KWALITY OVERSEAS (P) LTD.,LUDHIANA vs. ACIT, C-7, LUDHIANA

आदेश/Order

Per Sanjay Garg, Judicial Member:

The captioned appeals have been preferred by the assessee against the separate orders of the Commissioner of Income Tax (A)-3, Ludhiana dated 29.3.2018 and 30.3.2018 [hereinafter referred to as ‘CIT(A)’] respectively.

ITA Nos. 700 & 701/Chd/2018- M/s Kwality Overseas (P) Ltd., Ludhiana . 2

paid to various parties at Rs. 3,01,48,514/-.

to the issue are that the assessee is engaged in the business of manufacturing, trading, import and export of all kind and textile and textile related articles. During the assessment proceedings for the year under consideration, the Assessing officer noted that assessee had debited Rs. 3,01,48,514/- as payment of commission to various parties in the profit and loss account. On being asked to explain in this respect, the assessee furnished the names of parties, bank

accounts / details, confirmations etc. It was further explained that, in fact, the amount of commission was not separately paid to these parties, rather, these parties have deducted the commission amount

ITA Nos. 700 & 701/Chd/2018- M/s Kwality Overseas (P) Ltd., Ludhiana . 3

from the sale bills issued by these parties. The assessee claimed that

the parties to whom commission was paid were also the same parties

which generated bills for export done by the assessee. No separate

remittance has been given to these foreign parties on account of

commission paid. The Ld. Assessing officer, however, noted that the

commission was shown to have been paid to four parties but the

assessee could produce the written agreement in relation to two

parties only. Further, the assessee had not given any proof of any

services having been rendered by the commission agent. Even the

commission was paid to the Buyers themselves. That the concept of

commission payment envisages payment to third party for some

specific service rendered by that party. However, in this case no third

party was involved but the services allegedly rendered has been by

buyers themselves. Further, actual remittance in the alleged

commission payment had not been through any banking channel but

the same was reduced from the invoice value. He, therefore,

disallowed the aforesaid commission payment and added the same

into the income of the assessee.

Assessing officer.

record. The Ld. Counsel for the assessee has invited our attention to

the various invoices raised in respect of the exported items and has

submitted that the assessee had made a total export sales at Rs.

ITA Nos. 700 & 701/Chd/2018- M/s Kwality Overseas (P) Ltd., Ludhiana . 4

32,27,15,957/- during the year under consideration. To facilitate such

export sales, the same were done through foreign buyer agents. The

foreign buyers agents purchased goods on behalf of foreign buyers at

best price and at negotiated term of delivery and payment etc. for

which they charged 10% commission. The Ld. counsel inviting our

attention to the sample invoice has further submitted that, in fact,

invoice is not raised by the assessee in the name of actual buyer but

in the name of agent only, wherein, a commission @ 10% of FOB is

itself deducted / discounted at the instruction of the buyer as listed in

invoice, who actually is agent of the actual buyer. The goods are

delivered to the actual buyer / third party. He has invited our

attention to the copy of the invoice, one of which is placed at page 39

of the paper book, wherein, he has shown that the name of the buyer

is mentioned as ‘Hatta Fort Trading LLC’ at Dubai UAE, whereas, the

name of the consignee has been mentioned as ‘DALY DAY S.L.’ at

Madrid, Spain and in the invoice itself it has been mentioned as

‘Agency commission @ 10% of the FOB’. There are many identical

bills which have been placed on the file. Further, he has also placed

reliance on the foreign remittance certificate from the bank, wherein,

the amount paid / deducted as commission has been duly mentioned.

The Ld. Counsel has further submitted that in order to secure the

payment realization from export sales on timely basis, the export

invoices are issued in the name of foreign commission agents since it

is very difficult to locate foreign buyers. In the bills, the foreign

commission agents are designated as buyers. Those foreign buyers

agents would collect the payments from consignee and arrange to

ITA Nos. 700 & 701/Chd/2018- M/s Kwality Overseas (P) Ltd., Ludhiana . 5

remit the payments to the exporter’s assessee’s bank after deducting

the agency commission. Some samples copies, bank certificates of

export realization were also submitted to the lower authorities.

disallowance of commission amount is warranted in this case. Though

the assessee has booked the said amount as commission amount,

however, the assessee could conveniently have booked this amount as

discount on sales. As per the case of the Revenue, the commission

has been shown to be paid to the buyers themselves, which has been

discounted / booked in the invoices itself. Under the circumstances,

it is not the case of the Revenue that the assessee has received any

amount more than the billed amount or remitted separate amount as

commission payment. The assessee has tried to demonstrate the

actual method of transaction done by him. However, the fact on the

file is that the assessee has not paid any separate amount to any party

as commission. The assessee has realized the payment of export sales

which have been remitted to the assessee by the said commission

agents / buyers after deduction of the commission.

