TMI Blog2010 (1) TMI 652X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellate Tribunal, Cochin Bench, who heard the appeal, the above case has been made u/s.255(4) of the Income-tax Act, 1961. The question referred to reads as under: Whether in the facts and circumstances of the case, the CIT (Appeals) is justified in deleting the amount of Rs.9,77,29,799 added by the Assessing Officer as the income of the assessee on the ground that the amount represented non-refundable trade advance? . 2. Assessee is an exporter of beverages and kitchen utensils. The assessee's Managing Director Mr. C.C. Thampi is an NRI. For the year under consideration, assessee filed its return on 27-10-2005 declaring a total income of Rs.2,29,3220 and the return was processed u/s. 143(1). Thereafter, case was selected for scrutiny and the assessment was completed u/s.143(3) making an addition of Rs.9,77,29,798.77. 3. While framing the assessment order, the Assessing Officer noticed that there was a credit balance of Rs.9,77,29,798.77 being Trade Advance from Uniglobe General Trading Company, UAE (UGTC for short). AO noticed the opening balance in the said account was Rs.10,23,09,092.22 and after debiting the export made during the year for Rs.49,89,801.00 and crediting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt of advance payment, no remittance towards refund of unutilized portion of advance payment or towards payment of interest, shall be made after the expiry of the said portion of one year, without the prior approval of the Reserve Bank. (2) Notwithstanding anything contained in clause (i) of sub-regulation (1), where the export agreement provides for shipment of goods extending beyond the period of one year from the date of receipt of advance payment the exporter shall require the prior approval of the Reserve Bank. 3.3 The assessee company received the last advance on 19-01-2004 and even as on date of the order the export advances to the tune of Rs. 9 crores (approximately) were outstanding, and since the exports against the advance receipts were not made within one year as stipulated by the RBI vide their regulation referred to above and assessee was periodically withdrawing the amount for other purposes, such as investment in the real estate property and assessee had not obtained the necessary permission from the RBI top return the advance, nor taken the steps to repatriate the amount, assessee was asked as to why the amount should not be added as assessee's income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for repatriation of this amount. Along with the above letter assessee company has enclosed a copy of the letter dated 18-12-2005 from RBI, addressed to Holiday Group of Companies wherein on the matter regards advance against exports it is mentioned as under: As regards advance against exports it may be stated that export obligation has to be completed within one year. Since you have not furnished any details of transaction, you may approach our trade Division (Exports) Central Office, FED, Amar Building, Fort, Mumbai 400001 by furnished all necessary details. 3.6 Even from the purchase orders and indents placed by UGTC, it was noticed that except for one item of Johnny Walker Whisky no rate was quoted, but required quantity was mentioned with a further note beneath, stating that the rates on these items will be confirmed later. In other words, the rates were not quoted. 3.7 From the above, the Assessing Officer concluded that assessee's claim that assessee had contracted with M/s. Suntan Trading Co. and there were price fluctuation between the rates to be obtained from this company and the one to be exported is incorrect. 3.8 Assessee's further contention that to ensure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngar and Sons Ltd. (222 ITR 344) squarely applies in this case. The Hon'ble Supreme Court in this case, has held that even if the amounts received originally were not of income nature, but if amounts remained with the assessee for a long period unclaimed by the trading parties, and assessee had become richer by the amount, subsequently transferred to its profit and loss account, and by the lapse of time the claim of the other party becomes unenforceable, the amount attains totally a different nature; it becomes income in the hands of the recipient. In view of the above facts, the Assessing Officer treated this amount of Rs.9,77,29,799 as non refundable trade advance and held that the liability has ceased to exist. Consequently the amount was treated as income of the assessee. 4. Aggrieved by the impugned addition, the assessee carried the matter in appeal before the CIT(Appeals). The CIT(Appeals) called for the remand report of the assessing authority on the basis of the following documents and evidences produced by the assessee before him. (a) Copy of RBI letter dated 3-3-2008 to Catholic Syrian Bank Ltd., Ernakulam (appellant's banker) issuing no objection to the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinguishable from the case reported in 222 ITR. Hence, he confirmed the order of the CIT (Appeals) on facts having found that the amount has already been repatriated. 6. On the other hand, the ld. Judicial Member allowed the appeal of the Revenue holding that the value of a benefit or a perquisite, whether convertible into money or not arising from business or the exercise of profession, that income shall be chargeable to tax under the head Profit and Gains of Business or Profession . While coming to the above conclusion, the ld. JM further agreed with the finding of the Assessing Officer that the amount ceased to be a liability during the year under consideration and therefore it falls within the inclusive definition of income . He further held what happened during the subsequent years has no relevance as far as the present year is concerned. In view of this difference of opinion, the above question has been referred to the Third Member. 7. Dr. Babu Joseph, ld. Sr.D.R. submitted that assessee received Rs. 20 crores as a trade advance from the foreign party. There were exports to the tune of Rs.10 crores in the assessment year 2003-04. During the subsequent years there wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, Fort, Mumbai so as to get the clarification about obligations of the assessee, because of its failure to comply with the stipulation of making export within one year. The ld. CA further submitted, later RBI granted permission to make the repayment, vide their letter dated 3-3-2008, copy of which is annexed at pages 26 and 27 of the paper book. Consequently, assessee made the re-payment on 10-3-2008 through assessee's Account No.1041 with Catholic Syrian Bank Ltd., Market Road Branch, Ernakulam, as noted by the ld. CIT(Appeals). The ld. representative further submitted, in fact, assessee was forced to approach even the Hon'ble Kerala High Court by filing a Writ since there was no communication in this regard from RBI. In this Writ Petition filed by the assessee before the Hon'ble High Court, it has been clearly explained the circumstances under which assessee could not make the export. It is stated, because of assessee's inability to comply the export obligations assessee expressed its willingness to repatriate the balance amount to UGTC but to discharge the liability, assessee has to bear an additional burden to the tune of Rs. One crore because the conversion rate had lost to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubstantial exports in the subsequent financial year, or mere withdrawal of the remittance received as advance for exports and utilization of the same for some other purposes, does not tantamount to cessation of assessee's liability. He further invited my attention to para17 of the ld. JM and submitted that the finding of the ld. JM that assessee's liability ceased to exist is a finding without any basis. 9. In reply the ld. Sr. DR brought my attention to page 18 of the paper book of the assessee wherein the background of the export advance has been explained by the assessee in their letter addressed to the RBI. The ld. Sr.DR submitted that the assessee's group has invested/ or was intended to invest about Rs.30 to 50 crores for various activities in Kerala, such as construction and operation of Star Hotels in prime locations, construction and marketing of commercial complex and residential villas in prime locations and to undertake various projects under BOT Scheme from Government agencies etc. It means even when the amount was advanced, foreign party intended to permit the assessee to use this amount for other purpose, which actually, later, the Assessing Officer found as used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility to the instant case and rightly so. In that case, the deposits were received from the customers during the course of business, and some of the deposit remained unclaimed for a longer period, and subsequently, those unclaimed amounts were transferred by the assessee to its profit and loss account, showing it as a trade receipt. On facts, in the instant case as contended by the ld. C.A. vide letter dated 5-1-2005, seeking clarifications from RBI, indirectly assessee acknowledges the liability to make the repayment. Vide clause 2 of the said letter assessee acknowledges (one of the group company) that it has received advances in British Pounds against export order directly through the bank and the necessary FIRC has been obtained and this amount is lying with the assessee as advance received in their books of account. Assessee also acknowledges that the assessee has used the money for investment, i.e. some other purposes than the intended exports. In the premises assessee sought clarification from the bank to know whether - a) Assessee can hold these advances with the consent of foreign buyer to set off against future exports; b) Whether assessee can convert this as unsecure ..... X X X X Extracts X X X X X X X X Extracts X X X X
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