TaxTMI 
TaxTMI 
2014 (7) TMI 1295
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....red into between the assessee and M/s. Cibi International. It is also the case of the assessee that the finding of the Commissioner of Income-tax(Appeals) that the payment made to M/s. Cibi International is capital in nature, is not sustainable in law. 3. We heard Shri T. Banusekar, the learned chartered accountant appearing for the assessee and Smt. V.S.Sreelekha, the learned Commissioner of Income-tax along with Shri Guru Bhashyam, the learned Joint Commissioner of Income-tax appearing for the Revenue. 4. The facts relating to the payment of Rs. 650 lakhs made to M/s. Cibi International have been stated before 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 w....
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....e paid Rs. 650 lakhs to M/s. Cibi International, the said associate would procure all the necessary facilities to make the operations to the satisfaction of the business interests of the assessee. More particularly, the assessee has paid Rs. 650 lakhs to M/s. Cibi International to execute huge export order and the said associate could update its operational facilities to the required standards for the advantage of the business of the assessee. 8. The assessee claimed this amount of Rs. 650 lakhs as a deduction in computing its taxable income for the impugned assessment year. The deduction has been claimed under sec.37 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 mer....
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.... 650 lakhs as a liability in its balance sheet. Such a disclosure in the balance sheet of M/s. Cibi International need not influence in deciding the real character of the payment of Rs. 650 lakhs made by the assessee company. 12. It is very difficult to accept the findings of the lower authorities that by paying Rs. 650 lakhs, the assessee company had acquired new capital asset of enduring benefit. There is no dispute on the fact that the facilities were created in the work place of M/s. Cibi International and not in the premises of the assessee company. Therefore, if at all any new asset is created by utilizing this amount, that asset is owned by M/s. Cibi 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....
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....isdom, the assessee found that it is more economical to pay a lump sum amount to M/s. Cibi International to develop the production facilities for assessee's own business, rather than establishing such facilities in its own work place. Therefore, it is not possible to question the business decision arrived at by the assessee company, unless it is otherwise proved to be a device to conceal any ulterior motive. Such allegations are anyhow not made in the present case. 16. Therefore, the simple fact emerging out of the discussion is that the assessee company instead of creating the facilities in its own premises, selected M/s. Cibi International to shoulder the responsibility of 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 Rs. 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 econo....