2021 (5) TMI 1056 - AT - Income Tax

Estimation of NP rate at 5% - HELD THAT - Undisputedly, the NP rate of assessee from previous years vary 2.49% to 1.86%. Therefore, at the best we take NP rate of 2.49%, which is NP rate for A.Y. 2011-12 or we can take 5% as proposed by the authorities below. To balance the equity, trend of industry, past NP rate of assessee and turnover of the assessee we reduce the NP rate of 5% to 4%. AO is directed to work out the income of the assessee accordingly. In the result the ground no1 of the assessee is partly allowed. Disallowance u/s. 40(a)(ia) - commission was paid to foreign agent - HELD THAT - The commission was admittedly paid outside India. There is no situs in India. The modus operandi of assessee is clear that the assessee is recipient of income in India after deduction of commission by the buyer made outside India . Thus, no income has been received or paid inside India , which attract deduction of TDS in India and therefore, the assessee is not liable to deduct TDS in India. The nature of transaction is not disputed. The case of AO was that the assessee has not deducted TDS , as the commission was paid to foreign agent, however he had not denied payment of commission by the assessee for procuring the orders. In view of the above, we allow this ground of the assessee on merit and delete the disallowance made u/s. 40(a)(ia). Applying the GP rate of 1.86% and to this duty draw back was added by the assessee - While calculating the net profit, the assessee has not taken into account the duty draw back and had separately added to the NP rate calculated by him. In the result the ground of the assessee is dismissed.

Summary

Issues Involved:
1. Addition of Rs.14,98,883/- being 5% of the turnover instead of Rs.5,58,042/- as shown by the appellant.
2. Disallowance of commission paid to foreign commission agents amounting to Rs.9,63,954/-.
3. Addition of Duty Drawback amount of Rs.24,84,657/- to the income of the appellant.

Issue-wise Detailed Analysis:

Issue 1: Addition of Rs.14,98,883/- being 5% of the turnover
The appellant contested the addition made by the Assessing Officer (AO) who applied a net profit rate of 5% on the turnover of Rs.2,99,77,659/-. The appellant argued that the net profit rates for the previous three years were significantly lower (2.49%, 2.47%, and 1.86%). The CIT(A) upheld the AO's decision, stating that the discrepancies in the books justified the application of a 5% net profit rate, particularly due to the nature of the export business which generally fetches higher profits. The Tribunal, after considering the past net profit rates and industry trends, reduced the net profit rate from 5% to 4%, directing the AO to recalculate the income accordingly. Thus, the ground was partly allowed.

Issue 2: Disallowance of commission paid to foreign commission agents
The AO disallowed the commission paid to foreign agents due to the appellant's failure to deduct TDS. The Tribunal examined the relevant provisions under sections 5 and 40(a)(ia) of the Act. It concluded that the commission was paid outside India and there was no income received or paid within India that would attract TDS deduction. The Tribunal found that the AO had not disputed the payment of the commission for procuring orders. Consequently, the Tribunal allowed the appellant's ground on merit and deleted the disallowance made under section 40(a)(ia).

Issue 3: Addition of Duty Drawback to the income
The appellant argued that the duty drawback, being a reimbursement of expenses/taxes, should not be separately added to the income. The CIT(A) and the AO had added the duty drawback amount of Rs.24,84,657/- separately to the net profit. The Tribunal noted that the appellant had already included the duty drawback in the profit and loss account. It observed that excluding the duty drawback would result in a net loss, which was not acceptable. Therefore, the Tribunal upheld the addition of the duty drawback amount to the income, dismissing this ground of appeal.

Conclusion:
The Tribunal partly allowed the appeal, reducing the net profit rate from 5% to 4% for recalculating the income. It allowed the ground regarding the disallowance of commission paid to foreign agents, deleting the disallowance. However, it dismissed the ground regarding the addition of the duty drawback amount, upholding the AO's and CIT(A)'s decisions. The final order was pronounced on 31/05/2021.