TMI Blog2010 (6) TMI 820X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 58,08,755/- in total. As the issue needs more elaboration, vide proceedings of order sheet dated 22.11.2007 details were called for. To the queries raised by the AO, the reply of the assessee was that the commission was paid to the buyers/importers himself, as deduction directly from the export sales invoice. The assessee submitted that it is customary in this line of export trade to allow commission to the buyer/importer himself directly from the sale invoice. He stated that the rate of deduction on account of commission used to be decided at the time of entering into sales contract itself. The letters of credit issued by the bank were obtained for the sale proceeds net of commission as commission to the buyer/importer is deducted directly from the invoice price. The assessee explained that this adjustment was never treated as payment of commission in the account of the assessee as deduction as allowed to the buyer himself and not to a third person. The foreign buyer makes the payment of the net amount only and the sales are recorded in the accounts of the assessee for the net amount. 3. The AO did not accept the various arguments and explanations offered by the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... H to amplify the concept of services rendered against the payment of commission. The CIT(A) also agreed with 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. Ultimately, the CIT(A) confirmed the addition made by the assessing authority. The above issue is the first ground raised in the present appeal filed by the assessee. 6. We have heard the rival submissions and perused the materials available on record. The main plank of the argument advanced by the learned Authorised Representative of the assessee is 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 of his contention, he relied upon the decision of Hon'ble Kerala High Court in the case of Deputy Commissioner of Agricultural Income Tax Sales Tax (Law) Vs. Travancore Rayons Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 10. 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 entitlement like DEPB on the gross amount of invoice value instead of the net amount of invoice value. Therefore, the benefit accrues to the assessee in respect of DEPB on the diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. Page - 9 13. 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 94H 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 such income becoming accrued or due. When there is nothing left over t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the Assessee's side. The AO further observed that the Assessee followed the mercantile system of accounting and this meant that the deduction of the aforesaid sum had already been claimed and allowed in the earlier years. The Assessee did not even have the addresses of the said parties even though they had been appearing as sundry creditors for the past three years. No supplier would forget to claim outstanding payments due to him. On the basis of such observations, the AO came to the conclusion that such debts had ceased to exist or that the Assessee had no intention of clearing such debts. He therefore, added the sum of ₹ 2,14,195 under the provisions of sec 41(1) of the IT Act. Submissions of the Assessee: 9. In the written submission, the AR has very briefly mentioned in a few lines that the Assessee had neither received any letter asking for confirmation from the said parties, nor was any show-cause notice issued prior to making the disallowance u/s 41(1) of the Act. Decision 10. I have carefully considered both the positions. It is quite evident from very cryptic submission of the AR that, there is simply no substance in what he has written. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer in the order of assessment. In our considered opinion, as the assessee has challenged the service of show cause notice and as the evidence of service was with the revenue and as it is the ground of revenue that the assessee was asked to submit details of creditor and assessee was served with the show cause notice in our considered view, it was a duty of the revenue to bring relevant materials on record to support its above assertion. Be that as it may, the issue before us is about addition of ₹ 2,14,195/- under section 41(1) of the Act during the year under consideration. It is not the case of the revenue that the assessee has written off the above liability in its books of account of the year under consideration rather it is an admitted fact that the assessee has shown the above amount as its liability in the Balance Sheet of the year under consideration. In the above circumstances, when the revenue wants to tax the amount of liability as income of the year under section 41(1) then the onus lies upon the revenue to bring some positive material on record to show that the assessee actually received some benefit in respect of the aforesaid amount during the year under consi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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