Income Tax Appellate Tribunal - Delhi
Ikea Trading (India) Pvt. Ltd., Gurgaon vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: "C" NEW DELHI
BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER
AND
SHRI J.S.REDDY, ACCOUNTANT MEMBER
I.T.A .No.-1962/Del/2010)
(ASSESSMENT YEAR-2004-05)
IKEA Trading (India) Pvt. Ltd. vs DCIT,
DLF Infinity Tower-A, Circle-11(1),
th
8 Floor, DLF Cybercity, New Delhi.
Sector-25, Gurgaon,
Haryana-122002.
PAN-AAACI1483Q
(APPELLANT) (RESPONDENT)
I.T.A .No.-2150/Del/2010)
(ASSESSMENT YEAR-2004-05)
DCIT, vs IKEA Trading (India) Pvt. Ltd.
Circle-11(1), DLF Infinity Tower-A,
New Delhi. 8th Floor, DLF Cybercity,
Sector-25, Gurgaon,
Haryana-122002.
(APPELLANT) (RESPONDENT)
Appellant by: Sh. Satpal Singh, Sr. DR
Respondent by: Sh. Salil Kapoor, Adv.
ORDER
PER DIVA SINGH, JM
These are cross-appeals filed by the assessee and revenue against the order dated 16.02.2010 of the CIT(A)-XVIII, New Delhi pertaining to 2004-05 assessment year. The grounds raised by the respective parties read as under :- 2 I.T.A .Nos.-1962 & 2150/Del/2010
ITA No.-1962/Del/2010 (Assessment Year-2004-05)
1. "That the Ld. CIT(A) had grossly erred on the facts and circumstances of the case and in law in confirming the disallowance to the extent of Rs.1,929,021 on account of repairs and maintenance expenditure made by the learned assessing officer. 1.1. That the Ld. CIT(A) had grossly erred on the facts and circumstances of the case and in law in wrongly treating the repairs and maintenance expenditure incurred on leasehold property amounting to Rs.1,108,606 as capital in nature on the ground that such expenses are towards items having longer life. 1.2. That the Ld. CIT(A) had grossly erred on the facts and c circumstances of the case and in law in wrongly treating the expenditure amounting to Rs.820,415 incurred on account of transportation and minor modification of moulds, as capital in nature on the ground that such expenses are towards items having longer life.
2. That the Ld. CIT(A) had grossly erred on the facts and circumstances of the case and in law in upholding the disallowance of advances and deposits written off to the extent of Rs.1,730,067 made by the learned assessing officer on the alleged ground that it is not wholly and exclusively for the purpose of business of the appellant.
3. That the Ld. CIT(A) had erred in facts and in law in levying interest under section 234B and 234D.
All of the above grounds of appeal are without prejudice and notwithstanding each other.
The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. Any consequential relief, to which the appellant may be entitled under the law in pursuance of the aforesaid ground of appeal, or otherwise, may be thus granted"
ITA No.-2150/Del/2010 (Assessment Year-2004-05)
1. "The order of Ld. CIT(A) is wrong, perverse, illegal and against the provisions of law, liable to be set aside.
2. On the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting the disallowance of Rs.84,10,018/- made by the AO on account of repair and maintenance expenditure.3 I.T.A .Nos.-1962 & 2150/Del/2010
3. On the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting the disallowance of Rs.16,79,500/- made by the AO on account of advance written off to various suppliers for developing customized products.
4. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing."
2. It was a common stand of the parties that since the major ground is addressed in the Revenue's appeal as such their appeals should be heard first. The Sr. DR addressing the departmental appeal submitted that ground no-1 is general, ground no-2 in his appeal is corresponding to assessee's ground no-1. The relevant facts qua the same are discussed at para 4 of page 2 of the assessment order. 2.1. A perusal of the record shows that the assessee declared an income of Rs.11,85,87,030/- by way of filing a return on 29.10.2004. The same was processed u/s 143(1) of the Income Tax Act, 1961 and was subsequently selected for scrutiny by way of issuance of notice u/s 143(2) on 10.10.2005. In the scrutiny assessment, the AO observed that the assessee company had debited an expenditure of Rs.1,12,73,486/- on account of repair and maintenance of building. The details thereof were sought by the AO requiring the assessee to explain the nature of the expenditure. In response thereto the assessee vide letter dated 17.10.2006 furnished the details of expenditure along with annexure "A" wherein it was explained as under :-
S.No. Particulars Amount (in Rs.)
