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TMI Blog2014 (5) TMI 544X X X X Extracts X X X X X X X X Extracts X X X X ..... rmine the way in which it has to carry on its business - commission paid by the assessee to its agent is an allowable expenditure - The Circular of the RBI is on record and that the absence of the said circular was one of the reasons for disallowance – the order of the FAA is set aside – Decided in favour of Assessee. - ITA No. 3022/Mum/2012, ITA No. 6480/Mum/2012 - - - Dated:- 30-4-2014 - Sh. D. Manmohan And Rajendra,JJ. For the Petitioner : Shri Hariom Tulsyan For the Respondent : Ms. Neerja Pradhan ORDER Per Rajendra, AM, Challenging the orders of the CIT(A)-29, Mumbai, assessee-firm has filed appeals for above referred two Assessment Years (AY. s). Grounds of appeal for the AY-2008-09 reads as under: The Learned Commissioner of Income-tax, (Appeals) has wrongly upheld addition made by the learned Assessing Officer Rs. 59, 23, 456, a business expenditure under the head Agency Commission . The learned Commissioner of. Income-tax, (Appeals) has not considered submissions made by appellant proving that foreign agent has rendered services, commission was accrued on receipt of goods, and there was improvement in gross profit compared to prev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,88,43,390/- 26.09.2012 During the assessment proceedings, Assessing Officer(AO) found that assessee-firm was exporting goods mainly to Arcadia Group of UK, that it had debited to P L Account with agency commission of Rs. 59. 23 lacs. AO directed it to file justification for payment of commission and to file a copy of Agency Commission Agreement, if any. Vide its letter dated 09. 10. 2010 assessee submitted statements, before the AO, showing date of sale invoice, parties names, value of bills and value of commission paid along with a detailed explanation. After considering the submission of the assessee, AO held that explanation offered by the assessee was not acceptable, that it was found from the record that assessee was making a provision for commission on invoice bills @ 10% on the basis that the commission payment was approved by RBI, that assessee did not furnish any circular/notification of RBI indicating that commission @10% of invoice value was allowable as business expenditure, that it had not produced the copy of Agency Commission Agreement, that it admitted that there was no written agreement with the agent, that the agent had never r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. AO further held that commission expenses of Rs. 45, 71, 497/-(Rs. 59. 53 lacs Rs. 11. 94 lacs + Rs. 1. 57 lacs) claimed by the assessee during the year under appeal would not be allowed, that it had failed to establish with documentary evidence that services was rendered by the foreign agent, that commission expenses of Rs. 11. 94 lacs pertained to earlier years, that expenses amounting to Rs. 1, 57, 820/-was not allowable as the same was claimed twice. Finally, he held that total commission expenses of Rs. 59. 23 lacs had to be added to the business income of the assessee. 2. 1. Assessee preferred an appeal before the First Appellate Authority (FAA). Before him it was argued that AO had overlooked the RBI permission covering the commission amount, that he did not consider the evidences like regular e-mail correspondence in respect of the commission pay - ment, that the appellant had made payment of commission to maintain turnover of the earlier year and to sustain increased profitability of the year under consideration, that the gross profit ratio for the year under appeal had increased to 62. 6% as compared to 52. 8% for the last year, that in case of Anand Enterprises, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to the pages 26, 28-30 of the paper book for 2008-09 and pg. 27-44, 47, 50, 56, 57 of the PB for AY. 2009-10. He relied upon the cases of Gautam Creations (P. ) Ltd. (171 Taxman271-Delhi HC), Laxmi Engineering Industries(298ITR203-Raj HC), Anupam Synthetics (P)Ltd. (104TTJ119-Del), Smt. Satinderjit Kaur(52TTJ388-Chd). Departmental Representative (DR) submitted that it was not clear as what services were rendered by the agent, that there was no agreement between the assessee and the agent, that e-mails were sent to the associate concern of the assessee, that circular of the RBI had fixed the maximum rate of commission payable, that said circular did not justify payment of commission. He referred to pg. 27-44, 32-33, 36 of the paper book filed by the assessee for the AY. 2009-10, that Anand Enterprises was a separate entity. 5. We have heard the rival submissions and perused the material before us. We find that there was no formal written agreement between the assessee and the agent, but commission has been paid on regular basis to the agent in earlier as well as subsequent assessment years. At least in three earlier assessment years AO had passed assessment orders u/s. 143( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement cannot be sole base for disallowance of commission payment, if other evidences prove the fact of incurring of such expenditure wholly and exclusively. We find that in the matter of Gautam Creation (supra)Hon ble Delhi High Court has held that commission paid in absence of a written agreement can be allowed, if work was done by the agent for the assessee who pays commission to the agent. In that matter claim made by the assessee for commission payment was rejected by the AO and was confirmed by the FAA. In the appeal, Tribunal , on appreciation of evidence, concluded that there was an agreement, though not a written one, between parties and work was done by commission agents pursuant thereto, thus, justifying payment made by the assessee. Hon ble dismissed the appeal filed by the department and upheld the order of the Tribunal. In the case under consideration it is found that the assessee had incurred negligible expenditure under the head foreign travel, though it is mainly in the business of export. It is also found that it does not have office our of India. It is getting order from its agent and payment is routed through proper banking channels. From the records it is clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO as is apparent from his decision in restricting the deduction to 2. 88% of the turnover. Once the commission is accepted to have been paid, there is no logic in disallowing such expenditure by holding that it was excessive. It is for the assessee to determine the way in which it has to carry on its business. The assessee has to decide the percentage of commission which is to be allowed by him considering all the attending circumstances and the business exigencies. In our considered opinion, the ld. CIT(A) was justified in deleting this addition. Considering the peculiar facts and circumstance of the case under appeal and following the order of the coordinating bench delivered in the case of Anand Enterprises(supra), we are of the opinion that commission paid by the assessee to its agent is an allowable expenditure. 5. a. As far as computation of disallowance is concerned, we find that the assessee itself had agreed during the assessment proceedings expenses amounting to Rs. 1, 57, 820/-was not allowable as the same was claimed twice. So, in our opinion AO was justified in not allowing the said amount. In our opinion issue of payment of commission of Rs. 11. 79 lak ..... X X X X Extracts X X X X X X X X Extracts X X X X
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