2017 (5) TMI 681 - AT - Income Tax

Appeal outcome: Foreign agency commission partially allowed, documentary evidence crucial for substantiation

Mrs. Ritu Sanjay Toshniwal, Bombay Versus Jt. Commissioner of Income, Tax, Range-18 (1), And Asstt. Commissioner of Income Tax, Range-18 (1),

The appeal concerning the disallowance of foreign agency commission claimed by the assessee for assessment years 2009-2010 and 2010-11 was partly allowed ... Disallowance of foreign agency commission - addition of the additional evidences - Held that:- There was some kind of dealing between the assessee (Proprietor of M/s Marisa International) and M/s ShoreChem LLC and its principal as well as M/s CPP International for export of paper products and stationery items to USA. Therefore, assessee’s claim that M/s ShoreChem LLC has acted as an agent cannot be discarded at the threshold without examining the evidences brought on record. In this context, the additional evidences produced by the assessee assumes importance. On perusal of the ledger copy, we have noticed that commission payment is duly reflected. Similarly, bank statement copies demonstrate remittance of money to M/s ShoreChem LLC and Lindsay Logue. Therefore, in our view, the additional evidences produced by the assessee before us will have a crucial bearing in deciding the issue relating to payment of commission. Therefore, we are inclined to admit the additional evidences submitted before us. However, since these evidences were not before the departmental authorities, to give a fair chance to the department to examine the evidences and verify the authenticity of assessee’s claim, we are inclined to restore the matter to the file of the AO for fresh adjudication. We make it clear, heavy burden is cast on the assessee to prove the genuineness of the commission payment with documentary evidences. AO is also required to verify the assessee’s claim in the context of evidences brought on record and decide the issue after proper inquiry. Needless to mention, AO must offer reasonable and fair opportunity of being heard to the assessee. Issues:- Disallowance of foreign agency commission claimed by the assessee for assessment years 2009-2010 and 2010-11.Analysis:1. Background and Disallowance of Commission:- The assessee, engaged in exporting paper products, claimed a foreign agency commission for both assessment years.- The Assessing Officer (AO) disallowed the commission claimed due to lack of evidence showing services rendered by the foreign agency.- The AO reopened the assessment for the earlier year based on information from the subsequent year's assessment.- The AO found that the foreign agency denied receiving any commission from the assessee.- The disallowance was upheld by the ld. CIT(A) for both years.2. Assessee's Arguments and Additional Evidence:- The assessee contended that the commission was paid to M/s ShoreChem LLC as per an agreement to find buyers for the products.- The commission payment started from the 6th year as per the agreement terms.- The assessee presented additional evidence, including bank statements and emails, to support the commission payments.3. Department's Objection and Tribunal's Decision:- The Department objected to the admission of additional evidence, stating lack of justifiable reasons for not presenting it earlier.- The Tribunal considered the information received under the Indo-USA DTAA and the certified public accountant's statements.- The Tribunal noted the dealings between the assessee, M/s ShoreChem LLC, and M/s CPP International for exporting products.- Additional evidence, such as ledger copies and bank statements, demonstrated commission payments to M/s ShoreChem LLC and Lindsay Logue.- The Tribunal decided to admit the additional evidence and remit the matter to the AO for fresh adjudication.- The AO was directed to verify the genuineness of the commission payment with documentary evidence and offer a fair opportunity to the assessee.4. Conclusion:- The appeal related to the disallowance of foreign agency commission was partly allowed for one year and fully allowed for the other year for statistical purposes.- The Tribunal emphasized the importance of documentary evidence to prove the genuineness of commission payments and instructed the AO to conduct a thorough inquiry.This detailed analysis highlights the background, arguments presented, objections raised, and the Tribunal's decision regarding the disallowance of foreign agency commission claimed by the assessee for the assessment years 2009-2010 and 2010-11.