1. Annual Maintenance Contracts 597,853.00
2. Cleaning charges 580,799.00
3. Expat House-Pool and Garden 1,521,877.00
expenses
4 I.T.A .Nos.-1962 & 2150/Del/2010
4. Expat House-Maintenance charges 4,839,786.00
5. Fittings 2,987,044.00
6. Other Miscellaneous charges 325,127.00
7. Office fittings miscellaneous charges 421,001.00
2.2.. The details of the expenditure set out in Annexure "A" extracted from assessment order read as under :-
S.No. Particulars Amount (in Rs.)
1. Annual Maintenance Contracts 597,853/-
2. Cleaning charges 580,799/-
3. Expat House-Pool and Garden 1,521,877/-
expenses
4. Expat House-Maintenance charges 4,839,786/-
5. Fittings 2,987,044/-
6. Other Miscellaneous charges 325,127/-
7. Office fittings miscellaneous charges 421,001/-
Total 1,12,73,487/-
2.3. Considering the explanation, the AO was of the view that the claim of the assessee was not tenable on account of explanation-1 to section 32 as the details of the expenditure on repair and maintenance of building according to the AO showed that the whole expenditure has infact been incurred for construction/renovation of the building which was not owned by the assessee. Accordingly invoking section 1 to section 32, the claim of expenditure was disallowed holding the same to be capital in nature and thus added back to the income of the assessee. Depreciation thereon @ 10 % was allowed by him.
5 I.T.A .Nos.-1962 & 2150/Del/2010
3. In appeal before the CIT(A), the assessee addressed detailed submissions which are extracted at pages 8-12 of the impugned order. In its submissions, the assessee assailed the conclusion of the AO on the ground that it was factually incorrect.
3.1. The AO it was stated has ignored the bills and vouchers produced in regard to the claim of expenditure. The resort to invoking explanation-1 to section 32 for disallowing the claim of the assessee, it was contended was bad in law as the basic pre-requisite for invoking the said explanation was that capital expenditure should be incurred by the assessee and on facts, no capital expenditure has been incurred. As an illustration, attention was invited to the bills & vouchers addressing the expenses covered pertaining to maintenance charges for electrical items installed at the office premises and at the accommodation provided to the expatriate employees, the modifications, partitions, additions etc. in the leased premises for providing rent- free accommodation to its various expatriate employees etc. charges pertaining to pool maintenance and garden maintenance etc. This expenditure it was claimed could not be construed as providing benefit of enduring nature to the assessee. It was also contended that as perquisites to the employees, the benefits of rent-free accommodation provided by the assessee to the expatriate employees had already been considered as per the Income Tax Act and Rules and had been offered to tax by the expatriate employees. Attention was also invited to a sample agreement entered into between the assessee and Mr. Narinder Singh (lessor) so as to emphasize that the assessee in order to provide rent-free accommodation to its expatriate employees 6 I.T.A .Nos.-1962 & 2150/Del/2010 had entered into a lease agreement wherein all costs were to be incurred by the assessee in carrying out modifications, partitions, additions and restoration with respect of the residential lease accommodation and since the ownership remained with the lessor, the assessee was required to hand over vacant physical possession on the termination of the lease. Similarly, in regard to the office premises also, the expenditure for repair and maintenance included cleaning charges for the office, painting charges, genset repairing charges and maintenance charges for equipments installed at the office, all the expenses are on account of current repairs and maintenance and are revenue in nature. These appeals were neither for acquisition of capital asset nor did they yield any enduring benefit. Reliance was placed upon on the following judgements :-
i). CIT vs Madras Auto Service (P) Ltd (1998) 233 ITR 468 (SC);
ii). Alembic Chemical Works Co. Ltd. vs CIT, Gujarat 177 ITR 377 (SC);
iii). Empire Jute Co. Ltd. vs CIT(1980) 124 ITR 1;
iv). Bombay Steam Navigation Pvt. Ltd. vs CIT (1965) 56 ITR 52;
v). Daimla Jain & Co. Ltd. vs CIT (1971) 81 ITR 754; and vi). New Shorrock Spinning and Manufacturing Co. Ltd. vs CIT (1956) 30 ITR 338.
