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2016 (9) TMI 847 - ITAT MUMBAI

2016 (9) TMI 847 - ITAT MUMBAI - TMI - Disallowance of expenditure - payment of Agency Commission to sister concern - whether excessive or unreasonable - Held that:- As decided in assessee’s own case and in the case of the assessee’s sister concern there is no dispute about the fact that the assessee availed the services of the foreign agent in respect of exports effected by it, as was apparent from the GRs. This fact was also approved by the RBI. Despite the payment of commission at l0% to a pe .....

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e assessee to determine the way in which it has to carry on its business. The assessee has to decide the percentage of commission which is to be allowed by him considering all the attending circumstances and the business exigencies. In our considered opinion, the ld. CIT(A) was justified in deleting this addition - Decided in favour of assessee - ITA Nos. 3021/Mum/2012, ITA Nos. 6481/Mum/2012, ITA Nos. 6747/Mum/2013 - Dated:- 11-8-2016 - Shri Shailendra Kumar Yadav, Judicial Member and Shri Raje .....

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ue raised in the grounds of appeal by the assessee is against the confirmation of the addition of ₹ 85,72,459/- as made by the AO under the head Agency Commission . 3. The brief facts of the case are that the assessee was engaged in the business of marketing and export of readymade garments. The assessee filed its return of income for A.Y. 2008-09 on 27.09.2008 declaring total income of ₹ 3,11,04,750/- which was processed u/s. 143(1) of the I.T.Act, 1961. Thereafter, a revised return .....

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end. In response, the assessee submitted that it had an agent Mr. Lenny King of England for securing sales order from the foreign market on which commission @10% was payable on the FOB value, which was duly approved by the Reserve Bank of India. The commission payable was credited to the account and paid as and when the same was demanded by the foreign agent or upon realisation of export proceeds. Thereafter, the AO not being satisfied with the reply required the assessee to furnish the details .....

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er the IT Act was only allowable when it is proved that the agent has rendered services. Finally the AO passed assessment order disallowing the agency commission expenses of ₹ 85,72,459/- and various other additions thereby assessing the income at ₹ 4,08,60,150/-. On appeal, the learned CIT(A) confirmed the additions made by the AO for the reasons mentioned in para 3.3 of the appeal order. 4. The learned AR submitted before us that the case of the assessee is fully covered by the ord .....

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ative part of the order in para 5 of ITA No 6480/Mum/2012 is as under: 5. We have heard the rival submissions and perused the material before us. We find that there was no formal written agreement between the assessee and the agent, but commission has been paid on regular basis to the agent in earlier as well as subsequent assessment years. At least in three earlier assessment years AO had passed assessment orders u/s. 143(3) of the Act. It is true that principle of res-judicata does not apply t .....

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e in subsequent years, AO should not reject the claim without a reasonable and justifiable cause-like decision of higher judicial forum against the assessee after the last assessment proceedings or investigation made by the department bringing new facts of the case on record. In the matter under appeal, we do not find any of such extra-ordinary conditions. Agreement was not there in the earlier years also, so, only on the basis of absence of a written agreement tax liability cannot be fastened t .....

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cerned. It is basically a business decision. Though the written agreement are considered more reliable evidenced in allowing commission payment, but no assessee can claim that because of a written agreement commission paid by it should be allowed as a matter of right. Commission paid by the assessee as per the formal agreements have been disallowed by the department in many a cases and courts have upheld such disallowance, because in such cases there was no evidence of rendering of services by t .....

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n the matter of Gautam Creation (supra) Hon ble Delhi High Court has held that commission paid in absence of a written agreement can be allowed, if work was done by the agent for the assessee who pays commission to the agent. In that matter claim made by the assessee for commission payment was rejected by the AO and was confirmed by the FAA. In the appeal, Tribunal, on appreciation of evidence, concluded that there was an agreement, though not a written one, between parties and work was done by .....

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From the records it is clear that profit of the assessee is also increasing. Correspondence of the foreign agent clearly show that the assessee is engaged in the business of exporting goods and is making payments to the agent regularly. It cannot be denied that here was a longstanding relationship between assessee and selling agent, one of the main ingredient for allowing /disallowing commission payment. We find that in the case of the sister concern, Anand Enterprises, Tribunal had dealt with t .....

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10% of F.O.B. value as mentioned in GRs, which were approved by the Reserve Bank of India. The AO held the submissions of the assessee were general in nature, that there was no new buyer introduced by the said agent. He allowed commission agency expenditure @ 2.88%, following the rate at which commission was paid last year. Resultantly, an addition of ₹ 32,11,200/- was made to the total income of the assessee. In the appellate proceedings, FAA deleted the addition made by the AO. Dimissin .....

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earlier year, it can be noticed that the export sales in this year increased from ₹ 8.06 crores to ₹ 11.15 crores. Despite the payment of commission at l0% to a person, who is unrelated to the assessee, the gross profit as well as the net profit of the assessee saw substantial increase in terms of amount as well as percentage. The fact that the assessee did pay commission to its foreign agent has been acknowledged by the AO as is apparent from his decision in restricting the deductio .....

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