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TMI Blog2010 (1) TMI 1277X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal of the assessee is as regards to disallowance of deduction u/s.80HHC of the Act. For this, the assessee has raised the following ground No.1 & 2:- "1. That the Hon'ble C.I.T.(A) has erred in upholding the disallowance/rejection of deduction u/s.80HHC of the I.T. Act, 1961 ("the Act") by wrongly interpreting the amendments made by the Taxation Laws (Amendment) Act, 2005 ("the Amendment Act"). 2. That the Hon'ble C.I.T.(A) has erred in upholding the "NIL" deduction u/s.80HHC of the Act, by mis-interpreting the provision of the Amendment Act." 3. At the outset, Ld. counsel for the assessee stated that this issue is now adjudicated by the Special Bench of this Tribunal in the case of Topman Exports v. ITO (2009) 318 ITR (AT) 87 (Mum), whereby it is held that only the profit element of the sale proceeds of the DEPB is to be excluded for the purposes of computation of deduction u/s.80HHC of the Act and accordingly whether the assessee's case falls under the second, third and forth proviso inserted by the Taxation Act, Laws (Amendment) Act, 2005, w.r.e.f. 1-4-1998 or not. The Ld. counsel for the assessee stated that this issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... work. The outgoing fund movement from the bank accounts of these parties led nowhere and these job work parties failed to submit the real identities of the persons to whom they have transferred the funds. On the basis of above facts the A.O. reached to the conclusion that the job charges bills issued by these three parties are not in respect of any actual job work done by them but are accommodative bills provided by these parties. The A.O. further presumed that the amounts paid by the assessee to these job parties must have returned back to the assessee in such a manner that little evidence can be found in this respect. The A.O. accordingly disallowed the job charges paid of ₹ 1,17,73,210/- to above referred three parties. 7. Before the C.I.T. (A) it was contended that the assessee has furnished all the relevant details and evidences to the A.O. during assessment proceedings. The evidences furnished to A.O. during assessment proceedings include the following documentary evidences:- • Job charges invoices raised by job parties • Bank Statements evidencing payments to the job parties by account payee cheques. • Copies of TDS certificates in respect of TDS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself proves that the work was done. The average annual export sales rate is ₹ 71.71 per mtr. as against raw material cost of ₹ 52.14 per mtr. If DEPB is reduced from raw material cost, the average input cost works out to be ₹ 44.80 per mtr. as against the sales realization of ₹ 71.71 per mtr. It was argued that such a high realization cannot be achieved without the value addition work. Thus, sales realization itself prove that the value was got done on the fabrics. In such a situation merely because these contractors could not furnish certain details in their assessment proceedings, the expenditure cannot be held to be non-genuine in the hands of the assessee. Assessee had proved his source (job work parties) and cannot be asked to prove the source of source. The CIT(A), however, did not agree with the arguments of the assessee and upheld the disallowance. It was accepted by the CIT(A) that in the case of assessee the identity of all the parties were established as they were all assessed to tax. However, as in their cases they failed to prove that they have actually done the job work, the A.O. was correct in disallowing the job charges in the hand of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re fancy and decorative value addition work generally done on these fabrics We find from the nature of business that the job work is very common feature of textile industry in Surat. The assessee assigned these work of job parties engaged in this business and these job parties get the work done from number of sub-job workers who are individuals, small groups, families etc. This is the home industry of the city of Surat. These job parties assist the assessee by consulting the type of value addition work and fashion going on in the market. They are latest in this field and create the ideas. They lift the goods from the premises of the assessee and get the value addition work done from different sub-job workers in the city. These job-workers are in unorganized sector. They are small individuals, group of individuals, families etc. who are doing work as per instruction of job-work parties. The assessee does not know these sub-job workers as they are scattered over the city of Surat and he has no contact with them. We further find that the assessee during assessment proceedings has furnished following evidences in support of expenditure:- • Job charges invoices raised by job ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The A. O. must have checked the payments made by this job party and if at all there was any finding against assessee then he could have clearly brought out the same on record. But there is no such finding at all. This renders the arbitrary presumption of the A. O. to be completely baseless and unsustainable. In the absence of any such finding, the genuine expenditure incurred by assessee for value addition job work paid by A/c Payee cheques cannot be disallowed. This issue is clearly covered by the judgment of Hon'ble Gujarat High Court in above case law. 9. We further find that the similar issue was dealt with by the Tribunal in the case of Shalu Dyeing & Printing Mills Pvt. Ltd. Vs ACIT in ITA No. 1491 and 1492/Ahd/2008 dated 11-7-2008, wherein relying on the case of this Tribunal in the case of Akruti Dyeing & Printing Mills Pvt. Ltd. in ITA No.2551 and 2552/Ahd/2006 order dated 26-10-2007 held the purchased as genuine by holding as under: "5 We have carefully considered the rival submissions and, perused the material on record along with the orders of the tax authorities below. We find that this Tribunal in the case of Akruti Dyeing & Printing Mills Pvt. Ltd. in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is against the order of CIT(A) in sustaining the charging of interest u/s.234B of the Act. For this, the assessee has raised the following ground No.4:- "4. That the Hon'ble C.I.T.(A) has erred in sustaining charging of interest u/s.234B of the Act in respect of Job Work Expenses disallowed." 12. As both the sides agreed that this charging of interest u/s.234B of the Act is consequential, accordingly, we direct the Assessing Officer to charge the interest after giving appeal effect to this order consequently. This issue of the assessee's appeal is allowed consequently. Now coming to assessee's appeal in ITA No.1941/Ahd/2008. 13. The first issue in this appeal of the assessee is as regards to disallowance of deduction u/s.80HHC of the Act. For this, the assessee has raised the following ground No.1 & 2:- "1. That the Hon'ble C.I.T.(A) has erred in upholding the disallowance/rejection of deduction u/s.80HHC of the I.T. Act, 1961 ("the Act") by wrongly interpreting the amendments made by the Taxation Laws (Amendment) Act, 2005 ("the Amendment Act"). 2. That the Hon'ble C.I.T.(A) has erred in upholding the &q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accommodative bills provided by these parties. The A.O. further presumed that the amounts paid by the assessee to these job parties must have returned back to the assessee in such a manner that little evidence can be found in this respect. The A.O. accordingly disallowed the job charges paid of ₹ 2,13,84,300/- to above referred three parties. 17. Before the CIT(A) it was contended that the assessee has furnished all the relevant details and evidences to the A.O during assessment proceedings. The evidences furnished to A.O. during assessment proceedings include the following documentary evidences:- • Job charges invoices raised by job parties • Bank Statements evidencing payments to the job parties by account payee cheques. • Copies of TDS certificates in respect of TDS deducted U/S. 194C from these job parties. • Confirmation from these job parties that they have done job work of value addition and received payment for it. • Ledger account copy of these job parties. It was argued that the assessee is an exporter of value added textile fabrics. Assessee purchased cloth from market and got value addition work done on job work basis and then e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition work. Thus, sales realization itself prove that the value was got done on the fabrics. In such a situation merely because these contractors could not furnish certain details in their assessment proceedings, the expenditure cannot be held to be non-genuine in the hands of the assessee. Assessee had proved his source (job work parties) and cannot be asked to prove the source of source. The CIT(A), however, did not agree with the arguments of the assessee and upheld the disallowance. It was accepted by the CIT(A) that in the case of assessee the identity of all the parties were established as they were all assessed to tax. However, as in their cases they failed to prove that they have actually done the job work, the A.O. was correct in disallowing the job charges in the hand of assessee. As regards the assessee's claim that the payments were made to these job parties by `A/c. payee only' cheques and there was not an iota of finding by the A.O. that any portion of these payments returned back to the assessee, it was concluded by the CIT(A) that there was no necessity to reach that level of evidence, when basic evidence showed that the expenditure was bogus. By mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the case and in law, the Ld. CIT(A) ought to have rejected the additional evidences produced by the assessee during the course of appellate proceedings." 22. We have heard the rival contentions in both the cases and gone through the facts and circumstances of the case. We find that the facts are exactly identical in both the cases, hence, we will take the facts in assessee of Supreme India Overseas Corporation and applied in the case of M/s. Jhavar International. The only ground in department's appeal is against the deletion of addition of ₹ 3,05,57,195/- in respect of foreign buyer's agent's commission deducted in the exports sales invoices. During the course of assessment proceedings, on verification of export sales invoices and bank realization certificates (BRCs), it was found by the A.O. that the assessee firm has paid commission on gross invoice value by deducting the same in the export sale invoices. The total amount of commission so deducted in export sale invoices worked out at ₹ 3,05,57,195/- (US $ 6,75,350.36). It was explained by the assessee that as matter of price fixation, the prices fixed were gross selling rates less commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmation letters of foreign buyers by terming same to be vague confirmation letters. The A.O. asked the assessee to furnish the confirmations from the foreign agents for which assessee wanted some time and as the case was getting time barred the A.O. passed the assessment order after making addition of above referred commission amount of ₹ 3,05,57,195/- on the ground that the assessee failed to proved the services of foreign agents. The A.O. also invoked the provisions of S. 93 of the Act for making this addition. Aggrieved, the assessee preferred appeal before CIT(A). 23. Before the CIT (A), the assessee contended that the A.O. was not correct in treating the gross sales amount as the sales income of the assessee and in treating the commission deducted there from as application of income. It was contended that the assessee was entitled to receive only net amount as per the export sales invoices and such net amount of sales invoices only accrued as sales income to the assessee. It was argued that assessee's legal right was to receive only net amount as mentioned in the sales invoices and not the gross amount. This fact was proved by producing the export sales invoice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in response these foreign agents have again confirmed the above facts, still these confirmation letters cannot be relied upon and should not be admitted in evidence. The CIT(A), after elaborately discussing all the circumstances, admitted the additional evidences. It was observed by the CIT(A) that during assessment proceedings the assessee was left with little time for furnishing these confirmation letters and was therefore prevented by reasonable cause for furnishing these confirmation letters at assessment stage. In respect of invoking of provisions of Section 93 it was argued on behalf of the assessee that these provisions are not at all applicable to case the assessee and are mis-applied to the A.O. It was contended that the assessee did not get any power to enjoy the income of non-resident (i.e. commission income of foreign agents) and therefore there was no case for invoking provisions of Section 93 of the Act. The CIT(A) after considering the observation of A.O. in the assessment order and the remand report and the lengthy submissions made on behalf of the assessee deleted the addition. Aggrieved, the Revenue came in second appeal before us. 24. Before us, at the outset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellate order as the he has decided the issue after taking remand report from the Assessing Officer. We are of the considered view that there is no infirmity in admitting the additional evidences. Accordingly, this issue of Revenue's appeals is decided against. 26. Coming to the merits of the case, the learned counsel for the assessee repeated the same argument as were made before the CIT(A). He carried us through the paper book file by him, particularly the copies of confirmation letters from foreign buyers and foreign agents (placed on Page No. 75 to 85) and also through the sales invoices and BRCs and argued that the assessee firm was entitled to receive only net amount after deducting the commission. He argued that it was evident from the BRCS that only net amount was ultimately received by the assessee-company-firm. He also mentioned that even in the calculating deduction u/s. 80HHC of the Act the A.O. himself has taken the net sales amount as the export turnover of the assessee. He further brought to our notice that the identical issue of foreign agents commission deducted in sales invoices has already been decided by the Benches of ITAT, Ahmedabad in favour of assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss invoice values, yet, the Assessee under the terms of the agreement or understanding with the buyer, had to deduct from the invoices the amount of commission payable. In the background of such fats, it could not be held that the gross invoice amounts were what had accrued to the Assessee, and these were the amounts on which the Assessee should have been assessed. The outgoing commission from the invoice values would have to be reduced from the gross amounts, and the net amount which was the actual sum received by the assessee in India, and which was duly certified and permitted by the RBI and its authorized dealer, was what had been earned by the Assessee from such transactions. We find, that the AO himself had noted in the assessment order that the amounts deducted as commission from the sale invoices were neither received by the Assessee during the year, nor was it ever going to be received in future. If this was the view of the AO, then he contradicted himself by taxing amounts which had not been received at all, nor did the Assessee have any legal right to receive such amounts. 26. We find that the commission was not deducted from the export invoices in an ad hoc manner an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 which is on letter head, then P.T. Sinar of Indonesia is again on letter had at paper book page No. 511 to 515, then again Al Aheed Aljaheed of Kuvait is on letter head at paper book page No. 508, then again P.T. Sinar is on letter head at paper book page No. 511 to 515, Jay Prakash Trading of Dubai is again on letter head at paper book page No. 504 to 506, then Lipinge Textile of Dubai is again on letter head at paper book page No. 516 and 518 as well as in the case of Saudi Extension Agency at paper book page 507. So except one party namely, Mohmed Abdulla of Dubai as mentioned above, all other confirmations were on letter head of the respective parties. 27. We find from the records as well as the arguments of both the sides that none of the payment has come beyond six months but it was within six months as can be verifiable from bank realization certificate enclosed at paper book page No. 390 to 451. The assessee has received the aforesaid payment within six months as per RBI rules and guidelines. The AO has presumed that assessee's buyer has to pay commission as and when buyer received the payment from the assessee, which is not correct because in any case the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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