3.2. Considering the same, the CIT allowed part relief to the assessee observing as under :-
"8. I have carefully considered the assessment order as well as the submissions made by the ld. AR. As per the assessment order, the AO has disallowed the assessee's claim of repairs and maintenance totaling Rs.1,12,73,486/- as per the following sub-heads :-
S.No. Particulars Amount (in Rs.)
1. Annual Maintenance Contracts for 5,97,853
electrical items and upkeep
maintenance
7 I.T.A .Nos.-1962 & 2150/Del/2010
2. Cleaning charges 5,80,799
3. Pool and Garden maintenance 15,21,877
charges on rent free accommodation
provided to the expatriate employees
4. Expat House-General Maintenance 48,39,786
charges
5. Repairs and maintenance-Fittings 29.87,044
6. Other Miscellaneous charges 3,25,127
7. Office fittings miscellaneous charges 4,21,001
Total 1,12,73,487
The AO has disallowed the above claim by treating the same as capital expenditure. The AO has, however, allowed depreciation on the above amount at the rate of 10% being Rs.11,27,349/-. The ld. AR has argued that considering the nature and details of the above expenditure, the same needs to be allowed as revenue expenditure. It is argued that the impugned expenditure is neither for acquisition of any capital asset nor for acquiring any enduring benefit to the assessee company. It is argued that the object of incurring the said expenditure is to preserve an already existing asset so as to facilitate the assessee's normal business activities and not to bring into existence a new asset or a new or fresh advantage. The ld. AR has relied on a large number of judicial decisions in support of his claim. On consideration of the issue, I find that the AO has acted in a mechanical and perfunctory manner in making the above addition without considering the nature and details of such expenses and without giving any reason for treating the same as capital expenditure. The sub-head wise expenditure are as follows:-(1) Considering the nature of these expenses for which the details had been filed at the assessment stage itself, I find that the annual maintenance contract for electrical item and upkeep maintenance amounting to Rs.5,97,853/- is for the purpose of maintenance of various electrical items on an annual basis for the purpose of assessee's business. I do not understand as to how the expenditure on such annual maintenance contracts can be treated as capital expenditure. Considering the facts and circumstances of the case, the expenditure on such annual maintenance contract clearly falls in the domain of revenue, (2) Similarly, the cleaning charges of Rs.5,80,799/- towards house keeping expenses of the assessee's office premises can by no stretch of imagination be termed as capital expenditure as the same is clearly revenue in nature, (3) The expenditure of pool and garden maintenance charges on rent free accommodation provided to expatriate employees of the assessee company amounting to Rs.15,21,877/- as per details filed by the assessee is for 8 I.T.A .Nos.-1962 & 2150/Del/2010 routine maintenance expenditure of pool and garden which inter alia includes the amount spent towards running and maintenance of gensets etc. It is argued by the ld. AR that these have been incurred on the residential premises provided to expatriate employees of the assessee company and that the value of such rent free accommodation has already been offered to tax by the said employees. It is argued that in the given scenario, the said expenditure has to be allowed to the appellant company as the same under no circumstances of the case, I agree that the above expenditure falls in the sphere of revenue and is clearly admissible as deduction. (4) Coming to the expenditure on expat house-general maintenance charges of Rs.48,39,785/-, as argued by the ld. AR, the appellant company has taken some residential premises on lease for its expat employees. As per the terms of the lease agreement, the ownership of the residential premises remains with the lessor and the appellant was required to hand over the vacant physical possession of the same to the lessor. Further , all costs incurred in carrying out modification, partitions, additions and restorations with respect to residential leased accommodations is required to be borne by the appellant. As per the lease deed the appellant is also under the obligation to bear the expenditure relating to general upkeep and maintenance of the leased premises. Accordingly, it is argued by the ld. AR that all the above expenses should be allowed as revenue expenditure. However, I find from perusal of details that the expenses of Rs.2,01,959/-, Rs.5,23,797/- and