Income Tax Appellate Tribunal - Mumbai
Agnelo Almeida , Mumbai vs Department Of Income Tax on 10 March, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "A ",MUMBAI
BEFORE SHRI R.K. GUPTA (JM) & SHRI PRAMOD KUMAR (AM)
ITA NO.382/Mum/2007
(A.Y. 2003-04)
Asst.Commr. of Income-tax-25(1),
202, C-11, Pratyakshkar Bhavan,
BKC, Bandra (E),
Mumbai-400 051.
Vs.
Mr. Agnelo Almeida,
Prop. of M/s. Pesinao Enterprises, B-405, Ashish Complex No.11,
Dahisar (E), Mumbai-400 067.
PAN: AAYPA7592D.
Appellant
Respondent
Appellant by
Shri S.K. Madhuk.
Respondent by
Shri F.V. Irani.
ORDER
PER R.K. GUPTA, JM :
This appeal by the department is directed against the order of the CIT(A)-XXV, Mumbai, pertaining to asstt. year 2003-04.
2. The following grounds of appeal have been taken by the department :
1. "On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in admitting fresh evidence without giving reasonable opportunity to the assessing officer as per Rule 46A(3) of I.T. Rules.
2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting Drug Registration Fees paid, refreshment expenses, vehicle expenses, sales promotion expenses paid by Nigerian party on behalf of the assessee without there being any RBI permission obtained by the assessee.
3. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in allowing car expenses paid in Nigeria which include car purchase expenses.
4. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in not disallowing deduction under section 80-HHC on the amounts deducted from the assessee's accounts by Nigerian party as these amounts were not received by the assessee in convertible foreign exchange in India within stipulated time."
3. The AO disallowed a sum of Rs.20 lakhs paid by the assessee as registration fees at Nigeria for drug products exported by the assessee as per Drug Policy of Nigeria. The AO disallowed the claim due to the reason that payment is made by M/s. St. Michael Pharmaceuticals Ltd. of Nigeria and not by the assessee. According to the AO, RBI permission is not taken for making payment to M/s. St. Michael Pharmaceuticals Ltd. of Nigeria. He further observed that if the fee amount is not reimbursed to the above stated party of Nigeria, then the liability should have appeared in the balance-sheet while the creditors appearing in the balance-sheet do now show it.
4. Similarly, the AO disallowed a sum of Rs.16,02,500/- for rent of accommodation and food expenses incurred at Nigeria. A sum of Rs.10,61,622/- was also disallowed which was spent by the assessee on running and maintenance of motor car and running and maintenance of three delivery vans taken on hire for local conveyance and transportation of drugs exported by the assessee to Nigeria. Further, a sum of Rs.2,61,089/- was disallowed on account of sales promotion expenses incurred on printing of brochures, pamphlets for products and foods and beverage to customers and local salesmen at Nigeria. The AO disallowed the above claim of the assessee due to the reason that for reimbursement of expenses no RBI permission is taken. If liability on account of above stated three expenses is not yet paid, then the expenses should have appeared in the balance-sheet. The AO further observed that if somebody incurred expenses on behalf of the assessee, then the sources of reimbursement should have been filed.
5. Detailed written submissions were filed before the CIT(A) in respect of all the additions stated above. It was submitted before him that the AO has mentioned in his order that no details had been filed in respect of expenses incurred by the assessee at Nigeria. Paper book containing pages 1 to 139 was filed on 13-6-2006 and further paper book containing pages 1 to 137 was filed on 18-10-2006. In the written submissions, it was explained before the CIT(A) that the assessee is carrying on manufacturing activity as contract manufacturer from the manufacturing premises in the name of Saphire Capsules Pvt. Ltd., Thane, India, in the name of The Pharmaceuticals Products of India Ltd., MIDC, Navi Mumbai, and in the name of Bio Nova Pharmaceuticals P. Ltd., Okhla Industrial Area, Phase-II, New Delhi. It was further explained that during the year under consideration the drug products manufactured by the assessee from the above three factories had been exported to Nigeria. The drug products exported to Nigeria are to be registered with National Agency for Food, Drug and Administration Control of Nigeria (NAFDAC). It was explained that the assessee is exporting drugs to M/s. St. Michael Pharmaceuticals Ltd. and others since last several years. During the financial year relevant to asst. year 2003-04, the assessee raised export invoices to the customers. As per strict policy of NAFDAC, the assessee registered itself for drug products and paid drug registration fees. The registration has to be done in the name of manufacturers as they are from out side Nigeria. Instead of sending money from India for registration of drugs, the assessee requested its client M/s. St. Michael Pharmaceuticals Ltd. to make payment for drug registration fee and other incidental cost on behalf of the assessee and adjust sale proceeds of the products or to get the reimbursement of the same from the assessee. During the course of assessment proceedings, all these details were explained to the AO. Copy of account of the assessee with M/s. St. Michael Phamaceuticals Ltd., confirmation of M/s. St. Michael Pharmaceuticals Ltd., copies of registration fees paid and evidence of drugs registered etc. were filed before the AO and explained also. In respect of RBI permission, it was submitted that it is not required to be sought because the payment was made from Nigeria by the client of the assessee and as discussed above, the same is adjusted against the sale proceeds payable by the Nigerian party. It was further explained that since the payment has already been made, it does not appear in the balance-sheet. Attention of CIT(A) was drawn to copies of all the relevant details placed on record.
