2024 (3) TMI 467 - AT - Income Tax

Export commission paid to UAE entity allowed as genuine business expenditure despite rate increase

M/s. Srinathji Yamunaji Enterprises Versus Income Tax Officer Circle-20 (3) (4), Mumbai

M/s. Srinathji Yamunaji Enterprises Versus Income Tax Officer Circle-20 (3) (4), Mumbai - TMI Issues:The judgment involves the challenge to the impugned order passed by the Commissioner of Income Tax (Appeals) regarding the assessment year 2013-14.Issue 1: Validity of Order Passed Under Section 143(3) of the ActThe assessee contended that the order passed under section 143(3) was upheld without considering the circumstances leading to higher commission payment to a foreign agent. The lack of a personal hearing was also raised as a violation of natural justice principles.Issue 2: Disallowance of Commission Paid to Foreign AgentThe Assessing Officer disallowed a portion of the commission paid to a foreign agent under section 37 of the Act, citing excessive increase compared to the previous year. The appellant argued that the higher commission was justified due to market conditions and efforts put in by the agent.Issue 3: Denial of Deduction Under Section 37The Commissioner upheld the denial of deduction under section 37 for the excess commission paid, despite the appellant's explanation regarding global turmoil affecting exchange rates and the necessity of the agent's services in recovering payments from overseas buyers.Issue 4: Non-Consideration of Agency AgreementThe Assessing Officer and Commissioner did not consider the agency agreement between the foreign party and the appellant, which outlined the responsibilities of the agent in follow-up and timely collection of payments.Issue 5: Compliance with RBI and DGFT LimitsThe appellant argued that the export commission paid was within the limits prescribed by the Reserve Bank of India and the Director General of Foreign Trade, as per Custom Circular no. 64/2003.Issue 6: Role of Foreign Agent in War-Torn RegionDue to war-like situations in Yemen affecting outward remittances, the foreign agent played a crucial role in facilitating sales and recovering payments, justifying the higher commission paid.The judgment ultimately ruled in favor of the assessee, allowing the appeal and directing the deletion of the part disallowance of export commission paid, as the expenditure was deemed to be incurred wholly and exclusively for the business purpose, with no evidence to justify the disallowance.