Rs.3,82,850/- are towards items having a longer life and cannot be treated as revenue expenditure. So the disallowance to the extent of Rs.11,08,606/- (being total of above 3 items) is confirmed subject to depreciation @ 10% top be allowed thereon. The balance items are revenue in nature and needs to be allowed as deduction. (5) As regards expenditure in case of Repairs and maintenance-Fittings amounting to Rs.29,87,044/-, this sub-head pertains to expenditure on office maintenance and current repairs. As per details, the expenditure is of revenue in nature except the expenses on fittings amounting to Rs.8,20,415/- which are clearly of longer life and consequently are capital in nature and are to be disallowed, subject to allowance of depreciation @ 10%. (6) As regards expenditure towards "Other Miscellaneous charges" amounting to Rs.3,25,127/- as per details submitted, it is seen that the above expenditure has been incurred on miscellaneous items which are not capital in nature and hence, the same should be allowed to the appellant company as revenue in nature. (vii) As regards expenditure towards Office fittings miscellaneous charges amounting to Rs.4,21,001/-, these expenses have been incurred for the leased premises taken as office building and are clearly revenue in nature. Therefore, these are allowed to the appellant company. Consequently, out of the total disallowance of Rs.1,01,46,138/- (i.e. 1,12,73,487/- less 9 I.T.A .Nos.-1962 & 2150/Del/2010 depreciation of Rs.11,27,349/-) made by the AO , an amount of Rs.17,36,120/- (i.e. (4) Rs.11,08,606/- less depreciation of Rs.1,10,860/-; and (5) Rs.8,20,415/- less depreciation of Rs.82,041/-) is confirmed and the balance 84,10,018/- is deleted."
4. Aggrieved by this, both the assessee and the revenue are in appeal before the Tribunal. Whereas the Ld. Sr. DR relying upon the assessment order contended that the expenditure resulted in benefit of an enduring nature and explanation-1 to section 32 has rightly been invoked and the relief granted by the CIT(A), accordingly deserves to be withdrawn the Ld. AR relied on the impugned order qua the departmental appeal and addressing grounds in its appeal contended that relief denied has wrongly been denied on facts by the CIT(A). Addressing the grounds in the department's appeal and its own appeal, arguments advanced before the CIT(A) were relied upon. It was elaborated that the very nomenclature of the sub-heads reproduced in the impugned order as well as the assessment order shows that these are largely repair and maintenance charges and the same necessarily had to be allowed as a Revenue expenditure. Inviting attention to page no-126 of the paper book, it was contended that it contains a narration of the vouchers which would show that these are expenses which were incurred on account of office repair, maintenance of rent-free accommodation of expatriate, expenses for their pool maintenance, garden maintenance and AMC of office machine etc. Attention was also invited to paper book page-101 and 104 so as to contend that these expenses were incurred for maintenance of rented premises of the office and the residence etc and the expenditure deserves to be allowed. It was vehemently stated that out of the 10 I.T.A .Nos.-1962 & 2150/Del/2010 repair and maintenance expenses of Rs.1,12,73,487/-, the CIT(A) has allowed relief to the extent of Rs.93,44,736/- and he has upheld the disallowance of Rs.19,29,021/- on the ground that the items for which the expenditure was incurred had a longer life, the specific expenditure which has been upheld it was submitted is as per the following details:-
S.No. Particulars Amount Nature of expenses
(Rs.)
1. Repair and 8,20,415 Excess baggage charges paid for
Maintenance-fittings transportation of goods and charges
for minor modification of moulds etc.
2. Expat House-General 5,23,797 Packing cost, loading and unloading
Maintenance Charges charges at rent free accommodation
provided to expatriates
3. Expat House-General 3,82,850 Regular repair work at rent free
Maintenance Charges accommodation provided to
expatriates
4. Expat House-General 2,01,959 Miscellaneous repair work charges
Maintenance Charges etc. at rent free accommodation
provided to the expatriates
Total 19,29,021
4.1. It was his contention that complete bills and vouchers qua the same had been placed before the CIT(A) on a sample basis and they are also available in the three paper books. A perusal of this, it was submitted would show that the expenses have been primarily incurred towards regular repair work, house-keeping charges, pest control, transportation charges etc. as such these are not capital in nature.
