2014 (3) TMI 617 - AT - Income Tax

Tribunal Upholds CIT (Appeals) Decision on Tax Disallowance and Consistency Rule

The Tribunal dismissed both the Revenue's and the assessee's appeals. The CIT (Appeals)'s decision to delete the addition of Rs. 4,07,92,581/- was upheld, ... Deletion of addition made on various expenses – Held that:- The assessee raises bills/invoices by estimating net realizable value (i.e. gross sales value in US minus US expenses) and under the relevant custom rules and ARE-1 was field by the assessee in respect of all goods leaving Indian custom boundaries and same detail was duly declared in ARE-I by the assessee and total amount for the same was amounting to Rs. 9.65 crores - The AO concluded the assessment on contradictory finding because on the one hand, the Assessing Officer has considered gross sales realized value in USA as sales of the assessee for the financial year under consideration and on the other hand the AO held that the export sale was completed when the consigned goods left the Indian Customs Border and all expenses incurred thereafter were post sale expenses – thus, the 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. 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 reason to take a different stand on this issue which the Commissioner of Income Tax(A) has taken in favour of the assessee for AY 2003-04 – thus, the CIT(A) has granted relief on reasonable, justified and cogent grounds – Decided against Revenue. Partial disallowance of expenses – Proper bills could not produce – Held that:- The CIT (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 – there was no cogent or relevant details or evidence which could substantiate or establish the claim of the assessee related to the part disallowance made by the CIT(A) – thus, the order of the CIT(A) upheld pertaining to part disallowance - the assessee miserably failed to substantiate its claim with cogent and reliable evidence and the assessee could not discharge its onus in this regard – Decided against Assessee. Issues Involved:1. Disallowance of Rs. 25,85,419/- by the CIT (Appeals).2. Deletion of Rs. 4,07,92,581/- by the CIT (Appeals).3. Non-deduction of TDS by the assessee on payments made.4. Acceptance of subsidy by the Central Government department.Detailed Analysis:Issue 1: Disallowance of Rs. 25,85,419/- by the CIT (Appeals)The CIT (Appeals) confirmed the disallowance of Rs. 25,85,419/- out of the total expenses claimed by the assessee. The disallowance was based on the assessee's failure to provide necessary details and evidence. The CIT (Appeals) noted that expenses such as car expenses, donations, membership fees, newspaper and periodicals, and legal and professional fees were not related to sales and thus could not be allowed as business expenditure under section 37(1) of the Income Tax Act. The Tribunal upheld this disallowance, stating that the assessee failed to substantiate its claim with cogent and reliable evidence.Issue 2: Deletion of Rs. 4,07,92,581/- by the CIT (Appeals)The CIT (Appeals) deleted the addition of Rs. 4,07,92,581/- out of the total addition of Rs. 4,33,78,000/- made by the Assessing Officer. The deletion was based on the agreement between the assessee and M/s Global Reliance Inc., which stipulated that the assessee would bear all expenses incurred out of India on account of marketing. The Tribunal noted that the expenses were certified by a CPA in the USA and that the agreement was accepted in prior assessment years. The Tribunal also observed that the Assessing Officer's findings were contradictory, as he considered gross sales realized in the USA as sales of the assessee while also treating the expenses as post-sale expenses. The Tribunal upheld the CIT (Appeals)'s decision, emphasizing the rule of consistency and the lack of new facts or circumstances to take a different stand.Issue 3: Non-deduction of TDS by the assessee on payments madeThe Revenue argued that the expenses claimed by the assessee were not allowable as no TDS was deducted on these payments, which were considered contractual payments. The Tribunal referred to the Supreme Court's decision in GE India Technology Centre P. Ltd. vs. CIT, which held that the duty to deduct tax at source does not arise unless the remittance contains taxable income. The Tribunal also cited the Special Bench decision in Mahindra & Mahindra Ltd. vs. DCIT, which stated that in the case of remittance or reimbursement of expenses where no element of taxable income in India is found, the question of tax deduction at source does not arise. The Tribunal concluded that Circular No. 715 dated 8.8.1995 was not applicable to the present case.Issue 4: Acceptance of subsidy by the Central Government departmentThe Revenue contended that the CIT (Appeals) erred in accepting the assessee's version that a Central Government department granted a subsidy based on these expenses. The Tribunal noted that the Assessing Officer did not dispute the procedure adopted by the assessee and its consignment agent, which included declaring the gross sales realized in the USA as turnover and claiming US expenses separately. The Tribunal observed that the assessee received a subsidy from APEDA Ministry of Commerce, which indicated that the expenses were indeed incurred by the assessee. The Tribunal upheld the CIT (Appeals)'s decision, emphasizing the rule of consistency and the lack of new facts or circumstances to take a different stand.ConclusionThe Tribunal dismissed both the Revenue's and the assessee's appeals. The CIT (Appeals)'s decision to delete the addition of Rs. 4,07,92,581/- was upheld, while the disallowance of Rs. 25,85,419/- was confirmed. The Tribunal emphasized the rule of consistency and the lack of new facts or circumstances to take a different stand. The Tribunal also held that the duty to deduct tax at source does not arise unless the remittance contains taxable income, and Circular No. 715 dated 8.8.1995 was not applicable to the present case.