Gujarat HC Upholds J B Exports’ ₹9.87-Crore Foreign-Agent Commission Deduction Under Section 37

In brief

The question

Whether the Tribunal was right in law and on the facts in allowing the assessee’s claim for commission paid to a foreign agent under Section 37 when the Revenue alleged that the payment had not been proved.

The court held

The Court answered the substantial question of law in favour of the assessee and against the Revenue.

It also directed

It dismissed the tax appeal, leaving undisturbed the Tribunal’s allowance of the commission claim.

01Facts

The assessee, an exporter of textile goods, recorded export proceeds net of commission allegedly payable to foreign agents.

pp. 2–4

The Assessing Officer treated the commission deductions—totalling ₹9,86,96,411—as suppressed sales, observing, among other things, that the assessee had not established the commission payment and had received no remittance of commission from India.

pp. 2–4

The Commissioner of Income Tax (Appeals) confirmed the addition, reasoning that the commission was not adequately substantiated and that sales had been improperly recorded net of commission.

pp. 5–14

The Income Tax Appellate Tribunal allowed the assessee’s appeal, relying on *CIT v. Atma Prakash Batra* and other Tribunal decisions.

pp. 14, 19–20

The Revenue appealed under Section 260A of the Income-tax Act, 1961.

p. 2

02Issues

i.Whether the Tribunal was right in law and on the facts in allowing the assessee’s claim for commission paid to a foreign agent under Section 37 when the Revenue alleged that the payment had not been proved.

p. 2

03Law Applied

Section 37(1) of the Income-tax Act permits deduction of expenditure incurred wholly and exclusively for the purposes of business when its genuineness and business purpose are established.

pp. 16–18

In *CIT v. Atma Prakash Batra* (Tax Appeal No. 838 of 2009, judgment dated 21 December 2010), the Gujarat High Court upheld a commission deduction where the evidence established the agents’ existence, services, and receipt of commission; it also accepted that commission deducted from export invoices could represent income diverted by overriding title rather than income accruing to the assessee.

pp. 14–18

Provisions in the judgment · 6

Income Tax Act, 1961 Section 260ASection 37Section 143Section 44ABSection 5Section 37

04Reasoning

The High Court relied on the Tribunal’s factual findings and its application of *Atma Prakash Batra*.

pp. 19–20

It considered the case covered by that precedent, under which commission deducted from export invoices was allowable where the evidence established that the deduction represented commission actually received by agents.

pp. 19–20

On that basis, it accepted the Tribunal’s decision to allow the commission claim, notwithstanding the Revenue’s challenge to the assessee’s net recording of export proceeds.

pp. 19–20