2020 (8) TMI 748 - AT - Income Tax

Assessment passed u/s 254 r.w.s 143(3) - Order in the name of Varian India Pvt. Ltd.- India Branch, an entity not in existence on the date of passing the order, on account of closure of the Branch and subsequent purchase of its assets and liabilities by Agilent Technologies India Private Limited - HELD THAT - AO has made the assessment u/s 254 r.w.s. 143(3) in the name of M/s Varian India Pvt . Ltd.-India Branch . In the Form 35 filed before the CIT(A) dated 06.02.2015, the appellant has clearly stated the name of M/s Varian India Pvt. Ltd.-India Branch . In the grounds of appeal and statement of facts filed before the CIT(A), the assessee has clearly stated the name of M/s Varian India Pvt. Ltd.-India Branch . Therefore, there is no merit in the 1st ground of appeal and the same is dismissed . TP Adjsutment - Commission income on the reimbursement of expenses received by the Appellant from its Associated Enterprises - HELD THAT - In the instant case, the appellant has credited in its financial statements towards reimbursement of expenses and offered the same to tax in the return of income filed for the year under consideration. Appellant has debited its financial accounts with expenses incurred on behalf of VGCs and subsequently, on receipt of the credit note from VGCs, it credited the same under the head Other Income in its financial accounts. There is merit in the treatment of the appellant that as the same was in the nature of reimbursement, the same was not included for the purpose of calculation of commission . Appellant has rightly computed its commission income as per the said DR agreements. Therefore, we set aside the order of the Ld. CIT(A) and delete the addition of commission income amounting on the reimbursement of expenses received by the appellant from its AEs. Thus the 2nd ground of appeal is allowed .

Summary

Issues Involved:
1. Validity of assessment order in the name of a non-existent entity.
2. Inclusion of reimbursement of expenses in gross sales for commission computation.
3. Levy of interest under section 234B of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Assessment Order in the Name of a Non-existent Entity:
The assessee challenged the assessment order passed under section 254 read with section 143(3) of the Income Tax Act, arguing it was issued in the name of "Varian India Pvt. Ltd.-India Branch," an entity that no longer existed due to its closure and subsequent asset purchase by another company. However, it was noted that the assessee had itself used the name "Varian India Pvt. Ltd.-India Branch" in its Form 35, grounds of appeal, and statement of facts filed before the CIT(A). Therefore, the Tribunal found no merit in the assessee's claim and dismissed this ground of appeal.

2. Inclusion of Reimbursement of Expenses in Gross Sales for Commission Computation:
The core issue was whether the reimbursement of expenses should be included in the gross sales for computing commission income. The AO included reimbursements from the Associated Enterprises (AEs) for locally procured components in the gross sales, arguing these costs were part of the overall sales consideration. The CIT(A) partially upheld this view, distinguishing between different agreements with Varian entities (Varian BV, Varian SPA, and Varian Germany) and directed specific inclusions and exclusions based on the terms of each agreement.

The Tribunal referred to its earlier decision, which emphasized that the commission should not be computed on local non-Varian content as per Schedule A of the Distribution and Representation Agreements (DRAs). It was found that the reimbursement of expenses for local procurement was separately reflected as "other income" in the financial statements and was offered to tax. The Tribunal concluded that the appellant rightly excluded these reimbursements from gross sales for commission computation, setting aside the CIT(A)'s order and deleting the addition of ?57,27,233/-.

3. Levy of Interest under Section 234B:
The issue of levying interest under section 234B was deemed consequential. Since the primary grounds of appeal were decided in favor of the assessee, the interest levied under section 234B would be adjusted accordingly.

Conclusion:
The appeal was partly allowed, with the Tribunal dismissing the first ground regarding the validity of the assessment order but allowing the second ground concerning the inclusion of reimbursement in gross sales. The third ground on the levy of interest under section 234B was noted to be consequential. The order was pronounced in the open court on 20/03/2020.