2010 (3) TMI 1158 - AT - Income Tax

Summary

Issues Involved:
1. Allowability of Foreign Buyer Agency Commission.
2. Disallowance of Deduction under Section 80HHC of the Income Tax Act.

Detailed Analysis:

1. Allowability of Foreign Buyer Agency Commission:
Observations by the Assessing Officer (AO):
- The AO noted that the assessee paid commission to Foreign Buyer's Agents (FBA) on export sales.
- The AO required the assessee to provide details such as the names and addresses of foreign buyers, mode of payment, copies of agreements with agents, and confirmation letters regarding the commission payment.
- The assessee explained that the commission was deducted from the gross value of export invoices, and only the net value was received from foreign buyers, as evidenced by the Bank Realization Certificate.
- The AO did not accept the assessee's contention, citing a lack of proper evidence and non-compliance with commercial agency laws of UAE and Indonesia. The AO disallowed the foreign agent commission expenses of Rs. 59,27,941/-.

Decision by the Commissioner of Income Tax (Appeals) [CIT(A)]:
- The CIT(A) allowed the claim, stating that the appellant had provided sufficient evidence, including sales contracts and confirmation of receiving commissions from the agents.
- The CIT(A) noted that the procedural non-compliance with UAE law by the agent could not form a ground for rejection of the commission payment.
- The CIT(A) emphasized that the identity of the recipient of the commission was established, and the recipient confirmed receiving the commission.
- The CIT(A) rejected the AO's view that tax should have been deducted on payments made to the foreign buyers' agent, referencing CBDT Circular No.786.

Arguments by the Department Representative (DR):
- The DR argued that the assessee failed to establish the genuineness and business nexus of the claimed agency expenditure under Section 37 of the Act.
- The DR emphasized that the commission was not reflected in the books of the assessee and thus should be disallowed.

Arguments by the Assessee's Representative (AR):
- The AR submitted that the issue was covered by previous decisions of the Ahmedabad Bench, which allowed the deduction of Foreign Buyers' Agent Commission.
- The AR provided evidence that the commission was deducted from the invoice value and that the net sales proceeds were brought into India in convertible foreign exchange.

Tribunal's Decision:
- The Tribunal referred to previous decisions, including those in the cases of Shri Sanjay Jain vs. DCIT and Shri Samir Batra vs. ITO, where similar claims were allowed.
- The Tribunal concluded that the Foreign Buyer's Agent Commission should be allowed as a deduction from the invoice value.
- The Tribunal dismissed the department's appeal, upholding the CIT(A)'s decision.

2. Disallowance of Deduction under Section 80HHC of the Income Tax Act:
Facts of the Case:
- The assessee, a partnership firm engaged in the export of fabrics, claimed a deduction under Section 80HHC.
- The AO disallowed the entire deduction, which was upheld by the CIT(A).

Arguments by the Assessee's Representative (AR):
- The AR argued that the issue was covered by the decision of the Special Bench in the case of Topman Exports vs. ITO, which held that only the profit element on the sale of DEPB should be considered under Section 28(iiid).

Tribunal's Decision:
- The Tribunal referred to the decision of the Special Bench in Topman Exports vs. ITO, which clarified that the face value of DEPB should be considered under Section 28(iiib) and the profit element on its sale under Section 28(iiid).
- The Tribunal directed the AO to recalculate the DEPB entitlement based on this decision.
- The appeal was allowed for statistical purposes.

Order Pronouncement:
- The order was pronounced in Open Court on 24/03/2010.