2022 (11) TMI 848

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....s completed on 30.12.2018 assessing total business loss of Rs.1,30,18,603/- after making addition of Rs.9,94,800/- on account of disallowance of certain expenses. By virtue of powers vested in Pr.CIT u/s 263, the Ld.Pr.CIT has taken up the case for revision and noticed that the assessee company had entered into a marketing agreement on 14.04.2008 with a Taiwan based company, namely M/s Top Fortune International Ltd. (the purchaser of fish) to supply entire catch of edible grade fish for seven years. As per the Marketing Agreement, the said Taiwanese Company would pay and be responsible for all expenses and charges which include storage, insurance, freight, loading, handling and transporting to the port of destination and final sale. The company also agreed to undertake to pay the invoices raised for the mid sea bunkers, foreign crew salary, stores & provisions and frozen bait received by the fishing vessels and the balance would be transferred to the assessee company. However, in contrary to the agreed terms, the assessee company claimed expenditure on the above stated items aggregating to Rs.5,13,41,103/- which had been agreed to be met by the Taiwanese purchaser. The Ld.Pr.CIT ob....

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....gainst the sale invoices raised by M/s BALAJI SEA FOODS Ltd. for the catches caught and exported by them. The bills of mid sea bunkers and stores supplied shall be certified by M/s BALAJI SEA FOODS LTD. before TOP FORTUNE INTERNATIONAL LTD. deducts from the invoice amount to be paid to M/s BALAJI SEA FOODS LTD., Visakhapatnam. As per article 5.2, the liability to bear the expenditure mentioned is on the account of the purchaser and not on the assessee company and no claim was made by the assessee company in respect of the expenditure agreed to be borne by the purchaser. As per article 5.3, the expenditure of the nature mentioned in the article is the liability of the assessee company and not of the purchaser. Hence the assessee company is entitled to claim the expenditure incurred towards foreign crew salaries, vessel dry dock, HSD & other oils, spares, stores & maintenance, watch duty and vessel operation expenditure aggregating to Rs.5,13,41,403/- for carrying out its business operation as the same was incurred by the assessee company. The Ld.Pr.CIT noticed from the records that the assessee claimed an expenditure of Rs.25,17,060/- in the P&L account related to the expen....

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....fic adjudication. 5. Ground No.3 is related to allowability of claim of expenditure to the extent of Rs.5,13,41,403/- made by the assessee. The Ld.AR argued that clause 5.3 of the marketing agreement should be read in conjunction with clause 6.1. The Ld.AR submitted the consequential order passed u/s 143(3) r.w.s. 263 of the Act. He also produced before us the order u/s 154 passed by the AO and pleaded that keeping in view the facts of the case, set aside the order passed by the Ld.Pr.CIT and allow the appeal of the assessee on this ground. 6. On the other hand, the Ld.DR relied on the order of the Ld.Pr.CIT and requested to uphold the order of the Ld.Pr.CIT and dismiss the appeal of the assessee on this ground. 7. We have heard both the parties and perused the material placed on record. In the instant case, the assessee has claimed various expenses as detailed below : S.No. Details of expenditure Grouping in profit & loss account Amount (Rs.) 1 Foreign crew salaries Employee Benefit Expense 2,13,02,358 2 Vessel Dry Dock Expenditure Vessel Operational Expenses 76,89,019 3 HSD & Other Oils Vessel Operational Expenses 1,14,02,4....

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....acts and circumstances, the Ld.Pr.CIT held that it was proposed to revise the assessment order passed u/s 143(3) by the AO on 30.12.2016 u/s 263 of the Act and accordingly issued show cause notice to the assessee as to why the assessment order passed should not be revised. 9. In response to the show cause notice, the assessee submitted that an amount of USD 28,11,680/- was received from the purchaser i.e. M/s Top Fortune International Ltd., Taiwan and outstanding as on 31.03.2014 which is to be settled or adjusted only in the foreign currency i.e. USD. Having received the advance in foreign currency, the assessee company is exposed to foreign exchange risk and exposure on account of fluctuation in foreign currency rates, forms an integral part and incidental to the business activities undertaken by the assessee company. The assessee further submitted that advance of USD 28,11,690/- was initially recorded at an exchange rate of Rs.51.35 per USD and accordingly equivalent amount in INR works out to Rs.14,43,79,768/-. As on the balance sheet i.e. on 31.03.2014, prevailing exchange rate is Rs.59.93 USD and the carrying amount of the advance received works out to Rs.16,82,57,582/- re....

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....ed to have been received in F.Ys 2012-13 and 2013-14 respectively were really towards "Trade Advances" except that there was a mention in the balance sheet shown as liability. The assessee did not offer any operational revenue from the export sales during the A.Y.2013-14 though it is stated to have received huge advances of USD 28,33,464 at the beginning of the year itself as evident from the financial statements submitted for the year ending 31.03.2013. Thus, no amount pertaining to export sales was adjusted against the advances received in the F.Y.2012-13. An amount of USD 11,17,809 was adjusted during the F.Y.2013-14 by way of export sales against such advances. Thus, the advance received of USD 31,22,473 in the A.Y 2013-14 and 2014-15 cannot be termed as "Trade Advances". The Ld.Pr.CIT viewed that when a substantial sum of USD 28,83,464 was available with the assessee itself as on 31.03.2013, the question of receiving further advances towards proposed sales / trade is not convincing. The Ld.Pr.CIT also noticed that as per Article 6.2 of the Marketing Agreement dated 14.04.2008 between the assessee and M/s Top Fortune International Ltd., Taiwan, the latter agreed to pay a sum of....