ACIT CIRCLE-10(1), NEW DELHI, ITO C.R BUILDING vs. INSULTECH INTERNATIONAL PVT. LTD. , VASANT VIHAR

2. Whether on the facts & in the circumstances of the case and in law, the Ld. CIT(A) has erred, in deleting the disallowance of Rs. 6,67,00,000/- made u/s 37 of the Act, ignoring the fact that the assessee has failed to furnish any documentary evidences to establish that the expenditure incurred by the assessee were "wholly & exclusively" for purposes of business?

3. That the department craves to add or amend the grounds of appeal before Hon'ble ITAT is finally heard or disposed of.”

5. Before us, Ld. Sr. DR submits that the assessee had paid “success fees” on the successful bidding of contract with M/s AG & PC of Rs.35 Crs. He further submits that there was no written ACIT vs. Insultec International Pvt. Ltd. agreement with Sh. Punj and as per the Ld. Sr. DR there were individual purchases orders issued by M/s AG & PC wherein there is no reference of Sh. Punj of mediating into the order as claimed by the assessee. The AO in para-6 of the assessment order has stated many reasons to hold that the claim of the assessee that Sh. Dorian Punj was instrumental in obtaining the contact for the assessee, is not correct and he had not provided any such services as has been claimed by the assessee. The ld. Sr. DR, therefore, placed reliance on the order of the AO and submits that the Ld. CIT(A) has wrongly allowed the claim of the assessee which order deserves to be reversed and the disallowance of Rs.6.67,00,000/- deserves to be sustained.

6. On the other hand, the Ld. AR of the assessee vehemently supported the orders of the Ld. CIT(A) and submits that because of the services rendered by Sh. Dorian Punj and looking to his experience in the field, the assessee could be able to obtain the contract and orders for supply which is evident from the financial results of the assessee company where upto preceding years the turnover was ranging upto Rs.10.00 crs. whereas in the year under appeal, the turnover of the assessee had increased to multifold and total income declared is also increased substantially from few lacs to crores. As per ld. AR this clearly shows that the assessee company was financially highly benefited with the services of Sh. Rajendra Dorian Punj by successful bidding. The Ld. AR further submits that the AO has invoked the provisions of section 2(22)(e) of the Act and referred the matter to the AO of Shri Rajendra Dorian Punj. As a ACIT vs. Insultec International Pvt. Ltd. consequence the AO of Shri Punj had made the additions of this amount in the hands of Sh. Dorian Punj as deemed dividend income u/s 2(22)(e) of the Act. Ld. AR drew our attention to the orders of ld. CIT(A) 43, New Delhi passed in the case of Sh. Rajendra Dorian Punj, wherein the ld. CIT(A) after considering the service agreement between the assessee and Shri Punj and further considering the services rendered and the nature of payment, had deleted the addition made u/s 2(22)(e). The copy of the said order dated 17.11.2021 in Appeal No.10136/2018-19 is placed on record. Ld. AR further submits that the Ld. CIT(A) in the case of the assessee by following the said order wherein the nature of payment is treated as commercial in nature and were made in accordance with agreement executed between the parties, deleted the disallowance. He thus, requested for the confirmation of the order of the CIT(A).

7. We have heard the rival submissions and perused the materials available on record. From the perusal of the order of Ld. CIT(A), it is seen that the Ld. CIT(A) has followed the findings given in the case of the recipient Sh. Rajendra Dorian Punj wherein the additions made in his hands of the said amount as deemed dividend u/s 2(22)(e) of the Act was deleted after appreciating the nature of transactions as purely commercial. It is further seen that the payment has been made to Sh. Rajendra Dorian Punj in terms of the success fees agreement dated 07.01.2011 which is placed at PB 64 to 70, according to which Sh. Punj was appointed by the company to provide the services of developing customers, in the far-east and middle-east, technical support and securities supply in terms of the contract. The services ACIT vs. Insultec International Pvt. Ltd. to be provided by Sh. Dorian Punj in terms of the said agreement are as under: “1. Developing customers for us who perform Module fabrication (including insulation) in the far-east and middle-east 2. Technical Support in getting us Vendor Approval from the Module Fabricators like Mc. Dermot Singapore: AG&P, Philippines: Kencana, Malaysia, Sino Thai Thailand etc. as well as the Project Owner/Consultants like Bechtel USA, Toyo Japan, Technip France and JGC Japan.

5. Sourcing worldwide manufacturers of specialized materials for Cryogenic, hot and Acoustic Insulation as detailed above.

8. It is further seen that the success fee payment is subject to the realization of the work awarded / supplies of material to the assessee of the orders obtained through Sh. Punj. AS per the agreement, upon receiving payments only, he was entitled for the payment of success fee. It is further seen that the turnover of the assessee company has been increased from 10.46 Cr. to 56.27 Cr. as a result of the new contracts/orders awarded to the assessee company for sale of products and further the net profit was increased from 15.76 lacs to 13.32 crores which is after claiming the expenses on account of success fee of 6,67,00,000/- paid to Shri Punj. This clearly shows that the assessee company stood benefited multifold from the services rendered by Sh. Rajendra Dorian Punj. There is not a single evidence collected by the Assessing Officer brought on record which could lead to believe that the payment was made to Sh. Rajendra Dorian Punj not for service rendered and otherwise then for commercial purposes. The Ld. CIT(A) while deleting the disallowance in para 4.4 has made following observations: “4.4 Decision: I have considered the materials placed before me. Briefly the facts are that during the course of assessment proceedings, the AO noted that the appellant had made payments to the tune of Rs. 6,67,00,000/- ($10,00,000) to Mr. Rajendra Dorian Punj, who holds 80% equity in the appellant company. The AO asked the appellant to explain this payment made to Mr. Punj. The appellant submitted that this payment was made as "success fee" for securing contract for the appellant company by Mr. Punj. Before the AO, the appellant submitted a copy of agreement and copies of internal email communication to prove the efforts made by Mr. Punj for securing contract. The AO after considering the documents held that these communications were normal business communication made by the CEO/Group Chairman, Mr. Punj on account of allocation of work between group companies and shows no evidence to prove the appellant's case. The AO also noted that the contract agreement was made on plain paper without any stamp and made between two connected parities, which has no ACIT vs. Insultec International Pvt. Ltd. evidentiary value. Thus AO disallowed the expenses of Rs. 6.67 crores paid to the CEO, Mr. Punj as non-business expenses. The appellant during the appellate proceeding submitted that the amount of Rs. 6.67 crores was added in the hands of Mr. Rajendra Dorian Punj as deemed dividend u/s 2(22)(e) of the Act against which also an appeal was filed. The CIT(A)-43, New Delhi vide order No ITBA/APL/M/250/2021- 22/1037398050(1) dated 17.11.2021 has decided the issue in favour of Mr. Punj and deleted the addition of deemed dividend of Rs. 6.67 crores. The CIT(A)-43, New Delhi, has discussed the issue of nature of transaction between the appellant and Mr Punj whether it was commercial or not in Para 5.7.2 (Page no 31 to 36) of the order. For sake of reference the same is reproduced below: "5.7.2 The Commercial nature of the transaction between the appellant and the pay or company can also be examined as under a Mr. Dorian Punj also known as Rajendra Dorian Punj is a technocrat with an Engineering and MBA Degree from MIT, USA and is an expert in handling global supply and installation projects in the field of hot and cryogenic insulation, jacketing, mastics and fixing ancillaries for Liquefied Natural Gas (LNG) Petrochemical and Power Projects. He is a Person of Indian Origin and is a US Citizen and files his taxes in the United States of America. (As per the CV of Dorian Punj filed by the assessee) n b. As informed by the AR Mr. Dorian Punj owns 80% equity in M/s Insultec Intemational Private Limited but has no control over Day to day running of the business of the said company. He also owris various other group companies worldwide in the Insultec Group and is the Chairman of the insultec Group. The Insultec Group World wide has huge experience in Engineering Jobs and had global Revenues of USD 88.186,710 with a net profit after tax of USD 12.521,629.(As per the Insultec Group Website and Brochure Insultec Group Worldwide Experience Insultec Group Financial Statements for 2015 2016) Mr. Dorian Punj has not received any remuneration or income other than the "Success Fee" from the Indian Company. M/s Insultec International Private Limited. c. Mr. Dorian Punj has a "Success Fee Agreement dated January 07, 2011 with M/s Insultec International Private Limited (Copy of the Success Fee Agreement with insultec International dated 07 Jan 2011 filed by the assessee) an Indian Company by virtue of which he was paid a "Success Fee" of USD One Million Dollars equivalent to INR 6.67.00.000 in the assessment year 2016-17. TDS amounting to ACIT vs. Insultec International Pvt. Ltd. Rs.2.15,08,624 was deducted by the payor company M/s Insultec Intemational Pvt Ltd on such payment (Refer Copy of Account of Dorian Punj In Insultec International) The said Success Fee was pald on account successful bidding by Insultec International Private Limited through the resources of Mr. Dorian Punj for material supply to Atlantic Gulf and Pacific Company in Philippines and for successful execution of the said order. In the said bidding Mr. Dorian Punj assisted the said company with preparation of the bid, used his influence with the material suppliers to obtain favorable credit terms for materials to be supplied under the contract, used his international credit worthiness to buttress the financials of the Indian Company, used his knowledge to identify cheaper vendors and helped the Indian company in the presentations before M/s Atlantic Gulf and Pacific Company. In fact through the efforts of Mr. Dorian Punj, the Indian company became the only approved vendor for the supply of material worth USD 11,414,929. In the past the Indian company never exceeded a turnover of RS. 10 crores whereas in the year under consideration it won orders worth about 70 Crores. d. The Payor Company M/s Insultec International Pvt Ltd as per the financial statements filed for the same is relaively small company which had till then only achieved a turnover of anly 10 crores in the Immediately preceding year and was engaged primarily in supply of spares and components in the replacement market in the field of Industrial Insulation, e. As per the terms of the Success Fee Agreement dated 7th Jan 2011 the appellant Mr. Rajendra Dorian Punj was to be paid a Success fee only if the following conditions were satisfied- i) M/s insultec International Pvt Ltd was awarded a contract worth at least 5 million dollars (ii) The margin in the supply of goods was at least 25% l.e. the difference between the purchase cost and the selling cost of the items was at least 25% iii) 50% of the contract value had to be realised before the release of the "Success Fee f. In the year under consideration all the said conditions were satisfied and thus the amount of Success Fee Equal to 10% of the contract value subject to a maximum of USD 1 Million was payable to the appellant, ACIT vs. Insultec International Pvt. Ltd. The Gross Value of the contracts awarded to the appellant was USD 11,414,929 as per the details filed by the appellant. Out of this a sum of Rs.56,27,01,281 was executed in the year under consideration as per the financial statements of M/s Insultec International P Ltd. The Net margin on goods can be seen from the below mentioned working: Sales 56,27.01,281.00 Less Purchase of Stock in trade 38,65.75,199.00 Add Changes in Inventory 35,89,37.966.00 Net Margin on Goods 20.37.63,315.00 Percentage of Net Margin 36.21% The value realised during year can be seen from the figure of Trade Receivables as per the Schedule 10 of the Financial Statements of M/s Insultec International P Lid which shows a negative figure of Rs.13.52 28.069 which means that in addition to the sales a sum of Rs. 13,52.28.069 was also realised as "Advances from the Customers" Thus all the conditions of the Success Fee Agreement were satisfied and thus the amount of USD 1 Million was due to the appellant which was actually pald by the sald company to the assessee after due deduction of taxes at Source. g. The inputs of Mr. Darian Punj in helping the payor company get the large contract and executing the same can be gauged from the submissions made by the assessee alongwith the documentary evidences filed before me as under: i. Allowed the Indian Company to use the credentials of the Insultec Group Worldwide to show its financial capability to execute order worth USD 11 Million (Inultec_Group_F_S_Year_ended_2015_and_2016 filed by the assessee) ii Allowed the Indian Company to use the images of the Jobs done World vide by various Insultec Group Companies to show its technical capacity to execute the orders worth USD 11 Million and (Inultec (Insultec_Gourp_Worldwide_Experience_List) Group_Website_Address_and_Group_Brochure) iv. Insisted that the Indian Company should not only target the material supply to AG& P but also pursue the subcontract for Insulation also which ultimately did give the maximum profit to the (RDP_Email_dated_8_Oct_2014_informing_that_AG_P_has_been_awarded_ Yamal_m odules_by_Yamgaz_and_RKG_reply)

ACIT vs. Insultec International Pvt. Ltd. v. Helped the staff of the Indian Company to prepare the budgetary Quotation worth USD 31.77 Million initially given to M/s Atlantic Gulf & Pacific Company. Manila (AG&P for short) and also for preparing the final Bid for Material Supply order (Non Budgetary) (Copy_of_IIPL_Budgetary_Quotation) v. Arranged for the purchase of the materials to be supplied to M/s AG&P with M/s Pittsburg Corning of USA for the supply of the required sizes of Cellular Glass Moulded Insulation, Pittsburg Corning is the largest manufacturer in the world for such insulation. vi Used his influence with M/s Pittsburg Corning after communicating with Mr. Harry Walkoff of Pittsburg Corning to get 5 containers of Cellular Glass Blocks from per Singapore factory. vii Arranging for a credit of 60 days with M/s Pittsburg Corning by guaranteeing to Pittsburg Coming that they will be paid on time for the material to be purchased by the Indian Company even though the Indian Company was dealing with Pittsburg Coming for the first time and Pittsburg Corning does not extend any line of credit to a new customer. Thus the Indian company never had to seek a loan facility to execute orders to the tune of USD 11.414.929.22 and never had negative cash flow in the project. viii. Initially AG& P awarded the Indian Company with only the supply of the Cellular Glass as they had initially wanted to do the fabrication of the said Cellular Glass themselves. However later they decided to give the Indian Company the order for supply of the fabricated Celluar Glass for which the Indian Company used the manufacturing facility of the insultec Group Company in Thailand. ix Arranged for the supplies of Stainless Steel Jacketing to be purchased from Insu Rapid BV Thermal Insulation Products, Netherlands for supplies to AG&P Project x. Arranged for cheaper purchase of Hydrocal B-11 a type of Adhesive used in Cellular Glass Fabrication. Xi Made the Indian company purchase e Fibreglass from Formosa Tech, Taiwan after determining that it is cheaper to buy from Taiwan than to buy from ATC USA. The Indian company then placed the said order on Formosa Tech Intemational Inc. Taiwan. The price differential between the two suppliers was substantial and resulted in savings for the Indian Company. xii. Once the Indian Company was given the offer to give Fabricated Cellular Glass the entire process of setting up the fabrication line was done ACIT vs. Insultec International Pvt. Ltd. at the Thailand facility of the group which is a wholly owned company of Mr. Dorian Punj. The entire costing and setting up of the fabrication process was done at the behest of Mr. Dorian Punj at Thailand The Indian company does not have any manufacturing or fabrication facility and had to get the same done at Thailand facility which is owne by the group company Insultec International Limited. Thailand which is fully owned by Mr. Dorian Punj In fact Mr. Dorian Punj also permitted the visit of the officials of AG&P to the Thailand facility so that the Indian company could get the substantially profitable order for supplying the Cellular Glass after fabrication The entire costing given to the customer by the Indian company to AG&P were also done at Thailand as the Indian Company has no prior experience of fabrication of Cellular Glass and does not have any Fabrication Facility. xiv. The Purchase Orders received from AG&P have been enclosed by the AR. All the order have a common project number le 14001 which is the code for Yamal Project as can be seen from the purchase orders. h. In view of the above stated position it is sufficiently proved that the appellant made the efforts for which he was paid the success fee and that the success fee paid cannot be brought within the ambit of the provisions of Section2(22) (e) as the same has been paid in pursuance of a "Commercial Contract" between the appellant and the payor company."

Thus the CIT(A)-43, New Delhi after considering the nature of the transaction, gross value of new contract awarded and the qualification of Mr. Punj and his group companies held that the Indian branch, le. the appellant received contracts in field in which it has no prior experience, got cheaper purchase order, supplies etc. It was held that this was only possible because of Mr. Punj and the amount paid of Rs. 6.67 crores was on account of commercial contract. Therefore, this issue has already been settled by the CIT(A)-43, New Delhi and I find no reason to digress from the reasoning given in the said order. Accordingly, the payment of Rs. 6.67 crores is held as business expenses and the AQ is directed to delete the addition made of Rs. 6,67,00,000/-, Ground No. 1 to 3 are thus Allowed.

9. Before us, except stating that there was no proper agreement executed assessee and Sh. Punj, the Revenue has failed to controvert the findings of Ld. CIT(A) wherein the Ld. CIT(A) has threadbare ACIT vs. Insultec International Pvt. Ltd. discussed the service rendered by Sh. Punj which are purely commercial in nature and, therefore, in our considered view, there is no error in the order of Ld. CIT(A) which is hereby upheld. Accordingly, the grounds of appeal

taken by the Revenue are dismissed.

10. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 08.08.2025.