TEXPORT SYNDICATE (I) LTD, MUMBAI V. JCIT 14(2), MUMBAI

ITA 753/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48834 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 28-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 04-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M D SONGATE
• Keywords: Business expenditure; Commercial expediency
• Section: 37

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E : MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER I.T.A. NO. 753/MUM/2009 ASSESSMENT YEAR 2005 - 2006 TEXPORT SYNDICATE (I) LTD., PLOT NO.6, F-11 & 12, SEEPZ, CENTRAL RD, MIDC, ANDHERI (E), MUMBAI. PAN: AAAFT1077A VS. JOINT COMMISSIONER OF INCOME TAX, 14 (2), MUMBAI. (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI M.M. CHATURVEDI / RISHAB H CHATURVEDI FOR RESPONDENT : SHRI M.D.SONGATE D.R. ORDER PER VIJAY PAL RAO , J.M: 1. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 19 TH NOVEMBER, 2008 OF CIT (APPEAL) XIV, MUMBAI FOR THE ASSESSMENT YEAR 2005-2006. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL: 1) IN CONFIRMING DISALLOWANCE BY ASSESSING OFFICER OF RS. 38,39,169/- ON ACCOUNT OF FORFEITURE OF DEPOSITS BY APPAREL EXPORT PROMOTION COUNCIL DUE TO NON-UTILIZATION OF QUOTAS. 2) IN HOLDING IN PARAGRAPH 10 ON PAGE 13 OF HIS ORDER THAT FORFEITURE OF DEPOSIT IS IN THE NATURE OF PENALTY COVERED UNDER E XPLANATION TO SECTION 37 OF THE ACT. 3. THE ASSESSEE IS A TRADER, MANUFACTURER AND EXPOR TER OF READYMADE GARMENTS. DURING THE ASSESSMENT THE ASSESSING OFFICER NOTICED FROM THE 3CD REPORT THAT THE ASSESSEE PAID A PENALTY OF RS. 38,39,169/- TO APPAREL EXPORT PROMOT ION COUNCIL. ACCORDINGLY THE ASSESSING OFFICER DISALLOWED THE SAID AMOUNT OF RS. 38,39,169 /- BEING PENALTY PAID TO THE APPAREL EXPORT PROMOTION COUNCIL (IN SHORT AEPC) BY APPLYI NG EXPLANATION TO SEC. 37 OF THE ACT. ON 2 APPEAL, THE LD. CIT (A) HAS CONFIRMED THE ACTION OF THE ASSESSING OFFICER WHILE PASSING THE IMPUGNED ORDER. 4. BEFORE US THE LD. A.R. HAS SUBMITTED THAT EVERY EXPORTER HAS TO KEEP SOME DEPOSITS WITH AEPC WHILE APPLYING FOR QUOTAS WHICH ARE REQUI RED FOR THE PURPOSE OF EXPORTS TO QUOTA COUNTRIES. THE PAYMENT OF QUOTA PREMIUM AND KEEPIN G DEPOSITS WITH THE AEPC IS A ROUTINE BUSINESS TRANSACTION. SOMETIMES, IN THE INTEREST O F BUSINESS, THE EXPORTER THINKS IT PRUDENT NOT TO EXPORT AND LET THE QUOTA LAPSE IF THE ORDERS ARE NOT PROFITABLE AND CONSEQUENTLY THE DEPOSITS KEPT WITH AEPC ARE FORFEITED. THE FORFEIT URE OF THE DEPOSIT IS PURELY THE COMMERCIAL DECISION TAKEN BY THE BUSINESSMEN AND NO T IN THE NATURE OF ANY VIOLATION OF LAW. HE HAS POINTED OUT THAT THE AEPC IS NOT A STA TUTORY BODY AND PENALTIES ARE LEVIED FOR NON-FULFILLMENT OF QUOTA CONDITIONS. THESE CONDITI ONS ARE