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Income Tax Appellate Tribunal, DELHI BENCH: ‘F’ NEW DELHI
Before: SH. H.S. SIDHU & SH. O.P. KANT
ORDER PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 20/03/2013 of learned Commissioner of Income-tax (Appeals)-XVIII, New Delhi, for assessment year 2008-09 raising following grounds: “
1. That in the circumstances and facts of the case the Learned Assessing officer/CIT(A) has erred in making an addition of Rs. 12,00,000/- as unexplained cash credit U/s 68 of the Income Tax Act 1961.
2. That in the circumstances and facts of the case the Learned Assessing officer/CIT (A) has erred in making an addition on account of disallowing expenses of Rs. 36,23,810 /- incurred through Credit card.
3. That in the circumstances and facts of the case the Learned Assessing Officer/CIT(A) has erred in making an addition of Rs.10,000/-as estimated profit on Sale of shares
4. That in the circumstances and facts of the case the Learned Assessing officer/CIT(A) has erred in making an addition of Rs.1,73,769/- by disallowing bad debts written off by the assessee.
5. That in the circumstances and facts of the case the Learned Assessing Officer/CIT (A) has erred in making an addition of Rs.1,31,07,452/- out of sundry creditors claimed by the asseessee. 6. That the assessee seeks permission to add delete, amend or modify any ground (s) of appeal at the time of hearing.”
The facts in brief of the case are that the assessee was engaged in the business of manufacturing and resale of gold, silver jewellery and articles, artificial jewellery through retail sell points in Delhi and other cities in India. During the year under consideration, the assessee filed return of income declaring loss of Rs.20,24,655/-. The case was selected for scrutiny and notice under section 143(2) of the Income- tax Act, 1961 (in short ‘the Act’) was issued and served within the stipulated period. The assessment under section 143(3) of the Act was completed on 27/12/2010 at total income of Rs.1,60,90,380/- after making certain additions/disallowances to the returned income. On appeal, the learned Commissioner of Income-tax(Appeals) admitted additional evidences under Rule 46A of the Income-tax Rules, 1962 (in short ‘the Rules’) and after considering the comments of the Assessing Officer on the additional evidences and reply of the assessee on the comments of the Assessing Officer, she dismissed the appeal of the assessee. Aggrieved, the assessee is in appeal before the Tribunal, raising the grounds as reproduced above.
In ground No. 1, the assessee has challenged addition of Rs.12 lakhs deposited in the bank account as unexplained deposits. The fact in respect of issue in dispute are that according to the information available through the Annual Information Report (AIR), the assessee had Rs.12 lacs on 28/03/2008 in HDFC bank, Roop Nagar, New Delhi. The Assessing Officer required the assessee to explain the source of cash deposit. According to the Assessing Officer, the assessee only furnished copy of a bank Ledger for the month of March 2008 and, therefore, in absence of source of deposit of cash explained by the assessee, he held the same as unexplained deposit in terms of section 69 of the Act. Before learned Commissioner of Income-tax (Appeals), the assessee explained that cash was deposited in the HDFC bank out of cash-in-hand appearing in the cash book on the day and out of sale proceeds in cash. The assessee moved an application under Rule 46A of the Rules for admitting additional evidences consisting of copy of cash book for the year under consideration. In the rejoinder, the assessee also submitted summary of cash sales, credits sales and sales to credit cards etc. from various showrooms of the assessee company. The learned Commissioner of Income-tax (Appeals), however, observed that the assessee company did not furnish copy of the bank statement for the relevant period either as per his books of accounts or obtained from the bank. He further observed that authenticity of the cash book furnished by the assessee for the period under consideration was questionable in absence of supporting evidences. Further, the learned Commissioner of Income Tax (Appeals) observed that the assessee company’s head office and its branch office in Delhi were not in the vicinity of the branch of HDFC bank in which the cash deposit was made. In view of the observations, he upheld the addition made by the Assessing Officer. 3.1 Before us, learned Authorized Representative of the assessee submitted that summary of the breakup of the cash and credit sales were already furnished before the learned Commissioner of Income-tax (Appeals). A copy of such summary have been made available at page 80 to 87 of the assesses’s paper book. He also referred to the bank book 144 to page 183 of the assesses’s paper book. He also referred to the cash flow statement available on page 87 of the assesses paper book and submitted that there was total cash sales of Rs. 3.26 crore during the year and total cash deposits are of Rs. 2.32 crore, and accordingly he argued that learned Commissioner of Income Tax ( Appeals) was wrong in holding that cash deposit of Rs. 12 lakh was only solitary cash deposit. 