Income Tax Appellate Tribunal - Mumbai
Fabwear Garments, Mumbai vs Assessee on 19 September, 1995
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH 'F' MUMBAI
BEFORE SHRI P.M. JAGTAP (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM)
ITA No. 7108/Mum/2008
Assessment year- 2005-06
The DCIT, Circle -18(2), M/s. Fabwear Garments,
Piramal Chambers, Parel, 307, 3rd Floor, Trade World,
Mumbai-400 012 B-Wing, Kamla City,
Vs. Lower Parel,
Mumbai-400 013
PAN-AAAEF 1768Q
(Appellant) (Respondent)
ITA No.6292/Mum/2008
Assessment year- 2005-06
M/s. Fabwear Garments, The DCIT, Circle -18(2),
rd
307, 3 Floor, Trade World, Piramal Chambers, Parel,
B-Wing, Kamla City, Mumbai-400 012
Lower Parel, Vs.
Mumbai-400 013
PAN-AAAEF 1768Q
(Appellant) (Respondent)
Appellant by: Shri Sanjiv M. Shah
Department by: Shri T.T. Jacob
ORDER
PER ASHA VIJAYARAGHAVAN (JM) This set of cross appeal one appeal filed by the Revenue and the other appeal filed by the assessee is directed against the order dt. 11.9.2008 passed by the Ld. CIT(A)-XVIII for the assessment year 2005-
06. ITA No. 7108/M/08- Revenue's appeal
2. The assessee is in the business of export of manufacturing and trading goods. Return of income declaring total income of Rs.
2 Fabwear Garments 1,12,66,410/- was filed by the assessee on 30.10.2005. The assessment was completed u/s. 143(3) of the I.T. Act 1961.
3. Ground No. 1 raised by the Revenue is general in nature.
4. Ground No. 2 raised by the Revenue reads as follows:
"In the facts and circumstances of the case, the Ld. CIT(A) erred in holding the export incentives of Rs. 434687/- and other income of Rs. 25012/- aggregating to Rs. 459699/- as income derived from industrial undertaking for the purpose of deduction u/s. 80-IB of the I.T. Act, 1961."
5. This issue is covered by the decision of the Supreme Court in the case of Liberty India Ltd. Vs CIT 317 ITR 218 (SC) wherein it has been held as follows:
"Duty drawback receipts and DEPB benefits do not form part of the net profits of eligible industrial undertakings for the purpose of the deduction u/s. 80-I/80IA/80 IB of the I.T. Act, 1961."
Respectfully following the above, we allow this ground raised by the Revenue.
6. During the year assessee had debited Rs. 22,31,623/- for the payment of freight on export sale. During the course of assessment proceedings, assessee was asked to reconcile the payments vis-à-vis tax deducted at source. The assessee submitted the details of total freight as follows:
Sr. No. Name Amount
1. Al-Cargo Movers India Pvt. Ltd., 247704
2. Award Shipping Agency India Pvt. Ltd., 364109
3. Trans-Cargo Services 1180430
3 Fabwear Garments
4. Sea Birds 181035
5. Trans World Shipping 5435
6. Modern Cargo Services Pvt. Ltd. 252910
Total 2231623
7. The AO held that out of total payment, the assessee has submitted the declaration in the case of parties at S. Nos. 2 & 4 that they are agent to foreign principle and in the case of item No. 5 Trans-world Shipping the payment is below the prescribed limit and hence the provisions of TDS is not applicable. The AO further held that the assessee failed to submit any explanation regarding non-deduction of taxes at source in the case of parties at Sr. Nos. 1,3 & 6 total payment to them at Rs. 16,81,044/- is to be added back to the total income of the assessee.
8. Aggrieved assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A) the AR of the assessee submitted that the circular No. 723 dated 19/09/1995 which reads as follows:
"The payments to non-resident ship owners or their agents who are governed by provisions of Sec. 172, in those cases provisions of section 194C and 195 for deduction of TDS does not apply.
9. It was observed by the Ld. CIT(A) that the AO had called for some information relatable to this issue during the assessment proceedings. The AR had submitted before the Ld. CIT(A) that the time available/opportunity for furnishing the information was very limited and hence the concerned information on the issue of addition u/s.40(ia) has been filed in the course of appeal proceedings only. This was an additional evidence which was accepted by the Ld. CIT(A) in view of inadequate opportunity provided by the AO to the assessee in the course 4 Fabwear Garments of assessment proceedings. Under rule 46A of the I.T. Rules, 1962, the additional evidence so admitted was forwarded to the AO vide this office letter No.CIT(A)XVIII/Rem.Report/IT.140/07-08 dated 14/3/2008. Against the same, the AO submitted the remand report on 27/3/2008. In the said report, the AO has given the finding that the provisions of TDS were not applicable in the case of freight expenses with reference to Al- Cargo Mover India Pvt. Ltd. The Ld. CIT(A) gave the relief of freight expenses of Rs. 2,47,704/- for AL-Cargo Mover India Pvt. Ltd.