separate commission apart from the actual bill amount received by

the assessee, hence, we do not find any justification on the part of

the lower authorities for the impugned disallowance of commission

and thereby making the impugned additions. This ground of the

ITA Nos. 700 & 701/Chd/2018- M/s Kwality Overseas (P) Ltd., Ludhiana . 6

appeal of the assessee is accordingly allowed in favour of the

assessee.

confirmation of addition of Rs. 18,92,080/- made by the Assessing

officer u/s 68 of the Act on account of unexplained loans raised

during the year.

unsecured loans amounting to Rs. 18,92,080/- from different parties.

On being asked to explain in this respect, the assessee furnished

name of the parties, the amount of unsecured loans raised during the

year from the respective parties and confirmations. However, the

copies of their ITRs and bank statements were not produced. The

Assessing officer doubted the genuineness of the transactions and

made the impugned additions.

further details like bank statements and Income tax returns. It was

also stated that the loans were not raised from third party but from

the director of the assessee company namely Sh. Rakesh Goyal and

Ms. Geeta Goyal. The Ld. CIT(A) called for a remand report in this

respect from the Assessing officer. However, in the remand report the

Assessing officer reported that assessee had not produced the

relevant documents during the original assessment proceedings. The

ITA Nos. 700 & 701/Chd/2018- M/s Kwality Overseas (P) Ltd., Ludhiana . 7

Ld. CIT(A) acting on the remand report of the Assessing officer

confirmed the impugned additions.

copy of the confirmation of unsecured loans from the directors,

balance sheet and audit report, copies of Income tax returns and copy

of statement of bank account. In our view, the above relevant

documents should have been considered by the Ld. CIT(A). The fact

on the file is that the unsecured loans have been raised from the

directors of the companies and for the business of the assessee. The

creditworthiness of the directors has been proved from the bank

statements and confirmation of the accounts. Since the loans have

come from the directors of the assessee company, hence, there was no

doubt about the identity of the creditworthiness and genuineness of

the creditors. In view of this, we do not find any justification on the

part of the lower authorities in making the impugned disallowance

and the same is accordingly ordered to be deleted.

conformation of addition of Rs. 4,82,90,607/- on alleged bogus claim

of expenditure on estimation basis. The Assessing officer disallowed

10% of the total expenses on account of non-production of books of

account. However, the case of the assessee has been that account

books were duly produced. The Ld. counsel has also invited our

attention to page 5 of the assessment order, wherein, in the column 3

at Sr. No.19, it has been specifically mentioned by the Assessing

ITA Nos. 700 & 701/Chd/2018- M/s Kwality Overseas (P) Ltd., Ludhiana . 8

officer that the counsel for the assessee also produced all the books

of account with supporting purchase / sale bills and other documents

and also produced all the sale bills of sister concern with whom the

assessee entered into transactions during assessment year 2010-11

with their ledger account. The Ld. counsel has further invited our

attention to page 13 of the impugned order of the CIT(A), wherein,

the assessee even before the Ld. CIT(A) has pleaded that assessee

was still willing to produce its books of account to avoid any

unnecessary encumbrance. Even the Ld. Counsel has submitted that

even the audited statement of account was filed along with the return.

The Assessing officer while making the assessment did not reject the

books of account.

Ld. Counsel for the assessee. In view of this, we do not find any

justification on the part of the lower authorities in making the

impugned disallowance and the same is accordingly ordered to be

deleted.

In the result, this appeal of the assessee is hereby allowed.

ITA No. 701/Chd/2007

of penalty u/s 271(1)(c) of the Act in respect of the quantum

additions made as discussed above in ITA No. 700/Chd/2018 . Since

in our detailed order as discussed above, we have deleted the

impugned additions, hence, the very basis for which the penalty was

ITA Nos. 700 & 701/Chd/2018- M/s Kwality Overseas (P) Ltd., Ludhiana . 9

levied has ceased to exist. Therefore, the impugned penalty has no legs to sustain, and the same is accordingly ordered to be deleted.

Order pronounced in the Open Court on 11.12.2018

Sd/- Sd/- ( बी , आर . आर . कुमार / B.R.R. KUMAR) (संजय गग� / SANJAY GARG ) लेखा सद�य/ Accountant Member �या�यक सद�य /Judicial Member

�दनांक/Date: 11.12. 2018 “आर.के.”

आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to :

आदेशानुसार/ By order,

सहायक पंजीकार/ Assistant Registrar