R.D. Exports, Surat V. The Income tax Officer,Ward-2(1), Surat

ITA 1750/AHD/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6747 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-03-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 16-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K DHANESTA
• Assessee Lawyers: R K MALPANIAR
• Keywords: Business expenditure; Diversion of income; Services rendered outside India; Additional evidence; Question of law; Corroborative evidences; Third party statement
• Section: 80HHC; 37(1); 143(1); 195; 145; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI T.K.SHARMA,JM & SHRI A N PAHUJA,AM ITA NO.1750/AHD/2008 (ASSESSMENT YEAR:-2004-05) R. D. EXPORTS,3025, SHREEJI TEXTILE MARKET, SURAT. V/S INCOME TAX OFFICER, WARD 2(1),AAYAKAR BHAVAN, MAJURA GATE, SURAT. PAN: AACFR 8457Q [APPELLANT] [RESPONDENT] ITA NO.2085/AHD/2008 (ASSESSMENT YEAR:- 2004-05) INCOME TAX OFFICER, WARD 2(1),AAYAKAR BHAVAN, MAJURA GATE, SURAT V/S R. D. EXPORTS,3025, SHREEJI TEXTILE MARKET, SURAT. [APPELLANT] [RESPONDENT] ASSESSEE BY : SHRI R.K. MALPANI,AR REVENUE BY : SHRI R.K. DHANESTA, D.R. ( )/ ORDER A. N. PAHUJA :THESE CROSS APPEALS DIRECTED AGAINST AN ORDER DA TED 28-2-2002 OF THE LD. C.I.T.(A)-II, SURAT, RAISE THE FOLLOWIN G GROUNDS:- ITA NO.1750/AHD/2008[ASSESSEE] 1. THAT THE HONBLE CIT (A) HAS ERRED IN SUSTAINING THE WORKING OF THE LD. A.O. OF DEDUCTION U/S. 80HHC OF THE INCOME TAX ACT, 1961 AT RS. NIL AND THEREBY ERRED IN SUSTAINING THE DISALLO WING OF DEDUCTION U/S. 80HHC OF THE ACT. THE APPELLANT PRAYS FOR ALLOWING THE CORRECT DEDUCTION U/S. 80HHC AS PER AMENDED PROVISIONS OF THE LAW. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, DELETE OR MODIFY ANY GROUND OF APPEAL. ITA.1750-2085/AHD/2008 2 ITA NO.2085/AHD/2008[REVENUE] 1. ON THE FACTS AND CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN GIVING RELIEF OF RS.67,33,602/- G RANTED ON ACCOUNT OF COMMISSION PAYMENT TO FOREIGN AGENTS. 2. ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL OF THE ASSESSEE, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DEC LARING NIL INCOME FILED ON 14-10- 2004 BY THE ASSESSEE, ENGAGED IN THE BUSINESS OF EX PORT OF FABRICS AND OTHER TEXTILE MATERIAL, AFTER BEING PROCESSED UNDER SECTI ON 143(1) OF THE INCOME-TAX ACT (HEREINAFTER REFERRED TO AS THE ACT), WAS SELECTE D FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S. 143(2) OF THE ACT ON 30-6-2005. DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER[AO IN SHORT] NOTI CED THAT WHILE COMPUTING DEDUCTION U/S. 80HHC OF THE ACT, THE ASSESSEE IGNO RED NEGATIVE PROFIT ON EXPORT TURNOVER. TO THE QUERY BY THE AO, THE ASSESSEE FURN ISHED REVISED COMPUTATION IN THE LIGHT OF AMENDMENT TO SECTION 80HHC BY THE TA XATION LAWS (SECOND AMENDMENT) ACT, 2005, CLAIMING NIL DEDUCTION. ACCOR DING TO THE AO, THE ASSESSEE WAS NOT ENTITLED TO ANY DEDUCTION AS COM PUTED ON PAGE 2-3 OF THE ASSESSMENT ORDER. 3.. ON APPEAL, THE LD. CIT.(APPEALS) UPHELD THE FINDINGS OF THE AO IN THE FOLLOWING TERMS:- 6. I HAVE CAREFULLY CONSIDERED THE ACTION T AKEN BY THE ASSESSING OFFICER ALSO THE BRIEF SUBMISSION OF THE A.R. THE F IRST CONTENTION OF THE AR IS THAT THE AO HAD ERRED IN TREATING THE ASSESSEE A S A TRADING EXPORTER INSTEAD OF A MANUFACTURING EXPORTER, WHEREBY THE AD MISSIBLE DEDUCTION OUGHT TO HAVE BEEN COMPUTED IN TERMS OF CLAUSE (A) TO SEC. 80-HHC(3) OF THE ACT. HOWEVER, NEITHER IN THE STATEMENT OF FACTS NOR IN THE WRITTEN SUBMISSIONS HAS THE AR FURNISHED ANY EVIDENCE AS TO HOW AND WHY THE ASSESSEE SHOULD HAVE BEEN TREATED AS A MANUFACTURIN G EXPORTER. THE CLAIM OF THE A.R. ON THIS GROUND IS THEREFORE, REJE CTED. SECONDLY, IT HAS BEEN CONTENDED BY THE AR THAT THE A.O.HAD ERRED IN RE-COMPUTING THE ADMISSIBLE DEDUCTION AT NIL. FROM THE ASSESSMENT OR DER, I FIND THAT THE REVISED COMPUTATION WHICH THE ASSESSEE HAD FURNISHE D IN RESPONSE TO A REQUEST MADE BY THE ASSESSING OFFICER, THE ADMISSIB LE DEDUCTION WAS SHOWN AT NIL. THEREFORE, IT IS SURPRISING THAT, THE AR HAS NOW CONTESTED THE AOS ACTION IN COMPUTING THE DEDUCTION AT NIL. THE FACT OF THE MATTER IS THAT ITA.1750-2085/AHD/2008 3 THE ASSESSEE HAD IGNORED THE NEGATIVE PROFIT OF BUS INESS INVOLVING THE EXPORT OF GOODS. HOWEVER, UNDER THE AMENDED PROVISI ONS INTRODUCED BY THE TAXATION LAWS (AMENDMENT) ACT OF 2005, THE AO W ORKED OUT THE ADMISSIBLE DEDUCTION AT A NEGATIVE FIGURE OF RS.40, 73,600/- AS AGAINST THE DEDUCTION ORIGINALLY CLAIMED BY THE ASSESSEE AT RS. 22,90,004/- THEREFORE, NO DEDUCTION WAS ALLOWED BY THE AO UNDER THE SAID S ECTION. NOWHERE DID THE AO COMPUTE THE ADMISSIBLE DEDUCTION AT NIL, AS CONTENDED BY THE AR IN THE WRITTEN SUBMISSIONS. THUS, THE AO HAD RECOMP UTED THE ADMISSIBLE DEDUCTION UNDER THE PREVAILING PROVISIONS OF THE AC T AT THE POINT OF TIME WHEN THE ASSESSMENT ORDER WAS FRAMED BY HIM. THEREF ORE, THERE WAS ABSOLUTELY NO INFIRMITY IN THE ACTION TAKEN BY HIM IN DENYING DEDUCTION TO THE ASSESSEE UNDER SECTION 80HHC OF THE ACT. THE AS SESSEES APPEAL ON THIS GROUND IS THEREFORE, DISMISSED. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGA INST THE AFORESAID FINDING OF THE LD. CIT(A).THE LD.AR OF THE ASSESSEE WHILE SUBM ITTING A REVISED COMPUTATION OF DEDUCTION U/S. 80HHC OF THE ACT CONTENDED THAT T HE ASSESSEE IS ENTITLED TO DEDUCTION OF RS.5,15,837/- IN THE LIGHT OF DECISION OF THE HONBLE APEX COURT IN HERO EXPORTS VS. CIT,295 ITR 454(SC). .ACCORDINGLY, BOTH THE PARTIES AGREED THAT SINCE THE AFORESAID WORKING WAS NOT BEFORE THE AO, THE MATTER NEEDS TO BE RESTORED TO THE FILE OF THE A.O. FOR VERIFICATION. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THRO UGH THE FACTS OF THE CASE. INDISPUTABLY, THE ASSESSEE SUBMITTED BEFORE THE AO A WORKING OF DEDUCTION U/S. 80HHC OF THE ACT, CLAIMING NIL DEDUCTION. NOW BEFOR E US THE LD. A.R. SUBMITTED A REVISED WORKING IN THE LIGHT OF DECISION OF HONBLE SUPREME COURT IN HERO EXPORTS VS. C.I.T. (2007) 295 ITR454 (SC). SINCE THE LOWER AUTHORITIES DID NOT CONSIDER THE SAID DECISION OF THE HONBLE APEX COUR T NOR THE REVISED WORKING OF DEDUCTION U/S 80HHC OF THE ACT NOW PLACED BEFORE US , WE CONSIDER IT FAIR AND APPROPRIATE TO VACATE THE FINDINGS OF THE LD. CIT(A ) AND RESTORE THE MATTER TO HIS FILE WITH THE DIRECTIONS TO RE-EXAMINE THE ISSUE IN THE LIGHT OF AFORESAID DECISION OF THE HONBLE APEX COURT IN THE CASE OF HERO EXPORTS( SUPRA) AND THEREAFTER, ADJUDICATE THE ISSUE IN ACCORDANCE WITH LAW AFTER A LLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES. WITH THESE DIRECTIONS, GROUND NO. 1 IN THE APPEAL OF THE ASSESSEE IS DISPOSED OF. ITA.1750-2085/AHD/2008 4 6. NOW ADVERTING TO GROUND NO.1 IN THE A PPEAL OF THE REVENUE, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE CLAI MED DEDUCTION FOR COMMISSION OF RS.67,33,602/- @ 6.77% OF THE GROSS I NVOICE VALUE. TO A QUERY BY THE AO ,SEEKING IDENTITY OF THE AGENT AND SERVICES RENDERED BY HIM, THE ASSESSEE REPLIED THAT THERE WAS NO REMITTANCE OF COMMISSION BY THEM TO THE FOREIGN AGENT IN THE YEAR UNDER CONSIDERATION. IN FACT, THE AMOUN T MENTIONED IN THE EXPORT INVOICE WAS NET OF FOREIGN COMMISSION AND ONLY THE NET EXPORT SALE PROCEEDS WERE RECEIVED. SINCE THE FOREIGN COMMISSION WAS DIV ERTED AT SOURCE, THERE WAS NO EXPENDITURE ON ACCOUNT OF FOREIGN COMMISSION DEB ITED IN THE PROFIT AND LOSS ACCOUNT. WHILE RELYING ON THE DECISION OF HONBLE S UPREME COURT IN THE CASE OF CIT VS. SHITALDAS TIRATHDAS (1961) 41 ITR 367 (SC), IT WAS CONTENDED THAT WHERE, BY THE OBLIGATION, INCOME IS DIVERTED BEFORE IT REACHES THE ASSESSEE, IT WAS DEDUCTIBLE; BUT WHERE THE INCOME WAS REQUIRED T O BE APPLIED TO DISCHARGE AN OBLIGATION AFTER SUCH INCOME REACHED THE ASSESSEE, THE SAME CONSEQUENCE, IN LAW, DID NOT FOLLOW. SINCE THE RECEIPT OF NET SALES PROCEEDS WAS WITHIN THE RBI GUIDELINES AND HAD BEEN ACCEPTED BY THE AUTHORIZED DEALER, THE DETAILS SUCH AS MODE OF PAYMENT TO FOREIGN AGENTS, PROOF OF REMITTA NCE/PAYMENT ACTUALLY MADE TO THE FOREIGN AGENT AND COPY OF STATEMENT OF EEFC ACCOUNT WAS NOT AVAILABLE WITH THEM, IT WAS PLEADED. WHILE REFERRING TO CIRCU LAR NO.23 DATED 23-7-1969 AND CIRCULAR NO.786 DATED 7-2-2000 OF THE CENTRAL BOARD OF DIRECT TAXES, THE ASSESSEE CONTENDED THAT NO PART OF INCOME ACCRUED O R AROSE IN INDIA AND THUS, THERE WAS NO QUESTION OF CLAIMING ANY EXPENDITURE T HEREON. HOWEVER, THE A.O. DID NOT ACCEPT THESE SUBMISSIONS OF THE ASSESSEE A ND DISALLOWED THE CLAIM ON THE FOLLOWING GROUNDS:- -IT IS NOW ESTABLISHED THAT THERE IS NO REMITTANCE OF COMMISSION FROM INDIA. THE INVOICE BILLS CLEARLY SHOW THAT THE RE IS A DEDUCTION AND THE AUTHORIZED DEALER BANK ALSO CONFIRMED IT. IN FA CT, THE ASSESSEE HAS PREFERRED THE COMMISSION AMOUNT TO BE DEDUCTED FROM THE INVOICE VALUE ITSELF. AS PERMISSIBLE UNDER THE RBI GUIDELINES. HE NCE, IT CAN BE SAID THAT THE ASSESSEE HAS NOT DIRECTLY PAID/REMITTED THE COM MISSION, BUT ON BEHALF OF THE ASSESSEE, THE FOREIGN BUYER HAS PAID IT. HOWEVER, THE EXPENDITURE PERTAINS TO THE ASSESSEE ONLY. ITA.1750-2085/AHD/2008 5 -THE ASSESSEE HAS RAISED THE ISSUE OF DI VERSION OF INCOME BY OVERRIDING TITLE, WHICH IS TOTALLY OUT OF CONTEXT. PAYMENT OF FOREIGN BUYERS AGENT COMMISSION IS CLEARLY AN APPLICATION OF INCOME AND THIS DOESNT SATISFY THE DOCTRINE OF DIVERSION OF INCOME . IT SEEMS STRANGE THAT WHY CAN EXPENSE LIKE COMMISSION BE TREATED AS DIVER SION OF INCOME AT BUYERS END. HERE THE COMMISSION HAS BEEN PAID ON T HE BEHALF OF ASSESSEE AND THUS IT IS HIS EXPENDITURE OUT OF HIS PROFITS. AS BRILLIANTLY EXPLAINED BY THE HONBLE SUPREME COURT IN THE CASE OF ASSOCIATED POWER VS. CIT 218 ITR 195 (SC) AND IN MANY OTHER JU DGMENTS, DOCTRINE OF DIVERSION OF INCOME APPLIES ONLY WHEN THE PROFIT EARNED BY THE ASSESSEE IS NOT REALLY HIS PROFIT BUT IT BELONGS TO SOMEBODY ELSE AND THE ASSESSEE HAS NO TITLE ON IT. IN THE INSTANT CASE, T HE PROFIT TOTALLY BELONGS TO THE ASSESSEE AND HE JUST APPLYING SOME PART OF I T TOWARDS COMMISSION EXPENSE. -THE CBDT CIRCULARS (VIZ. 23 OF 1969 AND 786 OF 2000) QUOTED BY THE ASSESSEE ARE NOT RELEVANT HERE. THESE CIRCUL ARS ARE RELATING TO THE TAXABILITY OF INCOME OF NON-RESIDENT FOREIGN BUYERS AGENTS WHILE WE ARE NOT DEALING WITH THIS ISSUE AT ALL. THE ISSUE UNDER CONSIDERATION IS THAT WHETHER THE COMMISSION ALLEGEDLY PAID BY ASSESSEE I S AN ALLOWABLE BUSINESS EXPENDITURE OR NOT IN LIGHT OF THE TEST TH AT THE SERVICES WERE ACTUALLY RENDERED OR NOT. THE CBDT HAS RIGHTLY POIN TED OUT THAT COMMISSION INCOME OF THE AGENTS IS NOT LIABLE TO TA X IN INDIA. HOWEVER, THE BOARD HAS NEVER STATED THAT THE EXPENSE OF AN I NDIAN EXPORTER REGARDING THIS WOULD AUTOMATICALLY QUALITY FOR ALLO WABLE BUSINESS EXPENDITURE. IN ADDITION, THE BOARD HAD ISSUED THE CIRCULAR AND QUOTED THE TERM BUSINESS EXPENDITURE IN RELATION TO SECTIO N 40(A)(I) ONLY. HERE, IT WOULD BE APPROPRIATE TO QUOTE THE