ACIT, New Delhi V. M/s Mohan Exports Pvt. Ltd., New Delhi

ITA 503/DEL/2011

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6343 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 30-01-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 28-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR SENIOR
• Assessee Lawyers: V K AGGARWAL
• Keywords: Business income; Rule of consistency; Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO.503/DEL./2011 (ASSESSMENT YEAR : 2006-07) ACIT, CIRCLE 5 (1), VS. M/S. MOHAN EXPORTS PVT. LT D., NEW DELHI. 7, MOHAN HOUSE, ZAMRUDPUR COMMUNITY CENTRE, KAILASH COLONY EXTENSION, NEW DELHI. (PAN : AAACM4168J) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI V.K. AGGARWAL, AR REVENUE BY : SHRI RAJESH KUMAR, SENIOR DR DATE OF HEARING : 30.01.2017 DATE OF ORDER : 22.03.2017 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, ASSISTANT COMMISSIONER OF INCOME-TA X, CIRCLE 5 (1), NEW DELHI (HEREINAFTER REFERRED TO AS THE REVENUE) BY FILING THE AFORESAID APPEAL SOUGHT TO SET ASIDE THE ORDER DATED 19.11.2010 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)- VIII, NEW DELHI QUA THE ASSESSMENT YEAR 2006-07 ON THE GROUNDS INTER ALIA THAT :- ITA NO.503/DEL./2011 2 1. THE ORDER OF THE LEARNED CIT (APPEALS) IS ERRONEOUS & CONTRARY TO FACTS & LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE LEARNED CIT (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.7,33,09,398/- MADE BY THE A.O. BY DISALLOWING THE COMMISSION. 2.1 THE LD. CIT (A) IGNORED THE FINDING RECORDED BY THE AO AND THE FACT THAT THE ASSESSEE DID NOT FILE THE NECESSARY EVIDENCE / DOCUMENTS TO SUBSTANTIATE ITS CLAIM DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 2. BRIEFLY STATED FACTS OF THIS CASE ARE : ASSESSEE COMPANY IS INTO THE EXPORT BUSINESS AND DURING 1980S, IT STARTED I NTERNATIONAL MERCHANT TRADING BY PROCURING EXPORT ORDER FROM FOR EIGN BUYERS GENERALLY FOREIGN SOVEREIGN GOVERNMENTS AND DEPARTM ENTS- UNDERTAKING AND EXPORT THE SAME TO THEM. THE COMPA NY HAS SUPPLIED PLANT AND MACHINERY, AGRICULTURE EQUIPMENT S AND CONSUMABLES. DURING SCRUTINY PROCEEDINGS, CERTAIN CLAIMS MADE BY THE ASSESSEE IN THE RETURN OF INCOME COULD NOT BE S UBSTANTIATED I.E. COMMISSION PAID TO THE SERVICE AGENTS. 3. DURING THE YEAR UNDER ASSESSMENT, THE ASSESSEE C LAIMED TO HAVE PAID AN AMOUNT OF RS.7,33,09,398.93 TO DIFFERE NT SERVICE AGENTS AS COMMISSION. TO VERIFY THE GENUINENESS OF THE SERVICES RENDERED, ASSESSEE WAS CALLED UPON TO PRODUCE THE C OPY OF AGREEMENT ENTERED WITH THE SERVICE AGENTS AS WELL A S INVOICE RAISED BY THE SERVICE AGENTS WITH THE DETAILS OF THE NATUR E OF TRANSACTION ITA NO.503/DEL./2011 3 ENTERED BETWEEN THEM. ASSESSEE FURNISHED STATEMENT SHOWING THE FOB VALUE OF THE EXPORTS TO THE PARTIES WHERE AGENC Y COMMISSION