to the assessee, and if so, the implications for the addition made and the credit of TDS claimed by the assessee.

- The procedural and substantive correctness of the addition made by the Assessing Officer and confirmed by the CIT(A) without further inquiry into contradictory evidence presented by the assessee.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legitimacy of Addition of Commission Income Based on Form 26AS

Relevant legal framework and precedents:

The legal principle underlying this issue is that income must be assessed on the basis of actual receipt or accrual, and the credit of TDS can only be claimed if the income has been received or accrued to the assessee. Form 26AS is generally considered a reliable document reflecting TDS deducted and deposited by the deductor. However, it is not conclusive proof of receipt of income by the assessee, especially if contradictory evidence is presented.

Court's interpretation and reasoning:

The Tribunal noted that the Assessing Officer relied heavily on Form 26AS showing commission income of Rs. 48,56,061/- credited to the assessee and corresponding TDS deducted and deposited. The assessee, however, disputed receipt of the entire amount and contended that the payer company did not actually pay such commission but erroneously filed the TDS return.

Key evidence and findings:

The assessee submitted the financial statements of the payer company, which showed total commission paid was only Rs. 11,08,708/-, far less than the commission reflected in Form 26AS. The assessee also contended that the payer company could not revise the TDS return due to limitation, which led to the discrepancy.

Application of law to facts:

The Tribunal found the contradictory facts between Form 26AS and the payer company's financial statements to be material and significant. It held that the mere existence of TDS credit in Form 26AS does not conclusively establish that the assessee received the commission income in question.

Treatment of competing arguments:

The Department argued that since TDS was deducted and deposited, and the assessee claimed credit, the addition was justified. The assessee argued that the payer company wrongly filed the TDS return and no such commission was paid. The Tribunal found the assessee's argument plausible given the financial statements and directed further inquiry.

Conclusions:

The Tribunal concluded that the issue required further investigation to ascertain the true facts and that the Assessing Officer should examine the assessee's claim supported by cogent evidence before making any addition.

Issue 2: Treatment of TDS Credit Claimed by the Assessee

Relevant legal framework and precedents:

Under the Income Tax Act, TDS credit can be claimed only if the income on which TDS was deducted has been received or accrued to the assessee. If the income was never received, the credit of TDS claimed would be incorrect and liable to be disallowed or adjusted.

Court's interpretation and reasoning:

The Tribunal noted that if the assessee successfully demonstrates that the commission was never received, then the TDS credit claimed on such income would also be inadmissible.

Key evidence and findings:

The assessee's claim that the payer company did not pay the commission but erroneously filed the TDS return was to be verified. If established, the TDS credit of Rs. 4,85,606/- taken by the assessee would have to be disallowed or added back to income.

Application of law to facts:

The Tribunal directed that if the Assessing Officer is satisfied with the assessee's claim upon verification, then the TDS credit of Rs. 4,85,606/- should be added back to the income, as the credit would be inadmissible without actual receipt of commission.

Treatment of competing arguments:

The Department's argument that TDS was rightly deducted and deposited was countered by the assessee's contention of non-receipt of commission. The Tribunal balanced these by requiring further factual verification.

Conclusions:

The Tribunal held that the question of TDS credit should be decided after verification of the assessee's claim and evidence.

Issue 3: Procedural Fairness and Direction for Re-examination

Relevant legal framework and precedents:

Natural justice and principles of fair inquiry require that where contradictory evidence exists, the Assessing Officer must conduct a thorough inquiry before making additions to income.

Court's interpretation and reasoning:

The Tribunal observed contradictory facts between Form 26AS and financial statements, which necessitated further inquiry. It found that the lower authorities had not adequately considered the assessee's evidence and contentions.

Key evidence and findings:

The assessee's financial statements and the payer company's admission of commission paid were key pieces of evidence creating a factual dispute.

Application of law to facts:

The Tribunal restored the matter to the Assessing Officer to examine the evidence afresh and afford the assessee reasonable opportunity to prove non-receipt of commission.

Treatment of competing arguments:

The Tribunal balanced the Department's reliance on Form 26AS against the assessee's documentary evidence and directed a fact-finding exercise.

Conclusions:

The Tribunal ordered restoration of the issue for fresh adjudication after proper inquiry and opportunity to the assessee.

3. SIGNIFICANT HOLDINGS

- "The undisputed fact is that as per Form 26AS, the assessee has been shown as recipient of commission amounting to Rs. 48,56,061/- It is also an undisputed fact that the assessee has shown only Rs. 20,12,260/-... These contradictory facts are emanating from the records. Therefore, it becomes necessary to ascertain true facts and, therefore, we deem it fit to restore the entire issue to the file of the Assessing Officer."

- The Tribunal established the principle that Form 26AS alone is not conclusive proof of receipt of income and that contradictory documentary evidence must be examined before making additions.

- The Tribunal held that if the assessee proves non-receipt of commission, the Assessing Officer must add back the TDS credit claimed by the assessee.

- The final determination was to remit the matter to the Assessing Officer for fresh adjudication after affording the assessee a reasonable and adequate opportunity of being heard and to verify the assessee's claim with cogent material evidence.