Income Tax Appellate Tribunal - Mumbai
Tropical Clothing Co. P. Ltd., Mumbai vs Assessee
आयकर अपील य अ धकरण,
धकरण, मंुबई यायपीठ 'ई
ई' मंुबई
IN THE INCOME TAX APPELLATE TRIBUNAL
"E" BENCH, MUMBAI
ी बी.
बी रामकोट
रामकोट य,
य लेखा सद य,
य एवं ी अ मत शु ला, या यक सद य के सम
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND
SHRI AMIT SHUKLA, JUDICIAL MEMBER
आयकर अपील सं. / ITA no. 3143 & 3144/Mum./2007
( नधारण वष / Assessment Year : 2000-01 & 2002-01)
Tropical Clothing Co. Pvt. Ltd. .................... अपीलाथ /
Nirman Kendra, Unit no.4
Appellant
Dr. E. Moses Road, Mahalaxmi
Mumbai 400 011
बनाम v/s
Asstt. Commissioner of Income Tax ................... यथ /
Circle-7(3), Aayakar Bhavan Respondent
101, M.K. Road, Mumbai 400 020
थायी लेखा सं./ Permanent Account Number - AAACT1762B
राज व क ओर से / Assessee by : Mr. J.D. Mistry a/w
Mr. Nishant Thakkar &
Mr. K.K. Ved
नधा रती क ओर से / Revenue by : Mr. Girija Dayal
सनवाई
ु क तार ख / आदे श घोषणा क तार ख /
Date of Hearing - 15.04.2013 Date of Order - 05.06.2013
आदे श / ORDER
अ मत शु ला, या यक सद य के ारा /
PER AMIT SHUKLA, J.M.
The present appeals are preferred by the assessee challenging the impugned orders of even date 7th February 2007, passed by the learned Commissioner (Appeals)-XXIII, Mumbai, for the quantum of assessment passed under section 143(3) of the Income Tax Act, 1961 (for short "the Tropical Clothing Co. Pvt. Ltd.
2Act"), for the assessment years 2000-01 and 2002-03. Since the issues involved in both the appeals are, by and large, common, therefore, as a matter of convenience, these appeals were heard together and are being disposed off by way of this consolidated order.
We first take up assessee's appeal in ITA no.3341/Mum./2007, for assessment year 2000-01.
2. The assessee is engaged in the business of manufacturing and export of garment, basically 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. The learned Commissioner (Appeals) also decided this issue against the assessee on the ground that the Tribunal had decided the issue against the assessee in the earlier years.
5. Before us, the learned Sr. Counsel, appearing on behalf of the assessee, fairly admitted that this issue has been decided against the assessee by the Tribunal in assessee's own case in ITA no.909/Mum./2002, Tropical Clothing Co. Pvt. Ltd.
3th order dated 8 July 2005, for the assessment year 1998-99, wherein the Tribunal has rejected such a change in the method of accounting by the assessee. It was also informed by him that the said order of the Tribunal has now been affirmed by the Hon'ble Jurisdictional High Court also in Income Tax Appeal no.254 of 2006, vide judgment dated 1st December 2008.
6. Learned Departmental Representative, on the other hand, reiterating the same facts submitted that this issue stands decided against the assessee.
7. After going through the relevant findings of the Assessing Officer and the learned Commissioner (Appeals) and also the earlier year's order of the Tribunal, we find that similar issue has been decided against the assessee which now stands affirmed by the Hon'ble High Court also. In view of this, settled position we hold that the net addition of Rs.6,67,338, made on account of enhancement of closing stock of accessories after making adjustment in the opening stock as done by the A.O is justified. Accordingly, ground no.1, raised by the assessee is treated as dismissed.
8. In ground no.2, the assessee has challenged the disallowance of claim for damaged goods for sums aggregating to Rs. 18,45,276.
9. The assessee had made provisions of sums aggregating to Rs. 18,45,276, being claim of damaged goods in respect of following three customers.
i) Palmers Textile Rs. 6,11,928
ii) Dunnes Stores Rs. 8,66,112
iii) Arcadia Group Rs. 3,67,236
Rs. 18,45,276
Before the Assessing Officer, it was submitted that these assignment of export goods were found to be defective and in support of the same, the assessee had filed copies of invoice and fax messages from the aforesaid parties and contended that these were damaged goods for which the claim has been made for deduction. The Assessing Officer rejected the assessee's Tropical Clothing Co. Pvt. Ltd.
4contention on the ground that either the damage claimed by the assessee is not substantiated or the liability was 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. 3,67,236, it was submitted that the amount of Rs. 2,94,985, has been paid by the assessee in the subsequent assessment year 2001-02 and the balance amount of Rs. 72,251, has been reversed in assessment year 2001-02 and offered for tax. Therefore, either it should be allowed in this year or direction should be given to be excluded from the total income in the assessment years 2003-04 and 2001-02 respectively.
12. Learned Departmental Representative, on the other hand, submitted that this issue has not been examined or looked into by the learned Commissioner (Appeals) as well as the Assessing Officer, therefore, it can be sent back for verification.