IS PAYABLE ALONG WITH STATEMENT OF COMMISSION SHOWI NG COMMISSION PAID/PAYABLE DURING AY 2006-07 IN RESPEC T OF THE EXPORTS MADE AND THE OUTSTANDING COMMISSION PAYABLE CONTINUED TO BE SHOWN IN THE LIABILITY OF THE BOOKS OF ACCOUN T. FINDING THE EXPLANATION FURNISHED BY THE ASSESSEE NOT TENABLE, AO CAME TO THE CONCLUSION THAT THIS EXPLANATION IS NOT ACCEPTABLE BECAUSE SUCH COMMISSION CANNOT REMAIN UNPAID EVEN AFTER LAPSE OF THREE YEARS AND AS SUCH, GENUINENESS OF THE BUSINESS TRANSACTIO N AND PAYMENT MADE TO THE SERVICE AGENTS IS NOT PROVED AND AS SUC H, AMOUNT OF RS.7,33,09,398.93 IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 4. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) BY FILING THE APPEAL WHO HAS DELETED THE ADDITION OF RS.7,33, 09,398/- MADE BY THE AO. FEELING AGGRIEVED, THE REVENUE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 5. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.503/DEL./2011 4 6. UNDISPUTED FACTS OF THIS CASE ARE INTER ALIA THA T THE ASSESSEE BEING A MERCHANT EXPORTER EARNED EXPORT TURNOVER OF RS.167.68 CRORES WITH TAXABLE PROFIT OF RS.28.56 CRORES HAVIN G NET PROFIT RATE OF 17% OF THE EXPORT TURNOVER FOR THE YEAR UNDER AS SESSMENT I.E. 2006-07; THAT DURING THE EARLIER FINANCIAL YEARS, T HE ASSESSEE HAS PAID COMMISSION TO THE AGENTS FOR THE SERVICES REND ERED BY THEM TO CARRY OUT EXECUTION OF EXPORT WHICH IS TABULATED AS UNDER :- FINANCIAL YEAR TURNOVER CR/RS AGENCY COMMISSION LAC/RS 2000-01 69.29 119.41 2001-02 60.16 154.37 2002-03 26.67 269.48 2003-04 55.47 303.99 2004-05 78.39 422.75 2005-06 167.68 708.59 THAT NO PRIOR APPROVAL OF THE RESERVE BANK OF INDIA IS REQUIRED FOR PAYMENT OF AGENCY COMMISSION AND THESE POWERS ARE B EING EXERCISED BY BANK DESIGNATED AS AUTHORIZED DEALERS; THAT OUT OF THE TOTAL COMMISSION OF RS.7,08,59,575/- DEBITED BY THE ASSESSEE TO THE P&L ACCOUNT, THE POSITION OF PAYMENT IS TABULATED A S UNDER :- (A) OUT OF THE TOTAL COMMISSION OF RS.7,08,59,575/ -, THE POSITION OF PAYMENTS IS AS UNDER : COMMISSION PAID DURING THE YEAR RS.3,37,84,634 COMMISSION PAID AFTER 31.03.06 TO THE DATE OF ASSESSMENT RS.2,78,86,183 TOTAL PAID RS.6,16,70,817 OUTSTANDING AS ON DATE RS. 91,88,758 TOTAL COMMISSION RS.7,08,59,575 ITA NO.503/DEL./2011 5 THAT THE ASSESSEE HAS DEBITED A SUM OF RS.7,33,09,3 98/- IN THE PROFIT & LOSS ACCOUNT AS COMMISSION PAID TO THE DIFFERENT SERVICES AGENTS, DETAILS THEREOF IS AS UNDER :- NAME OF THE COMMISSION AGENT AMOUNT ESBJ TRADING & INVT., SINGAPORE 6425066.97 KWAME OKYERE AKOSA, GHANA 5163118 SOLIS INTERTRADE INC 2449824 TRANS ENGG. CO., SUDAN 37489183.96 TEODA ENGG. GHANA 17055087 MAMOOM GAMAL SUDAN 1248338 SOILS INTER TRADE INC. B. FASO 2449824 AMOUNT PAID BELOW 5 LACS 1028957 TOTAL 733093398 THAT THE SERVICES AGENTS TO WHOM THE COMMISSION