TaxTMI 
TaxTMI 
2018 (3) TMI 42
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....n commercial expediency to take on the experienced business house." 3) "On the facts and in circumstance of the case and in law, the Ld CIT(A) erred in holding that no tax was deductible at source from the payment made by the assessee to M/s Vanguard Jewels Ltd. as the Ld. CIT(A)s had himself held that the payment was made due to contractual obligations, therefore, the payment attracts provision of section 194C of the income-tax Act, 1961. 4) "On the facts and in circumstances of the case and in law, Ld. CIT(A) erred in allowing the deductible to the assessee despite of the fact that the same is not deductible as per provision of Section 40(ia) of the Income-tax Act, 1961. As, the assessee has failed to deduct TDS from the payment made". 5) "On the facts and in circulation of the case and in law, the Ld CIT(A) erred in holding that the expenditure of Rs. 100,62,430/- is allowable u/s 37(1) of the income-tax Act, 1961 without appreciating the fact the claim of expenditure of raw material corresponding to sale is allowable, not the claim of expenditure of share of profit as per provision of income tax Act. It is a case of division of profits, profits already ascertained with....
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....r successfully. She also submitted that the assessee had got some discount on account of assistance provided by M/s. Vanguard Jewels Ltd. The Assessing Officer was of the opinion that the assessee has not submitted documentary evidence in support of its claim of the services and help provided by M/s. Vanguard Jewels Ltd. The Assessing Officer issues summon to Shri Jayant Kansara, Director of M/s. Vanguard Jewels Ltd. However, it was found that Shri Jayant Kansara has resigned from the directorship of the company and other company representatives gave submissions. The Assessing Officer observed that M/s. Vanguard Jewels Ltd. has not provided the detail of services provided to the assessee and the documentary evidence. The Assessing Officer was of the opinion that nobody will pay as big as Rs. 1,00,62,430/- without ascertaining the specific services received. The Assessing Officer proceeded to disbelief the role of M/s. Vanguard Jewels Ltd. in the deal. He also drew adverse inference for no separate disclosure of export activities by the assessee or M/s. Vanguard Jewels Ltd. The Assessing Officer further drew adverse inference for M/s. Vanguard Jewels Ltd. for not having previous exp....
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....ignment and the like, were assigned to M/s. Vanguard Jewels Ltd. and the assessee appears to have been responsible only for making the payments for purchases or incurring related expenses or collecting the export proceeds. He further observed that all the payments were made by the assessee from the funds received from the overseas consignee. Hence, he found that it cannot be said that the assessee had contribution in funds to execute the export deal. Hence, the ld. Commissioner of Income Tax (Appeals) found that the assessee had a much lesser role to play. The ld. Commissioner of Income Tax (Appeals) found that M/s. Vanguard Jewels Ltd. was actively involved in the export order. He referred to following correspondences submitted to the Assessing Officer: i) Appellant had entered into agreement with M/s Vanguard on 16.10.2008. Obviously, after the agreement, the appellant was certain to be in position to execute the export deal with the help of M/s Vanguard. The appellant therefore wrote on 18.10.2008 to the overseas consignee about her decision to go ahead with the export order with the support of M/s Vanguard : "We have now finalized to go ahead with your esteemed order and M....
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....ax (Appeals) referred to various submissions of the assessee's representative and found that the submissions were bonafide and logical. The ld. Commissioner of Income Tax (Appeals) also accepted the assessee's contention that there was diversion of income by overriding title. In this regard, he held as under: I have carefully considered the facts and circumstances of the instant case and the legal evidence placed on record by the AR. For the sake of brevity, the submissions quoted by AR at length (supra) are not repeated, but I am in full agreement with the stand taken by the AR, 'Suffice it to say, diversion of income at source can take place under a contractual obligation also. As per the terms and conditions of the agreement between the appellant and M/s Vanguard, which was executed even before the export order was finalised, the appellant was entitled only to 15% of the profits resulting from the export order., and the balance 85% was the entitlement of M/s Vanguard. The mode of computation of the profits was also given in the agreement. Thus, 85% of the profit which would arise from export stood diverted on the date of considered as part of appellant's income. Terms ....
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....d in the business of import of diamond and is not expert in the field of chemicals. He submitted that the services rendered by M/s. Vanguard Jewels Ltd. has been orally explained only without any documentary evidence. He further submitted that the assessee has herself negotiated the contract and M/s. Vanguard Jewels Ltd. was nowhere in the picture. He further submitted that the assessee did not deduct TDS from the payment made and the amount was liable to be disallowed u/s. 40(a)(ia). In this regard, he placed reliance upon the order of the Hon'ble Andhra Pradesh High Court in the case of CIT vs. Transport Corp. India Ltd. [2002] 256 ITR 701 (AP). 12. Per contra, the ld. Counsel of the assessee submitted that the ld. Commissioner of Income Tax (Appeals) has passed a reasonable and correct order after considering all the facts of the case. He submitted that the assessee being a lady and because of lack of experience in export, and the huge value export order had entered into joint venture with M/s. Vanguard Jewels Ltd. The said concern was expert exporter who agreed to assist her completely. He submitted that M/s. Vanguard Jewels Ltd. helped the assessee to engage with the manufact....
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....'ble Apex Court in the case of CIT vs. Sitaldas Tirathdas [1961] 41 ITR 367 (SC). He further submitted that the agreements have to be read as administered by parties and not by the Revenue. For this proposition, he referred to the following case laws: * Polymat India Pvt. Ltd. & Anr. Vs. National Insurance Co. Ltd. & ors. [2005] 9 SCC 174 * Shin Satellite Public Co. Ltd. vs. Jain Studios Ltd. [2006] 2 SCC 628 * CIT vs. Arundua [1990] 186 ITR 494 (Cal)(HC) (496) 15. The ld. Counsel of the assessee further submitted that the case laws relied upon the Assessing Officer are clearly distinguishable on facts. 16. We have carefully considered the submissions and perused the records. We find that in the present case, the assessee is a lady engaged in chemical trade. Initially she had given quotation for a small supply of chemicals to the overseas purchaser. However, the overseas supplier gave her comparatively large order. The assessee found herself inexperienced to handle the above large export order. So she entered into a joint venture agreement with M/s. Vanguard Jewels Ltd. who had sufficient experience in handling export business. As per the said agreement, 85% share would ....
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....venture agreement. In these circumstances, the payment made to M/s. Vanguard Jewels Ltd. cannot be termed as colorable devise and the expenditure cannot be held to be disallowed. As held by the Hon'ble Apex Court in the decision cited above, the reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not Revenue. In the present case, the assessee was a lady business person. She has received a huge export order. She sought help and assistance from M/s. Vanguard Jewels Ltd. who had earlier sufficient experience in dealing the export business. The facts of the case clearly indicate that the considerable service was provided by M/s. Vanguard Jewels Ltd. Under these circumstances, the order of the Assessing Officer that no amount was payable is not at all sustainable. 19. Furthermore, it is noted that the sum paid to M/s. Vanguard Jewels Ltd. as its share is duly reflected by M/s. Vanguard Jewels Ltd. in its return and it has been offered to taxation. Hence, it is also true that the same amount cannot be taxed in the hands of the two persons twice. The fact that M/s. Vanguard Jewels Ltd. had losses alone cannot turn the transaction into a colo....