The ACIT, Circle-2,, Surat v. M/s. Amit International, Surat

ITA 2017/AHD/2008 | 2004-2005
Pronouncement Date: 30-04-2010 | Result: Dismissed

Appeal Details

RSA Number 201720514 RSA 2008
Assessee PAN AAEFA1656J
Bench Ahmedabad
Appeal Number ITA 2017/AHD/2008
Duration Of Justice 1 year(s) 11 month(s) 1 day(s)
Appellant The ACIT, Circle-2,, Surat
Respondent M/s. Amit International, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 30-04-2010
Date Of Final Hearing 13-04-2010
Next Hearing Date 13-04-2010
Assessment Year 2004-2005
Appeal Filed On 29-05-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI MAHAVIR SINGH JUDICIAL MEMBER AND SHRI A.N.PHAUJA ACCOUNTANT MEMBER ITA NO.2017/AHD/2008 ASSESSMENT YEAR:2004-05 DATE OF HEARING:13.4.10 DRAFTED:13.4.10 ASSTT. COMMISSIONER OF INCOME-TAX CIRCLE-2 ROOM NO.110 1 ST FLOOR AAYKAR BHAVAN MAJURA GATE SURAT V/S. M/S. AMIT INTERNATIONAL C/2409 KOHINOOR MARKET RING ROAD SURAT PAN NO.AAEFA1656J (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI C.K. MISHRA DR RESPONDENT BY:- SHRI HARDIK VORA AR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE REVENUE IS ARISING OUT OF THE O RDER OF COMMISSIONER OF INCOME-TAX(APPEALS)-II SURAT IN APPEAL NO.CAS/II/4 41/06-07 DATED 28-03-2008. THE ASSESSMENT WAS FRAMED BY THE ACIT CIRCLE-2 SURAT U/S.143(3) OF THE INCOME-TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT) VI DE HIS ORDER DATED 28-12-2006 FOR THE ASSESSMENT YEAR 2004-05. 2. THE ONLY ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF FOREIGN BUYERS AGENT COMMISSION AMOUNTING TO RS.42 98 215/- U/S. 37 R.W.S. 93 OF THE ACT. 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSE THE CASE RECORDS INCLUDING THE ASSESSMENT ORDER THE ORDER OF CIT(A) AND ASSESSEE S PAPER FILED PAGES 1 TO 57. WE FIND THAT THE CONFIRMATION LETTER FROM M/S VISTA R TRADING LLC HAD BEEN FURNISHED IN COURSE OF THE ASSESSMENT PROCEEDINGS AND COPY OF THIS CONFIRMATION LETTER WAS ITA NO.2017/AHD/2008 A.Y.2004-05 ACIT CIR-2 SURAT V. M/S. AMIT INTERNATIONAL PAGE 2 ANNEXED BY THE ASSESSING OFFICER TO THE ASSESSMENT ORDER. THE LETTER DATED 20-11- 2006 WAS ADDRESSED TO THE MANAGING DIRECTOR OF THE ASSESSEE AND IT WAS IN THE LETTER HEAD OF THE AGENT INDICATING THEIR TELEPHONE AND FAX NOS. AS ALSO THEIR E-MAIL ID. ACCORDINGLY THE AO DID NOT GET SUFFICIENT TIME IN COURSE OF THE ASSESSMENT PROCEEDINGS TO VERIFY THE CONFIRMATION LETTER WAS W HICH ALSO ACCOMPANIED BY THE INVOICE AS ALSO THE BRCS AND OTHER EXPORT DOCUMENT S. WE FIND THAT THESE PAPERS WERE REFERRED TO THE AO BY THE CIT(A) AND IN COURSE OF THE REMAND PROCEEDINGS EVEN THOUGH THE AO LAMENTED THE ABSENCE OF ANY POWE R UNDER THE INCOME-TAX ACT TO VERIFY THE GENUINENESS OF SUCH AGENTS AND THEIR CON FIRMATION LETTERS SINCE THE AGENT WAS LOCATED IN THE FOREIGN COUNTRY YET HE DID ISSU E A DETAILED LETTER TO THE AGENT SEEKING COMPLETE INFORMATION WHICH IS INDICTED BY T HE REPLY FURNISHED BY THE AGENT VIDE LETTER DATED 04-10-2007. FOR REASONS BEST KNOW N TO THE ASSESSING OFFICER NO REFERENCE HAS BEEN MADE TO THIS LETTER IN THE REMAN D REPORT. THUS IT HAS BEEN CONFIRMED BY M/S. VISTAR TRADING LLC THAT THEY HAD ACTED AS A COMMISSION AGENT FOR THE ASSESSEE THAT THEY HAD ISSUED THE CONFIRMATION LETTER DATED 20-11-2006 THAT THE NATURE OF THEIR BUSINESS WAS TEXTILE TRADING AND CO MMISSION AGENT THAT THEY DID NOT HAVE ANY SISTER CONCERN IN INDIA THAT THEY HAD ON LY ONE FAMILY MEMBER WHO RESIDES IN JODHPUR AND THAT THEY HAD RECEIVED COMMISSION A GAINST THE SALE OF GOODS TO 3 PARTIES THE ADDRESSES OF WHOM WERE ALSO FURNISHED AND FINALLY THAT THE COMMISSION WAS RECEIVED DIRECTLY FROM THE BUYERS. IN THE FACE OF SUCH OVERWHELMING AND CONCLUSIVE EVIDENCE REGARDING THE IDENTITY OF THE A GENT THE SERVICES RENDERED AND THE AMOUNTS RECEIVED BY THEM AS ALSO THE DETAILS OF THE PARTIES TO WHOM SALES WERE AFFECTED BY THEIR SERVICES THERE REMAINS NO SCOPE TO RAISE ANY FURTHER DOUBT ABOUT THE GENUINENESS OF THE ASSESSEES CLAIM. IN VIEW OF THESE FACTS WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY VARIOUS DECISIONS OF THIS TRIBUNAL AND AS REFERRED BY THE LD. COUNSEL FOR THE ASSESSEE THE DECISION OF THIS TRIBUNAL IN THE CASE OF SHRI S AMIR A BATRA V. ITO IN ITA NO.4130/AHD/2007 DATED12-12-2008 WHEREIN IT IS HELD 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 BOOK PAGE 494 TO 519 THAT COMMISSION WAS PAYABLE TO THEM BY THE BUYER AND SUC H SUMS WERE TO BE DEDUCTED FROM THE GROSS INVOICE ALOES SO THAT THE SELLER WAS ENTITLED TO RECEIVE ONLY THE NET AMOUNT AFTER DEDUCTING THE COM MISSION IN RESPONSE OF EACH TRANSACTION. THEREFORE THE RECEIPT OF THE CO MMISSION AMOUNT HAD BEEN DULY CONFIRMED BY THE AGENTS WHICH IN TURN MEANT T HAT THE AMOUNTS WHICH ITA NO.2017/AHD/2008 A.Y.2004-05 ACIT CIR-2 SURAT V. M/S. AMIT INTERNATIONAL PAGE 3 WERE DEDUCTED FROM THE INVOICE VALUES ACTUALLY REPR ESENTED COMMISSION PAYMENTS WHICH WERE FINALLY RECEIVED BY THE AGENT. THIS FACT CLEARLY ESTABLISHED THE GENUINENESS OF THE TRANSACTIONS AND WHAT IS IMPORTANT IS THAT THIS WAS DONE IN ACCORDANCE WITH THE TERMS AND COND ITIONS AGREED UPON BETWEEN THE BUYERS AND SELLER EVEN THOUGH THERE WA S NO FORMAL AGREEMENT AS ARGUED BY THE LD. COUNSEL FOR THE ASSESSEE. WE F IND THAT THE AGENTS HAD UNEQUIVOCALLY CONFIRMED AND RECONFIRMED THE NATURE OF THE TRANSACTIONS AND IN THE ABSENCE OF ANY FORMAL AGREEMENT IT COULD NO T 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 EXPE NDITURE. THUS ONCE THE GENUINENESS OF THE COMMISSION PAYMENTS AS WELL AS I TS JUSTIFICATION OF HAVING BEEN WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOS E OF ASSESSEES 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. IT IS OBV IOUS IN THE CIRCUMSTANCES AND THE NATURE OF TRANSACTIONS WHICH HAVE BEEN DISCUSSE D ABOVE IN DETAILS THAT WHAT MAY HAVE ACCRUED TO THE ASSESSEE WAS THE GROSS INVOICE VALUES YET THE ASSESSEE UNDER THE TERMS OF THE AGREEMENT OR UN DERSTANDING WITH THE BUYER HAD TO DEDUCT FROM THE INVOICES THE AMOUNT O F COMMISSION PAYABLE. IN THE BACKGROUND OF SUCH FATS IT COULD NOT BE HELD T HAT THE GROSS INVOICE AMOUNTS WERE WHAT HAD ACCRUED TO THE ASSESSEE AND THESE WERE THE AMOUNTS ON WHICH THE ASSESSEE SHOULD HAVE BEEN ASSE SSED. THE OUTGOING COMMISSION FROM THE INVOICE VALUES WOULD HAVE TO B E REDUCED FROM THE