Income Tax Appellate Tribunal - Ahmedabad
J.B. Exports, Surat vs Assessee on 28 April, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH " D "
Before Shri MUKUL Kr. SHRAWAT, JUDICIAL MEMBER and
Shri A.N. PAHUJA, ACCOUNTANT MEMBER
Date of hearing : 31/03/2011 Drafted on: 28/4/2011
ITA No.1168/AHD/2010
Assessment Year : 2006-07
M/s.J.B.Exports Vs. The Asst.CIT
( Now converted to Bindal Circle-6
Exports Pvt.Ltd. under part Surat
IX of Companies Act, 1956 )
Plot No.270
Nr. Kumbharia Bus Stand
Surat
PAN/GIR No. : AABFJ 9320 M
(APPELLANT) .. (RESPONDENT)
Appellant by : Shri S.N.Soparakar, A.R.
Respondent by: Shri G.S. Souryawansi, D.R.
ORDER
PER SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER :
This is an appeal at the behest of the Assessee which has emanated from the order of Learned CIT(Appeals)-IV, Surat dated 30/11/2009 passed for Assessment Year 2006-07. The following grounds have been raised by the assessee in its appeal.
2. Ground Nos.1 to 8 read as under:-
1. That on facts and circumstances of the case, the learned CIT(A) has erred in sustaining the disallowance of Rs.1,62,44,991/- made by the learned AO on account of alleged commission expenses which has not even been debited by the appellant to the Profit and Loss account, but has been reduced from the export invoice value.ITA No.1168/Ahd/2010
M/s.J.B.Exports vs. Asst.CIT Asst.Year - 2006-07 -2-
2. That on facts and circumstances of the case, the learned CIT(A) has erred in sustaining the stand of the learned Asst.CIT in rejecting the books of accounts of the appellant u/s.145(3) of the Act, without having found any specific mistake therein.
3. That on facts and circumstances of the case, the learned CIT(A) has grossly erred in deviating from the principles of judicial discipline, by totally disregarding the decision of this very jurisdictional Hon'ble bench in the case of following assessees -
- Shri Samir A. Batra (Prop. Of Samir Exports and Batra Overseas, Surat), PAN - ABIPB 6251F v. The ITO, Ward-5(4), Surat, ITA No.4130/Ahd/2007; A.Y. 2004-05 and Shri Atma Prakash Batra, PAN - ABIPB 6368B v. The Addl.CIT, Range-5, Surat, ITA No.4131/Ahd/2007:
A.Y. 2004-05
- Jhawar Bio Tech Pvt.Ltd. 823/2, Road No.8, G.I.D.C. Sachin, Near Sagar Hotel, Surat v. DCIT Circle-1, Surat: ITA No.3464/Ahd/2008; A.Y. 2005-06 and on the contrary has erroneously followed his predecessor CIT(A) in dismissing the appeal by quoting that; since the issue before me for adjudication is squarely covered by the decision of the CIT(A) in the case of the assessee in ITA No.CAS-IV/372/06-07 for A.Y. 2004-05. I respect5fuly confirm the action of the AO and dismiss the appeal of the appellant.
4. That on facts and circumstances of the case, the learned CIT(A) has erred in sustaining the disallowance of alleged commission expenses without appreciating the fact that the amount of commission as reduced from the invoice value is in fact diversion of income by overriding title.
5. That on facts and circumstances of the case, the learned CIT(A) has erred in sustaining the disallowance of alleged commission expenses as made by the learned AO by treating the reduction of commission from the gross export invoice value; as secret commission paid by the appellant.
6. That on facts and circumstances of the case, the learned CIT(A) has erred in sustaining the disallowance of alleged commission expenses as made by the learned AO by unlawfully invoking the provisions of section 93 of the Act.
ITA No.1168/Ahd/2010M/s.J.B.Exports vs. Asst.CIT Asst.Year - 2006-07 -3-
7. That all the aforesaid grounds of appeal regarding disallowance of alleged commission expenses are independent of each other requiring separate adjudication by your honours.
8. That on facts and circumstances of the case, the learned CIT(A) has erred in summarily dismissing the appeal of the appellant by quoting that there is no substantial compliance on the part of the appellant, when the appeal memorandum contains detail description of the facts of the case and the AR of the appellant had appeared for personal hearing on more than one occasion, substantiating the core contentions of the appellant.
