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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY
Aforesaid appeal has been filed by the assessee challenging the order dated 15th December 2017, passed by the learned Commissioner (Appeals)–16, Mumbai, for the assessment year 2013–14.
The dispute in the present appeal is confined to an addition of an amount of ` 27,13,195, towards commission paid to foreign agent.
2 Etco Industries Pvt. Ltd.
Brief facts are, the assessee company is engaged in manufacturing and wholesale trading of cotton yarn and fabric. For the impugned assessment year the assessee filed its return of income on 30th November 2013, declaring nil income and claiming carry forward of loss of ` 26,35,134. During the assessment proceedings, the Assessing Officer noticed that the assessee has claimed deduction of ` 27,13,195, on account commission paid to overseas agents. To verify the genuineness of the commission payment, the Assessing Officer called upon the assessee to furnish the supporting details. After verifying the details furnished by the assessee along with the explanation in support of the claim, the Assessing Officer was of the view that the assessee could not prove the exact nature of commission paid, whether for purchase or sale of goods or product or for services availed. He observed that the assessee failed to prove rendering of services by foreign agent through proper documentary evidence. He also observed that the assessee failed to furnish original copy of export invoices, shipping bills showing the name of agent, copies of correspondence between the assessee and other parties, etc. Thus, holding that the assessee has failed to prove that the payment of commission towards services rendered, he disallowed the claim of the assessee. Without prejudice to the above, the Assessing Officer held that payment of commission is otherwise not allowable, since, the 3 Etco Industries Pvt. Ltd.
assessee has failed to deduct tax at source under section 195 of the Income Tax Act, 1961, while making such payment. Accordingly, he added back the amount of ` 27,13,195.
Though, the assessee challenged the aforesaid disallowance in appeal, however, the learned Commissioner (Appeals) also sustained the disallowance made by the Assessing Officer by relying upon his own order on identical issue raised by the assessee in assessment year 2009–10.
The learned Authorised Representative reiterating the stand taken before the Departmental Authorities submitted that the assessee has exported goods to M/s. Arad Textile Industries Ltd., Israel, and as per the terms of agreement, the said customer was entitled to deduct 2% of sale value towards commission expenses. He submitted, the payment made to Pramptex Agarwal Inc., Peru, is also under similar terms and condition. The learned Authorised Representative submitted, while deciding identical issue in assessee’s own case for assessment year 2009–10 and 2011–12, in ITA no. 4222/Mum./2016 and ITA no. 4221/Mum./2016, dated 18th June 2018, the Tribunal has deleted the disallowance made by the Assessing Officer. Thus, he submitted, the aforesaid decision of the Tribunal squarely applies to the facts of the present case.
4 Etco Industries Pvt. Ltd.
The learned Departmental Representative relied upon the observations of the learned Commissioner (Appeals) and the Assessing Officer.
I have considered rival submissions and perused materials on record. It is the case of the assessee that as per the terms of the agreement, what the assessee actually receives from the foreign customer is 98% of the invoice value after deduction of 2% commission amount. For e.g., if the invoice raised by the assessee is for ` 100, it actually receives ` 98 from the foreign customer. Notably, while deciding identical issue in assessee’s own case for assessment years 2009–10 and 2011–12, the Tribunal, in the order referred to above, has deleted similar disallowance made by the Assessing Officer with the following observation:–
“7. Having heard rival contentions, we find merit in the contentions of the assessee. The invoice raised by the assessee as well as the Letter of Credit obtained by the customer of the assessee from bank clearly show that 2% commission was payable to local agents. It was submitted that the same was paid as per terms and conditions entered between the parties. In effect, what the assessee realised was only 98% of the invoice value. Even if the assessee was not able to substantiate the nature of services provided by the local agents, the shortage in realisation is allowable as normal business deduction. Since the impugned payment is not chargeable to tax in India in the hands of recipients, the provisions of sec. 40(a)(i) will not apply. Hence we are of the view that there is no reason to disallow the expenses of Rs.6,26,926/- claimed by the assessee. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance of Rs.6,26,926/- referred above.
5 Etco Industries Pvt. Ltd.
8. We shall now take up the appeal filed for AY 2011-12. The first issue urged therein relates to the disallowance of commission expenses. During the year relevant to AY 2011-12, the assessee paid Commission to Israel parties and also certain other parties. The AO disallowed a sum of Rs.23.34 lakhs for non-deduction of tax at source. The Ld CIT(A) confirmed the same by following the decision rendered by him in AY 2009-10.
9. In the preceding paragraphs, we have deleted the disallowance of commission expenses on the reasoning that the assessee has realised only net amount and further the impugned payments are not liable for deduction of tax at source, since the same is not taxable in India in the hands of recipients. Following the same, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance of Rs.23.34 lakhs, referred above.”
Facts being identical, respectfully following the aforesaid decision of the Tribunal, I delete the addition made by the Assessing Officer and sustained by the learned Commissioner (Appeals). Grounds raised are allowed.
In the result, assessee’s appeal is allowed. Order pronounced in the open Court on 05.10.2018