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December, 02nd 2014

                                 Date of decision: 16th October, 2014
+                         ITA 437/2014

       COMMISSIONER OF INCOME TAX-IV            ..... Appellant
               Through   Mr. Kamal Sawhney, Sr. Standing


       M/S HIMALYA INTERNATIONAL LTD.                    ..... Respondent



       The present appeal by the Revenue relates to assessment year

2005-06 and the challenge is to the deletion of addition of

Rs.4,07,92,581/- out of addition of Rs.4,33,78,000/- made by the

Assessing Officer.    As the findings recorded by the Income Tax

Appellate Tribunal ( Tribunal, for short), affirming the decision of the

first appellate authority-Commissioner of Income Tax (Appeals) [C.I.T

(Appeals)], are factual in nature, the challenge is on the ground that the

conclusion formed in the impugned order dated 14th March, 2014, is

ITA 437/2014                                      Page 1 of 8

2.     We have gone through the assessment order. The respondent-

assessee was engaged in the business of manufacture, food processing

and infotech.       The respondent-assessee had exported processed

vegetable products to the United States of America (USA) and had

entered into an agreement with M/s. Global Reliance Inc., USA. Copy

of the said agreement was placed on record before the Assessing

Officer, who observed it to be a self-serving document on the ground

that the agreement was neither registered nor executed on a stamp

paper. M/s Global Reliance Inc., USA was closely associated with the

assessee. He also observed that the assessee in the return of income had

shown ,,business expenses amounting to USD 343347 equivalent to

Rs.1,51,07,247/-, but in support of the claim had only filed certificate

of an auditor from USA and had furnished and relied upon the

confirmations/certificates given by M/s. Global Reliance Inc.               The

Assessing Officer, on examination of the profit and loss account,

noticed that the assessee had claimed the following amounts as "USA

office expenses":-

         "                                                  (in Rs.)
         1. Ocean freight                                   12881000
         2. Duties                                            4385000
         3. Warehousing expenses                              1183000
         4. Road freight USA                                  9822000
         5. Selling and administrative expenses             15107000
                                            Total           43378000
ITA 437/2014                                        Page 2 of 8
       The Assessing Officer held that these "expenses" were in nature

of post sale expenses and, therefore, did not pertain to the assessee.

Evidence placed on record by the assessee to show that the expenses

were actually incurred, were not satisfactory or substantive. Thus, the

aforesaid expenditure of Rs 4,33,78000/- was disallowed.

3.     The C.I.T (Appeals) substantially reversed the said findings after

noticing and recording the factual matrix in detail. He observed that

the assessee had appointed M/s. Global Reliance Inc., New Jersy,

USA, as a consignee agent, who were dealing with the exports made

by the assessee from India. He examined the documentations placed

on record and referred to the remand report submitted by the Assessing

Officer. Name, address and other details of M/s Global Reliance Inc.,

a company registered and incorporated in the USA were placed on

record. On the question of ocean freight, it was stated that the same

was verified by APEDA, which had granted subsidy of Rs.3,60,7000/-

towards ocean freight. The custom duty, it was stated, was paid to the

custom department in the USA and stood proved from the documents.

It is noticeable that the C.I.T (Appeals) has referred to the custom duty

receipt, which was placed on record with the name of payer as "M/s.

Global Reliance Inc". The warehousing, selling and administrative

expenses were actually incurred by the consignee.              In respect of

selling, administrative and other incidental expenses, it was stated that

ITA 437/2014                                     Page 3 of 8
M/s. Global Reliance Inc was paid at the rate of 9.05% of the total

sales made in the USA as per the agreement.         The road transport

receipts, in which carriers name was recorded as "M/s. Global

Reliance Inc", were relied upon.        With regard to warehousing

expenses, the C.I.T(Appeals) observed that some of the invoices, were

in the name of "M/s. Global Reliance Inc" and some were in the name

of "Transatlantic Marketing" ( Associate of M/s Global Reliance Inc.).

The documents duly and affirmatively supported the assessees claim.

4.     The C.I.T(Appeals) elucidated that the respondent-assessee had

a 100% export oriented factory at Paonta Sahib, Himachal Pradesh.

The entire production from the said factory was exported to the USA.

Exports were made in sealed containers from the factory. The net

realisable value, after deduction of all the expenses incurred, was

declared. In support of the exports, Forms ARE-I, filed by the assessee,

with the customs and excise authorities were placed on record. The

said forms mentioned the notional value of goods, which was the

estimated realizable value after deduction of expenses relating to ocean

freight, road transport, custom duty, warehousing expenses etc.

Reference was made to the remand report dated 28th October, 2010,

regarding the export sales. The justification for entering into the

contract with M/s. Global Reliance Inc., as stated, was that the latter

ITA 437/2014                                    Page 4 of 8
was functioning and operating in the USA and the respondent-assessee

had availed of their services. As per the agreement, the assessee had to

pay 9.05% of the total sales made by the consignee. With regard to

certificate of Certified Public Accountant (CPA), it was held that the

same was called for by the assessing officer and on his insistence

certificate of one Stanley Osur, CPA of the USA was furnished to

show the expenses incurred by M/s. Global Reliance Inc. during the

relevant period. Break-up of the said expenses were duly mentioned in

the certificate.

5.     The aforesaid findings have been accepted by the Tribunal.

6.     Keeping in view the aforesaid position, this court vide order

dated 1st September, 2014, brought to the notice of the Revenue that

the findings recorded by the appellate authorities including the

Tribunal appeared to be factual in nature. It was highlighted that the

respondent-assessee had filed documents in the form of invoices, bills

etc., which were produced and accepted. Counsel for the appellant-

Revenue had taken time to examine the matter.

7.     We find that the Revenue has not placed on record invoices, bills

etc. It has not indicated and highlighted as to why and for what reason,

the factual finding is perverse.

8.     Having examined the reasons given in the assessment order and

factual position and detailed discussion by the C.I.T(Appeals),

ITA 437/2014                                    Page 5 of 8
affirmed by Tribunal, which has been noticed above, we do not think

that findings recorded by the appellate authorities can be treated and

regarded as perverse. We also record that the C.I.T(Appeals) had

sustained addition of Rs.25,85,419/- out of addition of Rs.4,33,78,000/-

made by the assessing officer, noticing that the assessee had not been

able to produce bills and invoices for the said amount.        The said

addition has been sustained by the Tribunal. The C.I.T(Appeals) has

also referred to the fact that in the preceding assessment years, the

assessing officer did not dispute identical agreements and had accepted


9.      During the course of hearing, learned counsel for the appellant-

revenue drew our attention to ground (b) raised in the present appeal to

the effect that the assessee had not deducted TDS on the payments,

which as per the version of the assessee, were contractual payments.

In other words, the learned counsel for the appellant-Revenue submits

that Section 40(a)(ia) of the Act would be applicable. We notice that

the aforesaid section and provision was neither invoked by the

Assessing Officer nor by the first appellate authority. However, we

find that before the Tribunal, the Departmental Representative did raise

the contention that TDS provisions would be applicable. The aforesaid

contention was rejected by the Tribunal, relying upon decision of the

Supreme Court in the case of GE India Technology Centre P. Ltd. Vs.

ITA 437/2014                                     Page 6 of 8
Commissioner of Income Tax, (2010) 327 ITR 456 (SC), on the

ground that M/s Global Reliance Inc. was not liable to pay tax under

the provisions of the Act and, therefore, the assessee was not liable to

deduct tax at source. It appears that the Departmental Representative

had invoked and relied on Section 195 of the Act. Before us the

revenue, as per the grounds of appeal, seeks to rely upon Section 194C

of the Act. It is clear that application of Section 194C of the Act was

not pleaded before the Tribunal.

10.    As far as Section 195 is concerned, the same would not be

applicable as it is apparent that M/s. Global Reliance Inc. did not have

any business operations in India and they were functioning and

operating in the USA. From the order of the Tribunal, it does not

appear that the Revenue had relied upon deeming provisions under

Section 9 of the Act to hold that M/s. Global Reliance Inc. was covered

and should be taxed in India in respect of the said income and,

therefore, the TDS under Section 195 of the Act should have been

deducted. Moreover, specific sub-section which could be applicable

was not stated and adverted to. Possibly reliance was placed on sub-

clause (i) to section 9(1), relating to business connection. Even in the

grounds of appeal before us, no reliance has been placed on the

provisions of Section 9 of the Act.

11.    In these circumstances, we are not inclined to issue notice in the

ITA 437/2014                                     Page 7 of 8
present appeal and the same is dismissed.

                                            SANJIV KHANNA, J.

                                            JAYANT NATH, J.
OCTOBER 16, 2014

ITA 437/2014                                  Page 8 of 8
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