2012 (12) TMI 56 - HC - Income Tax

Disallowance on account of payment made to the Foreign Agent Held that - Confirmation letter from M/s. Vistar Trading LLC from the foreign country confirming the nature of business and the amount of commission received by it for the sale of goods to three parties directly from the buyers - letter also reflected that the foreign agents did not have any sister concern in India - abundant material concerning the identity of agent and genuineness of the transactions as well as services rendered as also with regard to the amount received by it - disallowance deleted Disallowance of claim of export commission Held that - Gross export proceeds never reached the assessee, no such income had therefore accrued to the assessee and this was because of an obligation 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 - amounts deducted from the export invoices were thus clearly allowable as deduction disallowance deleted In favor of assessee

Summary

Issues:
1. Disallowance of payment made to foreign agent.
2. Non-application of mind by Income Tax Appellate Tribunal.

Issue 1: Disallowance of payment made to foreign agent
The appellant-Revenue challenged the order of the Income Tax Appellate Tribunal regarding the disallowance of Rs. 42,98,215 made against the payment to a foreign agent. The Tribunal found confirmation from the foreign agent regarding the nature of business, commission received, and absence of any sister concern in India. It concluded that there was abundant material confirming the identity of the agent, genuineness of transactions, and services rendered, leading to the deletion of the disallowance. The High Court, while dealing with a similar issue in a previous case, upheld the Tribunal's decision based on the evidence presented, confirming the admissibility of the deduction under section 37(1) of the Income Tax Act. The Court emphasized the necessity for deduction of commission from export invoices as per agreements between parties, dismissing the Revenue's appeal due to lack of evidence to challenge the Tribunal's findings.

Issue 2: Non-application of mind by Income Tax Appellate Tribunal
The appellant contended that the Tribunal's order suffered from non-application of mind and was perverse. However, the High Court, after examining the evidence on record, found that the Tribunal's decision was based on reasonable and convincing findings of fact. The Court noted that the Tribunal's conclusion was supported by cogent evidence, which the Revenue failed to dislodge with contrary evidence. As the issue was directly addressed, and the evidence substantiated the Tribunal's decision, the Court dismissed the appeal, stating that no question of law arose for consideration. The Court emphasized the importance of evidence before the Tribunal in establishing the payment to overseas agents, leading to the deletion of the disallowance without the need for further interference.

In conclusion, the High Court upheld the Tribunal's decision to delete the disallowance of payment made to the foreign agent, citing substantial evidence supporting the genuineness of transactions. The Court dismissed the appeal, emphasizing the significance of evidence in tax matters and the Tribunal's role in making decisions based on factual findings.