10. Further the Ld. CIT(A) held as follows:
"Regarding payments to Trans-Cargo Services, the AO has stated that "the assessee has provided no details of the work done by the Trans-Cargo Services on their own or on behalf of any other agency. A simple letter which encloses certificate u/s.197 issued to parties whose relationship to the assessee or Trans-Cargo Services is not mentioned cannot be accepted as a declaration of any sort".
The AR has drawn my attention that in case of declaration filed by AI Cargo Movers stating that they are shipping agents of ECU - Line Abu Dhabi LLC UAE was duly accepted by the AO. As against this, similar declaration / letter by Trans India Cargo Services (that they are acting as custom clearing agents and booking agents for the air space for various export shipments of the appellant) was not accepted by the AO. The AR has pointed out that the AO has taken on record the copies of certificates of shipper during the assessment proceedings also and has not asked for any further submission in respect of the same. The AR has also pointed out that in other cases, the AO has allowed the export freight on the basis of declaration alone and no further details were sought at the time of assessment proceedings. The photo copies in this regard are shown and enclosed by the AR.
I have carefully considered the arguments of the AO in the assessment order and the remand report placed against the submission of the AR on this ground. I observe that the AO has not adopted uniform stand in the matter of acceptance. The AO is directed to adopt the same criteria as has been shown in case of AI Cargo Movers and many other similar cases in the course of the assessment proceedings / remand proceedings. I understand that when this uniform criteria is adopted, the appellant would be entitled for the deduction of export freight payment of 5 Fabwear Garments RS.11,80,430/- to Trans Cargo. However, the addition made by the AO in respect of Modern Cargo Services is sustained. This ground of appeal is thus partly allowed."
11. Aggrieved, Revenue is in appeal before us and raised the following grounds:
iii. "On the facts and circumstances of the case the Ld. CIT(A) erred in deleting the addition of Rs. 1180430/- made u/s. 40(a)(ia) in respect of freight charges paid to M/s. Trans Cargo Services iv. On the facts and circumstances of the case the Ld. CIT(A) erred in not appreciating the fact that documents issued does not bear the name of the assessee and freight expenses paid at Rs. 1180430/- to Trans Cargo Services on which no TDS has been deducted."
12. The Ld. Departmental Representative Shri T.T. Jacob relied on the grounds of appeal preferred by the department.
13. The Ld. Counsel for the assessee Shri Sanjiv M. Shah on the other hand took us through the Paper Book and pointed out that with respect to Trans Cargo Services details of freight on export sales has been produced at page 37 of the paper book. At page 39 of the paper book the letter dt. 26.2.2008 from Trans (I) Cargo Services addressed to Fabwear Garments which is as follows:
To:
Fabwear Garments, Mumbai Dear Sir, "As requested by you we are enclosing herewith certificate u/s. 197, issued by income-tax authority in favour of various air lines for non deduction of TDS on Air freight.
In this regards, we would like to inform you that we are acting as custom clearing agent and booking the air space for your various export shipments. The freight amount which we have 6 Fabwear Garments recovered by you and same amount paid to air lines. This amount is not liable to deduct the TDS.
Thanking you, Yours faithfully, (For TRANS (I) CARGO SERVICES)
15. In short, the certificate/declaration from the shipping companies which was submitted with respect to the freight paid to parties as appearing in S. Nos. 2 to 6 has also been given with respect to Trans(I) Cargo Services and hence rightly held by the Ld. CIT(A), the AO should have taken uniform stand and adopted the same principle that if the payments are made to non-resident ship owners or their shipping agents who are governed by the provisions of Sec. 172 and accordingly provisions of Sec. 192C and 195 for deduction of TDS does not apply to them. Hence we confirm the order of the Ld. CIT(A) in allowing the export freight payment of Rs. 11,80,430/- to Trans Cargo Services. Therefore these grounds raised by the department are dismissed.
16. Ground Nos. 5 & 6 raised by the Revenue read as follows:
v) "On the facts and circumstances of the case the Ld. CIT(A) erred in not appreciating the fact that the sundry balances written off amounting to Rs. 4,03,507/- as non-revenue expenditure besides the proof of genuineness of the claim.
vi) On the facts and circumstances of the case the Ld. CIT(A) erred in allowing the loss of Rs. 8,28,312/- as revenue expenditure without appreciating the fact that fault in supply of goods to AEPC and consequential forfeiture of EMD is due to attributable to assessee's own negligence."
17. The A.O. in para 3 has given details and also reasons for disallowing the same by holding that these expenses are not under the purview of expenses to be claimed as revenue expenditure. The assessee 7 Fabwear Garments has given advances to fabric manufacturers and suppliers for procuring fabrics for manufacturing garments. They have also given earnest money deposit to Apparel Export Promotion Council which was forfeited for non- performance of export obligations. It is submitted that advances and EMD deposits were given for the purpose of business of the assessee and hence they are of revenue nature, allowable u/s.28.
18. Before the Ld. CIT(A) the assessee's representative has referred the following decisions in support of its case:
A.W. Figgis & Co. P. Ltd. V CIT 254 ITR 63 (Cal) Nandan Mathuradas & Co. V. CIT 35 ITR 461 (Bom) CIT V. Laxmi Mills Co. Ltd. 135 ITR 203 (MAD) CIT V. Sugar Dealer 100 ITR 424 (All) Jwalaprasad Radhakishan V. CIT 79 ITR 530 (All)
19. The Ld. CIT(A) held as follows:
"I find force in assessee's submissions and in view of the legal decisions, I hold that the expenses of Rs.12,15,234/- are incidental to carrying on business and direct the A.O. to treat these expenses as revenue expenses u/s. 28 of the I.T. Act, 1961."
20. Aggrieved Revenue is in appeal before us. The Ld. DR relied on the order of the AO.
21. The Ld. Counsel for the assessee relied on the order of the ITAT Mumbai 'E' Bench in the case of Texport Syndicate (I) Ltd., Vs JCIT in ITA No. 753/M/09 for assessment year 2005-06 where the ITAT has considered the decision of Hon'ble Supreme Court in the case of CIT Vs Ahmedabad Cotton Mfg. Co. Ltd. 205 ITR 163 and the Madras High Court in the case of Surya Mills Ltd. 123 ITR 654 and held as follows:
"We are of the view that the amount paid by the assessee to the AEPC for not fulfilling the quota conditions is not in the nature of penalty for violation of any law, but the same is the amount paid as compensatory for not fulfilling the quota conditions and allowable 8 Fabwear Garments u/s. 37 of the I.T. Act. The payment has direct nexus with the business of the assessee and, therefore, incurred in relation to the exercise and performance of the business obligation of the assessee and not in any violation of statute. Accordingly, we set aside the order of the lower authorities on this issue and allow the claim of the assessee."
Respectfully following the decision of the Co ordinate Bench of the Tribunal, we allow the deposit forfeited by AEPC due to the default of the assessee as we are of the view that the amount paid by the assessee to the AEPC for not fulfilling the quota conditions is not in the nature of penalty for violation of any law, but the same is the amount paid as compensatory for not fulfilling the quota conditions and allowable u/s. 37 of the I.T. Act.
22. With respect to the advance given to the suppliers, we allow the same relying on the decision in the case of CIT Vs Lakshmi Mill Co. 135 ITR 203. The assessee has given advances to the suppliers namely mills who have to give the assessee raw materials for manufacturing garments. The non supply of material is in the course of assessee's business and is to be treated as a trading loss. Hence these grounds raised by the Revenue are dismissed.
23. In the result, the appeal filed by the Revenue is partly allowed.
ITA No. 6292/Mum/2008- A.Y. 2005-0624. The Ld. CIT(A) had allowed the deduction of export freight payment with respect to S. Nos. 1 to 5 of the chart. The Ld. CIT(A) disallowed and confirmed the addition made by the AO in respect of Modern Cargo Services Pvt. Ltd. amounting to Rs. 2,52,910/-.
25. The Ld. Counsel for the assessee aggrieved has filed before us and submitted that DTA agreement has to be examined and submitted that it 9 Fabwear Garments was not trade and part of sale price hence he requested that the matter should be sent back for verification of the place of effective management in order to determine the deduction of freight charges. The assessee also submitted the invoice with respect to Modern Cargo Services Pvt. Ltd and the Airway Bill. However, in the absence of certificate u/s. 197 which had been produced in all other cases the reasoning given by the Ld. CIT(A) that the certificate could have been given by the assessee as he had done with respect to other freight charges, appears to be correct. We confirm the addition of Rs.2,52,910 being payment of freight on export sales made to Modern Cargo Pvt. Ltd., for non deduction of tax at source u/s. 40a(ia) of the I.T. Act, 1961.
26. In the result, the appeal filed by the assessee is dismissed.
Order pronounced on this 30th day of June, 2011 Sd/- Sd/-
(P.M. JAGTAP) (ASHA VIJAYARAGHAVAN)
Accountant Member Judicial Member
Mumbai, Dated 30th June, 2011
Rj
Copy to :
1. The Appellant
2. The Respondent
3. The CIT-concerned
4. The CIT(A)-concerned
5. The DR 'F' Bench
True Copy
By Order
Asstt. Registrar, I.T.A.T, Mumbai
10 Fabwear Garments
Date Initials
1 Draft dictated on: .06.2011 Sr.
PS/PS
2. Draft placed before author: .06.2011 ______ Sr.
PS/PS
3. Draft proposed & placed before _________ ______ JM/AM
the second member:
4. Draft discussed/approved by _________ ______ JM/AM
Second Member:
5. Approved Draft comes to the Sr. _________ ______ Sr.
PS/PS: PS/PS
6. Kept for pronouncement on: _________ ______ Sr.
PS/PS
7. File sent to the Bench Clerk: _________ ______ Sr.
PS/PS
8. Date on which file goes to the _________ ______
Head Clerk:
9. Date on which file goes to AR
10. Date of dispatch of Order: _________ ______