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2013 (11) TMI 214
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.... to European countries. It is a merchant exporter as well as manufacturing exporter and besides this, it also had local sales and income from job work activity. 3. In ground no.1, the assessee has challenged the net addition of Rs. 6,67,338, made on account of enhancing the value of closing stock by Rs. 27,47,111, on account of accessories. 4. During the course of assessment proceedings, the Assessing Officer noted that up till the assessment year 1997-98, the stock of accessories which remained unused, was valued and shown in the closing stock. However, from the assessment year 1998-99, the assessee company had changed the method of accounting and decided to write-off the accessories which remained unused on the last date of the previous year. The reason for such change in the policy was that the accessories were purchased for specific export orders and once the particular export order is executed, the unutilised accessories becomes useless and is of no value because it cannot be utilised for a different export order. The Assessing Officer held that similar issue had come up for consideration in assessment year 1999-2000 wherein this issue was decided against the assessee. T....
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.... not fully ascertained. Accordingly, he has disallowed the claim of the assessee. 10. The learned Commissioner (Appeals) too rejected the assessee's contention and held that the Assessing Officer has examined the documents produced before him from which he has come to a definite conclusion that these liabilities have neither been quantified nor ascertained. He incorporated the assessee's contentions in a summarised manner and dismissed the assessee's ground. 11. Before us, the learned Sr. Counsel submitted that the learned Commissioner (Appeals) had missed a very important fact which was submitted before him that all the claims for damaged goods have been reversed and offered for taxation under section 41(1) in the assessment years 2001-02 and 2003-04. He specifically drew our attention to Page-46 of the paper book which is a copy of written statement filed before the learned Commissioner (Appeals), wherein it has been mentioned that the claim for damaged goods made in respect of Palmers Textiles for Rs. 6,11,928 and Dunnes Stores for Rs. 8,66,112, has been reversed in assessment year 2003-04 and has been offered for tax. Similarly, in respect of Arcadia Group for Rs. 3,67,23....
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....and restore the issue back to the file of the Assessing Officer who shall verify this fact and allow the claim accordingly in this year. Thus, ground no.2 is treated as allowed for statistical purposes. 15. In ground no.3, the assessee has challenged the disallowance on account of purchases for sums aggregating to Rs. 1,53,95,582, made from Mafatlal Industries Ltd. (MIL). 16. During the course of assessment proceedings, the Assessing Officer called for the information from MIL under section 133(6) with regard to the purchases made by the assessee. From the said information, it was noticed by him that the purchase amounting to Rs. 1,53,95,582, has not been shown as sales made to the assessee by MIL. The assessee, in response to the show cause notice, submitted all the purchase bills which were made available from MIL including those which were not shown as sales by the MIL and submitted that payment has actually been made against bill and amount has been paid through banking channels. A copy of debit notes and details of advance payments against fabric order was also produced. Based on these details, reconciliation was also filed before the Assessing Officer that these purchas....
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....additional evidence filed by the assessee, however, he observed that this needs proper verification. Despite that, the learned Commissioner (Appeals) has failed to take note of such vital information. Thus, the addition sustained by the learned Commissioner (Appeals) should be deleted. 19. On the other hand, the learned Departmental Representative submitted that let this matter be examined by the Assessing Officer as neither the Assessing Officer nor the learned Commissioner (Appeals) had examined this letter submitted by the MIL and reconciliation of purchases which has been accepted by the MIL. 20. We have carefully considered the rival contentions, perused the findings of the authorities below and the material placed on record. Before the Assessing Officer, the assessee has filed detail reconciliation statement along with purchase bills made from MIL along with supporting documents. Despite this, the Assessing Officer, merely, on the information received from MIL, has made the entire addition of the purchases which was not recorded as sales by the MIL. Simply relying upon the third party account without considering the assessee's evidence and reconciliation, the action of ....
