M/s Sri Aurobindo Impex &Co., R.R.Dist V. JCIT, Hyderabad

ITA 777/HYD/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5960 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 21-01-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 11-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VASUNDHARA SINHA
• Assessee Lawyers: K VASANT KUMAR
• Keywords: Business expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI G.C.GUPTA, VICE PRERSIDENT AND SHRI AKBER BASHA, ACCOUNTANT MEMBER ITA NO. 777/HYD/09 : ASST. YEAR 2006- 07 M/S. SRI AUROBINDO IMPEX & CO., HYDERABAD. (PAN:AAGFS-4597J) V/S. JCIT, IT RANGE-8, HYDERABAD. (APPELLANT) (RESPONDENT) APPELLANT BY : SRI K. VASANT KUMAR RESPONDENT BY : SMT VASUNDHARA SINHA O R D E R PER AKBER BASHA, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER O F CIT (A)-III, HYDERABAD DATED 27-4-2009 FOR ASSESSMENT YEAR 2 006-07. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS FOLLOWS:- I) THE ORDER OF THE LEARNED CIT (A) IS ERRONEOUS BOTH ON FACTS AND IN LAW IN SO FAR AS IT IS PREJUDICIAL TO THE ASSESSEE. II) THE LEARNED CIT (A) ERRED IN CONFIRMING THE DISAL LOWANCE OF COMMISSION OF RS.1,15,46,223 U/S 37 WHEN THE DISALLOWANCE IS MADE BY THE ASSESSING OFFICER U/S 40 (A)(I). III) THE LEARNED CIT (A) FAILED TO APPRECIATE THE FACT TH AT THE COMMISSION IS PAID FOR PROCURING FOREIGN SALES AND ERRED I N GIVING A FINDING THAT THE NATURE OF SERVICES RENDERED IS NOT 2 KNOWN IN SPITE OF DEBIT NOTES REFER TO SALES EFFECTED AN D THEREBY ERRED IN CONFIRMING THE DISALLOWANCES. IV) THE LEARNED CIT (A) ERRED IN CONFIRMING THE DISALLOWA NCE OF COMMISSION WHICH WAS BEING ALLOWED IN ALL THE PREVIOUS ASSESSMENT YEARS. V) THE LEARNED CIT (A) HAVING CALLED FOR THE DETAILS ABO UT COMMISSION AS STATED BY HIM IN HIS ORDER, WHEN HE PROPOSES TO DISALLOW THE SAME ON SUCH INFORMATION INVOKIN G THE PROVISIONS OF SEC. 37 AND FURTHER PROPOSED TO RELY O N CERTAIN JUDICIAL PRONOUNCEMENTS ERRED IN PASSING ORDER WITHOUT ISSUING A SHOW CAUSE LETTER WITH SUCH PROPOSALS THEREBY DENYING AN OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE ITS CASE.' 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FIRM IS EN GAGED IN EXPORT OF BULK DRUGS, DRUG INTERMEDIATES AND FORMULAT IONS ETC. THE ASSESSEE CLAIMED COMMISSION ON SALES AT RS.1,15,46,223 PAID T O FOREIGN AGENTS AND THE PAYMENTS WERE MADE THROUGH BANKING CHAN NELS BY WAY OF DEMAND DRAFTS AND TTS. IT WAS FOUND BY THE ASSESSING O FFICER THAT NO TDS WAS EFFECTED ON THE SAID COMMISSION PAYMENTS AND IT W AS HELD BY THE ASSESSING OFFICER THAT THE SAID DEMAND DRAFTS AND TTS WERE OBTAINED FROM THE BANKS AT HYDERABAD AND WERE SENT ABROAD THRO UGH THE MEDIUM OF COURIERS. THESE BANKS AND COURIERS ACTED AS AGENTS OF N ON-RESIDENTS AND RECEIVED REMITTANCES IN INDIA ON BEHALF OF THE NON RESIDENT AGENTS. HENCE, THE REMITTANCES ARE DEEMED TO HAVE BEEN RECEIVED IN INDIA ON BEHALF OF THE NON RESIDENTS AND BY VIRTUE OF PROVISION S CONTAINED IN SECTION 5(2)(A) OF THE ACT, THE COMMISSION INCOME DEEMED TO HAVE BEEN RECEIVED IN INDIA IS CHARGEABLE TO TAX IN INDIA ON WHI CH THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE. SINCE