×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
This is an appeal filed by the revenue against the order of the CIT(A), Sambalpur dated 14.6.2017 for the assessment year 2011-12.
2. The only issued involved in this appeal of the revenue is that the CIT(A) is not justified in deleting the additions totaling to Rs.2,00,45,153/- which constitutes (a) commission paid to HUF of Rs.90,86,236/- (b) unverifiable commission payment of Rs.73,65,427/- and (c) unverified sundry creditors of Rs.35,93,490/-.
3. Briefly stated the facts of the case are that during the course of assessment proceedings, the Assessing Officer noticed that the assessee has debited Rs.3,69,40,714/- to the profit and loss account as commission paid in connection with the sales effected during the year. Before the AO, it was stated that the commission was paid to arrange buyers for sale of iron ore. The Assessing Officer sent notice u/s.133(6) o the Act to the persons who has arranged the buyers for sale of iron ore, as reproduced in the impugned order at page 4 & 5. In response to the query, the assessee has stated that the payments were made by the assessee and the buyers had nothing to do with it and hence, no disallowance should be made. The reply of the assessee was not favour to the Assessing Officer. Therefore, he disallowed the same and added to the total income of the assessee.
4. On appeal, the CIT(A) found that similar disallowance made for the assessment year 2010-2011 of Rs.3,29,17,011/- has been deleted by the CIT(A)-2, Bhubaneswar. Hence, he deleted the addition made by the Assessing Officer.
5. Being aggrieved, the revenue is in appeal before us.
6. At the time of hearing, ld A.R. of the assessee produced a copy of decision of the ITAT in assessee’s own case for the assessment year 2010-2011, in the appeal filed by the revenue against the deletion of addition made by the Assessing Officer. The Tribunal vide its order dated 31.8.2017 upheld the findings of the CIT(A) in deleting the disallowance, inter alia, observing as under:
“ 7. We have heard rival submissions, perused the orders of lower authorities and materials available on record. We find that the CIT(A) deleted the disallowance of Rs.3,29,17,011/- out of total commission payment of Rs.6,94,53,756/- by observing as under”
“I have considered the content and substance of the impugned assessment order and the Grounds of Appeal preferred and the additional submissions filed by the Appellant, and accordingly decide as under:
a) In respect of the disallowance of commission payments made by the appellant to the extent of Rs.3 29,17 011/-, it appears that the AO has not correctly understood the meaning and import of the term agent”. It is not necessary that an agent receiving Commission payments has to always be a physical go-between between the principal (the Appellant in the instant case) and his/her/its customers being buyers. An agent can carry out the business of prospecting for client-buyers which would mean that many of the intended targets may not transform into buyers or may decide to purchase the items directly from the principal instead of through the agent or even without informing the agent. An advertising agent, likewise, has only a generic target segment and no customers can be asked of such agent to be specifically identified. A procurement agent, on the contrary, may have a set of sellers from whom he/she routinely contracts for purchases.
b)The Cambridge dictionary defines an agent as “someone who sells a company's products and receives a part of the money paid for the goods for doing this", which would mean that it would be unfair and unreasonable in many cases and circumstances to expect such agent to remember and provide the names of the multitude of buyers.
c) It is also clear from the definition that an agent is dependent for his/her/its incomes on his/her, its principals and the sales that he/she/it helps facilitate for the latter. A commission agent derives compensation from actual sales, usually expressed as a percentage of sales. In many cases, they may facilitate in locating buyers for goods/services, providing information about the product, making the actual sale, and ensuring delivery and follow-up service. However, the precise nature and details of the facilitations engaged in by the agents depends upon the facts and circumstances of the arrangement/agreement entered into with the principal, the nature of the products/goods sold, relevant business factors, etc. Benefits from the agency arrangement accrue to both the principal and agent. Principals can extend market reach without incurring major fixed personnel costs, and agents can earn compensation based on their productivity. Some agents may represent more than one principal. All of the above mean that the agent is more reactively dependent on the principal being part of a direct arrangement than with the clients/buyers/customer which relationship is more proactive and hence independent. While, commission agents depend on customers in generating their compensation, the compensation itself is paid by the principal after the customer/buyer pays the principal the proceeds of the sale or other transaction. While some agents may be aggressive, they also depend on satisfied customers for repeat business and are motivated to that end; it is in this connection that some of them may keep track of buyers/customers in their own interests. Such tracking and retrieval of customer details upon demand, as the AO has insisted upon, is not. part of a mandatory or statutorily stipulated