2010 (6) TMI 820 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 58,08,755/- as income due to commission paid to foreign buyers.
2. Addition of Rs. 2,14,195/- u/s 41(1) as Cessation of liability.

Summary:

Issue 1: Addition of Rs. 58,08,755/- as income due to commission paid to foreign buyers:

The assessee, engaged in the export business, deducted commission directly from export invoices, which was customary in the trade. The AO added Rs. 58,08,755/- to the income, treating it as part of sales, citing Section 93 of the Income Tax Act, 1961. The CIT(A) upheld this, referencing UAE regulations and various case laws, and applied Section 194H and Section 5 of the Act.

The Tribunal, however, found that the commission was a trade discount, supported by decisions like Deputy Commissioner of Agricultural Income Tax & Sales Tax (Law) Vs. Travancore Rayons Ltd. and Colour Chem Ltd. Vs. CIT. It noted that the assessee received only the net proceeds, and the gross invoice value was used for DEPB benefits as per RBI guidelines. The Tribunal concluded that the income was fully embedded in the net sale proceeds, and no additional income accrued. Thus, the addition of Rs. 58,08,755/- was deleted.

Issue 2: Addition of Rs. 2,14,195/- u/s 41(1) as Cessation of liability:

The AO added Rs. 2,14,195/- under section 41(1), observing that sundry creditors had been outstanding for three years without confirmation from the assessee. The CIT(A) upheld this, finding the assessee's submissions insufficient.

The Tribunal noted that the assessee disputed the service of notice and that no material was provided by the revenue to show any benefit received by the assessee during the year. It emphasized that the onus was on the revenue to prove the cessation of liability. In the absence of such evidence, the addition was deemed unsustainable, and the Tribunal deleted the addition of Rs. 2,14,195/-.

Conclusion:

The appeal filed by the assessee was allowed, deleting both additions made by the lower authorities.