ASSISTANT COMMISSIONER OF INCOME-TAX vs. M/S. CHANDRA MATS PVT. LTD.,, AURANGABAD

The Revenue has raised following grounds of appeal assailing the order of Commissioner of Income Tax (Appeals).

Shri Achal Sharma representing the Department submitted that the total commission paid by assessee to commission agent is more than 21% of the total export sales. A perusal of the agreement between the assessee and commission agent would show that the agreement has been drafted in very casual manner with contradictory clauses. The bills raised for commission are in fact on account of extra rate charged towards cost of packing. The agreement is nothing but make believe arrangement entered into with an overseas party to minimize assessee’s tax liability. The ld. DR submitted that where such make believe arrangement are induced in the transactions, the veil has to be pierced to see the true colour of transactions. The ld. DR pointed that commission agent is wife of one of the partners of M/s. Korhani Distributors, Canada to whom assessee is exporting its products. The assessee has used sales commission agreement as a colourbale device to reduce tax liability. Therefore, the

Per contra, Smt. Deepa Khare appearing on behalf of the assessee vehemently supported the findings of Commissioner of Income Tax (Appeals) in deleting the disallowance. The ld. Counsel for the assessee submitted that after hiring the services of commission agent, the export sales of assessee increased many fold. The assessee started availing services of commission agent in Financial Year 2008-09. Prior to that in Financial Year 2007-08 the export sales of assessee were merely Rs.13,34,800/- which arose to Rs.5,23,63,798/- in Financial Year 2009-10 (relevant to the assessment year 2010-11). Thus, there is multiple fold increase in export sales of assessee. To show comparative analysis of export sales over the period of time, the assessee referred to chart at page 64 of the paper book. The ld. Counsel pointed that the assessee had paid commission to Mrs. Marjan Vossough Modaress during assessment year 2009-10 and even in the subsequent assessment years. However, no objection was raised by Assessing Officer either in immediately preceding assessment year or in the subsequent assessment years. The ld. Counsel placed on record a copy of assessment order passed u/s. 143(3) for assessment year 2009-10 at pages 88-89 of the paper book and the copy of assessment order for assessment year 2011-12 passed u/s. 143(3) at pages 84-85 of the paper book. The ld. Counsel contended that it is only in the assessment year under appeal that the Assessing Officer has raised

We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. We have also considered the case laws on which the ld. DR has placed reliance. The solitary issue raised by the Revenue in appeal is against deleting the addition of Rs.1,10,43,495/- in respect of commission on export sales paid to Mrs. Marjan Vossough Modaress. It is an undisputed fact that sales commission was paid by the assessee in the earlier assessment year, as well as subsequent assessment years on the basis of same agreement. The Assessing Officer accepted payment of sales commission as allowable expenditure without raising any doubt with respect to genuineness of the agreement or payment of commission. The assessee has drawn our attention to the comparative analysis of the export turnover prior to appointment of commission agent vis-à-vis subsequent period. The comparative analysis of the exports in terms of quantity and sale value for the three financial years starting from Financial Years 2007-08 to 2009-10 is as under :

A perusal of the assessment order shows that the Assessing Officer has questioned business expediency of payment of commission paid by assessee on export sales. The objections raised by the Assessing Officer are devoid of merit as : i. Though principle of res-judicata does not strictly apply on Income Tax proceedings, yet principle of consistency demands that if any expenditure is allowed in the preceding and the succeeding assessment years on same set of facts, the expenditure cannot be disallowed for the intervening period. The Hon’ble Supreme Court of India in the case of Radhasoami Satsang Vs. Commissioner of Income Tax reported as 193 ITR 321 has held : “We are aware of the fact that, strictly speaking, res judicata does not apply to IT proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.” ii. A perusal of comparative analysis of export turnover in the past two assessment years show that after appointment of commission agent, the export turnover of the assessee in terms of volume and Revenue has substantially increased. Thus, the benefit of appointment of commission agent to the assessee is apparent from the records itself.

The ld. DR in support of his submissions has placed reliance on the decision rendered in the case of Lachminarayan Madan Lal Vs. Commissioner of Income Tax (supra). In the said case, Hon’ble Apex Court upheld disallowance of payment of commission as the assessee failed to show existence of selling agency. The finding of fact given by the Tribunal in the said case was that selling agency is nothing but another manifestation of assessee’s firm. We find that the facts of the aforesaid case are entirely at variance from the facts of the case in hand. In the instant case, existence of overseas commission agent is not in dispute. The Assessing Officer has raised doubt over the reasons and need for entering into agreement with commission agent. Therefore, ratio laid down in the case of Lachminarayan Madan Lal Vs. Commissioner of Income Tax (supra) in our considered opinion does not support the case of Departemnt.

The impugned order passed by the Commissioner of Income Tax (Appeals) is well reasoned and we concur with the findings of First Appellate Authority. Hence, we find no reason to interfere with the same. Accordingly, the impugned order is upheld and the appeal of the Revenue is dismissed being devoid of any merit.

In the result, the appeal by Revenue is dismissed.