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2011 (10) TMI 230 - AT - Income TaxTDS on Commission 94H - Assessee engaged in export - Commission reduced from Invoice value and no remittances made from India - held that - foreign buyer is not bound to pay to the assessee the amount covered by the commission or discount at any future date. Right/Claim of the assessee in respect of the export sales was to receive only the net invoice amount and nothing more. There is nothing left over by way of balance to be treated as income accruing or arising to the assessee outside India by virtue of the impugned export sales. Decided in favour of assessee. Dis-allowance of claim - A.O. made disallowance of 20% of the total expenses - assessee took the plea that all the books of account with papers etc. were drowned in disastrous flood that came in the city of Surat but could not produce any evidence on record. Therefore decision of CIT(A) was affirmed. - The assessee has failed to produce an iota of evidence to substantiate his claim of loss. - Decided against assesee.
Issues Involved:
1. Disallowance of Foreign Agent's Commission. 2. Disallowance of various expenses. Issue-wise Detailed Analysis: 1. Disallowance of Foreign Agent's Commission: The assessee, engaged in the export of fabrics, claimed commission expenses of Rs. 1,10,20,201 allegedly paid to foreign agents. The AO disallowed this commission, arguing that the commission was deducted from the invoice values and no remittance was made from India, thus considering it an expenditure of the foreign buyer. The AO noted the absence of details regarding the foreign agents and the services rendered. Despite several opportunities, the assessee failed to provide relevant details, leading the AO to conclude that the commission was not justified and should be disallowed. The AO further argued that the commission should have been accounted for separately in the books of accounts and not netted off against sales. The AO also invoked the UAE Commercial Agencies Law, noting that the assessee did not comply with the requirements for appointing a commercial agent, making the expenditure non-allowable under the Explanation to Sec. 37 (1) of the IT Act. Additionally, the AO referenced the Double Taxation Avoidance Agreement (DTAA) between India and the UAE, suggesting that the commission payment allowed the assessee to reduce taxable income in India while the corresponding income in the UAE escaped taxation. The AO also questioned the allowability of the commission under Sec. 37 of the IT Act, emphasizing that the assessee failed to prove the services rendered by the agents and the benefit derived from such services. Consequently, the AO treated the commission payments as income of the assessee. In appeal, the CIT(A) deleted the addition, and the revenue appealed to the Tribunal. The Tribunal noted that the issue was covered in favor of the assessee by previous tribunal decisions, where it was established that the export sale proceeds received by the assessee were net amounts, and there was no additional income to be received. The Tribunal held that the commission was deducted from the invoice value, and only the net amount was received by the assessee, making the addition by the AO unjustified. Thus, the Tribunal deleted the addition, allowing the assessee's ground. 2. Disallowance of Various Expenses: The AO disallowed 20% of the expenses totaling Rs. 12,88,513, amounting to Rs. 2,57,703, due to the assessee's failure to produce relevant books of account and supporting evidence, claiming they were destroyed in a flood. The CIT(A) upheld the disallowance, noting the lack of evidence to substantiate the claim of loss, such as FIR, insurance claim, photographs, or assessment by SMC or trade organizations. The Tribunal agreed with the CIT(A), finding no evidence to support the assessee's claim of loss. Consequently, the Tribunal upheld the disallowance of the expenses, rejecting the assessee's ground. Conclusion: The appeal of the assessee was partly allowed. The Tribunal deleted the addition related to the disallowance of the foreign agent's commission but upheld the disallowance of various expenses due to lack of evidence supporting the claim of loss.
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