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*IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 16th October, 2014
+ ITA 437/2014
COMMISSIONER OF INCOME TAX-IV ..... Appellant
Through Mr. Kamal Sawhney, Sr. Standing
Counsel.
Versus
M/S HIMALYA INTERNATIONAL LTD. ..... Respondent
Through
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE JAYANT NATH
SANJIV KHANNA, J.
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
perverse.
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
them.
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
NA
ITA 437/2014 Page 8 of 8
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