BACKGROUND OF THE CIRCULAR NMO.786 FOR GETTING THE CLEAR PICTURE; IN THEIR AUDIT REPORT FOR 1997-98 (D.P. NO.79 )(I.T.) THE COMPTROLLER AND AUDITOR GENERAL (C & AG) RAISED AN OBJECTION THAT THE ASSESSING OFFICER IN COMPUTING THE PROFITS AND GAIN S OF BUSINESS OR PROFESSION, IN A CASE IN MUMBAI CHARGE, HAD WRONGLY ALLOWED A DEDUCTION IN RESPECT OF A PAYMENT TO A NON-RESIDENT WHERE TAX HAD NOT BEEN DEDUCTED AT SOURCE. THE NATURE OF THE PAYMENT IN THIS CASE WAS EXPORT COMMISSION AND CHARGES PAYABLE FOR SERVICES RENDERED OUTSIDE INDIA. IN THE VIEW OF C & A.G. THE EXPENDITURE SHOU LD HAVE BEEN DISALLOWED IN ACCORDANCE WITH THE PROVISIONS OF SEC TION 40(A)(I) OF THE I. T. ACT, 1961. IT HAS COME TO THE NOTICE OF THE BOAR D THAT A SIMILAR VIEW, ON THE SAME SET OF FACTS HAS BEEN TAKEN BY SOME ASS ESSING OFFICERS IN OTHER CHARGES. ITA.1750-2085/AHD/2008 6 IN THIS BACKGROUND ONLY, THE BOARD HAS ISSUE D THE CIRCULAR, WHICH IS RELATED TO THE DEDUCTION OF TAX AT SOURCE AND FURTH ER, THE ALLOWABILITY OF EXPENDITURE IN CONTEXT OF SECTION 40(A)(I). HOWEVER, THE SAME CIRCULAR MENTIO NED THAT THE EXPENDITURE ON EXPORT COMMISSION AND OTHER RELATED CHARGES PAYABLE TO A N ON-RESIDENT FOR SERVICES RENDERED OUTSIDE INDIA BECOMES ALLOWABLE E XPENDITURE. OBVIOUSLY, THE EMPHASIS HAS BEEN GIVEN ON THE PHRAS E FOR SERVICE RENDERED. -THE ASSESSEE HAS ALSO NOT RE AD THE PROVISIONS OF CHAPTER-X OF INCOME-TAX ACT PROPERLY. HE HAS OBSERVED THAT PROVI SIONS OF THIS CHAPTER IS AFFECTING THE TRANSACTIONS WITH ASSOCIATED ENTERPRI SE ONLY. HOWEVER, THE SAME IS NOT TRUE. SECTION 93 OF CHAPTER-X DEALS WIT H THE AVOIDANCE OF RESIDENTS. IN THIS SECTION, THERE IS NO SUCH COND ITION THAT THE PROVISIONS OF THE SECTION COVERS TRANSACTIONS WITH ASSOCIATED ENT ERPRISES ONLY. -LASTLY, THE ASSESSEE WAS GIVEN A N OPPORTUNITY TO SUBMIT A FRESH COPY OF AUDIT REPORT THE SALES HAS BEEN TAKEN ON NET B ASIS. THE SALES WERE MADE WHILE NET OFF THE COMMISSION. BECAUSE OF THIS ONLY, THE TRADING AND PROFIT AND LOSS ACCOUNT OF THE ASSESSEE REFLECTS TH E DISTORTED PICTURE OF THE STATE TRANSACTIONS. THIS IS NOT CORRECT, HOWEVER, . SAME WILL BE EXPLAINED LATER. 6.1 IN THE LIGHT OF HIS AFORESAID OBSERVATION S, THE AO CONCLUDED THAT THE NETTING OF COMMISSION WAS NOT IN ACCORDANCE THE ACC OUNTING STANDARD-1, NOTIFIED UNDER THE ACT AND ACCORDINGLY, INVOKING THE PROVISI ONS OF SEC. 145 OF THE ACT , THE AO CONCLUDED THAT COMMISSION WAS NOT A SORT OF TRAD E DISCOUNT OR INCENTIVE NOR ALLOWABLE U/S 37 OF THE ACT, IN THE ABSENCE OF EVID ENCE OF SERVICES RENDERED BY THE AGENT TO THE ASSESSEE.INTER ALIA, THE AO RELIED UPON DECISIONS IN CIT VS. CALCUTTA AGENCY LTD. (1951) 19 ITR 191(SC),CIT VS. IMPERIAL CHEMICALS INDUSTRIES (INDIA) (P) LTD., (1969) 74 ITR 17(SC),C IT V. C. PRAKASH AND CO. (INDIA) LTD. (1956), 29 ITR 661(SC), CIT V. CHANDRA VILAS HOTEL (1987) 164 ITR 102 (GUJ.), LACHMINARAYAN MADAN LAL V. CIT (1972) 8 6 ITR 439 (SC), GOODLAS NEROLAC PAINTS LTD. V. CIT (1982) 137 ITR 58 (BOM.) AND L.H. SUGAR FACTORY AND OIL MILLS (P) LTD. V. CIT (1980) 125 ITR 293 (SC) W HILE CONCLUDING THAT THE ASSESSEE FAILED TO ESTABLISH THE BUSINESS NEXUS O R SERVICES RENDERED U/S. 37 OF THE ACT ,RESULTING IN DISALLOWANCE OF RS.67,33,602/ -. ITA.1750-2085/AHD/2008 7 7. ON APPEAL, THE LD. C.I.T. (APPEALS) A LLOWED THE CLAIM IN THE FOLLOWING TERMS :- 11. I HAVE CAREFULLY CONSIDERED THE AOS POIN T OF VIEW AS CONTAINED IN THE ASSESSMENT ORDER AND THE DETAILED REMAND REPORT . I HAVE ALSO GONE THROUGH THE VARIOUS WRITTEN SUBMISSION OF THE A.R, ESPECIALLY HIS REBUTTAL OF THE OBSERVATIONS OF THE A.O. IN THE REMAND REPOR T. THE FIRST ISSUE CONCERNS THE ADMISSION OF ADDITIONAL EVIDENCE. I FI ND THAT IN COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD FURNISHED CONFIRMATION LETTER FROM M/S. KOTHARI TRADING, DUBAI. COPIES OF THE CON FIRMATIONS FROM THE AGENT AND THE BUYER WERE FILED BY THE A.R. IN APPEL LATE PROCEEDINGS ALONG WITH HIS WRITTEN SUBMISSIONS OF 27-7-2007. I HAVE G ONE THROUGH COPIES OF SUCH CONFIRMATIONS. THE BUYER HAS CLEARLY CERTIFIED THAT THEY HAD PURCHASED GOODS FROM THE ASSESSEE AND SUCH GOODS HA D BEEN PROCURED THROUGH THEIR AGENT M/S. NIDHI TEXTILES, DUBAI TO W HOM COMMISSION HAD BEEN PAID FOR THE SERVICES RENDERED. THE AGENT HAD NEGOTIATED THE PRICE,. THE QUALITY, THE DESIGNS AND PATTERN ETC. IT IS FUR THER CERTIFIED THAT THE COMMISSION HAD BEEN DEDUCTED FROM THE INVOICE VALUE S AND ONLY THE NET AMOUNTS HAD BEEN REMITTED TO THE SUPPLIER. THE CERT IFICATES THUS CLEARLY MENTION THE NATURE OF SERVICES RENDERED, THE NAME O F THE BUYER, THE AGENT AND AS WELL AS THE SELLER. IT IS FURTHER MENTIONED THAT THE AGENT BASICALLY SETTLED ALL MATTERS BETWEEN THE BUYER AND THE SELLE R, AND AS PER THE TERMS OF SUCH TRANSACTIONS, COMMISSION WAS PAYABLE BY THE BUYER AND WHICH WAS TO BE DEDUCTED FROM THE GROSS SELLING RATES. IT IS THE CERTIFICATE FROM THE AGENT WHOSE ADMISSION HAS BEEN STRONGLY OPPOSED BY THE A.O. THE GROUND TAKEN BY THE A.O. CHALLENGING THE ADMISSION OF SUCH EVIDENCE IS THAT, THE ASSESSEES CASE DID NOT FALL UNDER ANY OF THE EXCEPTIONS PROVIDED UNDER RULE 46A OF THE I. T. RULES. 11.1. I DO NOT AGREE WITH THE POSITION TAKEN B Y THE A.O. IT IS EVIDENT FROM THE RECORDS THAT THE A.O. HAD RAISED THE ISSU E AND ASKED FOR CONFIRMATION LETTERS ONLY TOWARDS THE END, I.E. ,JU ST A MONTH BEFORE THE ASSESSMENT WAS GETTING TIME BARRED. SINCE THE AGENT S WERE ALL LOCATED ABROAD (THERE BEING OTHER GROUP CASES WITHIN THE SA ME ISSUE), IT WOULD OBVIOUSLY HAVE TAKEN TIME FOR THE ASSESSEE TO OBTAI N THE CONFIRMATIONS FROM THEM. THE POINT TO NOTE HERE IS THAT, BECAUSE OF THE SAME REASON, I.E. SHORTAGE OF TIME, THE A.O. HIMSELF HAD DESISTED FRO M HIMSELF SEEKING CONFIRMATIONS OR RECONFIRMATIONS FROM THE BUYERS AN D THE AGENTS, AS HE HAD DONE IN SOME OTHER CASES. THUS, THE ASSESSEES CASE FELL SQUARELY UNDER CLAUSE (B) OF RULE 46A, THAT IS, THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE FROM PRODUCING SUCH EVIDENCE IN CO URSE OF THE ASSESSMENT PROCEEDINGS. ON THE OTHER HAND, EVEN THO UGH THE A.O. HAS CONTESTED THE ADMISSION OF SUCH EVIDENCE, HE HAS NO T REALLY STATED AS TO WHY AND HOW SUCH EVIDENCE SHOULD NOT BE ADMITTED EX CEPT FOR MAKING A VERY GENERAL STATEMENT THAT THE ASSESSEES CASE WAS NOT COVERED UNDER RULE 46A. OTHERWISE HE HAS GONE ON TO EXAMINE SUCH EVIDENCE AND ITA.1750-2085/AHD/2008 8 PROVIDE DETAILED COMMENTS ON THEM. THIS MEANT THAT SUCH EVIDENCE WAS CRUCIAL AND CRITICAL TO DETERMINE THE GENUINENESS O F THE ASSESSEES CLAIM. TAKING ALL SUCH FACTS AND CIRCUMSTANCES INTO CONSID ERATION, I AM OF THE VIEW THAT THE EVIDENCE PRODUCED BY THE ASSESSEE IN COURSE OF THE APPELLATE PROCEEDINGS, IN THE FORM OF CONFIRMATION FROM THE FOREIGN AGENT MERITS ADMISSION, ESPECIALLY WHEN THE CONFIRMATION FROM THE BUYER THAT WAS FURNISHED BEFORE THE A.O. WAS NOT TAKEN INTO CO NSIDERATION AT ALL, AND FURTHER, THE CONFIRMATION FROM THE AGENT WAS ASKED FOR ONLY TOWARDS THE END OF THE ASSESSMENT PROCEEDINGS,. LEAVING VERY L ITTLE OR NO TIME FOR THE ASSESSEE TO MEET THE TIME-BARRING DEADLINE. SUCH EV IDENCE IS THEREFORE ADMITTED. 11.2. HAVING ADMITTED SUCH ADDITIONAL EVIDENC E, IT BECOMES NECESSARY TO EXAMINE THE OBSERVATIONS OF THE A.O. WITH REGARD TO SUCH EVIDENCE. IT IS THE OBSERVATION OF THE A.O. THAT THE CONFIRMATION L ETTER FURNISHED BY THE AGENT DOES NOT INDICATE AS TO WHOM ACTUAL SERVICES HAD BEEN RENDERED. IN FACT NO SERVICE WAS RENDERED TO THE ASSESSEE. IT IS THE VIEW OF THE A.O. THAT THE SERVICES, IF ANY, RENDERED BY THE AGENT, W AS TO THE BUYER. ON HIS PART, THE A.O. HAD WRITTEN LETTERS TO THE AGENT, CO PY OF WHICH HAS BEEN ENCLOSED TO THE REMAND REPORT. THE AGENT HAD CONFIR MED THEIR ROLE IN THE TRANSACTIONS AND THE RECEIPT OF COMMISSION. HOWEVER , THE A. OS OBJECTION IS THAT THE SIGNATURE ON THE TWO OBJECTION LETTERS VARIED, WHICH MADE SUCH LETTERS DUBIOUS,. HIS SECOND OBJECTION IS THAT, OF THE AGENT DID NOT FURNISH DETAILS OF THEIR BANK STATEMENTS OR COPIES OF RECEI PTS. 11.3. I AM OF VIEW THAT THE OBJECTIONS RAI SED BY THE A.O. ARE NOT JUSTIFIED, TO PUT IT VERY MILDLY. FIRSTLY, THE AO H AS NOT ENCLOSED A COPY OF THE LETTER FROM THE AGENT WHERE THEY HAD RECONFIRMED TH E EARLIER CONFIRMATIONS REGARDING THE SERVICES RENDERED AND THE RECEIPT OF COMMISSION. SECONDLY, HE HAS NOT POINTED OUT HOW THE SIGNATURES ARE VARIE D AND DIFFERENT. IT IS NOT UNUSUAL FOR VARIATIONS EMERGING IN SIGNATURES WHICH ARE PUT AT TWO DIFFERENT POINTS IN TIME. THIRDLY, WITH REGARD TO THE BANK ST ATEMENTS, NO ONE WOULD READILY FURNISH HIS BANK STATEMENT, ESPECIALLY A PE RSON RESIDING IN A COUNTRY OTHER THAN INDIA, WHERE SUCH DOCUMENTS ARE TREATED WITH UTMOST CONFIDENTIALITY. FOURTHLY, ONCE THE AGENT AS ALSO T HE BUYER HAD FURNISHED COMPLETE DETAILS REGARDING THE TRANSACTIONS IN THEI R CERTIFICATES, WHICH INCLUDED THE INVOICE NOS., DATES, GROSS AMOUNTS, TH E NET AMOUNTS AND THE COMMISSION, REDUCED FROM, THE GROSS INVOICE VALUES, ANY FURTHER CONFIRMATION IN THE FORM OF BANK ACCOUNTS WAS NOT R EALLY REQUIRED. THE OBJECTION RAISED BY THE A.O. THEREFORE, APPEARS TO BE VERY FRIVOLOUS, MADE WITH THE PURPOSE OF REJECTING THE CONCLUSIVE EVIDEN CES FURNISHED BY THE ASSESSEE. 8. THE REVENUE IS NOW IN APPEAL BEFORE U S AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF OF THE ASSE SSEE WHILE REFERRING TO THE ITA.1750-2085/AHD/2008 9 DECISION DATED 24-03-2010 IN RACHANA EXPORTS IN I TA NOS.3791 & 3849/AHD/2007 FOR THE ASSESSMENT YEAR 2004-05 CONTE NDED THAT THE CASE IS SQUARELY COVERED BY THE DECISION DATED 21-12-2010 O F THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ATMA PRAKASH BATR A IN TAX APPEAL NO.838 OF 2009. HE LD. D.R. DID NOT OPPOSE THESE SUBMISSIONS OF THE LD. A.R. NOR BROUGHT TO OUR NOTICE ANY CONTRARY DECISION. 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE. UNDISPUTEDLY, THE COMMISSION DISALLOWED BY THE AO WAS DEDUCTED FROM THE AMOUNT REFLECTED IN THE EXPORT INVOICES RA ISED BY THE ASSESSEE IN TERMS OF AN ARRANGEMENT BETWEEN THE BUY ER AND THE SELLER WHILE THE TRANSACTIONS BETWEEN THE ASSESSEE AND THE FOREIGN BUYERS WERE MEDIATED BY THE AGENT AS FOUND OUT BY T HE LD. CIT(A), WHEN HE OBSERVED THAT ONCE THE AGENT AS ALSO THE BU YER HAD FURNISHED COMPLETE DETAILS REGARDING THE TRANSACTIO NS IN THEIR CERTIFICATES, WHICH INCLUDED THE INVOICE NOS., DATE S, GROSS AMOUNTS, THE NET AMOUNTS AND THE COMMISSION, REDUCED FROM TH E GROSS INVOICE VALUES, ANY FURTHER CONFIRMATION IN THE FOR M OF BANK ACCOUNTS WAS NOT REALLY REQUIRED. THE EXISTENCE OF THE AGENT S AND THEIR FUNCTIONING WAS FOR THE BENEFIT OF THE ASSESSEE AS WELL AND RENDERING OF SUCH SERVICES HAS NOT BEEN DISPUTED NO R SUCH EVIDENCE PRODUCED BY THE ASSESSEE CAN BE IGNORED ON THE GROUND THAT THE AGENTS PROVIDED SERVICES ONLY TO THE BUYER AND NOT TO THE ASSESSEE, THE LD. CIT(A) CONCLUDED. THERE IS NOTHING TO SUGGEST THE ORDERS FOR EXPORTS WERE PROCURED BY THE ASSESSEE THROUGH SOME OTHER AGENT WHILE THE SAID AGENT CONFIRMED THE NATURE OF THE TRANSACTIONS. IN THE L IGHT OF THIS UNDISPUTED CONFIRMATION, THE ABSENCE OF ANY FORMAL AGREEMENT WOULD NOT INVALIDATE THE CLAIM OF THE ASSESSEE . ONCE THE GENUINENESS OF THE COMMISSION AND JUSTIFICATION FOR THE SAME IS ESTABLISHED BY THE ASSESSEE, THERE SEEMS TO BE NO APPARENT REASON FOR DISALLOWING THE CLAIM, ESPEC IALLY WHEN DEDUCTION OF COMMISSION, EVEN WHEN IT WAS A LIABILITY OF THE CO NCERNED BUYERS, FROM THE ITA.1750-2085/AHD/2008 10 EXPORT INVOICES, WAS AN ARRANGEMENT BETWEEN THE ASS ESSEE AND THE BUYERS AND PRICES NEGOTIATED BETWEEN THEM WERE DETERMINED ONL Y ON THAT BASIS. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE APPROACH OF THE LD. CIT(A) IN ALLOWING THE CLAIM . IN CIT V. DHANRAJGIRJI RAJA NARASINGIRJI [91 ITR 5 54 (SC)], IT WAS HELD THAT IT WAS FOR THE ASSESSEE TO DECIDE HOW BEST TO PROTECT HIS BUSINESS. THE DEPARTMENT CAN NOT PRESCR IBE WHAT EXPENDITURE ASSESSEE SHOULD INCUR . 9.1. MOREOVER, THE TRIBUNAL IN THEIR AFORESAID DECISION DATED 12-12-2008 IN THE CASE OF SHRI SAMIR A BATRA(SUPRA) WHILE ADJUDICATIO N A SIMILAR ISSUE CONCLUDED AS UNDER: 25. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE T HROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. FIRST OF ALL, IT IS SEEN FROM THE ASSESSEES PAPER BOOK IN THE CASE OF GURIA TEXTILES AT PAPER B OOK PAGE 494 TO 519 THAT COMMISSION WAS PAYABLE TO THEM BY THE BUYER AN D SUCH SUMS WERE TO BE DEDUCTED FROM THE GROSS INVOICE ALOES SO TH AT THE SELLER WAS ENTITLED TO RECEIVE ONLY THE NET AMOUNT AFTER DEDUC TING THE COMMISSION IN RESPONSE OF EACH TRANSACTION. THEREFORE, THE RECEI PT OF THE COMMISSION AMOUNT HAD BEEN DULY CONFIRMED BY THE AGENTS, WHICH IN TURN MEANT THAT THE AMOUNTS WHICH WERE DEDUCTED FROM THE INVOICE VA LUES ACTUALLY REPRESENTED COMMISSION PAYMENTS WHICH WERE FINALLY RECEIVED BY THE AGENT. THIS FACT CLEARLY ESTABLISHED THE GENUINENE SS OF THE TRANSACTIONS AND WHAT IS IMPORTANT IS THAT THIS WAS DONE IN ACCO RDANCE WITH THE TERMS AND CONDITIONS AGREED UPON BETWEEN THE BUYERS AND S ELLER, EVEN THOUGH THERE WAS NO FORMAL AGREEMENT AS ARGUED BY THE LD. COUNSEL FOR THE ASSESSEE. WE FIND THAT THE AGENTS HAD UNEQUIVOCALLY CONFIRMED AND RECONFIRMED THE NATURE OF THE TRANSACTIONS, AND IN THE ABSENCE OF ANY FORMAL AGREEMENT, IT COULD NOT BE HELD AS A GROUND TO DISMISS THE CLAIM OF THE ASSESSEE. THERE WERE CLEAR CONTRA CONFIRMATIONS FROM THE AGENTS, WHICH SIMPLY COULD NOT BE WHISKED AWAY BY THE LOWER AUTHORITIES FOR THE DISALLOWANCE OF COMMISSION EXPENDITURE. THUS, ONCE THE GENUINENESS OF THE COMMISSION PAYMENTS AS WELL AS ITS JUSTIFICATIO N OF HAVING BEEN WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF ASSESSE ES BUSINESS, THE SAME BECOMES ADMISSIBLE AS DEDUCTION U/S. 37(1) OF THE ACT. WE FIND THAT THE AO HAS RELIED UPON THE CONTENTS OF THE ACCOUNTI NG STANDARD-I, WHICH HOWEVER WAS NOT APPLICABLE TO THE ASSESSEES CASE, GIVEN THE NATURE OF THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE. THE AO HAS ALSO REFERRED TO SEC. 5 OF THE ACT WHICH DEFINES TOTAL INCOME. I T IS OBVIOUS IN THE CIRCUMSTANCES AND THE NATURE OF TRANSACTIONS WHICH HAVE BEEN DISCUSSED ABOVE IN DETAILS, THAT, WHAT MAY HAVE ACCRUED TO TH E ASSESSEE WAS THE GROSS INVOICE VALUES, YET, THE ASSESSEE UNDER THE TERMS OF THE ITA.1750-2085/AHD/2008 11 AGREEMENT OR UNDERSTANDING WITH THE BUYER, HAD TO D EDUCT FROM THE INVOICES THE AMOUNT OF COMMISSION PAYABLE. IN THE BACKGROUND OF SUCH FATS, IT COULD NOT BE HELD THAT THE GROSS INVOICE A MOUNTS WERE WHAT HAD ACCRUED TO THE ASSESSEE, AND THESE WERE THE AMOUNTS ON WHICH THE ASSESSEE SHOULD HAVE BEEN ASSESSED. THE OUTGOING C OMMISSION FROM THE INVOICE VALUES WOULD HAVE TO BE REDUCED FROM T HE GROSS AMOUNTS, AND THE NET AMOUNT WHICH WAS THE ACTUAL SUM RECEIVED B Y THE ASSESSEE IN INDIA, AND WHICH WAS DULY CERTIFIED AND PERMITTED BY THE RBI AND ITS AUTHORIZED DEALER, WAS WHAT HAD BEEN EARNED BY THE ASSESSEE FROM SUCH TRANSACTIONS. WE FIND, THAT THE AO HIMSELF HAD NOTE D IN THE ASSESSMENT ORDER THAT THE AMOUNTS DEDUCTED AS COMMISSION FROM THE SALE INVOICES WERE NEITHER RECEIVED BY THE ASSESSEE DURING THE YE AR, NOR WAS IT EVER GOING TO BE RECEIVED IN FUTURE. IF THIS WAS THE VI EW OF THE AO, THEN HE CONTRADICTED HIMSELF BY TAXING AMOUNTS WHICH HAD NO T BEEN RECEIVED AT ALL, NOR DID THE ASSESSEE HAVE ANY LEGAL RIGHT TO RECEIV E SUCH AMOUNTS. 26. WE FIND THAT THE COMMISSION WAS NOT DEDUCTED FROM THE EXPORT INVOICES IN AN AD HOC MANNER AND IT WAS CLEARLY UND ER AN AGREEMENT BETWEEN THE BUYER AND THE SELLER, AS ALSO BETWEEN T HE BUYER AND THE AGENT. CONSEQUENTLY, THE ASSESSEE WAS UNDER AN OBL IGATION TO DEDUCT COMMISSION FROM THE GROSS INVOICE VALUES. IN THE PR ESENT CASE, THERE WAS A COMPULSION TO DEDUCT THE COMMISSION FROM THE EXP ORT INVOICES WHICH WAS CLEARLY INDICATED IN THE CONFIRMATION LETTERS O F THE AGENTS, THE INGREDIENTS WHICH WERE NECESSARY FOR SUCH DEDUCTION OF COMMISSION TO BE TREATED AS DIVERSION OF INCOME BY OVERRIDING TITLE WAS CLEARLY PRESENT. IN THE CASE OF CIT V. MADRAS RACE CLUB (2002) 255 ITR 98, THE HON. COURT OBSERVED THAT IN ORDER TO DECIDE WHETHER THERE HA S BEEN DIVERSION OF INCOME BY OVERRIDING TITLE, THE TRUE TEST IS WHETH ER THE AMOUNT SOUGHT TO BE DEDUCTED, IN TRUTH, NEVER REACH THE ASSESSEE AS HIS INCOME. WHEREBY AN OBLIGATION, INCOME IS DIVERTED BEFORE IT REACHES THE ASSESSEE, IT IS DEDUCTIBLE, BUT WHERE THE INCOME IS REQUIRED TO BE APPLIED TO DISCHARGE AN OBLIGATION AFTER SUCH INCOME REACHES THE ASSESSEE, THE SAME CONSEQUENCE IN LAW DOES NOT FOLLOW. IN THE PRESENT CASE THE GROSS EXPORT PROCEEDS NEVER REACHED ITS HANDS, NO SUCH INCOME HA D THEREFORE ACCRUED TO THE ASSESSEE AND THIS WAS BECAUSE OF AN OBLIGATI ON OR COMPULSION TO DEDUCT THE COMMISSION FROM THE EXPORT INVOICES WHIC H CLEARLY SHOWED THIS TO BE A CASE OF DIVERSION OF INCOME BY OVERRIDING T ITLE. THE AMOUNTS DEDUCTED FROM THE EXPORT INVOICES WERE THUS CLEARLY ALLOWABLE AS DEDUCTION. THE LOWER AUTHORITIES HAVE NOTED THAT MO ST OF THE SO-CALLED CONFIRMATIONS ARE ON PAPER AND DOES NOT BEAR THE LE TTER HEAD OF THE SAID BUYERS. THIS IS PARTLY CORRECT BECAUSE PLAIN PAPER CONFIRMATION WAS IN REFERENCE TO ONE PARTY MOHMED ABDULA OF DUBAI I.E. AT ASSESSEES PAPER BOOK PAGE NO. 509, WHICH IS ON PLAIN PAPER. HOWEVER , IN SUCH SITUATION THE AO OUGHT TO HAVE MAKE INQUIRY IF HE HAS ANY DOU BT IN THIS REGARD. BUT HE SIMPLY CONCLUDED THAT IT IS ON A PLAIN PAPER AN D DID NOT BELIEVE THE AFORESAID COMMISSION PAYMENT, PARTICULARLY WHEN T HE ASSESSEE IS HAVING ITA.1750-2085/AHD/2008 12 SUPPORTING EVIDENCE IN REFERENCE TO THE CONFIRMATI ON LIKE, SALES INVOICES, EXCHANGE CONTROL COPY OF SHIPPING BILLS AND BANK RE ALIZATION CERTIFICATE . ALL THESE EVIDENCE GOES WITHOUT SAYING THAT DE FACTO CO MMISSION HAS BEEN PAID BY ASSESSEES BUYER TO THE AGENTS DIRECTLY. TH E OTHER CONFIRMATION IS FROM AL AHED JAHID TEXTILES OF KUVAIT IS ENCLOSED AT PAPER BOOK PAGE NO. 508 WHICH IS ON LETTER HEAD, THEN P.T. SINAR OF IND ONESIA IS AGAIN ON LETTER HAD AT PAPER BOOK PAGE NO. 511 TO 515, THEN AGAIN AL AHEED ALJAHEED OF KUVAIT IS ON LETTER HEAD AT PAPER BOOK PAGE NO. 508 , THEN AGAIN P.T. SINAR IS ON LETTER HEAD AT PAPER BOOK PAGE NO. 511 TO 515 , JAY PRAKASH TRADING OF DUBAI IS AGAIN ON LETTER HEAD AT PAPER BOOK PAGE NO. 504 TO 506, THEN LIPINGE TEXTILE OF DUBAI IS AGAIN ON LETTER HEAD A T PAPER BOOK PAGE NO. 516 AND 518 AS WELL AS IN THE CASE OF SAUDI EXTENSI ON AGENCY AT PAPER BOOK PAGE 507. SO EXCEPT ONE PARTY NAMELY, MOHMED A BDULLA OF DUBAI AS MENTIONED ABOVE, ALL OTHER CONFIRMATIONS WERE ON LE TTER HEAD OF THE RESPECTIVE PARTIES. 27. WE FIND FROM THE RECORDS AS WELL AS THE ARGUMEN TS OF BOTH THE SIDES THAT NONE OF THE PAYMENT HAS COME BEYOND SIX MONTHS BUT IT WAS WITHIN SIX MONTHS AS CAN BE VERIFIABLE FROM BANK REALIZATI ON CERTIFICATE ENCLOSED AT PAPER BOOK PAGE NO. 390 TO 451. THE ASSESSEE HAS RECEIVED THE AFORESAID PAYMENT WITHIN SIX MONTHS AS PER RBI RULE S AND GUIDELINES. THE AO HAS PRESUMED THAT ASSESSEES BUYER HAS TO PAY C OMMISSION AS AND WHEN BUYER RECEIVED THE PAYMENT FROM THE ASSESSEE , WHICH IS NOT CORRECT BECAUSE IN ANY CASE THE ASSESSEE HAVE RECE IVED THE NET PAYMENT I.E. AFTER DEDUCTING COMMISSION AND PAYMENT OF COMM ISSION IS NEVER DEPENDENT ON PAYMENT TO BE RECEIVED BY THE ASSESSEE . SO IT HAS NO CONNECTION WITH THE REALIZATION OR SIX MONTHS CRI TERIA. IN VIEW OF THE ABOVE FACTS, NOW WE WILL DISCUSS THE PRINCIPLE LAID DOWN BY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF AHMEDABAD STAMP VENDORS A SSOCIATION (SUPRA). AS HELD BY THE HON'BLE HIGH COURT, THE INGREDIENTS OF WHAT IS COMMISSION ARE CONTAINED IN THE EXPLANATION TO SECT. 194H. TH ERE HAS TO BE RENDERING OF SERVICES, SUCH SERVICES HAVE TO BE RENDERED IN T HE COURSE OF BUYING AND SELLING OF GOODS OR IN RELATION TO ANY TRANSACTION INVOLVING ANY ASSET, VALUABLE ARTICLE OR THING. THERE HAS TO BE AN ELEM ENT OF AGENCY IN THE RENDERING OF ALL SUCH SERVICES OR TRANSACTIONS AND THE AGENT SHOULD HAVE BEEN AUTHORIZED TO BUY OR SELL ON BEHALF OF THE PRI NCIPAL. WHILE THE TRANSFEREE OR THE BUYER IS LIABLE TO THE TRANSFEROR OR THE SELLER TO PAY THE PRICE FOR THE GOODS, THE LIABILITY OF THE AGENT IS TO ENSURE THE DELIVERY OF THE GOODS TO THE BUYER NOT AS HIS OWN PROPERTY BUT AS T HE PROPERTY OF THE PRINCIPAL OR THE SELLER/TRANSFEROR. IF SUCH PRINCIP LES AS ENUNCIATED BY THE HON. COURTS ARE TO BE APPLIED IN THE CASE OF THE AS SESSEE, IT WILL BE SEEN THAT ALL THE ELEMENTS WHICH ARE REQUISITE FOR ANY T RANSACTION INVOLVING PAYMENT OF COMMISSION, WERE PRESENT. FIRSTLY, EAC H OF THE TRANSACTIONS BETWEEN THE ASSESSEE AS THE SELLER AND THE TWO BUYE RS WERE MEDIATED BY AGENTS, WHOLE EXISTENCE WAS ESTABLISHED BEYOND DOUB T, BY THE CONFIRMATION LETTERS. SECONDLY, THERE WAS RENDERING OF SERVICES. THE ITA.1750-2085/AHD/2008 13 AGENTS HAD CLEARLY WRITTEN THAT THEY HAVE RENDERE D SERVICES; IN PROCURING SAMPLES, DECIDING THE ORDERS AND SETTLING ALL MATT ERS BETWEEN THE BUYERS AND SELLER INCLUDING PAYMENTS BY THE BUYERS TO THE SELLER. CONSIDERING THE NATURE OF SUCH SERVICES RENDERED BY THE AGENTS, EVE N IF THEY WERE APPOINTED BY THE BUYERS, SERVICES WERE INDIRECTLY R ENDERED TO THE ASSESSEE AS THE SELLER S WELL. THE SAMPLES WERE PR ODUCED BY THEM FROM THE ASSESSEE, THEY DECIDED ON THE QUANTUM OF THE OR DER AND THE PRICE, THEY SETTLED ALL DISPUTES BETWEEN THE BUYERS AND TH E SELLER, AND THEY ALSO ENSURED THE PAYMENTS TO THE SELLER. THE EXISTENCE OF THE AGENTS AND THEIR FUNCTIONING WAS FOR THE BENEFIT OF THE ASSESSEE AS WELL. THEREFORE, THE EVIDENCE PRODUCED BY THE ASSESSEE CANNOT BE WISHED AWAY ON THE GROUND THAT THE AGENTS ONLY PROVIDED SERVICES TO TH E BUYER AND NOT TO THE ASSESSEE. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTA NCES, WE ARE OF THE VIEW THAT THE COMMISSION PAYMENT IS TO BE ALLOWED T O THE ASSESSEE AND ACCORDINGLY, WE ALLOW THE CLAIM OF THE ASSESSEE, AN D THE ORDERS OF THE LOWER AUTHORITIES ARE REVERED. THIS ISSUE OF THE A SSESSEES APPEAL IS ALLOWED. 9.2. A SIMILAR VIEW WAS TAKEN BY THE ITAT IN TH EIR DECISION IN THE CASE OF ATMA PRAKASH BATRA AND THIS VIEW HAS NOW BEEN UPHELD BY THE HONBLE JURISDICTIONAL HIGH COURT IN THEIR ORDER DATED 21.12.2010 IN TAX A PPEAL NO.838 OF 2009, WHEN THEY OBSERVED: 20. THE TRIBUNAL AFTER CONSIDERING THE RIVAL SUBMISSIONS AND AFTER APPRECIATING THE EVIDENCE ON RECORD FOUND THAT THE RECEIPT OF COMMISSION AMOUNT HAD BEEN DULY CONFIRMED BY THE AGENTS WHICH IN TURN MEANT THAT THE AMOUNT WHICH HAD BEEN DEDUCTED FROM THE INVOICE VALUE ACTUALLY REPRESENTED COMMISSION PAYMENTS WHICH WERE FINALLY RECEIVED BY THE AGENT. THIS HAD BEEN DONE IN ACCORDANCE WITH THE T ERMS AND CONDITIONS AGREED UPON BETWEEN THE BUYERS AND THE SELLER, EVEN THOUGH THERE WAS NO FORMAL AGREEMENT. THE AGENTS HAD UNEQUIVOCALLY CONF IRMED AND RECONFIRMED THE NATURE OF THE TRANSACTIONS AND THAT THE ABSENCE OF ANY FORMAL AGREEMENT COULD NOT BE HELD TO BE A GROUND T O DISMISS THE CLAIM OF THE ASSESSEE. THUS, ONCE THE GENUINENESS OF THE COM MISSION AS WELL AS ITS JUSTIFICATION OF HAVING BEEN WHOLLY AND EXCLUSI VELY INCURRED FOR THE PURPOSE OF ASSESSEES BUSINESS WAS ESTABLISHED, THE SAME BECOMES ADMISSIBLE AS DEDUCTION UNDER SECTION 37(1) OF THE ACT. TRIBUNAL WAS OF THE VIEW THAT IT COULD BE NOT BE HELD THAT THE GROS S INVOICE AMOUNTS WERE WHAT HAD ACCRUED TO THE ASSESSEE, AND THAT THESE WE RE THE AMOUNTS ON WHICH THE ASSESSEE SHOULD HAVE BEEN ASSESSED. ACCOR DING TO THE TRIBUNAL, THE OUTGOING COMMISSION FROM THE INVOICE VALUES WOULD HAVE TO BE REDUCED FROM THE GROSS AMOUNTS, AND THE NET AMOU NT WHICH WAS THE ACTUAL SUM RECEIVED BY THE ASSESSEE IN INDIA, AND W HICH WAS DULY CERTIFIED AND PERMITTED BY THE RBI AND ITS AUTHORIZED DEALER, WAS WHAT HAD BEEN ITA.1750-2085/AHD/2008 14 EARNED BY THE ASSESSEE FROM SUCH TRANSACTIONS. THE TRIBUNAL FURTHER FOUND THAT THE COMMISSION WAS NOT DEDUCTED FROM THE EXPORT INVOICES IN AN AD HOC MANNER AND IT WAS CLEARLY UNDER AN AGREEM ENT BETWEEN THE BUYER AND THE SELLER, AS ALSO BETWEEN THE BUYER AND THE AGENT. CONSEQUENTLY, THE ASSESSEE WAS UNDER AN OBLIGATION TO DEDUCT COMMISSION FROM THE GROSS INVOICE VALUE. IN THE PRE SENT CASE, THERE WAS A COMPULSION TO DEDUCT THE COMMISSION FROM THE EXPORT INVOICES WHICH WAS CLEARLY INDICATED IN THE CONFIRMATION LETTERS OF TH E AGENTS, AND THAT THE INGREDIENTS WHICH WERE NECESSARY FOR SUCH DEDUCTION OF COMMISSION TO BE TREATED AS DIVERSION OF INCOME BY OVER RIDING TITLE WAS CLEARLY PRESENT. IT WAS FURTHER FOUND THAT IN THE PRESENT CASE, THE GRO SS EXPORT PROCEEDS NEVER REACHED THE ASSESSEE, NO SUCH INCOME HAD THER EFORE ACCRUED TO THE ASSESSEE AND THIS WAS BECAUSE OF AN OBLIGATION OR C OMPULSION TO DEDUCT THE COMMISSION FROM THE EXPORT INVOICES WHICH CLEAR LY SHOWED THIS TO BE A CASE OF DIVERSION OF INCOME BY OVERRIDING TITLE. TH E AMOUNTS DEDUCTED FROM THE EXPORT INVOICES WERE THUS CLEARLY ALLOWABL E AS DEDUCTION. 21 22. FROM THE FACTS NOTED HEREINABOVE, IT IS AP PARENT THAT THE CONCLUSION ARRIVED AT BY THE TRIBUNAL IS BASED UPON FINDINGS O F FACT RECORDED BY IT AFTER APPRECIATING THE EVIDENCE ON RECORD, WHICH HAVE NOT BEEN DISLODGED BY THE REVENUE BY POINTING OUT ANY EVIDENCE TO THE CO NTRARY. THE REASONS ASSIGNED BY THE TRIBUNAL FOR ARRIVING AT ITS CONCLU SION ARE REASONABLE AND CONVINCING. ON BEHALF OF THE REVENUE NOTHING HAS BE EN POINTED OUT TO PERSUADE THE COURT TO TAKE A DIFFERENT VIEW. IN THE CIRCUMSTANCES, THE CONCLUSION ARRIVED AT BY THE TRIBUNAL BEING BASED U PON FINDINGS OF FACT DOES NOT GIVE RISE TO ANY QUESTION OF LAW. THIS GRO UND OF APPEAL IS ALSO DISMISSED. 9.3 IN THE CASE UNDER CONSIDERATION, THERE I S NOTHING TO SUGGEST THAT THE AMOUNTS DEDUCTED AS COMMISSION FROM THE SALE INVOIC ES WERE EITHER RECEIVED BY THE ASSESSEE DURING THE YEAR OR EVEN SUBSEQUENTLY N OR THE ASSESSEE HAS ANY LEGAL RIGHT TO RECEIVE SUCH AMOUNTS. THE AMOUNT HA S BEEN DEDUCTED UNDER AN ARRANGEMENT BETWEEN THE BUYERS AND THE ASSESSEE. T HUS, THE GROSS EXPORT PROCEEDS MENTIONED IN THE INVOICES NEVER REACHED T HE ASSESSEE NOR IT WAS INTENDED SO. THEREFORE, THE AMOUNT EQUIVALENT TO CO MMISSION DEDUCTED HAD NEVER ACCRUED TO THE ASSESSEE AND THIS WAS BECAUSE OF AN OBLIGATION OR COMPULSION TO DEDUCT THE COMMISSION FROM THE AMOUN T INVOICED WHILE EXPORTING THE GOODS . ITA.1750-2085/AHD/2008 15 9.4 MOREOVER, A CO-ORDINATE BENCH IN THEIR DE CISION DATED 16.12.2009 IN THE CASE OF SHRI SANJAY JAIN VS. DCIT IN ITA NO.1533/AH D./2008 WHILE ADJUDICATING A SIMILAR ISSUE HELD AS UNDER: 8. THERE IS NO DISPUTE REGARDING THE FACT THAT THE ASSESSEE HAS GIVEN COMMISSION/ DISCOUNT IN THE EXPORT INVOICES ITSELF IN FAVOUR OF THE FOREIGN BUYER. THE FOREIGN BUYER HAS STATED THAT THIS DISCOUNT/ C OMMISSION WOULD BE DISTRIBUTED BY HIM TO THE INTENDING AGENTS ABROAD. THEY HAVE S TATED THAT THE COMMISSIONS ARE TO BE PAID BY THEM DIRECTLY TO THE AGENTS IN TH E COUNTRIES OF IMPORT. IT IS ALSO A FACT ON RECORD THAT THE ASSESSEE HAS RECEIVED THE N ET AMOUNT ONLY AS EXPORT ROCEEDS BY WAY OF CONVERTIBLE FOREIGN EXCHANGE. ALL THESE MATTERS HAVE BEEN CERTIFIED BY THE BANKERS OF THE ASSESSEE. ALL THEMA TTERS ARE WELL WITHIN THE LAW REGULATED BY THE RBI FOR THE PURPOSE OF EXPORT OF G OODS OUTSIDE INDIA. IN SUCH CIRCUMSTANCES, THE SIMPLE FACT THAT EMERGES OUT OF THE MAZE OF ARGUMENTS IS THAT AS FAR AS THE ASSESSEE IS CONCERNED, HIS EXPORT SA LES TURNOVER IS THE NET AMOUNT OF THE EXPORT INVOICE ISSUED BY HIM. IT IS NOT PROP ER TO TREAT THE GROSS INVOICE AMOUNT AS THE EXPORT SALES TURNOVER OF THE ASSESSEE . 9. IN FACT, IN THE SITUATION OF THE CA SE, AS STATED IN THE ABOVE PARAGRAPH, IT IS TO BE SEEN THAT THE EXPORT SALE PROCEEDS RECE IVED BY THE ASSESSEE WAS NET AMOUNT ALONE AND NOT THE GROSS AMOUNT. IT IS ALSO T O BE SEEN THAT THE FOREIGN BUYER IS NOT BOUND TO PAY TO THE ASSESSEE THE AMOU NT COVERED BY THE COMMISSION OR DISCOUNT AT ANY FUTURE DATE. THEREFOR E, THE RIGHT/CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPORT SALES WAS TO RECE IVE ONLY THE NET INVOICE AMOUNT AND NOTHING MORE. THEREFORE, THERE IS NOTHIN G LEFT OVER BY WAY OF BALANCE TO BE TREATED AS INCOME ACCRUING OR ARISING TO THE ASSESSEE OUTSIDE INDIA BY VIRTUE OF THE IMPUGNED EXPORT SALES. THE ENTIRE INC OME ATTRIBUTABLE TO THE EXPORT SALES WERE ALREADY RECEIVED BY THE ASSESSEE IN IND IA IN THE FORM OF CONVERTIBLE FOREIGN EXCHANGE. THIS POSITION IS PROVED BY THE CE RTIFICATES ISSUED BY THE BANKERS AS WELL AS LETTERS OF CREDIT OPENED BY THE FOREIGN BUYERS. WHEN THE ASSESSEE HAS RECEIVED ONLY THE NET PROCEEDS AS PER THE INVOICE, THERE IS NOTHING FURTHER LEFT OVER TO BE TREATED AS INCOME RECEIVED OR TO BE RECEIVED OR ACCRUED OR DEEMED TO BE ACCRUED OR ARISING IN INDIA OR OUTSIDE INDIA. THEREFORE, THE RELIANCE PLACED BY THE LOWER AUTHORITIES ON THE SECTION 5 OF THE INCOME TAX ACT IS RATHER MISLEADING. 10. AS THE ASSESSEE HAS NOT PAID TO THE FOREIGN BUY ERS ANY AMOUNT BY WAY OF COMMISSION, BUT IT WAS ONLY ADJUSTMENT THROUGH THE EXPORT INVOICES BY WAY OF COMMISSION/DISCOUNT, SECTION 94H ALSO HAD NO ROLE T O PLAY. THEREFORE, WE FIND THAT ALL THE DISCUSSIONS MADE BY THE LOWER AUTHORIT IES TO MAKE ADDITIONS OF THE COMMISSION AMOUNT WERE BASED ON HYPOTHESIS AND NOT ON ANY FACTS PROVED. WHEN THE ASSESSEE HAD NO ADDITIONAL AMOUNT TO BE RE CEIVED FROM THE FOREIGN BUYERS, NO QUESTION OF ADDITIONAL INCOME ARISES. TH E INCOME OF THE ASSESSEE IS FULLY EMBEDDED IN THE NET SALE PROCEEDS RECEIVED AN D ACCOUNTED BY HIM. WHEN ITA.1750-2085/AHD/2008 16 THE INCOME ITSELF IS NOT GENERATED, THERE IS NO QUE STION OF SUCH INCOME BECOMING ACCRUED OR DUE. WHEN THERE IS NOTHING LEFT OVER TO BE FURTHER RECEIVED BY THE ASSESSEE, THERE IS NO QUESTION OF ANY INCOME ARISIN G IN THE HANDS OF THE ASSESSEE, ATTRIBUTABLE TO THE QUANTUM OF COMMISSION RECORDED IN THE INVOICE.THEREFORE, WE FIND THAT THE ENTIRE DISCUSSI ONS, BUT WELL MADE BY THE LOWER AUTHORITIES, HAVE BEEN MADE UNFORTUNATELY IN A WRON G DIRECTION. 11. WHEN THE FACTUM OF ACTUAL RECEIPT OF SALE PROCE EDS TO THE EXTENT OF NET INVOICE AMOUNT IS ESTABLISHED BEYOND ANY DOUBT, THE RE IS NO JUSTIFICATION IN OVERLOOKING UPON THOSE SPEAKING FACTS ON THE TECHNI CAL GROUND THAT THE ASSESSEE HAS CLAIMED THE DEPB BENEFIT ON THE GROSS AMOUNT OF THE INVOICE. THE DEPB CLAIM WAS MADE BY THE ASSESSEE ON THE BASIS OF PERM ISSION GRANTED BY THE RBI AND THAT HAS NOTHING TO DO WITH THE ACTUAL AMOUNT O F EXPORT SALES PROCEEDS RECEIVED BY THE ASSESSEE IN THE FORM OF CONVERTIBLE FOREIGN EXCHANGE. 12. THEREFORE, IT IS QUITE OBVIOUS WITHOUT MUCH DIS CUSSION AND DELIBERATION THAT THE REVENUE HAS NO CASE TO HOLD THE ASSESSEE RESPON SIBLE FOR AN ADDITIONAL INCOME OF RS.1,42,31,458. THE SAID ADDITION IS ACCO RDINGLY DELETED. 9.5 THE SAID DECISION HAS BEEN FOLLOWED BY THE IT AT IN THEIR DECISION DATED 24.3.2010 IN ITA NO.3791/AHD./2007 IN THE CASE OF R ACHNA EXPORTS, DECISION DATED 11.6.2010 IN ITA NO.453/AHD./2009 IN THE CASE OF NARENDRA D MOTH AND DECISION DATED 13.8.2010 IN ITA NO.673/AHD./2008 IN SUPREME (INDIA) IMPEX LTD. 9.6 EARLIER ALSO IN THEIR DECISION DATED AUGUS T,2009 IN ITA NO.3464/AHD/2008 IN THE CASE OF M/S JHAWAR BIO TECH PVT. LTD., A SIM ILAR CLAIM HAD BEEN ALLOWED. 9.7 IN VIEW OF THE FOREGOING , ESPECIALLY WHE N A SIMILAR CLAIM IN RESPECT OF COMMISSION HAS CONSISTENTLY BEEN ALLOWED BY THE CO-ORDINATE BENCHES IN THEIR DECISIONS AND DECISION OF THE ITAT IN ATMA PRAKASH BATRA HAS NOW BEEN AFFIRMED BY THE HONBLE HIGH COURT WHILE THE REVENUE DID N OT POINT OUT ANY MATERIAL CONTROVERTING THE AFORESAID FINDINGS OF THE LD. CIT (A) NOR BROUGHT TO OUR NOTICE ANY CONTRARY DECISION, GROUND NO.1 IN THE APPEAL O F THE REVENUE IS DISMISSED. 10. GROUND NOS.2 AND 3 IN THE APPEAL OF THE REVENUE BEING GENERAL IN NATURE, DO NOT REQUIRE ANY SEPARATE ADJUDICATION WH ILE NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERMS OF RESIDUARY GROUND NO. 2 IN THE APPEAL OF THE ASSESSEE, ALL THESE GROUNDS ARE DISMISSED. ITA.1750-2085/AHD/2008 17 11. NO OTHER PLEA OR ARGUMENT HAS BEEN MADE BEFO RE US. 12. IN THE RESULT, APPEAL OF THE REVENU E IS DISMISSED WHILE THAT OF THE ASSESSEE IS ALLOWED ,BUT FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON6 -5-2011 SD/- SD/- (T.K.SHARMA) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 6-5-2011 MRVALERA COPY OF THE ORDER FORWARDED TO: 1. R. D. EXPORTS,3025,SHREEJI TEXTILE MARKET,SURAT . 2. INCOME TAX OFFICER,WARD 2(1),AAYAKAR BHAVAN,MAJU RA GATE, SURAT. 3. CIT CONCERNED 4. CIT(A)-II, SURAT 5. THE DR, ITAT BENCH-A, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD.