ITO, Tiruppur V. Cibi Internatiional, Tiruppur

ITA 1479/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4354 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: misc
• Appeal Filed On: 25-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVASJCIT
• Assessee Lawyers: T BANUSEKAR
• Keywords: Revenue expenditure
• Section: 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , .. ' #$, & '( BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.1731/MDS/2016 * +* / ASSESSMENT YEAR : 2011-12 M/S CIBI INTERNATIONAL PVT. LTD., NO.92/4, ANGERIPALAYAM ROAD, OPP. BISHOP SCHOOL, TIRUPUR 641 603. PAN : AAECC 0288 M V. THE JOINT COMMISSIONER OF INCOME TAX, TIRUPUR RANGE, TIRUPUR. (-./ APPELLANT) (/0-./ RESPONDENT) ./ ITA NO.1479/MDS/2016 & C.O. NO.102/MDS/2016 (IN I.T.A. NO.1479/MDS/2016) * +* / ASSESSMENT YEAR : 2010-11 THE INCOME TAX OFFICER, WARD I (2), TIRUPUR 641 602. V. M/S CIBI INTERNATIONAL, 17, KUMAR NAGAR SOUTH, TIRUPUR 641 603. (-./ APPELLANT) (RESPONDENT & CROSS-OBJECTOR) *12 3 4 /ASSESSEE BY : SH. T. BANUSEKAR, CA 5 3 4 /REVENUE BY : SHRI SHIVA SRINIVAS, JCIT ' 3 2& / DATE OF HEARING : 10.04.2017 67+ 3 2& / DATE OF PRONOUNCEMENT : 07.06.2017 2 I.T.A. NO.1731/MDS/16 I.T.A. NO.1479/MDS/16 C.O. NO.102/MDS/16 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THE ASSESSEE HAS FILED APPEAL FOR ASSESSMENT YEA R 2011-12 AND THE REVENUE HAS FILED APPEAL FOR ASSESSMENT YEA R 2010-11. THE ASSESSEE HAS FILED CROSS-OBJECTION FOR ASSESSME NT YEAR 2010- 11. SINCE COMMON ISSUE ARISES FOR CONSIDERATION IN BOTH THE APPEALS AND CROSS-OBJECTION, WE HEARD THE APPEALS A ND CROSS- OBJECTION TOGETHER AND DISPOSING OF THE SAME BY THI S COMMON ORDER. 2. THERE WAS A DELAY OF 613 DAYS IN FILING APPEAL B Y THE REVENUE. THE REVENUE HAS FILED AN AFFIDAVIT FOR CO NDONATION OF DELAY. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESEN TATIVE AND THE LD. REPRESENTATIVE FOR THE ASSESSEE. WE FIND T HAT THERE WAS SUFFICIENT CAUSE FOR NOT FILING THE APPEAL BY THE R EVENUE BEFORE THE STIPULATED TIME. THEREFORE, WE CONDONE THE DELAY A ND ADMIT THE APPEAL. 3. SH. T. BANUSEKAR, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT FOR ASSESSMENT YEAR 2011-12, THE ASS ESSEE RECEIVED A SUM OF ` 2 CRORES FROM M/S EASTMAN EXPORTS GLOBAL CLOTHING P VT. LTD. ACCORDING TO THE LD. REPRESENTATIVE, THIS AMO UNT OF ` 2 CRORES 3 I.T.A. NO.1731/MDS/16 I.T.A. NO.1479/MDS/16 C.O. NO.102/MDS/16 WAS RECEIVED FOR ENHANCEMENT OF INFRASTRUCTURE FACI LITY FOR THE BUSINESS OF M/S EASTMAN EXPORTS GLOBAL CLOTHING PVT . LTD. REFERRING TO AGREEMENT DATED 01.04.2009 BETWEEN THE ASSESSEE AND M/S EASTMAN EXPORTS GLOBAL CLOTHING PVT. LTD., THE LD. REPRESENTATIVE SUBMITTED THAT M/S EASTMAN EXPORTS G LOBAL CLOTHING PVT. LTD. COULD FORESEE LARGE ORDERS FROM THE BUYER S, THEREFORE, INTENDED TO ESTABLISH ADDITIONAL INFRASTRUCTURE FAC ILITIES TO MEET THE BUSINESS EXPECTATIONS. ACCORDING TO THE LD. REPRES ENTATIVE,, CONSIDERING THE LIMITATIONS ON CREATING AND MAINTAI NING HUGE INFRASTRUCTURE FACILITY, M/S EASTMAN EXPORTS GLOBAL CLOTHING PVT. LTD. APPROACHED THE ASSESSEE-COMPANY FOR ESTABLISHING TH E INFRASTRUCTURE FACILITIES. REFERRING TO CLAUSE 7 O F AGREEMENT, THE LD. REPRESENTATIVE SUBMITTED THAT M/S EASTMAN EXPORTS G LOBAL CLOTHING PVT. LTD. AGREED TO PROVIDE NECESSARY FUNDS FOR SET TING UP AND MAINTENANCE OF INFRASTRUCTURE FACILITIES AS AND WHE N NECESSARY. REFERRING TO CLAUSE 8 OF THE AGREEMENT, THE LD. REP RESENTATIVE SUBMITTED THAT M/S EASTMAN EXPORTS GLOBAL CLOTHING PVT. LTD. HAS THE RIGHT TO CLAIM THE AMOUNT PROVIDED THE ASSESSEE FAILS TO ESTABLISH AND MAINTAIN THE INFRASTRUCTURE FACILITIE S AS REQUIRED. REFERRING TO CLAUSE 9 OF AGREEMENT, THE LD. REPRESE NTATIVE 4 I.T.A. NO.1731/MDS/16 I.T.A. NO.1479/MDS/16 C.O. NO.102/MDS/16 SUBMITTED THAT IN CASE THE ASSESSEE PERFORMS THE RE QUIREMENTS MENTIONED IN THE AGREEMENT AND ESTABLISH THE INFRAS TRUCTURE FACILITY, THERE IS NO NEED FOR REPAYING THE SAID AMOUNT. IN VIEW OF THE ABOVE, ACCORDING TO THE LD. REPRESENTATIVE, WHAT WA S RECEIVED BY THE ASSESSEE IS FOR ESTABLISHING INFRASTRUCTURE FAC ILITIES FOR M/S EASTMAN EXPORTS GLOBAL CLOTHING PVT. LTD., HENCE, I T CANNOT BE CONSIDERED TO BE THE INCOME OF THE ASSESSEE AT ANY POINT OF TIME. 4. REFERRING TO THE ASSESSMENT ORDER, THE LD. REPRE SENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE AMOUNT ADVANCED BY M/S EASTMAN EXPORTS GLOBAL CLOTHING PVT. LTD. WAS SUBSEQUENTLY WRITTEN OFF. THEREFORE, THE ASSESSING OFFICER TREATED THE SAME A S INCOME OF M/S EASTMAN EXPORTS GLOBAL CLOTHING PVT. LTD. AND PROTE CTIVELY ASSESSED THE SAME IN THE HANDS OF THE ASSESSEE ALSO . 5. REFERRING TO THE ORDER OF THIS TRIBUNAL IN EASTM AN EXPORTS GLOBAL CLOTHING PVT. LTD. V. JCIT IN I.T.A. NO.1429 /MDS/2014 DATED 31.07.2014, THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THIS TRIBUNAL FOUND THAT EASTMAN EXPORTS GLOBAL CLO THING PVT. LTD., INSTEAD OF CREATING THE FACILITIES IN ITS OWN PREMI SES, SELECTED M/S CIBI INTERNATIONAL TO SHOULDER THE RESPONSIBILITY O F PRODUCTION OF 5 I.T.A. NO.1731/MDS/16 I.T.A. NO.1479/MDS/16 C.O. NO.102/MDS/16 KNITTED GARMENTS AND PAID AN AMOUNT OF ` 650 LAKHS. THIS TRIBUNAL FURTHER FOUND THAT THE PAYMENT RECEIVED BY THE PRES ENT ASSESSEE FROM M/S EASTMAN EXPORTS GLOBAL CLOTHING PVT. LTD. IS FOR THE PURPOSE OF CARRYING ON OF THE BUSINESS BY M/S EASTM AN EXPORTS GLOBAL CLOTHING PVT. LTD. AND NOT FOR CREATING ANY FACILITIES, THEREFORE, IT IS ALLOWABLE UNDER SECTION 37 OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). SIMILARLY IN I.T.A. NOS .101, 102 & 103/MDS/2016 IN DCIT V. M/S EASTMAN EXPORTS GLOBAL CLOTHING PVT. LTD., ACCORDING TO THE LD. REPRESENTATIVE, THIS TRI BUNAL HELD THAT THE AMOUNT OF ` 2 CRORES RECEIVED BY THE ASSESSEE FROM M/S EASTMAN EXPORTS GLOBAL CLOTHING PVT. LTD. WAS FOUND TO BE R EVENUE EXPENDITURE UNDER SECTION 37 OF THE ACT, FOR ASSESS MENT YEAR 2011- 12. SINCE THE AMOUNT RECEIVED BY THE ASSESSEE WAS USED FOR ESTABLISHING INFRASTRUCTURE FACILITY FOR MANUFACTUR ING KNITTED GARMENTS OF M/S EASTMAN EXPORTS GLOBAL CLOTHING PVT. LTD. FO R THE PURPOSE OF ITS BUSINESS, ACCORDING TO THE LD. REPRESENTATIVE, IT CANNOT BE TREATED AS A REVENUE RECEIPT IN THE HANDS OF THE AS SESSEE. IN CASE THE ASSESSEE COULD NOT MAINTAIN THE SUPPLY OF GOODS , NAMELY, KNITTED GARMENTS, THE ASSESSEE HAS TO COMPENSATE M/ S EASTMAN EXPORTS GLOBAL CLOTHING PVT. LTD. BY REPAYING THE A MOUNT. 6 I.T.A. NO.1731/MDS/16 I.T.A. NO.1479/MDS/16 C.O. NO.102/MDS/16 THEREFORE, ACCORDING TO THE LD. REPRESENTATIVE, IT CANNOT BE CONSIDERED AS INCOME IN THE HANDS OF THE ASSESSEE A T ANY POINT OF TIME. 6. ON THE CONTRARY, SHRI SHIVA SRINIVAS, THE LD. DE PARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSING OFFICE R MADE ADDITION OF ` 6.50 CRORES FOR ASSESSMENT YEAR 2010-11 AND ` 2 CRORES FOR ASSESSMENT YEAR 2011-12 TOWARDS THE AMOUNTS RECEIVE D / TO BE RECEIVED FROM M/S EASTMAN EXPORTS GLOBAL CLOTHING P VT. LTD. ON PROTECTIVE BASIS. A SIMILAR ADDITION WAS MADE IN T HE HANDS OF M/S EASTMAN EXPORTS GLOBAL CLOTHING PVT. LTD. FOR THE A SSESSMENT YEARS 2010-11 AND 2011-12. HOWEVER, ACCORDING TO THE LD. D.R., THIS TRIBUNAL FOUND THAT THE PAYMENT WAS MADE TO THE ASS ESSEE BY M/S EASTMAN EXPORTS GLOBAL CLOTHING PVT. LTD. FOR RUNNI NG THE BUSINESS AND NOT FOR CREATING THE FACILITIES TO RUN THE BUSI NESS. THIS TRIBUNAL ALSO FOUND THAT INSTEAD OF CREATING FACILITY IN ITS OWN PREMISES, M/S EASTMAN EXPORTS GLOBAL CLOTHING PVT. LTD. SELECTED THE PREMISES OF THE ASSESSEE TO SHOULDER THE RESPONSIBILITY OF PROD UCTION OF KNITTED GARMENTS BY ESTABLISHING INFRASTRUCTURE FACILITIES IN THEIR OWN PREMISES. THEREFORE, ACCORDING TO THE LD. D.R., TH E INFRASTRUCTURE FACILITIES ESTABLISHED BY THE ASSESSEE IS EXCLUSIVE LY FOR THE PURPOSE 7 I.T.A. NO.1731/MDS/16 I.T.A. NO.1479/MDS/16 C.O. NO.102/MDS/16 OF PRODUCING GOODS FOR M/S EASTMAN EXPORTS GLOBAL C LOTHING PVT. LTD. ACCORDING TO THE LD. D.R., AS RIGHTLY OBSERVE D BY THIS TRIBUNAL IN THE CASE OF M/S EASTMAN EXPORTS GLOBAL CLOTHING PVT. LTD., THE EXPENDITURE WAS INCURRED FOR RUNNING THE BUSINESS B Y PRODUCING KNITTED GARMENTS AND NOT FOR THE PURPOSE OF CREATIN G ANY FACILITIES TO RUN THE BUSINESS. ACCORDING TO THE LD. D.R., THE A SSESSEE ADMITTEDLY IS IN THE BUSINESS OF MANUFACTURING KNIT TED GARMENTS, THEREFORE, IN ORDER TO CATER TO THE NEEDS OF M/S EA STMAN EXPORTS GLOBAL CLOTHING PVT. LTD., THE ASSESSEE CREATED INF RASTRUCTURE FACILITIES BY UTILIZING THE FUNDS ADVANCED BY M/S E ASTMAN EXPORTS GLOBAL CLOTHING PVT. LTD. THEREFORE, ACCORDING TO THE LD. D.R., THE ASSESSING OFFICER HAS RIGHTLY MADE THE ADDITION ON PROTECTIVE BASIS WHICH WAS CONFIRMED BY THE CIT(APPEALS). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE RECEIVED ` 6.50 CRORES FOR THE ASSESSMENT YEAR 2010-11 AND ` 2 CRORES FOR ASSESSMENT YEAR 2011-12 FROM M/S EASTMAN EXPORTS GLOBAL CLOTHING PVT. LTD. THE CIT(APPEALS) CONFIRM ED THE ADDITION IN THE HANDS OF THE ASSESSEE ON THE BASIS OF THE OR DER OF THIS TRIBUNAL IN THE CASE OF M/S EASTMAN EXPORTS GLOBAL CLOTHING PVT. 8 I.T.A. NO.1731/MDS/16 I.T.A. NO.1479/MDS/16 C.O. NO.102/MDS/16 LTD. ALLOWING THE CLAIM AS REVENUE EXPENDITURE. TH E QUESTION ARISES FOR CONSIDERATION IS WHETHER ANY INCOME IS ACCRUED TO THE ASSESSEE ON THE PAYMENT MADE BY M/S EASTMAN EXPORTS GLOBAL C LOTHING PVT. LTD. FROM A BARE READING OF AGREEMENT SAID TO BE E NTERED BETWEEN THE PARTIES, IT IS OBVIOUS THAT M/S EASTMAN EXPORTS GLOBAL CLOTHING PVT. LTD. INTENDED TO CREATE ADDITIONAL INFRASTRUCT URE FACILITIES TO CONSIDER ORDERS FROM THE CUSTOMERS. THE ASSESSEE H AVING EXPERIENCE IN CREATING AND MAINTAINING SUCH FACILIT IES AND EXPERTISE IN MANUFACTURING KNITTED GARMENTS, AGREED TO M/S EA STMAN EXPORTS GLOBAL CLOTHING PVT. LTD. FOR CREATING NECESSARY IN FRASTRUCTURE FACILITY AND MANUFACTURING THE GOODS ON BEHALF OF M/S EASTMA N EXPORTS GLOBAL CLOTHING PVT. LTD. CLAUSE 2 OF AGREEMENT CL EARLY SAYS THAT M/S EASTMAN EXPORTS GLOBAL CLOTHING PVT. LTD. AGREE S TO PROCURE AND PROVIDE ALL MACHINERIES AND CAPITAL GOODS FOR E STABLISHMENT OF THE DESIRED INFRASTRUCTURE FACILITY AS MUTUALLY AGR EED BETWEEN THE PARTIES. THERE WAS A LIABILITY TO REPAY THE AMOUNT IN CASE THE ASSESSEE DEFAULTS IN PROVIDING THE FACILITIES AS AG REED. 8. FROM THE AGREEMENT IT IS OBVIOUS THAT WHAT WAS R ECEIVED BY THE ASSESSEE IS FOR THE PURPOSE OF CREATING INFRAST RUCTURE FACILITIES ON BEHALF OF M/S EASTMAN EXPORTS GLOBAL CLOTHING PVT. LTD. IN ORDER TO 9 I.T.A. NO.1731/MDS/16 I.T.A. NO.1479/MDS/16 C.O. NO.102/MDS/16 MEET THE BUSINESS REQUIREMENTS. AT THE BEST, THE A SSESSEE MAY BE ENTITLED FOR CERTAIN PERCENTAGE ON THE MANUFACTURED KNITTED GARMENTS. CLAUSE 17 OF AGREEMENT CLEARLY SAYS THAT THE ASSESSEE- COMPANY HAS TO MANUFACTURE THE KNITTED GARMENTS EXC LUSIVELY FOR M/S EASTMAN EXPORTS GLOBAL CLOTHING PVT. LTD. AND I T SHALL NOT UNDERTAKE SUCH EXERCISE TO ANY OTHER PERSON. THERE FORE, IT IS OBVIOUS THAT THE INFRASTRUCTURE FACILITY CREATED BY THE ASSESSEE AFTER RECEIVING ADVANCE FROM M/S EASTMAN EXPORTS GLOBAL C LOTHING PVT. LTD. IS FOR THE PURPOSE OF THE BUSINESS OF M/S EAST MAN EXPORTS GLOBAL CLOTHING PVT. LTD. AND CERTAINLY NOT THAT OF THE ASSESSEE. WHEN THE ASSESSEE HAS NO RIGHT TO USE THE FACILITIE S SET UP ON THE MONEY ADVANCED BY M/S EASTMAN EXPORTS GLOBAL CLOTHI NG PVT. LTD., THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE SAME CANNOT BE TREATED AS INCOME IN THE HANDS OF THE ASSESSEE. 9. THE MATTER WOULD STAND DIFFERENTLY IN CASE THE A SSESSEE IS GIVEN LIBERTY TO USE THE INFRASTRUCTURE FACILITIES AS IT LIKES. UNFORTUNATELY, SUCH A LIBERTY WAS NOT GIVEN TO THE ASSESSEE. THEREFORE, M/S EASTMAN EXPORTS GLOBAL CLOTHING PVT. LTD. IS USING THE INFRASTRUCTURE FACILITY CREATED BY THE ASSESSEE -COMPANY BY INVESTING THE MONEY ADVANCED BY EASTMAN EXPORTS GLO BAL CLOTHING 10 I.T.A. NO.1731/MDS/16 I.T.A. NO.1479/MDS/16 C.O. NO.102/MDS/16 PVT. LTD. FOR BUSINESS OF M/S EASTMAN EXPORTS GLOBA L CLOTHING PVT. LTD. AND NOT FOR BUSINESS OF THE ASSESSEE. THEREFO RE, THIS TRIBUNAL DO NOT FIND ANY JUSTIFICATION IN DISALLOWING THE CL AIM OF THE ASSESSEE. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES AR E SET ASIDE FOR THE ASSESSMENT YEAR 2011-12 IN I.T.A. NO. 1731/MDS/2016 AND THE ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. FOR ASSESSMENT YEAR 2010-11 IN I.T.A. NO.1479/MDS/2016, THE ORDER OF THE CIT(APPEALS) IS CONFIRMED. 10. THE CROSS-OBJECTION FILED BY THE ASSESSEE IS ON LY TO SUPPORT THE ORDER OF THE CIT(APPEALS) FOR ASSESSMENT YEAR 2 010-11, THEREFORE, IT BECOMES INFRUCTUOUS. 11. IN THE RESULT, I.T.A. NO.1731/MDS/2016 IS ALLOW ED, I.T.A. NO.1479/MDS/2016 IS DISMISSED AND C.O. NO.102/MDS/2 016 IS DISMISSED. ORDER PRONOUNCED ON 7 TH JUNE, 2017 AT CHENNAI. SD/- SD/- ( . . ' #$ ) ( . . . ) (D.S. SUNDER SINGH) (N.R.S. GANESAN) & / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 9 /DATED, THE 7 TH JUNE, 2017. KRI. 11 I.T.A. NO.1731/MDS/16 I.T.A. NO.1479/MDS/16 C.O. NO.102/MDS/16 3 /2#: ;:+2 /COPY TO: 1. *12 /ASSESSEE 2. /0-. /RESPONDENT 3. ' <2 () /CIT(A)-3, COIMBATORE 4. PRINCIPAL CIT-3, COIMBATORE 5. := /2 /DR 6. * > /GF.