WAS ALLEGEDLY PAID HAVE NOT RAISED ANY INVOICE FOR THE SERVICES R ENDERED BY THEM; THAT IN THE VOLKAR COMMITTEE REPORT IN CONNECTION W ITH UN OIL- FOR - FOOD PROGRAMME FOR IRAQ, THE NAME OF M/S. MOHAN EXP ORTS INDIA LIMITED, THE ASSESSEE IN THIS CASE, FIGURED A S A CONTRACTOR FOR SUPPLY OF HUMANITARIAN GOODS TO IRAQ; THAT AS PER A GREEMENT, THE EXPORT PROCEEDS WERE TO BE REALIZED IN 36 MONTHLY I NSTALLMENTS STARTING AFTER 12 MONTHS FORM THE MEAN DATE OF SHIP OF THE GOODS, MEANING THEREBY THE REALIZATION OF INSTALLMENTS WOU LD BECOME EFFECTIVE IN MAY 2007 ONWARDS; THAT THE ASSESSEE BR OUGHT ON RECORD ITA NO.503/DEL./2011 6 STATEMENT SHOWING FOB VALUE OF EXPORTS TO THE PARTI ES WHERE AGENCY COMMISSION IS PAYABLE ALONG WITH STATEMENT S HOWING COMMISSION PAID / PAYABLE DURING AY 2006-07 QUA THE EXPORTS MADE AND THE OUTSTANDING COMMISSION PAYABLE CONTINU ES TO BE SHOWN AS THE LIABILITY IN THE BOOKS OF ACCOUNT; THA T ASSESSEE HAS NOT MADE ANY EXPORT DURING THE YEAR UNDER ASSESSMENT DI RECTLY OR INDIRECTLY TO IRAQ NOR RECEIVED PAYMENT FROM IRAQ; THAT THE EXPORTS WERE MADE BY THE ASSESSEE TO THE COUNTRIES OTHER TH AN IRAQ; THAT BY WAY OF ADDITIONAL EVIDENCE, THE ASSESSEE HAS BROUGH T ON RECORD DETAILS OF COMMISSION PAYMENT BELOW RS.5,00,000/- A S PER ORDER PASSED BY CIT (A) AFTER PROCURING THE REMAND REPORT FROM THE AO; THAT DURING THE PROCEEDINGS OF AYS 2003-04, 2004-05 AND 2005-06. 7. LD. DR FOR THE REVENUE CHALLENGING THE IMPUGNED ORDER CONTENDED INTER ALIA THAT THE ASSESSEE HAS FAILED T O SUBSTANTIATE THE GENUINE BUSINESS TRANSACTIONS AND THE EXPENDITURE I NCURRED FOR PROCURING SERVICES OF THE SERVICE AGENTS; THAT THE ASSESSEE HAS ONLY FILED COPY OF AGREEMENT WHICH DOES NOT SUGGEST ANY SPECIFIC REFERENCE TO ANY SPECIFIC SERVICES RENDERED BY THE AGENT; THAT ASSESSEE HAS FAILED TO BRING ON RECORD ANY INVOICE RAISED BY THE ASSESSEE TO PROVE THE GENUINENESS OF THE SERVICES R ENDERED TO IT. 8. HOWEVER, ON THE OTHER HAND, LD. AR FOR THE ASSES SEE RELIED UPON THE ORDER PASSED BY THE CIT (A). ITA NO.503/DEL./2011 7 9. KEEPING IN VIEW THE AFORESAID UNDISPUTED FACTS B ROUGHT ON RECORD BY THE PARTIES TO THE APPEAL, ARGUMENTS ADDR ESSED AND ORDER PASSED BY THE LOWER AUTHORITIES, WE ARE OF THE CONS IDERED VIEW THAT THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) DOES N OT SUFFER FROM ANY ILLEGALITY OR PERVERSITY FOR THE REASONS INTER ALIA :- (I) THAT THE FIRST GROUND FOR DISALLOWANCE OF THE C LAIM OF PAYMENT OF COMMISSION MADE BY THE ASSESSEE COMPANY TO THE SERVICE AGENT BY AO IS THAT, PART OF THE COMMISSION IS STILL PAYABLE, IS NOT TENABLE FOR THE REASONS THAT AO HAS LOST SIGHT OF THE FACT THAT AS PER TERMS AND CONDITIONS OF THE AGREEMENT ENTERED I NTO BETWEEN ASSESSEE AND THE AGENT COMMISSION IS TO BE PAID AFTER RECEIPT OF PAYMENT BY THE