2013 (2) TMI 426 - HC - Income Tax

Court affirms Tribunal's decision on Tax Appeal, stresses burden of proof

The Court upheld the Tribunal's decision to dismiss the Tax Appeal, finding no errors in the Tribunal's rulings on the deduction of agency commission and ... Agency commission to foreign agent – Held that:- When the factum of actual receipt of sale proceeds to the extent of net invoice amount is established beyond any doubt, there is no justification in overlooking upon those speaking facts on the technical ground that the assessee has claimed the DEPB benefit on the gross amount of the invoice. The DEPB claim was made by the assessee on the basis of permission granted by the RBI and that has nothing to do with the actual amount of export sales proceeds received by the assessee in the form of convertible foreign exchange - Assessee not responsible for an additional income – Against the revenue. Addition u/s 41(1) – cessation of liability - AO required the assessee to furnish confirmation from the creditors with their complete details – Assessee could not satisfy the AO on this issue – AO invoked Section 41(1) – Held that:- Remission has to be granted by the creditor – Unilateral act on the part of the debtor cannot bring about a cessation of his liability - cessation of the liability may occur either by reason of the operation of law, i.e. on the liability becoming unenforceable at law by the creditor and the debtor declaring unequivocally his intention not to honour his liability, or a contract between the parties, or by discharge of the debt – Assessee has shown the said amount as its outstanding liability in the balance-sheet if the revenue wanted the tax amount invoking Section 41(1) of the Act, onus was on the revenue to bring some positive material – Further in the case of Sugauli Sugar Works (P.) Ltd. [1999 (2) TMI 5 - SUPREME COURT] it was held that the principle that expiry of the period of limitation prescribed under the Limitation Act could not extinguish the debt but it would only prevent the creditor from enforcing the debt, has been well settled– Against the revenue. Issues Involved:1. Deduction of agency commission disallowed by Assessing Officer.2. Addition under Section 41(1) of the Income Tax Act.3. Error in reversing the order of the Commissioner of Income Tax (Appeals)-II, Surat.4. Shifting onus of burden of proof from the assessee to the revenue regarding proof of sundry creditors.Issue 1: Deduction of Agency Commission Disallowed:The Tribunal deleted the addition of Rs.58.08 lacs claimed as deduction on account of agency commission. The Tribunal found that the assessee received only the net amount after deducting the agent's commission, and therefore, was entitled to the deduction. The Tribunal emphasized that the export sale proceeds received by the assessee were of the net amount, not the gross amount. It was noted that the assessee had not paid any commission directly to the foreign buyer, but adjustments were made through export invoices. The Court agreed with the Tribunal's reasoning and held that no error was committed. The revenue failed to prove that the assessee received any excess payment beyond the invoiced amounts. The Court concluded that no question of law arose in this scenario.Issue 2: Addition under Section 41(1) of the Income Tax Act:The Tribunal also deleted the addition of Rs.2.14 lacs made by the Assessing Officer under Section 41(1) of the Act. The Assessing Officer had invoked this section as the assessee could not provide confirmation from creditors. The Tribunal noted that the revenue did not establish that the liability had ceased or that the creditors were bogus. It was observed that the liability was shown as outstanding in the balance sheet, and without positive material from the revenue, Section 41(1) could not be applied. The Court referred to a similar case where it was held that the expiry of the limitation period does not extinguish the debt, and the liability cannot cease unilaterally by the debtor. The Court affirmed the Tribunal's decision, emphasizing that the revenue had the onus to prove the benefits received by the assessee regarding the outstanding liability.Issue 3: Error in Reversing the Order of Commissioner of Income Tax:The Tribunal's reversal of the Commissioner's order was not found erroneous by the Court. The Tribunal's decisions were supported by factual and legal reasoning, and no question of law was identified. The Court highlighted that such contentions were considered in previous cases and not entertained.Issue 4: Shifting Onus of Burden of Proof to the Revenue:The Tribunal's decision to shift the burden of proof regarding sundry creditors from the assessee to the revenue was not separately considered by the Court as it was more of a contention. The Court did not find the need to address this issue separately.In conclusion, the Court dismissed the Tax Appeal as it found no errors in the Tribunal's decisions regarding the deduction of agency commission and the addition under Section 41(1) of the Income Tax Act. The Court emphasized the importance of the revenue proving any allegations or additions made against the assessee with concrete evidence and upheld the Tribunal's reasoning in both instances.