The DCIT, Circle-2(1), Guntur V. M/s Rahamankhan Tobacco Enterprises Pvt. Ltd., Guntur

ITA 274/VIZ/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50208 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 11-04-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 04-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA
• Assessee Lawyers: K TIRUMALA RAO
• Keywords: Permanent establishment; TDS; Set aside
• Section: 143(3); 80HHC; 40(a)(ia); 205; 195; 274; 80HH

Judgement Text

ITA NOS 205 AND 274 OF 2010 REHMANKHAN TOBACCO PVT LTD GUNTUR PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.205/VIZAG/2010 ASSESSMENT YEAR:2003-04 RAHAMANKHAN TOBACCO ENTERPRISES PVT. LTD., GUNTUR VS. ACIT CIRCLE-2(1) GUNTUR (APPELLANT) PAN NO: AABCR 5438 H (RESPONDENT) ITA NO.274/VIZAG/2010 ASSESSMENT YEAR:2003-04 ACIT CIRCLE-2(1) GUNTUR VS. RAHAMANKHAN TOBACCO ENTERPRISES PVT. LTD., GUNTUR (APPELLANT) PAN NO: (RESPONDENT) PAN NO: AABCR 5438 H ASSESSEE BY: SHRI K.TIRUMALA RAO CA DEPARTMENT BY: SHRI G. MALLIKARJUNA, SR. DR ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 29.01.2010 PASSED BY LEARNED CIT(A), GUNTUR AND THEY RELATE TO THE ASSESSMENT YEAR 2003-04. 2. FOLLOWING TWO ISSUES ARE CONTESTED BY BOTH THE P ARTIES IN THEIR RESPECTIVE APPEALS. (A) DISALLOWANCE OF COMMISSION PAYMENT RS.18,21,93 1/- (B) COMPUTATION OF DEDUCTION UNDER SECTION 80HHC 3. THE FACTS RELATING TO THE ISSUES ARE STATED IN B RIEF. THE ASSESSEE IS IN THE BUSINESS OF EXPORTING OF TOBACCO. THE IMPUGNED ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) R.W.S. 147 OF THE AC T. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY PAID SALE S COMMISSION OF ITA NOS 205 AND 274 OF 2010 REHMANKHAN TOBACCO PVT LTD GUNTUR PAGE 2 OF 11 RS.18,21,931/- TO ANOTHER COMPANY NAMED M/S ATDC US A LLC IN CONNECTION WITH EXPORT OF TOBACCO TO TURKEY. THE A SSESSING OFFICER DISALLOWED THE SAID COMMISSION PAYMENT ON THE FOLLO WING GROUNDS: A) THE IMPUGNED COMMISSION HAS BEEN PAID ON THE SAL ES MADE TO TURKEY ON 21.3.2002. HENCE THE LIABILITY TOWARDS IMPUGNED EXPENDITURE HAS ARISEN IN THE FINANCIAL YEAR RELEVA NT TO THE ASSESSMENT YEAR 2002-03. HOWEVER THE ASSESSEE COMP ANY HAS CLAIMED THE EXPENDITURE IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2003-04, WHICH IS NOT CORRECT AS PE R THE MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASS ESSEE COMPANY. HENCE THE IMPUGNED COMMISSION PAYMENT CAN NOT BE TAKEN AS RELATING TO THE YEAR UNDER CONSIDERATIO N. B) THE AGREEMENT FOR PAYMENT OF COMMISSION HAS BEEN EXECUTED ON A WHITE PAPER WITHOUT FOLLOWING THE PROPER RULES CONCERNING CONTRACT AGREEMENTS. THE AGREEMENT DO ES NOT CLARIFY THE TERMS AND CONDITIONS, ARBITRATION CLAUS E, PLACE OF EXECUTION, DATE OF EXECUTION ETC. HENCE THE AGREEM ENT IS A VOID AGREEMENT. CONSEQUENTLY, THE COMMISSION PAYME NT HAS TO BE DISALLOWED. C) THE ASSESSEE HAS NOT DEDUCTED TDS ON THE COMMISS ION PAYMENT ON THE GROUND THAT RECIPIENT OF COMMISSION, VIZ., M/S ATDC USA LLC DOES NOT HAVE BRANCH IN INDIA AND NO IN COME OF IT IS TAXABLE IN INDIA. HOWEVER, THE THREE DIREC TORS OF M/S ATDC USA LLC ARE ALSO THE DIRECTORS IN TWO COMPANIE S OPERATING IN INDIA, VIZ., M/S ATDC INDIA AND THE ASS ESSEE COMPANY. HENCE THE SAID TWO COMPANIES ARE ACTING IN INDIA ON BEHALF OF M/S ATDC USA LLC AND THEY CAN BE TAKEN AS ESTABLISHMENTS (READ PERMANENT ESTABLISHMENT). HENCE THE ASSESSEE COMPANY IS LIABLE TO DEDUCT TDS ON THE COMMISSION PAYMENT UNDER SECTION 195 OF THE ACT. S INCE THE ASSESSEE COMPANY HAS FAILED TO DEDUCT TDS ON THE SA ID PAYMENT AND THE SAME IS DISALLOWABLE AS PER THE PRO VISIONS OF SEC.40(A)(I) OF THE ACT. 3.1 THE ASSESSING OFFICER WAS ALSO NOT SATISFIE D WITH THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC WORKED OUT BY THE ASS ESSEE COMPANY. THE ASSESSING OFFICER MADE FOLLOWING ADJUSTMENTS IN THE SAID DEDUCTION. A) THE ASSESSING OFFICER EXCLUDED 90% OF THE GROSS INTEREST RECEIPTS FROM THE PROFITS OF BUSINESS FOR THE PUR POSE OF CALCULATION OF DEDUCTION UNDER SECTION 80HHC. ITA NOS 205 AND 274 OF 2010 REHMANKHAN TOBACCO PVT LTD GUNTUR PAGE 3 OF 11 B) THE ASSESSING OFFICER DEDUCTED THE COMMISSION PA YMENT FROM THE SALES REALIZATION IN ORDER TO ARRIVE AT THE NE T SALES REALIZATION FOR THE PURPOSE OF CALCULATING DEDUCTI ON UNDER SECTION 80HHC. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT (A). THE FIRST APPELLATE AUTHORITY, WITH REGARD TO THE YEAR OF ACCRUAL OF LIABILITY FOR PAYMENT OF COMMISSION, HELD THAT THE LIABILITY FOR PAYMENT OF COMMISSION HAS ARISEN ONLY DURING THE YEAR UNDER CO NSIDERATION. IN THIS REGARD THE LEARNED CIT(A) TOOK INTO ACCOUNT THE CLA USE NO.5 IN THE AGREEMENT ENTERED WITH THE COMMISSION AGENT, WHICH IS EXTRACTED BELOW: THE COMMISSION OF 4% ON FOB VALUE WILL BE PAID BY THE FIRST PARTY ONLY AFTER SHIPMENT AND THE RECEIPT OF ALL TH E FUNDS FROM THE SHIPPED TOBACCO. THE COMMISSION WILL BE PAID I N THE CURRENCY IN WHICH THE LETTER OF CREDIT IS OPENED. ACCORDINGLY, THE LEARNED CIT(A) DID NOT AGREE WITH THE ASSESSING OFFICER ON THIS POINT. HOWEVER, IN RESPECT OF APPLICABILITY O F PROVISIONS OF DEDUCTION OF TDS, I.E. SEC. 195 OF THE ACT, THE LEARNED CIT (A) AGREED WITH THE VIEWS OF THE ASSESSING OFFICER THAT THE ASSESSEE IS LIABLE T O DEDUCT TDS ON THE IMPUGNED COMMISSION PAYMENT. IN THIS REGARD, THE L EARNED CIT(A) PLACED RELIANCE ON THE FOLLOWING DECISIONS: (A) CIT VS. SAMSUNG ELECTRONICS (320 ITR 209) (KAR ) (B) TRANSMISSION CORPORATION OF AP LTD., VS. CIT (2 39 ITR 587) (S.C) THE