Tropical Clothing Co. Pvt. Ltd.
513. We have carefully considered the relevant findings of the Assessing Officer and the learned Commissioner (Appeals) and also the submissions of the learned Sr. Counsel. It appears that before the learned Commissioner (Appeals), the assessee had made a very specific submission which, for the sake of ready reference, is reproduced herein below:-
"Out of the above claims for damaged goods made in respect of (a) and (b) have been reversed in the assessment year 2003-04 and offered for tax under section 41(1).
In respect of (c), as stated in our submissions dated September 9, 2003 an amount of Rs. 2,94,985 has been paid by the appellant during the subsequent assessment year 2001-02. The balance amount of Rs. 72,251 has been reversed in the assessment year 2001-02 and offered for tax.
The appellant submits that in the event the amounts in respect of (a) and (b) are held as not allowable as a deduction for the assessment year 2000-01, the Assessing Officer may be directed to exclude the amounts from the total income for the assessment year 2003-04.
Similarly, in respect of (c), if the balance amount of Rs. 72,251 is held as not allowable as a deduction for the assessment year 2000-01, the Assessing Officer may be directed to exclude the amount from the total income for the assessment year 2001-02.
14. Thus, the assessee has made a very categorical submission that the aforesaid amounts have been reversed in the assessment years 2003-04 and 2001-02 and have been offered for tax. If that is so, the disallowance of claim for damaged goods cannot be taxed in this year. Consequently, we set aside the impugned order passed by the learned Commissioner (Appeals) 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 Tropical Clothing Co. Pvt. Ltd.
6by 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 purchases were genuine. The Assessing Officer however, held that since there were differences in the books of account of MIL and the assessee, therefore, the purchases made by the assessee to the extent of Rs. 1,53,95,582 were disallowed.
17. Before the learned Commissioner (Appeals), the assessee again filed reconciliation statement and gave detail reasoning explaining bill-wise and date-wise differences. However, the learned Commissioner (Appeals) rejected the assessee's contention on the ground that this was purely one sided claim of reconciliation after a lapse of almost 2-3 years. Accordingly, he dismissed the assessee's ground after pointing out certain anomalies given in Paras-11 to 15 of the appellate order.
18. Before us, the learned Sr. Counsel, first of all, pointed out the details of various bills which were accounted by the assessee and not by the MIL and referred to the reconciliation of account with MIL given at Pages-67 and 68 of the paper book. He submitted that from the various statements itself, it is evident that most of the payments were made through account payee cheques which have been cleared and how they are reflected in the assessee's books of account. He further submitted that after the assessment proceedings, the assessee, vide letter dated 15th April 2003, has written to MIL giving the details of the bills which was accounted by the assessee but not by the MIL. In response to such a letter, MIL replied back vide letter dated 29th April 2003, wherein they categorically admitted that the bills aggregating to Rs. 1,53,95,582, for the period from November 1999 to March 2000, which has been booked as purchases by the assessee have also been shown as sales by them. It was clarified by them that these invoices Tropical Clothing Co. Pvt. Ltd.
7were raised by Nadiad Unit and was treated as indirect export and due to communication gap between the said unit and the export department, the final invoices could not be incorporated. Along with the letter, the statement which was sent by the assessee was also reconciled and tallied by the MIL. Ld. Sr. Counsel submitted that this letter was specifically referred and relied upon by the assessee before the learned Commissioner (Appeals) and the remand report of the Assessing Officer was also called upon by the learned Commissioner (Appeals). In the remand report, the Assessing Officer had admitted that he had no objection for such 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 the Assessing Officer was unjustified. Immediately after the assessment proceedings, the assessee has written a letter to the MIL to verify the purchases shown by it from their books of account and also to reconcile the assessee's statement. In response to the same, the MIL, vide letter dated 29th April 2003, has given a very specific reply along with corresponding invoices number through which sales have been recorded by the MIL. The Tropical Clothing Co. Pvt. Ltd.
8relevant contents of the letter, for the sake of ready reference, are reproduced herein below:-
"This has reference to your letter dated 15.4.03 and subsequent discussion with your Mr. Chavan. We would confirm that all the bills mentioned by you, totalling to Rs.1,53,95,582/- for the period Nov.1999 to March 2000 booked by you as purchases, have also been booked by us as sales to you. These invoices are raised by our Nadiad Unit and are treated as indirect export by us.
Party accounts are given effect only on preparation of commercial invoices by our Export Department. Till such time commercial invoices are prepared, transactions are accounted and kept "in transit".
Immediately on preparation of commercial invoices, party accounts are given effect neutralising the "in transit" account.
We confirm that all the bills mentioned by you have corresponding commercial invoices with entries in party account. Due to communication gap between the Unit and Export Department, final invoices have been prepared after 31.3.2000.
The bills No. mentioned by you and the corresponding final invoices recorded in our party account are given in the attached statement.
We hope this will meet with your requirements in dealing with the Income Tax Office."
