The ITO, Ward-2(2),, Surat v. Shri Rajiv N.Batra, Surat

ITA 2431/AHD/2008 | 2004-2005
Pronouncement Date: 09-09-2011 | Result: Dismissed

Appeal Details

RSA Number 243120514 RSA 2008
Assessee PAN ABBPB7505M
Bench Ahmedabad
Appeal Number ITA 2431/AHD/2008
Duration Of Justice 3 year(s) 2 month(s) 12 day(s)
Appellant The ITO, Ward-2(2),, Surat
Respondent Shri Rajiv N.Batra, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 09-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 09-09-2011
Date Of Final Hearing 21-06-2011
Next Hearing Date 21-06-2011
Assessment Year 2004-2005
Appeal Filed On 27-06-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD BEFORE SHRI D.K. TYAGI JUDICIAL MEMBER AND SHRI A. K. GARODIA ACCOUNTANT MEMBER I.T.A. NO.2431/ AHD/2008 (ASSESSMENT YEAR 2004-05) ITO WARD 2(2) SURAT VS. SHRI RAJIV N BATRA PROP. M/S. RAJ INTERNATIONAL B-3243 KOHINOOR MARKET RING ROAD SURAT. I.T.A. NO.2432/ AHD/2008 (ASSESSMENT YEAR 2004-05) ITO WARD 2(2) SURAT VS. SHRI YUDHISHTIR N BATRA PROP. M/S. RAJ INTERNATIONAL B-3243 KOHINOOR MARKET RING ROAD SURAT. PAN/GIR NO. : ABBPB7505M / ABBPB7855L (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI ALOK JOHRI CIT DR RESPONDENT BY: SHRI RUSESH SHAH & SHRI HARDIK VORA AR DATE OF HEARING: 21.07.2011 DATE OF PRONOUNCEMENT: 09.09.2011 O R D E R PER SHRI A. K. GARODIA AM:- BOTH THESE APPEALS ARE OF THE REVENUE IN THE CASES OF TWO DIFFERENT ASSESSEES I.E. SHRI RAJIV N BATRA AND SHRI UDHISHTI R N BATRA SURAT. BOTH THESE APPEALS ARE DIRECTED AGAINST TWO SEPARATE ORD ERS OF LD. CIT(A) II SURAT BOTH DATED 26.03.2008 FOR THE ASSESSMENT YEAR 2004-05. IT WAS I.T.A.NO.2431 2432 /AHD/2008 2 AGREED BY BOTH THE SIDES THAT THE FACTS AND DISPUTE IN BOTH THESE APPEALS ARE IDENTICAL AND HENCE BOTH THESE APPEALS WERE HE ARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. SINCE BOTH THE SIDES AGREED THAT THE FACTS ARE I DENTICAL IN BOTH THE CASE WE DISCUSS THE FACTS IN THE CASE OF UDHISHTIR N BATRA I.T.A.NO. 2432/AHD/2008. THE FACTS TILL THE ASSESSMENT STAGE ARE NOTED BY LD. CIT(A) IN PARA 8 TO 8.6 OF HIS ORDER WHICH ARE REP RODUCED BELOW: 8. IN COURSE OF THE ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD PAID COMMISSION TO FOREIGN PARTIES OF A TOTAL SUM OF RS.2 46 34 146. THE AO ASKED THE ASSESSEE TO PRO DUCE THE RELEVANT EXPORT INVOICES AS ALSO BANK REALISATION C ERTIFICATES (BRCS) PERTAINING TO THE EXPORT BILLS. ON A VERIFIC ATION OF THESE DOCUMENTS THE AO FOUND THAT THE ASSESSEE HAD PAID COMMISSION ON THE INVOICE VALUES AT AN AVERAGE RATE OF 10.73%. THE AO ALSO FOUND THAT FROM THE DOCUMENTS SUBMITTED THE IDENT ITY OF THE AGENTS AND THE PURPOSE FOR WHICH SUCH LARGE COMMISS ION PAYMENTS HAD BEEN MADE WAS NOT VERIFIABLE. THE AO THEREFORE SOUGHT INFORMATION FROM THE ASSESSEE UNDER THE PROVISIONS OF SEC. 133(4) OF THE IT ACT REGARDING THE NAMES AND ADDRESSES OF THE AGENTS NATURE OF SERVICES RENDERED THE MODE OF PAYMENTS THE PROOF OF REMITTANCES/PAYMENTS ACTUALLY MADE COPIES OF AGREE MENTS SIGNED WITH EITHER THE AGENTS OR THE BUYERS RELATING TO SU CH PAYMENT OF COMMISSION CONFIRMATION LETTERS FROM THE AGENTS AN D COPIES OF STATEMENTS OF FOREIGN CURRENCY ACCOUNTS MAINTAINED WITH THE AUTHORISED DEALERS OR THE RBI. 8.1 IN RESPONSE TO THE NOTICE U/S.133(4) AND THE QUERIES RAISED IN COURSE OF THE ASSESSMENT PROCEEDINGS THE ASSESSEE ONLY SUBMITTED A CONFIRMATION FROM ONE OF THE AGENTS M/S.TOHIL TRA DING ESTABLISHMENT DUBAI ALONG WITH A CHART SHOWING DET AILS OF COMMISSION PAID. 8.2 THE AO ANALYSED THE INFORMATION FURNISHED BY TH E ASSESSEE AS ALSO THE BANK. HE OBSERVED THAT NO COMMISSION HAD B EEN REMITTED BY THE ASSESSEE AND THE SUM CLAIMED AS COMMISSION E XPENDITURE I.T.A.NO.2431 2432 /AHD/2008 3 HAD BEEN NETTED OFF FROM THE INVOICE AMOUNTS. IF AN Y CLAIM OF COMMISSION WAS TO BE MADE IT HAD TO BE EXPENDITURE INCURRED ONLY BY THE ASSESSEE AND IF THE FOREIGN BUYER WAS TO HAVE ANY ROLE IT COULD ONLY BE OF FACILITATING THE PAYMENT ON BEHALF OF THE ASSESSEE. IT WAS ONLY THE ASSESSEE WHO WOULD BE LIA BLE AND RESPONSIBLE FOR PAYING THE COMMISSION. IT WAS ERRON EOUS ON THE PART OF THE ASSESSEE TO ARGUE THAT HE HAD NOTHING T O DO AND WAS NOT BOTHERED ABOUT MAKING PAYMENTS TO THE SO-CALLED COMMISSION AGENTS. CONSEQUENTLY THE CONTENTION THAT SINCE TH E ASSESSEE HAD NOT MADE THE PAYMENTS DIRECTLY HE WAS NOT IN A POS ITION TO FURNISH ANY DETAIL CONCERNING THE AGENTS I.E. THE NAMES AND ADDRESSES THE NATURE OF SERVICES RENDERED ETC. WAS NOT ACCEPTABL E. THE IGNORANCE OF THE ASSESSEE REGARDING THE DETAILS OF PAYMENTS C ONSTITUTED AN ADMISSION OF THE FACT THAT NO SERVICE HAD BEEN REND ERED BY THE AGENTS AND HENCE THE PAYMENT OF COMMISSION WAS NOT GENUINE. THE ASSESSEE HAD DECLARED THE COMMISSION AMOUNT ON THE GR FORMS AND THE BANK HAD ALLOWED THE SAME TO BE REDUC ED FROM THE INVOICE VALUES AFTER VERIFYING THE ENTRY IN THE GR FORMS. HOWEVER THE POINT TO BE NOTED WAS THAT THE RBI HA D NOWHERE PROVIDED THAT THE COMMISSION CLAIMED BY THE ASSESSE E AND REDUCED FROM INVOICE VALUES WOULD BE ALLOWED AS A B USINESS EXPENDITURE UNDER THE IT ACT SIMPLY IF IT WAS DECL ARED BY THE ASSESSEE AND VERIFIED BY THE BANK. 8.3 ACCORDING TO THE AO NO COMMISSION COULD BE PAI D TO THE BUYER ITSELF AND NO BUYER HAD CONFIRMED THE RECEIP T OF COMMISSION. THE ARGUMENT THAT THE RATE OF COMMISSIO N WAS DECIDED AT THE TIME OF EXPORT AND ON THE BASTS OF T HE SAME THE GROSS INVOICE VALUE IS QUOTED WAS NOT ACCEPTABLE. IT WAS ONLY THE NET AMOUNT WHICH SHOULD HAVE BEEN QUOTED IN THE INVOICE SINCE IN THE GR FORM SUBMITTED BEFORE THE BANK THE ASSESSEE HAD HIMSELF DECLARED THE SAID SUM AS COMMISSION THERE WAS NO R EASON WHY THE ASSESSEE SHOULD NOT HAVE RECOGNISED THIS SUM IN THE BOOKS OF ACCOUNT UNDER THE HEAD OF COMMISSION EXPENSES. EVEN THOUGH IT HAD BEEN CLAIMED THAT THE COMMISSION HAD BEEN PAID TO THE BUYER YET NO EVIDENCE HAD BEEN FURNISHED IN SUPPORT OF S UCH A CLAIM. THE AO THEN ENTERED INTO A DETAILED DISCUSSION ON T HE ACCOUNTING TREATMENT WHICH THE ASSESSEE SHOULD HAVE GIVEN TO S UCH A CLAIM IN THE BOOKS OF ACCOUNT. HE THUS OBSERVED THAT EVEN TH OUGH THE COMMISSION HAD BEEN REDUCED FROM THE GROSS INVOICE VALUES IT I.T.A.NO.2431 