ASSESSEE PLACED RELIANCE ON THE CBDT CIRCULAR N O.786 DATED 7.2.2000 TO CONTEND THAT THE COMMISSION PAYMENTS MADE OUTSID E INDIA DOES NOT ATTRACT TDS. HOWEVER, THE LEARNED CIT(A) REJECTED THE SAID CLAIM OF THE ASSESSEE BY OBSERVING THAT THE SAID CIRCULAR HAS BE EN WITHDRAWN BY THE CBDT, VIDE ITS CIRCULAR NO.7/2009 DATED 22.10.2009. ACCORDINGLY, THE LEARNED CIT(A) HELD THAT THE IMPUGNED COMMISSION PA YMENT IS DISALLOWABLE AS PER THE PROVISIONS OF SEC. 40(A)(I) OF THE ACT, AS THE ASSESSEE HAS FAILED TO DEDUCT TDS THEREON. IN VIEW OF THE ABOVE, THE L EARNED CIT(A) CONFIRMED THE DISALLOWANCE OF COMMISSION PAYMENT. THE ASSESSEE IS IN ITA NOS 205 AND 274 OF 2010 REHMANKHAN TOBACCO PVT LTD GUNTUR PAGE 4 OF 11 APPEAL BEFORE US CHALLENGING THE DECISION OF LEARNE D CIT(A) IN HOLDING THAT THE PROVISIONS OF SEC. 40(A)(I) IS APPLICABLE TO TH E COMMISSION PAYMENT. THE REVENUE IS IN APPEAL BEFORE US CHALLENGING THE DECISION OF LEARNED CIT(A) IN HOLDING THAT THE LIABILITY TO PAY THE COM MISSION HAS ARISEN ONLY IN THE YEAR UNDER CONSIDERATION. BESIDES THE ABOVE, T HE REVENUE IS CHALLENGING THE VALIDITY OF COMMISSION AGREEMENT ON THE GROUND THAT THE SAID AGREEMENT IS A VOID AGREEMENT. 4.1 WITH REGARD TO DEDUCTION UNDER SECTION 80HH C, (A) THE LEARNED CIT (A), BY FOLLOWING THE DECISION OF JURISDICTIONAL VISAKHAPATNAM BENCH OF ITAT IN THE CASE OF P.SOMASU NDARAM IN ITA NO.719/V/2004 DATED 17.12.2007, HELD THAT ONLY 90% OF THE NET INTEREST RECEIPTS HAVE TO BE EXCLUDED FOR THE PURPO SE OF CALCULATING DEDUCTION UNDER SECTION 80HHC. (B) WITH REGARD TO THE DEDUCTION OF COMMISSION EXP ENDITURE FROM THE NET SALES REALIZATION, THE LEARNED CIT (A) HE LD THAT THE COMMISSION PAYMENT NEED NOT BE REDUCED FROM THE EXP ORT TURNOVER. IN THIS REGARD, THE LEARNED CIT(A) TOOK SUPPORT FROM THE DEFINITION OF EXPORT TURNOVER GIVEN IN EXPLANATION (B) TO SEC. 80HHC OF THE ACT. AGGRIEVED BY THE ORDER OF LEARNED CIT(A) ON THIS IS SUE, THE REVENUE IS IN APPEAL BEFORE US WITH THE FOLLOWING PRAYER THAT: FOR THE PURPOSE OF DEDUCTION UNDER SECTIO N 80HHC: (I) 90% OF THE GROSS INTEREST RECEIPTS SHOULD BE EXCLUD ED FROM THE PROFITS OF BUSINESS. (II) THE IMPUGNED COMMISSION AMOUNT SHOULD BE EXCLUDED FROM THE EXPORT TURNOVER. 5. WE SHALL FIRST TAKE UP THE APPEAL OF THE REVENU E. THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTENDED THAT THE LIAB ILITY FOR PAYMENT OF COMMISSION HAS CRYSTALLIZED AT THE POINT WHEN THE C ONCERNED GOODS WERE EXPORTED. IN THIS CASE, THE ASSESSEE HAS EXPORTED TH E GOODS ON 21.3.2002/22.3.2002 AND HENCE THE LIABILITY TO PAY THE COMMISSION HAS ARISEN ON THAT DATE ITSELF, MEANING THEREBY THE ASS ESSEE SHOULD HAVE CLAIMED THE COMMISSION EXPENDITURE DURING THE FINAN CIAL YEAR 2001-02 ITA NOS 205 AND 274 OF 