21. This letter was duly submitted before the learned Commissioner (Appeals) and the remand report was also called for. The Assessing Officer did not object to such evidence, however, submitted that this needs verification. Despite having the opportunity to verify during the remand proceedings, he failed to verify the same which is only reconciliation. The learned Commissioner (Appeals) has even failed to record this vital piece of evidence and also comments of the Assessing Officer given in the remand report and has merely gone by the reasoning based on surmises and probability. We have carefully gone through the bills 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 Tropical Clothing Co. Pvt. Ltd.
9these 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 deduction under section 80HHC.
24. The learned Sr. Counsel pointed out that most of the issue stands squarely covered by the decision of the Tribunal in assessee's own case for assessment years 1999-2000 and 2001-02. It has been submitted that the Assessing Officer has reduced 90% of the following items from the profits of the business for computation of deduction under section 80HHC.
a) Out of misc. income of ` 21,07,333
i) Gains on cancellation of ` 5,51,086
forward cover
ii) Scrap Sales ` 1,09,125
iii) Sundry Balances written-off ` 2,265
iv) Sales Tax Refund ` 22,918
b) Job work charges ` 48,18,791
25. Regarding gains on cancellation of forward cover, the learned Sr. Counsel submitted that this issue has been decided in favour of the assessee by the Tribunal in assessment year 1999-2000. Regarding sales tax refund and job work charges, the same are also covered in favour of the assessee. On the issue of whether job work charges should be excluded or not from the total turnover for the purposes of deduction under section 80HHC, he submitted that the same has been decided against the assessee.
Tropical Clothing Co. Pvt. Ltd.
1026. After carefully considering the relevant findings of the Assessing Officer and the learned Commissioner (Appeals), we find that similar issue was also involved in assessee's own case for the assessment year 1999-2000 in ITA no.3933/Mum./2003, order dated 24th July 2008, wherein the Tribunal has decided this issue in the following manner:-
"21. The Revenue has raised two grounds of appeal. The first ground is with reference to direction of the CIT(A) in holding that 90% of (a) exchange gain, (b) gain on cancellation of forward contract, (c) scrap sales, (d) sales tax refund, and (e) sundry creditors should be reduced from the profits of business under the provisions of clause (baa) of Explanation to Section 80HHC. The A.O. treated the above amounts falling in the category of 'other receipts of a similar nature" specified in the Explanation to provisions of clause (baa) and hence it is the contention of the Revenue that they are required to be excluded within the meaning of clause (baa) of the Explanation to section 80HHC. The learned CIT(A), however did not agree with the Assessing Officer's contention and treated them as part of business profit. Hence, the Revenue is 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 (Dcl) 347. In view of this CIT(A)'s direction is correct.
(b) Gain on cancellation of forward contract: This gain is also part q{ 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 amounts paid out of the sales in earlier year. This is not covered by Explanation (baa) and hence cannot be excluded.
(e) Sundry creditors written off of Rs.41,140/- : This is also a business income under section 4 1(1) of the I.T. Act and hence this will not fall within the purview of Explanation (baa). The Hon'ble ITAT "A" Mumbai Bench in the case of Extrusion Process (P) Ltd. vs. Income Tax Officer Tropical Clothing Co. Pvt. Ltd.11
106 ITD 336 (Mum) held that profits under section 41(1) cannot be excluded while computing deduction under section 80HHC of the I.T. Act. In view of this the CIT(A)'s order is correct. Hence, the ground of the Revenue is rejected."
27. Thus, respectfully following the same, we hold that gains on cancellation of forward cover, scrap sales, sales tax refund and sundry balance written-off are not covered by the Explanation (baa) and, hence, cannot be excluded. Accordingly, the aforesaid issues are decided in favour of the assessee.
28. Regarding non-exclusion of job work charges from the total turnover, we find that this issue has been decided against the assessee in assessment year 2001-02 and 1999-2000. The Tribunal, in ITA no.3539/Mum./2009, has observed and held as under:-
"5. The next issue arising in this appeal is whether 90% of the job work charges should be excluded from the profits of business in terms of Explanation (baa) to section 80HHC. Further, whether job work charges should be included in the total turnover for the purpose of computing deduction under section 80HHC. After hearing both the parties, we find that this issue is covered by the judgment of the Hon'ble Jurisdictional High Court in the case of CIT vs. Bangalore Clothing Co., 260 ITR 371 (Born), wherein it has been held that processing charges or job work charges forms part of operational income and therefore the same should be included in the profits of business as well as the turnover, it is further held that in such cases nothing is to be excluded from the profits of business for the purpose of computing deduction under section 80HHC. Respectfully following the same, the issue is decided partly in favour, of the assessee and partly in favour of the revenue. The order of the CIT(A) is set aside on the aspect of this issue and the Assessing Officer is directed to recompute the deduction, after treating the job work charges as part of the total turnover and 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 Tropical Clothing Co. Pvt. Ltd.12
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 is directed not to exclude 90% of such provisions reversed in this year."
29. Thus, respectfully following the aforesaid decision, we direct the Assessing Officer who shall recompute the deduction treating the job work charges as part of the total turnover without excluding any part of business profit. Accordingly, ground no.4, is partly allowed for statistical purposes.
30. प रणामतः नधा रती क अपील सां यक य उ े य के लए आं शक वीकत ृ मानी जाती है ।
In the result, assessee's appeal is partly allowed for statistical purposes.
We now take up assessee's appeal in ITA no.3144/Mum./2007, for assessment year 2002-03.
31. In ground no.1, the assessee has challenged the addition in respect of closing stock of accessories.
32. As admitted by both the parties, this issue is similar to ground no.1 raised by the assessee in earlier appeal in ITA no. 3143/Mum./2007, for assessment year 2000-01, which has been decided vide Para-7 above. Consequently, in view of the decision taken therein, ground no.1, is treated as dismissed.
33. In Ground no.2, the assessee has challenged the addition of Rs. 1,07,39,000, made in the closing stock on account of difference in the stock figures submitted to the bank and the stock figures shown in the Profit & Loss Account.
34. The Assessing Officer, during the course of assessment proceedings, noted that the assessee has obtained credit facility from its bank on hypothecation of stock and debts. Accordingly, he required the assessee to file details of stock statement filed with the bankers. On examination of such Tropical Clothing Co. Pvt. Ltd.
13details, he observed certain difference between the stock shown by the assessee in the books of account and the stock declared to the bankers. Such differences were as under:-
Description Amount as per Bank Amount as per books
(` in lakhs) (` in lakhs)
Finished Goods 126.35 75.84
WIP 87.85 81.55
Raw Material 131.84 116.43
Unpaid Stock -- 35.20
Sundry Debtors 864.12 851.47
35. The assessee, in response to the show cause notice, submitted that since the annual accounts were not finalized, the valuation of the closing stock given to the bank was based on the provisional figures available at that point of time. During the course of finalization of accounts, the figures undergo substantial change due to various reasons. The detail analysis and submissions were made with respect to each and every difference appearing under the head "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 Tropical Clothing Co. Pvt. Ltd.
14Assessing Officer sent notices under section 133(6) to three parties from whom the assessee had made purchases during the year. From the information gathered, he noted that there were certain differences in the balance shown at the end of the year. The difference of the said three parties has been elaborated at Page-4 of the assessment order. The assessee, in response, have filed reconciliation of the said difference in account of the said party which has not been accepted by the Assessing Officer and came to the conclusion that the value of the stock shown by the assessee in the books of account cannot be accepted and the stock statement filed by the assessee with the bankers has to be considered as more authentic. While making the addition on account of difference of such difference of Rs. 1,07,39,220, he also invoked the provisions of section 145 for rejecting the book results. Ultimately, the addition was made at Rs. 1,07,39,220 only.
36. Before the learned Commissioner (Appeals), the assessee filed additional evidence giving quantitative details of the closing stock as per the annual accounts and also the figures of the stock provided to the bankers. Detail reconciliation of physical stock and the stock shown to the bankers were also furnished. It was submitted that the valuation of closing stock and work-in-progress and finished goods given to the bankers was based on verification carried out by the auditors on 28th March 2002, and certain differences in WIP and finished goods was due to production between 29th March 2002 and 31st March 2002. Further details of differences in the raw materials, work-in-progress and finished goods were also submitted. Ultimately, it was pointed out that if the entire reconciliation is to be seen, then quantity-wise difference is very less. In addition to this, it was further pointed out that figures provided to the bankers also included the figure of Rs. 35,20,000, as unpaid stock which represented sundry creditor. These additional evidences were sent to the Assessing Officer for verification on which a remand report was submitted before the learned Commissioner (Appeals) by the Assessing Officer. However, neither the additional evidences nor the remand report was discussed by the learned Commissioner (Appeals). The learned Commissioner (Appeals) rejected the Tropical Clothing Co. Pvt. Ltd.
15entire assessee's submissions primarily on the ground that the arguments taken 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 referred to the submissions made before the learned Commissioner (Appeals) wherein detail reasons for such a difference in raw material, work-in-progress and finished goods were given. He further submitted that there was unpaid stock amounting to Rs. 35,20,000, lying with the assessee which was shown as sundry creditors, which could not have been added to the valuation of the closing stock. The entire findings of the learned Commissioner (Appeals) is purely based on hypothesis without even verifying the contents of reconciliation and has not even discussed the additional evidence and material placed on record. Thus, the entire findings of the learned Commissioner (Appeals) are liable to be rejected in view of the fact that now the entire difference of quantity-wise stock has been reconciled.
38. On the other hand, the learned Departmental Representative strongly relying upon the findings of the learned Commissioner (Appeals) and the Assessing Officer, submitted that these reconciliation statement has neither Tropical Clothing Co. Pvt. Ltd.
16been verified by the Assessing Officer nor by the learned Commissioner (Appeals) and, therefore, the same cannot be accepted as such.
39. We have heard the rival contentions, perused the findings of the learned Commissioner (Appeals) as well as of the Assessing Officer and the material placed on record. The addition has been made by the Assessing Officer mainly on the hypothesis that the statement of stock disclosed to the bank was the correct value, whereas the quantity of stock shown in the books of account are not correct and, therefore, the difference has been added. From the records, which were submitted before the learned Commissioner (Appeals), it is seen that the assessee has filed details of reconciliation of physical stock in the books of account and the stock shown to the bank. These details are appearing at Pages-76 and 83 of the paper book. The summarized details of reconciliation of the stock of various units are as under:-
Particulars Quantity for Banker Actual Quantity
Raw Material 1,29,008.36 1,26,313.15
meters/Kg meters/Kg
Work in progress 43,924 pieces 44,836 pieces
Finished Goods 52,971 pieces 55,145 pieces
40. These details were also forwarded to the Assessing Officer who has not examined at all even when the remand report was called for. Further, the learned Commissioner (Appeals) has also 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 Tropical Clothing Co. Pvt. Ltd.
17the 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, one has to see the quantity of stock disclosed and tally it with the quantity shown in the books of account. Value wise difference is not that material as assessee may show higher value. At least there should not be difference in quantity. Even though the proper reconciliation could not be filed before the Assessing Officer, the learned Commissioner (Appeals) and the Assessing Officer were required to examine, once these were furnished at the appellate stage and there is not a whisper by the learned Commissioner (Appeals) why such an additional evidence of reconciliation of statement is not accepted. Once these additional evidences have not been rejected, it has to be presumed that the same has been admitted by the learned Commissioner (Appeals) and is part of the record. Thus, we do not find any reason to uphold the order of the learned Commissioner (Appeals) which is sans merit and the material on record which was placed before him. Looking to the fact that after the reconciliation, the difference is very miniscule and that too there is a valid reason, we set aside the impugned order passed by the learned Commissioner (Appeals) and delete the addition made by the Assessing Officer at Rs. 1,07,39,000 on account of difference in the stock disclosed to the bank and shown in the books of account and sustained by the learned Commissioner (Appeals). Thus, ground no.2, is treated as allowed.
41. In ground no.3, the assessee has challenged the addition of ` 12,51,910, on account of treating the part of free samples distributed by the assessee as undisclosed sales.
42. The Assessing Officer, from the perusal of notes to accounts filed along with the Profit & Loss Account and Balance Sheet, noted that the assessee has shown 2,978 pieces of garments to have been distributed as free Tropical Clothing Co. Pvt. Ltd.
18samples. In response to the details required by the Assessing Officer, the assessee submitted that the same represented sample garments which was required to be given to the Excise authorities in connection with shipments of exports. However, the same could not be substantiated by any documentary evidence. The Assessing Officer observed that during the sealing of container for export purpose, the Excise authorities were given sample of cloths exported and need not to give entire garment but a portion of fabric. Besides this, in most of the cases, the said cloths are returned back. Further, 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 ` 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 average cost of per piece worked out to ` 379.81 instead of ` 505.21 because, firstly, there were certain expenses which were embedded in the cost like depreciation and secondly, the average export price compared to the local price is always higher. The learned Commissioner (Appeals) dismissed these contentions also on the ground that what was the local sale price during the material time has not been made available.
Tropical Clothing Co. Pvt. Ltd.
1944. Before us, the learned Sr. Counsel submitted that it has not been disputed by the Assessing Officer that free samples are given to Excise Department for the approval of the goods manufacture and exported. After the sealing of containers, the sample is given to the Excise authorities for the record and the second sample is given to Customs authorities and these samples were not returned back to the assessee. He further submitted that two samples are also given to textile committee for the approval of goods manufactured. Besides this, certain samples are also sent to the foreign buyers before the shipment of goods so that the same can be verified by the buyers with regard to the quality, design and style approved by them. Moreover, out of total production of 9,09,311 pieces, only small sample of 2,978 pieces were given, which accounts for hardly 0.32%. The assessee, will not make undisclosed sales of such a small quantity. He also referred to the documents relating to Customs and Excise Departments wherein the assessee's who are exporting the goods are required to give the samples for inspection purposes. These document are appearing at Page-87 of the paper book and also referred to invoice-wise shipment details given at pages-88 to
90. The details of break-up of free samples given were as under:-
Container samples 950 Samples - pre-production and pre- 830shipment Workers' uniform 369 Charity 641 Reduction due to shed Variation stains 188 Total:- 2,978
45. Alternatively, he submitted that the average cost of production of these sample pieces is Rs. 379.81 and referred to the working of the cost given at page-26 of the paper book. He, thus, submitted that the addition made by the Assessing Officer and sustained by the learned Commissioner (Appeals) on account of undisclosed sales cannot be upheld.
Tropical Clothing Co. Pvt. Ltd.
2046. On the other hand, the learned Departmental Representative relied upon the findings of the Assessing 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 sample pieces, secondly, some of the samples are also required to be given to the buyers for approval of quality, design and style. Lastly, besides this, the assessee has also claimed that some of the sample pieces have been given to workers as uniform and also for the purpose of charity. This last claim of the assessee is not substantiated at all. Looking to the fact that the assessee has given details of container samples given to various statutory authorities which were 950 pieces and samples for pre-production and pre-shipment for 830 pieces, we are of the considered opinion that it would be reasonable to give over all benefit of 1,800 sample pieces from the total free samples of 2,978 pieces. Balance cannot be allowed for the simple reason that the same have not been substantiated by way of any documentary evidence at all.
48. Insofar as the working of rate of per piece is concerned, we are not convinced by the contentions raised by the assessee for the simple reason that the assessee was unable to substantiate as to what was the rate per Tropical Clothing Co. Pvt. Ltd.
21piece sold in the local market. Had it been so, then the rate per piece as worked out by the assessee could have been applied. Thus, out of the total pieces of 2,978, the Assessing Officer is directed to give benefit of 1,800 pieces and balance pieces should be treated as undisclosed sales after applying the rate of Rs. 505.21. Thus, ground no.3, is treated as partly allowed.
49. In ground no.4, the assessee has challenged the disallowance of commission paid to the directors under section 43B.
50. The Assessing Officer noted that the assessee has claimed commission payable of Rs. 2,09,24,927 to its directors in the nature falling within section 36(1)(ii). On a perusal of the details furnished by the assessee, he noticed that with respect to the amount of Rs. 87,18,720, payable to Kusum Sadarangani and Rs. 80,21,222 to Suresh C. Sadarangani, though the cheques were issued for the said payment on 11th October 2002, i.e., before the filing of the return of income, however, the same was on realised on 8th November 2002 and 13th November 2002, i.e., after the filing of return of income i.e., on 31st October 2002. The assessee was required to explain as to why in view of the provisions of section 43B r/w section 36(1)(ii), the said expenses should not be disallowed. It was submitted before the Assessing Officer that if 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.
Tropical Clothing Co. Pvt. Ltd.
2251. 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 of income. The learned Commissioner (Appeals) has incorporated the details of cheques and date of encashment thereof as under:-
Cheque No. Amount in Rs. Issue to the Date of issue Date of Director encashment 281,006 2,866,715 Kunal S. 11-10-2002 11-10-2002 Sadarangani 281,007 5,972,323 Kusum S. 11-10-2002 13-11-2002 Sadarangani 281,008 5,494,537 Suresh C. 11-10-2002 8-11-2002 Sadarangani Further, reliance was placed on the judgment of Jurisdictional High Court in the case of Vardhaman Chemicals vs. CIT(2003), 263 ITR 460 (Bom.) and the judgment of the Hon'ble Supreme Court in Ogale Glass Works Ltd. (supra). The learned Commissioner (Appeals) rejected the assessee's contentions and held that the issuance of cheques by the assessee company and actual non-presentation of the same in the bank by the directors clearly show a collusive arrangement to withhold the amount in the books of the company and to violate the clear intentions of the provisions of actual payment as stipulated in section 43B. He, therefore, confirmed the entire addition made by the Assessing Officer.
52. Before us, the learned Sr. Counsel submitted that once the cheque has been issued by prior to the due date of filing of the return of income, insofar as the assessee is concerned, it can claim the deduction under section 43B r/w section 36(1)(ii). Once the cheque has been issued and if not being dishonoured, the payment will relate back to the date of cheque. The principle laid down by the Hon'ble Supreme Court in Ogale Glass Works Ltd. (supra) is absolutely clear on this point. Thus, no disallowance can be made Tropical Clothing Co. Pvt. Ltd.
23under section 43(B) once the payment has been made through cheque prior to the date of return of income.
53. Learned Departmental Representative, on the other hand, relied upon the order of the Assessing Officer as well as of the learned Commissioner (Appeals).
54. We have carefully considered the rival contentions, perused the orders of the authorities below. It is not in dispute that the payment of commission to the directors was made by account payee cheque on 11th October 2002 i.e., much prior to the date of filing the return of income which was on 31st October 2002. Under section 43B, any sum paid to an employee as bonus or commission, the same is to be allowed while computing the income under section 28 of 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 on the expenditure relating to higher studies of one of the directors of the company Kunal Sadarangani at Harvard Business School. The Assessing Officer Tropical Clothing Co. Pvt. Ltd.
24required the assessee as to why such an expenditure should be allowed when the director is being paid substantial salary and commission at ` 99,70,722. In response, the assessee submitted that the higher education was undertaken for studies in brand management and would be exclusively benefitable to the assessee company. The Assessing Officer rejected the said contentions on the ground that the assessee company is already claiming substantial expenditure on account of salary and commission and no further expenses can be allowed for studies of the director which is for non-business purpose.
57. Before the learned Commissioner (Appeals), reliance was placed on the judgment of Hon'ble Madhya Pradesh High Court in CIT v/s Kohinoor Paper Products, [1997] 226 ITR 220 (M.P), wherein the partner was sent for higher studies in U.S.A. The learned Commissioner (Appeals) rejected the assessee's entire submissions after observing and holding as under:-
"28. I have very carefully considered the above arguments. First of all, I do not find any documents or evidence before me to believe that Mr. Sadarangani had pursued his studies actually as a Director of the Appellant Company. I am convinced that he had not been enrolled in the said. Business School as a Director of some concern. He had been only a student, if at all in his own individual capacity but had shrewdly charged the related expenses to the family owned private company's business accounts. Further, I find that the contentious issue had been fought by the AR and the AO more on academic level. It had not raised the eyebrows of the AO as to under which head the said Business School had accepted such an amount for the studies of the said Mr. Sadarangani. Nothing with regard to the course content has been brought into records. Nor has it been argued by the AIRs that the said course had any direct nexus with the business of the company. Even the courts that have allowed the expenditure relating to the pursuance of higher studies have always insisted upon a direct nexus between the studies f the person and the business of the concern. That has not been established here in this case. In the case Siddho Mat & Sons, 122 ITR 839 (Del), it had been held 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 Tropical Clothing Co. Pvt. Ltd.25
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 are abnormalities attaching to such transactions."
In other words, the old test of wholly and exclusively spent for business has not been passed in this case. Therefore, in the absence of any evidence proving the nexus between the business and the expenditure, I uphold the decision of the A.O. and the ground taken in this regard is dismissed."
58. Before us, the learned Sr. Counsel submitted that these expenses were incurred for the business purpose of the assessee because education received by one of the directors ultimately was for utilisation of the business of the assessee. He further relied upon the judgment of Hon'ble Jurisdictional High Court in Sakal Papers Pvt. Ltd. v/s CIT, [1978] 114 ITR 256 (Bom.).
59. Learned Departmental Representative, on the other hand, relied upon the order of the learned Commissioner (Appeals).
60. After carefully considering the rival contentions and on a perusal of the findings given by the learned Commissioner (Appeals), we find that the assessee is unable to bring on record as to whether the higher studies undertaken by the director at Harvard Business School, was in any way, for the purpose of business of the assessee and whether there is any direct nexus with the studies undertaken by the director with that of the business of the company. While claiming such an expenditure, the onus is on the assessee to substantiate that such a training of higher education by one of the directors was for the benefit or promotion of the assessee's business. In the absence of any such material on record, we do not find any reason to deviate from the conclusion drawn by the learned Commissioner (Appeals). Accordingly, a sum of Rs. 1,99,538, on account of expenditure incurred on director's education is confirmed. The judgments relied upon by Ld. Senior Counsel are not applicable on the facts of the case as no material has been brought on record that this expense of foreign education by the director was for the business purpose of the assessee. Thus, ground no.4, raised by the assessee is treated as dismissed.
Tropical Clothing Co. Pvt. Ltd.
2661. In ground no.5, the assessee has challenged computation of deduction under section 80HHC on the ground that the learned Commissioner (Appeals) has confirmed the deduction of 90% of the following items from the profits of the business under Explanation (baa) for the purpose of deduction under section 80HHC.
a) Exchange Gains in EEFC a/c ` 43,71,900
b) Quota sales ` 1,19,574
b) Misc. Income ` 5,59,306
c) Sundry Creditors written back ` 38,500
d) Job work charges ` 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 ` 1,19,574, cannot be considered as derived from the business and also cannot be considered to be receipts covered under section 28(iiia), 28(iiib) and 28(iiic). Before the Assessing Officer, it was submitted by the assessee that for the purpose of export agreement, export quota is required and the entitlement will be allowed only to the exporters registered with the Apparel Export Tropical Clothing Co. Pvt. Ltd.
27Promotion Council and the quota which is not required or is in excess can be sold to other exporters and, therefore, the same should be considered as part of the profit of the business for calculation of eligible deduction under section 80HHC. This has been confirmed by the learned Commissioner (Appeals) also.
65. Before us, the learned Sr. Counsel submitted that the receipts from quota sales account cannot be treated as any receipts by way of brokerage commission, interest rate charges and any other receipts for similar nature as stipulated in clause (baa) of Explanation to section 80HHC. It is a profit directly related to the business of the assessee and also it cannot be considered to be receipts covered under clause (iiia), (iiib), (iiic), (iiid) and (iiie) of section 28. Therefore, the same cannot be reduced from the profits of the business.
66. On the other hand, the learned Departmental Representative relied upon the findings given by the Assessing Officer as well as by the learned Commissioner (Appeals).
67. We have carefully considered the rival contentions, perused the findings given by the authorities below. For the purpose of export of garments, export quota is required by the exporters who are registered with Apparel Export Promotion Counsel. If any exporter is unable to export as per the quota, the excess can be sold to other exporters. Such a receipt is neither covered in either of the clauses mentioned in clause (iiia) to (iiie) of section 28 nor it is any kind of receipts mentioned in clause (baa) of Explanation to section 80HHC. Thus, in our opinion, in such a situation when there is no bar in clause (baa) of explanation to sec.80HHC, then it has to be treated as part of the profit of business and cannot be reduced for the purpose of deduction under section 80HHC. Accordingly, this issue is allowed in favour of the assessee.
68. As regards misc. income of Rs. 5,59,306, the Assessing Officer held that exclusion of the misc. income from the total income has been upheld by Tropical Clothing Co. Pvt. Ltd.
28the 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 directly linked to the production activity. Thus, the realised value remains outside the scope of clause (baa). A similar view, I find has been taker by the Hon'ble Tribunal in the appellant's own case for the AY 98-99 in their order dated 8-7-2005 (para 14 of page 5). Therefore, I direct the AO not to exclude the scrap sale receipt under Explanation (baa). However, as regards the Loyalty Reward, the AIRs themselves have conceded at page 43 of the written submission for the exclusion. With regards to the Brokerage amount, since the AIRs claim before me that the same had been already excluded by the appellant, I hold that there is indeed no room for double exclusion. However the AO shall delete the same after verification of the authenticity of the said claim of the A/Rs."
71. After hearing both the parties, we do not find any reason to deviate from such a finding because insofar as the scrap sales is concerned, the learned Commissioner (Appeals) has already followed Tribunal's decision in assessee's own case which was in favour of the assessee and about royalty reward, the assessee itself conceded for its exclusion and for the brokerage, the learned Commissioner (Appeals) has already given direction to the Assessing Officer to verify whether there has been any double exclusion or not. Thus, this ground raised by the assessee has no merit and is dismissed.
Tropical Clothing Co. Pvt. Ltd.
2972. The next issue relates to job work charges.
73. Insofar as inclusion of job work charges in the profit of the business is concerned, this issue has already been decided by the Tribunal in assessee's own case for assessment year 2001-02 and similar issue has come up in the assessee's own appeal in ITA no.3143/Mum./2007, for assessment year 2000-01, as decided by us above in this order, wherein the issue has been decided in favour of the assessee. Consistent with the view taken therein, this issue is decided in favour of the assessee.
74. Regarding exclusion of job work charges from the total turnover, it has been admitted that this issue stands covered against the assessee by the Tribunal in assessment year 1999-2000 and 2001-02.
75. This issue has also came up for consideration in assessee's own case in ITA no.3143/Mum./2007, as decided above. Accordingly, the issue is decided against the assessee.
76. Regarding exchange gain, it has been admitted by the parties that this issue has been decided in favour of the assessee in assessment year 2001- 02 and also we have already considered the similar issue in assessee's own case in ITA no.3143/Mum./2007. In view of the findings given therein, this issue is decided in favour of the assessee.
77. In ground no.7, the assessee has challenged levy of interest u/s 234D.
78. After hearing both the parties, we find that the learned Commissioner (Appeals) has decided the issue after observing and holding as under:-
"49. Ground no.20, has been taken with regard to charging of interest under section 234D for a refund claimed to have been not received. If find from the demand computation that although there has been a mention of a refund of ` 41,360, nothing is apparent therefrom as to when the same had ever been issued or adjusted. The A.O. shall do the needful and either rectify or clarify to the appellant in this regard. The ground is technically speaking, allowed."
Tropical Clothing Co. Pvt. Ltd.
3079. Thus, we do not find any reason to deviate from such a direction given by the learned Commissioner (Appeals). Consequently, this ground is dismissed.
80. प रणामतः नधा रती क अपील आं शक वीकत ृ मानी जाती है ।
In the result, assessee's appeal for the A.Y 2000-2001 & A.Y 2002-03 are partly allowed.
आदे श क घोषणा खले
ु यायालय म दनांकः 5th June 2013 को क गई ।
Order pronounced in the open Court on 5th June 2013
sd/- sd/-
बी.
बी. रामकोट
रामकोट य अ मत शु ला
लेखा सद य या यक सद य
B. RAMAKOTAIAH AMIT SHUKLA
ACCOUNTANT MEMBER JUDICIAL MEMBER
मंुबई MUMBAI, दनांक DATED : 5th June 2013
आदे श क त ल प अ े षत / Copy of the order forwarded to:
(1) नधा रती / The Assessee;
(2) राज व / The Revenue;
(3) आयकर आयु (अपील) / The CIT(A);
(4) आयकर आयु / The CIT, Mumbai City concerned;
(5) वभागीय त न ध, आयकर अपील य अ धकरण, मंुबई / The DR, ITAT, Mumbai;
(6) गाड फाईल / Guard file.
स या पत त / True Copy
आदे शानसार
ु / By Order
द प जे. चौधर / Pradeep J. Chowdhury
वर नजी स चव / Sr. Private Secretary
उप / सहायक पंजीकार / (Dy./Asstt. Registrar)
आयकर अपील य अ धकरण, मंुबई / ITAT, Mumbai
Tropical Clothing Co. Pvt. Ltd.
31
Other member on tour for Date Initial
3rd and 4th week of May
Original dictation paid is enclosed
1. Draft dictated on 8-10.5.2013 Sr.PS
2. Draft placed before author 14-17.5.2013 Sr.PS
3. Draft proposed & placed 3.6.2013 JM/AM
before the second
member
4. Draft discussed/approved 3.6.2013 JM/AM
by Second Member
5. Approved Draft comes to 5.6.2013 Sr.PS
the Sr.PS/PS
6. Date of pronouncement 5.6.2013 Sr.PS
7. File sent to the Bench 6.6.2013 Sr.PS
Clerk
8. Date on which file goes to
the Head Clerk
9. Date of dispatch of Order