TaxTMI 
TaxTMI 
2016 (7) TMI 19
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....s of the case, the learned CIT(A) erred in confirming the addition of Rs. 17,22,409 in respect of foreign buyer's agency commission which is deducted at source from the invoice amount, by the importer at the time of making the payment. 3. Briefly stated, the relevant material facts. The assessee derives income from exports of textile and fabrics. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has not realized entire invoiced amount of exports, and that certain amounts representing 'foreign buyer's agency commission', which broadly works out to 10% of the invoiced amount, have been deducted from the export bills. This amount aggregated to US $ 38,344 which, as per the rate of exchange....
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.... commission suo motu without any supporting evidence, which is not allowable by any means. In this set of facts, an amount of Rs. 17,22,409 is added to the total income of the assessee being suppression of sale proceeds because of the reasons cited above. 4. Aggrieved, assessee carried the matter in appeal before the learned CIT(A) but without any success. Learned CIT(A) confirmed the aforesaid addition of Rs. 17,22,409 by observing as follows: "5. I have considered the facts and the submissions. I do not agree with the appellant's views. Although the appellant has not claimed the foreign buyers' agents commission expenses in the profit & loss account but the fact is that he has not shown gross sales amount in the profit and l....
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....s and the appellant regarding the payment of commission to the agents and also in the absence of any confirmation from the foreign buyers that the amount is paid to the agent or will be paid to the agent and no evidence of any service being rendered, it cannot be said that the expenditure is allowable and also to hold that the foreign buyer was bound to pay the appellant the amount covered by the commission at any future, date. Hence, it cannot be said that the appellant will not receive the difference amount between net sales and gross sales if not paid to the foreign buyer. It is a case of application of income. Therefore, the Assessing Officer was justified in making the disallowance which is upheld." 5. The assessee is not satisfied ....
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....reduced by this agency commission paid by the buyer to the buying agent, upto or at the agreed rate. It is a normal business model. Nothing can evidence this commercial practice better than a policy circular issued by the Directorate General of Foreign Trade in the Government of India. This circular, a copy of which is placed at page no.26 of the paperbook, is reproduced below: "DIRECTORATE GENERAL OF FOREIGN TRADE GOVERNMENT OF INDIA MINISTRY OF COMMERCE POLICY CIRCULAR NO. 55(RE-98), DATED : - 10th DEC. 1998. SUBJECT : - Inclusion of Commission in the FOB value for calculation of DEPB Entitlement. "Attention is involved to paragraph 7.25 of the Exim Policy (RE-98), 1997-2002 wherein it was clarified that under DEPB, an e....
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....s will be computed on the net amount, and will thus be lower. It is for this reason that the disclosure of buyer's agency commission on the invoice is perhaps commercially justified. Since the commission is not paid by the assessee, there is no question of accounting for the same in the assessee's commission. The assessee has forgone a part of the invoice amount, i.e. to the extent of the agreed commission paid by the foreign agent to his agent, but that is a part of the understanding at the time of negotiating the price and, therefore, the export price, for all practical purposes except for the export incentive entitlements, must stand reduced to that extent. We are not really concerned with, nor is it necessary to deal with, ethical aspec....