3.2 On the other hand, learned Senior Departmental Representative relied on the order of the lower authorities and submitted that no bills and vouchers in support of the cash book were produced before the Assessing Officer even in remand proceeding and, therefore, authenticity of the cash book could not be verified, accordingly, he prayed that the addition made by the Assessing Officer might be sustained. 3.3 We have heard the rival submissions and perused the relevant material on record. We find that the issue in dispute is in respect of cash deposit of Rs.12 .00 lacs on 28/03/2008 in the HDFC bank account. The undisputed fact in the case is that cash book for the period under consideration was produced before the Assessing Officer but the supporting bills and vouchers were not produced before the Assessing Officer during remand proceeding and, therefore, the Assessing Officer could not verify the authenticity of source of cash deposits. In our opinion, if the bills and vouchers in support of cash book for the period under consideration are verified by the Assessing Officer, a clear decision can be made for justifying the source of cash deposits. Further, the observation of the learned Commissioner of Income Tax (Appeals) that branch of the Bank is not in the vicinity of Sales Centre of the assessee. We don’t agree, this as one of the reasons of the confirmation by the learned Commissioner of Income Tax (Appeals). The assessee has its own choice, in which branch of bank, it wants to deposit cash.
The Assessing Officer cannot decide how to conduct the business activity. In view of the facts and circumstances of the case, we feel it appropriate to restore the issue to the file of the Assessing Officer with the direction to the assessee to produce all bills/vouchers in support of cash book and also produce copy of bank book or bank statement for verification of the cash deposits. Nevertheless, the assessee shall be afforded sufficient opportunity of hearing. After examination of cash book, bills and vouchers and bank statement, the Assessing Officer is directed to pass order on the issue in dispute in accordance with law. Accordingly the ground of the assessee is allowed for statistical purpose.
In ground No. 2, the assessee challenged the addition on account of disallowing expenses of Rs.36,23,810/- incurred through credit cards. The Assessing Officer observed through information received from Annual Information Report (AIR) that the assessee company had incurred expenditure of Rs.36,23,810/- through the credit card of American Express bank during the year. According to the Assessing Officer, the assessee was required to furnish the credit card statement and details with source of the expenditure incurred with documentary evidence, however, the assessee furnished only name of the person to whom credit cards were issued, without any details of expenses or a statement of credit cards, accordingly, he held the expenditure of Rs.36,23 810/- as unexplained expenditure. Before the learned Commissioner of Income-tax (Appeals), the assessee moved an application under Rule 46A of the Rules for admitting additional evidences consisting of ledger account of American Express credit card etc., which were forwarded to the Assessing Officer for his comments. In the remand report sent, the Assessing Officer submitted that no documents in support of ledger of credit card expenses were filed before him. Before the learned Commissioner of Income-tax (Appeals), the assessee further submitted as under: “The appellant further submitted vide letter dated 07.02.2013 as under: - 2) Point No. 3 : Details of Expenses, purpose & copies of bills related to transactions executed on American Express Bank Corporate Cards. In this connection, it may be observed from the account statement that an amount of Rs.36.54 lacs swiped through credit cards of AMEX issued to (i) Ms. Chanda Narang - CEO, (ii) Ms. Archana Singh - President, (iii) Mr. Tulu Patnaik Associate President, (iv) Mr. Kamal Sharma - Director, (v) Mr. Yashpal Singh Bhati - Manager Project, (vi) Mr. Yugal Kishore - Purchase officer & (vii) Mr.Saurabh Sharma - Manager Purchase. However the net amount booked in company’s account through amex credit card was only Rs. 26.82 lacs. Details of AMEX card transactions are as under: (i) Travelling Expenses: An amount of Rs. 15.21 lacs debited in travelling account. A detail statement of travelling expenses through credit cards is enclosed along with name of executive travelled and purpose of travelling. The most of the expenses are related to Bangalore showroom was opened during the year under consideration and company's CEO, President, Associate President, Designers & Other executives visited the showroom for pre- commencement and interior related work. Copies of related bills are enclosed. (ii) Repairs : An amount of Rs.2.03 lacs had been debited in repair & maintenance account through AMEX credit card. These expenses are related to repairs work of showroom, interior work & bad sheets used in lodhi showroom on center tables etc. (iii) Business Promotion : An amount of Rs. 74 lacs debited in business promotion account through AMEX card and the items purchase was mainly used for business promotion purpose. Copies of related bills are enclosed for your reference. (iv) Fixed Assets : An amount of Rs. lacs capitalized for purchased of fixed assets mainly; Music Systems, CCTV, tables, furniture & office equipments. These items had been purchased for newly opened showroom in Delhi & Bangalore and for office use. Copies of bills are enclosed for your reference.
