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Manish H Agarwal Versus Assistant Commissioner of Income Tax, Central Circle 4, Surat

2016 (7) TMI 19 - ITAT AHMEDABAD

Addition 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 neve .....

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nt 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 amou .....

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me 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 makin .....

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e 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 .....

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only the net export proceeds i.e. the invoice amount minus the foreign buyer s agency commission. It was also noted that only the net sale rate has been charged to the foreign buyer and net amount is recorded in the books of accounts by debiting the party with the net amount only . On these facts, the AO inferred that evidently, sale proceeds have been reduced by the rate of 10% pertaining to the commission, thus leading to suppression of sales under the pretext of commission payment which has .....

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counts presentation format which is liable to be rejected under section 145 of the 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 asse .....

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he fact is that he has not shown gross sales amount in the profit and loss account but has shown the net sales in the P&L Account. Hence, by implication, it is clear that by showing only net sales, the assessee has claimed the foreign buyers' agents commission expenses hence, it is his onus to prove the expenses which has not been done satisfactorily. The commission expenses were relating to the foreign buyers and it was not expenses relating to the appellant. There is no evidence produc .....

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principle has not been properly followed. The reliance placed by the appellant on the decision of ITAT in the case of Rachna Export and Sanjay Jain & Samir Batra, is not applicable as the facts are different. In those cases, the assessee furnished various evidences regarding confirmation of parties, the details 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 .....

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, date. Hence, it cannot be said that the appellant will not receive the difference amount between net sales and gross sales if not paid to the foreign buyer. It is a case of application of income. Therefore, the Assessing Officer was justified in making the disallowance which is upheld. 5. The assessee is not satisfied and is in appeal before us. 6. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal posi .....

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hough that, as a commercial practice, the buying agent s commission is also borne by the seller in the sense that it is reduced from the selling price. Effectively thus, the selling price of the exporter is gross invoice amount minus the buyer s agency commission. 8. It is a common practice that the foreign buyers use agents in the sourcing locations so as not only to get assistance for sourcing of the imports but also, and perhaps more importantly, monitor the progress, timely shipments and qua .....

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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 POLICY CIRCULAR NO. 55(RE-98), DATED : - 10th DEC. 1998. SUBJECT : - Inclusion of Commission in the FOB value for calculation of DEPB Entitlement. Attention is involved to paragraph 7.25 of the Exim Policy (RE-98), 1997-2002 .....

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ission, is taken into account. It has therefore been decided that the total FOB value inclusive of foreign agents commission (upto the specified limit prescribed by RBI) be taken while calculating DEPB entitlement also. This issues with the approval of DGFT. (Ajay Sahai) Jt. Director General of Foreign Trade 9. What is thus clear is 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, bu .....

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nt, 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 agent, but that is a part of th .....

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