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Facts
The revenue appealed against the order of the CIT(A) who deleted additions made by the AO regarding disallowance of commission expenses and customs duty. The assessee, a manufacturer of Vanaspathi and edible oil, had paid commission and customs duty. The AO disallowed these expenses due to alleged lack of substantiation.
Held
The Tribunal held that the CIT(A) was correct in deleting the disallowances. The assessee had provided sufficient evidence, including ledger accounts, TDS details, and confirmation letters, to prove the genuineness of commission expenses. Similarly, for customs duty, evidence of high sea sales and payment details was provided.
Key Issues
Whether the disallowance of commission expenses and customs duty by the AO was justified when the assessee provided substantial documentary evidence to support the claims.
Sections Cited
143(3)
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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI S.S. VISWANETHRA RAVI, HON’BLE & SHRI S. R. RAGHUNATHA, HON’BLE
आदेश /O R D E R
PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER:
This appeal filed by the revenue is directed against the order passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 19.03.2024 and pertains to assessment year 2018-19.
The revenue has filed the following grounds of appeal: “1. The order of the Ld. CIT(A) is contrary to the law and facts of the case.
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2. The Ld. CIT(A) has erred in deleting the disallowance of commission expenses when the assessee has failed to furnish the nature of services rendered and the details of business procured by them along with names, addresses of the suppliers/ purchasers involved.
The Ld. CIT(A) has erred in not considering the fact that the asses see has failed to establish that the expenditure has been incurred on commission for generation of revenue offered in the ITR.
4. The Ld. CIT(A) has erred in deleting the disallowance of custom duty when the assessee fails to substantiate the genuineness of the e-invoices as the e-invoices are not authenticated by the Customs authority. 5. The Ld. CIT(A) has erred in not considering the verification from the CBEC-Export Import Summary Data, which shows that there was no custom duty paid by the assessee during the A Y 2018-19 and 2017-18 and also there was no entry in the Form 26AS of the assessee. 6. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer restored.” ] 3. The assessee is a firm engaged in the manufacture of Vanaspathi and edible oil which is sold on wholesale and retail basis. The assessee filed its return of income for the A.Y. 2018- 19 on 31.10.2018 declaring a total income at Rs.81,29,620/-. The case was selected for complete scrutiny under CASS and accordingly statutory notices were issued and assessee submitted details. On perusal of the submissions the AO made the following additions and passed an order u/s.143(3) of the Act on 24.03.2021: 1) Addition on account of low PBDIT - Rs.20,92,905/-
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2) Disallowance of Commission Expenses – Rs.28,89,379/- The AO stated that the assessee has failed to furnish the nature of services rendered and the business procured by along with the names, addresses, email addresses and PAN etc., and hence disallowed the commission expenses
3) Disallowance of Customs duty paid – Rs.3,02,27,896/-
4. During the assessment proceedings the AO observed that the assessee has not imported any kind of oil rather it has made purchases of palm oil, sunflower oil and other related edible in bulk quantities from the companies who import these products and hence the customs duty paid was disallowed
4) Disallowance of PF and ESI deducted from Employees – Rs.5,16,691/- and Rs.2,07,096/- respectively. 5) Disallowance of Donation Rs.5,000/- and Late fees of Rs.5,600/-. Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A), NFAC, Delhi.
5. On perusal of the submissions made by the assessee, the ld.CIT(A) has passed an order dated 19.03.2024 by allowing the :-4-: ITA. No: 1683/Chny/2024 grounds of appeal in respect of addition made on account of PBDIT, Commission paid, Customs duty paid and confirmed the addition of Employees contribution of PF and ESI, Donation and late fees paid. Aggrieved by the order of the ld.CIT(A) the revenue is before us for the following two grounds which has been deleted by the ld.CIT(A) by holding as under: “Ground No, 2:- The ground of appeal is directed against disallowance of commission expenses to the tune of Rs.28,89,379/- by the Ld. AO since the details furnished by the assessee were not in accordance to the questionnaire issued. The Ld. AO in his order has remarked that the assessee failed to furnish email id's of commission recipients, the nature of services rendered and details of business procured by along with names, addresses, emails and PAN details etc. The appellant during the course of assessment proceedings submitted that the names, addresses and PAN of commission agents along with confirmation letters from the concerned parties. The assesse had also submitted the Individual ledger accounts of parties, a table containing identification details, the nature of services rendered by the agents, TDS deducted and the outstanding as on 31.03.2018. The appellant has resubmitted the details during appellant proceedings. It is seen that the Ld. AO did not point out any discrepancies in the documents furnished by the appellant either through a cogent reasoning or through any independent inquiries thereof. The mere disallowance on the basis of non-furnishing of e-mail ids is un- sustainable in view of the over whelming evidences submitted by the assessee to prove the genuineness of commission expenses. In view of the facts and circumstances highlighted above, the addition of Rs.28,89,379/- made by the Ld. AO is directed to be deleted. The Ground of appeal No. 2 is Allowed. Ground No. 3:- The ground of appeal is directed against disallowance of Rs.3,02,27,896/- by Ld. AO on account of custom duty paid by the assessee. During the course of assessment proceedings, the Ld. AO observed that the assessee has not imported any kind of oil rather it has made purchases of Palm Oil, Sunflower Oil and other related edible in bulk quantities from the companies who import