NOT LEGAL REQUIREMENTS AND THEREFORE, THERE IS NO CONTRAVENTION OF THE LAW. HE HAS RELIED UPON THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF CIT VS. MANEKLAL HARILAL SPG. MFG. CO. LTD., 141 ITR 129 ; THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CI T VS. AHMEDABAD COTTON MFG. CO. LTD., 205 ITR 163; DECISION OF HONBLE MADHYA PRADESH HIG H COURT IN THE CASE OF CIT VS. RAJKUMAR MILLS LTD., 135 ITR 811; DECISION OF MADRAS HIGH CO URT IN THE CASE OF CIT VS. SURYA PRABHA MILLS (P.) LTD., 123 ITR 654. 5. ON THE OTHER HAND THE LD. D.R. HAS SUBMITT ED IN THE REPORT FORM 3CD, THE ASSESSEE HAS MENTIONED THE AMOUNT OF PENALTY PAID TO THE AEPC. ONCE THE PAYMENT IS IN THE NATURE OF FINE OR PENALTY, THE SAME FALLS UNDER THE EXPLANATI ON TO U/S 37 OF THE INCOME TAX ACT AND LIABLE TO BE DISALLOWED. HE HAS RELIED UPON THE OR DER OF THE LOWER AUTHORITIES. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND RELEVANT RECORD. THE AMOUNT IN QUESTION REPRESENTS THE FORFEITURE OF DEPOSITS MADE BY THE A SSESSEE WITH THE AEPC AGAINST THE QUOTA AVAILED BY THE ASSESSEE BUT COULD NOT EXPORT AS PER THE CONDITION OF THE QUOTA. THEREFORE, AS PER THE TERMS AND CONDITIONS OF THE QUOTA GRANTE D TO THE ASSESSEE FOR THE EXPORT OF GARMENTS IF THE ASSESSEE FAILED TO EXPORT THE MINIM UM QUANTITY, THE DEPOSIT IS LIABLE TO BE FORFEITED AS PER THE TERMS OF THE QUOTA GIVEN BY TH E AEPC. THE SIMILAR ISSUE HAS BEEN CONSIDERED AND DECIDED BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. MANEKLAL HARILAL SPG. MFG. CO. LTD. (SUPRA). IN THE SAID CA SES THE ISSUE WAS THE PAYMENT MADE BY THE ASSESSEE TO THE INDIAN COTTON MILLS FEDERATION FOR ITS FAILURE TO MAKE THE QUOTA OR IMPORT 3 ALLOTMENT QUOTA FOR CERTAIN VARIETIES OF COTTON WIT HIN THE SPECIFIED TIME. THE ANOTHER ISSUE WAS THE PAYMENT MADE TO THE TEXTILE COMMISSIONER UN DER THE PROVISIONS OF CL. 21 C(1)(B) OF COTTON TEXTILE (CONTROL) ORDER, 1948. THE HONBLE GUJARAT HIGH COURT HAS HELD AS UNDER. IN OUR OPINION, THE RATIO OF THE DECISION OF THIS C OURT IN ADDL. CIT V. RUSTAM JEHANGIR VAKIL MILLS LTD. [1976] 103 ITR 298 , WILL APPLY TO THE AFORESAID CLAIM MADE BY THE ASSESSEE. ON THE SAME PRINCIPLE ON WHICH THE PAYMENTS MADE TO THE TEXTILE COMMISSIONER UNDER THE PROVISIONS OF CL. 21C(1)(B) OF THE COTTON TEXTILE (CONTROL) ORDER, 19 48, ARE ALLOWABLE EXPENDITURE, THE AFORESAID PAYMENTS MADE TO THE FED ERATION ARE ALLOWABLE EXPENDITURE. WE DO NOT SEE ANY FORCE N THE REVENUE S ARGUMENT THAT THE PAYMENTS MADE TO THE FEDERATION PARTAKES THE CHARAC TER OF PENALTY. NO BREACH OR INFRACTION OF LAW ON THE PART OF THE ASSE SSEE HAS BEEN POINTED OUT TO US. IN OTHER WORDS, IT IS NOT THE REVENUES CAS E THAT IT WAS ON ACCOUNT OF ANY INFRACTION OF LAW COMMITTED BY THE ASSESSEE THA T IT WAS REQUIRED TO MAKE THE AFORESAID PAYMENTS BY WAY OF PENALTY. THE PAYMENTS ARE DIRECTLY LINKED OR CONNECTED WITH THE BUSINESS OF ASSESSEE. IT WAS DUE TO THE COMMERCIAL EXPEDIENCY THAT THE ASSESSEE DID NOT IMP ORT COTTON OF THE VARIETY KNOWN AS AMERICAN PL 480 AND PREFERRED TO M AKE PAYMENT TO THE FEDERATION AS THE COTTON OF THIS VARIETY WAS NOT RE QUISITE QUALITY WHICH IT COULD PROFITABLY USE FOR ITS BUSINESS. IT MUST, TH EREFORE, BE HELD THAT THE EXPENDITURE WHICH THE ASSESSEE INCURRED IN MAKING T HE AFORESAID PAYMENT WAS A BUSINESS EXPENDITURE, DEDUCTION OF WHICH IS A LLOWABLE UNDER LAW. WE ARE, THEREFORE, OF THE VIEW THAT THE TRIBUNAL WAS J USTIFIED IN CONFIRMING THE ORDER OF THE AAC DELETING THE DISALLOWANCE OF THE S AID EXPENDITURE IN EACH OF THE ASSESSMENT YEARS UNDER CONSIDERATION. FOR T HE AFORESAID REASONS THE FIRST QUESTION WHICH IS REFERRED TO US FOR OUR OPIN ION AT THE INSTANCE OF THE REVENUE MUST BE ANSWERED IN THE AFFIRMATIVE AND AGA INST THE REVENUE. IN OTHER WORDS, ALL THE THREE QUESTIONS REFERRED TO US ARE ANSWERED AGAINST THE REVENUE. 7. SIMILARLY, IN THE CASE OF CIT VS. AHMADABAD COTTON MFG. CO. LTD. THE HONBLE SUPREME COURT HAS HELD THAT THE AMOUNT PAID BY THE ASSESSEE WAS IN EXERCISE OF OPTION CONFERRED UPON HIM UNDER THE LAW OR SCHEME C ONCERNED AND THE ASSESSING AUTHORITY HAS TO REGARD SUCH PAYMENT AS BUSINESS EX PENDITURE OF THE ASSESSEE ALLOWABLE U/S 37 AS LAID OUT AND EXPENDED ONLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. SIMILAR VIEW HAS BEEN TAKEN BY THE HONB LE MADHYA PRADESH HIGH COURT IN THE CASE OF CIT VS. RAJKUMAR MILLS LTD., AS WELL AS HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SURYA PRABHA MILLS (P.) LTD., ( SUPRA). 4 8. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT AS WELL AS THE HONBLE HIGH COURT AS RELIED UPON BY THE ASSESS EE, WE ARE OF THE VIEW THAT THE AMOUNT PAID BY THE ASSESSEE TO THE AEPC FOR NOT FUL FILLING THE QUOTA CONDITIONS IS NOT IN THE NATURE OF PENALTY FOR VIOLATION OF ANY L AW, BUT THE SAME IS THE AMOUNT PAID AS COMPENSATORY FOR NOT FULFILLING THE QUOTA C ONDITIONS AND ALLOWABLE U/S 37 OF THE INCOME TAX ACT. THE PAYMENT HAS DIRECT NEXUS W ITH THE BUSINESS OF THE ASSESSEE AND, THEREFORE, INCURRED IN RELATION TO TH E 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. 9. IN RESULT, THE APPEAL FILED BY THE ASSESSEE IS A LLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 13 THE DA Y OF MAY, 2011. SD/- SD/- (P.M. JAGTAP) (VIJAY P AL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE 13 TH , MAY, 2011 OKK* COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT (A) CONCERNED 4. THE CIT CONCERNED 5. DR E BENCH 6. GUARD FILE. TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI BENCHES