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TMI Blog2016 (7) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... us fully justified, on account of commercial exigencies, and that is how any commercially rationale person would behave. If the assessee does not show the break up on the invoice itself, and shows only the net amount, his export entitlements will be computed on the net amount, and will thus be lower. The assessee has forgone a part of the invoice amount, i.e. to the extent of the agreed commission paid by the foreign agent to his agent, but that is a part of the understanding at the time of negotiating the price and, therefore, the export price, for all practical purposes except for the export incentive entitlements, must stand reduced to that extent. We are not really concerned with, nor is it necessary to deal with, ethical aspect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commissioner (Appeals) in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2005-06. 2. Grievance of the assessee, in substance, is that, on the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the addition of ₹ 17,22,409 in respect of foreign buyer s agency commission which is deducted at source from the invoice amount, by the importer at the time of making the payment. 3. Briefly stated, the relevant material facts. The assessee derives income from exports of textile and fabrics. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has not realized entire invoiced amount of exports, and that c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income Tax Act . His scholarly analysis running into twenty seven pages finally lead him to conclude as follows: Thus the facts and circumstances of the case reveal that the assessee has supressed the sale proceeds by way of debiting commission suo motu without any supporting evidence, which is not allowable by any means. In this set of facts, an amount of ₹ 17,22,409 is added to the total income of the assessee being suppression of sale proceeds because of the reasons cited above. 4. Aggrieved, assessee carried the matter in appeal before the learned CIT(A) but without any success. Learned CIT(A) confirmed the aforesaid addition of ₹ 17,22,409 by observing as follows: 5. I have considered the facts and the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of services rendered and also agreement between the appellant and the foreign buyers but in this case, no such evidence is produced either before the Assessing Officer or during the appellate proceedings. In the absence of agreement between the foreign buyers and the appellant regarding the payment of commission to the agents and also in the absence of any confirmation from the foreign buyers that the amount is paid to the agent or will be paid to the agent and no evidence of any service being rendered, it cannot be said that the expenditure is allowable and also to hold that the foreign buyer was bound to pay the appellant the amount covered by the commission at any future, date. Hence, it cannot be said that the appellant will not receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly engaged by the importers, and their accountability is to the importers, but since this is treated as a cost incidental to the imports and to facilitate the same, as a commercial practice, the exporters bear this cost in the sense that the export price stand reduced by this agency commission paid by the buyer to the buying agent, upto or at the agreed rate. It is a normal business model. Nothing can evidence this commercial practice better than a policy circular issued by the Directorate General of Foreign Trade in the Government of India. This circular, a copy of which is placed at page no.26 of the paperbook, is reproduced below: DIRECTORATE GENERAL OF FOREIGN TRADE GOVERNMENT OF INDIA MINISTRY OF COMMERCE POL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only the net export price. The billing pattern by the assessee is thus fully justified, on account of commercial exigencies, and that is how any commercially rationale person would behave. If the assessee does not show the break up on the invoice itself, and shows only the net amount, his export entitlements will be computed on the net amount, and will thus be lower. It is for this reason that the disclosure of buyer s agency commission on the invoice is perhaps commercially justified. Since the commission is not paid by the assessee, there is no question of accounting for the same in the assessee s commission. The assessee has forgone a part of the invoice amount, i.e. to the extent of the agreed commission paid by the foreign agent to his ..... X X X X Extracts X X X X X X X X Extracts X X X X
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