TMI Blog2014 (3) TMI 617X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. 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 cannot 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 - The decision in GE India Technology Centre Private Ltd. Versus Commissioner of Income Tax & Anr. [2010 (9) TMI 7 - SUPREME COURT OF INDIA] followed – thus, Circular No. 715 dated 8.8.95 is not applicable. Principle of consistency - The CIT(A) has granted relief to the assessee in the AY 2003-04 pertaining to the same claim of the assessee – there is no reason to interfere with the same - the department does not have any valid rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, 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 housing expenses : 11,83,000/- 4. Road freight in USA : 92,22,000/- 5. Selling administrative Expenses including Commission @ 9.05% to GRI:1,25,21,828/- being the fact the evidences dues not prove that these expenses pertains to assessee, neither these have been paid by the assessee. 3. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 point out that the so called confirmation furnished from is also in respect of only the part of the expenses and not for the entire USA office expenses. In respect of these so called USA office expenses there are certain interesting points which need to be pointed out. While the assessee claims to have incurred the aforesaid expenses as its USA office expenses , in reality the assessee does not maintain any office in USA. The only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 behalf of the assesssee and remitting the same to the assessee after deducting the aforesaid expenses. It was pleaded that these expenses had been incurred by M/s Global Reliance Inc. on behalf of the assessee company and as such the said expenses had not been incurred after sales. The reply of the assessee has been duly considered and found to be unacceptable. As already mentioned above, the assesssee does not have in its posses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 other incidental. It was also agreed to that all the above expenses would be deducted by Global Reliance Inc. out of the sale proceeds and the net amount payable would be credited to the account of the appellant. One of the important contentions in the appellant's argument 'is that all the payments have been made to Global Reliance Inc under a mutual agreement and since the counter parties to the agreement had not made any misgivings about the genuineness or the reasonableness of the payment, therefore, the AO could not disregard the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 the import and sale of the product. The expenses referred to in clause 2 of the agreement are customs duties, ocean, freight inland freight, warehousing etc. on actual basis. Global is entitled to selling and administrative expenses at the rate of 9.05% of the total sales. No where in the agreement is thereby any suggestion that Global will not be entitled for reimbursement of any expenses under custom duties, Ocean, freight, warehousing and brokerage. The Assessing Officer refers to the invoices of the expenses made in the letter head of third p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 turnover has also been considerably increased from year to year. Thus the assessee s claim of payment of Rs.52,00,000/- in each year on account of service charges paid to CASL is to be allowed as a business expenditure. In the instant case also no evidence have been brought on record by the Assessing Officer which show that the agreement in question was not genuine or was the sham agreement. In view of the findings above and as per the agreement I hold that custom duties of Rs.4385000/- ocean freight of Rs.12,881000/- warehousing expenses of Rs.1183000/- and road freight in USA of Rs.9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Tax(A) erred in law and on facts 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 of USA and selling and administrative expenses. The DR further contended that the Commissioner of Income Tax(A) has erred in deleting above addition being the fact that the evidences submitted by the assessee could not prove that these expenses actually pertain to assessee s business. The DR further contended that the expenses claimed by the assessee are not allowable to the assessee as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 turnover by the assessee in the P L account and US expenses were also claimed separately therein. The AR pointed out that the Assessing Officer followed two views which are self-contradictory because on one hand, the Assessing Officer has considered gross sales realized in the USA as sales of the assessee, while on the other hand, the Assessing Officer has averred that the export sale was completed at the time when goods left the Indian customs borders and all expenses incurred thereafter were post sales expenses. 13. The AR has drawn our attention towards order of Commissioner of Income Tax(A) d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses, 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 between the assessee and M/s Global Reliance Inc., the expenses in the nature of selling and administrative expenses were clearly the responsibility of the assessee and the assessee had to reimburse the same to its consignment agent i.e. M/s Global Reliance Inc. It is a well accepted proposition that in case of a standard consignment, sale is effected by the consignment agent on behalf of the consignor and the agent is not responsible for any expenses incurred for such sale and expenses actually incurred or paid on behalf of the consigner is reimbursed to the consignment agent. The AR s contention on this point is that apart fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 expenses in USA and other general and administrative 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 etc. We also observe that as a prudent business decision and with an aim to restrict and control expenses in USA, the assessee also fixed the selling and administrative expenses remuneration and other incidentals @9.05% of the sales effected in USA. Undisputedly, the amount of remittance or reimbursement m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Court in the case of GE India Technology Centre P. Ltd. (supra) is applicable to the present case. We also hold that the benefit of the ratio of the decision of Special Bench, Mumbai in the case of Mahindra Mahindra (supra) is also squarely applicable to the present case in favour of the assessee. Hence, in this situation and above facts and circumstances of the case, Circular No. 715 dated 8.8.95 is not applicable to the present case. 23. Coming to the issue of consistency, we clearly observe that the Commissioner of Income Tax(A) has granted relief to the assessee in the AY 2003-04 pertaining to the same c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 absence of any details or evidence regarding the expenditure like car expenses, donation, membership fee, newspapers and periodicals and legal and professional fees not related to the sales. 28. The DR pointed out that the onus is on the assessee to prove and establish his claim related to the expenses incurred only and exclusively for the purpose of business u/s 37(1) of the Act. The DR vehemently contended that when the assessee is unable to substantiate his claim for a part expenditure and no details or evidence had been filed regarding the same, then such claim deserves to be disallowed and the au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding 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 Commissioner of Income Tax(A) pertaining to part disallowance confirmed and upheld by the Commissioner of Income Tax (A) and we decline to take a different view in this regard. Accordingly, sole remaining ground of the assessee is dismissed by holding that the assessee miserably failed to substantiate its claim of Rs.25,85,419/- with cogent and reliable evidence and the assessee could not discharge its onus in this regard. Therefore, the impugned order is also upheld in regard to confirmation of part disallowance and sole remaining ground of the assessee is dismissed. 33. In the result, the appeals of the Revenue as well as of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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