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TMI Blog2014 (3) TMI 617X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee in ITA No. 1750/Del/2011 reads as under: "(1). The Ld. CIT (Appeals) erred in law and on facts in confirming disallowance of a sum of Rs.25,85,419/- out of Rs.4,33,78,000/- incurred by the consignee agent in the USA on behalf of the appellant merely because the assessee could not produce the bills for the same and also that the said expenses were paid to the agent through proper banking channels. Therefore, the disallowance so made must be deleted." 3. The grounds raised by the Revenue In ITA No.2611/Del/2011 read as under:- "1. On the facts and circumstances of the cases and in law, the Ld. CIT (A) has erred in deleting the addition of Rs.4,07,92,581/- out of total addition of Rs.4,33,78,000/- made by the Assessing Officer on account of ocean freight, Custom duty, warehousing expenses, road freight USA, selling and administrative expenses. 2. The Ld. CIT (A) has erred is deleting the addition of Rs.4,07,92,581/- made on account of following expenses: 1. Ocean freight : 1,28,81,000/- 2. Custom duty paid In USA by G. R. I : 43,85,000/- 3. Ware ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of the assessee and secondly, that the assessee has made its entire export sale of M/s Global Reliance Inc. and all export invoices have been raised in the name of M/s Global Reliance Inc. Therefore, the so called claimed expenses of the assessee, which had been incurred by the M/s Global Reliance Inc. and claimed by the assessee as its "USA office expenses" were in any case in the nature of post sale expenses and the same could not be said to be expenses pertaining to the export business of the assessee. For the sake of clarity in our findings, the relevant operative part of the assessment order is being reproduced below: "Thus, inspite of the fact that the assessee was asked to justify the so called "USA office expenses" along with necessary supporting evidence, all that the asessee has furnished is a certificate from M/s Global Reliance Inc. that the latter had incurred expenses amounting to Rs.15107247/- as selling and administrative expenses on behalf of the former. In support of this claim the assessee has enclosed a copy of a so called certificate from the auditor in USA which in any case is unverifiable. It is pertinent to poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tire export invoices issued by the assessee company only bear the name of M/s Global Reliance Inc.Therefore, it is clear that the so called expenses which had been incurred by M/s Global Reliance Inc. and which had been claimed by the assesssee as its USA office expenses were in any case in the nature of post-sale expenses and could not be said to be the expenses pertaining to the assessee. If at all these expenses have actually been incurred, these expenses pertain to M/s Global Reliance Inc. to whom the export sales have been made by the assessee. Therefore, in view of the above, the assessese vide order sheet entry dated 14.12.2007 was asked to explain the allowability of these expenses as prima facie these were post-sale expenses which could not be said to be pertaining to the assessee. In response the assessee vide its reply submitted on 24.12.2007 stated that M/s Global Reliance Inc. was working as a consignee agent of the assessee company and was rendering a host of services like making market survey procuring orders, arranging for warehousing, transport, payment of duty, etc. It was also submitted that M/s Global Reliance Inc. was collecting the payments from the market on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance amounting to Rs.25,85,419/- was upheld and confirmed. Now being aggrieved by this order, the assessee as well as Revenue is before this Tribunal in these appeals with the grounds as mentioned hereinabove. 8. The relevant observations and findings of CIT (A) read as under: "I have considered the submissions of the appellant, the findings of the Assessing Officer and the facts on record. I have also considered the remand report of the Assessing Officer and the appellant's rejoinder thereon. Perusals of the facts on record show that the appellant had entered into an agreement with M/s Global Reliance Inc. USA on 30.03.2004 which was effective from 01.04.2004 to31.03.2005. AS per the agreement it is seen that the appellant was to bear all the expenses incurred out of India on account of marketing which would include road freight, ocean freight, custom duty, warehousing charges etc. on actual basis. In addition to' the above it was also a part of the agreement that the appellant would pay an amount @ 9.05% of the total sales on account of selling and administrative expenses, remuneration and oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qually enforceable it can be provide. Existence of an oral contract can be proved in law by evidence. The fact that the appellant made shipments of its products namely mushroom, vegetables, spinach, and baby potatoes to USA and Global received the consignments, sold and remitted the proceeds back to the appellant before and after the agreement dated 30.03.2004 prove by implication that the parties to the agreement have discharged part of their obligations elaborated in the agreement, even before the date of the agreement. The terms of the agreement having been traversed by the parties, both identifiable by law, in line with s 186/187 of the contract Act, I hold that the terms of the agreement as regards payment of expenses and other specified charges would equally be applicable for shipments after the agreement dated 30.03.2004. Thus, in accordance with clause 2 of the agreement, the appellant is responsible for all costs, taxes (direct and indirect), duties, charges or other expenses associated with the manufacture of the product. In clause 2 of the agreement it has been made explicit that the appellant would be responsible for all the costs, taxes, and other expenses relating to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustrial oils through the marketing network, and other related infrastructural services already set up by CASL. The Assessing Officer has taken a view that the agreement dated 01.01.2001 was merely a device to give a colour of genuineness so that the income of the assessee can be diverted or pass over to another company but the Assessing Officer has failed to bring any iota of evidence to establish that the agreement in question is merely a colourable device to pass over the assessee's income to another company. It is not the case of the Assessing Officer that the CASL is not an income tax assessee or has not included the amount of service charges received from the assessee in its income declared to the department. The Assessing Officer has merely drawn assumption and presumption as to the genuineness of the agreement in question without there being any iota of evidence or material to say so. During the course of hearing of these appeals before ITAT the assessee has successfully been able to demonstrate the various activities in the course of making sales of its product were carried out through the dealers/ distribution network of CASL and as a result thereof, the assessee's turnove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the business the expenses were filed by the appellant, therefore, it was the responsibility of the Assessing Officer to verify the expenses instead of observing that if deemed fit they may be verified through FTD." Ground no. 1 to 4 of the Revenue 9. Apropos these grounds, we have heard submissions and contentions of both the parties and carefully perused the record, inter alia, paper book filed by the assessee spread over 143 pages. During the arguments, the assessee's representative submitted a copy of decision of ITAT Delhi 'C' Bench in assessee's own case for AY 2003-04 dated 14.10.2009 passed in assessee's appeal in ITA No.228/Del/2009 and revenue's appeal for the same assessment year in ITA No. 815/Del/2009 wherein the entire controversy was restored to the file of Assessing Officer with a direction to examine assessee's claim afresh. The AR has also filed a copy of the order of Commissioner of Income Tax(A) dated 30.3.2013 for AY 2003-04 by which appeal of the assessee has been allowed by deleting impugned addition in respect of expenses incurred by M/s Global Reliance Incorporated, USA on behalf of the assessee. 10. Ld. DR submitted that the Commissioner of Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er submitted that a certificate issued by CPA in USA was also produced in respect of all expenses incurred at USA and reimbursed by the assessee, therefore, even in absence of all supporting evidence, the same should have been considered for allowability. 12. The AR also contended that the claimed expenses were restricted to the extent of fixed percentage as agreed beforehand by the parties in the agreement dated 30.03.2004 with bonafde intention to regulate and monitor the same to remain within the budgeted allocation. This prudent business decision and agreement cannot be used against the assessee by disallowing of those expenses. The AR vehemently contended that as per adopted procedure, the assessee raises the invoices by estimating net realizable value (i.e. gross sales value in US - US expenses) and under the relevant customs rules, an Annual Return of Exports (ARE) is filed on ARE-I in respect of all goods leaving the Indian Custom boundaries. The AR further pointed out that the said invoice value was duly declared in ARE-I by the assessee also and the total amount for the same came to Rs. 9.65 crores. The AR also pointed out that gross sales realized in USA was declared as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... responsible for all the costs, tax and other expenses relating to the import and sale of products made by Global Reliance Inc (e.g. custom duties, ocean freight, inland freight, warehousing, other administrative and General Expenses including USA Salaries payments, Telephone Expenses, Travelling Expenses, Staff Education and Medical Expenses, Courier Expenses, Web Hosting Expenses, USA Local Expenses, Membership Fees paid to different Associations, Legal & Professional Fees, Car Expenses, USA Transportation Expenses, Insurance Expenses, Quality Testing Expenses, Prepayment discounts, Finance charges, Supplies Office, Mortgage Expenses, Lease Rent, Computer Expenses, Postage Delivery, Taxes etc. throughout the United States on ACTUAL BASIS. Global shall be responsible for complying with all applicable and federal, state and/or local laws and regulation relating to the marketing, sale and distributors of products throughout the United States. As a consideration Himalya shall pay a commission @3% of the sales to Global, over and above actual expenses incurred by Global as above mentioned." 15. In view of above, it is evident that as per terms of the agreement (MOU) dated 19.9.2002 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee and TDS should be deducted on reimbursement. The DR also pointed out that apart from reimbursement of expenses, the payment made to Global Reliance Inc. also contains commission paid to consignment agent, therefore, the assessee is under an obligation to deduct TDS thereon. The DR further pointed out that if TDS has not been deducted by the assessee, then the entire amount of payment as claimed by the assessee was rightly disallowed by the Assessing Officer. 18. On careful consideration of above contentions, we are of the view that on careful perusal of the agreement/MOU dated 19.9.2002 and additional agreement dated 30.3.2004 between the assessee and Global Reliance Inc., we clearly observe that the expenses incurred on behalf of the assessee by its consignment agent M/s Global Reliance Inc, the entire expenses claimed by the assessee were related to marketing and sales expenses and as per clause 03 of the first agreement dated 19.9.2002, the assessee was responsible for all costs, taxes and other tax expenses relating to the import from India to USA and sale of products made by Global Reliance Inc. including custom duty, ocean freight and land freight of USA, warehousing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that first part of findings of the Assessing Officer are correct that the gross sales realized value in USA is the export sales of the assessee but export sales was not completed when the goods left the Indian Custom Borders because it was consignment which was intended to be sold through consignment agent of the assessee i.e. M/s Global Reliance In. in USA. 21. We further clearly observe that as per above set of facts, all US expenses incurred by the consignment agent on behalf of the assessee were the responsibility of the assessee as per MOU dated 19.9.2002 and subsequent agreement dated 30.3.2004, which were also certified by CPA audit report, when actual export sale was effected at USA through consignment agent on behalf of the assessee, then expenses claimed by the assessee for the purpose of business can not be treated as post sales expenses and observations and findings of the Assessing Officer are not correct and justified in this regard and we set aside the same to this extent only. 22. On the basis of above factual matrix emerged from the evidence submitted by the assessee before the authorities below, we clearly observe that the ratio of decision of Hon'ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vi) Explanation 2 held that in case of remittance or reimbursement expenses where no element of income taxable of India is found, then the same is not taxable in India and question of tax deduction at source does not arise. 26. The AR has drawn our attention towards Paper Book filed by the assessed containing 143 pages and submitted that when a major part of expenses has been allowed by the Commissioner of Income Tax(A), then the remaining small amount cannot be disallowed without ay basis. The AR submitted that the entire expenses claimed by the assessee were pertaining to "USA, office expenses" which were reimbursed to M/s Global Reliance Inc. and there was no element of income taxable in India. Therefore, the duty to deduct TDS cannot be fastened on the assessee and entire claim of the assessee deserves to be allowed. 27. Replying to the above, ld. DR submitted that without prejudice to the submission made in support of Revenue's appeal, it is also contended that if the Commissioner of Income Tax(A) has allowed major part of the expenses claimed by the assessee considering the same as reimbursement of "USA, office expenses", then remaining part of claim may be disallowed in ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , membership fees, newspaper and periodicals legal and professional fees are also not relating to the sales and therefore, they can not be allowed as business expenditure under the provisions of section 37(1). In view of the findings above the expenditure of Rs. 2585419/- is being disallowed. The expenditure of Rs. 43378000/- (-) 2585419/- = 40792581/- is allowed. These grounds of appeal are partly allowed." 31. In the present case, the Commissioner of Income Tax(A) has given benefit to the assessee after detailed examination of the claim of the assessee but a minor part of the claim has been disallowed in absence of any details or evidence regarding the expenditure of Rs.25,85,419 and the same has been disallowed by the Commissioner of Income Tax(A) partly confirming the addition made by the Assessing Officer. From the detailed paper book spread over 143 pages we are unable to see any cogent or relevant details or evidence which could substantiate or establish the claim of the assessee related to the part disallowance made by the Commissioner of Income Tax(A). 32. Thus, we are unable to see any ambiguity, perversity or any other valid reason to interfere with the findings of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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