2432 /AHD/2008 4 WAS IN EFFECT IN THE NATURE OF EXPENSES WHICH SHOUL D HAVE BEEN DEBITED UNDER THE HEAD OF COMMISSION ACCOUNT AND T HE SALES ACCOUNT REDUCED CORRESPONDINGLY. INSTEAD OF PASSING SUCH ENTRIES THE ASSESSEE HAD ONLY ACCOUNTED FOR THE SALES NET O F THE COMMISSION AMOUNTS WITHOUT MAKING A SEPARATE ENTRY OF THE COMMISSION CLAIMED TO HAVE BEEN PAID. THUS THE ASS ESSEE HAD MANIPULATED HIS ACCOUNTS SO THAT THE ACCOUNTS STILL BALANCED EVEN THOUGH IT WAS ESSENTIALLY A DISTORTED AND INCORRECT PICTURE OF THE TRADING AS WELL AS P &L ACCOUNT. BY NETTING OFF THE COMMISSION AGAINST THE SALES THE ASSESSEE HAD COMPLETELY REMO VED THE HEAD OF COMMISSION EXPENDITURE FROM THE PROFIT AND LOSS ACCOUNT. COMMISSION PAYMENTS SHOULD HAVE BEEN ACCOUNTED FOR IN THE SAME WAY AND MANNER THAT TRADE DISCOUNT IS ACCOUNTED FOR WHICH IS ALSO NETTED OUT FROM THE PURCHASES/SALES AND YET A SEPA RATE CORRESPONDING ENTRY IS MADE UNDER THE HEAD OF' TRAD E DISCOUNT'. MOREOVER AN ENTRY IN THE P&L ACCOUNT CAN BE NETTED OFF ONLY WITH ANOTHER ENTRY IN THE P&L ACCOUNT BUT NEVER AGAINST AN ENTRY IN THE TRADING ACCOUNT. THE ENTRIES PASSED BY THE ASSESSEE WERE THUS BLATANTLY INCORRECT AND HENCE MISLEADING WHICH COU LD MAKE THE BOOKS OF ACCOUNT LIABLE TO REJECTION U/S.145 OF THE IT ACT. UNDER THE PROVISIONS OF SEC. 44AB THE ASSESSEE WAS REQUI RED TO SHOW EITHER THE 'TOTAL SALES' OR THE 'GROSS RECEIPT'. BY SHOWING THE SALES AT NET VALUE THE ASSESSEE HAD VIOLATED THE PROVISIONS OF THE SAID SECTION. 8.4 REBUTTING THE ASSESSEE'S ARGUMENT THAT HE COULD NOT BE TAXED ON WHAT HE HAD NOT RECEIVED THE AO OBSERVED THAT T HE ASSESSEE WAS TO BE TAXED ON HIS TOTAL INCOME WHICH IS DEFIN ED UNDER SEC.5 OF THE IT ACT. THE ASSESSEE WAS TO BE TAXED ON HIS TOTAL INCOME ON ACCRUAL BASIS EVEN IF HE DID NOT RECEIVE SUCH INCO ME. THEREFORE IT WAS NOT RELEVANT FOR THE PURPOSE OF TAXATION AS TO WHETHER OR NOT THE ASSESSEE HAD SHOWN OR HAD CLAIMED EXPENDITURE O N ACCOUNT OF COMMISSION IN THE P&L A/C. THE EFFECT OF THE EXPENS ES HAD ALREADY BEEN REFLECTED IN THE SALES. SINCE THE ASSE SSEE HAD THUS FAILED TO SATISFY THE TEST OF COMPLETENESS AND CORR ECTNESS OF THE ACCOUNTS AS REQUIRED U/S.145 OF THE IT ACT THE AO REJECTED THE ASSESSEE'S ACCOUNTS UNDER THE PROVISIONS OF SEC. 14 5(3). 8.5 THE AO THEN OBSERVED THAT SINCE THE ASSESSEE HA D ALLEGEDLY MADE PAYMENT OF COMMISSION OUTSIDE THE JURISDICTION AL TERRITORY OF I.T.A.NO.2431 2432 /AHD/2008 5 INDIA SUCH PAYMENT WOULD BE SUBJECT TO THE COMMERC IAL AGENCY LAW OF THE COUNTRY TO WHICH THE GOODS HAD BEEN EXPO RTED. SINCE MOST OF THE EXPORTS WERE MADE TO THE UAE THE UAE C OMMERCIAL AGENCIES LAW (FEDERAL LAW NO.18 OF 1981 AS AMENDED BY THE FEDERAL LAW NO. 14 OF 1988) WOULD COVER THE APPOINT MENT OF COMMERCIAL AGENT IN THE SAID COUNTRY. AS PER THE SA ID LAW THERE ARE CERTAIN REQUIREMENTS AND CHARACTERISTICS OF COM MISSION AGENCIES' IN THE SAID COUNTRY WHICH THE AO LISTED O UT IN PARA-44 OF THE ASSESSMENT ORDER WHILE IN PARA-45 HE RECORDED THE PROCEDURES AND CONDITIONS FOR THE APPOINTMENT OF SUCH COMMERCI AL AGENTS. HE ALSO LISTED OUT THE CONDITIONS THAT HAD TO BE SATIS FIED IF THE AGENCY AGREEMENT WAS SIGNED OUTSIDE THE UAE. THE AO THUS N OTED THAT THE ASSESSEE HAD NOT FOLLOWED OR COMPLIED WITH ANY OF SUCH REQUIREMENTS IN CASES OF THE EXPORTS MADE TO THE UA E. NEITHER HAD ANY AGENCY AGREEMENT BEEN PRODUCED NOR HAD COMPLETE DETAILS OF THE AGENTS BEEN FURNISHED. THE ASSESSEE HAD THUS VI OLATED THE LAW OF THE LAND OF THE UAE AND CONSEQUENTLY THE EXPEND ITURE ON ACCOUNT OF COMMISSION PAYMENT WAS NOT ALLOWABLE UND ER THE EXPLANATION TO SEC. 37 (1) OF THE IT ACT. REFERRING TO THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA A ND THE UAE THE AO NOTED THAT WHILE SHOWING COMMISSION PAY MENT TO AGENTS IN THE UAE THE ASSESSEE HAD REDUCED ITS TAX ABLE INCOME WHILE THE CORRESPONDING INCOME IN THE HANDS OF THE AGENTS IN THE UAE WAS NOT TAXABLE AS PER THE EXISTING LAW OF THE LAND. THEREFORE SUCH AMOUNT HAD ESCAPED TAX IN BOTH THE COUNTRIES WHICH AS PER THE SPIRIT OF THE DTAA WAS TO BE PREV ENTED. 8.6 NEXT THE AO FOCUSED ON THE ALLOWABILITY ON SUC H COMMISSION PAYMENT IN TERMS OF SEC. 37 OF THE IT ACT AS PER W HICH SUCH PAYMENT COULD BE MADE ONLY AGAINST THE RENDERING OF SERVICES. SINCE THE ASSESSEE HAD CLAIMED TO HAVE PAID THE CO MMISSION BY DEDUCTING IT FROM THE INVOICE VALUE ITSELF THE ONU S WAS ON THE ASSESSEE TO ESTABLISH THAT SERVICES WERE ACTUALLY R ENDERED BY THE SO-CALLED AGENTS AND THAT THE ASSESSEE'S BUSINESS HAD DERIVED BENEFIT FROM SUCH SERVICES. ONLY IN SUCH A SITUATIO N COULD THE COMMISSION EXPENDITURE BE TREATED AS WHOLLY AND EXC LUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. ON THE OTHER HAND THE PERSON RECEIVING THE COMMISSION OUGHT TO HAVE PROVED AND E STABLISHED THAT THE SERVICES RENDERED BY HIM HAD SERVED TO INC REASE THE BUSINESS PROSPECTS OF THE ASSESSEE. THIS BOTH THE ASSESSEE AND I.T.A.NO.2431 2432 /AHD/2008 6 THE AGENTS HAD FAILED TO ESTABLISH. THE SIMPLE PAYM ENT OF COMMISSION DID NOT SUCCEED IN ESTABLISHING ITS RELE VANCE FOR THE ASSESSEE'S BUSINESS. IN SUPPORT OF SUCH A VIEW OF T HE MATTER THE AO PLACED RELIANCE ON SEVERAL CASE LAWS. FINALLY T HE AO CAME TO THE CONCLUSION THAT THE ASSESSEE HAD FAILED TO PROV E THE EXACT NATURE OF THE SERVICES PROVIDED BY THE SO-CALLED CO MMISSION AGENTS AND THEREBY HAD FAILED TO ESTABLISH THAT THE EXPENDITURE INCURRED HAD BEEN WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF BUSINESS. THE ASSESSEE HAD ALSO FAILED TO ESTABLISH THAT THE COMMISSION HAD BEEN ACTUALLY PAID TO THE ALLEGED FO REIGN AGENTS. THE AO THEREFORE TREATED THE ALLEGED COMMISSION PA YMENTS TOTALLING OF RS.2 46 34 146 AS INCOME OF THE ASSESS EE FOR THE YEAR IN QUESTION. 3. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD. CIT(A) AND BEFORE LD. CIT(A) VARIOUS SUBMISSIO NS WERE MADE AND IT WAS ALSO SUBMITTED THAT THE FOREIGN BUYERS PURCH ASED THE GOODS ONLY THROUGH AGENTS TO MONITOR ENTIRE EXPORT TRANSACTION RIGHT FROM THE SELECTION OF SAMPLES APPROVAL OF GOODS DISPATCH NEGOTIATION WITH VARIOUS PARTIES REMITTANCES AND ALSO AGENTS ACTED AS THE INTERMEDIARY IN SETTLING THE CLAIM OR DISPUTE ETC. AND THE MOST IMP ORTANT SERVICES PERTAINING TO GUARANTEE OF PAYMENT FROM THE BUYERS AND BECAUSE OF THIS THE ASSESSEE HAD GOT NO BAD DEBTS BECAUSE THE AGENT S HAVE ENSURED FULL RECOVERY. IT IS ALSO SUBMITTED THAT THE CONFIRMATI ON LETTERS FROM SOME OF THE AGENTS ALONG WITH ADDRESSES HAD BEEN FURNISHED TO THE A.O. IN THE COURSE OF ASSESSMENT PROCEEDINGS AND ASSURANCE WAS GIVEN TO SUBMIT MERE CONFIRMATION LETTERS FROM OTHER AGENTS AS WELL SINCE THEY WERE NOT AVAILABLE AT THAT PARTICULAR POINT OF TIME. THE RE MAINING CONFIRMATION OF AGENTS WERE FURNISHED BEFORE THE LD. CIT(A). LD. C IT(A) SENT THE SUBMISSION OF THE ASSESSEE TO THE A.O. WITH A REQUE ST TO VERIFY THE CONFIRMATIONS FURNISHED SPECIALLY THOSE WHICH WERE NOT FURNISHED IN THE COURSE OF ASSESSMENT PROCEEDINGS. THE A.O. WAS ASK ED TO GIVE REMAND I.T.A.NO.2431 2432 /AHD/2008 7 REPORT AND TO GIVE COMMENTS REGARDING THE ADMISSIBI LITY OF SUCH ADDITIONAL EVIDENCE IN TERMS OF RULE 46A OF THE INC OME TAX RULES. IN THE REMAND REPORT THE A.O. STRONGLY OBJECTED TO THE AD MISSION OF ADDITIONAL EVIDENCE BUT LD. CIT(A) WAS NOT SATISFIED AND HE AD MITTED THE ADDITIONAL EVIDENCE ON THIS BASIS THAT IT IS EVIDENT FROM THE RECORDS THAT THE A.O. HAD ISSUED NOTICE U/S 133(4) SEEKING ALL RELEVANT DETAI LS PERTAINING TO THE AGENTS AND ALSO THEIR CONFIRMATION ONLY ON 5.12.200 6 AND ON 18.12.2006 THE LD. A.R. IN REPLY INFORMED THAT THE AGENTS HAD BEEN CONTACTED AND REQUESTED TO FURNISH REQUISITE CONFIRMATIONS. THE ASSESSMENT WAS GETTING TIME BARRED ON 31.12.2006. ON 26.12.2006 THE LD. A.R. FURNISHED PART OF THE DETAILS. LD. CIT(A) HAS OBSERVED THAT THESE FACTS CLEARLY SHOW THAT THE ASSESSEE SIMPLY DID NOT HAVE SUFFICIENT TIME TO FURNISH ALL THE RELEVANT DETAILS SOUGHT BY THE A.O. VIDE HIS NOTICE DATED 05 .12.2006 SINCE ALL THE AGENTS WERE LOCATED ABROAD IN DIFFERENT COUNTRIES. LD. CIT(A) ADMITTED ADDITIONAL EVIDENCE AND THEREAFTER DECIDED THE ISS UE IN FAVOUR OF THE ASSESSEE AND DELETED THE DISALLOWANCE OF COMMISSION MADE BY THE A.O. NOW THE REVENUE IS IN APPEAL BEFORE US. 4. AT THE VERY OUTSET IT WAS SUBMITTED BY THE LD. A.R. OF THE ASSESSEE THAT THIS ISSUE IS NOW FULLY COVERED IN FAVOUR OF T HE ASSESSEE BY VARIOUS TRIBUNAL JUDGMENTS IN DIFFERENT CASES UNDER IDENTIC AL FACTS AND IN ONE OF THE CASE HONBLE JURISDICTIONAL HIGH COURT HAS ALS O CONFIRMED THE TRIBUNAL ORDER. HE SUBMITTED THE COPIES OF ALL THE SE TRIBUNAL DECISIONS AND ALSO THE HIGH COURT JUDGMENT AS PER DETAILS GIV EN BELOW: NAME OF PARTIES I.T.A.NO. DATE 1. SAMIR A BATRA VS ITO 4130/AHD/2007 12.12.2008 I.T.A.NO.2431 2432 /AHD/2008 8 2. ATMA PRAKASH BATRA VS ADDL CIT 4131/AHD/2007 12. 12.2008 3. SANJAY JAIN VS DCIT 1533/AHD/2008 16.12.2009 4. ACIT VS AMIT INTERNATIONAL 2017/AHD/2008 30.04.2 010 5. ACIT VS RACHNA EXPORTS 3791/AHD/2007 24.03.2010 6. JHAVAR INTERNATIONAL VS ITO 1938/AHD/08 08.01.20 10 7. ITO VS VISHALJANAKKUMARAGARWAL2086/AHD/2008 22.1 0.2010 8. NARENDRA D MODH VS ACIT 453/AHD/2009 11.06.2010 9. PRESIDENCY EXPORTS VS ACIT 2430/AHD/08 29.10.201 0 10. CIT VS ATMA PRAKASH BATRA TAX APPEAL NO.838 OF 2009 BY HONBLE GUJARAT HIGH COURT. 5. IT WAS SUBMITTED BY THE LD. A.R. THAT THE FACTS IN THE PRESENT TWO CASES AND IN ALL THESE CASES WHERE THE TRIBUNAL JUD GMENTS ARE SUBMITTED AND IN THE CASE WHERE HON'BLE HIGH COURT JUDGMENT I S AVAILABLE THE FACTS ARE IDENTICAL AND HENCE IN THE PRESENT TWO CASES A LSO THE ORDER OF LD. CIT(A) SHOULD BE CONFIRMED. 6. AS AGAINST THIS THE LD. D.R. OF THE REVENUE MAD E DETAILED ARGUMENTS AND TRIED TO DISTINGUISH THE FACTS OF THE PRESENT TWO CASES WITH THE DECIDED CASES CITED BY LD. A.R. THE MAIN ARGUM ENT OF THE LD. D.R. WAS THIS THAT IN THE DECIDED CASES CITED BY THE LD. A.R. THE AGENTS TO WHOM COMMISSION WAS PAID WERE HELD TO BE AGENTS OF THE BUYERS WHEREAS IN THE PRESENT TWO CASES THE AGENTS TO WHOM COMMIS SION WAS PAID ARE THE AGENTS OF THE SELLER AND THIS IS THE MAIN DIFFERENC E AND FOR THIS REASON THESE JUDGMENTS CITED BY THE LD. A.R. HAVE NO RELEV ANCE IN THE PRESENT TWO CASES. HE ALSO SUBMITTED THAT IF IT IS FOUND T HAT THE AGENTS IN THE PRESENT TWO CASES ARE ALSO THE AGENTS OF THE BUYER THEN HE HAS NOTHING TO SAY. AT THIS JUNCTURE IT WAS SUBMITTED BY THE L D. A.R. OF THE ASSESSEE THAT ON THIS ASPECT AS TO WHETHER AGENTS IN QUESTIO N ARE OF SELLER I.E. THE I.T.A.NO.2431 2432 /AHD/2008 9 PRESENT ASSESSEE OR OF THE BUYERS IT CAN BE SEEN I N THE ASSESSMENT ORDER ITSELF THAT IN THE NOTICE ISSUED BY THE A.O. U/S 13 3(4) THE CONTENTS OF WHICH WERE REPRODUCED BY THE A.O. ON PAGE 3 OF THE ASSESSMENT ORDER THE A.O. HIMSELF HAS ASKED THE ASSESSEE TO FURNISH THE NAMES AND ADDRESSES OF ALL THE FOREIGN BUYERS AGENTS. IT WA S SUBMITTED THAT IT GOES TO SHOW THAT AS PER THE A.O. ALSO THESE AGENTS ARE FOREIGN BUYER'S AGENTS AND NOT THE ASSESSEE EXPORTERS AGENTS AND HENCE T HERE IS NO DIFFERENCE IN THE FACTS IN THE PRESENT TWO CASES AND IN THE DECID ED CASES AS CITED BY HIM. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW AND THE JUDGMENTS CITED BY THE LD. A.R. WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY VARIOUS TRIBUNAL DECISION S CITED BY THE LD. A.R. AGAINST ONE OF SUCH TRIBUNAL DECISION RENDERED IN T HE CASE OF ATMA PRAKASH BATRA VS ADDL. CIT (SUPRA) JUDGMENT OF HON BLE GUJARAT HIGH COURT HAS ALSO COME ON AN APPEAL FILED BY THE REVEN UE AND COPY OF THIS JUDGMENT HAD ALSO BEEN MADE AVAILABLE TO US. HENCE THE ISSUE IN DISPUTE BEFORE US IN THESE TWO CASES IS SQUARELY COVERED BY THESE VARIOUS TRIBUNAL DECISIONS AND ALSO BY THE DECISION OF HON'BLE HIGH COURT OF GUJARAT UNLESS WE FIND THAT THE FACTS IN THE PRESENT TWO CA SES ARE DIFFERENT. LD. D.R. MADE VARIOUS ARGUMENTS TO DISTINGUISH THE FACT S IN THE PRESENT TWO CASES AS COMPARED TO THESE DECIDED CASES BUT HE COU LD NOT SATISFY US ON THIS ASPECT. THE RELEVANT PARA OF THIS JUDGMENT OF GUJARAT HIGH COURT IS PARA 13-22 WHICH ARE REPRODUCED BELOW: 13. IN RELATION TO PROPOSED QUESTION NO.2 WHICH RELATES TO DELETION OF DISALLOWANCE OF CLAIM OF EXP ORT I.T.A.NO.2431 2432 /AHD/2008 10 COMMISSION IN THE SUM OF RS.3 83 37 678/- DURING T HE ASSESSMENT PROCEEDINGS FROM THE COPIES OF THE INVO ICES FILED BY THE ASSESSEE THE ASSESSING OFFICER FOUND THAT I N EXPORT SALE INVOICES THERE WAS A DEDUCTION UNDER THE HEAD 'COMMISSION' OF 11.5% OR 12% AND AFTER DEDUCTING TH E SAID AMOUNT NET FIGURE OF SALE WAS WORKED OUT. THE TOTA L AMOUNT OF NET SALES WAS RS.28 74 85 387/- BUT AS PER ACCO UNTING STANDARDS THE AMOUNT OF EXPORT COMMISSION SHOULD H AVE BEEN REFLECTED ON THE CREDIT SIDE BY SHOWING GROSS SALE MINUS COMMISSION AND THE NET SALES WOULD BE IN AS OUTER C OLUMN ON THE CREDIT SIDE OF THE MANUFACTURING ACCOUNT. THE A SSESSEE ALSO DID NOT FURNISH ANY AGREEMENT FOR PAYING SUCH COMMISSION NOR DID IT FILE ANY PROOF OF SUCH REMITT ANCE ROUTED THROUGH THE RESERVE BANK OF INDIA (RBI). THE FOREIGN AGENTS' COMMISSION WAS ALLOWABLE UPTO 12% UNDER THE CENTRAL EXCISE & CUSTOMS RULES WHILE GIVING DEPB BENEFIT BUT THE SAME WAS REQUIRED TO BE PROVED BEY OND DOUBT AS REQUIRED BY THE RBI GUIDELINES. FURTHER T HE ASSESSEE RECEIVED PAYMENT FROM FOREIGN BUYERS AFTER SIX MONTHS AND THE ASSESSEE COULD NOT TAKE THE PLEA THA T THE FOREIGN AGENTS RECEIVED PAYMENT OF COMMISSION DIREC TLY 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 THA T NAMES AND ADDRESSES OF FOREIGN AGENTS DID NOT CONFIRM THE ACTUAL PAYMENT AND THEREFORE DISALLOWED THE CLAIM OF COMM ISSION. 14. THE ASSESSEE TOOK THE MATTER IN APPEAL BEFORE COMMISSIONER (APPEALS) WHO CONFIRMED THE ADDITION. THE ASSESSEE PREFERRED SECOND APPEAL BEFORE THE TRIBUNA L AND SUCCEEDED. 15. MR. B. B. NAIK LEARNED SENIOR ADVOCATE APPEARI NG FOR THE REVENUE HAS SUBMITTED THAT AS PER THE FINDINGS RECORDED BY THE ASSESSING OFFICER AS CONFIRMED BY THE COMMI SSIONER (APPEALS) THE ASSESSEE HAD FAILED TO PRODUCE ANY E VIDENCE IN THE FORM OF AGREEMENTS OR CONTRACT WITH ANY PART Y FOR I.T.A.NO.2431 2432 /AHD/2008 11 PAYMENT OF COMMISSION. IT WAS SUBMITTED THAT THE TR IBUNAL HAS RECORDED A FINDING THAT THE COMMISSION AGENTS M IGHT HAVE BEEN APPOINTED BY THE BUYERS THE ASSESSEE IS ENTITLED TO DEDUCTION OF PAYMENT OF COMMISSION TO AGENTS APPOIN TED BY THE BUYERS WHICH IS CONTRARY TO THE NORMAL PRINCIP LES FOR PAYMENT OF COMMISSION TO THE AGENTS. ACCORDING TO T HE LEARNED COUNSEL THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE ON RECORD AS TO WHAT SERVICES WERE RENDERE D BY WHICH AGENT FOR WHICH COMMISSION PAYMENT HAS BEEN MADE BY THE ASSESSEE AND CLAIMED AS DEDUCTION. IT WAS CO NTENDED THAT THE FINDINGS RECORDED BY THE TRIBUNAL THAT CON SIDERING THE NATURE OF THE SERVICE RENDERED BY THE AGENT EV EN IF THEY ARE APPOINTED BY THE BUYERS THE SERVICES WERE INDI RECTLY RENDERED TO THE ASSESSEE IS WITHOUT ANY BASIS WHATS OEVER. IT WAS SUBMITTED THAT THERE IS NO EVIDENCE OR MATERIAL ON RECORD TO RECORD SUCH A FINDING AND THAT NOT A SINGLE AGRE EMENT HAD BEEN PRODUCED BY THE ASSESSEE ON RECORD TO SUBSTANT IATE THE FINDINGS RECORDED BY THE TRIBUNAL. 16. ON THE OTHER HAND MR. S. N. SOPARKAR LEARNED SENIOR ADVOCATE APPEARING ON BEHALF OF THE RESPONDENT ASSE SSEE SUBMITTED THAT THE ASSESSEE HAS SHOWN NET DEDUCTION AFTER PAYMENT OF COMMISSION WHEREAS IT IS THE CASE OF THE ASSESS ING OFFICER THAT HE SHOULD HAVE SHOWN GROSS INCOME AND CLAIMED DEDUC TION AS EXPENDITURE. IT WAS SUBMITTED THAT THE ULTIMATE RES ULT WOULD BE THE SAME HENCE IN EITHER CASE NO PREJUDICE IS CAUSED TO THE REVENUE. 17. AS CAN BE SEEN FROM THE ORDER OF THE COMMISSION ER (APPEALS) BEFORE THE COMMISSIONER (APPEALS) THE ASSESSEE HAD FILED CONFIRMATIONS FROM AGENTS ACKNOWLEDGING RECEIPT OF COMMISSION WHICH WAS PAID FOR SECURING EXPORT ORDER. IT WAS TH E CASE OF THE ASSESSEE THAT CONSIDERING THE NATURE OF SERVICE NO DOCUMENTARY EVIDENCE COULD BE MAINTAINED. THE PAYMENT OF COMMIS SION WAS DEDUCTED FROM THE EXPORT INVOICE ITSELF AND MADE DI RECTLY TO THE AGENTS BY THE BUYER AND THERE WAS NO NEED TO HAVE A NY WRITTEN AGREEMENT FOR THE SAME. THAT THE ASSESSEE HAD DULY COMPLIED WITH THE RULES FRAMED BY THE RBI AND THE PAYMENT OF COMM ISSION WAS RECOGNIZED BY THE RBI. THAT THERE WAS NO SIGNIFICAN T DEFECT IN THE I.T.A.NO.2431 2432 /AHD/2008 12 SYSTEM OF ACCOUNTING AND AS SUCH THE PROVISIONS OF SECTION 145 OF THE ACT COULD NOT BE INVOKED. 18. THE COMMISSIONER (APPEALS) WAS OF THE VIEW THAT CONSIDERING THE FACT THAT THERE WAS NO AGREEMENT WITH THE SO CA LLED AGENTS FOR PAYMENT OF ANY COMMISSION SINCE THE PAYMENT WAS RE CEIVED FROM THE FOREIGN BUYERS MORE THAN SIX MONTHS AFTER THE E XPORT WAS MADE THEREFORE THE COMMISSION AGENT COULD NOT HAVE RECE IVED SUCH AN AMOUNT DIRECTLY FORM THE BUYER SINCE UNLESS THERE W AS A FIXED DATE FOR MAKING PAYMENT NO COMMISSION WOULD BE PAYABLE A ND NO BUYER SHALL PAY SUCH COMMISSION IN ADVANCE AND THE REFORE THE CLAIM OF PAYMENT OF COMMISSION TO FOREIGN AGENTS HA D NOT BEEN ESTABLISHED. ACCORDING TO THE COMMISSIONER (APPEALS ) IF THE ASSESSEE'S EXPLANATION THAT ONLY NET AMOUNT HAD BEE N REALIZED FROM THE CUSTOMER WERE TO BE ACCEPTED THEN IT WOULD HAV E BEEN A TRADE DISCOUNT AND NOT COMMISSION. 19. BEFORE THE TRIBUNAL ON BEHALF OF THE ASSESSEE REFERENCE WAS MADE TO THE COPIES OF CONFIRMATIONS OF SOME OF THE PARTIES WHICH FORMED PART OF THE PAPER BOOK. IT WAS SUBMITTED THA T THE ASSESSEE IS AN EXPORT ORIENTED UNIT AND AS SUCH THERE CANNOT B E ANY DISALLOWANCE WITH REFERENCE TO COMMISSION PAYMENT S INCE THAT WOULD AMOUNT TO DISALLOWANCE OF CLAIM UNDER SECTION 80HHC OF THE ACT. AFTER POINTING OUT VARIOUS DETAILS FROM TH E PAPER BOOK AS WELL AS A CBDT CIRCULAR IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT SUCH TYPES OF TRANSACTIONS HAD ALREAD Y BEEN ACCEPTED BY THE BOARD AND THAT THIS WAS NOT A NEW CONCEPT O F DEDUCTING COMMISSION FROM INVOICE VALUE. IT WAS SUBMITTED THA T WHATEVER AMOUNT WAS RECEIVED BY THE ASSESSEE AS NET CONSIDER ATION OF EXPORT HAD BEEN OFFERED AS EXPORT TURNOVER AND THE DEPARTM ENT HAD FAILED TO BRING ON RECORD ANY EVIDENCE TO THE EFFECT THAT THE ASSESSEE HAD RECEIVED GROSS EXPORT TURNOVER. 20. THE TRIBUNAL AFTER CONSIDERING THE RIVAL SUBMIS SIONS AND AFTER APPRECIATING THE EVIDENCE ON RECORD FOUND THAT THE RECEIPT OF COMMISSION AMOUNT HAD BEEN DULY CONFIRMED BY THE AG ENTS WHICH IN TURN MEANT THAT THE AMOUNT WHICH HAD BEEN DEDUCT ED FROM THE INVOICE VALUE ACTUALLY REPRESENTED COMMISSION PAYME NTS WHICH I.T.A.NO.2431 2432 /AHD/2008 13 WERE FINALLY RECEIVED BY THE AGENT. THIS HAD BEEN D ONE IN ACCORDANCE WITH THE TERMS AND CONDITIONS AGREED UPO N BETWEEN THE BUYERS AND THE SELLER EVEN THOUGH THERE WAS NO FOR MAL AGREEMENT. THE AGENTS HAD UNEQUIVOCALLY CONFIRMED AND RECONFIR MED THE NATURE OF THE TRANSACTIONS AND THAT THE ABSENCE OF ANY FORMAL AGREEMENT COULD NOT BE HELD TO BE A GROUND TO DISMI SS THE CLAIM OF THE ASSESSEE. THERE WERE CLEAR CONTRA CONFIRMATIONS FROM THE AGENTS. THUS ONCE THE GENUINENESS OF THE COMMISSIO N AS WELL AS ITS JUSTIFICATION OF HAVING BEEN WHOLLY AND EXCLUSI VELY INCURRED FOR THE PURPOSE OF ASSESSEE'S BUSINESS WAS ESTABLISHED THE SAME BECOMES ADMISSIBLE AS DEDUCTION UNDER SECTION 37{1) OF THE ACT. THE TRIBUNAL WAS OF THE VIEW THAT IT COULD NOT BE H ELD THAT THE GROSS INVOICE AMOUNT WERE WHAT HAD ACCRUED TO THE A SSESSEE AND THAT THESE WERE THE AMOUNTS ON WHICH THE ASSESSEE S HOULD HAVE BEEN ASSESSED. ACCORDING TO THE TRIBUNAL THE OUTGO ING COMMISSION FROM THE INVOICE VALUES WOULD HAVE TO BE REDUCED FROM THE GROSS AMOUNTS AND THE NET AMOUNT WHICH WA S THE ACTUAL SUM RECEIVED BY THE ASSESSEE IN INDIA AND WHICH WA S 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 ALSO BETWEEN THE BUYER AND THE AGENT. CONSEQUENTLY THE ASSESSEE WAS UNDER AN OBLIGATION TO DEDUCT COMMISSION FROM THE GROSS INVO ICE VALUE. IN THE PRESENT CASE THERE WAS A COMPULSION TO DEDUCT THE COMMISSION FROM THE EXPORT INVOICES WHICH WAS CLEARLY INDICATE D IN THE CONFIRMATION LETTERS OF THE AGENTS AND THAT THE IN GREDIENTS WHICH WERE NECESSARY FOR SUCH DEDUCTION OF COMMISSION TO BE TREATED AS DIVERSION OF INCOME BY OVER RIDING TITLE WAS CLEARL Y PRESENT. IT WAS FURTHER FOUND THAT IN THE PRESENT CASE THE GROSS E XPORT PROCEEDS NEVER REACHED THE ASSESSEE NO SUCH INCOME HAD THER EFORE ACCRUED TO THE ASSESSEE AND THIS WAS BECAUSE OF AN OBLIGATI ON OR COMPULSION TO DEDUCT THE COMMISSION FROM THE EXPORT INVOICES WHICH CLEARLY SHOWED THIS TO BE A CASE OF DIVERSION OF INCOME BY OVERRIDING TITLE. THE AMOUNTS DEDUCTED FROM THE EXP ORT INVOICES WERE THUS CLEARLY ALLOWABLE AS DEDUCTION. 21. AS REGARDS THE FINDINGS OF THE LOWER AUTHORITIE S THAT THE CONFIRMATIONS ISSUED BY THE PARTIES WERE ON PLAIN P APER THE I.T.A.NO.2431 2432 /AHD/2008 14 TRIBUNAL AFTER APPRECIATING THE EVIDENCE ON RECORD HAS FOUND THAT EXCEPT ONE PARTY NAMELY MOHMED ABDULLA OF DUBAI ALL OTHER COMMUNICATIONS WERE ON LETTER HEADS OF THE RESPECTI VE PARTIES. IT WAS FURTHER FOUND THAT NONE OF THE PAYMENTS HAD COM E BEYOND SIX MONTHS BUT THE SAME WERE WITHIN SIX MONTHS AS COUL D BE VERIFIABLE FROM BANK REALIZATION CERTIFICATES ENCLO SED ANNEXED IN THE PAPER BOOK. THE TRIBUNAL RECORDED THAT EACH OF THE TRANSACTIONS BETWEEN THE ASSESSEE AS THE SELLER AND THE TWO BUYERS WERE MEDIATED BY AGENTS WHOSE EXISTENCE WAS ESTABL ISHED BEYOND DOUBT BY THE CONFIRMATION LETTERS. SECONDLY THERE WAS TENDERING OF SERVICES. THE AGENTS HAD CLEARLY WRITTEN THAT TH EY 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 AGEN TS 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. 22. FROM THE FACTS NOTED HEREINABOVE IT IS APPAREN T THAT THE CONCLUSION ARRIVED AT BY THE TRIBUNAL IS BASED UPON FINDINGS OF FACT RECORDED BY IT AFTER APPRECIATING THE EVIDENCE ON RECORD WHICH HAVE NOT BEEN DISLODGED BY THE REVENUE BY POI NTING OUT ANY EVIDENCE TO THE CONTRARY THE REASONS ASSIGNED BY T HE TRIBUNAL FOR ARRIVING AT ITS CONCLUSION ARE REASONABLE AND CONVI NCING. ON BEHALF OF THE REVENUE NOTHING HAS BEEN POINTED OUT TO PERS UADE THE COURT TO TAKE A DIFFERENT VIEW. IN THE CIRCUMSTANCES THE CONCLUSION ARRIVED AT BY THE TRIBUNAL BEING BASED UPON FINDING S OF FACT DOES NOT GIVE RISE TO ANY QUESTION OF LAW. THIS GROUND O F APPEAL IS ALSO DISMISSED. 8. THE DECISION OF CIT(A) IN THE PRESENT CASE IS AS PER PARA 11 TO 11.10 OF HIS ORDER WHICH ARE ALSO REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: 11. I HAVE CAREFULLY CONSIDERED THE AO'S POINT OF VIEW AS CONTAINED IN THE ASSESSMENT ORDER AND THE DETAILED REMAND REPORT. I HAVE ALSO GONE THROUGH THE WRITTEN SUBMISSIONS OF T HE AR ESPECIALLY HIS REBUTTAL OF THE OBSERVATIONS OF THE AO IN THE REMAND REPORT. I HAVE ALSO EXAMINED THE ASSESSMENT RECORDS . THE FIRST ISSUE CONCERNS THE ADMISSION OF ADDITIONAL EVIDENCE. FROM THE DETAILS FURNISHED BY THE AR I FIND THAT THERE WERE 26 BUYE RS AND 6 AGENTS. IN COURSE OF THE ASSESSMENT PROCEEDINGS THE ASSESS EE HAD I.T.A.NO.2431 2432 /AHD/2008 15 FURNISHED CONFIRMATION LETTERS FROM ONE OF THE AGEN TS WHILE PROVIDING NAMES AND ADDRESSES OF ALL THE BUYERS AND AGENTS. COPIES OF THE REMAINING CONFIRMATIONS HAVE BEEN FILED BY T HE ARS IN COURSE OF THE APPELLATE PROCEEDINGS ALONG WITH THE WRITTEN SUBMISSIONS. 11.1 I DO NOT AGREE WITH THE POSITION TAKEN BY THE AO WITH REGARD TO THE ADMISSIBILITY OF ADDITIONAL EVIDENCE. IT IS EVIDENT FROM THE RECORDS THAT THE AO HAD ISSUED THE NOTICE U/S. 133( 4) SEEKING ALL RELEVANT DETAILS PERTAINING TO THE AGENTS AS ALSO THEIR CONFIRMATIONS ONLY ON 5.12.2006. ON 18.12 2006 THE AR APPEARED AND INFORMED THAT THE AGENTS HAD BEEN CONT ACTED AND REQUESTED TO FURNISH THE REQUISITE CONFIRMATIONS. T HE ASSESSMENT WAS GETTING TIME BARRED ON 31.12.2006. ON 26.12.200 6 THE AR FURNISHED PART OF THE DETAILS. THESE FACTS CLEARLY SHOW THAT THE ASSESSEE SIMPLY DID NOT HAVE SUFFICIENT TIME TO FUR NISH ALL THE RELEVANT DETAILS SOUGHT BY THE AO VIDE HIS NOTICE D ATED 5.12.2006. SINCE ALL THE AGENTS WERE LOCATED ABROAD IN DIFFER ENT COUNTRIES IT WAS OBVIOUS THAT THE ASSESSEE WOULD NOT HAVE BEEN A BLE TO MEET THE AO'S DEADLINE. THE POINT TO NOTE HERE IS THAT BECAUSE OF THE SAME REASON I.E. SHORTAGE OF TIME THE AO HIMSELF HAD DESISTED FROM HIMSELF SEEKING CONFIRMATIONS OR RECONFIRMATIO NS FROM THE BUYERS AND THE AGENTS AS HE HAD DONE IN SOME OTHER CASES. THUS THE ASSESSEE'S CASE FELL SQUARELY UNDER CLAUSE (B) OF RULE 46A. THAT IS THE ASSESSEE WAS PREVENTED BY SUFFICIENT C AUSE FROM PRODUCING SUCH EVIDENCE IN COURSE OF THE ASSESSMENT PROCEEDINGS. ON THE OTHER HAND EVEN THOUGH THE AO HAS CONTESTED THE ADMISSION OF SUCH EVIDENCE HE HAS NOT REALLY STATE D AS TO WHY AND HOW SUCH EVIDENCE SHOULD NOT BE ADMITTED EXCEPT FOR MAKING A VERY GENERAL STATEMENT THAT THE ASSESSEE'S CASE WAS NOT COVERED UNDER RULE 46A. TAKING ALL SUCH FACTS AND CIRCUMSTA NCES INTO CONSIDERATION I AM OF THE VIEW THAT THE EVIDENCE P RODUCED BY THE ASSESSEE IN COURSE OF THE APPELLATE PROCEEDINGS IN THE FORM OF CONFIRMATIONS FROM THE FOREIGN AGENTS MERIT ADMISS ION ESPECIALLY WHEN THE CONFIRMATIONS FROM THE AGENTS WERE ASKED F OR ONLY TOWARDS THE END OF THE ASSESSMENT PROCEEDINGS LEAVI NG VERY LITTLE OR NO TIME FOR THE ASSESSEE TO MEET THE TIME-BARRIN G DEADLINE. SUCH EVIDENCE IS THEREFORE ADMITTED. I.T.A.NO.2431 2432 /AHD/2008 16 11.2 HAVING ADMITTED SUCH ADDITIONAL EVIDENC E IT BECOMES NECESSARY TO EXAMINE THE OBSERVATIONS OF THE AO WIT H REGARD TO SUCH EVIDENCE. IT IS THE OBSERVATION OF THE AO TH AT THE CONFIRMATION LETTERS FURNISHED BY THE AGENTS DO NOT INDICATE AS TO WHOM ACTUAL SERVICES HAD BEEN RENDERED. IN FACT NO SERVICE WAS RENDERED TO THE ASSESSEE. IT IS THE VIEW OF THE A O THAT THE SERVICES IF ANY RENDERED BY THE AGENTS WAS TO THE BUYERS. I FIND A CONTRADICTION HERE. WHILE ON ONE HAND HE SAYS IN T HE REMAND REPORT THAT SINCE THE AGENTS WERE LOCATED ABROAD H E DIDN'T HAVE ANY POWER UNDER THE I.T.ACT TO VERIFY THE GENUINENESS O F THE CERTIFICATES ISSUED BY THE AGENTS AND THE BUYERS O N THE OTHER HAND HE HIMSELF HAD WRITTEN TO ALL SUCH AGENTS. I HAVE C HECKED THE ASSESSMENT RECORDS. ALL THE 6 AGENTS HAD RESPONDED TO THE AO'S LETTER AND HAD CONFIRMED THE RENDERING OF SERVICES AND THE RECEIPT OF EXPORT COMMISSION. THESE FACTS CLEARLY SHOW THAT BOTH THE BUYERS AND THE AGENTS ACTUALLY EXISTED AND SECONDLY THE AGENTS HAD RENDERED SERVICES AND THIRDLY THE COMMISSION P AYMENTS HAD BEEN RECEIVED BY THEM. THEREFORE THERE WAS NO SCOP E FOR THE AO TO TREAT THE CONFIRMATIONS FURNISHED BY THE ASSESSE E AS EITHER NON- GENUINE OR BOGUS AND CONSEQUENTLY HE WAS NOT IN A POSITION TO REJECT ANY OF THEM. 11.3 IN THE EXPLANATION BELOW SEC.L94H OF THE IT AC T 'COMMISSION' OR 'BROKERAGE' HAS BEEN DEFINED TO INC LUDE ANY PAYMENT RECEIVED OR RECEIVABLE DIRECTLY OR INDIRECT LY BY A PERSON ACTING ON BEHALF OF ANOTHER FOR SERVICES RENDERED IN COURSE OF BUYING OR SELLING OF GOODS OR IN RELATION TO ANY T RANSACTION RELATING TO ANY ASSET VALUABLE ARTICLE OR THING NOT BEING SECURITIES. IN COMMERCIAL LAW COMMISSION IS THE COMPENSATION TO A FACTOR OR OTHER AGENT FOR SERVICES TO BE RENDERED IN MAKING A SALE OR OTHERWISE IT IS AN ALLOWANCE OR RECOMPENSE OR A RE WARD MADE TO AGENTS BROKERS OR OTHERS FOR EFFECTING SALES FOR C ARRYING OUT BUSINESS TRANSACTIONS. IT IS GENERALLY CALCULATED A S A CERTAIN PERCENTAGE ON THE AMOUNT OF TRANSACTIONS OF THE PRO FITS TO THE PRINCIPAL (THE LAW LEXICON BY RAMANATHA LYER AND ED ITED BY JUSTICE Y.V.CHANDRACHUD). ACCORDING TO WEBSTER'S NE W INTERNATIONAL DICTIONARY IT IS THE PERCENTAGE OR AL LOWANCE MADE TO A FACTOR OR AGENT FOR TRANSACTING BUSINESS FOR ANOT HER. IN THE CASE OF AHMEDABAD STAMP VENDORS ASSOCIATION VS. UNION OF IN DIA(2002) 257 ITR 202 THE HON. GUJARAT HIGH COURT EXPLAINED WHAT COULD BE TREATED AS COMMISSION: I.T.A.NO.2431 2432 /AHD/2008 17 'THE DEFINITION OF 'COMMISSION OR BROKERAGE' AS CON TAINED IN THE EXPLANATION TO SECTION 194H IS NOT SO WIDE T HAT IT WOULD INCLUDE ANY PAYMENT RECEIVABLE DIRECTLY OR I NDIRECTLY FOR SERVICES IN THE COURSE OF BUYING OR SELLING OF GOODS. IN ORDER TO FALL WITHIN THE AFORESAID EXPLANATION THE PAYMENT RECEIVED OR RECEIVABLE DIRECTLY OR INDIRECTLY IS B Y A PERSON ACTING ON BEHALF OF ANOTHER PERSON(I) FOR SERVICES RENDERED (NOT BEING PROFESSIONAL SERVICES) OR (II) FOR ANY SERVICES IN THE COURSE OF BUYING OR SELLING OF GOODS OR (HI) I N RELATION TO ANY TRANSACTION RELATING TO ANY ASSET VALUABLE ART ICLE OR THING. THE ELEMENT OF AGENCY HAS TO BE THERE IN CASE OF AL L SERVICES OR TRANSACTIONS CONTEMPLATED BY EXPLANATION(I) TO S EC. 194(H). THERE IS A DISTINCTION BETWEEN A CONTRACT O F SALE AND A CONTRACT OF AGENCY BY WHICH THE AGENT IS AUTHORIS ED TO SELL OR BUY ON BEHALF OF THE PRINCIPAL. THE ESSENCE OF A CONTRACT OF SALE IS THE TRANSFER OF TITLE TO THE GOODS FOR A PR ICE PAID OR PROMISED TO BE PAID. THE TRANSFEREE IN SUCH A CASE IS LIABLE TO THE TRANSFEROR AS A DEBTOR FOR THE PRICE TO BE PAID AND NOT AS AGENT FOR THE PROCEEDS OF THE SALE. THE ESSENCE OF AGENCY TO SELL IS THE DELIVERY OF THE GOODS TO A PERSON WHO I S TO SELL THEM NOT AS HIS OWN PROPERTY BUT AS THE PROPERTY OF THE PRINCIPAL WHO CONTINUES TO BE THE OWNER OF THE GOOD S AND WILL THEREFORE BE LIABLE TO ACCOUNT FOR THE SALE PR OCEEDS. THE CONCEPT OF SALE HAS UNDERGONE A REVOLUTIONARY CHANG E HAVING REGARD TO THE COMPLEXITIES OF MODERN TIMES A ND THE EXPANDING NEEDS OF SOCIETY WHICH HAS MADE A DEPART URE FROM THE DOCTRINE OF LAISSEZ FARE BY INCLUDING A TR ANSACTION WITHIN THE FOLD OF A SALE EVEN THROUGH THE SELLER M AY BY VIRTUE OF AN AGREEMENT IMPOSE A NUMBER OF RESTRICTI ONS ON THE BUYER E.G. FIXATION OF PRICE SUBMISSION OF A CCOUNTS SELLING IN A PARTICULAR AREA OR TERRITORY AND SO ON . THESE RESTRICTIONS PER SE WOULD NOT CONVERT A CONTRACT OF SALE INTO ONE OF AGENCY BECAUSE IN SPITE OF THESE RESTRICTIO NS THE TRANSACTION WOULD STILL BE A SALE AND SUBJECT TO AL L THE INCIDENTS OF SALE'. 11.4 AS HELD BY THE HON.COURT THE INGREDIENTS OF W HAT IS COMMISSION ARE CONTAINED IN THE EXPLANATION TO SEC. 