6. Regarding the other disallowance i.e. on account of rent of accommodation, food expenses, running and maintenance of motor car and sales promotion expenses, it was submitted that all the details were filed before the AO along with evidences. It was explained that the assessee had taken the premises on rent on 1-10-2002 at Nigeria. Copy of the agreement of rent was also submitted, according to which premises is taken on leave & licence basis for 36 months starting from 1-10-2002 to 30-9-2005 and monthly rent of Rs.2,50,000 Niara (Nigerian currency) was fixed. Copies of monthly rent receipts issued by the land owner were also filed before the AO as well as before the CIT(A). Apart from rent, the expenses incurred on vehicle and on sales promotion were also explained. All the relevant details were filed. It was further submitted that all these expenses were incurred out of sale proceeds on account of exports to Nigeria and they were adjusted against the bills of Nigerian party. Therefore, for this reason, the items are not appearing in the balance-sheet. Copy of account with Nigerian party showing these expenses adjusted towards the bills of the assessee was also filed. After considering the submissions and perusing the material on record, the ld. CIT(A) found that the AO was not justified in disallowing the above stated expenses. Finding with regard to registration fees is given in para 4.4 at page 4 of CIT(A)'s order and findings with regard to other disallowances made by the AO are given in para 5.3 at page 6 of CIT(A)'s order. These findings are as under :
"4.4 I have gone through the submissions and find that the AO has confused the whole issue. Appellant is exporter of drugs at Nigeria. His major customer is M/s.St. Michael Pharmaceuticals Ltd. of Nigeria. Drugs are manufactured for appellant on job work basis by Saphire Capsules Pvt. Ltd., The Pharmaceuticals Products of India and Bio Nova Pharmaceuticals Pvt. Ltd. as discussed in the preceding para. For exporting the drugs in Nigeria, drug registration fee is paid by appellant. Since fee is paid by Nigerian customer of appellant on behalf of appellant, same is deducted by Nigerian party M/s. St. Michael Pharmaceuticals Ltd. from the sale proceeds reimbursable to the appellant. I have gone through the copy of accounts of appellant in the books of above stated Nigerian customer for the period 1.4.02 to 31.3.03 and find that against total sale proceeds receivable by appellant of Rs.1,62,39,722/-, drug registration fee is adjusted as under :-
9.11.02 Rs.3,20,000/-
2.11.02 Rs. 8,000/-
21.1.03 Rs.7,80,000/-
25.1.03 Rs.8,92,000/-
Total Rs. 20 lacs.
Copies of invoices showing drug registration and fees charged by NAFDAC are filed before he undersigned. Since amount is directly adjusted against the amount receivable from M/s. St. Michael Pharmaceuticals Ltd., no RBI permission was required. Appellant has not sent the money from India. The liability has been incurred by the appellant exclusively for the purpose; of business and is paid through its client at Nigeria, claim of Rs.20 lacs is allowed. In view of above, this ground of appeal stands allowed."
"5.3 I have gone through the details related to the expenses and the bills and vouchers and find that appellant is exporting drug at Nigeria. Appellant incurred expenses at hotel for stay before the premises was taken on rent and employed one employee Mr. Paresh John D'Abreo and sent him from India to look after the work of sales there. Appellant bought a car and incurred expenses there. Instead of sending amount for the expenditure from India, appellant got the sale proceeds receivable from M/s. St. Michael Pharmaceuticals Ltd. adjusted at Nigeria itself and got the balance amount from Nigerian client. Thus, there was no need of taking permission from RBI. Since the whole amount is paid in the year under consideration, there is no question of any outstanding liability in Balance Sheet. Amount is undoubtedly incurred for the purpose of business. In view of above, claim of appellant of Rs.16,02,500/- on account of rent and foods expenses of appellant and his employees at Nigeria and Rs.10,61,622/- on account of vehicle and delivery vans taken on hire for local conveyance and transportation of drugs exported by the appellant and Rs.2,61,089/- as sales promotion expenses incurred on printing of brochures, pamphles for products and foods and beverage to customer and local sales men is allowed. GroundNo.3, 4 and 5 stand allowed."
7. Now, the department is in appeal here before the Tribunal.
8. The ld. D.R. submitted that the CIT(A) has accepted additional evidence in violation of Rule 46A; therefore, the matter should be sent back to the file of AO to allow him to examine the details filed before the CIT(A). It was further submitted that the AO has categorically mentioned in his order that no details whatsoever were filed before him. Attention of the Bench was drawn to para 4.2 of the order of AO.
9. In reply, the ld. counsel of the assessee stated that an objection was raised before the CIT(A) in respect of the observation of AO that no details had been filed. Affidavit of the assessee was also filed before the CIT(A) stating therein that all the details required by the AO were filed. Attention of the Bench was drawn on pages 136 & 137 of the paper book wherein copy of affidavit is placed. Attention of the Bench was also drawn on pages 10 & 11 of the paper book where objections raised before the CIT(A) are mentioned. No fresh evidence was filed before the CIT(A). Therefore, this ground of the department is without any merit. Reliance was placed on the decision of ITAT, Mumbai Bench 'K', in the case of Industrial Roadways (112 ITD 293) and the decision of Bombay High Court in the case of Smt. Prabhavati S. Shah (231 ITR 1). Attention of the Bench was also drawn to various other details of the paper book which are copies of details filed before the AO & CIT(A). It was further submitted that the ld. D.R. had not brought anything on record to point out which details had been filed before the CIT(A) which were not before the AO. It was submitted that each and every detail in respect of drug registration fees, rent and food expenses and running and maintenance of motor car & hiring charges and sales promotion expenses were filed before the AO. Attention of the Bench was drawn on written submissions filed before the CIT(A) by which it was objected that the AO was wrong in observing in his order that no details had been filed.
10. We have heard the rival submissions and considered them carefully. After considering and submissions and perusing the material on record, we find no infirmity in the findings of the CIT(A). The CIT(A) has given a finding of fact after ascertaining all the expenses incurred by the assessee at Nigeria. There is no doubt that these expenses were incurred by the assessee at Nigeria for hiring accommodation, for purchasing car and hiring other vans for the purpose of transportation of drugs exported by the assessee and also sales promotion expenses incurred at Nigeria. The expenses were incurred after receiving the amounts from the party to whom the goods were exported at Nigeria. The respective amounts were adjusted against the bills raised by the assessee by the Nigerian party. Copy of the same was filed before the AO as well as the CIT(A). All these expenses are revenue in nature. The AO is also not doubting that they are revenue in nature. However, they had been disallowed by the AO mainly on the reason that permission from RBI has not been obtained. There was no need to obtain permission from the RBI as the amounts were not sent from India. The respective amounts were incurred through M/s. St. Michael Pharmaceuticals Ltd. to whom the drugs were exported by the assessee. All the expenses incurred there had been adjusted against the amounts receivable from the Nigerian party. As stated above, confirmation copies of accounts were also filed. All details in respect of each and every expense were filed. Therefore, in our considered view, the ld. CIT(A) has rightly deleted all these additions. The findings of CIT(A) have been reproduced in para 6 of this order which remain uncontroverted. Therefore, we hold that there was no additional evidence which was filed before the CIT(A) and accordingly there was no violation of the provisions of Rule 46A of the I.T. Rules. In view of the above facts and circumstances, we confirm the order of the CIT(A) in respect of the disallowances deleted by him.
11. Ground no. 4 does not arise out of the order of the CIT(A). Therefore, we dismiss the same as infructuous in nature.
12. In the result, the appeal of the department is dismissed.
Order pronounced on the 10th day of March, 2010.
Sd/- Sd/-
( PRAMOD KUMAR ) (R.K.GUPTA) (ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai: 10th March, 2010.
Copy to :
1. Department.
2.Assessee.
3 CIT(A)-XXV,Mumbai.
4 CIT-XXV,Mumbai.
5.DR,"A" Bench,Mumbai.
(TRUE COPY)
BY ORDER,
NG:
Asst.Registrar, ITAT, Mumbai.
Details
Date
Initials
Designation
1
Draft dictated on
3-3-2010
Sr.PS/
2
Draft Placed before author
4-3-2010
Sr.PS/
3
Draft proposed & placed before the Second Member
JM/AM
4
Draft discussed/approved by Second Member
JM/AM
5.
Approved Draft comes to the Sr.PS/PS
Sr.PS/
6.
Kept for pronouncement on
Sr.PS/
7.
File sent to the Bench Clerk
Sr.PS/
8
Date on which the file goes to the Head clerk
9
Date of Dispatch of order
PAGE 4
ITA 382/Mum/07
ITA 382//Mum/07