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.... which were raised by the MIL which has been accounted for as purchases by the assessee and sale by the MIL along with the confirmation of the entries given in the reconciliation statements. 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. We, thus, do not find any reason to restore the matter back to the file of the Assessing Officer firstly, for the reason that 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. Accordingly, we set aside the impugned order and delete the addition of Rs. 1,53,95,582, as sustained by the learned Commissioner (Appeals). Thus, ground no.3, is treated as allowed. 22. In ground no.4, the assessee has challenged various deductions disallowed while computing the deduction under section 80HHC. 23. It has been contended before us that the learned Commissioner (Appeals) is not justified in reducing 90% of the various amounts while calculating the profits of the business for the purpose of ....
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....aggrieved. After hearing the learned counsel arid Learned D.R. we are of the opinion that this issue is not to be interfered as the CIT(A) has correctly held the above amounts as part of profits of business and 90% of the same does not get excluded. The issue is discussed as under: - (a) Exchange gain of Rs. 10,37,815: The exchange gain is nothing but part of export turnover and is a sort of additional sale and so this is part of business receipt. This view is upheld by the decision of the Delhi Bench of the Tribunal in the case of Suit. Sujata Grover vs. DCIT 74 TTJ (Del) 347. In view of this CIT(A)'s direction is correct. (b) Gain on cancellation of forward contract: This gain is also part of business receipts and covered in favour of the assessee by the decision of the Mumbai H Bench in the case of D. Krishorekumar & Co. vs. LICIT 2 SOT 769 (Mum). In view of this the order or the CIT(A) does not require any interference. (c) & (d) Scrap sales of Rs.1,09,432/- and sales tax refund of Rs.8,331/-: These amounts also arising out. of sale of the business product and sale lax refund is nothing but an amoun....
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.... without excluding any part of the same from the profits of business. 5. Before parting with this issue, it is stated that in the Form No.8 filed under section 158A, the assessee has also requested that the issue whether labour charges would form part of the total turnover or not should also be Assessing Officer. We are not inclined to accept this request since this issue is already covered by the decision of the by the decision of the jurisdictional High Court in the case of Bangalore Clothing Co. (supra). 6. The next issue is whether 90% of the provisions made in the earlier years but reversed in the year under consideration should be excluded from the profits of business for the purpose of computing deduction under section 80HHC. This issue is covered by the decision of the Tribunal in the case of Extrusion Process (P) Ltd. vs. ITO, 106 ITD 336 (Mum), wherein it has been held that profits under section 41(1) of the Act, cannot be excluded while computing deduction under section 80HHC. Following the same, the issue is decided in favour of the assessee. The order of the learned CIT(A) is, therefore, set aside on this issue and the Assessing Officer ....
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....d "Raw Material", "Work-in-Progress" and "Finished Goods". It was further submitted that the figures in the closing stock, at times, get varied because of certain extraneous consideration like material rejection, purchase return, discounts, rate difference and actual reconciliation. The submissions of the assessee have been incorporated by the Assessing Officer at Pages-2 and 3 of the assessment order. The Assessing Officer rejected the assessee's contentions on the ground that these are not supported by any valid documents and when the assessee is maintaining its record in the computer which should have been updated on day-to-day basis, there was no reason that such a difference should not have come in the accounts. Further, the stock statement filed before the bankers was on 12th April 2002, i.e., much after the closing of the accounts. Regarding assessee's plea that the additional stock lying with the assessee for which the payment has not been made, the same has to be considered as part of stock only as credits cannot be treated as asset for the purpose of disclosing to the bank. In order to verify the genuineness of the entries of the books of account the Assessing Officer sen....
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....by the assessee are purely academic and not very specific as all these explanations about reconciliation are being given after three years from the date of assessment proceedings and the figures given by the assessee are tentative and not the correct figures. His observations rejecting the assessee's contentions have been given from Para-12 to Para-17. 37. Before us, the learned Sr. Counsel, Mr. J.D. Mistry, submitted that before the learned Commissioner (Appeals), the actual reconciliation of quantity wise details of the stock appearing in the books of account and the stock disclosed to the banker was given along with the invoice-wise details. These additional evidences along with the detail submissions of reconciliation were forwarded to the Assessing Officer to submit his remand report. The Assessing Officer, in his remand report, without verifying the said reconciliation, has rejected the entire reconciliation. He referred to the reconciliation statement appearing from Pages-76 to 85 of the paper book. On a perusal of the said reconciliation, he submitted that there is a very miniscule difference which is evident from the statement given at Page-14 of the paper book. He also....
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....so not examined or verified these reconciliation of the quantity. From the details furnished, it is evident that insofar as the quantitative details with regard to the work-in-progress and finished goods are concerned, the actual quantity was more than what was disclosed to the bank for the purpose of hypothecation. There is only a minor difference in the quantity under the head raw material for which the reason given by the assessee was that certain stock was sent to the processor for embroidery and after the embroidery process, there was loss in the quantity due to cutting, trimming, etc. Therefore, this resulted into a small difference of 2695.21 mtrs. Thus, it cannot be held that the quantity of stock shown to the bankers was actually the correct quantity and what has been shown in the books of account as on 31st March 2002, are incorrect. Once, there is not much of a difference in quantity, the difference in the value of stock disclosed to the bank and as appearing in the books of account will not make a difference as the stock disclosed to the banker is only for the purpose of hypothecation or for credit/overdraft facilities. In cases where stock are disclosed to the bank, on....
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....rther, in most of the cases, maximum samples taken are four pieces per container. However, the assessee could not file details of exports and container details to examine the assessee's claim. He held that average value of goods sold during the year was Rs. 505.21 per piece and giving credit of free samples of 500 pieces given to various statutory authorities, he calculated the undisclosed sales of Rs. 12,51,910, after multiplying 2,478 pieces with value of Rs. 505.21. 43. Before the learned Commissioner (Appeals), besides reiterating the contentions raised before the Assessing Officer that free samples were given to the Excise authorities, took additional plea that few samples were also given to some unidentified charitable institution. Besides this, as many as 369 pieces was also claimed to have been given to workmen as uniform and 188 pieces were argued to have been rejected by the parties. The learned Commissioner (Appeals), after calling for the remand report, upheld the conclusion drawn by the Assessing Officer and held that the Assessing Officer was quite reasonable in allowing 500 pieces. Before the learned Commissioner (Appeals), alternative argument was also taken that....
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....ing Officer and the learned Commissioner (Appeals) and submitted that the onus is upon the assessee to prove the free samples based on some cogent record which has not been done. Thus, the addition made by the Assessing Officer should be confirmed. 47. We have carefully considered the rival contentions, perused the findings of the authorities below and the material placed on record. The assessee in the audited accounts, had claimed that 2,978 pieces of garment have been distributed as free samples. The main contention of the assessee was that certain samples were required to be given to the Excise and Customs authorities and textile committee for the purpose of inspection and verification. This fact has not been doubted by the Assessing Officer and has given the benefit of 500 pieces. The learned Commissioner (Appeals) has confirmed the action of the Assessing Officer after rejecting the contentions raised by the assessee as discussed above. From the material referred to the Sr. Counsel, it is seen that firstly, Customs authority Export Department requires certain sample piece of garment for the purpose of examination and inspection for which the assessee is required to give sam....
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.... the cheques have been issued prior to the date of filing of return of income and even if the encashment has been done after the said date, the payment will relate back to the date of cheque only. Reliance was placed on the judgment of Hon'ble Supreme Court in CIT v/s Ogale Glass Works Ltd., [1954] 25 ITR 529 (SC). The Assessing Officer rejected the assessee's contentions on the ground that the cheques issued prior to the date of filing of return of income were tendered to the bank after the time limit of filing of return of income. The intention of the legislature under section 43B was to allow deduction when the same has actually been paid and realised within the reasonable frame of time. Accordingly, he disallowed the sum of Rs. 1,67,39,942 under section 43B. 51. Before the learned Commissioner (Appeals), it was submitted that the said amount paid to the directors as commission was issued in three different consecutive numbered cheques and one cheque amounting to Rs. 28,66,715 had been tendered and encashed on 11th October 2002 and other two amounts aggregating to Rs. 1,67,37,942, have been tendered and encashed in November 2002 i.e. after the due date of filing of the return....
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.... that previous year in which such sum is actually paid. Once the cheque has been paid to the directors, the date of payment will relate back to the date of cheque only as it is not the case of the Department that these cheques have not been encashed. In such a situation, the principle laid down by the Hon'ble Supreme Court in Ogale Glass Works Ltd. (supra) gets clearly applicable. Thus, the reasoning given in the impugned order is not tenable in law and on facts and the findings of the learned Commissioner (Appeals) on this issue is hereby set side and the Assessing Officer is directed to allow the assessee's claim for the payment of director's commission for the sum of Rs. 1,67,39,942 under section 43B in this year only. Accordingly, ground no.4, raised by the assessee is treated as allowed. 55. In ground no.5, the assessee has challenged the disallowance of staff training expenses of Rs. 1,99,538. 56. The Assessing Officer, on verification of the claim of miscellaneous expenses for sums aggregating to Rs. 1,19,20,888, noted that an amount of Rs. 2,51,858, has been claimed as recruitment and training expenses. Out of the said amount, a sum of Rs. 1,99,538, has been claimed o....
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....that amounts spent on foreign training or on the study of an employee or partner were allowable only when the course pursued had direct connection with the business. It had observed as under: Relationship by itself, without more cannot lead to the inference of excluding the possibility of a payment being wholly and exclusively for the purpose of business. Dealing with relatives in contrast with or in preference to strangers is neither prohibited by law nor can be tabooed. Indeed it is natural to do so but this does not give a licence to cover up dishonest transactions or impermissible transfers. The courts and Authorities are not to wear blinkers to overlook or condone the passing off of public revenue to one's own kith and kin by subterfuge or clandestine or clever devices clothed in legalistic javgon. Instead, it is their duty to lift the veil or apparent legality and get to the truth or substance of a transaction to deal with it in accordance with law. It is only appropriate, indeed normal, that dealings involving transfer of funds to near and dear ones need to be looked into with care and caution and necessary inferences drawn if there ar....
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....HC. a) Exchange Gains in EEFC a/c Rs. 43,71,900 b) Quota sales Rs. 1,19,574 b) Misc. Income Rs. 5,59,306 c) Sundry Creditors written back Rs. 38,500 d) Job work charges Rs. 2,02,80,499 62. Regarding exchange gain in EEFC account, the learned Sr. Counsel fairly admitted that this issue is covered against the assessee by the judgment of Jurisdictional High Court in CIT v/s Shah Originals, [2010] 327 ITR 19 (Bom.) 63. In view of the binding precedence of Jurisdictional High Court, we hold that exchange gain on account of fluctuation in EEFC account as well as any interest which has arisen as a result of deposits maintained in the EEFC account cannot be regarded as being part of the profits derived by the assessee for the export of goods or merchandise. Therefore, the Assessing Officer was justified in not including the above items in the profit of business while calculating deductions under section 80HHC and has rightly reduced 90% of the same. Thus, this issue is decided against the assessee. 64. With regard to the quota sales on account of selling entitlement to other exports, the Assessing Officer held that the said receipts of ....
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....me has been upheld by the learned Commissioner (Appeals) in the appeal for the assessment year 1998-99. 69. Before the learned Commissioner (Appeals), it was contended that the said misc. income consisted of three separate items of brokerage of Rs. 45,000, scrap sales of Rs. 5,05,556 and loyalty reward of Rs. 8,750 and it was also contended that the assessee on its own had excluded 90% of the brokerage while making computation of deduction. Thus, to the extent of brokerage, there has been total exclusion. Regarding scrap sales, it was submitted that it is generated during the course of manufacturing and directly linked with the production activity. 70. The learned Commissioner (Appeals) has partly allowed the assessee's claim and directed the Assessing Officer to verify the assessee contention excluding the brokerage amount. The relevant observation of the learned Commissioner (Appeals) is as under:- "As regards the scrap sales, I find that in the course of manufacture, wastage arises due to the cutting of the fabric in the appellant's case. The scrap so arisen is subsequently sold on the basis of weight. Thus, it is seen that the generation of the scrap is di....