5. We have heard the rival submissions and perused the material available on record, on a consideration of the entire factual matrix of the case, we are of the view that as far as the departmental ground is concerned the finding of the CIT(A) cannot 11 I.T.A .Nos.-1962 & 2150/Del/2010 be faulted with. Being satisfied with the reasoning and the finding qua the issue agitated in the Revenue's appeal, we find no good reason in the absence of any specific argument on facts on behalf of the department to interfere with the finding arrived at. The expenses for maintenance and upkeep of leased premises and make them useable as assessee's office premises and similarly the leased premises for assessee's expatriate employees as rent-free accommodation perquisite value of which has admittedly been offered for tax, similarly expenses for pest control, AMC for electrical fittings are correctly considered Revenue expenditure in the peculiar facts of the case. No fault in referring to vouchers and documentation has been pointed out by the department. Accordingly the same is dismissed. Considering the assessee's ground, it is seen as per the narrations given by the assessee some of the expenses of repair, maintenance etc. appear to be Revenue in nature however the specific vouchers relatable the expenses need to be considered, the Ld. AR contended that the Tribunal could itself decide the issue after considering the bills and vouchers. However we are not inclined to agree with the said prayer of the assessee and deem it fit to restore the issue to the AO for verification. Accordingly the issue pertaining to the addition sustained by the CIT(A) is restored to the AO with the direction to decide the issue in accordance with law after considering the specific bills and vouchers addressing the issue of Rs.19 lakh odd sustained by the CIT(A). Needless to state that the assessee shall be given a reasonable opportunity of being heard. Accordingly ground no.-2 of the department is rejected and ground no- 1 of the assessee is allowed for statistical purposes.
12 I.T.A .Nos.-1962 & 2150/Del/2010
6. The facts qua ground no-3 of the department and ground no-2 of the assessee are found discussed at page -3 of the assessment order in para 5 & 5.1. The same is reproduced for ready-reference:-
"5. Further the assessee company has debited Rs.34,09,568/- as expenditure on account of Advances and deposits written off. The assessee was asked, vide order sheet entry dt.11.9.2006 , to explain the nature and details of such expenses. The assessee vide its letter dt.17.10.2006 submitted that "During the subject year, some of the samples developed by the suppliers did not confirm to the quality and costing standards as defined and set by the assessee. Accordingly, an equivalent amount of Rs.34,09,567/- being the amount given to suppliers as advances was forfeited by the suppliers as per the mutual understanding between the assessee and suppliers. It may be noted that to substantiate the above, we have already filed with your goodself's office, the confirmations received from the suppliers regarding the amounts forfeiture in our submission dt. 6.10.2006. We respectfully submit that said amount was paid by the assessee to its suppliers for the purpose of business. Further, the amount of advance paid to suppliers did not provide any benefit of enduring nature to the assessee. The advances were given to the suppliers only for the purpose of performing job work as per the specifications provided by the assessee. These are regular business expenses for running the business smoothly and are needed because of the commercial expediency related with assessee's business. Accordingly, the assessee has rightly claimed the aforesaid expenditure as revenue expenditure."
5.1. The reply of the assessee has been considered and the same is not acceptable. From the assessee's reply dt.6.9.2006. It is seen that the assessee could furnished confirmations from only two suppliers viz M/s Modern Thermoplastics (India) Pvt. Ltd. and M/s Pyramid Plastics who forfeited Rs.13,67,500/- and Rs.3,12,000/- respectively given to them by the assessee as advance. The advances of Rs.34,09,567/- were given by the assessee to the suppliers over and above the amount paid to them for development of samples as per the specifications provided by the assessee. Since this amount was not for supply of any sample or any other material or any service and the same was voluntarily allowed to be forfeited by the suppliers just on the plea that the assessee company could not place further orders. In view of above discussion expenditure of Rs.34,09,567/- debited to the P&L account by the assessee on account of Advances and deposits written off is disallowed u/s 37(1) of the Act 13 I.T.A .Nos.-1962 & 2150/Del/2010 being not laid out or expended wholly and exclusively for the purposes of the business.
7. Aggrieved by this, the assessee agitated the issue before the CIT(A) and made the following submissions extracted in the impugned order in para 9 which read as under :-
"9. Ground no.-4 is directed against the disallowance of the advance to various suppliers written off amounting to Rs.34,09,567/-. During the appellate proceedings the ld. AR vide his submission submitted as under :-
"The appellant purchases various items from various suppliers in India and exports the same outside India. The suppliers produced these articles which are very specific to the needs of the appellant. During the subject year, the appellant enquired for few samples from suppliers before placing a large order with them. This was done by the appellant to ensure that products which are to be exported should match the quality and costing standards as set by the appellant's parent company. However, as the suppliers had to incur some extra expenses for developing a customized product for the appellant, they were not willing to take the risk without any assurance of further orders from the appellant. To resolve the same, appellant had entered into an understanding with the suppliers that in case further orders are not placed with them, the advance given to them to meet the cost towards the development of customized items could be forfeited by them.
During the subject year, some of the samples developed by the suppliers did not confirm to the quality and costing standards as defined by the appellant's parent company. An amount of Rs.3,409,567 which was given to suppliers as advances, was forfeited by the suppliers as per the mutual understanding between the appellant and suppliers. The said amount represents the business expense incurred by the appellant and was accordingly written off by the appellant in its books of accounts.
Sample confirmations were also submitted from M/s Modern Thermoplastic (India) Pvt. Ltd. and M/s Pyramid Plastics evidencing the fact that Rs.13,67,500 and Rs.3,12,000 was paid as advance to them for the development of injection moulding tool and the same had been forfeited by them.
It was also argued that the same has been expended wholly and exclusively for the purpose of its business and has been rightly claimed as revenue expenditure as per the provisions of section 37(1) of the Act.
Reliance was placed on the following precedents :-14 I.T.A .Nos.-1962 & 2150/Del/2010
1. Bombay Steam Navigation Co. Pvt. Ltd. vs CIT (1965) 56 ITR 52 (SC);
2. CIT vs Delhi Safe Deposit Co. Ltd [1982] 133 ITR 756 (SC);
3. CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC)
4. Siddho Mal & Sons vs ITO [1980] 122 ITR 839 (Delhi HC)
5. ACIT Vs Shantilal Balabhai (74 TTJ 506) (Ahmedabad ITAT) However, the Ld. AO had disallowed the advances and deposits written off considering the same to be not laid or expended for the purpose of business. The Ld. AO had further opined that the amounts were not for supply of any sample or any other service or any material and the same was voluntarily allowed to be forfeited by the suppliers just on the plea that the assessee company could not place ant further order and it cannot be said that the said amount was incurred wholly and exclusively for the purpose of business."
7.1. Considering the submissions, the CIT(A) granted partial relief. Aggrieved by which both the assessee and the revenue are in appeal before the Tribunal. The finding under challenge is reproduced for ready-reference:-
"10. I have carefully considered the assessment order and the submissions made by the ld. AR. As per the facts of the case, the assessee company has claimed to have made advance payment of Rs.34,09,567/- to various suppliers for developing customized products for the appellant company for which the suppliers had to incur extra expenses. It is argued that as per the mutual understanding with the suppliers, if the samples developed by them did not confirm to the quality and costing standards for export as defined by the appellant's parent company, the advances given by the appellant company was to be forfeited by the suppliers. Accordingly, it is argued by the ld. AR that the above amounts written off by the appellant company had been expended wholly and exclusively for the purpose of the appellant's business in the normal course and should be allowed as deduction. However, I find from the assessment order that on being asked, the assessee could furnish confirmations in this regard from only two suppliers, viz. M/s Modern Thermoplastics (I) Pvt. Ltd. and M/s Pyramid Plastics confirming having forfeited Rs.13,67,500/- and Rs.3,12,000/- respectively. Confirmations in respect of other suppliers were not furnished in the event, the disallowance to the extent of Rs.16,79,500/- (i.e Rs.13,67,500/- plus Rs. 3,12,000/-) can not be sustained and is, accordingly, deleted. The balance disallowance of Rs.17,30,067/- is confirmed."15 I.T.A .Nos.-1962 & 2150/Del/2010
8. Ld. Sr. DR inviting attention to the assessment order submitted that the assessee was required to explain how the advances of Rs.34,09,568/- have been written off on the mere assertion that they were given to supplier for the purposes of performing job work. It was his submission that mere assertions are not sufficient evidence as no doubt there is a commercial expediency in having the sample but there must have been some correspondence or documentation to show that the assessee entrusted the work of providing samples of a specific standard and specifications which the party could not provide. Mere confirmations from two parties namely M/s Modern Thermoplastics (India) Pvt. Ltd and M/s Pyramid Plastics that they were required to provide samples which did not meet assessee's standards as such the parties retained the advances of Rs.13,67,500/- and Rs.3,12,000/- respectively given to them as advanced is not sufficient compliance. It was his argument that even if the samples provided may not be upto the mark of the assessee, they could not be said to be having no value at all and it has not even been demonstrated by any documentation that the samples were not as per assessee's specification. The CIT(A) it was stated has granted relief merely on the confirmations from the two parties that they had been advanced money for job work. No evidence that job work was not as per the assessee's requirements is available on record. As such it was his argument that an irrelevant fact has been made the basis for granting relief.
16 I.T.A .Nos.-1962 & 2150/Del/2010
9. Ld. AR relying upon the submissions advanced before the AO and the CIT(A) contended that the assessee enjoys a brand value of its furniture and furnishing in the market and as such in order to obtain orders, it requires to have samples for display which meet the standards of the assessee. The practice is that assessee advances funds to the firms who are capable of creating/producing samples of furniture which the assessee judges it needs at a point of time on the understanding that incase the sample received on display receives order then as per arrangements, the assessee places further orders on the suppliers of the samples. It was emphasized that the assessee has to ensure its standards and quality and while doing so it also has to constantly watch the costs and expenses incurred for developing customized products and in case the sample is not as per the requirement of the assessee, the assessee cannot compromise and take any risk in displaying that sample. It was his submission that since producing samples is an expensive exercise, the assessee had entered into an understanding with the suppliers that in case further orders are not placed with them, the advance given to them can be retained to meet the cost incurred towards the development of customized items and the assessee would forfeit them. In this manner, the assessee had advanced funds to various suppliers and since it could obtain confirmations of money advanced only from M/s Modern Thermoplastics (India) Pvt. Ltd and M/s Pyramid Plastics only the same have been filed and since no orders were placed upon these parties as per the understanding, the payments were forfeited. Various case law was relied upon in support of its claim. Same arguments it was submitted would apply to its own ground as simply because 17 I.T.A .Nos.-1962 & 2150/Del/2010 the assessee may not have any dealings the confirmation could not be filed but the practice is followed by the assessee which needs to be recognized.
10. We have heard the rival submissions and perused the material available on record. On a careful consideration of the same, we are of the view that the arguments advanced on behalf of the assessee namely that making of samples is expensive business and the assessee has entered into an arrangement that incase the sample keeping the brand image of the assessee is not as per mark the same does not receive any further orders and the amount advanced is forfeited and the party entrusted for providing the sample can utilize it as the cost incurred for creating the sample. The possibility and the feasibility of the argument of entering into such an arrangement cannot be faulted with as it appears to be a prudent arrangement. However documentation qua the said arrangement has not been addressed. The relevance of discussing case law will arise only after facts are addressed. Arguments dehors facts cannot be accepted. Ld. AR in the course of the arguments was required to demonstrate and support his arguments which he was not able to. Accordingly, it is considered appropriate that the issue should be is restored to the AO for consideration de-novo. The impugned order is set aside and the assessee is at liberty to produce relevant evidences in support of its claim as the arguments are plausible but need to be demonstrated on facts. The evidences relied upon by the CIT(A) is not sufficient evidence as confirmations accepting of advances is not sufficient for what purposes and on what terms and conditions, the advance was made on the relevant issue on facts which needs primarily to be established. 18 I.T.A .Nos.-1962 & 2150/Del/2010 Thereafter, if need be the documentation/evidence that it was not as per the standards will come into play. Since the issue qua ground no-3 of the department is being restored, ground no-2 of the assessee also is being restored as the arguments remain identical herein also namely the same business arrangement no arguments qua the business arrangement no doubt a prudent arrangement needs to be demonstrated. The assessee shall be at liberty to file fresh evidences as need be in support of its claim. According ground no-2 of the assessee and ground no-3 of the department are allowed for statistical purposes.
11. Ground no-3 of the assessee is consequential.
12. In the result, the appeals of the assessee and the Revenue's are partly allowed for statistical purposes.
The order is pronounced in the open court on 7th of June 2013.
Sd/- Sd/-
(J.S.REDDY) (DIVA SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 07/06/2013
*Amit Kumar*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI