Section 37(1) – Where in terms of sales
agreement, assessee pays expenses relating to export sales carried out
on its behalf by consignment agent located abroad, assessee’s claim for
deduction of said expenses cannot be rejected taking a view that same
were in nature of post sales expenses.
FACTS
The
assessee was engaged in the business of manufacturing, food processing
and infotech. The assessee had a consignment agent namely ‘G’ located in
USA. During relevant year, the assessee filed its return claiming ‘USA
office expenses’. The assessee’s case was that said expenses were
incurred by the consignment agent in the course of export sales of goods
on behalf of the assessee.
The AO opined that expenses incurred
by assessee were in the nature of post sales expenses and the same
could not be said to be expenses pertaining to the export business of
the assessee. Accordingly, the AO rejected the assessee’s claim.
The Commissioner (Appeals), however, allowed a major portion of assessee’s claim.
Revenue
filed an appeal on the ground that the said expenses were post sales
and therefore should be disallowed and also on the ground that no TDS
had been deducted by the assessee while making payment of these expenses
and therefore the said expenses should be disallowed.
HELD
As
per terms of the agreement between the assessee and its consignment
agent ‘G’, 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. 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.
It was apparent from the
agreement between the assessee and its consignment agent ‘G’ that 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
‘G’ including custom duty, ocean freight and land freight of USA,
warehousing expenses in USA etc. 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. The
assessee also fixed the selling and administrative expenses remuneration
and other incidental at the rate of 9.05 % of the sales effected in
USA.
The amount of remittance or reimbursement made to ‘G’ also
contained an element of commission of consignment agent but since the
consignment agent has not rendered any service in India and, therefore,
consignment commission is not taxable in India.
The assessee
raises bills/invoices by estimating net realisable value (i.e. gross
sales value in US less US expenses) and under the relevant custom rules
an ARE-1 was filed by the assessee in respect of all goods leaving
Indian custom boundaries and same detail was duly declared in ARE-I by
the assessee amounting to Rs. 9.65 crore. The authorities below have
also not disputed rather accepted the accounting method of the assessee
that out of the gross sales realised in USA was declared as turnover by
the assessee in the final account and US expenses were also claimed
separately therein.
In view of above, it is opined that the
Assessing Officer concluded the assessment by recording a contradictory
finding because on the one hand, the Assessing Officer has considered
gross sales realised value in USA as sales of the assessee for the
financial year under consideration and on the other hand the Assessing
Officer 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.
As per the above set of facts, all US
expenses incurred by the consignment agent on behalf of the assessee
were the responsibility of the assessee and subsequent agreement, which
was 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 could
not be treated as post sales expenses and observations and findings of
the Assessing Officer are not correct and justified in this regard.
In
the result, the Commissioner (Appeals) has granted relief for the
assessee on reasonable, justified and cogent grounds which were again
followed by Commissioner (Appeals) in assessee’s own case for assessment
year 2003-04. There is no ambiguity, perversity or any other valid
reason to interfere with the same. Accordingly, all grounds of the
revenue being devoid of merits are dismissed.
