ACIT, Sukhendu Mondal vs M/s Daks India

PER MANISH AGARWAL, A.M.:

The present appeal is filed by Revenue against the order dated 10.07.2025 passed by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] in Appeal No. NFAC/2017-18/10088176 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 11.09.2021 passed u/s 143(3) r.w.s. 144B of the Act pertaining to Assessment Year 2018-19.

Brief facts of the case are that the assessee is engaged in the business of export of readymade garments. The return of income was filed on 31.10.2018, declaring total income at INR 2,26,12,610/-. The case was selected for scrutiny and after considering the submissions made by the assessee, AO observed that assessee has paid commission of INR 8,06,28,814/- to 06 (six) different parties out of which a sum of INR 7,91,54,886/- was paid to one single party, M/s Infinity Global Europe BV based in Netherland. The AO asked the assessee the reason for making such a huge payment to a single party. In reply, assessee filed replies alongwith MOU entered with the said party and submits that in terms of the MOU, commission was paid on the sales made to various parties across the globe introduced through Infinity Global Europe BV and further filed copies of various invoices and other material to justify the claim. The AO had not accepted the contention of the assessee and observed that total sales of INR 18,76,92,531/- was made to Infinity Global Europe BV against which commission of more than INR 7.91 crores was paid which is very abnormal and contrary to the conditions of the MOU and therefore, disallowed the same and added back to the income of the assessee. Besides this, there was a difference between duty drawbacks declared and the information available with the AO therefore, the differential amount of INR 6,91,766/- was added to the total income of the assessee.

Against the said order, assessee preferred an appeal before the ld. CIT(A) who vide impugned order 10.07.2025, has partly allowed the appeal of the assessee.

Aggrieved by the order of ld. CIT(A), Revenue is in appeal before the Tribunal by taking following Grounds of appeal:

The only effective Ground of appeal is with respect to the deletion of disallowances made of INR 7,91,54,885/- out of commission paid to Infinity Global Europe BV as foreign outward remittance.

Before us, Ld. Sr. DR vehemently supported the orders of the AO and submits that the assessee has paid commission of more than INR 7.91 crores on account of sales made through Infinity of INR 18,76,92,531/-. As per ld.AR, the rate of commission comes to more than 43% of the sales made to it whereas in terms of the MOU dated 01.01.2017 maximum commission would be 25% of the total sales. Ld. Sr. DR submits that in case where the sales have directly been made to the parties, commission was paid to M/s Infinity Global which is nothing but an attempt to suppress the profits. Ld. Sr. DR submits that in the MOU, it is clearly stated that where the parties were introduced by Infinity Global, bills were to be raised in the name of Infinity Global who subsequently, will raised the bills to the respective parties. In such circumstances, direct sales to the parties cannot be held as being made on the instructions of Infinity Global Europe BV and therefore, commission paid to such extent should be disallowed. He therefore, requested for the confirmation of the disallowance made by the AO out of the commission payment.

On the other hand, Ld.AR for the assessee vehemently supported the order of ld. CIT(A) and submits that the total sales made by the assessee was of INR 60,64,95,910/- on which total commission of INR 15,43,33,688/- was claimed. Out of such commission, a sum of INR 8,06,28,814/- was paid to the parties outside India including the commission of INR 7,91,54,885/- paid to Infinity Global Europe BV. Ld. AR submits that during the course of assessment proceedings, complete details of the sales made through Infinity Global Europe BV and the export sales made were submitted before the AO. As per AR, the assessee has entered into MOU which was titled as ‘Referral Agreement’ placed at pages 45 to 55 of the Paper Book according to which it was decided between the parties that Infinity Global Europe BV will introduce some potential clients to the assessee and the assessee has to supply the goods to the Infinity Global Europe BV and commission is payable on such supply which cannot be exceeded of more than 25% of the total sales value. The assessee has filed the reconciliation of the commission payment made to Infinity Global Europe BV, placed at page 50 of the Paper Book and further filed details of exports sales made and copy of certain commercial invoices wherein Infinity was shown as confirming party or the supplier party. Ld.AR further drew our attention to the mail exchanged between the assessee and officials of Infinity Global Europe BV to establish that sales were made on their instructions to various parties. Ld.AR submits that ld. CIT(A) has appreciated these facts and deleted the disallowance made by the AO. Ld.AR further submits that commission was paid to Infinity Global Europe BV in preceding assessment years also where the same accepted in the assessment order passed u/s 143(3) of the Act. Ld. AR therefore, submits that as a principal of consistency also, commission paid deserves to be allowed and thus, requested for the confirmation of the order of ld. CIT(A).

Heard the contention of both the parties at length and perused the material available on record. In the instant case, sole issue of dispute is with respect to allowability of the commission paid to foreign agent Infinity Global Europe BV. The claim of the assessee was that the commission was paid for the sales made to various parties who were introduced by Infinity Global Europe BV or in case, the goods were supplied to Infinity Global Europe BV and further sold to the parties introduced by him in terms of the Referral Agreement.

On careful consideration of the facts, it is observed that AO after going through the MOU/Referral Agreement with Infinity Global Europe BV based his findings. The said agreement is reproduced as under:-

From the perusal of the Clause 1.2 & 1.3, it is clear that the Infinity Global Europe BV has the direct control over the parties introduced by it and it was decided between the parties that the assessee will not directly sale or deal with the ultimate parties of Infinity Global Europe BV rather goods will be supplied to the Infinity Global Europe BV who will delivered the goods to the clients alongwith their own bills. Thus, the claim of the assessee that the export sales made to various parties were introduced by Infinity Global Europe BV is not correct and it has no relationship nor any corroborative evidences were filed by the assessee to establish that the goods sold to those parties was on the instructions of Infinity Global Europe BV except the sale of goods were made to it of INR 18,76,92,531/-. The assessee is required to pay commission not more than 25% of the total sales value. Thus, the commission paid to Infinity Global Europe BV cannot be exceeded by 25% of the sales made to Infinity Global Europe BV. However, it appears that the assessee has wrongly considered the said agreement as applicable for the gross export sales made which are not the conditions of the agreement. Ld. CIT(A) while deleting the disallowance, has observed that the assessee has filed certain e-mails as well as purchase order according to which goods were sold to the parties directly on the instruction of Infinity Global Europe BV and therefore, the assessee has rightly paid the commission on the sale to such parties.

We have gone through the e-mails placed before us at pages 87 to 89. At page 87 there is a mail by the Sr. Accountant Co-ordinator of Infinity Global Europe BV to the assessee directing for sending some samples i.e. ‘5PCS-Send to LV Paris’ and ‘4pcs-Send to IGHK’. At page 88, second mail dated 21.06.2018 was written by Purchasing Specialist of Infinity Global wherein two PO’s (purchase orders) of 2800pcs of M15475 were sent and asked the assessee to confirm its best ready date. Both PO’s are direct shipment to client, and has same destination (Pierre Mantoux Sri, Italy). Next mail is at page 89 wherein Vasil Zabelaj, Sr. Purchasing Specialist written to Shri Anirban for supply of various items. Further, the copy of sample purchases orders are placed at pages 91 to 93 of PB, according to which Infinity Global Europe BV has given purchase order to the assessee for supply of various items which were directly to be shipped to the third party mentioned at pages 90 to 91. Goods were to be supplied /shipped to Alpi Servizio Moda Sri via di Moschignano 17 Vaiano (PO), 59021 Italy and at pages 92 to 93, goods shipped to Fendi Timepieces SA Ave des Champs-Montants 12 A Marin Epagnier, 2074 Switzerland. However, when an attempt was made to match these mails and purchases orders with the parties to whom export sales were made during the year, the list of which reproduced at page 9-11 of the assessment order, none of the said parties was found in the said list. As per ld. CIT(A), goods were sent under the instruction of Infinity Global Europe BV however, once the said parties were not found in the list of the buyers to whom export sales were made during the year, it cannot be said that the goods sold to them was solicited through Infinity Global Europe BV and it appears that the same are the parties to whom bills were raised by the Infinity Global Europe BV and included the total sales made to Infinity Global Europe BV.

Further, ld. CIT(A) has placed reliance on the Principal of Consistency where commission was paid on sales made in preceding AYs to Infinity Global Europe BV. However, while doing so, ld. CIT(A) has failed to appreciate the fact that Referral Agreement executed between the parties on 01.01.2017 was not in existence in earlier AYs and only three parties were existed in FYs 2016-17 relevant to AY 2017-18. In terms of Clause (I) of the said Agreement, it is clearly evident that Infinity Global Europe BV has direct control over its ultimate clients from whom orders were collected by Infinity Global Europe BV and assessee was directed not to send the goods directly to them nor the assessee was allowed to deal directly with those parties and goods were supplied to Infinity Global Europe BV who generate the bill directly to clients. This arrangement clearly established that goods were sold by the assessee to Infinity Global Europe BV of INR 18,76,92,531/- is gross sales effect through Infinity Global Europe BV and other export sales made by the assessee have no relationship whatsoever with the Infinity Global Europe BV and therefore, the commission @ 25% on the sales made to Infinity Global Europe BV of INR 18,76,92,531/- could be allowed as business expenses incurred in terms of Referral Agreement and remaining commission paid to Infinity Global Europe BV is disallowed.

In view of the above facts and discussion, the AO is directed to re-compute the amount of commission. Here it is relevant to state that in preceding Assessment years, exports sales as well as sales through Infinity Global Europe BV were higher therefore, the commission paid to Infinity Global was within the permissible limits moreover, as observed above in preceding year, no such Referral Agreement was in existence and thus, the argument of the assessee of consistency cannot be accepted. Accordingly, sole Ground of appeal raised by the revenue is partly allowed.

In the result, appeal of the Revenue is partly allowed.