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TMI Blog2011 (10) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... IA, JJ. Manish Malpani for the Appellant. Jayraj Kumar for the Respondent. ORDER A. K. Garodia, Accountant Member - This is assessee's appeal directed against the order of Ld. CIT(A) II, Surat dated 24.11.2008 for the assessment year 2005-06. The grounds raised by the assessee are as under: "(1) That on the facts and in the circumstances of the case, Ld. CIT(A) has erred in sustaining the addition by way of disallowance of Rs. 1,10,20,201/- attributable to Foreign Agent's Commission deducted form export invoices. (2) That on the facts and in the circumstances of the case, Ld. CIT(A) has erred in sustaining addition by way of disallowance of various expense of Rs. 2,57,703/-." 2. The brief facts of the case till the assessment stage are noted by Ld. CIT(A) in para 4 of his order which is reproduced below: "4. The Assessee is engaged in the business of export of fabrics through his proprietary concern, M/s Jain Creation. During the year, the Assessee claimed commission expenses of Rs. 1,10,20,201, allegedly paid to foreign agents. The rate of commission worked out to 12.50%. From the invoices and the Bank Realization Certificates (BRCs), the AO found th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount under commission had been paid to the buyer yet, no evidence had been furnished in support of such a claim. The AO then entered into a detailed discussion the accounting treatment which the Assessee should have given to sue claim in the books of account. He thus observed that even though commission had been reduced from the gross invoice value, it was in effect the nature of expenses which should have been debited under the tax commission account and the sales amount reduced correspondingly. Instead of passing such entries, the Assessee had only accounted for the sales net of the commission amount without making a separate entry of the commission claimed to have been paid. Thus, the Assessee had manipulated his accounts so that the accounts still balanced even though it was essentially a distorted and incorrect picture of Trading as well as P L Account. By netting of commission against the sales, the Assessee had completely removed the commission expenditure from the Profit and Loss account. Commission payments should have been accounted for in the same way and manner trade discount is accounted for, which is also netted out from purchases/sales and yet, a separate correspond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uirements in cases of the exports made to the UAE. Neither had any agency agreement been produced nor had complete details of the agent been furnished. The Assessee had thus violated the law of the land of the UAE and consequently, the expenditure on account of commission payment was not allowable under the Explanation to Sec. 37 (1) of the IT Act. Referring to the Double Taxation Avoidance Agreement (DTAA) between India and the UAE the AO noted that while showing commission payment to agents in the UAE the Assessee had reduced his taxable income while the corresponding income in the hands of the agents in the UAE, was not taxable as per the existing law of the land. Therefore, such amount had escaped tax in both the countries, which as per the spirit of the DTAA, was to be prevented. 4.5 Next, the AO focused on the allowability on such commission payment terms of sec. 37 of the IT Act, as per which, such payment could be made only against the rendering of services. 'Since, the Assessee had claimed to have paid the commission by deducting it from the invoice value itself, the onus was on the Assessee to establish that services were actually rendered by the so-called agents, and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng tax liability AO therefore, disallowed the commission payment to the to Rs. 1,10,20,201 and treated the same as income of the Assessee under the provisions of sec. 93 of the IT Act." 3. Being aggrieved, the assessee carried the matter in appeal before Ld. CIT(A) who has deleted this addition and now, the revenue is in appeal before us. Ld. D.R. supported the assessment order whereas Ld. A.R. supported the order of Ld. CIT(A). It is also submitted by him that his issue is now fully covered in favour of the assessee by the following tribunal decisions: (i) Sanjay Jain [I.T. Appeal No. 1533/Ahd/2008, dated 16.12.2009] pages 1-10 of the paper book (ii) Narendra Modh [I.T. Appeal No. 453/Ahd/2009. dated 11.6.2010] pages 11-17 of the paper book. (iii) Rachna Exports [I.T. Appeal No. 3791/Ahd/2007, dated 24.3.2010] pages 18-43 of the paper book. 3.1 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find hat this issue is squarely covered in favour of the assessee by various tribunal decisions cited by the Ld. A.R. The facts are identical in the present case and in these cases cited by Ld. A.R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fortunately in a wrong direction. 11. When the factum of actual receipt of sale proceeds to the extent of net invoice amount is established beyond any doubt, there is no justification in overlooking upon those speaking facts on the technical ground that the assessee has claimed the DEPB benefit on the gross amount of the invoice. The DEPB claim was made by the assessee on the basis of permission granted by the RBI and that has nothing to do with the actual amount of export sales proceeds received by the assessee in the form of convertible foreign exchange. 12. Therefore, it is quite obvious without much discussion and deliberation that the Revenue has no case to hold the assessee responsible for an additional income of Rs. 1,42,31,458. The said addition is accordingly deleted." 4. In the present case also, there is no dispute that the commission was deducted from the invoice value and only net amount was received by the assessee from the buyer. Hence, there is no difference in facts and therefore, by respectfully following the various tribunal orders cited by the Ld. A.R., we hold that the addition made by the A.O. is not justified and the same is deleted. Ground no.1 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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