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 RELATION TO ANY TRANSACTION INVOLVING ANY ASSET VALUABLE ARTICLE O R THING. THERE HAS TO BE AN ELEMENT OF AGENCY IN THE RENDERING OF ALL SUCH SERVICES OR TRANSACTIONS AND THE AGENT SHOULD HAVE BEEN AUTHORI SED TO BUY OR SELL ON BEHALF OF THE PRINCIPAL. WHILE THE TRANSFER EE OR THE BUYER IS LIABLE TO THE TRANSFEROR OR THE SELLER TO PAY THE P RICE FOR THE GOODS THE LIABILITY OF THE AGENT IS TO ENSURE THE DELIVER Y OF THE GOODS TO THE BUYER NOT AS HIS OWN PROPERTY BUT AS THE PROPER TY OF THE PRINCIPAL OR THE SELLER/TRANSFEROR. I.T.A.NO.2431 2432 /AHD/2008 18 11.5 IF SUCH PRINCIPLES AS ENUNCIATED BY THE HON. C OURTS ARE TO BE APPLIED IN THE CASE OF THE ASSESSEE IT WILL BE SEE N THAT ALL THE ELEMENTS WHICH ARE REQUISITE FOR ANY TRANSACTION IN VOLVING PAYMENT OF COMMISSION WERE PRESENT. FIRSTLY EACH OF THE TRANSACTIONS BETWEEN THE ASSESSEE AS THE SELLER AND THE TWO BUYERS WERE MEDIATED BY AGENTS WHOSE EXISTENCE WAS ESTABL ISHED BEYOND DOUBT BY THE CONFIRMATION LETTERS. SECONDLY THERE WAS RENDERING OF SERVICES. THE AGENTS HAD CLEARLY WRITTEN THAT TH EY HAVE 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. CONSIDERING THE NATURE OF SUC H SERVICES RENDERED BY THE AGENTS EVEN IF THEY WERE APPOINTED BY THE BUYERS SERVICES WERE INDIRECTLY RENDERED TO THE ASSESSEE A S THE SELLER AS WELL. THE SAMPLES WERE PROCURED BY THEM FROM THE AS SESSEE THEY DECIDED ON THE QUANTUM OF THE ORDER AND THE PRICE THEY SETTLED ALL DISPUTES BETWEEN THE BUYERS AND THE SELLER AND THE Y ALSO ENSURED THE PAYMENTS TO THE SELLER. THE EXISTENCE OF THE AG ENTS AND THEIR FUNCTIONING WAS OF BENEFIT TO THE ASSESSEE AS WELL. THEREFORE THE EVIDENCE PRODUCED BY THE ASSESSEE CANNOT BE WISHED AWAY ON THE GROUND THAT THE AGENTS ONLY PROVIDED SERVICES TO TH E BUYER AND NOT TO THE ASSESSEE. 11.6 FURTHER IT HAS BEEN NOTED BY THE AGENTS IN TH E CONFIRMATION LETTERS THAT COMMISSION WAS PAYABLE TO THEM BY THE BUYER AND SUCH SUMS WERE TO BE DEDUCTED FROM THE GROSS INVOICE VAL UES SO THAT THE SELLER WAS ENTITLED TO RECEIVE ONLY THE NET AMOUNT AFTER DEDUCTING THE COMMISSION IN RESPECT OF EACH TRANSACTION. THER EFORE THE RECEIPT OF THE COMMISSION AMOUNT HAD BEEN DULY CONF IRMED BY THE AGENTS WHICH IN TURN MEANT THAT THE AMOUNTS WHICH WERE DEDUCTED FORM THE INVOICE VALUES ACTUALLY REPRESENTED COMMIS SION PAYMENTS WHICH FINALLY FOUND THEIR WAY INTO THE HA NDS OF THE AGENTS. THIS FACT CLEARLY ESTABLISHED THE GENUINENE SS OF THE TRANSACTIONS. WHAT IS IMPORTANT TO NOTE IS THAT TH IS WAS DONE IN ACCORDANCE WITH THE TERMS AND CONDITIONS AGREED UPO N BETWEEN THE BUYERS AND SELLER EVEN THOUGH THERE WAS NO FORMAL AGREEMENT. IN ANY CASE WHEN AND THE AGENTS HAD UNEQUIVOCALLY CON FIRMED AND RECONFIRMED THE NATURE OF THE TRANSACTIONS THE ABS ENCE OF ANY FORMAL AGREEMENT COULD NOT BE HELD AS A GROUND TO D ISMISS THE CLAIM OF THE ASSESSEE. THERE WERE CLEAR CONTRA CONF IRMATIONS FROM THE AGENTS WHICH SIMPLY COULD NOT BE WISHED AWAY B Y THE AO FOR THE SAKE OF DISALLOWING THE COMMISSION EXPENDITURE. I.T.A.NO.2431 2432 /AHD/2008 19 11.7 THUS ONCE THE GENUINENESS OF THE COMMISSION P AYMENTS AS WELL AS ITS JUSTIFICATION OF HAVING BEEN WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF ASSESSEE'S BUSINESS TH E SAME BECOMES ADMISSIBLE AS DEDUCTION U/S.37(L) OF THE IT ACT. HO WEVER IN THIS PARTICULAR CASE AND IN MANY SIMILAR CASES SINCE T HE COMMISSION HAD BEEN DEDUCTED FROM THE GROSS INVOICE VALUES NO SEPARATE RECOGNITION WAS GIVEN IN THE BOOKS OF ACCOUNT TO SU CH PAYMENTS AND CONSEQUENTLY NO EXPENDITURE WAS CLAIMED UNDER SUCH A HEAD IN THE P&L A/C. THEREFORE THE AO'S OBSERVATION REG ARDING THE INCORRECT ACCOUNTING TREATMENT GIVEN BY THE ASSESSE E TO SUCH TRANSACTIONS WAS WITHOUT ANY BASIS. THE A.O. HA S REPRODUCED THE CONTENTS OF THE ACCOUNTING STANDARD-I WHICH HOWEVER WAS NOT APPLICABLE TO THE ASSESSEE'S CASE GIVEN THE NA TURE OF THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE. THE AO HAS ALSO REFERRED TO SEC.5 OF THE IT ACT WHICH DEFINES TOTAL INCOME. IT IS OBVIOUS IN THE NATURE THE TRANSACTIONS WHICH HAVE B EEN DISCUSSED ABOVE IN DETAIL THAT WHAT MAY HAVE ACCRUED TO THE ASSESSEE WAS THE GROSS INVOICE VALUES YET THE ASSESSEE UNDER TH E TERMS OF THE AGREEMENT OR UNDERSTANDING WITH THE BUYER HAD TO DEDUCT FROM THE INVOICES THE AMOUNT OF COMMISSION PAYABLE. IN THE BACKGROUND OF SUCH FACTS IT COLD NOT BE HELD THAT THE GROSS INVOICE AMOUNTS WERE WHAT HAD ACCRUED TO THE ASSESSEE AND THESE WERE THE AMOUNTS ON WHICH THE ASSESSEE SHOULD HAVE BEEN ASSESSED. THIS WOULD BE TAKING A VERY ILLOGICAL AND IRRATIONA L VIEW OF THE MATTER. 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 ASSESSEE I N INDIA AND WHICH WAS DULY CERTIFIED AND PERMITTED BY THE RBI AND ITS AUTHORISED DEALER WAS WHAT HAD BEEN EARNED BY THE ASSESSEE FROM SUCH TRANSACTIONS. GIVEN SUCH FACTS OF THE MATTER I AM OF THE VIEW THAT THE AO WAS CLEARLY MISLED INTO TAKING THE VIEW THAT THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE HAD VIOLATED THE PROVISIONS OF SEC.145 OF THE IT ACT. CONSEQU ENTLY HE WAS NOT JUSTIFIED AT ALL IN REJECTING THE BOOK RESULTS. HERE IT MAY BE VERY RELEVANT TO MENTION THAT THE AO HIMSELF HAD NO TED IN THE ASSESSMENT ORDER THAT THE AMOUNTS DEDUCTED AS COMMI SSION FROM THE SALE INVOICES WERE NEITHER RECEIVED BY THE ASSE SSEE DURING THE YEAR NOR WAS IT EVERY GOING TO BE RECEIVED IN FUTU RE. IF THIS WAS THE VIEW OF THE AO THEN HE CONTRADICTED HIMSELF IN TAXING AMOUNTS WHICH HAD I.T.A.NO.2431 2432 /AHD/2008 20 NOT BEEN RECEIVED AT ALL NOR DID THE ASSESSEE HAVE ANY LEGAL RIGHT TO RECEIVE SUCH AMOUNTS. 11.8 IT HAS BEEN ARGUED BY THE AR THAT THE ASSESSE E SHOULD BE TAXED ONLY ON THE AMOUNTS WHICH HAD BEEN ACTUALLY R ECEIVED AS EXPORT PROCEEDS WHICH WERE DULY AUTHORISED AND CER TIFIED BY THE RBI. THIS BRINGS INTO FOCUS THE PRINCIPLE OF REAL I NCOME AND ITS TAXABILITY OR OTHERWISE AS ALSO THE PRINCIPLE OF D IVERSION BY OVERRIDING TITLE AND THIRDLY THE APPLICATION OF IN COME. IN THE CASE OF CIT VS. SHIV PRAKASH JANAKRAJ & CO. P.LTD.(1996) 222 ITR 583 THE HON. SUPREME COURT OBSERVED THAT T HE CONCEPT OF REAL INCOME CANNOT BE EMPLOYED SO AS TO DEFEAT T HE PROVISIONS OF THE ACT AND THE RULES. THE HON. COURT THUS LAID DOWN THE FOLLOWING PRINCIPLES. '1. IT IS THE INCOME WHICH HAS REALLY ACCRUED OR AR ISEN TO THE ASSESSEE THAT IS TAXABLE. WHETHER THE INCOME HAS RE ALLY ACCRUED OR ARISEN TO THE ASSESSEE MUST BE JUDGED IN THE LIGHT OF THE REALITY OF THE SITUATION. 2. THE CONCEPT OF REAL INCOME WOULD APPLY WHERE THE RE HAS BEEN A SURRENDER OF INCOME WHICH IN THEORY MAY HAVE ACCRUED BUT IN THE REALITY OF THE SITUATION] NO IN COME HAD RESULTED BECAUSE THE INCOME DID NOT REALLY ACCRUE. 3. WHERE A DEBT HAS BECOME BAD DEDUCTION IN COMPLI ANCE WITH THE PROVISIONS OF THE ACT SHOULD BE CLAIMED AN D ALLOWED. 4. WHERE THE ACT APPLIES THE CONCEPT OF REAL INCOM E SHOULD NOT BE SO READ AS TO DEFEAT THE PROVISIONS OF THE A CT. 5. IF THERE IS ANY DIVERSION OF INCOME AT SOURCE UN DER ANY STATUTE OR BY OVERRIDING TITLE THEN THERE IS NO IN COME TO THE ASSESSEE. 6. THE CONDUCT OF THE PARTIES IN TREATING THE INCOME IN A PARTICULAR MANNER IS MATERIAL EVIDENCE OF THE FACT WHETHER INCOME HAS ACCRUED OR NOT. 7. MERE IMPROBABILITY OF RECOVERY WHERE THE CONDUC T OF THE ASSESSEE IS UNEQUIVOCAL CANNOT BE TREATED AS EVIDE NCE OF THE FACT THAT INCOME HAS NOT RESULTED OR ACCRUED TO THE ASSESSEE. AFTER DEBITING THE DEBTOR'S ACCOUNT AND N OT REVERSING THAT ENTRY- BUT TAKING THE INTEREST MEREL Y IN SUSPENSE ACCOUNT CANNOT BE SUCH EVIDENCE TO SHOW TH AT NO REAL INCOME HAS ACCRUED TO THE ASSESSEE OR BEEN TRE ATED AS SUCH BY THE ASSESSEE. I.T.A.NO.2431 2432 /AHD/2008 21 8. THE CONCEPT OF REAL INCOME IS CERTAINLY APPLICAB LE IN JUDGING WHETHER THERE HAS BEEN INCOME OR NOT BUT I N EVERY CASE IT MUST BE APPLIED WITH CARE AND WITHIN WELL- RECOGNISED LIMITS.' 11.9 IN THE CASE OF OUR ASSESSEE THE COMMISSION WAS NOT DEDUCTED FROM THE EXPORT INVOICES IN AN ADHOC MANNER. IT WAS CLEARLY 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 THE GROSS INVO ICE VALUES. ONE OF THE PRINCIPLES LAID DOWN BY THE HON. SUPREME COURT IN THE CASE OF STATE BANK OF TRAVANCORE (SUPRA) WAS THAT I F THERE IS ANY DIVERSION OF INCOME AT SOURCE UNDER ANY STATUTE OR BY ANY OVERRIDING TITLE THEN THERE IS NO INCOME TO THE ASS ESSEE. IN THE CASE OF THE ASSESSEE SINCE THERE WAS A COMPULSION TO DE DUCT THE COMMISSION FROM THE EXPORT INVOICES WHICH WAS CLEAR LY INDICATED IN THE CONFIRMATION LETTERS OF THE AGENTS THE INGREDIENTS WHICH WERE NECESSARY FOR SUCH DEDUCTION OF COMM ISSION TO BE TREATED AS DIVERSION OF INCOME BY OVERRIDING TITLE WERE CLEARLY PRESENT. IN THE CASE OF CIT VS. MADRAS RACE CLUB (2002) 255 ITR 98 THE HON. COURT OBSERVED THAT IN ORDER TO DEC IDE WHETHER THERE HAS BEEN DIVERSION OF INCOME BY OVERRIDING TITLE THE TRUE TEST IS WHETHER THE AMOUNT SOUGHT TO BE DEDUCTED IN TRUTH NEVER REACHED THE ASSESSEE AS HIS INCOME. WHERE BY AN OBLIGATION INCOME IS DIVERTED BEFORE IT REACHES THE ASSESSEE IT IS DEDU CTIBLE BUT WHERE THE INCOME IS REQUIRED TO BE APPLIED TO DISCHARGE A N OBLIGATION AFTER SUCH INCOME REACHES THE ASSESSEE THE SAME CO NSEQUENCE IN LAW DOES NOT FOLLOW. IT IS THE FIRST KIND OF PAYM ENT WHICH CAN TRULY BE EXCUSED AND NOT THE SECOND. WHILE TAK ING THIS VIEW THE HON. HIGH COURT PLACED RELIANCE ON THE GUIDELINES ISSUED BY THE HON.SUPREME COURT IN THE CASES OF CIT VS. SITALDA S TIRATHDAS (1961) 41 ITR 367 IN CIT VS.TOLLYGUNGE CLU B LTD. (1977) 107 ITR 776 AND IN CIT VS. BIJLEE COTTON MILLS P. L TD. (1979) 116 ITR 60. IN THE CASE OF THE ASSESSEE T HE GROSS EXPORT PROCEEDS NEVER REACHED ITS HANDS NO SUCH INCOME H AD THEREFORE ACCRUED. THIS WAS BECAUSE OF AN OBLIGATION OR CO MPULSION TO DEDUCT THE COMMISSION FROM THE EXPORT INVOICES WHI CH CLEARLY SHOWED THIS TO BE A CASE OF DIVERSION OF INCOME BY OVERRIDING TITLE. THE AMOUNTS DEDUCTED FROM THE EXPORT INVOICES WERE THUS CLEARLY ALLOWABLE AS DEDUCTION. SINCE THE ASSE SSEE NEVER CLAIMED ANY DEDUCTION AS SUCH IN THE P&L A/C. DR AWING ON THE I.T.A.NO.2431 2432 /AHD/2008 22 PRINCIPLES LAID DOWN BY THE HON.COURTS AS DISCUSSED ABOVE IT IS HELD THAT THERE WAS NO JUSTIFICATION ON THE PART OF THE AO TO INCLUDE THE SAME IN THE TOTAL INCOME. 11.10 TAKING THE ABOVE DISCUSSION INTO CONSIDERATIO N IT IS HELD THAT THERE WAS SIMPLY NO BASIS FOR THE AO TO TREAT THE AMOUNTS DEDUCTED AS COMMISSION FROM THE EXPORT INVOICES AS INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. THE AO IS THEREFORE DIRECTED TO DELETE THE ADDITION OF THE SUM OF RS.2 46 34 146/-. 9. WE FIND THAT AS IN THE CASE DECIDED BY HONBLE G UJARAT HIGH COURT IN THE PRESENT CASE ALSO A CLEAR FINDING IS GIVEN BY LD. CIT(A) THAT THE COMMISSION WAS NOT DEDUCTED FROM THE EXPORT INVOICE S IN AN AD HOC MANNER AND IT WAS CLEARLY UNDER AN AGREEMENT BETWEE N THE BUYER AND THE SELLER AS ALSO BETWEEN THE BUYER AND THE AGENTS AND CONSEQUENTLY THE ASSESSEE WAS UNDER AN OBLIGATION TO DEDUCT COMMISSI ON FROM THE GROSS INVOICE VALUE. WE HAVE ALREADY NOTED THAT LD. D.R. TRIED TO CONVINCE US REGARDING DIFFERENCE IN FACTS IN THE PRESENT TWO CA SES AS COMPARED TO THESE DECIDED CASES BUT HE FAILED TO DO SO. HIS MAIN CON TENTION WAS THAT IN THOSE DECIDED CASES THE AGENTS WERE OF THE BUYERS WHEREAS IN THE PRESENT TWO CASES AGENTS ARE THE AGENTS OF THE SELLER I.E. THE ASSESSEE EXPORTER. BUT THIS ARGUMENT OF THE LD. D.R. IS DEVOID OF ANY MERIT BECAUSE IN THE ASSESSMENT ORDER ITSELF IN THE NOTICE ISSUED BY TH E A.O. U/S 133(4) THE A.O. ITSELF HAS ASKED THE ASSESSEE TO FURNISH THE N AMES & ADDRESS OF ALL THE FOREIGN BUYERS AGENTS AND IT GOES TO SHOW THAT IN THE PRESENT TWO CASES ALSO THE AGENTS IN QUESTION ARE BUYERS AGENTS AND NOT THE SELLERS AGENTS. APART FROM RAISING CONTENTIONS THAT THE AGENTS IN T HE PRESENT TWO CASES ARE AGENTS OF ASSESSEE EXPORTER AND NOT OF BUYERS LD. DR OF THE REVENUE COULD NOT BRING ANY MATERIAL TO SUPPORT THIS CONTEN TION WHEREAS THE OBSERVATION OF THE A.O. IN THE ASSESSMENT ORDER IS CONTRARY TO THIS CONTENTION. HENCE LD. D.R. COULD NOT POINT OUT AN Y SPECIFIC DIFFERENCE I.T.A.NO.2431 2432 /AHD/2008 23 IN THE FACTS IN THE PRESENT TWO CASES AND IN THESE DECIDED CASES CITED BY THE LD. A.R. AND THEREFORE WE DO NOT FIND ANY REA SON TO TAKE A CONTRARY VIEW IN THE PRESENT TWO CASES. BY RESPECTFULLY FOL LOWING THE DECISION OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF CIT VS ATMA PRAKASH BATRA (SUPRA) WE DECLINE TO INTERFERE IN T HE ORDER OF LD. CIT(A) IN THE PRESENT TWO CASES. 10. IN THE RESULT BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. 11. ORDER PRONOUNCED IN THE OPEN COURT ON 09.09.201 1 SD./- SD./- (D.K. TYAGI) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED : 09.09. 2011 SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR AHMEDABAD BY ORDER 6. THE GUARD FILE AR ITAT AHMEDABAD 1. DATE OF DICTATION 02/09 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 06/09.OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S.07/09 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 09.09.2011 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.09/09 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 09.09.2011 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. ..