2014 (5) TMI 544

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....te of hearing. " Assessee has filed following grounds of appeal for AY 2009-10: "The Learned Commissioner of Income-tax, (Appeals) has wrongly upheld addition made by the Learned Assessing Officer Rs. 46, 07, 195/-, a business expenditure under the head "Agency Commission". The learned Commissioner of Income-tax, (Appeals) has not considered submissions made by appellant during the assessment proceedings and also during the appeal proceedings i. e. i. copies of regular emails, regarding reimbursement of expenses incurred by foreign agent, quality-quantity & claims made by foreign buyers, proving that foreign agent has rendered services, ii. copies of ledger account and invoice-wise details of commission accrued on receipt of goods. The learned Commissioner of Income-tax, (Appeals) has wrongly upheld Assessing Officer's observation regarding absence of agency agreement and bills for commission. The learned Commissioner of Income-tax, (Appeals) has wrongly upheld Assessing Officer's observation regarding increase in Turnover and introduction of new foreign buyers. The learned Commissioner of Income-tax, (Appeals) has overlooked profitability i. e. net profit R....

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....ncrease in total turnover, whereas commission had increased from Rs. 1. 76 lacs to 59. 33 lacs, that assessee was engaged in export of garments to the same customers for last so many years, that it did not add a single new customer during the year under consideration, that commissi -on expenses were claimed at a higher percentage with an intention to reduce the net taxable profit of the firm, that the assessee had made provision for commission on the basis of invoice value - claim and expenditure and P & L Account, that the assessee's claim with regard to commission was not genuine. AO gave the details of the commission payable for the earlier years and mention -ed that assessee was maintaining its books of accounts on mercantile basis, that commission expenses to the extent of Rs. 11. 94 lacs was paid on payment/cash basis. He asked the assessee to explain as to why the agency commission on last sale should not be disallowed, as the commission expenses amounting to Rs. 11. 94 lacs related to FY 2006-07. Assessee submitted that during the year 2006-07 they had paid commission of Rs. 1. 6 lacs only against the sales made to Arcadia Group with the understanding with foreign buyers th....

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....lisation of sales, that there would have been actual quantum of commission made by the agent on the realisation basis, that assessee had not carried out any such exercise, that the assessee did not produce Agency Agreement and its terms and contracts at the assessment stage/appeal stage, that the existence of agency itself was not proved, that the agent had never raised any bill for claim against the assessee, that without any increased in turnover commission payment had increased substantially, that out of claim of commission payment amounting to Rs. 11. 94 lacs for the bills raised in earlier FY. s payment was made during the year under appeal, that the assessee was following mercantile system of accounting, that commission payment of Rs. 11. 94 lacs was not relatable to the year under consideration. Finally, he confirmed the disallowance made by the AO and dismissed the appeal of the assessee. 4. Before us, Authorised Representative(AR) submitted that commission was paid by the assessee in earlier years also, that RBI notification allowed payment of commission, that that absence of written agreement did not prove that commission was not paid, that that the assessee did not ha....

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....e assessee to believe that claim made by it is as per the provisions and is allowable. In these circumstances if on the similar facts assessee claims the same expenditure 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 to the assessee for the first time. It is a normal practice of business world that agreements are entered into, outlining rights and duties of both the parties, while deciding to carry out a specific job like doing agency work for the other party. But, it is also not uncommon that without a formal and written agreement parties decide to do job and pay/receive commission. In these circumstances, no fix formula can be devised or held to be applicable as far as payment of brokerage/commission is concerned. It is basically a busin....

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....se of the sister concern, Anand Enterprises, Tribunal had dealt with the identical issue for the year 2005-06(ITA/3782/2008-dated 19. 11. 2011) Facts of that case were that sister concern was also engaged in the business of manufacturing and export of garments in the year in question, it had claimed deduction under the head "Agency Commission", that the commission was paid only to one party, namely, Mr. Lenny King. The assessee was called upon to furnish details of commission paid and services provided. The assessee submitted that the agency commission was payable at 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 Rs. 32, 11, 200/- was made to the total income of the assessee. In the appellate proceedings, FAA deleted the addition made by the AO. Dimissing the appeal filed by the AO, Tribunal held as under: "4. After considering the rival submissions and perusing the relevant....

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....d justification for payment of commission of earlier years in the year under appeal. As a result, we confirm addition of Rs. 1. 57 lakhs out of the total disallowance. AO will take fresh decision about Rs. 11. 79 lakhs after hearing the assessee. Balance commission of Rs. 45. 87(59. 23 lakhs-1. 57+11. 79 lakhs) paid by the assessee to the agent, stands allowed in view of the above discussion. Appeal filed by the assessee for the year 2008-09 is allowed, in part. 6. In the year under appeal assessee had claimed commission payment of Rs. 46. 07 lakhs. As per the AO the assessee had paid the said agency commission to one party i. e. Lenny King of UK for garment sale. AO held that there were not enough evidence of rendering of services by the agent, that the assessee had not furnished any circular/notification of RBI which indicated that commission @10% on invoice value was allowable as business expenditure, that the agent never raised any bill, that there was no increase in profitability or turnover of the business during the year, that commission payment was claimed to reduce the profit of the assessee. Assessee preferred an appeal before the FAA and contended that AO had over loo....