(v) Balance amount around Rs.0.51 lacs in AMEX Card is of general office expenses, staff welfare, vehicle petrol & AMEX card annual fees and interest charged by amex on late payment. A complete account statement of AMEX Corporate card has already been provided. A copy of the same is again enclosed for your ready reference. (vi) Chanda Narang : An amount of Rs.6.64 lacs debited to Chanda Narang and credited to AMEX corporate card, i.e. few expenses of Ms. Chanda Narang paid through AMEX card but recovered by company from him. Details of amount debited are enclosed. (viii) An amount of Rs.3.08 lacs credited to AMEX corporate card also reversed as per details enclosed.”
4.1 The learned Commissioner of Income-tax (Appeals), however, did not accept the submissions of the assessee and upheld the addition with following observations: “5.4 I have carefully considered the assessment order, submissions, remand report, and rejoinder thereof. The facts of the case as per assessment order are that AIR information was received that the assessee had incurred an expenditure of Rs. 36,23,810/- through credit cards of American Express Bank. As no documentary evidence regarding the source of expenditure and the details of the expenses booked were furnished during assessment proceedings, the Assessing Officer made an addition of Rs. 36,23,810/-. During the appellate proceedings, the appellant claimed it had filed details in regard to expenses incurred through the credit cards and also moved an application under rule 46A. In the remand proceedings, the Assessing Officer was not convinced as the details furnished by the appellant show heavy expenditure on hotel bills, travelling, and repair & maintenance. In its rejoinder, the appellant submitted that the credit card payments were made towards expenses like travelling (Rs. 21,39,990/-), repair (Rs. 2,04,845/-), business promotion (Rs. 2,39,567/-), purchase of fixed assets (Rs. 6,85,841/- ), and others (Rs. 5,07,720/-). Along with this, the appellant filed a copy of the American Express Corporate Credit Card Ledger Account appearing in its books. The details filed therein showed heavy payment to Royal Orchid Hotel, purchase of number of music systems & DVD Players & other electronic goods, travelling Lucknow Hotel Bills (the appellant does not have a showroom at Lucknow), purchase of silver articles from Frazer & Haws, spending in foreign currency, purchase of fabric, purchase of jewellery from Episode (New Delhi), stay in Hotel in New Delhi, shoes & clothing from LEVI’S. The details thus showed that the Appellant Company had booked large amount of its personal expenses of its Executives and Directors incurred through credit cards as business expenses. Further, the appellant has enclosed copies of ledger account but the source from which the payment has been made has not been enclosed The copy of the bank statement has also not been filed by the appellant either during remand proceedings or during appellate proceedings to show conclusive evidence of source of payment. The addition made by the Assessing Officer is, therefore, confirmed.” 4.2. Before us, the learned Authorized Representative of the assessee submitted that credit card payments were recorded in the books of accounts as paid from regular books of accounts and the expenses of credit cards were debited to various heads of expenses, which have been allowed after due verification and the bank’s statements through which payments of credit card were made, were produced in assessment proceedings. He further referred to page 188 of the assessee’s paper book and submitted that out of the total credit card payments of Rs.36.54 Lacs, an amount of Rs.9.72 lakhs was recovered from the employees concerned and net expenses of Rs.26.82 lakhs were borne by the assessee company. He further submitted that out of which 26.82 lakhs again, Rs. 7.32 lacks were debited to fixed assets account and balance Rs. 19.49 Lacs were debited to profit and loss account and the various heads of expenditure. In view of the above facts, , the Ld. authorised representative submitted that no disallowances were made by the Assessing Officer and the source of the expenses cannot be doubted in absence of rejection of books of accounts, wherein those expenses were accounted for.