2010 REHMANKHAN TOBACCO PVT LTD GUNTUR PAGE 5 OF 11 RELEVANT TO THE ASSESSMENT YEAR 2002-03. HOWEVER, THE ASSESSEE HAS CLAIMED THE SAID EXPENDITURE DURING THE YEAR RELEVA NT TO THE ASSESSMENT YEAR 2003-04, WHICH IS NOT CLEARLY ALLOWABLE AS PER THE PRINCIPLES OF MERCANTILE SYSTEM OF ACCOUNTING. THE CLAUSE NO.5 O F THE AGREEMENT, ON WHICH HEAVY RELIANCE WAS PLACED BOTH BY THE ASSESSE E AND THE LEARNED CIT(A), ONLY SPEAKS ABOUT THE TIME OF PAYMENT OF TH E COMMISSION AND THE SAME CANNOT BE TAKEN AS THE POINT OF CRYSTALLIZATIO N OF THE LIABILITY. WITH REGARD TO THE COMPUTATION OF DEDUCTION UNDER SECTIO N 80HHC OF THE ACT, THE LEARNED D.R RELIED UPON THE FOLLOWING CASE LAW TO C ONTEND THAT ONLY 90% OF THE GROSS INTEREST RECEIPTS HAVE TO BE EXCLUDED FRO M THE PROFITS OF BUSINESS. (A) CIT VS. K.RAVINDRAN NAIR (295 ITR 228 (SUPREME COURT)) (B) CIT VS. LAKSHMI MACHINE WORKS (290 ITR 667 (S. C)) (C) CIT VS. ASIAN STAR CO. (326 ITR 56 (BOM)) WITH REGARD TO THE VALUE OF EXPORT TURNOVER TO BE ADOPTED FOR THE PURPOSE OF COMPUTATION OF DEDUCTION, THE LEARNED D.R STATED THAT THE NET SALES REALIZATION SHOULD BE TAKEN AS REALIZATION NET OF C OMMISSION EXPENSES. 6. ON THE OTHER HAND, THE LEARNED AUTHORISED RE PRESENTATIVE SUBMITTED THAT THE LEGAL RIGHT TO RECEIVE THE COMMISSION SHAL L ARISE TO THE AGENT ONLY ON FULFILLMENT OF ALL THE CONDITIONS SPECIFIED IN C LAUSE 5 OF THE AGREEMENT, VIZ., FINAL RECEIPT OF SALE PROCEEDS ETC. IN THE I NSTANT CASE, THE SALE PROCEEDS HAVE BEEN RECEIVED BY THE ASSESSEE ONLY DU RING THE YEAR UNDER CONSIDERATION, EVEN THOUGH THE GOODS WERE EXPORTED IN THE IMMEDIATELY PRECEDING YEAR. HENCE THE LIABILITY TO PAY THE COM MISSION HAS ARISEN ONLY DURING THE YEAR UNDER CONSIDERATION. IN THIS REGAR D, THE LEARNED A.R DREW SUPPORT FROM THE ACCOUNTING STANDARD 9 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND CONTENDED THAT TH E INCOME CANNOT BE TAKEN AS ACCRUED UNTIL THE LEGAL RIGHT TO RECEIVE T HE SAME ARISES. WITH REGARD TO THE DEDUCTION UNDER SECTION 80HHC, THE LE ARNED A.R SUPPORTED THE ORDER OF THE LEARNED CIT(A). ITA NOS 205 AND 274 OF 2010 REHMANKHAN TOBACCO PVT LTD GUNTUR PAGE 6 OF 11 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. THE FIRST ISSUE IN THE APPEAL OF THE REVENUE RELATE S TO THE DETERMINATION OF THE YEAR IN WHICH THE LIABILITY TO PAY THE COMMISSI ON HAS ARISEN. IN THIS REGARD, WE HAVE ALREADY NOTICED THAT THE ASSESSEE I S LIABLE TO PAY COMMISSION TO M/S ATDC USA LLC ON THE GOODS EXPORTE D BY THE ASSESSEE TO TURKEY, AS PER THE AGREEMENT DATED NIL ENTERED BE TWEEN THE ASSESSEE COMPANY AND M/S ATDC USA LLC. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE GOODS WERE EXPORTED BY THE ASSESSEE C OMPANY TO TURKEY IN THE MONTH OF MARCH 2002. 