GROSS AMOUNTS AND THE NET AMOUNT WHICH WAS THE ACTUAL SUM RECEIVED BY THE ASSESSEE IN INDIA AND WHICH WAS DULY CERTIFIED A ND 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 SA LE INVOICES WERE NEITHER RECEIVED BY THE ASSESSEE DURING THE YEAR NOR WAS I T EVER GOING TO BE RECEIVED IN FUTURE. IF THIS WAS THE VIEW OF THE AO THEN HE CONTRADICTED HIMSELF BY TAXING AMOUNTS WHICH HAD NOT BEEN RECEIVED AT AL L NOR DID THE ASSESSEE HAVE ANY LEGAL RIGHT TO RECEIVE 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 THE BUYER AND THE AGENT. CONSEQUENTLY THE ASSESSEE WAS UNDER AN OBLIGATION TO DEDUCT COMMISSION FROM THE GROSS INVOICE VALUES. IN THE PRESENT CASE THERE WAS A COMPULSION TO DEDUCT THE COMMISSION FROM THE EXPORT INVOICES WHIC H WAS CLEARLY INDICATED IN THE CONFIRMATION LETTERS OF THE AGENTS THE INGREDI ENTS WHICH WERE NECESSARY FOR SUCH DEDUCTION OF COMMISSION TO BE TREATED AS D IVERSION 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 TI TLE THE TRUE TEST IS WHETHER THE AMOUNT SOUGHT TO BE DEDUCTED IN TRUTH NEVER R EACH THE ASSESSEE AS HIS INCOME. WHEREBY AN OBLIGATION INCOME IS DIVERTED B EFORE IT REACHES THE ASSESSEE IT IS DEDUCTIBLE BUT WHERE THE INCOME IS REQUIRED TO BE APPLIED TO ITA NO.2017/AHD/2008 A.Y.2004-05 ACIT CIR-2 SURAT V. M/S. AMIT INTERNATIONAL PAGE 4 DISCHARGE AN OBLIGATION AFTER SUCH INCOME REACHES T HE 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 OBLIGATION OR COMPULSION 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 ALLOWABLE AS DEDUCTION. THE LOWER AUTHORITIES HAVE NOTED THAT MOST OF THE SO-CALLED C ONFIRMATIONS ARE ON PAPER AND DOES NOT BEAR THE LETTER HEAD OF THE SAID BUYER S. THIS IS PARTLY CORRECT BECAUSE PLAIN PAPER CONFIRMATION WAS IN REFERENCE T O 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 H AVE MAKE INQUIRY IF HE HAS ANY DOUBT IN THIS REGARD. BUT HE SIMPLY CONCLUDE D THAT IT IS ON A PLAIN PAPER AND DID NOT BELIEVE THE AFORESAID COMMISSION PAYMEN T PARTICULARLY WHEN THE ASSESSEE IS HAVING SUPPORTING EVIDENCE IN REFEREN CE TO THE CONFIRMATION LIKE SALES INVOICES EXCHANGE CONTROL COPY OF SHIPPING B ILLS AND BANK REALIZATION CERTIFICATE . ALL THESE EVIDENCE GOES WITHOUT SAYIN G THAT DE FACTO COMMISSION HAS BEEN PAID BY ASSESSEES BUYER TO THE AGENTS DIR ECTLY. THE OTHER CONFIRMATION IS FROM AL AHED JAHID TEXTILES OF KUVA IT IS ENCLOSED AT PAPER BOOK PAGE NO. 508 WHICH IS ON LETTER HEAD THEN P.T . SINAR OF INDONESIA 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 B OOK PAGE NO. 504 TO 506 THEN LIPINGE TEXTILE OF DUBAI IS AGAIN ON LETTER HE AD AT 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 ABDULL A 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 REALIZATION C ERTIFICATE ENCLOSED AT PAPER BOOK PAGE NO. 390 TO 451. THE ASSESSEE HAS RECEIVED THE AFORESAID PAYMENT WITHIN SIX MONTHS AS PER RBI RULES AND GUIDELINES. THE AO HAS PRESUMED THAT ASSESSEES BUYER HAS TO PAY COMMISSION AS AND WHEN BUYER RECEIVED THE PAYMENT FROM THE ASSESSEE WHICH IS NOT CORRECT BECAUSE IN ANY CASE THE ASSESSEE HAVE RECEIVED THE NET PAYMENT I.E. AFTER DEDUCTING COMMISSION AND PAYMENT OF COMMISSION IS NEVER DEPENDENT ON PAYMENT TO BE RECEIVED BY THE ASSESSEE. SO IT HAS NO CONNECTION WITH THE REAL IZATION OR SIX MONTHS CRITERIA. IN VIEW OF THE ABOVE FACTS NOW WE WILL D ISCUSS THE PRINCIPLE LAID DOWN BY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF AH MEDABAD STAMP VENDORS ASSOCIATION (SUPRA). AS HELD BY THE HON'BLE HIGH CO URT THE INGREDIENTS OF WHAT IS COMMISSION ARE CONTAINED IN THE EXPLANATION TO SECT. 194H. THERE HAS TO BE RENDERING OF SERVICES SUCH SERVICES HAVE TO BE RENDERED IN THE COURSE OF BUYING AND SELLING OF GOODS OR IN RELATIO N TO ANY TRANSACTION INVOLVING ANY ASSET VALUABLE ARTICLE OR THING. TH ERE HAS TO BE AN ELEMENT OF AGENCY IN THE RENDERING OF ALL SUCH SERVICES OR TRA NSACTIONS AND THE AGENT SHOULD HAVE BEEN AUTHORIZED TO BUY OR SELL ON BEHAL F OF THE PRINCIPAL. WHILE THE TRANSFEREE OR THE BUYER IS LIABLE TO THE TRANSF EROR OR THE SELLER TO PAY THE PRICE FOR THE GOODS THE LIABILITY OF THE AGENT IS TO ENSURE THE DELIVERY OF THE ITA NO.2017/AHD/2008 A.Y.2004-05 ACIT CIR-2 SURAT V. M/S. AMIT INTERNATIONAL PAGE 5 GOODS TO THE BUYER NOT AS HIS OWN PROPERTY BUT AS T HE PROPERTY OF THE PRINCIPAL OR THE SELLER/TRANSFEROR. IF SUCH PRINCIPLES AS E NUNCIATED BY THE HON. COURTS ARE TO BE APPLIED IN THE CASE OF THE ASSESSEE IT W ILL BE SEEN THAT ALL THE ELEMENTS WHICH ARE REQUISITE FOR ANY TRANSACTION IN VOLVING PAYMENT OF COMMISSION WERE PRESENT. FIRSTLY EACH OF THE TR ANSACTIONS BETWEEN THE ASSESSEE AS THE SELLER AND THE TWO BUYERS WERE MEDI ATED BY AGENTS WHOLE EXISTENCE WAS ESTABLISHED BEYOND DOUBT BY THE CONF IRMATION LETTERS. SECONDLY THERE WAS RENDERING OF SERVICES. THE AGEN TS HAD CLEARLY WRITTEN THAT THEY HAVE RENDERED SERVICES; IN PROCURING SAMP LES DECIDING THE ORDERS AND SETTLING ALL MATTERS BETWEEN THE BUYERS AND SE LLER INCLUDING PAYMENTS BY THE BUYERS TO THE SELLER. CONSIDERING THE NATURE O F SUCH SERVICES RENDERED BY THE AGENTS EVEN IF THEY WERE APPOINTED BY THE BUYE RS SERVICES WERE INDIRECTLY RENDERED TO THE ASSESSEE AS THE SELLER S WELL. THE SAMPLES WERE PRODUCED BY THEM FROM THE ASSESSEE THEY DECIDED ON THE QUANTUM OF THE ORDER AND THE PRICE THEY SETTLED ALL DISPUTES BETW EEN THE BUYERS AND THE SELLER AND THEY ALSO ENSURED THE PAYMENTS TO THE S ELLER. THE EXISTENCE OF THE AGENTS AND THEIR FUNCTIONING WAS FOR THE BENEFIT OF THE ASSESSEE AS WELL. THEREFORE THE EVIDENCE PRODUCED BY THE ASSESSEE CA NNOT BE WISHED AWAY ON THE GROUND THAT THE AGENTS ONLY PROVIDED SERVICE S TO THE BUYER AND NOT TO THE ASSESSEE. IN VIEW OF THE ABOVE FACTS AND CIRCU MSTANCES 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 ASSESSE ES APPEAL IS ALLOWED. 4. AS THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THIS TRIBUNAL IN THE CASE OF SAMIR A BATRA (SUPRA) WE CONFIRM THE ORDER OF CIT(A) DELETING T HE ADDITION AND THIS ISSUE OF THE REVENUES APPEAL IS DISMISSED. 5 IN THE RESULT REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 30/04/2010 SD/- SD/- (A.N.PHAUJA) (MAHA VIR SINGH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD DATED :30/04/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-II SURAT 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD