TMI Blog2021 (10) TMI 1042X X X X Extracts X X X X X X X X Extracts X X X X ..... the shoes of the businessman and decided that lower rate of interest should have been charged. In our considered opinion this is legally totally unsustainable. CIT(A) has elaborately examined the issue and after detailed analysis of the factual data has come to the conclusion that the assessee s performance has hugely increased pursuant to support from the commission agents. In this view of the matter in our considered opinion learned CIT(A) has passed a correct order. Addition made by the Assessing Officer is solely based upon surmises and conjecture without any cogent independent verification on record. See RAJARANI EXPORTS PVT LTD [ 2013 (5) TMI 410 - CALCUTTA HIGH COURT] . TP Adjustment - transfer of fund for equity capital - assessee advanced interest free loan to its subsidiary - HELD THAT:- As assessee has given funds to its subsidiary initially which has been converted later on into equity capital. For the intervening period the Assessing Officer has charged 10% notional interest. The Revenue was relied upon the case of Perot System TSI India Ltd.[ 2009 (10) TMI 638 - ITAT DELHI] . There was no issue of conversion of fund into equity in the case of Parot System TSI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of learned CIT(A). Excess physical stock found in search - HELD THAT:- We find that the addition in this regard is based upon the excess stock found during search and we do not find any infirmity in the order of the authorities below. Even the assessee is taking shifting stand partly accepting and partly denying the veracity of findings. This is not sustainable. Hence, we uphold the same. Excess cash found - amount of the seized cash would be added to the Total Income u/s. 69A - We find that the assessee has contended that it was never a case the assessee has not pressed for this ground. Hence, in our considered opinion this issue has been left unadjudicated by learned CIT(A). Moreover the Assessing Officer has rejected the assessee s explanation without mentioning as to what was the explanation. Hence, in the interest of justice we remit this issue to the file of learned CIT(A). The learned CIT(A) is directed to consider this issue afresh and decide as per law. Addition of commission paid to overseas agent - HELD THAT:- As decided in own case commission on export activity had been fully disclosed in all correspondences and activities in relation to export, the commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted enterprises, M/s. Mellow Commodities SDN.BHD at arm's length price, without appreciating the fact that section 92 of the I.T. Act is clearly applicable to the transaction made with the associated entity. 3. On the facts and in the circumstances of the case and in law, the Id. CIT-(A), erred in allowing the appeal of the assessee placing reliance on the decision of the jurisdiction Hon'ble ITAT, Mumbai Bench( Special Bench) in the case of M/s. All Cargo Global Logistics Ltd (137 ITD 287) , whereas the decision in All Cargo global logistics Ltd has been further contested in appeal and the decision of the Hon'ble Mumbai High Court is still pending. 4. The Appellant prays that the order of the CIT-(A), on the above grounds be set aside and that of the Assessing Officer be restored. 4. Brief facts of this case are as under :- A search action u/s. 132 of the I.T.Act was carried out in the Sopariwala Group of cases on 29/04/08. The assessee firm is one of the entities in the said group. Consequent to the search action, notices u/s. 153A were issued for A.Y. 2003-04 to 2009-10 on 29/01/10. The appellant filed its return of income on 04/03/10 declaring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xport of Afzal Pandharpuri (Afzal Pandharpuri Tobacco) the main x-branded product of Sopariwala Group of Companies. He observed that during F.Y. 2002-03 no, commission was paid whatsoever to any overseas agent by the assessee. However from F.Y. 2003-04 to 2007-08, the assessee incurred overseas commission expenses to the tune of 29.27Crs. The commission was paid to a single party viz. M/s. Khadlaj Perfumes LLC., Dubai only in respect of product Afzal Pandharpuri. The AO has summarized the situation as per his analysis for Sopariwala Exports, the assessee, as follows: F.Y. QTY. CTNS SALES AMT. (in Lakhs) COMM.PAID (in Lakhs) REMARKS 2002-03 36249 1402 0 No Agent Appointed 2003-04 49416 1802 371 Agent appointed 2004-05 55361 2011 503 2005-06 67810 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w: A.Y. No. of Cartons KGs Sold Amount (in lakhs) 98-99 18851 471275 466 99-00 28035 700875 847 00-01 22110 552750 776 01-02 31158 778950 1161 02-03 35716 892900 1362 03-04 36249 906225 1402 04-05 49416 1235400 1802 05-06 55361 1384025 2011 06-07 67810 1695250 2489 07-08 67738 3053 8. The AO concluded that no commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecified in the contract was not achieved by the commission agent for at least two years out of the six years for which the assessment orders were passed. The AO finally concluded that transaction with M/s. Khadlaj Perfumes LLC, Dubai are not genuine since the genuineness of the transaction and the evidence of services rendered was not proved. The assessing officer therefore disallowed entire amount of commission paid to M/s. Khadlaj Perfumes LLC, Dubai in AY 2004-05 to AY 2008-09. 9. The AO also made an alternative contention in his assessment order that in case the assessee is able to prove that the transactions of payment of commission is genuine the commission payment should be held to be excessive since such high rate commission was not paid for the other products sold by the assessee. He noted that the commission paid to all other parties for other products ranges from 0.5% to 5.85% whereas commission paid to M/s. Khadlaj Perfumes LLC, Dubai is 25%. He was of the view that in such eventuality reasonable commission payment should be not in excess of 2% of these sales. 10. Upon assessee s appeal learned CIT(A) noted that the assessee has given following additional evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from appellant in the appellate proceedings: Sopariwala Exports (Figs Rs/Lakhs) FY Sales Other income Commission expenses exports Net Profits Loan to Subsidiary Mellow commodities SDN BHD at year end Investment in subsidiary Mellow Commodities SDN at year end 2000-01 9693 221 78 1749 2001-02 7689 41 90 1386 2002-03 10058 153 136 1735 2003-04 10363 510 555 1088 863.71 30.02 2004-05 10787 190 535 952 2166.09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 510 555 1088 10279 1805 424 2004-05 10787 190 535 952 10770 2032 511 2005-06 8929 218 631 857 8895 2491 622 2006-07 9573 364 765 1214 8841 3064 763 2007-08 8640 717 670 1225 8665 2721 668 2008-09 12987 1760 1013 2788 12706 4528 1013 Combined Sopariwala Exports Sopariwala Exports Pvt. Ltd. FY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in rupee terms per carton is even higher. In view of the factual position as can be seen from the above table, there is merit in the contention of the appellant that it focused on its branded export of Afzal Pandharpuri and the appointment of the agent for-this purpose proved to be successful. There has been manifold increase in export of its branded product Afzal Pandharpuri both in terms of value and in quantity even after increasing the price of its products. 5.9.24. The AO has looked at overall net profit of the appellant. It will be naive to expect that the business environment will remain same across the years and that profitability will be maintained across the years. However, the AO has not examined the profitability of the product in respect of which the agent was appointed. The traded export sales has accounted for the falling profitability as is apparent from the accounts over a period. It is further noticed that the assessing officer has not considered the financial results for FY 07-08 and FY 08-09 which was available when he framed his assessment orders in December 2010. He stopped at FY 2006-07, while concluding that profitability has fallen after the agent wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be restricted to 2% of sales. It is seen that commission @ 32.24% had been paid to Motis Export Ltd in F.Y. 02-03. 5.9.28. It is seen that at no stage did the appellant admit that the commission expenses claimed was bogus during search action or thereafter. The commission payment along with rate has to be declared to RBI which also monitors the remittance going out of the country. It is apparent that the RBI has accepted the commission payment @ of 25% to Khadlaj Perfumes LLC as declared in the statements filed by the appellant over the years. It is therefore, apparent that the AO has merely on suspicion and with prejudged view held that the commission expenses are not allowable. He therefore ignored evidences which corroborate the contention of the appellant. Even in the alternate plea recorded by the assessing officer in the assessment order the conclusion that the commission payment to other commission agents ranges only from 0.5% to 5.88% is factually incorrect. A perusal of the statement of commission rates in the chart incorporated in the assessment order itself shows that there is a commission payment of 8.73% to Al Keddah, which has been conveniently ignored by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessment order despite evidences submitted by appellant. He has again found fault with non production of tax returns and financial statements of commission agent and called for production of the agent. He has asked for further proof of action taken by agent in respect of spurious products. The appellant has rightly pointed out that records and documents cannot be maintained anticipating the requirements of the assessing officer at subsequent date. 5.9.31. The appellant has relied upon the following decisions. i) CIT vs Sales Magnesite Pvt Ltd. (1995) 214 ITR 1 (Bom) ii) Amarjothi Pictures vs CIT (1968) 69 ITR 755 (Mad) iii) CIT vs Rajarani Exports Pvt Ltd. (2013) 217 Taxman 84 (Calcutta) iv) Aluminum Corporation of India Ltd. (1972) 86 ITR 11 (SC) v) CIT vs Nestle India Ltd. (2011) 337 ITR 103 (Delhi) vi)JK Woollen Manufactures vs CIT (1969) 72 ITR 612 In respect of the argument that once the payment is exclusively for business, it is not open to the AO to go into the reasonableness of the payment, the case laws cited were J K Woolen, Aluminum Corporation of India Ltd. and Pheros Co. Pvt. Ltd. Vs. CIT (1980)124 ITR 188 (Gau). For th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stigation showing commission payments as high as 32.4%, thereby erroneously concluding that rate of commission to Khadlaj Perfumes LLC was very high. The overall export over the period AY 2004-05 to AY 2009-10 shows that the sales targets were achieved. The assessing officer ignored the evidence in support of services provided by the agent such as email, elimination of spurious products and action against infringement of copyrights, confirmation of the commission agent, evidence of sales executed with the help of the agent. These evidences support the case of genuineness of commission payment. The commission payments and the rates are disclosed in the application filed with RBI which has allowed the same. In case of commission exceeding 12%, the details have to be mentioned and remittance of commission requires RBI approval. It is reasonable to expect that the appellant cannot force the foreign commission agent to furnish is its audited financial statements and tax returns and to force the principal officer of the foreign agent to appear before the assessing officer. That the issue of commission expenses was taken up through the assessing officer's letter dated 8-12-2010 and ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done orally. He further submitted that whatever documents which have been submitted by the assessee do not prove the assessee s claim. That the bills of lading cannot be evidence in this regard. That evidence indicates that the payments were made but not that services were rendered. 14. Per contra learned Counsel of the assessee reiterated the submission before learned CIT(A). He submitted that learned CIT(A) has passed an elaborate order after appreciating all the evidence. He submitted that the said commission agent is a third party unrelated to the assessee. That the payment is pursuant to the agreement which is duly approved by consulate of both the countries. He further submitted that the rate of commission was duly informed to the RBI. That the said commission has been consistently paid. In this regard he placed reliance upon the decision of Hon'ble Supreme Court in the case of CIT Vs. Excel Industries (358 ITR 295) and Radhasoami Satsang Vs. ACIT (193 ITR 321). He further submitted that the Revenue cannot argue upon the necessity of expenditure as one of the conditions under section 37(1) of the Act. That the expenditure has to be wholly, necessarily and exclusively ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court in the case of CIT Vs. Rajarani Exports Pvt. Ltd. (ITA no. 49/2013) is fully applicable here. The Hon'ble High Court has observed as under :- It is observed that the commission on export activity had been fully disclosed in all correspondences and activities in relation to export, the commission was paid through banking channel of RBI approval and it was paid pursuant to an agreement approved by Government of India and UN. The payment of commission was for business consideration and there was apparently no illegality in making payment of commission. Besides this, nothing has brought on record to show that the transactions relating to payment of commission are non-genuine or are excessive and unreasonable. 17. In this view of the matter, we do not find any infirmity in the order of learned CIT(A). Hence, we uphold the same. Apropos ground No. 2 18. Brief facts are as under : The concern Mellow Commodities SDN.BHD is a wholly owned subsidiary of appellant which is based in Malaysia. The assessee advanced interest free loan to its subsidiary. The concern Mellow Commodities SDN.BHD being overseas entity and being wholly owned subsidiary of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount was also converted into equity by 14/12/07. The appellant has also not claimed any interest expenses in its books of accounts. In the decision cited by the appellant, the Hon'ble ITAT Ahmedabad Benche in the case of Micro Inks Ltd Vs. DCIT, which is subsequent to the decision in the case of M/s. Perot Systems TSI India Ltd. Vs. DCIT relied upon by the AO, the Hon'ble ITAT has considered that where amount was advanced towards equity and for certain reasons such as grant of permission, the equity shares were not allotted, it cannot be held that the amount advanced is not quasi equity. In the present case when the assessment order was passed on 31/12/2010, there was no doubt that advance will or will not be converted into equity. All the amount advanced by the appellant had been already converted in to equity in its subsidiary company. This aspect of the matter has not been appreciated by the AO. 5.10.4. In the appellate proceedings the appellant submitted copies of its submission before the AO. In the submission dated 24/12/10, copy of approval received from RBI for direct investment in its wholly owned subsidiary in Malaysia, copy of remittance made to its subsidi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05 was subsequently converted entirely into shares on 14/12/07. Thus on the date when assessment order was passed on 31-12-2010, there was no doubt that the entire amount had been converted into equity. In the case of Micro Inks Ltd., the Hon'ble ITAT Ahmedabad Bench in its order dated 06/08/13 has examined this issue. The Hon'ble Bench has considered the earlier. Tribunal decision referred to by the AO. The facts of the Micro Inks Ltd are similar to the facts of the appellant. In that case also the amount advanced was eventually converted in to equity capital and the advances were made from the EEFC account. The Hon'ble Tribunal noted that the loan was in the nature of quasi capital and that it was not open to the assessee to subscribe to the equity capital without the permission of the RBI. To that extent the ITAT distinguished the facts from the facts of case Perot Systems Ltd which has been relied upon by the AO. For the detailed reasons mentioned therein, the Tribunal came to the conclusion that no ALP adjustment was warranted in that case. 5.10.8. Coming to the case of the appellant, it is seen that the facts are similar to the case decided by ITAT Ahmedabad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Al Cargo (supra). The adjustment computed by the AO is therefore directed to be deleted. Accordingly, the ground of appeal no. 9 is allowed for all the AY. 2004-05 to AY. 2008-09. 20. Against this order the Revenue is in appeal before us. 21. Learned Departmental Representative submitted that the assessee could have transferred the fund as equity from the beginning itself but has chosen to transfer the same as long term loans. That the authorised capital of the subsidiary at that time was very low. That the long term loan was not quasi equity. He submitted that the delay in the formalities as noted by learned CIT(A) in allowing the appeal is not sustainable. Learned Departmental Representative referred to the decision of ITAT Delhi bench in the case of Perot Systems TSI (India) Ltd. (37 SOT 358) and submitted that the decision of Micro Inks Ltd. Vs. ACIT (144 ITD 610) relied upon by learned CIT(A) is not applicable. That the Assessing Officer applied Libor plus 4% amounting to 10% for making TP adjustment. Learned Departmental Representative left to us the decision to apply appropriate rate for making TP adjustment. 22. Learned Counsel of the assessee relied u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Global Logistics Ltd. (supra), this ground of the Revenue does not survive. Moreover to the same affect Hon'ble Bombay High Court in the case of CIT Vs. Continental Warehousing Corporation (Nhava Sheva) Ltd. [(2015) 374 ITR 645] has held that in the case of completed assessment no addition can be made under section 153A of the Act dehorse any incriminating material found. It is not disputed that upto A.Y. 2006-07 these were completed assessment and no incriminating material was found. To this extent this ground raised by the Revenue stands dismissed. 25. In the result, this appeal by the Revenue stands dismissed. ITA No. 3039/Mum/2014- M/s. Sopariwala Exports 26. This is an appeal by the Revenue and grounds of appeal are identical to A.Y. 3060/Mum/2014 hereinabove. The learned CIT(A) has also passed a concern order. Our adjudication for the aforesaid applies mutatis mutandis to this year also. Hence the Revenue s appeal is dismissed. ITA No. 3042/Mum/2014 for A.Y. 2008-09 M/s. Sopariwala Exports Pvt. Ltd. 27. This is an appeal by the assessee and Grounds of appeal read as under : 1. On the facts and circumstances of the case and according to la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee company. That there is no detail available as to the number of employees of the assessee company, the number of employees who are Muslims and the reasonableness of the said expenses. Further learned CIT(A) has found that there being enormous staff welfare expenses as compared to earlier year. That the expenses are clearly way out of proportion of overall expenses and are not reasonable. Hence, he held that this expenditure cannot be treated to be incurred for the business of the assessee. 30.. Against this order the assessee is in appeal before us. 31. We have heard both the parties and perused the records. We find that learned CIT(A) has passed reasonable order. In the absence of necessary details in this regard expenditure involved cannot be allowed as business expenditure. The decision of Borsad Tobacco Co. P. Ltd. Vs. ACIT (ITA No. 2941 2942) referred by learned Counsel of the assessee are not applicable on the facts of this case. Hence, we uphold the order of learned CIT(A). Apropos Ground No. 3 : 32. In this issue the assessee has incurred ₹ 3,00,000/- for obtaining special number for car. The Assessing Officer was of the view that there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith law. 4. On the facts and circumstances of the case and according to law, the Learned CIT (A) erred in confirming the order of the Learned Assessing Officer in respect of cash of ₹ 2,00,000/- seized under the pretext that no specific ground of appeal has been filed though the said ground was mentioned in the statement of facts and hence, the order of CIT(A) is bad in law. 4.1 The Learned CIT (A) failed to appreciate that addition of ₹ 2,00,000/- being excess cash seized is accounted in the books of account of the appellant and factually is not excess cash and hence the addition of ₹ 2,00,000/- may be deleted. Apropos issue of excess physical stock 39. Brief facts on this issue and the Assessing Officer s order indicate that excess physical stock was found during search and hence addition made by the Assessing Officer as under :- As per the Stock inventories taken during the course of the Search Surveys carried out at the assessee's business premises, discrepancies in Stock involving Excess Physical Stock in certain items Excess Book stock in certain other items were found. As per this office letter dated 29.10.2010, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition would be reckoned on the figure of the excess Book Stock at the Gross Profit margin of the product. Thus, on account of Stock discrepancies, the addition resulting to the Total Income would be as follows: i) Excess Physical Stock : ₹ 7,99,196/- ii) Excess Book Stock : ₹ 22,31,136/- of ₹ 40,56,593/- @ G.P. Margin of 55% 40. Upon assessee s appeal learned CIT(A) confirmed the action of the Assessing Officer by observing as under : It is seen that the appellant has made general arguments without pinpointing any error that has taken place in physical stock taking. Even otherwise the AO has considered the discrepancy item wise between the physical stock and book stock as prepared by the appellant during the assessment proceedings. Thus, no grievance arises in this regard. This reconciliation was prepared by the appellant and furnished to the AO vide its letter dated 24/12/10. I also do not find any merit in the contention of the appellant that comparison of phy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the addition of ₹ 2,00,OOO/- by the AO in the appeal filed on 31.01.2011 the submission filed on this issue is treated as infructuous. 45. Against this order the assessee is in appeal before us. 46. We have heard both the parties and perused the records. We find that the assessee has contended that it was never a case the assessee has not pressed for this ground. Hence, in our considered opinion this issue has been left unadjudicated by learned CIT(A). Moreover the Assessing Officer has rejected the assessee s explanation without mentioning as to what was the explanation. Hence, in the interest of justice we remit this issue to the file of learned CIT(A). The learned CIT(A) is directed to consider this issue afresh and decide as per law. 46. In the result, this appeal by the assessee is partly allowed for statistical purposes. ITA Nos. 2080/Mum/2016; 3041/Mum/2014; 3061/Mum/2014; 3062/Mum/2014; 198/Mum/ 2018 13/Mum/2018 : M/s. Sopariwala Exports Pvt. Ltd. 47. These are appeals by the Revenue against consolidated order of learned CIT(A) dated 24.2.2014 for A.Y. 2007-08 to 2009-10, dated 26.4.2013 for A.Y. 2010-11 and dated 16.4.2015 for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 67738 3053 763 2007-08 72586 2698 668 50. Both during post search investigation as well as the assessment proceedings, the assessee was questioned regarding the high commission expenditure claimed in these years. The assessee submitted that they had appointed a single commission agent for the years in question viz. M/s. Khadlaj Perfumes LLC, Dubai, UAE, as the commission agent for Afzal Pandharpuri Tobacco in the Middle East market. The benefits from the appointment of commission agent was stated to be :- The product captured 100% market share in the Middle East. The duplicate products sold by business rivals were eliminated. Consequent to the appointment of the agent the sale price of the product increased by 14% during F.Y. 2005-06 and 10% during F.Y, 2007-08. Despite the increase in sale price, the sales did not suffer a decline. Commission paid to the agent includes the cost of sales promotion, door to door marketing and other incidental expenses. It also protects the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as getting the export benefit under the Provision of section 80HHC of the IT. Act which was getting over in A.Y. 2004-05. He also noted it was in the A.Y. 2004-05 that the commission expenses started to be incurred in respect of M/s. Khadlaj Perfumes LLC, Dubai. He found fault with the assessee's inability to furnish the audited financial statements and the income tax details of the foreign commission agent and the non production of the Principal Officer of the foreign commission agent. He noted that the assessee did not produce the correspondence and evidence of the service provided by the commission agent. He noted that though the sales increased from 22000 Cartons in A.Y. 2000-01 to 67800 Cartons in A.Y. 2006-07, there had been a similar increase from 18851 Cartons in A.Y. 98-99 to 36249 cartons in A.Y. 03-04, a period during which M/s. Khadlaj Perfumes LLC, Dubai was not appointed as overseas agent. The AO therefore concluded that it could not be said that this foreign agent was necessary and responsible for increase in sales from AY 2004-05 to AY 2008-09. Primarily the AO was of the view that the export of the assessee was thriving without any problem in the earlier years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commission agent. ii) Copies of invoice raised by M/s. Khadlaj Perfumes LLC, Dubai for commission along with proof of remittance by Indian Bank. iii) Copy of form no. A-2 being application cum withdrawal of foreign exchange for remittance of commission M/s. Khadlaj Perfumes LLC, Dubai. iv) Debit voucher issued by Indian Bank Fort for remittance of commission, v) Copy of certificate issued by M/s. Khadlaj Perfumes LLC, Dubai for sales executed during F.Y. 2006-07 to 2008-09. vi) Third party/customers confirmation for purchasing of Afzal Pandharpuri from the appellant company through Khadlaj LLC. 55. Learned CIT(A) passed an order on same line as in the case of 3060/Mum/2014 above. The same may be gainfully referred as under :- 5.9.21. Now, I come to the merits of disallowance of expenses made in respect of commission expenses. It is the case of the AO that the agreement was entered into with M/s. Khadlaj Perfumes LLC, Dubai only when the deduction u/s. 80HHC was coming to an end, thereby suggesting the motive for the appellant to siphon out money from the firm. Firstly, in the case of this appellant, no 80 HHC deductions were claimed, and the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10363 510 555 1088 863.71 30.02 2004-05 10787 190 535 952 2166.09 66.99 2005-06 8929 218 631 857 2166.09 66.99 2006-07 4732 292 190 271 2166.09 66.99 2007-08 2625 584 2 92 0 2233.09 2008-09 2091 1561 0 1158 0 2233.09 Sopariwala Exports Pvt Ltd (Figs Rs/Lakhs) FY Sales Other Income Commission Expenses Exports Net Profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 008-09 12987 1760 1013 2788 12706 4528 1013 Combined Sopariwala Exports Sopariwala Exports Pvt Ltd FY Sales in Cartons Sales Target US Dollar (Lakhs) Sales in Value in US Dollar (Lakhs) Rate in $/carton 2001-02 35716 0 28.57 79.99 2002-03 36249 0 29.00 80.00 2003-04 49416 40.00 39.53 79.99 2004-05 55361 46.00 44.29 80.00 2005-06 67810 52.90 56.12 82.76 2006-07 74323 60.84 63.84 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts over a period. It is further noticed that the assessing officer has not considered the financial results for FY 07-08 and FY 08-09 which was available when he framed his assessment orders in December 2010. He stopped at FY 2006-07, while concluding that profitability has fallen after the agent was appointed. The net profit as % of sales for the combined entity was 21.46% in FY 2008- 09 as against 17.25% for FY 2002-03, as can be seen from the table (supra) prepared from the audited financial statements. 5.9.25. The AO has found fault with the fact that a single sole selling agent was appointed. He has also found fault with the appellant's inability to produce this sole selling agent who is a foreign entity resident in another country. It is understandable that the appellant could not force the foreign commission agent to appear before the AO in India and to furnish the agent's tax returns. At the same time it is noted that there is no mention of any direct action taken by the assessing officer for verification of information in respect of the agent M/s. Khadlaj Perfumes, LLC, Dubai. AO could have sought for information in respect of this agent through proper ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he commission payment to other commission agents ranges only from 0.5% to 5.88% is factually incorrect. A perusal of the statement of commission rates in the chart incorporated in the assessment order itself shows that there is a commission payment of 8.73% to Al Kedah, which has been conveniently ignored by the AO. In any case, as I have already mentioned earlier, the commission payment at much higher figures have been made by the appellant in respect of different consignments and products. 5.9.29. In respect of appointment of the commission agent in UAE, the appellant in its submission stated that it is well established practice that for doing business in Middle East there is a necessity for having a local partner. In this regard in the submission dated 09/01/14 the appellant submitted that in the UAE, business is to be done with local representative which is mandatory. Extract of notification issued by Ministry of Economy, UAE for establishing business/commercial activity in the UAE by non UAE business organization was submitted. In particular, the clause relating to commercial agency agreement was highlighted which is reproduced below: 4. Commercial agency agreement- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufactures vs CIT (1969) 72 ITR 612 In respect of the argument that once the payment is exclusively for business, it is not open to the AO to go into the reasonableness of the payment, the case laws cited were J K Woolen, Aluminum Corporation of India Ltd. and Pheros Co. Pvt. Ltd. Vs. CIT (1980)124 ITR 188 (Gau). For the proposition that where the payment is approved by RBI, the entire amount is allowable, the case law cited was in the case of Turner Morrison Co.Ltd. Vs. CIT (1987) 167 ITR 844 (Cal.). 5.9.32 From the discussion above, it is noted that the Annex. A-5 referred to in the assessment order is a loose paper file comprising mainly of unaudited balance d stock report as on 31.03.08 in respect of various group companies. There is no incriminating document brought on record by the AO in respect of disallowance of commission expenses. The commission was being paid even prior to AY 2004-05 and even in respect of Afzal Pandharpuri. Commission payment even at rate of 32% had been incurred in earlier years. Scrutiny assessments were made for AY 2004-05 and AY 2005- 06, prior to search, in case of Sopariwala Exports, and no disallowance of commission expenses were m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o expect that the appellant cannot force the foreign commission agent to furnish its audited financial statements and tax returns and to force the principal officer of the foreign agent to appear before the assessing officer. That the issue of commission expenses was taken up through the assessing officer's letter dated 8-12-2010 and appellant's reply dated 22-12-2010, supports the grievance of the appellant that reasonable opportunity was not given to it in the assessment proceedings. The assessment order and the remand report indicate that the assessing officer's emphasis is on appellant maintaining meticulous documentary evidences for commission expenses. The appellant is not incorrect in claiming that business is not run with an eye on creating documentary evidence for everything. The disallowance cannot be made for AY 2004-05 and AY 2005-06, sans incriminating documents, as per the ratio of the decision of the Special Bench in case of Al Cargo (supra). In view of the above facts and discussion, the action of the AO in disallowing the entire commission expenses is not tenable on merits. As regards the alternative contention of the assessing officer, I have already d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. 57. For A.Y. 2011-12 also learned CIT(A) followed earlier year order and has concluded as under : 6.3.9. In this regard, reference is made upon the Judgment of the Honorable Calcutta High Court in case of CIT v Rajarani Exports Pvt Ltd, ITA No.49/2013, G.A. No.480/2013 and G.A. No.483/2013 in which the Hon'ble High Court observed as under : It is observed that the commission on export activity had been fully disclosed in all correspondences and activities in relation to export, the commission was paid through banking channel of RBI approval and it was paid pursuant to an agreement approved by Government of India and UN. The payment of commission was for business consideration and there was apparently no illegality in making payment of commission. Besides this, nothing has brought on record to show that the transactions relating to payment of commission are non-genuine or are excessive and unreasonable. 6.3.10. In view of above facts and circumstances of the case, facts and clarification noted above, decision of my predecessor as well as the earlier CIT(Appeals) on this issue in earlier assessment years, as referred above and above all the Judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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