7.1 THE ASSESSEE AS WELL AS THE LEARNED CIT(A) HAS PLACED RELIANCE ON CLAUSE 5 OF THE AGREEMENT CITED ABOVE, ACCORDING TO WHICH THE COMMISSION OF 4% ON FOB VALUE WILL BE PAID BY THE ASSESSEE AFT ER THE RECEIPT OF ALL THE FUNDS PERTAINING TO THE TOBACCO EXPORTED BY IT. WE NOTICE THAT THE LEARNED CIT(A) AS WELL AS THE ASSESSEE HAS ANALYSED THE ISS UE FROM THE POINT OF VIEW OF THE RECIPIENT OF THE COMMISSION, WHICH IS D ISCERNIBLE FROM THE FOLLOWING OBSERVATIONS OF LEARNED CIT(A): 5.5 THE IMPORTANT POINT TO CONSIDER HERE IS WITH R EGARD TO WHEN THE COMPANY RECEIVING THE COMMISSION ACQUIRES THE RIGHT TO RECEIVE IT. IN THIS CASE, THE AGREEMENT CL EARLY STIPULATES THAT THE RIGHT ARISES ONLY AFTER THE LAS T REMITTANCES FROM THE SHIPPED TOBACCO IS RECEIVED. THEREFORE TH E LIABILITY ARISES ONLY AFTER THE RECEIPT OF THE LAST REMITTANC E. THE LIABILITY FOR PAYMENT OF COMMISSION ARISING ONLY AF TER THIS, IT IS ALLOWABLE IN THE YEAR UNDER APPEAL. THE ASSESSEE IS ALSO PLACING RELIANCE ON ACCOUNTIN G STANDARD-9 RELATING TO REVENUE RECOGNITION. 7.2 HOWEVER, IN THE INSTANT CASE, IT IS THE ASS ESSEES RESPONSIBILITY TO PAY THE COMMISSION ON THE EXPORT SALES. THUS IT IS EXP ENDITURE TO THE ASSESSEE. THE ACCOUNTING OF EXPENDITURE DEPENDS UPON THE METH OD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. IN THIS CASE, THE ASSESSE E IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING, ACCORDING TO WHICH ALL KNOWN EXPENSES OR ITA NOS 205 AND 274 OF 2010 REHMANKHAN TOBACCO PVT LTD GUNTUR PAGE 7 OF 11 LOSSES HAVE TO BE PROVIDED FOR WHILE FINALIZING THE ACCOUNTS. NOW THE QUESTION IS WHETHER THE LIABILITY TO PAY THE IMPUGN ED COMMISSION WAS KNOWN TO THE ASSESSEE AT THE TIME THE EXPORT SALES WAS COMPLETED?. WE NOTICE THAT THE ASSESSEE HAS CARRIED OUT THE EXPORT IN PURSUANCE OF A CONTRACT ENTERED WITH THE PURCHASER. THE COPY OF S AID CONTRACT IS PLACED IN THE PAPER BOOK COMPILED BY THE ASSESSEE. WE NOTICE THAT THE NAME OF THE AGENT IS SPECIFIED IN THAT CONTRACT ITSELF. THERE AFTER THE ASSESSEE HAS ENTERED INTO A SEPARATE AGREEMENT WITH THE AGENT FO R PAYMENT OF COMMISSION OF 4% OF THE FOB VALUE OF EXPORT. HENCE IT CANNOT BE DENIED THAT THE ASSESSEE WAS WELL AWARE OF ITS LIABILITY T O PAY THE COMMISSION EVEN PRIOR TO THE ACTUAL EXPORT OF GOODS. THE ASSESSEE AS WELL AS THE LEARNED CIT(A) HAS CONSIDERED ONLY CLAUSE NO.5 OF THE AGREE MENT ENTERED BETWEEN THE ASSESSEE AND THE AGENT. HOWEVER, IN OUR VIEW, THE CLAUSE NO.4 AND CLAUSE NO.5 OF THE AGREEMENT ENTERED HAVE TO READ T OGETHER IN ORDER TO RESOLVE THIS ISSUE. BOTH THE CLAUSES ARE EXTRACTED BELOW: 4. THE FIRST PARTY AGREE TO PAY 4% COMMISSION ON F .O.B VALUE TO THE SECOND PARTY FOR ALL THE ORDERS THE FI RST PARTY ENTERS WITH SEBA FOREIGN TRADE INC. TURKEY FROM 01 JANUARY 2002 TO 31 DECEMBER 2002. 5. THE COMMISSION OF 4% ON F.O.B WILL BE PAID BY T HE FIRST PARTY ONLY AFTER SHIPMENT AND THE RECEIPT OF ALL TH E FUNDS FROM THE SHIPPED TOBACCO. THE COMMISSION WILL BE PAID I N THE CURRENCY IN WHICH THE LETTER OF CREDIT IS OPENED. ON A COMBINED READING OF BOTH THE CLAUSES, ONE CAN UNDERSTAND THAT THE ASSESSEE COMPANY IS LIABLE TO PAY COMMISSION @ 4% O F FOB ON ALL THE EXPORTS MADE TO SEBA FOREIGN TRADE INC. DURING THE P ERIOD FROM 01-01- 2002 TO 31-12-2002 AND THE SAME SHALL BE PAID ONLY AFTER THE REALIZATION OF EXPORT BILLS. THUS CLAUSE NO.4 SPECIFIES THE LIABIL ITY TO PAY COMMISSION AND THE CLAUSE NO.5 SPECIFIES THE ACTUAL TIME PERIOD FO R PAYMENT OF COMMISSION. ACCORDINGLY, IN OUR VIEW, THE LIABILITY TO PAY THE COMMISSION HAS ARISEN IN THE YEAR OF EXPORT, I.E. IN THE F.Y 2001-02 ITSELF. ITA NOS 205 AND 274 OF 2010 REHMANKHAN TOBACCO PVT LTD GUNTUR PAGE 8 OF 11 7.3 IN THIS REGARD, SINCE THE IMPUGNED COMMISSI ON PAYMENT IS AN EXPENDITURE TO THE ASSESSEE, IN OUR VIEW, THE ASSES SEE CANNOT TAKE SUPPORT OF ACCOUNTING STANDARD 9 RELATING TO THE REVENUE RE COGNITION. THE IMPUGNED COMMISSION AMOUNT IS AN INCOME IN THE HANDS OF THE AGENT AND THE METHOD OF ACCOUNTING FOLLOWED BY THE AGENT IS NOT RELEVANT , IN SO FAR AS THE ASSESSEES ACCOUNTING IS CONCERNED. THE ASSESSEE HAS TO FOLLOW ITS OWN METHOD OF ACCOUNTING TO ACCOUNT FOR THE INCOME AND EXPENDITURE. AS STATED EARLIER, THE ASSESSEE HAS TO ACCOUNT FOR/PRO VIDE FOR ALL KNOWN EXPENSES AND LOSSES AND ACCORDINGLY THE COMMISSION PAYABLE ON THE GOODS EXPORTED IN MARCH 2002 WAS KNOWN TO THE ASSESSEE CO MPANY ON THE DATE OF EXPORT. HENCE, IN OUR VIEW, THE LEARNED CIT(A) IS NOT CORRECT IN HOLDING THAT THE LIABILITY TO PAY THE COMMISSION HAS CRYSTA LLIZED IN THE F.Y 2002-03, I.E. DURING THE YEAR UNDER CONSIDERATION. THE ASSE SSEE HAS RELIED UPON HOST OF DECISIONS, BUT IN OUR VIEW, THE SAID DECISIONS H AVE BEEN RENDERED IN DIFFERENT SET OF FACTS AND THEY ARE NOT APPLICABLE TO THE FACTS OF THE CASE UNDER CONSIDERATION. ACCORDINGLY WE REVERSE THE ORD ER OF LEARNED CIT(A) ON THIS POINT. 8. THE NEXT CONTENTION OF THE REVENUE IS THAT T HE ASSESSEE HAS PAID THE COMMISSION ON THE BASIS OF A VOID AGREEMENT. THIS CONTENTION OF THE REVENUE APPEARS TO BE TOO TECHNICAL. WHEN THERE IS NO DISPUTE WITH REGARD TO THE PAYMENT OF COMMISSION, IN OUR VIEW, THE UNDE RLYING AGREEMENT LOOSES ITS SIGNIFICANCE. ACCORDINGLY WE REJECT THI S GROUND OF REVENUE. 9. THE NEXT ISSUE IN THE APPEAL OF THE REVENUE RELATES TO THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. ACCOR DING TO THE ASSESSING OFFICER, 90% OF THE GROSS INTEREST RECEIPTS HAVE TO BE EXCLUDED FROM THE PROFITS OF BUSINESS. HOWEVER, THE LEARNED CIT(A) HAS FOLLOWED THE DECISION OF THE VISAKHAPATNAM BENCH OF THE TRIBUNAL CITED ABOVE, IN HOLDING THAT 90% OF THE NET INTEREST RECEIPTS HAVE TO BE EX CLUDED. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON THIS POINT. TH E LEARNED D.R PLACED ITA NOS 205 AND 274 OF 2010 REHMANKHAN TOBACCO PVT LTD GUNTUR PAGE 9 OF 11 RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT I N THE CASES K.RAVINDRAN NAIR, (SUPRA) AND LAKSHMI MACHINE WORKS, (SUPRA). WE HAVE GONE THROUGH THE SAID CASE LAWS AND IN OUR VIEW; THEY ARE NOT AP PLICABLE TO THE ISSUE UNDER CONSIDERATION. THE DECISION OF HON'BLE BOMBA Y HIGH COURT IN THE CASE OF M/S ASIAN STAR COMPANY IS DIRECTLY ON THE P OINT UNDER CONSIDERATION. HOWEVER, SINCE THIS BENCH OF TRIBUNAL HAS ALREADY T AKEN A PARTICULAR VIEW ON THIS POINT, IN ORDER TO MAINTAIN CONSISTENCY, WE HO LD THAT ONLY 90% OF THE NET INTEREST RECEIPTS HAVE TO BE EXCLUDED FROM THE PROFITS OF BUSINESS, PROVIDED THE ASSESSEE IS ABLE TO ESTABLISH THE NEXU S BETWEEN THE INTEREST PAYMENTS AND THE INTEREST RECEIPTS. WE NOTICE THAT THE ISSUE OF NEXUS WAS NOT CONSIDERED BY THE LEARNED CIT(A). ACCORDINGLY, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR CONSIDERATION OF THE SAME AFRESH IN THE LIGHT OF PRINCIPLES DISCUSSED ABOVE. ACCORDINGLY T HE ORDER OF LEARNED CIT(A) STANDS MODIFIED. 10. THE NEXT ISSUE CONTESTED BY THE REVENUE REL ATES TO THE DEDUCTION OF COMMISSION PAYMENT FROM THE EXPORT TURNOVER FOR T HE PURPOSES OF CALCULATING THE DEDUCTION UNDER SECTION 80HHC OF TH E ACT. THE MAIN FACT, WHICH WAS NOT CONSIDERED BY THE ASSESSING OFFICER I N THIS REGARD, IS THAT THE ASSESSEE HAS RECEIVED THE ENTIRE SALE PROCEEDS IN F OREIGN EXCHANGE AND THE IMPUGNED COMMISSION PAYMENT HAS BEEN MADE SEPARATEL Y. THE TERM EXPORT TURNOVER HAS BEEN DEFINED IN THE SECTION I TSELF AND AS HELD BY THE LEARNED CIT(A), THE MEANING OF THE TERM EXPORT TUR NOVER HAS TO BE UNDERSTOOD IN TERMS OF THE SAID DEFINITION. FOR TH E SAKE OF CONVENIENCE, WE EXTRACT BELOW THE DEFINITION OF EXPORT TURNOVER D EFINED IN SEC. 80HHC OF THE ACT. EXPORT TURNOVER MEANS THE SALE PROCEEDS, RECEIVE D IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE IN ACCORDANCE WITH CLAUSE (A) OF SUB-SECTION (2) OF ANY GOODS OR MERCHANDISE TO WHICH THIS SECTION APPLIES AND WHICH ARE EXPORTED OUT OF INDIA, BUT DOES NOT INCLUDE FREIGHT OR INSURANCE ATTRIBUTABLE TO THE TR ANSPORT OF THE GOODS OR MERCHANDISE BEYOND THE CUSTOM STATION AS DEFINED IN THE CUSTOMS ACT, 1962 (52 OF 1962). ITA NOS 205 AND 274 OF 2010 REHMANKHAN TOBACCO PVT LTD GUNTUR PAGE 10 OF 11 ACCORDING TO THE ABOVE DEFINITION, ONLY THE FREIGHT OR INSURANCE ATTRIBUTABLE TO THE TRANSPORT OF GOODS OR MERCHANDISE BEYOND THE CUSTOM STATION HAVE TO BE EXCLUDED FROM THE SALE PROCEEDS