:-5-: ITA. No: 1683/Chny/2024 these products. Further, verification of CBEC-Export Import summary data also revealed that no custom duty was paid by the assessee. The appellant has submitted that they engage high sea purchases under bond purchases and the custom duties for all imports had been made during the stated A.Y. The appellant resubmitted the e-invoices generated from the Govt. portal, Indian Customs Electronic Data Interchange Gateway (ICEGATE) containing the details regarding the ICEGATE reference id, the bank details, transaction No., date and amount paid. The appellant has also produced the ledger accounts of purchases made thereof. The Ld. AO has not stated in the Asst. Order if the CBEC Data was duly shared with assessee or the assessee was given an opportunity to rebut the same. Further, it is seen that no independent enquiries have been conducted by the Ld. AO either to corroborate his conclusions or to rebut the submissions made by the assessee during the course of assessment proceedings. The impugned addition made by the Ld. AO becomes un- sustainable in view of the over whelming evidences submitted by the assessee to prove the genuineness of commission expenses. In view of the facts and circumstances highlighted above the addition of Rs.3,02,27,896/- made by the Ld. AO is directed to be deleted. The Ground of appeal No. 3 is Allowed.”
6. The ld.DR argued that the Ld.CIT(A) has erred in deleting the disallowance of commission expenses when the assessee has failed to furnish the nature of services rendered and the details of business procured by them along with names, addresses of the suppliers/ purchasers involved. Further, the Ld. CIT(A) has erred in not considering the fact that the assessee has failed to establish that the expenditure has been incurred on commission for generation of revenue offered in the ITR.
:-6-: ITA. No: 1683/Chny/2024 6.1 The ld.DR stated that the Ld. CIT(A) has erred in deleting the disallowance of custom duty when the assessee fails to substantiate the genuineness of the e-invoices as the e-invoices are not authenticated by the Customs authority. Further, the Ld. CIT(A) has erred in not considering the verification from the CBEC-Export Import Summary Data, which shows that there was no custom duty paid by the assessee during the A Y 2018- 19 and 2017-18 and also there was no entry in the Form 26AS of the assessee. In light of the above, the ld.DR prayed for setting aside the order of the ld.CIT(A) and confirm the additions made by the AO on account of Commission and customs duty paid.
Per contra, the ld.AR stated that in respect of commission paid by the assessee to the tune of Rs.28,89,379/-, during the assessment proceedings the assessee had submitted the names, address and PAN of the commission agents along with the confirmation letters from the concerned parties. The assessee had also submitted individual ledger accounts of the parties, a table containing the identification of details, nature of services rendered by the agents, TDS made and the outstanding balance of each parties as on 31.03.2018 before the AO. Further, the :-7-: ITA. No: 1683/Chny/2024 ld.AR stated that as mentioned in the ld.CIT(A) order, the AO had not found any discrepancies in the documents furnished by the assessee either through cogent reasoning or any independent enquiries thereof. Mere non submission of Email ID of the parties cannot be the reason for disallowance of an expenditure by the assessing authority. Before us the ld.AR submitted the details of quantities sold through each commission agent and dismissing the ground raised by the revenue.
7.1 In respect of customs duty paid by the assessee the ld.AR submitted that, the assessee had carried out the transaction of import through High sea sales and has discharged the customs duty accordingly. The ld.AR explained the High sea sales as detailed below:
1. 1. High Sea Sales is a common sales practice carried out by the actual buyer and another buyer while the goods are on high seas or before the goods have crossed the customs frontiers of the specific country.
2. People opt for high sea sales because the end high sea sales' buyer will be termed or known as the importer and will be eligible for any exemptions on the products or items as they pass through customs. The importer (end high sea sales buyer) can claim exemptions or any concessional tax benefits when they present the bill of entry for home consumption at customs.
3. The high sea sales procedure includes an over-seas seller (assume the USA) who supplies products or items to a buyer in India (assume Delhi) and after the export procedure is completed, the overseas seller tends to submit all the necessary documents to his bank at the seller's place.
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Then the buyer in India supplies or sells the products or items to another buyer in India (assume Chennai) under high sea sale. The deal is closed after the products are shipped from the overseas border and are yet to reach the Indian border.
The transaction between the high sea sales buyer in Delhi and Chennai will continue in Indian currency, and the buyer in Delhi will provide the original Bill of Lading (or airway bill), his invoice in local currency, import invoice, packing list, certificate of origin, insurance certificate, and any other necessary documents for import clearance, duly endorsed. The overseas buyer will retain a copy of all his documents that he delivers to the buyer in Chennai.
Then the buyer in Chennai pays the import custom clearance charges with duties as he files a Bill of entry along with the other import documents delivered by the overseas seller. It is to be noted that the high sea sales buyer in Delhi could also step in to pay the customs clearance charges and deliver the items and products to the buyer in Chennai. This is done if the buyer in Delhi does not want the buyer in Chennai to know the price or value of the product or items or any type of transaction that took place between him and the over-sea seller. 7. Lastly, the buyer in Chennai will deliver a copy of the bill of entry to the buyer in Delhi and the Delhi high sea sales can file the said bill of entry and other copies of import documents and high sea sales documents with his banks.
7.2 Further, the ld.AR submitted that the AO has disallowed the customs duty paid by the Assessee as per the information received based on the CBEC- Export Import summary data without considering all the corroborative evidences furnished by the assessee like E-invoices generated from the Govt.Portal, Indian Customs Electronic Data Interchange Gateway (ICEGATE) containing the details regarding ICEGATE reference ID, the bank details, transaction No., date and amount paid. The Assessee had also furnished the ledger account of the :-9-: ITA. No: 1683/Chny/2024 purchases made thereof to prove the genuineness of the expense. Further, the ld.AR stated that these evidences were furnished again before the ld.CIT(A) during the appellate proceedings and accordingly ld.CIT(A) allowed the claim of the assessee by deleting the disallowance made by the AO.
We have heard the rival contentions, perused the material available on record and gone through the orders of lower authorities. The assessee is a manufacturer of Vanaspathi and edible oil which is sold on whole sale and retail basis. Admittedly the assessee has paid commission to the agents for obtaining the sales orders and also has paid customs duty for import of goods during the impugned assessment year. We note that AO has disallowed the commission amount paid merely on the basis of non-furnishing of the Email ID of the recipients of the commission brushing aside the entire other details furnished by the assessee including the quarterly TDS deductions and remittances made by the assessee, ledger accounts, the confirmation letters from the concerned parties. On perusal of the submissions made by the assessee before the lower authorities, we note that the assessee has maintained the ledger accounts of the parties having the details of the :-10-: ITA. No: 1683/Chny/2024 commission paid, TDS deducted from the amount, quantity sold on account of the respective commission agent. Apart from the above the assessee has furnished the details like name, address, PAN and quarterly returns of TDS filed showing the details of commission paid with corresponding TDS details and challans paid. In the present facts and circumstances of the case, we are of the considered view that the assessee has proved the genuineness of the expenditure and hence we do not find any reason to interfere with the orders of the ld.CIT(A) in deleting the disallowance of commission paid to the tune of Rs.28,89,379/- and dismiss the grounds of the revenue.
8.1 The next ground of appeal is deletion of disallowance of customs duty paid by the assessee to the tune of Rs.3,02,27,896/-. The AO has disallowed the expenditure of payment of customs duty only on the basis of Export Import summary data (as per CBEC) received. We note that the AO has not done any other exercise of verification of evidence either furnished by the assessee during the assessment proceedings or independently. On the contrary, the ld.CIT(A) has considered the same evidence / documents furnished before the AO by the assessee, which were brushed aside by the AO and deleted the :-11-: ITA. No: 1683/Chny/2024 disallowance of customs duty by allowing the grounds of appeal raised. Firstly, the AO has failed to understand the concept of High sea sales, and the agreement for purchase of goods entered by the assessee and the bulk importers of the goods and also the corresponding details of customs duty paid by the assessee. We note that assessee is having an IEC (Import Export Code) and has discharged the applicable customs duty on imported goods via High Sea sales through the ICEGATE. The AO has not doubted the purchases shown by the assessee in the profit and loss account but has only disallowed the customs duty paid by the assessee on such purchases. We note that the assessee has furnished the challans of customs duty paid in the name of the assessee, wherein the entire details of ICEGATE Reference ID, date & time of payment, bank details, Challan No., Document No. and amount paid for the entire amount of customs duty claimed as an expenditure to the tune of Rs.3,02,27,896/- and considering the said details the ld.CIT(A) has rightly deleted the disallowance of the same by allowing the appeal of the assessee. Therefore, in the present facts and circumstances of the case, we are inclined to uphold the decision of the ld.CIT(A) and dismiss the appeal of the revenue.
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