M/s. J.B. Exports, Surat V. The ACIT., Circle-6, Surat

ITA 3206/AHD/2007

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6705 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 28-12-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 30-07-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SR MALIK
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business income; Diversion of income; Third party statement
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI D.C. AGRAWAL, ACCOUNTANT MEMBER DATE OF HEARING : 25/03/2011 DRAFTED ON: 05 /04/2011 ITA NO.3206/AHD/2007 ASSESSMENT YEAR : 2004-05 M/S.J.B. EXPORTS PLOT NO.270 BINDAL HOUSE KADODARA ROAD KUMBHARIA, SURAT VS. ADDL.CIT RANGE-6 SURAT PAN/GIR NO. : AABIJ 9320 M ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI S.N.SOPARKAR, A.R. RESPONDENT BY: SHRI S.R. MALIK, CIT-DR O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE W HICH HAS EMANATED FROM THE ORDER OF THE LEARNED CIT(APPEALS) -IV, SURAT DATED 24/05/2007 PASSED FOR ASSESSMENT YEAR 2004-05. 2. GROUND NOS.1 & 2 READ AS UNDER:- 1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED CIT- (A) HAS ERRED IN SUSTAINING THE ADDITION MADE BY TH E LEARNED ADDL.COMMISSIONER OF INCOME TAX (ADD.CIT) OF RS.9,86,96,411/- ON ACCOUNT OF ALLEGED SUPPRESSION OF SALES . 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED CIT-(A) HAS ERRED IN SUSTAINING THE STAND OF THE LE ARNED ADDL. CIT IN REJECTING THE BOOKS OF ACCOUNTS OF THE APPEL LANT U/S.145(3) OF THE ACT, WITHOUT HAVING FOUND ANY MIS TAKE THEREIN. ITA NO.3206/AHD /2007 M/S. J.B. EXPORTS VS. ADDL.CIT-SURAT ASST.YEAR -2004-05 - 2 - 2.1. FACTS IN BRIEF AS EMERGED FROM THE CORRESPOND ING ASSESSMENT ORDER PASSED U/S.143(3) DATED 29/12/2006 WERE THAT THE ASSESSEE IS IN THE BUSINESS OF EXPORT OF TEXTILE ITEMS. IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS SUPPRESSED THE SALE PROCEEDS BY AN AMOUNT OF RS.9,86,96,411/- IN THE NAME OF PAYMENT OF COMMISSION TO FOREIGN PARTY. AS PER AO, THE ASSESSEE HAS NOT EXPLAINED THE DETAILS OF THE FOREIGN PARTY AND THE REASON WHY THE SAID COMMISSION WAS PAID. THE ALLEGATION OF THE AO WAS THAT THE AS SESSEE HAS REDUCED THE SALE PRICE BY THE ALLEGED AMOUNT OF CO MMISSION AT THE RATE OF 10% TO 12.5%. UNDISPUTEDLY THE ASSESSEE HA S RECORDED THE NET VALUE OF SALE PROCEEDS. THE SALE PROCEEDS SHOW N AS PER BOOKS OF ACCOUNT WERE AMOUNTING TO RS.73,72,01,551/-. THE SALE PROCEEDS WERE STATED TO BE NETTED EXPORT TURNOVER AFTER RE DUCING THE AMOUNT OF COMMISSION. AFTER AN ELABORATE DISCUSSION AND I SSUANCE OF SHOW CAUSE NOTICE, THE AO HAS CONCLUDED THAT THE COMMISS ION WAS DEBITED IN THE EXPORT INVOICE NOTIONALLY AND THE CLAIM OF COMMISSION IN THE EXPORT INVOICE WAS FALSE . THE AO HAS ALSO MENTIONED THAT THE ACCOUNTS HAVE NOT BEEN WRITTEN AS PER THE ACCOUNTING PRINCIPLES . THE AO HAS COMMENTED THAT THE GUIDELINES ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANT HAS NOT BEEN FOLLOWED. THE TRADE DISCOUNT OR COMMISSION SHOULD N OT HAVE BEEN DEDUCTED FROM THE SALES DIRECTLY AND THE SAME WAS W RONGLY ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS BY THE ASSES SEE. IT HAS ALSO ITA NO.3206/AHD /2007 M/S. J.B. EXPORTS VS. ADDL.CIT-SURAT ASST.YEAR -2004-05 - 3 - BEEN POINTED OUT BY THE AO THAT DURING THE PROCEEDI NGS A BANK REALISATION CERTIFICATE WAS PRODUCED BY THE ASSESSE E, CERTIFYING THAT NO REMITTANCE OF COMMISSION FROM INDIA WAS EVER MAD E. HOWEVER, EXPLANATION OF THE ASSESSEE WAS THAT ONLY NET FOB V ALUE WAS RECEIVED. ONE MORE FACT WAS ALSO BROUGHT ON RECORD BY THE AO THAT THE ASSESSEE AVAILED EXTRA CREDIT OF DEBP ON THE TURNOV ER . AS PER AO, THE ASSESSEE HAD INTENTIONALLY DECLARED THE AMOUNT AS COMMISSION AND NOT AS A TRADE DISCOUNT IN THE GR FO RMS TO OBTAIN THE BENEFIT OF CREDIT OF DEPB. THE AO HAS CONCLU DED THAT THE IMPUGNED AMOUNT IS TO BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE BEING SUPPRESSION OF SALE BECAUSE WHILE CLAIMING TH E DEPB THE ASSESSEE HAD SHOWN GROSS SALE PROCEEDS AS EXPORT TU RNOVER. THE SAID ADDITION WAS CHALLENGED. 3. THE LD.CIT(A) EXAMINED THE FACTS OF THE CASE AT LENGTH AND AFFIRMED THE ACTION OF THE AO ASSIGNING FEW REASONS , DISCUSSED HEREINBELOW. 3.1 IT WAS COMMENTED THAT NO EXPLANATION WAS GIVEN BY THE ASSESSEE FOR THE BASIS ON WHICH THE COMMISSION WAS GRANTED. THE ASSESSEE HAS ALSO NOT FURNISHED THE NATURE OF SERVICES RENDERED FOR WHICH THE IMPUGNED COMMISSION WAS PAID. THE AS SESSEE HAS SUO MOTU DEDUCTED THE COMMISSION AMOUNT FROM THE SAID INVOI CES/BILLS. THE ASSESSEE HAS NOT DIRECTLY PAID THE COMMISSION A ND NO SUCH ITA NO.3206/AHD /2007 M/S. J.B. EXPORTS VS. ADDL.CIT-SURAT ASST.YEAR -2004-05 - 4 - EVIDENCE WAS PLACED. THERE WAS NO EVIDENCE THAT THE ASSESSEE HAS REMITTED THE PAYMENT FROM INDIA . EVEN THE ASSESSEE HAS NOT ESTABLISHED THAT THERE WAS DIVERSION OF INCOME BY O VERRIDING TITLE OF THE FOREIGN BUYER . THE ASSESSEE HAS NOT FOLLOWED THE CORRECT PRINCIPLE OF ACCOUNTING. THE ASSESSEE HAS VIOLATED THE GUIDELINES AS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANT. HE HAS ALSO MENTIONED THAT SECTION 44A & B PRESCRIBES THE WORDS TOTAL SALES AND GROSS RECEIPTS. IT WAS A VIOLATION OF LAW BY SHOWING SALES AT NET VALUE. THE LD.CIT(A) HAS ALSO GIVEN A FINDING THAT AS PER A DOCUMENT ARE-1, CERTIFIED BY CUSTOMS DEPART MENT THE AMOUNT WAS DESCRIBED AS GROSS VALUE PAYABLE ON THE GOODS FOR EXPORTS. AS PER THE ACCEPTED ACCOUNTING PRINCIPLES , COMMISSION CANNOT BE ALLOWED AND TO BE DEDUCTED DIRECTLY FROM THE SALES UNLESS AND UNTIL IT IS DULY PROVED THAT THE COMMISSION EXPENDITURE WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS . THE ASSESSEE HAS ALSO NOT CLAIMED THAT IT WAS A TRADE DISCOUNT B ECAUSE THE ASSESSEE WAS INTERESTED IN DEPB CREDIT. THE LD.CIT(A) HAS A LSO NOTED THAT THE IMPUGNED COMMISSION WAS NOT DIRECTLY PAID BY TH E ASSESSEE. WITH THESE OBSERVATIONS, HE HAS CONCLUDED THAT THE ASSESSEE HAS ADOPTED A COLOURABLE DEVICE TO REDUCE THE VALUE OF SALE PROCEEDS AND EVADED THE TAX. THE ACTION OF THE AO WAS CONFIRMED . 4. AT THE OUTSET, IT IS WORTH TO MENTION THAT FROM THE SIDE OF THE APPELLANT, THE VEHEMENT CONTENTIONS OF THE LD.AR MR .S.N.SOPARKAR ITA NO.3206/AHD /2007 M/S. J.B. EXPORTS VS. ADDL.CIT-SURAT ASST.YEAR -2004-05 - 5 - IS THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HO NBLE JURISDICTIONAL HIGH COURT . THOUGH IT WAS POINTED OUT IN THE BEGINNING OF THE HEARING BEFORE US BUT STILL WE THO UGHT IT PROPER NOT TO DECIDE THIS APPEAL SUMMARILY, HENCE, BARE MINIMU M FACTS NECESSARY TO UNDERSTAND THE FACTUAL AS ALSO THE LEG AL ISSUE HAS BEEN NARRATED IN THE FOREGOING PARAS. LD.AR HAS PLACE D RELIANCE ON THE FOLLOWING DECISIONS:- SL.NO(S) DECISION IN THE CASE OF IN ITA NO(S). 1. SHRI SAMIR A BATRA VS.ITO 4130/AHD/2007 A.Y. 2004-05 ITAT AHMEDABAD BENCH C ORDER DATED 12/12/2008 2. M/S.JHAWAR BIO TECH PVT.LTD. VS. DCIT 4364/AHD/2008 A.Y. 2005-06 ITAT AHMEDABAD BENCH D ORDER DATED 21/08/2009 3. CIT VS. ATMA PRAKASH BATRA TAX APPEAL NO.838 OF 2009, GUJARAT HIGH COURT ORDER DATED 21/12/2010 4. SHRI SANJAY JAIN VS. DCIT ITA NO.1533/AHD/2008 A.Y. 2004-05 5. ALL THESE DECISIONS HAVE BEEN DULY COMMUNICATED TO THE REVENUE DEPARTMENT AND THE CASE IS REPRESENTED BY T HE LD.CIT-DR MR. S.R.MALIK. HE HAS VEHEMENTLY CONTESTED THAT N EITHER THE ITA NO.3206/AHD /2007 M/S. J.B. EXPORTS VS. ADDL.CIT-SURAT ASST.YEAR -2004-05 - 6 - ASSESSEE HAS ESTABLISHED THE GENUINENESS OF THE PAYMENT OF COMMISSION NOR THE COMPANY HAS ESTABLISHED THAT IT WAS A BUSINESS NECESSITY AS ALSO WHOLLY AND EXCLUSIVELY MEANT FOR THE BUSINE SS PURPOSES. EVEN THE ASSESSEE HAS NOT PLACED ON RECO RD THE NAMES OF THE PARTIES TO WHOM THE COMMISSION WAS PAID. IT WAS ALSO NOT THE CASE OF THE ASSESSEE THAT TRADE DISCOUNT WAS GRANTED ON THE SALES. ON ONE HAND, THE ASSESSEE HAS TOOK THE BENEFIT OF D EPB CREDIT ON THE GROSS SALES, HOWEVER, ON THE OTHER HAND, ONLY N ET SALES WERE REFLECTED IN THE BOOKS OF ACCOUNT FOR THE INCOME-TA X PURPOSES. THE LD.CIT MR.MALIK HAS ALSO CONTESTED THAT THE DECISIO N OF ATMA PRAKASH BATRA AS DECIDED BY THE TRIBUNAL IS NOT APP LICABLE ON THE FACTS OF THE CASE PRIMARILY ON THE GROUND THAT IN T HE CASE OF THE SAID CITED DECISION THERE WAS A CLAIM OF DEDUCTION OF CO MMISSION, HOWEVER, IN THE PRESENT APPEAL THE APPELLANT HAS CATEGORICALLY DENIED THE PAYMENT OF COMMISSION. IN SUPPORT OF HIS ARGUMENT, OUR ATTENTION WAS DRAWN ON THE COMMENT OF THE AO ON PAGE-8 OF THE ASSESSMENT ORDER. IN ADDITION TO THESE ARGUMENTS, WHICH WERE ALSO DISCUSSED BY THE AO AND LD.CIT(A). AN ANOTHER ASPECT HAS ALSO BEEN TOUCHED BY MR.MALIK THAT EVEN THE ASSESSEES C ASE DO NOT FALL UNDER THE CATEGORY OF DIVERSION OF INCOME. THE DIVERSION OF INCOME CAN ONLY BE ACCEPTED IF THERE IS A LEGAL OB LIGATION BY VIRTUE OF OVERRIDING TITLE OR ANY SUCH LEGAL COMPULSION. HE HAS ARGUED THAT ONLY STATUTORY DIVERSION OF INCOME CAN BE ALLOWED B Y AN OVERRIDING TITLE. IF SUCH ERRATIC METHOD OF ACCOUNTING OF THE ASSESSEE IS ITA NO.3206/AHD /2007 M/S. J.B. EXPORTS VS. ADDL.CIT-SURAT ASST.YEAR -2004-05 - 7 - APPROVED NOW, THEN SECTION 37 WOULD BECOME REDUNDAN T, MR.MALIK HAS PLEADED. THE LD.DR HAS ALSO DRAWN OUR ATTENT ION ON A SHIPPING BILL DATED 16/06/2003, REFERENCE AT PAGE-10 OF THE COMPILATION TO DEMONSTRATE THAT THE INVOICE AMOUNT WHICH WAS DECLA RED TO CUSTOMS AUTHORITIES WAS THE GROSS AMOUNT WHICH HAS INCLUDED THE PAYMENT OF COMMISSION. EVEN THE SHIPPING INVOICES HAVE MEN TIONED THE GROSS VALUE OF THE AMOUNT. IT WAS THE FULL EXPORT VALUE WHICH WAS DECLARED BY THE ASSESSEE AND, THEREFORE, IT WAS EXPECTED TO RECEIVE THE ENTIRE AMOUNT AS MENTIONED IN THE INVOICE AMOUN T. BUT IT WAS VERY STRANGE THAT ONLY NET AMOUNT WAS CREDITED IN T HE BOOKS OF ACCOUNT AND THE ALLEGED COMMISSION WAS ALLEGED AS N OT RECEIVABLE BY VIRTUE OF OVERRIDING TITLE. A QUESTION WAS RAIS ED THAT HOW THE ASSESSEE HAS CLAIMED DEPB ON THE AMOUNT WHICH WAS N OT RECEIVED AND TREATED AS IT WAS A DIVERSION OF INCOME BY OVER RIDING TITLE? HE HAS ALSO ADVANCED AN ARGUMENT THAT FOR ALL THE BENE FITS THE ASSESSEE HAS TAKEN TOTAL EXPORT TURNOVER AND THAT TURNOVER W AS INCLUSIVE OF THE IMPUGNED COMMISSION, BUT FOR PAYMENT OF INCOME TAX ONLY NET AMOUNT OF SALES WERE REFLECTED. HE HAS CITED A D ECISION OF ITAT CALCUTTA BENCH IN THE CASE OF MCLEORD RUSSEL (INDIA ) LTD. VS. DY.CIT REPORTED AT (2001) 73 TTJ 349 (CAL.), WH EREIN IT WAS HELD THAT THE EXPRESSION EXPORT TURNOVER INCLUDE THE EXPENDITURE INCURRED ON THE COMMISSION AND BROKERAGE. HE HAS EMPHASIZED THAT THERE WAS NO PROPER AGREEMENT TO DEMONSTRATE THAT T HERE WAS A OVERRIDING TITLE OF THE SAID PARTY. IN HIS OPINION , THERE WAS NO ITA NO.3206/AHD /2007 M/S. J.B. EXPORTS VS. ADDL.CIT-SURAT ASST.YEAR -2004-05 - 8 - DIVERSION OF INCOME BY A STATUTORY OVERRIDING TITLE AND IN SUPPORT OF THIS LEGAL PROPOSITION HE HAS CITED FOLLOWING DECIS IONS:- (I) CIT VS. SUNIL J. KINARIWALA [126 TAXMAN 161 (SC )] (II) BIPINBHAI VADILAL VS. CIT & VICE VERSA B.J. DI VAN, CJ AND B.K. MEHTA, J [5 TAXMAN 51 (GUJ.)](HIGH COURT) (III) CIT VS. SITALDAS TRIATHDAS [41 ITR 367 (SC)] (IV) VIBHUTI GLASS WORKS VS. CIT [44 TAXMAN 182 (SC)] (V) CIT GUJARAT, AHMEDABAD VS. MEHSANA DIST. CO- OP.MILK PRODUCERS UNION LTD. [176 TAXMAN 416 (GUJ.)] (HC) (VI) ASSOCIATED POWER CO.LTD. VS. CIT [84 TAXMAN 355 (SC)] 6. AFTER HEARING THE PLEADINGS OF BOTH THE SIDES, P RESENTLY THE POSITION IS THAT THE CONTENTIONS OF THE REVENUE HAV E DULY BEEN CONSIDERED AND DEALT WITH BY THE HONBLE JURISDICTI ONAL HIGH COURT IN THE CASE OF ATMA PRAKASH BATRA IN TAX APPEAL NO.838 OF 2009 DATED 21/12/2010, WHEREIN THE FACTS WERE DISCUSSED VIDE PARA-13 OF THE JUDGEMENT; REPRODUCED BELOW:- 13. IN RELATION TO PROPOSED QUESTION NO.2, WHICH RELATES TO DELETION OF DISALLOWANCE OF CLAIM OF EXPORT COMMISS ION IN THE SUM OF RS.3,83,37,678/-, DURING THE ASSESSMENT PROC EEDINGS, FROM THE COPIES OF THE INVOICES FILED BY THE ASSESS EE, THE ASSESSING OFFICER FOUND THAT IN EXPORT SALE INVOICE S, THERE WAS A DEDUCTION UNDER THE HEAD COMMISSION OF 11.5% OR 12% AND AFTER DEDUCTING THE SAID AMOUNT, NET FIGURE OF SALE WAS ITA NO.3206/AHD /2007 M/S. J.B. EXPORTS VS. ADDL.CIT-SURAT ASST.YEAR -2004-05 - 9 - WORKED OUT. THE TOTAL AMOUNT OF NET SALES WAS RS.28,74,85,387/, BUT AS PER ACCOUNTING STANDARDS, THE AMOUNT OF EXPORT COMMISSION SHOULD HAVE BEEN REFLECTED ON THE CREDIT SIDE BY SHOWING GROSS SALES MINUS COMMISSION AND TH E NET SALES WOULD BE IN AS OUTER COLUMN ON THE CREDIT SID E OF THE MANUFACTURING ACCOUNT. THE ASSESSEE ALSO DID NOT FURNISH ANY AGREEMENT FOR PAYMENT SUCH COMMISSION NOR DID I T FILE ANY PROOF OF SUCH REMITTANCE ROUTED THROUGH THE RES ERVE BANK OF INDIA (RBI). THE FOREIGN AGENTS COMMISSION WAS ALLOWABLE UPTO 12% UNDER THE CENTRAL EXCISE & CUSTO MS RULES, WHILE GIVING DEPB BENEFIT, BUT THE SAME WAS REQUIRED TO BE PROVED BEYOND DOUBT AS REQUIRED BY THE RBI GU IDELINES. FURTHER THE ASSESSEE RECEIVED PAYMENT FROM FOREIGN BUYERS AFTER SIX MONTHS AND THE ASSESSEE COULD NOT TAKE TH E PLEA THAT THE FOREIGN AGENTS RECEIVED PAYMENT OF COMMISSION D IRECTLY FROM THE BUYER, SINCE UNLESS THERE WAS A DUE FOR MA KING PAYMENT FOR PURCHASE, NO AMOUNT OF COMMISSION WOULD BECOME PAYABLE AND NO ONE WOULD PAY SUCH COMMISSION IN ADVANCE. THE ASSESSING OFFICER FURTHER OBSERVED TH AT NAMES AND ADDRESSES OF FOREIGN AGENTS DID NOT CONFIRM THE ACTUAL PAYMENT AND THEREFORE, DISALLOWED THE CLAIM OF COMM ISSION. 6.1. THE HONBLE COURT HAS ALSO DISCUSSED THE FINDINGS OF TH E TRIBUNAL IN THE FOLLOWING MANNER:- 20. THE TRIBUNAL AFTER CONSIDERING THE RIVAL SUBMI SSIONS AND AFTER APPRECIATING THE EVIDENCE ON RECORD FOUND THAT THE RECEIPT OF COMMISSION AMOUNT HAD BEEN DULY CONFIRME D BY THE AGENTS WHICH IN TURN MEANT THAT THE AMOUNT WHICH HA D BEEN DEDUCTED FROM THE INVOICE VALUE ACTUALLY REPRESENTE D 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 S ELLER, EVEN THOUGH THERE WAS NO FORMAL AGREEMENT. THE AGE NTS HAD ITA NO.3206/AHD /2007 M/S. J.B. EXPORTS VS. ADDL.CIT-SURAT ASST.YEAR -2004-05 - 10 - UNEQUIVOCALLY CONFIRMED AND RECONFIRMED THE NATURE OF THE TRANSACTIONS AND THAT THE ABSENCE OF ANY FORMAL AGR EEMENT COULD NOT BE HELD TO BE A GROUND TO DISMISS THE CLA IM OF THE ASSESSEE. THERE WERE CLEAR CONTRA CONFIRMATIONS FR OM THE AGENTS. THUS, ONCE THE GENUINENESS OF THE COMMISSI ON AS WELL AS ITS JUSTIFICATION OF HAVING BEEN WHOLLY AND EXCL USIVELY INCURRED FOR THE PURPOSE OF ASSESSEES BUSINESS WAS ESTABLISHED, THE SAME BECOMES ADMISSIBLE AS DEDUCTI ON UNDER SECTION 37(1) OF THE ACT. THE TRIBUNAL WAS OF THE VIEW THAT IT COULD NOT BE HELD THAT THE GROSS INVOICE AMOUNTS WE RE WHAT HAD ACCRUED TO THE ASSESSEE, AND THAT THESE WERE TH E AMOUNTS ON WHICH THE ASSESSEE SHOULD HAVE BEEN ASSESSED. A CCORDING TO THE TRIBUNAL, THE OUTGOING COMMISSION FROM THE I NVOICE VALUES WOULD HAVE TO BE REDUCED FROM THE GROSS AMOU NTS, AND THE NET AMOUNT WHICH WAS THE ACTUAL SUM RECEIVED BY 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. THE TRIBUNAL FURTHER FOUND THAT THE COMMISSION WAS NOT DEDUCTED FROM THE EXPORT INVOICES IN AN AD HOC MANNER AND IT WAS CLEA RLY UNDER AN AGREEMENT BETWEEN THE BUYER AND THE SELLER, AS A LSO BETWEEN THE BUYER AND THE AGENT. CONSEQUENTLY, THE ASSESSEE WAS UNDER AN OBLIGATION TO DEDUCT COMMISSION FROM T HE GROSS INVOICE VALUE. IN THE PRESENT CASE, THERE WAS A CO MPULSION TO DEDUCT THE COMMISSION FROM THE EXPORT INVOICES WHIC H 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 F OUND THAT IN THE PRESENT CASE, THE GROSS EXPORT PROCEEDS NEVER R EACHED THE ASSESSEE, NO SUCH INCOME HAD THEREFORE ACCRUED TO T HE ASSESSEE AND THIS WAS BECAUSE OF AN OBLIGATION OR C OMPULSION TO DEDUCT THE COMMISSION FROM THE EXPORT INVOICES W HICH CLEARLY SHOWED THIS TO BE A CASE OF DIVERSION OF IN COME BY OVERRIDING TITLE. THE AMOUNTS DEDUCTED FROM THE EX PORT INVOICES WERE THUS CLEARLY ALLOWABLE AS DEDUCTION. ITA NO.3206/AHD /2007 M/S. J.B. EXPORTS VS. ADDL.CIT-SURAT ASST.YEAR -2004-05 - 11 - 6.2. THE HONBLE COURT HAS, THEREAFTER, PRONOUNCED THE JUDGMENT VIDE PARA-21 AND ALLOWED THE APPEAL IN FAVOUR OF T HE ASSESSEE; REPRODUCED BELOW:- 21. AS REGARDS THE FINDINGS OF THE LOWER AUTHORI TIES THAT THE CONFIRMATIONS ISSUED BY THE PARTIES WERE ON PLAIN P APER, THE TRIBUNAL AFTER APPRECIATING THE EVIDENCE ON RECORD HAS FOUND THAT EXCEPT ONE PARTY, NAMELY, MOHMED ABDULLA OF DU BAI, ALL OTHER COMMUNICATIONS WERE ON LETTER HEADS OF THE RE SPECTIVE PARTIES. IT WAS FURTHER FOUND THAT NONE OF THE PAY MENTS HAD COME BEYOND SIX MONTHS, BUT THE SAME WERE WITHIN SI X MONTHS AS COULD BE VERIFIABLE FROM BANK REALIZATION CERTIF ICATES ENCLOSED ANNEXED IN THE PAPER BOOK. THE TRIBUNAL R ECORDED THAT EACH OF THE TRANSACTIONS BETWEEN THE ASSESSEE AS T HE SELLER AND THE TWO BUYERS WERE MEDIATED BY AGENTS, WHOSE EXISTENCE3 WAS ESTABLISHED BEYOND DOUBT, BY THE CONFIRMATION LETTERS. SECONDLY, THERE WAS TENDERING OF SERVICES . THE AGENTS HAD CLEARLY WRITTEN THAT THEY HAD RENDERED SERVICES ; IN PROCURING SAMPLES, DECIDING THE ORDERS AND SETTLING ALL MATTERS BETWEEN THE BUYERS AND SELLER INCLUDING PAY MENTS BY THE BUYERS TO THE SELLER. THE EXISTENCE OF THE AGE NTS AND THEIR FUNCTIONING WAS FOR THE BENEFIT OF THE ASSESSEE AS WELL. THE TRIBUNAL, ACCORDINGLY, WAS OF THE VIEW THAT THE CLA IM OF THE ASSESSEE TOWARDS COMMISSION PAYMENT DESERVES TO BE ALLOWED. 7. OUR ATTENTION HAS ALSO BEEN DRAWN ON THE JUDGEME NT OF RESPECTED CO-ORDINATE BENCH A AHMEDABAD PRONOUNCE D IN THE ITA NO.3206/AHD /2007 M/S. J.B. EXPORTS VS. ADDL.CIT-SURAT ASST.YEAR -2004-05 - 12 - CASE OF SHRI SANJAY JAIN BEARING ITA NO.1533/AHD/2008 FOR AY 2004-05 ORDER DATED 16/12/2009, WHEREIN FACTS WERE THAT THE ASSESSEE HAD ACCOUNTED THE EXPORT SALES TURNOVER AT THE NET FIGURE BUT ALSO CLAIMED DEPB BENEFIT ON THE GROSS AMOUNT OF TU RNOVER. THE EXPLANATION OF THE ASSESSEE IN THAT DECISION WAS AL SO IN THE LIKE MANNER THAT DISCOUNT WAS GIVEN TO FOREIGN BUYER BY WAY OF COMMISSION BY DIRECTLY REDUCING FROM THE SALE INVOI CE. IT WAS CLAIMED THAT THE SAID METHOD WAS ADOPTED IN THE LIG HT OF THE REGULATIONS OF THE RBI. IT WAS PLEADED THAT THE EXPORT & IMPORT POLICY AND THE RBI REGULATIONS APPROVED THIS METHOD . IN THAT CASE, THE TRIBUNAL HAS GIVEN A FINDING THAT THERE WAS NO DISPUTE REGARDING THE FACT THAT THE ASSESSEE HAS GIVEN COMMISSION/DIS COUNT IN THE EXPORT INVOICES ITSELF IN FAVOUR OF THE FOREIGN BUY ER. THERE WAS A CONFIRMATION FROM THE SIDE OF THE FOREIGN BUYER THA T THE SAID DISCOUNT WOULD BE DISTRIBUTED BY HIM TO THE INTENDI NG AGENTS ABROAD. AN ANOTHER FACT HAS ALSO BEEN ACKNOWLEDGED THAT THE ASSESSEE HAS RECEIVED ONLY THE NET AMOUNT AS THE EXPORT PROCEEDS BY WAY OF CONVERTIBLE FOREIGN EXCHANGE. THE TRIBUNAL BENCH H AS ALSO EXPRESSED THAT WHEN THE INCOME ITSELF WAS NOT GENE RATED, THERE WAS NO QUESTION OF SUCH INCOME BECOMING ACCRUED OR DUE. WHEN THE FACTUM OF ACTUAL RECEIPT OF SALE PROCEEDS TO THE EX TENT OF NET INVOICE AMOUNT WAS ESTABLISHED BEYOND ANY DOUBT, TH ERE WAS NO JUSTIFICATION IN OVERLOOKING UPON THOSE SPEAKING FA CTS ON THE TECHNICAL GROUND THAT THE ASSESSEE HAS CLAIMED DEPB BENEFIT ON ITA NO.3206/AHD /2007 M/S. J.B. EXPORTS VS. ADDL.CIT-SURAT ASST.YEAR -2004-05 - 13 - THE GROSS AMOUNT OF INVOICE. IT WAS CONCLUDED THAT THE REVENUE HAS NO CASE TO HOLD THAT THE ASSESSEE HAS EARNED TH E IMPUGNED ADDITIONAL INCOME. 8. BEFORE US, THE ORDER OF THE TRIBUNAL IN THE CASE OF SAMIR BATRA AND ATMA PRAKASH BATRA HAS ALSO BEEN CITED WHICH HAS BEEN CONFIRMED BY THE HONBLE HIGH COURT. SOME OF THE OBSERVATIONS OF THE TRIBUNAL ARE ALSO WORTH TO REPRODUCTION. 25. THE OUTGOING COMMISSION FROM THE INVOICE VALUES WOULD HAVE TO BE REDUCED FROM THE GROSS AMOUNTS AND THE NET AMOUNT WHICH WAS THE ACTUAL SUM RECEIVED BY THE ASS ESSEE IN INDIA, AND WHICH WAS DULY CERTIFIED AND PERMITTED B Y THE RBI AND ITS AUTHORIZED DEALER WAS WHAT HAD BEEN EARNED BY THE ASSESSEE FROM SUCH TRANSACTIONS. WE FIND THAT THE AO HIMSELF HAD NOTED IN THE ASSESSMENT ORDER THAT THE AMOUNTS DEDUCTED AS COMMISSION FROM THE SALE INVOICES WERE NEITHER R ECEIVED BY THE ASSESSEE DURING THE YEAR NOR WAS IT EVER GOING TO BE RECEIVED IN FUTURE. IF THIS WAS THE VIEW OF THE AO , THEN HE CONTRADICTED HIMSELF BY TAXING AMOUNTS WHICH HAD NO T BEEN RECEIVED AT ALL, NOR DID THE ASSESSEE HAVE ANY LEGA L RIGHT TO RECEIVE SUCH AMOUNTS. 26. WE FIND THAT THE COMMISSION WAS NOT DEDUCTED FROM THE EXPORT INVOICES IN AN ADHOC MANNER AND IT WAS CLEARLY UNDER AN AGREEMENT 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 T HE GROSS INVOICE VALUES IN THE PRESENT CASE, THERE WAS A COM PULSION TO DEDUCT THE COMMISSION FROM THE EXPORT INVOICES WHIC H WAS CLEARLY INDICATED IN THE CONFIRMATION LETTERS OF TH E AGENTS, THE ITA NO.3206/AHD /2007 M/S. J.B. EXPORTS VS. ADDL.CIT-SURAT ASST.YEAR -2004-05 - 14 - 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 HAS BEEN DIVERSION OF INCOME BY OVERRIDING TITLE THE TRUE TEST IS WHETHER THE AM OUNT SOUGHT TO BE DEDUCTED, IN TRUTH, NEVER REACH THE ASSESSEE AS HIS INCOME. WHEREBY AN OBLIGATION INCOME IS DIVERTED BEFORE I T REACHES THE ASSESSEE. IT