TMI Blog2013 (11) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... te stage and there is not a whisper by the learned Commissioner (Appeals) why such an additional evidence of reconciliation of statement is not accepted. Once these additional evidences have not been rejected, it has to be presumed that the same has been admitted by the learned Commissioner (Appeals) and is part of the record - Decided against assessee. Disallowance of damaged goods - Held that:- assessee has made a very categorical submission that the aforesaid amounts have been reversed in the assessment years 2003-04 and 2001-02 and have been offered for tax. If that is so, the disallowance of claim for damaged goods cannot be taxed in this year - Therefore, matter is restored back to A.O. - Decided in favour of assessee. Disallowance of purchase expenditure - Held that:- Each and every purchases has been accounted for by the assessee in its books of account which has now been confirmed by the MIL through bills number - assessee’s records have been disbelieved without any reasons, secondly all these documents were available before CIT(A) and AO in remand proceedings and lastly, the same are now verifiable from the face of the record - Decided in favour of assessee. Undi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HC - Held that:- For the purpose of export of garments, export quota is required by the exporters who are registered with Apparel Export Promotion Counsel. If any exporter is unable to export as per the quota, the excess can be sold to other exporters. Such a receipt is neither covered in either of the clauses mentioned in clause (iiia) to (iiie) of section 28 nor it is any kind of receipts mentioned in clause (baa) of Explanation to section 80HHC. Thus, in our opinion, in such a situation when there is no bar in clause (baa) of explanation to sec.80HHC, then it has to be treated as part of the profit of business and cannot be reduced for the purpose of deduction under section 80HHC - Decided in favour of the assessee. - ITA no. 3143 & 3144/Mum./2007 - - - Dated:- 5-6-2013 - B Ramakotaiah and Amit Shukla, JJ. For the Appellants : Mr J D Mistry, Mr Nishant Thakkar Mr K K Ved For the Respondent : Mr Girija Dayal ORDER:- PER : Amit Shukla The present appeals are preferred by the assessee challenging the impugned orders of even date 7th February 2007, passed by the learned Commissioner (Appeals)-XXIII, Mumbai, for the quantum of assessment passed under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2006, vide judgment dated 1st December 2008. 6. Learned Departmental Representative, on the other hand, reiterating the same facts submitted that this issue stands decided against the assessee. 7. After going through the relevant findings of the Assessing Officer and the learned Commissioner (Appeals) and also the earlier year s order of the Tribunal, we find that similar issue has been decided against the assessee which now stands affirmed by the Hon ble High Court also. In view of this, settled position we hold that the net addition of Rs.6,67,338, made on account of enhancement of closing stock of accessories after making adjustment in the opening stock as done by the A.O is justified. Accordingly, ground no.1, raised by the assessee is treated as dismissed. 8. In ground no.2, the assessee has challenged the disallowance of claim for damaged goods for sums aggregating to Rs.18,45,276. 9. The assessee had made provisions of sums aggregating to Rs.18,45,276, being claim of damaged goods in respect of following three customers. i) Palmers Textile Rs. 6,11,928 ii) Dunnes Stores Rs. 8,66,112 iii) Arcadia Group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have carefully considered the relevant findings of the Assessing Officer and the learned Commissioner (Appeals) and also the submissions of the learned Sr. Counsel. It appears that before the learned Commissioner (Appeals), the assessee had made a very specific submission which, for the sake of ready reference, is reproduced herein below:- Out of the above claims for damaged goods made in respect of (a) and (b) have been reversed in the assessment year 2003-04 and offered for tax under section 41(1). In respect of (c), as stated in our submissions dated September 9, 2003 an amount of Rs. 2,94,985 has been paid by the appellant during the subsequent assessment year 2001-02. The balance amount of Rs. 72,251 has been reversed in the assessment year 2001-02 and offered for tax. The appellant submits that in the event the amounts in respect of (a) and (b) are held as not allowable as a deduction for the assessment year 2000-01, the Assessing Officer may be directed to exclude the amounts from the total income for the assessment year 2003-04. Similarly, in respect of (c), if the balance amount of Rs. 72,251 is held as not allowable as a deduction for the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellate order. 18. Before us, the learned Sr. Counsel, first of all, pointed out the details of various bills which were accounted by the assessee and not by the MIL and referred to the reconciliation of account with MIL given at Pages-67 and 68 of the paper book. He submitted that from the various statements itself, it is evident that most of the payments were made through account payee cheques which have been cleared and how they are reflected in the assessee s books of account. He further submitted that after the assessment proceedings, the assessee, vide letter dated 15th April 2003, has written to MIL giving the details of the bills which was accounted by the assessee but not by the MIL. In response to such a letter, MIL replied back vide letter dated 29th April 2003, wherein they categorically admitted that the bills aggregating to Rs. 1,53,95,582, for the period from November 1999 to March 2000, which has been booked as purchases by the assessee have also been shown as sales by them. It was clarified by them that these invoices were raised by Nadiad Unit and was treated as indirect export and due to communication gap between the said unit and the export department, the fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,95,582/- for the period Nov.1999 to March 2000 booked by you as purchases, have also been booked by us as sales to you. These invoices are raised by our Nadiad Unit and are treated as indirect export by us. Party accounts are given effect only on preparation of commercial invoices by our Export Department. Till such time commercial invoices are prepared, transactions are accounted and kept in transit . Immediately on preparation of commercial invoices, party accounts are given effect neutralising the in transit account. We confirm that all the bills mentioned by you have corresponding commercial invoices with entries in party account. Due to communication gap between the Unit and Export Department, final invoices have been prepared after 31.3.2000. The bills No. mentioned by you and the corresponding final invoices recorded in our party account are given in the attached statement. We hope this will meet with your requirements in dealing with the Income Tax Office. 21. This letter was duly submitted before the learned Commissioner (Appeals) and the remand report was also called for. The Assessing Officer did not object to such evidence, however, submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Regarding gains on cancellation of forward cover, the learned Sr. Counsel submitted that this issue has been decided in favour of the assessee by the Tribunal in assessment year 1999-2000. Regarding sales tax refund and job work charges, the same are also covered in favour of the assessee. On the issue of whether job work charges should be excluded or not from the total turnover for the purposes of deduction under section 80HHC, he submitted that the same has been decided against the assessee. 26. After carefully considering the relevant findings of the Assessing Officer and the learned Commissioner (Appeals), we find that similar issue was also involved in assessee s own case for the assessment year 1999-2000 in ITA no.3933/Mum./2003, order dated 24th July 2008, wherein the Tribunal has decided this issue in the following manner:- 21. The Revenue has raised two grounds of appeal. The first ground is with reference to direction of the CIT(A) in holding that 90% of (a) exchange gain, (b) gain on cancellation of forward contract, (c) scrap sales, (d) sales tax refund, and (e) sundry creditors should be reduced from the profits of business under the provisions of clause (baa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refund and sundry balance written-off are not covered by the Explanation (baa) and, hence, cannot be excluded. Accordingly, the aforesaid issues are decided in favour of the assessee. 28. Regarding non-exclusion of job work charges from the total turnover, we find that this issue has been decided against the assessee in assessment year 2001-02 and 1999-2000. The Tribunal, in ITA no.3539/Mum./2009, has observed and held as under:- 5. The next issue arising in this appeal is whether 90% of the job work charges should be excluded from the profits of business in terms of Explanation (baa) to section 80HHC. Further, whether job work charges should be included in the total turnover for the purpose of computing deduction under section 80HHC. After hearing both the parties, we find that this issue is covered by the judgment of the Hon'ble Jurisdictional High Court in the case of CIT vs. Bangalore Clothing Co., 260 ITR 371 (Born), wherein it has been held that processing charges or job work charges forms part of operational income and therefore the same should be included in the profits of business as well as the turnover, it is further held that in such cases nothing is to be excl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 2000-01, which has been decided vide Para-7 above. Consequently, in view of the decision taken therein, ground no.1, is treated as dismissed. 33. In Ground no.2, the assessee has challenged the addition of Rs. 1,07,39,000, made in the closing stock on account of difference in the stock figures submitted to the bank and the stock figures shown in the Profit Loss Account. 34. The Assessing Officer, during the course of assessment proceedings, noted that the assessee has obtained credit facility from its bank on hypothecation of stock and debts. Accordingly, he required the assessee to file details of stock statement filed with the bankers. On examination of such details, he observed certain difference between the stock shown by the assessee in the books of account and the stock declared to the bankers. Such differences were as under:- Description Amount as per Bank (Rs. in lakhs) Amount as per books (Rs. in lakhs) Finished Goods 126.35 75.84 WIP 87.85 81.55 Raw Material 131.84 116.43 Unpaid Stock - - 35.20 Sundry Debtors 864.12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he addition on account of difference of such difference of Rs. 1,07,39,220, he also invoked the provisions of section 145 for rejecting the book results. Ultimately, the addition was made at Rs. 1,07,39,220 only. 36. Before the learned Commissioner (Appeals), the assessee filed additional evidence giving quantitative details of the closing stock as per the annual accounts and also the figures of the stock provided to the bankers. Detail reconciliation of physical stock and the stock shown to the bankers were also furnished. It was submitted that the valuation of closing stock and work-in-progress and finished goods given to the bankers was based on verification carried out by the auditors on 28th March 2002, and certain differences in WIP and finished goods was due to production between 29th March 2002 and 31st March 2002. Further details of differences in the raw materials, work-in-progress and finished goods were also submitted. Ultimately, it was pointed out that if the entire reconciliation is to be seen, then quantity-wise difference is very less. In addition to this, it was further pointed out that figures provided to the bankers also included the figure of Rs. 35,20,000, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fact that now the entire difference of quantity-wise stock has been reconciled. 38. On the other hand, the learned Departmental Representative strongly relying upon the findings of the learned Commissioner (Appeals) and the Assessing Officer, submitted that these reconciliation statement has neither been verified by the Assessing Officer nor by the learned Commissioner (Appeals) and, therefore, the same cannot be accepted as such. 39. We have heard the rival contentions, perused the findings of the learned Commissioner (Appeals) as well as of the Assessing Officer and the material placed on record. The addition has been made by the Assessing Officer mainly on the hypothesis that the statement of stock disclosed to the bank was the correct value, whereas the quantity of stock shown in the books of account are not correct and, therefore, the difference has been added. From the records, which were submitted before the learned Commissioner (Appeals), it is seen that the assessee has filed details of reconciliation of physical stock in the books of account and the stock shown to the bank. These details are appearing at Pages-76 and 83 of the paper book. The summarized details of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, it has to be presumed that the same has been admitted by the learned Commissioner (Appeals) and is part of the record. Thus, we do not find any reason to uphold the order of the learned Commissioner (Appeals) which is sans merit and the material on record which was placed before him. Looking to the fact that after the reconciliation, the difference is very miniscule and that too there is a valid reason, we set aside the impugned order passed by the learned Commissioner (Appeals) and delete the addition made by the Assessing Officer at Rs. 1,07,39,000 on account of difference in the stock disclosed to the bank and shown in the books of account and sustained by the learned Commissioner (Appeals). Thus, ground no.2, is treated as allowed. 41. In ground no.3, the assessee has challenged the addition of Rs. 12,51,910, on account of treating the part of free samples distributed by the assessee as undisclosed sales. 42. The Assessing Officer, from the perusal of notes to accounts filed along with the Profit Loss Account and Balance Sheet, noted that the assessee has shown 2,978 pieces of garments to have been distributed as free samples. In response to the details required by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tainers, the sample is given to the Excise authorities for the record and the second sample is given to Customs authorities and these samples were not returned back to the assessee. He further submitted that two samples are also given to textile committee for the approval of goods manufactured. Besides this, certain samples are also sent to the foreign buyers before the shipment of goods so that the same can be verified by the buyers with regard to the quality, design and style approved by them. Moreover, out of total production of 9,09,311 pieces, only small sample of 2,978 pieces were given, which accounts for hardly 0.32%. The assessee, will not make undisclosed sales of such a small quantity. He also referred to the documents relating to Customs and Excise Departments wherein the assessee s who are exporting the goods are required to give the samples for inspection purposes. These document are appearing at Page-87 of the paper book and also referred to invoice-wise shipment details given at pages-88 to 90. The details of break-up of free samples given were as under:- Container samples 950 Samples-pre-production and pre-shipment 830 Work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be reasonable to give over all benefit of 1,800 sample pieces from the total free samples of 2,978 pieces. Balance cannot be allowed for the simple reason that the same have not been substantiated by way of any documentary evidence at all. 48. Insofar as the working of rate of per piece is concerned, we are not convinced by the contentions raised by the assessee for the simple reason that the assessee was unable to substantiate as to what was the rate per piece sold in the local market. Had it been so, then the rate per piece as worked out by the assessee could have been applied. Thus, out of the total pieces of 2,978, the Assessing Officer is directed to give benefit of 1,800 pieces and balance pieces should be treated as undisclosed sales after applying the rate of Rs. 505.21. Thus, ground no.3, is treated as partly allowed. 49. In ground no.4, the assessee has challenged the disallowance of commission paid to the directors under section 43B. 50. The Assessing Officer noted that the assessee has claimed commission payable of Rs. 2,09,24,927 to its directors in the nature falling within section 36(1)(ii). On a perusal of the details furnished by the assessee, he noticed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urisdictional High Court in the case of Vardhaman Chemicals vs. CIT (2003), 263 ITR 460 (Bom.) and the judgment of the Hon'ble Supreme Court in Ogale Glass Works Ltd. (supra). The learned Commissioner (Appeals) rejected the assessee s contentions and held that the issuance of cheques by the assessee company and actual non-presentation of the same in the bank by the directors clearly show a collusive arrangement to withhold the amount in the books of the company and to violate the clear intentions of the provisions of actual payment as stipulated in section 43B. He, therefore, confirmed the entire addition made by the Assessing Officer. 52. Before us, the learned Sr. Counsel submitted that once the cheque has been issued by prior to the due date of filing of the return of income, insofar as the assessee is concerned, it can claim the deduction under section 43B r/w section 36(1)(ii). Once the cheque has been issued and if not being dishonoured, the payment will relate back to the date of cheque. The principle laid down by the Hon'ble Supreme Court in Ogale Glass Works Ltd. (supra) is absolutely clear on this point. Thus, no disallowance can be made under section 43(B) once the pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said contentions on the ground that the assessee company is already claiming substantial expenditure on account of salary and commission and no further expenses can be allowed for studies of the director which is for non-business purpose. 57. Before the learned Commissioner (Appeals), reliance was placed on the judgment of Hon ble Madhya Pradesh High Court in CIT v/s Kohinoor Paper Products, [1997] 226 ITR 220 (M.P), wherein the partner was sent for higher studies in U.S.A. The learned Commissioner (Appeals) rejected the assessee s entire submissions after observing and holding as under:- 28. I have very carefully considered the above arguments. First of all, I do not find any documents or evidence before me to believe that Mr. Sadarangani had pursued his studies actually as a Director of the Appellant Company. I am convinced that he had not been enrolled in the said. Business School as a Director of some concern. He had been only a student, if at all in his own individual capacity but had shrewdly charged the related expenses to the family owned private company s business accounts. Further, I find that the contentious issue had been fought by the AR and the AO more on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the business of the assessee. He further relied upon the judgment of Hon'ble Jurisdictional High Court in Sakal Papers Pvt. Ltd. v/s CIT, [1978] 114 ITR 256 (Bom.). 59. Learned Departmental Representative, on the other hand, relied upon the order of the learned Commissioner (Appeals). 60. After carefully considering the rival contentions and on a perusal of the findings given by the learned Commissioner (Appeals), we find that the assessee is unable to bring on record as to whether the higher studies undertaken by the director at Harvard Business School, was in any way, for the purpose of business of the assessee and whether there is any direct nexus with the studies undertaken by the director with that of the business of the company. While claiming such an expenditure, the onus is on the assessee to substantiate that such a training of higher education by one of the directors was for the benefit or promotion of the assessee s business. In the absence of any such material on record, we do not find any reason to deviate from the conclusion drawn by the learned Commissioner (Appeals). Accordingly, a sum of Rs. 1,99,538, on account of expenditure incurred on director s edu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, the same should be considered as part of the profit of the business for calculation of eligible deduction under section 80HHC. This has been confirmed by the learned Commissioner (Appeals) also. 65. Before us, the learned Sr. Counsel submitted that the receipts from quota sales account cannot be treated as any receipts by way of brokerage commission, interest rate charges and any other receipts for similar nature as stipulated in clause (baa) of Explanation to section 80HHC. It is a profit directly related to the business of the assessee and also it cannot be considered to be receipts covered under clause (iiia), (iiib), (iiic), (iiid) and (iiie) of section 28. Therefore, the same cannot be reduced from the profits of the business. 66. On the other hand, the learned Departmental Representative relied upon the findings given by the Assessing Officer as well as by the learned Commissioner (Appeals). 67. We have carefully considered the rival contentions, perused the findings given by the authorities below. For the purpose of export of garments, export quota is required by the exporters who are registered with Apparel Export Promotion Counsel. If any exporter is unable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age amount, since the AIRs claim before me that the same had been already excluded by the appellant, I hold that there is indeed no room for double exclusion. However the AO shall delete the same after verification of the authenticity of the said claim of the A/Rs. 71. After hearing both the parties, we do not find any reason to deviate from such a finding because insofar as the scrap sales is concerned, the learned Commissioner (Appeals) has already followed Tribunal s decision in assessee s own case which was in favour of the assessee and about royalty reward, the assessee itself conceded for its exclusion and for the brokerage, the learned Commissioner (Appeals) has already given direction to the Assessing Officer to verify whether there has been any double exclusion or not. Thus, this ground raised by the assessee has no merit and is dismissed. 72. The next issue relates to job work charges. 73. Insofar as inclusion of job work charges in the profit of the business is concerned, this issue has already been decided by the Tribunal in assessee s own case for assessment year 2001-02 and similar issue has come up in the assessee s own appeal in ITA no.3143/Mum./2007, for ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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