TMI Blog2014 (7) TMI 1295X X X X Extracts X X X X X X X X Extracts X X X X ..... anning over a period of 10 years. The expenditure is, therefore, incurred for running the business and not for creating the facilities to run the business. Therefore, we find that the payment made by the assessee company is an expenditure allowable under sec.37 of the Act. - Decided in favour of assessee. Deduction under sec.80IA - exclusion of receipts from trading of carbon credit and insurance claim while computing the deduction - HELD THAT:- We are bound to follow the judgment of CIT vs. M/s. My Home Power Ltd. [2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT] to hold that the receipts in the hands of the assessee generated out of sale of excess carbon credit are in the nature of capital receipts and, therefore, not includible in the computation of taxable income. Once the entire receipts are excluded from the computation of income itself, there is no question of any separate argument of sec.80IA deduction. As far as carbon credit receipt is concerned, the issue is decided in favour of the assessee. Therefore, the Assessing Officer is directed to exclude the carbon credit receipts from the computation of assessee’s income. Quantum of deduction u/s 80IA - Initial assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore us, in the following manner. 5. The assessee had received information from its overseas clients/buyers that large quantities of export orders worth approximately US$ 4 billion (approximately Rs. 17,600 crores at that point of time) for supply of knitted garments would be placed with the assessee. The supply period would extend to 10 years, but the assessee should ensure the quality and the standard of products as prescribed by the buyers. The assessee was bound to maintain other value standards like health and safety provision for the workers, protection of workers interests, providing adequate facilities for workers etc. The assessee was also bound to follow standard operating procedure. 6. In order to carry out the huge production of knitted garments commensurate to the export order, the assessee had to ensure that necessary facilities are available at its command. The facilities operated by the assessee alone were not sufficient to cope up with the size of production anticipated in the light of the export order. Therefore, the assessee identified M/s. Cibi International, another firm having requisite manpower and other operational facilities to undertake the produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. But the Assessing Officer did not allow the above deduction claimed by the assessee. The Assessing Officer held that the acquisition of facilities by M/s. Cibi International against payment of Rs. 650 lakhs made by the assessee, would result in enduring benefit to the assessee and, therefore, the payment could not be considered as a revenue expenditure. As it is also not in the nature of trade advance, the Assessing Officer held that the payment is voluntary and there was no obligation for the assessee to make such payment. The mere fact that the payment was made under an agreement, does not establish that the expenditure has been incurred during the year. The sum given by the assessee was spent for improving the infrastructure of M/s. Cibi International. The Assessing Officer also observed that M/s. Cibi International has shown this advance as its business liability in its balance sheet. When the assessee has claimed it as a deduction under sec.37, M/s. Cibi International ought to have shown it as income. For the reasons stated above, he disallowed the claim of deduction and added back the sum of Rs. 650 lakhs to the income of the assessee company. 9. In first ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... International. The right of the assessee is only to utilize such facility for the purpose of carrying on of its business. Therefore, it is not possible to say that the assessee company has acquired any capital asset by paying Rs. 650 lakhs to M/s. Cibi International. Such a finding is not possible in the facts of the present case. 13. It is to be seen that the payment was not made by the assessee company gratuitously. The payment was made against the business agreement entered into between the assessee and M/s. Cibi International, whereby M/s. Cibi International is obliged to carry out the production assigned by the assessee company conforming to the standards and quality. That is a business obligation undertaken by M/s. Cibi International. The question, therefore, to be decided is whether the arrangement made by the assessee company with M/s. Cibi International is for the purpose of carrying on the business of the assessee and whether justified in the facts and circumstances of the case. The second question, to be considered is whether the payment of Rs. 650 lakhs is commensurate and reasonable to the tasks assigned to M/s. Cibi International. 14. As already stated in par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the production of knitted garments utilizing their facilities and to improve the facilities, an amount of Rs. 650 lakhs was paid. A clear nexus is apparent between the payment of Rs. 650 lakhs to M/s. Cibi International and the business interests of the assessee company. Therefore, it is clear that the assessee company has made the payment of ₹ 650 lakhs to M/s. Cibi International on the basis of the business agreement for the purpose of carrying on of its business more effectively and more economically. In such circumstances, it is not possible to hold that the assessee has acquired an enduring benefit by creating new capital asset by making payment of Rs. 650 lakhs to M/s. Cibi International. In fact, the assessee has made the payment of Rs. 650 lakhs to M/s. Cibi International for the purpose of executing its export commitment spanning over a period of 10 years. The expenditure is, therefore, incurred for running the business and not for creating the facilities to run the business. Therefore, we find that the payment of Rs. 650 lakhs made by the assessee company is an expenditure allowable under sec.37 of the Act. 17. The issue is decided in favour of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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