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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.
First, we shall take up the appeal in ITA No. 700/Chd/2018. In this appeal, the assessee has taken following grounds of appeal:-
That order passed u/s 250(6) of the Income Tax Act, 1961 by the Ld. Commissioner of Income Tax (Appeals)-3, Ludhiana is against law and facts on the file in as much as she was not justified to arbitrarily uphold the' disallowance of Commission
ITA Nos. 700 & 701/Chd/2018- M/s Kwality Overseas (P) Ltd., Ludhiana . 2
paid to various parties at Rs. 3,01,48,514/-.
That she further gravely erred in upholding an addition of Rs. 18,92,080/-made by the Ld. Assessing Officer by resort to provisions of Sec. 68 of the Income Tax Act, 1961 on account of unsecured loans raised during the year.
That the Ld. Commissioner of Income Tax (Appeals) was not justified to arbitrarily uphold an addition of Rs. 4,82,90,607/- made by the Ld. Assessing Officer on account of alleged bogus claim of expenditure.
That the Ld. Commissioner of Income Tax (Appeals) was not justified to observe that the account books were not produced by the assessee during the course of assessment proceedings despite a specific recording by the Ld. Assessing Officer in the body of the assessment order.
Ground No.1 : vide ground No.1, the assessee has agitated the confirmation of disallowance of expenditure amounting to Rs. 3,01,48,514/- on account of commission paid. The brief facts relating
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.
In appeal, the Ld. CIT(A) confirmed the addition so made by the
Assessing officer.
We have heard the rival contentions and have gone through the
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.
After considering the rival contentions, in our view, no
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.
Since the assessee has not claimed any payment on account of
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.
Ground No.2: Vide ground No. 2, the assessee has agitated the
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.
The brief facts relating to the issue are that the assessee raised
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.
In the first appeal before the Ld. CIT(A), the assessee produced
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.
Before us, the Ld. Counsel for the assessee has relied on the
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.
Ground No.3 : Vide ground No.3, the assessee has agitated the
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.
The Ld. DR could not rebut the above contention raised by the
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
In this appea the assessee has agitated the confirmation of levy
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.
In the result, both the appeals of the assessee are hereby allowed.
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 :
अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File
आदेशानुसार/ By order,
सहायक पंजीकार/ Assistant Registrar