4.3 We have heard the rival submissions and perused the relevant material on record. The learned Authorized Representative has submitted that out of Rs. 36.54 Lacs, the assessee company has already recovered Rs.9.72 lakhs from the concerned employees for personal use and amount of Rs. 7.32 lakhs has been debited to fixed assets, leaving a balance of Rs.19.49 lacs only in Profit & Loss Account. We find that the learned Commissioner of Income-tax (Appeals) has held that the assessee company had booked larger amount of its personal expenses to its executive and directors incurred through credit card as business expenses, but the learned Commissioner of Income Tax (Appeals) has not quantified such expenses, whereas, the assessee has made the recovery of Rs. 9.72 lakhs from the concerned employees/ executives and this fact has not been taken into account by the learned Commissioner of Income-tax (Appeals). In our opinion, the issue of recovery of Rs.9.72 lakhs and expenditure towards the fixed assets of Rs. 7.23 lacs has not been examined by the lower authorities, therefore, we feel appropriate to restore the issue to the file of the Assessing Officer to examine the details of the expenses along documentary evidence and decide the issue of disallowance in accordance with law. We find that the learned Commissioner of Income-tax (Appeals) has observed that copy of bank statement explaining the source of credit card expenses was not filed either during remand proceeding or during the appellate proceedings. We direct the assessee to produce the relevant bank statements to support the source of expenditure incurred through credit card, before the Assessing Officer. Nevertheless, the assessee shall be afforded sufficient opportunity of hearing. Accordingly, the ground of the appeal is allowed for statistical purposes.
In ground No. 3, the assessee has challenged addition of Rs.10,000/- estimated profit on sale of shares. The facts in respect of the Assessing Officer observed sale of shares of M/s. Silitech Engineering for a sum of Rs.1 lakh, but no profit on the sale was shown. The Assessing Officer has further observed that despite giving opportunity and final show cause notice to the assessee on the issue, it did not furnish the required details and accordingly he estimated profit of Rs.10,000 on the sale and added to the income of the assessee. Before the learned Commissioner of Income-tax (Appeals), under Rule 46A of the Rules, the assessee filed a copy of Board Resolution stating that the sales of shares in reference was made at the rate of the Rs.10 each. The learned Commissioner of Income-tax (Appeals), however, observed that no other supporting evidence to confirm the rate at which the shares have been sold and sale through registered share broker, were filed and she upheld the addition made by the Assessing Officer.
Before us, the learned Authorized Representative of the assessee submitted that there is no basis for estimating the profit on the sale of shares in absence of any contrary evidence with the Revenue to show the sale price was more than what is recorded with assessee. 5.1 The learned Sr. Departmental Representative on the other hand relied on the orders of the lower authorities. 5.2 We have heard the rival submission and perused the relevant material on record. In view of the submissions of the parties, we find that details of the transactions have not been submitted before the lower authorities leading to addition on estimate basis. In such circumstances, we feel it appropriate to restore the issue to the file of the Assessing Officer for adjudication afresh after taking into account relevant evidences and documents in respect of the transaction in accordance with law. Nevertheless, the assessee shall be afforded sufficient opportunity of hearing. Accordingly, the ground no. 3 of the appeal is allowed for statistical purpose.
5.3 In ground No. 4, the assessee has challenged addition of Rs.1,73,769/- by disallowing bad debts claimed by the assessee. The facts on the issue in dispute are that in profit and loss account assessee claimed bad debts of Rs.1,73,769/-. The Assessing Officer observed that the assessee did not furnish the details of parties in respect of claims of bad debt, in spite of various opportunities and final show cause notice issued, thus, he disallowed the claim of bad debt of the assessee. 5.4 Before the learned Commissioner of Income Tax (Appeals), the assessee moved application under section Rule 46A and filed additional evidence having details of bad debts and copy of ‘Board Resolution’ confirming the bad debts amounting to Rs.1,73,769/- written off during the year. However, in remand proceeding, the Assessing Officer submitted that before him, neither the assessee filed copy of Board Resolution, nor filed detail of steps taken to recover the debts. The learned Commissioner of Income Tax (Appeals), after considering the submission of the assessee, remand report and rejoinder thereof, upheld the addition relying on the decision of the Hon’ble Kerala High Court in the case of M/s. Travancore Tea Estate Company Limited Vs. CIT (1992) 197 ITR 528 and held that three conditions essentials for an amount to be written off as bad debt must have been satisfied as follows: (a) there should be debt owing to the assessee (b) the debt should arise in the course of business of the assessee and (c) it should become bad in the year of account 5.5 Before us, the learned Authorized Representative of the assessee submitted that all the details of the parties whose recovery was written off, were submitted to the Assessing Officer. He further submitted that the amount shown as bad debt was in the nature of short recovery, which is a normal feature of all the businesses. The copy of ‘Board Resolution’ was submitted by the assessee as required by the Assessing Officer. 5.6 We have heard the rival submission and perused the material on record. We find that the Revenue has contested that the copy of the ‘Board Resolution’ certifying the bad debt written off, was not supplied to the Assessing Officer even in the course of remand proceeding, whereas the assessee is claiming that same was filed before the Assessing Officer. In view of the above fact, in the interest of justice, we feel it appropriate to restore the issue to the file of Assessing Officer, with the direction to the assessee to produce all the necessary evidence in support of its claim of bad debt. The Assessing Officer is further directed to decide the issue in accordance with law after providing sufficient opportunity of hearing to the assessee. The ground of the appeal is accordingly allowed for statistical purpose.
6. In ground No. 5, the assessee has challenged addition of Rs.1,31,07,452/- out of sundry creditors claimed by the assessee. The facts in respect of issue in dispute are that in the balance sheet for the year under consideration, the assessee shown sundry creditors amounting to Rs.1,99,77,465/-. According to the Assessing Officer, the assessee only filed details in respect of creditors amounting to Rs.68,70,013/- and, therefore, he held the remaining creditors amounting to Rs.1,31,07,452/- as unverifiable and added to the total income of the assessee. Before the learned Commissioner of Income-tax (Appeals), the assessee moved an application under Rule 46A of the Rules, including additional evidences on the issue in dispute. In remand report, the Assessing Officer reported that no supporting documents in respect of balance creditors were furnished before him. In rejoinder, the assessee submitted that all the sundry creditors were duly explained and the sundry creditors include TDS payable, PF payable, VAT payable etc.
The learned Commissioner of Income-tax (Appeals), however, did not accept the contention of the assessee and confirmed the addition with following findings: “8.4 I have carefully considered the assessment order, submissions, remand report, and rejoinder thereof. The facts of the case as per assessment order are that the assessee had shown sundry creditors amounting to Rs. 1,99,77,465/-. During the assessment proceedings, it submitted details in regard to name and addresses of parties totaling Rs. 68,70,013/-, but did not furnish any detail in regard to the balance parties amounting to Rs. 1,31,07,452/-. On this basis, the Assessing Officer made an addition of the same amount. During the remand proceedings, inspite of claiming that additional evidence is being filed, the appellant only furnished a list stating the amount of sundry creditors for Delhi, Mumbai, Bangalore and others, without furnishing any confirmatory evidence. During appellate proceedings, the appellant furnished details as under:-
Sr. Particular Amount Details furnished Comments No s (1) Sundry Rs. 35,04,620 The appellant enclosed party-wise The appellant has not furnished creditors, details and the date of payment to the these details either during the Delhi parties by cheque along with copy of assessment proceedings or bank account except in regard to the during the remand following parties: proceedings. The total amount (1)Bee Dee Mfg. Co. (Rs. 8,57,814) of sundry creditors in respect of (2)Citi Cool Corpn. (Rs. 46,524) Delhi does not tally with the (3)Mushtaq Ahmed (Rs. 11,532) amount mentioned in the letter (4)Priyanka Udy. Ltd. (Rs. 5,10,627) dated 12.12.2012. There is no (5)Vikas Virmani (Rs. 50,863) basis to confirm that the parties (6)Vikas Virman (Rs. 37,864) appearing in the list furnished by the appellant are sundry creditors as on 31.03.2008. Further, the details have been furnished in the rejoinder and (2) Sundry Rs.10,35,625 Herein the appellant had shown without moving any further creditors, payment to only Aarti Ashish Sonawala application under rule 46A. The Mumbai (Rs. 1,04,285) additional evidence filed by the appellant thus cannot be (3) Sundry Rs.01,46,232 The appellant enclosed party-wise accepted. creditors, details and the date of payment to the Bangalore parties by cheque along with copy of bank account except: (1)Ahir Consultancy (Rs. 1,584) (2)Light & Style (Rs. 15,891) (3)Tasveer Art Pvt. Ltd. (Rs. 49,000)
(4) Suppliers, Rs.31,13,431 The appellant enclosed party-wise Delhi details and the date of payment to the parties by cheque along with 4 parties: (1)R.R. Enteprises (Rs. 2,845/-) (2)Swastik Printers (Rs. 13,440/-) (3)Vitalika Design Studio (Rs. 26,097/-) (4)M.S. Gems (Rs. 16,783/-)
(5) TDS Rs.04,49,395 No details given payable (6) PF Rs.03,42,090 The appellant has filed certain copies payable of payments made. (7) S&W Rs.14,85,571 No details given payable (8) Duties & Rs. 63,274 No details given taxes (9) Current Rs.98,37,254 The appellant has claimed that Rs. The payment to M/s. Frazer & liabilities 88,40,865/- was payable to Frazer & Haws Intl. Ltd. has not been Haws Intl. Pvt. Ltd. which has been made directly but has been adjusted by cheques of HDFC Bank shown through book entries. Ltd., paid to sundry parties amounting Credit has been given for to Rs. 3,50,000/- and Rs. 32 lacs by payment made to sundry transfer to Suchitra Krishnamurty. In parties and to Suchitra respect of the other payable, no details Krishnamurty which as per have been furnished. record apparently has no relevance. The authenticity thereof can also not be verified. Further, the details have been furnished in the rejoinder and without moving any further application under rule 46A. The additional evidence filed by the appellant thus cannot be accepted Total Rs1,99,77,494 As discussed above, the authenticity of the creditors appearing in the books has not been proved either during assessment proceedings or during remand proceedings. The list of creditors has not been produced either during the assessment proceedings or remand proceedings. The authenticity of the claim that payment to the creditors has been made thus cannot be accepted. The details and additional evidence produced are without moving an application under rule 46A. If the evidence was authentic, the same could have been 46A. The addition made by the Assessing Officer is, therefore, confirmed.”
6.1 Before us, the learned Authorized Representative of the assessee submitted that the Assessing Officer at the stage of assessment never required the assessee to clarify the difference in the amount as per the list of sundry creditors furnished and the amount of sundry creditors as per balance sheet. In written submission before us, the learned Authorized Representative submitted explanation in respect of the disputed balance of Rs.1,31,07,452/- as under: Amount Explanation Item No in the list 1,25,080/- Represents various misc Expenses payable including 5.Sundry Credit cards payable Rs 45567/-( PB 186&187) as per Creditors records) Others 6. M/S Frazer & Hawks 88,40,804/- Confirmation of the above party filed (PB - 456) There International P Ltd was a payment of Rs 32 Lacand Rs 3.5 Lac to other parties from the account of above party to Ms Suchitra Krishnamurthy by the appellant on behalf of the above party. This payment of Rs 32 Lac was to a famous model for the products of the said party and the above party is a group company of the appellant. The Ld CIT (A) has taken note of the above transactions. The above amount was payable to the above party in lieu of the Bank guaranty provided to the above said party to enable the later to avail loan from the Bank. This fact is duly disclosed by way of note no 14 in the Balance Sheet on page PB55. Since as disclosed in the note no consideration was received by the appellant for that facility the credit was therefore taken as reciprocal.
7-18 Various 32,18,487/- The details of the annexures C to M (PB-457-467) Thee statutory liabilities and evidences were rejected on the ground that these were routine contingencies fresh evidences but the Ld CIT (A) missed the point that these are the corroborating evidences of the same furnished and considered. 6,807/- These are basically indirect tax liabilities. 19-22 Various Liabilities 23. WCT Payable 1,11,424/- This amount is added back by the appellant itself in the computation u/s 43B therefore this is case of double disallowance. Please refer to PB 22 Annexure X to Tax Audit report and PB 2 Computation of income.
Bee Dee 8,57,814/- This liability is against the import of material brought Manufacturing Co forward for the last 10 years due to the dispute going on Hongkong with the party concerned.