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2016 (7) TMI 19 - AT - Income TaxAddition 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 - Held that:- Even though the de facto export price for the assessee is the gross invoice value minus the commission, the exporters do not bill the de facto export prices, but show the gross amount and the buyer’s commission separately, so as to be entitled to the export incentives on the gross amounts even though these gross amounts never reach the assessee, and what the assessee gets is 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. 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 this practice. This accounting jugglery may seem to be ex facie unethical but even if that be so, addition of the impugned amount cannot be justified for that reason. The amount deducted on account of buying agent’s commission is not part of export sales, and it cannot be added to the exports. It is not an expenditure of the assessee, and, therefore, it cannot be disallowed either. As evident from the documents regarding exchange control regulations, i.e. through the bankers in accordance with the FEDAI/RBI guidelines, there are no exchange control objections with regard to the net realizations. There is no reason to come to the conclusion that it is a case of under-invoicing to the extent of commission amount. The commission amount was not paid by the assessee, though, to the extent of commission amount, the gross export price stood reduced in effect and, accordingly, importer paid the net amount to the assessee. The gross amount is rather symbolic and must not, and has not been, even be treated as the value of exports. Thus we are of the considered view that the authorities below were in error in making the impugned addition - Decided in favour of assessee.
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