IS DEDUCTIBLE BUT WHERE T HE INCOME IS REQUIRED TO BE APPLIED TO DISCHARGE AN OBLIGATION A FTER SUCH INCOME REACHES THE ASSESSEE, THE SAME CONSEQUENCE I N LAW DOES NOT FOLLOW IN THE PRESENT CASE THE GROSS EXPOR T PROCEEDS NEVER REACHED ITS HANDS, NO SUCH INCOME HAD THEREFO RE ACCRUED TO THE ASSESSEE AND THIS WAS BECAUSE OF AN OBLIGATION OR COMPULSION TO DEDUCT THE COMMISSION FROM THE EXP ORT INVOICES WHICH CLEARLY SHOWED THIS TO BE A CASE OF DIVERSION OF INCOME BY OVERRIDING TITLE. THE AMOUNTS DEDUCTED F ROM THE EXPORT INVOICES WERE THUS CLEARLY ALLOWABLE AS DEDU CTION. . . 27. FIRSTLY, EACH OF THE TRANSACTIONS BETWEEN THE ASSESSEE AS THE SELLER AND THE TWO BUYERS WERE MEDIATED BY A GENTS, WHOLE EXISTENCE WAS ESTABLISHED BEYOND DOUBT BY THE CONFIRMATION LETTERS. SECONDLY, THERE WAS RENDERIN G OF SERVICES. THE AGENT HAD CLEARLY WRITTEN THAT THEY HAVE RENDERED SERVICES IN PROCURING SAMPLES DECIDING THE ORDERS AND SETTLING ALL MATTERS BETWEEN THE BUYERS AND SEL LER INCLUDING PAYMENTS BY THE BUYERS TO THE SELLER. CO NSIDERING THE NATURE OF SUCH SERVICES RENDERED BY THE AGENTS EVEN IF THEY WERE APPOINTED BY THE BUYERS, SERVICES WERE INDIREC TLY RENDERED TO THE ASSESSEE AS THE SELLERS WELL. THE SAMPLES WERE PRODUCED BY THEM FROM THE ASSESSEE. THEY DECI DED ON THE QUANTUM OF THE ORDER AND THE PRICE, THEY SETTLE D ALL DISPUTES BETWEEN THE BUYERS AND THE SELLER AND THEY ALSO ENSURED THE PAYMENTS TO THE SELLER. THE EXISTENCE OF THE AGENTS ITA NO.3206/AHD /2007 M/S. J.B. EXPORTS VS. ADDL.CIT-SURAT ASST.YEAR -2004-05 - 15 - AND THEIR FUNCTIONING WAS FOR THE BENEFIT OF THE AS SESSEE AS WELL. THEREFORE, THE EVIDENCE PRODUCED BY THE ASSE SSEE CANNOT BE WISHED AWAY ON THE GROUND THAT THE AGENTS ONLY PROVIDED SERVICES TO THE BUYER AND NOT TO THE ASSES SEE. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE COMMISSION PAYMENT IS TO BE ALLOWED TO THE ASSE SSEE AND ACCORDINGLY, WE ALLOW THE CLAIM OF THE ASSESSEE, AN D THE ORDERS OF THE LOWER AUTHORITIES ARE REVERED. THIS ISSUE OF THE ASSESSEES APPEAL IS ALLOWED. 9. THERE IS ONE MORE DECISION OF THE TRIBUNAL D B ENCH AHMEDABAD IN THE CASE OF M/S.JAWAHAR BIO-TECH PVT.LTD.(SUPRA), WHEREIN A VIEW WAS TAKEN IN FAVOUR OF ASSESSEE VIDE FOLLOWING PARAGRAPHS:- 8. IN THE CASE UNDER CONSIDERATION, THERE IS NOTHI NG TO SUGGEST THAT THE AMOUNTS DEDUCTED AS COMMISSION FRO M THE SALE INVOICES WERE EITHER RECEIVED BY THE ASSESSEE DURING THE YEAR OR EVEN SUBSEQUENTLY NOR THE ASSESSEE HAS ANY LEGAL RIGHT TO RECEIVE SUCH AMOUNTS. THE AMOUNT HAS BEEN DEDUC TED UNDER AN ARRANGEMENT BETWEEN THE BUYERS AND THE ASS ESSEE. THUS, THE GBROSS EXPORT PROCEEDS MENTIONED IN THE I NVOICES NEVER REACHED THE ASSESSEE NOR IT WAS INTENDED SO. THEREFORE, THE AMOUNT EQUIVALENT TO COMMISSION DEDUCTED HAD NE VER ACCRUED TO THE ASSESSEE AND THIS WAS BECAUSE OF AN OBLIGATION OR COMMISSION TO DEDUCT THE COMMISSION FORM THE AMO UNT INVOICED WHILE EXPORTING THE GOODS. 9. IN VIEW OF THE FOREGOING, ESPECIALLY WHEN A SIMI LAR CLAIM IN RESPECT OF COMMISSION IN THE PRECEDING ASSESSMEN T YEAR HAS BEEN ALLOWED BY THE AO HIMSELF AND THE EXPORT PRIC ES WERE DETERMINED WITH THE BUYERS IN CONSEQUENCE OF AN ARR ANGEMENT OF DEDUCTION OF COMMISSION PAYABLE BY THE FOREIGN B UYERS TO ITA NO.3206/AHD /2007 M/S. J.B. EXPORTS VS. ADDL.CIT-SURAT ASST.YEAR -2004-05 - 16 - THE FOREIGN AGENT FORM THE SALES INVOICES, WE ARE O F THE OPINION THAT THERE WAS NO JUSTIFICATION FOR THE DIS ALLOWANCE OF THE AFORESAID AMOUNT OF COMMISSION. THEREFORE, GRO UND NO.1 IS ALLOWED. 10. AS OBSERVED IN THE BEGINNING ITSELF THE ISSUE A PPEARS TO BE SQUARELY COVERED BY THE FOREGOING DECISIONS AND ON ALMOST IDENTICAL FACTS THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESS EE. RESULTANTLY, IN THE LIGHT OF THE FOREGOING DISCUSSION, ON FACTS AND LAW, WE HEREBY HOLD THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASS ESSEE AND, HENCE, THE ASSESSEE IS ENTITLED FOR THE CLAIM AND THE REVE NUE DEPARTMENT HAD GONE WRONG IN HOLDING THAT THERE WAS SUPPRESSIO N OF SALES ON THE PRESENT FACTS AND CIRCUMSTANCES OF THE CASE. GROUNDS ALLOWED. 11. GROUND NOS.3, 4 & 5 3. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT-(A) HAS ERRED IN SUSTAINING DISALLOWANCE OF THE TOTAL DEDUCTION U/S.80HHC OF THE ACT AS MADE BY THE LEARN E DADDL.CIT. 4. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) HAS ERRED BY FALLING TO APPRECIATE THAT THE TAXATION LAWS (AMENDMENT) ACT, 2005 MAKES UNDUE DISTINCTION BETWEEN EXPORTERS ON THE BASIS OF TURNOVER AND AMEN DS THE LAW, BY LAYING DOWN VARIOUS CONDITIONS, ON A RETROS PECTIVE BASIS, WHICH IS UNCONSTITUTIONAL AND ULTRA-VIRES, R EQUIRING OUTRIGHT ANNULMENT. ITA NO.3206/AHD /2007 M/S. J.B. EXPORTS VS. ADDL.CIT-SURAT ASST.YEAR -2004-05 - 17 - 5. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT THE AMOUNT OF DEPB LICENCE RECEIVED BY THE APPELLANT IS NOTHING BUT REIMBURSEMENT OF COST OF DUTIES SUFFERE D BY THE INPUTS AND THUS, THE ENTIRE PROFIT EARNED BY THE AP PELLANT ON ACCOUNT OF SALE OF DEPB LICENCEES IS DERIVED ONLY F ROM EXPORTS AND IS FULLY ELIGIBLE FOR DEDUCTION US/.80H HC OF THE ACT. 12. THESE GROUNDS WERE NOT SERIOUSLY PRESSED BE FORE US PRIMARILY BECAUSE OF THE REASON THAT THERE WAS UNDISPUTED FIN DING THAT THE EXPORT TURN WAS MORE THAN RS.10 CRORE HENCE AS PER THE AME NDED PROVISION OF SEC.80HHC THE ASESSEE WAS NOT ENTITLED FOR THE CLA IM ESPECIALLY WHEN THE REQUISITE INFORMATION WAS NOT FURNISHED BY THE ASSESSEE IN RESPECT OF DEPB CLAIM. WE ARE NOT INCLINED TO DISTURB THE FIND INGS OF CIT(A) , THESE GROUNDS ARE HEREBY DISMISSED. GROUND NO.6 6. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT(A) HAS ERRED IN SUSTAINING THE STAND OF THE AO IN EVEN OTHERWISE EXCLUDING THE ENTIRE AMOUNT OF DEPB LICEN CE INSTEAD OF EXCLUDING ONLY THE PROFIT IF ANY ON SALE THEREOF. 13. EVEN IN RESPECT OF THIS GROUND NO SUBSTANT IVE ARGUMENTS HAVE BEEN RAISED HOWEVER IN VIEW OF THE ORDER OF THE RESPECTE D SPECIAL BENCH PRONOUNCED IN THE CASE OF TOPMAN EXPORTS 124 ITD 1 (MUM.) SINCE THE ASSESSEE HAS FAILED TO PLACE NECESSARY EVIDENCE TO ESTABLISH THAT THE TWIN CONDITIONS AS PRESCRIBED AND HELD BY THE BENCH HAVE BEEN ACCOMPLISHED ITA NO.3206/AHD /2007 M/S. J.B. EXPORTS VS. ADDL.CIT-SURAT ASST.YEAR -2004-05 - 18 - IN RESPECT OF DEPB BENEFIT THEN THE ASSESSEE IS NOT ENTITLED FOR THE CLAIM. FOLLOWING THE RATIO LAID DOWN , THIS GROUND IS THE REFORE DISMISSED. *. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 29/ 4 /2011. SD/- SD/- ( D.C. AGRAWAL) ( MUKUL KR. SH RAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBE R AHMEDABAD; DATED 29 / 4 /2011 T.C. NAIR, SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-IV, SURAT 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD 1. DATE OF DICTATION. 26/04/2011. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 27/04/2011 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S29.4.11 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 29.4.11 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER