TaxTMI 
TaxTMI 
2010 (2) TMI 819
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....n account of EMD Forfeiture paid to AEPC, Ministry of Textile, Government of India." 3. The only issue for consideration relates to confirming the addition of Rs.4,84,629/- on account of forfeiture of Earnest Money Deposit (EMD) paid to AEPC, Ministry of Textile, Govt. of India. The facts of the case stated in brief are that in the relevant assessment year the assessee was engaged in the business of manufacturing and export of garments. From the scrutiny of profit and loss account the assessing officer found that the assessee had claimed a sum of Rs.4,84,629/- as deduction on account of EMD Forfeiture. The assessee had paid the amount of Rs.4,84,629/- to AEPC, Ministry of Textile, Govt. of India, for non-fulfilment to export quota....
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....s penalty for violation of any law. Accordingly, the disallowance could not be made by the assessing officer on this ground. 5. The ld. CIT (Appeals), however, examined the nature of the expenditure. He was of the opinion that any money expended to get a contract could not be treated as a revenue expenditure because it related to creation of some right of enduring nature. Any entitlement for export quota granted by AEPC based on past performance and capacity of the manufacturer is of capital nature. This created a right for exporter to export garments to various countries. Allotment of quota was in the nature of capital asset and any expenditure relating to acquisition or retention of such right in future should be regarded as cap....
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....pital asset in the hands of the assessee whereas the case of the assessee was covered by several decisions. He placed reliance on the following decisions:- (i) CIT vs. Tarun Commercial Co. Ltd. 107 ITR 172 (ii) CIT vs. Surya Prabha Mills (P) Ltd. 123 ITR 654; (iii) CIT vs. Sugar Dealers 100 ITR 424 (All.); (iv) Thackers H.P. and Co. vs CIT 134 ITR 21 (MP) (v) Naraindas Mathuradas and Co. vs. CIT 35 ITR 461 (Bom) and (vi) Dheerajlal Raghav and Co. ITO 5 TTJ 557 (Cuttack); 6.2 On the other hand, the ld. Sr. Departmental Representative supported the order of the ld. CIT (Appeals). 7. We have heard both the parties and gone through the material available on record. ....
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....the terms of bond executed with the Govt. the assessee had option either achieve the target or pay for the shortfall. The terms of bond clearly indicated that the auction with the manufacturer assessee of paying for the shortfall could be for variety of reasons in the interest of commercial expediency. Hon'ble Gujarat High Court has held that the exercise of option of the assessee for payment on account of shortfall was not in the nature of penalty. In the case of CIT vs. Surya Prabha Mills (supra) the assessee company was running a textile mill, was a member of cotton mill association, which allotted quota of foreign cotton to its members. The allotment was made on the besis of number of spindles working on higher counts. The assessee did ....
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....ness loss allowable as deduction by Hon'ble Madhya Pradesh High Court. Similarly in the case of Naraindas Mathuradas and Co. (supra) Hon'ble Bombay High Court has held that making deposit by way of security for carrying out a contract of supply of goods was not for acquiring the business, but incidental to carrying on business. Therefore, forfeiture of deposit was held to be allowable as business loss. Likewise, ITAT, Cuttack Bench in the case of Dheerajlal Raghavjee Co. (supra) has held the forfeiture of earnest money and security deposit as deductible from the income. The amount was held to have been paid for securing right to purchase stock-in-trade and hence was not in the nature of capital expenditure. In the instant case, the quota ha....