THE ASSESSEE DID NO T DEDUCT TAX, 3 THE EXPENSES ARE NOT ALLOWABLE U/S 40(A) (I) OF THE ACT . AGAINST THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE WENT IN APPEA L BEFORE THE CIT (A). THE CIT (A) BY FOLLOWING THE DECISION OF THI S TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2002-03 AND 2003- 04, THE SAID ISSUE OF DISALLOWANCE U/S 40(A) (I) WAS DECIDED IN FAV OUR OF THE ASSESSEE. HOWEVER, DURING THE APPEAL PROCEEDINGS, THE CIT (A) DIRECTED THE ASSESSEE TO PRODUCE EVIDENCE AND DETAILS SHOWING THE SER VICES RENDERED BY FOREIGN AGENTS FOR WHICH THE COMMISSION WAS PAID TO THEM. AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE THE CIT (A) DISALLOWED THE COMMISSION AS NOT ALLOWABLE AS BUSINESS EXPENDITURE A S THE SAME WERE NOT PROVED TO HAVE BEEN INCURRED WHOLLY AND EXC LUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. AGGRIEVED BY THE O RDER OF THE CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT WI THOUT THE HELP OF AGENTS, THE ASSESSEE COULD NOT SELL ITS PRODUCTS OU TSIDE THE COUNTRY AND THE AGENTS FOLLOWED UP THE DELIVERY TO TH E CONSIGNEE AND INSURED THE PAYMENTS. THE LEARNED AR FILED THE COPIES OF THE DEBIT NOTES RAISED BY THE AFORESAID AGENTS AND COPIES OF THE L ETTERS ISSUED BY THE ASSESSEE TO THE INDUS INDUS BANK LIMITED FOR REMITTIN G THE AMOUNTS TO THE FOREIGN AGENTS. IT WAS FURTHER SUBMITTED THAT THERE WAS NEITHER ANY WRITTEN AGREEMENT WITH THE AFORESAID AGENTS NOR A NY CORRESPONDENCE OR OTHER EVIDENCE TO SUBSTANTIATE THE SERV ICES RENDERED BY THE AFORESAID AGENTS. IT WAS CLAIMED THAT SIMILAR CO MMISSION EXPENSES WERE CLAIMED IN EARLIER YEAR AND WERE NEVER D OUBTED BY THE ASSESSING OFFICER. THE LEARNED CIT(A) WAS WRONG IN DISALLO WING THE COMMISSION U/S 37 OF THE ACT WHEN THE DISALLOWANCE WAS MAD E BY THE ASSESSING OFFICER U/S 40 (A)(I) OF THE ACT. IN SPITE OF D EBIT NOTES PRODUCED WHICH REFERS TO THE SALES EFFECTED BY THE ASSESSEE, THE CIT(A) 4 WAS NOT RIGHT IN HOLDING THAT THE NATURE OF SERVICES BY THE AGENTS ARE NOT KNOWN. HE FURNISHED THE COPIES OF THE DEBITS NOTES SENT B Y THE AGENTS FOR MAKING THE PAYMENT OF COMMISSION AND ALSO COPIES OF BANK ADVICES IN SUPPORT OF THE PAYMENTS. 5. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT IT IS SETTLED POSITION OOF LAW THAT WHERE THE ASSESSEE IS CLAIMING ANY EXPENSES AS ALLOWABLE U/S 37 OF THE ACT, THE BURDEN IS ON THE ASSESSE E TO PROVE THAT THE SAME WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE B USINESS PURPOSE AND IT IS NOT ON THE ASSESSING OFFICER TO PROVE IT OTHER WISE. MERE PAYMENT OF COMMISSION BY BANKING CHANNEL IS NOT A CONCLUS IVE PROOF THAT ANY SERVICES WERE ACTUALLY RENDERED BY THE COMMISSION AGENTS WHO EARNED THE COMMISSION. THE DEBIT NOTE PRODUCED BY THE LEARNED COUNSEL DOES NOT CONTAIN ANY NATURE OF SERVICE RENDERED. IN SUPPORT OF HER CONTENTION, SHE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 6. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERI AL AVAILABLE ON RECORD. IT IS UNDISPUTED FACT THAT THE PAYMENT OF COM MISSIONS WERE MADE BY THE ASSESSEE THROUGH BANKING CHANNELS. IT IS AL SO ADMITTED FACT THAT THE DEPARTMENT NOT DOUBTED SIMILAR COMMISSION EXPENSES CLAIMED IN THE EARLIER YEAR. IN THE EARLIER THREE Y EARS, THE DEPARTMENT DISALLOWED THE COMMISSION PAYMENTS BY INVOKING SECTION 40( A)(I) OF THE ACT. LATER, THIS TRIBUNAL DECIDED THE ISSUE OF DISALLOWA NCE U/S 40(A) IN FAVOUR OF THE ASSESSEE. IN THE PRESENT APPEAL, THE ASSE SSING OFFICER DISALLOWED THE COMMISSION PAYMENT ONLY BY INVOKING SECTIO N 40 [A][I] OF THE ACT, BUT THE CIT A CONFIRMED THE DISALLOWANCE OF COM MISSION UNDER SECTION 37 OF THE ACT HOLDING THAT THE ASSESSEE DID NOT PR OVED ANY EVIDENCE IN SUPPORT OF SERVICES BEING RENDERED BY THE COM MISSION AGENTS. WE FIND FROM THE DEBIT NOTES RAISED BY THE COM MISSION AGENTS, WHICH WERE PRODUCED BEFORE US, DETAILS OF INVOICE AS WELL AS COMMISSION 5 AMOUNTS WERE MENTIONED IN THE DEBIT NOTE. AS PER THE MASTER CIRCULAR ON EXPORT OF GOODS AND SERVICES, AUTHORIZED DEALERS ARE ALLOWED TO MAKE PAYMENT OF COMMISSION IF THE AMOUNT OF COMMISSION HAS BEE N DECLARED ON SHIPPING BILL ACCEPTED BY THE CUSTOMS AUTHORITIES AND THE RELATIVE SHIPMENT HAS ALREADY BEEN MADE. ONLY IN CASE WHERE COMM ISSIONS HAS NOT BEEN DECLARED ON GR OR SHIPPING BILL, REMITTANCE M AY BE ALLOWED AFTER SATISFYING THE REASONS ADDUCED BY THE EXPORTER FO R NOT DECLARING COMMISSION PROVIDED A VALID AGREEMENT BETWEEN THE EXPO RTER AND THE AGENT EXISTS. AS PER THE LETTER ISSUED TO THE BANKER F OR PAYMENT OF COMMISSION BY THE ASSESSEE, WHICH IS PLACED IN THE PAPER BOOK , WE FIND THAT THE COMMISSION AMOUNTS WERE MENTIONED IN THE SHIPPI NG BILL. IT IS ALSO OBVIOUS THAT THE ASSESSEE COULD NOT SELL THE PRODUCTS O UTSIDE THE COUNTRY WITHOUT THE HELP OF THE AGENTS. NORMALLY, A GENTS FOLLOW UP AFTER THE DELIVERY AND INSURED FOR THE PAYMENT. WE SEE MER IT IN THE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE CIT(A) FAILED TO APPRECIATE THE FACTS THAT THE COMMISSION IS PAID FOR P ROCURING FOREIGN SALES AND ERRED IN GIVING THE FINDING THAT THE NATURE OF SERVICES RENDERED IS NOT KNOWN IN SPITE OF DEBIT NOTES REFERS TO THE SALE S EFFECTED. CONSIDERING THE TOTALITY OF FACTS AND THE CIRCUMSTANCES O F THE CASE, WE ARE OF THE VIEW THAT THE COMMISSION MADE TO THE FOREI GN AGENTS NEEDS TO BE ALLOWED AS BUSINESS EXPENDITURE IF THE COMMISSION AMOUNT IS MENTIONED IN THE SHIPPING BILLS ACCEPTED BY THE CUSTOMS A UTHORITIES AND THE RELATIVE SHIPMENTS ALREADY BEEN MADE. IN VIEW O F THE ABOVE, WE DIRECT THE ASSESSING OFFICER TO VERIFY THE COMMISSION AMOUNT S MENTIONED IN ALL THE SHIPPING BILLS FOR WHICH COMMISSION PAYMENTS H AVE BEEN EFFECTED AND ALLOW THE SAME ACCORDINGLY. 7. WITH THE ABOVE LIMITED DIRECTION, THE APPEAL BY T HE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 6 ORDER PRONOUNCED IN THE COURT ON 5-2-2010. SD/- SD/- (G.C.GUPTA) (AKBER BASHA) VICE PRESIDENT. ACCOUNTANT MEMBER. DT/- 05TH FEBRUARY, 2010 COPY FORWARDED TO: 1. SHRI K. VASANT KUMAR, ADVOCATAE, 403, MANISHA TOWE RS, 10- 1-18/31, SHYAMNAGAR, HYDERFABAD. 2. JCIT, RANGE-8, HYDERABAD. 3. COMMISSIONER OF INCOME-TAX, HYDERABAD. 4. COMMISSIONER OF INCOME TAX(A)-III, HYDERABAD. 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. JMR*