2.1. All the grounds, i.e. ground Nos.1 to 8 revolve around a single issue of claim of alleged commission expenses which was added by the AO vide assessment order passed u/s.143(3) of the Act dated 30/12/2008. In assessee's own case for A.Y. 2004-05 we have already taken a view in assessee's favour bearing ITA No.3206/Ahd/2007 titled as M/s.J.B. Exports vs. Addl.CIT vide order dated 29/04/2011. The relevant portion contained in paragraph Nos.6 to 10; reproduced below:
"6. After hearing the pleadings of both the sides, presently the position is that the contentions of the Revenue have duly been considered and dealt with by the Hon'ble Jurisdictional High Court in the case of Atma Prakash Batra in Tax Appeal No.838 of 2009 dated 21/12/2010, wherein the facts were discussed vide para-13 of the judgement; reproduced below:-
"13. In relation to proposed question No.2, which relates to deletion of disallowance of claim of export commission in the sum of Rs.3,83,37,678/-, during the assessment proceedings, from the copies of the invoices filed by the assessee, the Assessing Officer found that in export sale invoices, there was a deduction under the head "Commission" of 11.5% or 12% and after deducting the said amount, net figure of sale was worked out. The total amount of net sales was Rs.28,74,85,387/, but as per accounting standards, the amount of export commission ITA No.1168/Ahd/2010 M/s.J.B.Exports vs. Asst.CIT Asst.Year - 2006-07 -4- should have been reflected on the credit side by showing gross sales minus commission and the net sales would be in as outer column on the credit side of the manufacturing account. The assessee also did not furnish any agreement for payment such commission nor did it file any proof of such remittance routed through the Reserve Bank of India (RBI). The foreign agents' commission was allowable upto 12% under the Central Excise & Customs Rules, while giving DEPB benefit, but the same was required to be proved beyond doubt as required by the RBI guidelines. Further the assessee received payment from foreign buyers after six months and the assessee could not take the plea that the foreign agents received payment of commission directly from the buyer, since unless there was a due for making payment for purchase, no amount of commission would become payable and no one would pay such commission in advance. The Assessing Officer further observed that names and addresses of foreign agents did not confirm the actual payment and therefore, disallowed the claim of commission."
6.1. The Hon'ble Court has also discussed the findings of the Tribunal in the following manner:-
"20. The Tribunal after considering the rival submissions and after appreciating the evidence on record found that the receipt of commission amount had been duly confirmed by the agents which in turn meant that the amount which had been deducted from the invoice value actually represented commission payments which were finally received by the agent. This had been done in accordance with the terms and conditions agreed upon between the buyers and the seller, even though there was no formal agreement. The agents had unequivocally confirmed and reconfirmed the nature of the transactions and that the absence of any formal agreement could not be held to be a ground to dismiss the claim of the assessee. There were clear contra confirmations from the agents. Thus, once the genuineness of the commission as well as its justification of having been wholly and exclusively incurred for the purpose of assessee's business was established, the same becomes admissible as deduction under section 37(1) of the Act. The Tribunal was of the view that it could not be held that the gross invoice amounts were what had accrued to the assessee, and that these were the amounts on which the assessee should have been ITA No.1168/Ahd/2010 M/s.J.B.Exports vs. Asst.CIT Asst.Year - 2006-07 -5- assessed. According to the Tribunal, the outgoing commission from the invoice values would have to be reduced from the gross amounts, and the net amount which was the actual sum received by the assessee in India, and which was duly certified and permitted by the RBI and its authorized dealer, was what had been earned by the assessee from such transactions. The Tribunal further found that the commission was not deducted from the export invoices in an ad hoc manner and it was clearly under an agreement between the buyer and the seller, as also between the buyer and the agent. Consequently, the assessee was under an obligation to deduct commission from the gross invoice value. In the present case, there was a compulsion to deduct the commission from the export invoices which was clearly indicated in the confirmation letters of the agents, and that the ingredients which were necessary for such deduction of commission to be treated as diversion of income by over riding title was clearly present. It was further found that in the present case, the gross export proceeds never reached the assessee, no such income had therefore accrued to the assessee and this was because of an obligation or compulsion to deduct the commission from the export invoices which clearly showed this to be a case of diversion of income by overriding title. The amounts deducted from the export invoices were thus clearly allowable as deduction."
6.2. The Hon'ble Court has, thereafter, pronounced the judgment vide para-21 and allowed the appeal in favour of the assessee; reproduced below:-
"21. As regards the findings of the lower authorities that the confirmations issued by the parties were on plain paper, the Tribunal after appreciating the evidence on record has found that except one party, namely, Mohmed Abdulla of Dubai, all other communications were on letter heads of the respective parties. It was further found that none of the payments had come beyond six months, but the same were within six months as could be verifiable from bank realization certificates enclosed annexed in the paper book. The Tribunal recorded that each of the transactions between the assessee as the seller and the two buyers were mediated by agents, whose existence3 was established beyond doubt, by the confirmation letters. Secondly, there was tendering of services. The agents had clearly written ITA No.1168/Ahd/2010 M/s.J.B.Exports vs. Asst.CIT Asst.Year - 2006-07 -6- that they had rendered services; in procuring samples, deciding the orders and settling all matters between the buyers and seller including payments by the buyers to the seller. The existence of the agents and their functioning was for the benefit of the assessee as well. The Tribunal, accordingly, was of the view that the claim of the assessee towards commission payment deserves to be allowed."
7. Our attention has also been drawn on the judgement of Respected Co-ordinate Bench "A" Ahmedabad pronounced in the case of Shri Sanjay Jain bearing ITA No.1533/Ahd/2008 for AY 2004-05 order dated 16/12/2009, wherein facts were that the assessee had accounted the export sales turnover at the net figure but also claimed DEPB benefit on the gross amount of turnover. The explanation of the assessee in that decision was also in the like manner that discount was given to foreign buyer by way of commission by directly reducing from the sale invoice. It was claimed that the said method was adopted in the light of the Regulations of the RBI. It was pleaded that the export & import policy and the RBI regulations approved this method. In that case, the Tribunal has given a finding that there was no dispute regarding the fact that the assessee has given commission/discount in the export invoices itself in favour of the foreign buyer. There was a confirmation from the side of the foreign buyer that the said discount would be distributed by him to the intending agents abroad. An another fact has also been acknowledged that the assessee has received only the net amount as the export proceeds by way of convertible foreign exchange. The Tribunal Bench has also expressed that when the income itself was not generated, there was no question of such income becoming accrued or due. When the factum of actual receipt of sale proceeds to the extent of net invoice amount was established beyond any doubt, there was no justification in overlooking upon those speaking facts on the technical ground that the assessee has claimed DEPB benefit on the gross amount of invoice. It was concluded that the Revenue has no case to hold that the assessee has earned the impugned additional income.
8. Before us, the order of the Tribunal in the case of Samir Batra and Atma Prakash Batra has also been cited which has been confirmed by the Hon'ble High Court. Some of the observations of the Tribunal are also worth to reproduction.
ITA No.1168/Ahd/2010M/s.J.B.Exports vs. Asst.CIT Asst.Year - 2006-07 -7- "25.... The outgoing commission from the invoice values would have to be reduced from the gross amounts and the net amount which was the actual sum received by the assessee in India, and which was duly certified and permitted by the RBI and its authorized dealer was what had been earned by the assessee from such transactions. We find that the AO himself had noted in the assessment order that the amounts deducted as commission from the sale invoices were neither received by the assessee during the year nor was it ever going to be received in future. If this was the view of the AO, then he contradicted himself by taxing amounts which had not been received at all, nor did the Assessee have any legal right to receive such amounts.
26. We find that the commission was not deducted from the export invoices in an adhoc manner and it was clearly under an agreement between the buyer and the seller, as also between the buyer and the agent. Consequently, the assessee was under an obligation to deduct commission from the gross invoice values in the present case, there was a compulsion to deduct the commission from the export invoices which was clearly indicated in the confirmation letters of the agents, the ingredients which were necessary for such deduction of commission to be treated as diversion of income by overriding title was clearly present. In the case of CIT v. Madras Race Club (2002) 255 ITR 98, the Hon.Court observed that in order to decide whether there has been diversion of income by overriding title the true test is whether the amount sought to be deducted, in truth, never reach the assessee as his income. Whereby an obligation income is diverted before it reaches the Assessee. It is deductible but where the income is required to be applied to discharge an obligation after such income reaches the Assessee, the same consequence in law does not follow in the present case the gross export proceeds never reached its hands, no such income had therefore accrued to the assessee and this was because of an obligation or compulsion to deduct the commission from the export invoices which clearly showed this to be a case of diversion of income by overriding title. The amounts deducted from the export invoices were thus clearly allowable as deduction.
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ITA No.1168/Ahd/2010M/s.J.B.Exports vs. Asst.CIT Asst.Year - 2006-07 -8-
27. ...Firstly, each of the transactions between the Assessee as the seller and the two buyers were mediated by agents, whole existence was established beyond doubt by the confirmation letters. Secondly, there was rendering of services. The agent had clearly written that they have rendered services in procuring samples deciding the orders and settling all matters between the buyers and seller including payments by the buyers to the seller. Considering the nature of such services rendered by the agents even if they were appointed by the buyers, services were indirectly rendered to the assessee as the seller's well. The samples were produced by them from the Assessee. They decided on the quantum of the order and the price, they settled all disputes between the buyers and the seller and they also ensured the payments to the seller. The existence of the agents and their functioning was for the benefit of the assessee as well. Therefore, the evidence produced by the Assessee cannot be wished away on the ground that the agents only provided services to the buyer and not to the assessee. In view of the above facts and circumstances, we are of the view that the commission payment is to be allowed to the assessee and accordingly, we allow the claim of the assessee, and the orders of the lower authorities are revered. This issue of the assessee's appeal is allowed."
9. There is one more decision of the Tribunal "D" Bench Ahmedabad in the case of M/s.Jawahar Bio-tech Pvt.Ltd.(supra), wherein a view was taken in favour of assessee vide following paragraphs:-
"8. In the case under consideration, there is nothing to suggest that the amounts deducted as commission from the sale invoices were either received by the assessee during the year or even subsequently nor the assessee has any legal right to receive such amounts. The amount has been deducted under an arrangement between the buyers and the assessee. Thus, the gross export proceeds mentioned in the invoices never reached the assessee nor it was intended so. Therefore, the amount equivalent to commission deducted had never accrued to the assessee and this was because of an obligation or commission to deduct the commission form the amount invoiced while exporting the goods.ITA No.1168/Ahd/2010
M/s.J.B.Exports vs. Asst.CIT Asst.Year - 2006-07 -9-
9. In view of the foregoing, especially when a similar claim in respect of commission in the preceding assessment year has been allowed by the AO himself and the export prices were determined with the buyers in consequence of an arrangement of deduction of commission payable by the foreign buyers to the foreign agent form the sales invoices, we are of the opinion that there was no justification for the disallowance of the aforesaid amount of commission. Therefore, ground no.1 is allowed."
10. As observed in the beginning itself the issue appears to be squarely covered by the foregoing decisions and on almost identical facts the issue was decided in favour of the assessee. Resultantly, in the light of the foregoing discussion, on facts and law, we hereby hold that the issue is covered in favour of the assessee and, hence, the assessee is entitled for the claim and the Revenue Department had gone wrong in holding that there was suppression of sales on the present facts and circumstances of the case. Grounds allowed."
3. Respectfully following the above decision, we allow the appeal of the Assessee.
4. In the result, appeal of the Assessee is allowed.
Order signed, dated and pronounced in the Court on 4/ 5 /2011.
Sd/- Sd/-
( A.N. PAHUJA ) ( MUKUL Kr. SHRAWAT )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 04 / 05 /2011
T.C. NAIR, Sr. PS
ITA No.1168/Ahd/2010
M/s.J.B.Exports vs. Asst.CIT
Asst.Year - 2006-07
- 10 -
Copy of the Order forwarded to :
1. The Assessee.
2. The Department.
3. The CIT Concerned
4. The ld. CIT(Appeals)-IV, Surat
5. The DR, Ahmedabad Bench
6. The Guard File.
BY ORDER,
स×याǒपत ूित //True Copy//
(Dy./Asstt.Registrar), ITAT, Ahmedabad
1. Date of dictation....................... 3/5/2011
2. Date on which the typed draft is placed before the Dictating Member 3/5/2011.................. Other Member.....................
3. Date on which the approved draft comes to the Sr.P.S./P.S.................
4. Date on which the fair order is placed before the Dictating Member for pronouncement......
5. Date on which the fair order comes back to the Sr.P.S./P.S......4/5/2011
6. Date on which the file goes to the Bench Clerk.................. 4/5/2011
7. Date on which the file goes to the Head Clerk..................................
8. The date on which the file goes to the Assistant Registrar for signature on the order..........................
9. Date of Despatch of the Order..................