ASSESSEE FOR T HE GOODS EXPORTED (II) THAT MOREOVER THE PROVISION OF COMMISSION EXPE NSES PAYABLE WERE TO BE MADE UNDER THE MERCANTILE SYSTEM OF ACCOUNTING AS THE ASSESSEE HAD ACCOUNTED FOR EXP ORT SALES AND CORRESPONDING EXPENDITURE HAD TO BE PROVIDED TO MATCH COST WITH REVENUE IN ORDER TO ARR IVE AT THE ACTUAL COMMERCIAL PROFIT; ITA NO.503/DEL./2011 8 (III) THAT EVEN OTHERWISE, THE EXPORT PROCEEDS WERE TO BE REALIZED IN 36 MONTHLY INSTALLMENTS STARTING AFTER 12 MONTHS FROM THE MEAN DATE OF SHIPMENT I.E. MAY 2007 ONWARDS AND IN THESE CIRCUMSTANCES, THE PART OF THE COMMISSION PAYMENT HAD TO REMAIN PAYABLE AT THE TIME OF ASSESSMENT PROCEEDINGS OR THEREAFTER; (IV) THAT AS PER RBI GUIDELINES, THE PAYMENT OF COMMISSION HAS TO BE ALLOWED BY THE DESIGNATED BANK EITHER WAY OF REMITTANCE OR BY DEDUCTION FROM INVOI CE VALUE ON THE APPLICATION OF THE EXPORTER. THIS CONDITION LAID DOWN BY RBI IS TO CHECK THE GENUINENESS OF THE BUSINESS TRANSACTIONS AND PAYMEN T MADE TO THE SERVICE AGENT; (V) THAT THE SECOND GROUND FOR DISALLOWING THE CLAI M OF PAYMENT OF COMMISSION TO THE SERVICE AGENT THAT THE AGREEMENT DOES NOT SUGGEST ANY SPECIFIC REFERENCE T O ANY SPECIFIC SERVICE RENDERED TO THE AGENT TO THE ASSESSEE COMPANY IS, ALSO NOT TENABLE FOR THE REAS ONS INTER ALIA THAT IN EACH AGREEMENT, THE SERVICES TO BE RENDERED BY THE COMMISSION AGENTS ARE EXTENSIVELY ELABORATED, WHICH ARE AS UNDER :- ITA NO.503/DEL./2011 9 SL. NO. NAME & ADDRESS OF AGENTS CLAUSE NO. SERVICES TO BE RENDERED 1 ESBJ TRADING & INVESTMENTS PVT. LTD., 42 B HOME ROAD, SINGAPORE 209066 (AGREEMENT DT. 18.06.99 RENEWED ON 02.06.2003) 1 TO INTRODUCE THE ASSESSEE TO BUYING ORGANIZATIONS IN GHANA, ANGOLA, NIGERIA & CONGO AND ASSIST IN PROMOTING BUSINESS 5 TO DO EFFECTIVE LIAISON TO OBTAIN ENQUIRES FROM VARIOUS BUYERS 6 TO FOLLOW UP ALL CONNECTED MATTERS WITH BUYERS AND PROVIDE CONTINUOUS SUPPORT 7 TO EN SURE TIMELY PAYMENTS 2 E.I. CAPITAL LTD. / KWAME OKYERE AKOSA P.O. BOX 1082, ACCRA GHANA. (AGREEMENT DT. 25.11.04) 3 TO PROCURE OR CAUSE TO PROCURE EXPORT ORDERS FROM GHANA COCOA BOARD FOR SUPPLY OF TARPAULINS, ENSURE ESTABLISHMENT OF SATISFACTORY LETTER OF CREDIT AND EFFECTIVE LIAISON WITH GHANA COCOA BOARD TILL ORDERS HAVE BEEN COMPLETELY EXECUTED. 3 TRANS ENGINEERING CO. HORIA STREET TAHA BABIKER BUILDING, KARTOUM P.O. BOX 11037 SUDAN (AGREEMENT DT. 16.09.03 IN RESPECT OF BID FOR 220 KV KHARTOUM RING MAIN PROJECT TO NATIONAL ELECTRICITY CORP., SUDAN 1 ASSISTANCE IN BUILDING AND FINALIZING THE CONTRACT 1.2 MAINTAIN CLOSE AND CONSTANT LIAISON WITH NEC 1.3 ADVISE THE ASSESSEE OF IMPORTANT DEVELOPMENTS 1.4 HELP TO FINALISE THE OFFER AND SIGN THE CONTRACT 1.5 PROCURE DOCUMENTS REQUESTED BY ASSESSEE AND COURIER THEM ITA NO.503/DEL./2011 10 2.1 AFTER SIGNING OF CONTRACT ARRANGE FOR ALL APPROVALS IN SUDAN 2.2 GET APPROVAL OF ALL DRAWINGS. 2.3 PURSUE ESTABLISHMENT OF L/C. ADVANCE PAYMENT & OTHER FINANCIAL MATTERS 2.4 PURSUE AMENDMENTS TO CONTRACTS 2.5 ARRANGE FOR GETTING TECHNICAL DETAILS / DRAWINGS SAMPLES APPROVED BY NEC 2.6 KEEP THE ASSESSEE INFORMED OF ALL RELEVANT DEVELOPMENTS 2.7 ORGANISE AND PLAN THE VISIT OF NEC TECHNICAL PERSONNEL TO INDIA FOR DISCUSSION 2.8 VISIT INDIA FOR DISCUSSION 2.9 COORDINATE CLEARANCE OF GOODS AT THE PORT AND THEIR TRANSPORTATION TO SITE. 2.10 ARRANGE FOR RECEIPTS OF GOODS BY NEC AND FORMALITIES FOR INSURANCE / CLAIM IF ANY. 2.11 PURSUE WITH NEC FOR RELEASE AND CANCELLATION OF PERFORMANCE AND ADVANCE GUARANTEES 2.12 TO ARRANGE FOR LOCAL SERVICES LIKE VISA, GOVT. CLEARANCES, FORMALITIES IN BANKS ETC. 2.13 ASSIST SITE OFFICE LIKE ARRANGING LOCAL TRANSPORT, ACCOMMODATION ETC. 2.14 CO - ORDINATION WITH LOCAL SUB-CONTRACTORS 2.15 PROVIDE SERVICES DURING WARRANTY PERIOD ETC. 2.16 ANY OTHER ASSISTANCE ITA NO.503/DEL./2011 11 INCLUDING AFTER SALES SERVICES 4 TEODA LTD. P.O. BOX CT 4884 CANTONMENTS, ACCRA GHANA. (AGREEMENT DT. 02.03.04) IN RESPECT OF MINISTRY OF ENERGY, GHANA 1 ASSISTANCE IN BIDDING FOR AND FINALIZING CONTRACT 1.1 MAINTAIN CLOSE AND CONSTANT LIAISON 1.2 ADVISE ASSESSEE OF IMPORTANT DEVELOPMENTS 1.3 HELP TO FINALISE THE OFFER AND SIGN CONTRACTS 1.4 PROCURE DOCUMENTS & COURIERS THEM 1.5 OBTAI N TECHNICAL INFORMATION AND CLARIFICATIONS AS ASKED BY THE ASSESSEE 2.1 ARRANGE FOR APPROVALS IN GHANA 2.2 FOLLOW UP FOR APPROVAL OF ALL DRAWINGS AND DOCUMENTS 2.3 PURSUE ESTABLISHMENT OF L/C, ADVANCE PAYMENTS ETC. 2.4 PURSUE AMENDMENTS TO CONTRACTS 2.5 ARRANGE FOR GETTING TECHNICAL DETAILS / DRAWINGS AND SAMPLES APPROVED BY MOE. 2.6 TO KEEP THE ASSESSEE INFORMED OF DEVELOPMENTS 2.7 ORGANISE AND PLAN VISIT OF MOE TECHNICAL PERSONNEL TO INDIA 2.8 TO VISIT INDIA FOR DISCUSSION 2.9 COORDINATE CLEARANCE OF GOODS AT THE PORT AND THEIR TRANSPORTATION TO WAREHOUSE 2.10 ARRANGE FOR RECEIPT OF ITA NO.503/DEL./2011 12 GOODS AND OTHER FORMALITIES 2.11 PURSE RELEASE AND CANCELLATION OF PERFORMANCE AND ADVANCE GUARANTEES 2.12 ARRANGE FOR LOCAL SERVICES LIKE VISA, GOVT. CLEARANCES ETC. 2.13 ASSIST IN ARRANGING LOCAL TRANSPORT, ACCOMMODATION, ETC. 2.14 CO - ORDINATION WITH LOCAL SUB-CONTRACTORS 2.15 PROVIDE SERVICES DURING WARRANTY PERIOD 2.16 ASSISTANCE IN EXECUTING CONTRACT AND AFTER SALES SERVICES. 5 MAMOUN GAMAL M/S. MEDICANA FOR INVESTMENT AND SERVICES, P.O. BOX 1443 KHARTOUM NORTH, SUDAN (AGREEMENT DT. 02.03.04) 2 FOR MINISTRY OF SCIENCE AND TECHNOLOGY ( A) MAINTAIN CLOSE AND CONSTANT LIAISON (B) ADVISE ASSESSEE OF ALL NEW TENDERS AND BUSINESS OPPORTUNITIES (C) PROCURE TENDER DOCUMENTS AND COURIER THEM (D) OBTAIN TECHNICAL INFORMATION & CLARIFICATION, TO RECEIVE BIDS FORM ASSESSEE AND SUBMIT THAN (E) FOLLOW UP OF OFFERS SUBMITTED BY ASSESSEE (F) PURSUE ESTABLISHMENT OF L/C AND AMENDMENTS (G) PURSUE AMENDMENTS TO CONTRACTS (H) ARRANGE TO GET DETAILS / DRAWINGS AND SAMPLES OF ITEMS (I) ADVISE THE ASSESSEE OF ALL RELEVANT DEVELOPMENTS ITA NO.503/DEL./2011 13 6 SOLIS INTER TRADE INC. 01 B.P 6972 OUAGADOUGOU 01, BURKINA FASO (AGREEMENT DT. 27.06.05) 1 & 4 PROMOTE AND SELL THE PRODUCTS EXPORTED BY ASSESSEE TO GOVT. BODIES OR PRIVATE COMPANIES. 5 TO DO EFFECTIVE LIAISON TO OBTAIN ENQUIRES FROM GOVT. / PVT. CO. AND COMMUNICATE THE DETAILS TO ASSESSEE 6 TO LODGE OFFERS APPROVED BY THE CO. 7 TO FOLLOW UP ALL CONNECTED MATTER AND PROVIDE CONTINUOUS INFORMATION REGARDING SUCH OFFER. 8 TO SECURE TIMELY PAYMENTS (VI) THAT THE STATEMENT FURNISHED BY THE ASSESSEE C OMPANY SHOWS THAT THE FOB VALUE OF EXPORT TO THE PARTIES WHERE AGENCY COMMISSION IS PAYABLE ALONG WITH UPDATED STATEMENT OF COMMISSION AGENT/PAYABLE DURING AY 2006-07 IN RESPECT OF THE EXPORT MADE AND AS SUCH, THE OUTSTANDING COMMISSION PAYABLE CONTINUES TO BE SHOWN AS LIABLE IN THE BOOKS OF ACCOUNT WHICH HAVE NEVER BEEN REJECTED BY THE AO. IN THESE CIRCUMSTANCES, GENUINENESS OF THE BUSINESS TRANSACTION AND PAYMENT MADE TO THE SERVICE AGENT CANNOT BE DISPUTED; (VII) THAT THE OBSERVATION MADE BY THE AO THAT KEEP ING THE COMMISSION UNPAID EVEN AFTER A LAPSE OF 3 YEARS IS NOT ITA NO.503/DEL./2011 14 ACCEPTABLE TO THE PRUDENT PERSON IS ALSO NOT SUSTAI NABLE WHEN THIS FACT IS EXAMINED IN THE LIGHT OF THE FACT THAT EXPORT PROCEEDS WERE TO BE REALIZED IN 36 INSTALLME NTS STARTING FROM MAY 2007 ONWARDS AND MERCANTILE SYSTEM OF ACCOUNTING IS BEING ADOPTED BY THE ASSESS EE COMPANY. WHEN THE ASSESSEE COMPANY IS TO GET THE EXPORT PROCEEDS UP TO 2010 THE SPREADING OF PAYMENT OF AGENCY COMMISSION UP TO 2010 WOULD BE THE NATURAL CONSEQUENCE; (VIII) THAT AGENCY AGREEMENT ENTERED INTO BETWEEN A SSESSEE COMPANY AND TRANS ENGINEERING COMPANY OF SUDAN, AVAILABLE AT PAGES 68 TO 73 OF THE PAPER BOOK, IS CATEGORIC ENOUGH TO ELABORATE THE SERVICES TO BE RENDERED BY THE SERVICE AGENT TO THE ASSESSEE COMPA NY IN ORDER TO EXECUTE THE EXPORT ORDER; (IX) THAT LD. CIT (A) HAS DISCUSSED THE ISSUE THREA DBARE AS TO THE SERVICES RENDERED BY THE SERVICE AGENT TO TH E ASSESSEE COMPANY WITHOUT WHICH THE SERVICE ORDER WOULD NOT HAVE BEEN COMPLETED / EXECUTED; (X) THAT THE ASSESSEE COMPANY HAS BEEN MAKING PAYME NT OF SUCH AGENCY COMMISSION IN THE PRECEDING YEARS RIGHT FORM FY 2000-01 TO FY 2004-05, AS IS TABULATE D ITA NO.503/DEL./2011 15 IN PARA 6, WHICH HAVE BEEN ALLOWED BY THE REVENUE AND THE AGENCY COMMISSION PAID DURING THE YEAR IS COMMENSURATE TO THE TURNOVER OF THE YEAR UNDER ASSESSMENT WHEN COMPARED WITH THE PRECEDING YEARS; (XI) THAT UNDISPUTEDLY, THERE IS NO CHANGE IN THE A GREEMENT ENTERED INTO BETWEEN ASSESSEE COMPANY AND SERVICE AGENTS AND SINCE, IN THE EARLIER YEARS, SUCH AGENCY COMMISSION HAS BEEN ALLOWED BY THE REVENUE, THE RULE OF CONSISTENCY IS ALSO TO BE APPLIED; (XII) THAT SINCE THE ASSESSEE COMPANY IS EXECUTING VARIOUS PROJECTS OVERSEAS AND NOT INTO TRADING, THE SAME CA NNOT BE EXECUTED EXCEPT WITH THE CONSTANT SERVICES TO BE PROVIDED BY THE LOCAL AGENTS BY MAKING LIAISON WITH THE OVERSEAS GOVERNMENT DEPARTMENTS / AGENCIES / UNDERTAKINGS; (XIII) THAT EVEN OTHERWISE, AS PER RBI GUIDELINES, COMMISSION CANNOT BE REMITTED IN ANY CIRCUMSTANCE BEFORE SHIPMENT OF THE CASE WHICH ARE SUBJECT MATTE R OF THE EXPORT, THAT TOO THROUGH THE AUTHORIZED BANK ; (XIV) THAT IT IS A MATTER OF RECORD THAT OUT OF TOT AL PAYMENT OF RS.7,08,59,575/- ON ACCOUNT OF COMMISSION PAYMENT, AN AMOUNT OF RS.3,37,84,634/- WAS PAID DURING ITA NO.503/DEL./2011 16 FINANCIAL YEAR UNDER CONSIDERATION AND THEREAFTER, PAYMENT OF RS.,2,78,86,183/- WAS MADE BY THE ASSESSEE COMPANY BETWEEN 01.04.2006 AND THE DATE OF ASSESSMENT 31.12.2008 AND THEREBY MADE TOTAL PAYMENT OF RS.6,16,70,817/- UP TILL 31.12.2008. TH E REMAINING PAYMENT OF RS.91,88,758/- WAS TO BE PAID IN PHASED MANNER AS PER TERMS AND CONDITIONS CONTAINED IN AGREEMENT (SUPRA). ALL THESE FACTS EXCLUDE THE POSSIBILITY OF MAKING THE BUSINESS TRANSACTION IN-GENUINE; (XV) THAT THE NEXT GROUND FOR DISALLOWANCE OF CLAIM OF PAYMENT OF COMMISSION MADE BY THE ASSESSEE COMPANY, THAT THE ASSESSEE WAS ONE OF THE CONTRACTOR WHO WERE MAKING PAYMENT OF KICK BACKS / ILLEGAL PAYMENTS TO SADDAM HUSSAIN AND HIS CLOSE ASSOCIATES , IS ALSO NOT TENABLE FOR THE REASONS INTER ALIA THAT WHEN SADDAM HUSSAIN AND HIS ASSOCIATES REMOVED FROM THE GOVERNMENT IN APRIL 2003, THE QUESTION OF MAKING PAYMENT OF KICK BACKS / ILLEGAL PAYMENTS TO THEM IN FY 2005-06 DOES NOT ARISE; (XVI) THAT FROM THE DETAIL GIVEN BY THE ASSESSEE RE GARDING COUNTRY-WISE EXPORT DURING THE FY ENDING 31.03.2006 , ITA NO.503/DEL./2011 17 AVAILABLE AT PAGE 388 OF THE PAPER BOOK TABULATED A S UNDER :- COUNTRYWISE SALES / EXPORT DURING THE FINANCIAL YE AR ENDING 31.03.2006 1 GHANA 37,70,34,608.89 2 MAURITIUS 3,45,245.00 3 SIERRA LEONE 4,68,888.33 4 ANGOLA 4,92,45,541.70 5 MOZAMBIQUE 1,58,84,976.00 6 SUDAN 1,10,40,87,264.86 7 AFGHANISTAN 9,51,62,275.40 8 ALGERIA 4,54,696.00 9 BURKINA FASO 1,92,31,350.00 10 NIGERIA 12,78,465.00 11 ZAMBIA 91,32,373.00 TOTAL 1,67,23,25,684.18 LOCAL SALES 2,57,500.00 EXCHANGE FLUCTUATION AG. EXPORTS 42,82,881.07 TOTAL SALES 1,67,68,66,065.25 IT IS APPARENTLY CLEAR THAT NO EXPORT WHATSOEVER HA S BEEN MADE BY THE ASSESSEE COMPANY TO IRAQ AND IN THESE CIRCUMSTANCES, THE QUESTION OF MAKING PAYMENT OF ILLEGAL GRATIFICATION TO SADDAM HUSSAIN AND HIS CLOSE ASSOCIATES DOES NOT ARISE; ITA NO.503/DEL./2011 18 (XVII) THAT WHEN THE ASSESSEE HAS MADE EXPORT TO TH E COUNTRIES OTHER THAN IRAQ VOLKAR COMMITTEE REPORT HAS NO BEARING WHATSOEVER QUA THE ASSESSEE COMPANY PERTAINING TO THE YEAR UNDER ASSESSMENT; (XVIII) THAT WHEN NO EXPORT DURING THE YEAR UNDER A SSESSMENT HAS BEEN MADE BY THE ASSESSEE TO IRAQ, THE RELIANCE BY THE AO ON VOLKAR COMMITTEE REPORT WHICH UNDISPUTEDLY CONTAINS THE NAME OF THE ASSESSEE COMPANY, IS HIGHLY MISCONCEIVED AND MISPLACED; (XIX) THAT SO FAR AS DISALLOWANCE OF AMOUNT OF RS.10,28,957/- BY THE AO ON ACCOUNT OF COMMISSION EXPENSES BELOW RS.5,00,000/- IS CONCERNED DURING APPELLATE PROCEEDINGS, THE LD. CIT (A) HAS ENTERTAI NED ADDITIONAL EVIDENCE BY CALLING REMAND REPORT FROM T HE AO AND CAME TO THE CONCLUSION THAT DISALLOWANCE CANNOT BE MADE AND WE FIND NO ILLEGALITY OR PERVERS ITY IN THE FINDINGS RETURNED BY LD. CIT (A); (XX) THAT THE OBSERVATION MADE BY THE AO THAT NO INVOICE BELOW HAS BEEN RAISED BY THE SERVICE AGENTS WHICH MAKES THE BUSINESS TRANSACTION DOUBTFUL IS NOT TENABLE BECAUSE WHEN AS PER AGREEMENT, COMMISSION @ 4% OR 10% IN CASE OF DIFFERENT AGENTS, AS THE CAS E ITA NO.503/DEL./2011 19 MAY BE, IS ALREADY AGREED UPON BETWEEN THE PARTIES ON THE GOODS EXPORTED AND SERVICES HAVE BEEN RENDERED AND EXPORT CONTRACTS STANDS EXECUTED, WE DO NOT F IND ANY REASON TO DISALLOW THE CLAIM ONLY BECAUSE OF TH E FACT THAT INVOICES HAVE NOT BEEN RAISED BY THE SERV ICE AGENTS; (XXI) THAT EVEN OTHERWISE, WHEN ASSESSEE COMPANY HA S CATEGORICALLY SPREAD ITS INCOME INTO 3 YEARS THEN EXPENDITURE HAVE ALSO TO BE SPREAD IN 3 YEARS AND T HE DISALLOWANCE CANNOT BE MADE ON THE GROUND THAT THE AMOUNT OF AGENCY COMMISSION WAS PAYABLE EVEN DURING 2010; (XXII) THAT THE CONTENTION OF THE LD. DR THAT NO D OCUMENT / CORRESPONDENCE IS THERE ON RECORD TO PROVE THAT AS TO WHAT SERVICES HAVE BEEN RENDERED BY THE SERVICE AGENTS, IS AGAIN NOT TENABLE FOR THE REASON THAT WH EN INTRICATE PROJECTS HAVE BEEN EXECUTED BY THE ASSESS EE COMPANY AS PER TERMS AND CONDITIONS OF THE AGREEMENT, WHICH COULD NOT HAVE BEEN COMPLETED WITHOUT LOCAL ASSISTANCE AND ONLY THEREAFTER ASSESS EE COMPANY HAS EARNED TURNOVER OF RS.167 CRORES WITH NET PROFIT OF 17%, THE LD. CIT (A) HAS RIGHTLY ITA NO.503/DEL./2011 20 CONCLUDED THAT THE SERVICES HAVE BEEN RENDERED FOR A GENUINE BUSINESS TRANSACTION AND PAYMENT FOR THE AGENCY SERVICES IS ALLOWABLE. 10. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, FINDI NG NO ILLEGALITY OR PERVERSITY IN THE FINDINGS RETURNED B Y THE LD. CIT (A), THE PRESENT APPEAL FILED BY THE REVENUE IS HEREBY D ISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 22 ND DAY OF MARCH, 2017. SD/- SD/- (PRASHANT MAHARISHI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 22 ND DAY OF MARCH, 2017 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A)-VIII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.