RECEIVED OR B ROUGHT INTO INDIA IN CONVERTIBLE FOREIGN EXCHANGE. BY GIVING STRICT INT ERPRETATION OF THE DEFINITION OF EXPORT TURNOVER, WE HOLD THAT THE LEARNED CIT( A) WAS RIGHT IN LAW IN HOLDING THAT THE COMMISSION PAYMENT NEED NOT BE DED UCTED FROM THE EXPORT TURNOVER FOR THE PURPOSES OF CALCULATION O F DEDUCTION UNDER SECTION 80HHC OF THE ACT. 11. NOW WE SHALL TAKE UP THE APPEAL OF THE ASSE SSEE. THE ONLY ISSUE URGED IS WHETHER THE IMPUGNED COMMISSION PAYMENT IS DISALLOWABLE UNDER SECTION 40(A)(IA) OF THE ACT. AS STATED EARLIER, TH E LEARNED CIT(A) HAS FOLLOWED THE DECISION OF HON'BLE KARNATAKA HIGH COU RT IN THE CASE OF SAMSUNG ELECTRONICS, (SUPRA) AND THE DECISION OF HO N'BLE SUPREME COURT IN THE CASE OF TRANSMISSION CORPORATION OF INDIA, (SUP RA) IN ARRIVING AT THE DECISION AGAINST THE ASSESSEE. HOWEVER, THE DECISI ON OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS HAS S INCE BEEN REVERSED BY THE APEX COURT IN THE CASE OF G.E INDIA TECHNOLOGY C ENTRE P. LTD VS. CIT (2010)(327 ITR 456). HENCE, IN OUR VIEW, THE ISSU E REQUIRES EXAMINATION AFRESH IN THE CONTEXT OF THE DECISION OF HON'BLE AP EX COURT IN THE CASE OF G.E INDIA TECHNOLOGY CENTRE P LTD. REFERRED (SUPRA). ACCORDINGLY WE SET ASIDE THE ORDER OF LEARNED CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO C ONSIDER THE ISSUE AFRESH IN THE LIGHT OF THE DECISION OF HON'BLE APEX COURT REF ERRED (SUPRA). THE ASSESSEES RELIANCE IN THIS CONNECTION, ON CIRCULAR NO.786 DATED 07.02.2000 ISSUED BY THE CBDT HAS BEEN REJECTED BY THE LEARNED CIT(A) IN VIEW OF THE SUBSEQUENT CIRCULAR NO.7/2009 DATED 22.10.2009 ISSU ED BY THE CBDT. HOWEVER, THE ASSESSEE HAS RELIED UPON FOLLOWING DEC ISIONS TO CONTEND THAT THE SUBSEQUENT CIRCULAR SHOULD OPERATE ONLY PROSPEC TIVELY. ITA NOS 205 AND 274 OF 2010 REHMANKHAN TOBACCO PVT LTD GUNTUR PAGE 11 OF 11 (A) CIT VS. N.T.RAMARAO (HUF) (163 ITR 453(A.P)) (B) DY. CIT VS. SANJIV GUPTA (2011) (135 TTJ (LUCK NOW) 641). SINCE WE HAVE SET ASIDE THE ISSUE TO THE FILE OF TH E ASSESSING OFFICER, THE ASSESSING OFFICER IS DIRECTED TO CONSIDER THE PRESE NT CONTENTION OF THE ASSESSEE WITH REGARD TO THE APPLICABILITY OF CIRCUL AR NO.786 DATED 07.2.2000 TO THE FACTS OF THE INSTANT CASE WHILE ADJUDICATING THE ISSUE. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TRE ATED AS ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 25 TH MAY, 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE:25-05-2011 COPY TO 1 M/S RAHAMANKHAN TOBACCO ENTERPRISES PRIVATE LIMIT ED, C/O K. TIRUMALA RAO, CHARTERED ACCOUNTANT D.NO.5-25-107, 3 /1 BRODIEPET, GUNTUR 522002 2 THE ACIT, CIRCLE-2(1) LAKSHMIPURAM, GUNTUR 522 00 2 3 4. THE CIT GUNTUR THE CIT(A), GUNTUR 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM