TMI Blog2010 (10) TMI 641X X X X Extracts X X X X X X X X Extracts X X X X ..... garding deduction under section 80HHC - no such ground of appeal was raised and argued before Learned Commissioner of Income Tax (Appeals) - CIT(A) has held that the advance tax paid was less than 90% of the tax assessed and therefore, the assessee was liable to pay interest under the said section - In the result, the appeal of the Revenue as well as the cross objection of the assessee both are dismissed - ITA No. 2086/Ahd/2008 C.O.No.287/AHD/2008 - - - Dated:- 22-10-2010 - SHRI BHAVNESH SAINI, JUDICIAL MEMBER SHRI N.S.SAINI, ACCOUNTANT MEMBER Appellant by : Shri R.K. Dhanesta,D.R. Respondent by: None. ORDER PER N.S.SAINI , ACCOUNTANT MEMBER :- This is an appeal filed by the Revenue and the Cross Objection filed by the assessee against the order of Learned Commissioner of Income Tax (Appeals)-II, Surat, dated 28.2.2008. The relevant assessment year is 2004-2005. The appeal arises out of assessment completed under Section 143(3) of the Income Tax Act, 1961. 2. The Grounds of appeal taken by the Revenue are as follows :- 1. On the facts and circumstances of the case and in aw, the Learned Commissioner of Income Tax (Appeals) has erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not remitted any amount of commission from India during the previous year relevant to the assessment year under appeal and the commission had been directly deducted from the export invoices. The banks have further reconciled and certified that the commissions paid by the assessee through the export invoices were on the basis of Guaranteed Receipt (GR) and SDF forms scrutinized by the Reserve Bank of India. The AO observed that the payments of commission to buyers in UAE are bound by their regulations and accordingly did not accept the contentions of the assessee regarding the payment of commission to foreign buyers. 6. The Learned Assessing Officer has further roped down the provisions of law contained in Section 194H to amplify the concept of services rendered against the payment of commission. The AO in relying on the law contained in Section 5 of the Income Tax Act to hold that the commissions paid by the assessee through the export invoice are in the nature of income accrues or arising to the assessee outside India. 7. In appeal the Learned Commissioner of Income Tax (Appeals) has held as under:- 7. I have carefully considered both the positions. In the Explanation belo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s own property but as the property of the principal who continues to be the owner of the goods, and will therefore be liable to account for the sale proceeds. The concept of sale has undergone a revolutionary change, having regard to the complexities of modern times and the expanding needs of society, which has made a departure from the doctrine in laissez faire by including a transaction within the fold of a sale even though the seller may by virtue of an agreement impose a number of restrictions on the buyer, e.g., fixation of price, submission of accounts, selling in a particular area or territory and so on. These restrictions per se would not convert a contract of sale into one of agency, because in spite of these restrictions the transaction would still be a sale and subject to all the incidents of sale. 7.1. As held by the Hon'ble Court, the ingredients of what is commission are contained in the Explanation to Sec. 194H. There has to be rendering of services, such services have to be rendered in the course of buying and selling of goods or in relation to any transaction involving any asset, valuable article or thing. There has to be an element of agency in the rendering of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, very surprising that the Assessing Officer rejected such important evidences in a very routine manner without even considering or appreciating the nature of transactions entered into by the assessee. Even though the agent was of the foreign buyer yet, its functioning was of clear benefit to the assessee as well. The evidences produced by the assessee could not be wished away on the mere ground that the agent provided services only to the buyer and not to the assessee. This fact was clearly established by the entries in the export documents and also in the BRCs. These documents not only established the identity of the agent, the nature and the extent of services rendered but also the genuineness of the transactions. What is important to note is that, the transactions were conducted in accordance with the terms and conditions agreed upon between the seller and the buyer, the buyer and the agent, and between the agent and the seller, even though there was no formal agreement between them. 7.3. It has been argued by the Assessing Officer that if at all such commission agent had rendered any service to the assessee, then the assessee would have paid commission to such party directl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 authorised dealer, was what had been earned by the assessee from such transactions. Given such facts of the matter, I am of the view that the Assessing Officer was clearly misled into taking the view that the method of accounting adopted by the assessee had violated the provisions of Sec. 145 of the I. T. Act. Consequently, he was not justified at all in rejecting the book results. Here it may be very relevant to mention that the Assessing Officer 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 very going to be received in future. If this was the view of the Assessing Officer, then he contradicted himself in taxing amounts which had not been received at all, nor did the assessee have any legal right to receive such amounts. 7.5. It has been argued by the Authorised Representative that the assessee should be taxed only on the amounts which had been actually received as exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delete the addition of the sum of Rs. 42,07,936 . 8. The Learned Departmental Representative supported the order of the Learned Assessing Officer. 9. Notice of hearing was sent to the assessee on earlier three occasions to the respondent assessee when none appeared on the date of the hearing. Therefore, the notice was served through Learned Departmental Representative. The Learned Departmental Representative has filed report of the service of notice on the respondent assessee which is placed on record. None is present on behalf of the assessee when the case was called for hearing and neither any adjournment is filed. In the circumstances, the appeal was heard ex parte qua the respondent assessee. 10. We have heard the Learned D.R. and perused the materials available on record. The main plank of the argument advanced by the learned A.R. before the Learned CIT (A) was that the commission paid by the assessee was in the nature of traditional discount extended to foreign buyers and the assessee had received only the net proceeds and therefore there could not be any concept of income against the amount which was never received by the assessee or accrued to the assessee. In support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as recorded the only net receipts as its export sales, the assessee has claimed the benefits of import entitlement like DEPB on the amount of gross value of invoice which shows that as far as the assessee is concerned, the export sale proceeds is represented by the gross invoice value and not by the net value as claimed by the assessee. 14. At this juncture, it is necessary for us to state that the assessee has accounted the export sales turnover at the net figure and claimed DEPB benefits on the gross amounts in accordance with the guidelines issued by the RBI in the light of the Export Import Policy of the Government of India. The assessee has given the deduction of discount to the foreign buyer by way of commission being reduced directly in the sales invoice in the light of the regulations and guidelines of the RBI. This method of invoice and giving discount/commission and receiving the foreign exchange net of invoice are permissible under the law relating to the export and foreign exchange matters. The Export Import Policy and the RBI regulations approved this method. The Export Import Policy and the RBI Regulations further allow an assessee to claim benefits of import entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia in the form of convertible foreign exchange. This position is proved by the certificates issued by the bankers as well as letters of credit opened by the foreign buyers. When the assessee has received only the net proceeds as per the invoice, there is nothing further left over to be treated as income received or to be received or accrued or deemed to be accrued or arising in India or outside India. Therefore, the reliance placed by the lower authorities on the Section 5 of the Income Tax Act is rather misleading. 17. As the assessee has not paid to the foreign buyers any amount by way of commission, but it was only adjustment through the export invoices by way of commission/discount, Section 194H also had no role to play. Therefore, we find that all the discussions made by the lower authorities to make additions of the commission amount were based on hypothesis and not on any facts proved. When the assessee had no additional amount to be received from the foreign buyers, no question of additional income arises. The income of the assessee is fully embedded in the net sale proceeds received and accounted by him. When the income itself is not generated, there is no question of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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