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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI D.S. SUNDER SINGH
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
The assessee has filed appeal for assessment year 2011-12 and the Revenue has filed appeal for assessment year 2010-11.
The assessee has filed cross-objection for assessment year 2010-
Since common issue arises for consideration in both the appeals and cross-objection, we heard the appeals and cross- objection together and disposing of the same by this common order.
There was a delay of 613 days in filing appeal by the Revenue. The Revenue has filed an affidavit for condonation of delay. We have heard the Ld. Departmental Representative and the Ld. representative for the assessee. We find that there was sufficient cause for not filing the appeal by the Revenue before the stipulated time. Therefore, we condone the delay and admit the appeal.
Sh. T. Banusekar, the Ld. representative for the assessee, submitted that for assessment year 2011-12, the assessee received a sum of `2 Crores from M/s Eastman Exports Global Clothing Pvt. Ltd. According to the Ld. representative, this amount of `2 Crores was received for enhancement of infrastructure facility 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 Global Clothing Pvt. Ltd. could foresee large orders from the buyers, therefore, intended to establish additional infrastructure facilities to meet the business expectations. According to the Ld. representative,, considering the limitations on creating and maintaining huge infrastructure facility, M/s Eastman Exports Global Clothing Pvt. Ltd. approached the assessee-company for establishing the infrastructure facilities. Referring to clause 7 of agreement, the Ld. representative submitted that M/s Eastman Exports Global Clothing Pvt. Ltd. agreed to provide necessary funds for setting up and maintenance of infrastructure facilities as and when necessary.
Referring to clause 8 of the agreement, the Ld. representative 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 facilities as required.
Referring to clause 9 of agreement, the Ld. representative submitted that in case the assessee performs the requirements mentioned in the agreement and establish the infrastructure facility, there is no need for repaying the said amount. In view of the above, according to the Ld. representative, what was received by the assessee is for establishing infrastructure facilities for M/s Eastman Exports Global Clothing Pvt. Ltd., hence, it cannot be considered to be the income of the assessee at any point of time.
Referring to the assessment order, the Ld. representative 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 as income of M/s Eastman Exports Global Clothing Pvt. Ltd. and protectively assessed the same in the hands of the assessee also.
Referring to the order of this Tribunal in Eastman Exports Global Clothing Pvt. Ltd. v. JCIT in dated 31.07.2014, the Ld. representative for the assessee submitted that this Tribunal found that Eastman Exports Global Clothing Pvt. Ltd., instead of creating the facilities in its own premises, selected M/s Cibi International to shoulder the responsibility of production of knitted garments and paid an amount of `650 lakhs. This Tribunal further found that the payment received by the present assessee from M/s Eastman Exports Global Clothing Pvt. Ltd. is for the purpose of carrying on of the business by M/s Eastman 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 Tribunal held that the amount of `2 Crores received by the assessee from M/s Eastman Exports Global Clothing Pvt. Ltd. was found to be revenue expenditure under Section 37 of the Act, for assessment year 2011-
Since the amount received by the assessee was used for establishing infrastructure facility for manufacturing knitted garments of M/s Eastman Exports Global Clothing Pvt. Ltd. for the purpose of its business, according to the Ld. representative, it cannot be treated as a revenue receipt in the hands of the assessee. 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 amount.
Therefore, according to the Ld. representative, it cannot be considered as income in the hands of the assessee at any point of time.
On the contrary, Shri Shiva Srinivas, the Ld. Departmental Representative, submitted that the Assessing Officer made addition of `6.50 Crores for assessment year 2010-11 and `2 Crores for assessment year 2011-12 towards the amounts received / to be received from M/s Eastman Exports Global Clothing Pvt. Ltd. on protective basis. A similar addition was made in the hands of M/s Eastman Exports Global Clothing Pvt. Ltd. for the assessment years 2010-11 and 2011-12. However, according to the Ld. D.R., this Tribunal found that the payment was made to the assessee by M/s Eastman Exports Global Clothing Pvt. Ltd. for running the business and not for creating the facilities to run the business. 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 production of knitted garments by establishing infrastructure facilities in their own premises. Therefore, according to the Ld. D.R., the infrastructure facilities established by the assessee is exclusively for the purpose of producing goods for M/s Eastman Exports Global Clothing Pvt. Ltd. According to the Ld. D.R., as rightly observed by this Tribunal in the case of M/s Eastman Exports Global Clothing Pvt. Ltd., the expenditure was incurred for running the business by producing knitted garments and not for the purpose of creating any facilities to run the business. According to the Ld. D.R., the assessee admittedly is in the business of manufacturing knitted garments, therefore, in order to cater to the needs of M/s Eastman Exports Global Clothing Pvt. Ltd., the assessee created infrastructure facilities by utilizing the funds advanced by M/s Eastman 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).
We have considered the rival submissions on either 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) confirmed the addition in the hands of the assessee on the basis of the order of this Tribunal in the case of M/s Eastman Exports Global Clothing Pvt. Ltd. allowing the claim as revenue expenditure. The question arises for consideration is whether any income is accrued to the assessee on the payment made by M/s Eastman Exports Global Clothing Pvt. Ltd. From a bare reading of agreement said to be entered between the parties, it is obvious that M/s Eastman Exports Global Clothing Pvt. Ltd. intended to create additional infrastructure facilities to consider orders from the customers. The assessee having experience in creating and maintaining such facilities and expertise in manufacturing knitted garments, agreed to M/s Eastman Exports Global Clothing Pvt. Ltd. for creating necessary infrastructure facility and manufacturing the goods on behalf of M/s Eastman Exports Global Clothing Pvt. Ltd. Clause 2 of agreement clearly says that M/s Eastman Exports Global Clothing Pvt. Ltd. agrees to procure and provide all machineries and capital goods for establishment of the desired infrastructure facility as mutually agreed between the parties. There was a liability to repay the amount in case the assessee defaults in providing the facilities as agreed.
From the agreement it is obvious that what was received by the assessee is for the purpose of creating infrastructure facilities on behalf of M/s Eastman Exports Global Clothing Pvt. Ltd. in order to meet the business requirements. At the best, the assessee 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 exclusively for M/s Eastman Exports Global Clothing Pvt. Ltd. and it shall not undertake such exercise to any other person. Therefore, it is obvious that the infrastructure facility created by the assessee after receiving advance from M/s Eastman Exports Global Clothing Pvt. Ltd. is for the purpose of the business of M/s Eastman Exports Global Clothing Pvt. Ltd. and certainly not that of the assessee.
When the assessee has no right to use the facilities set up on the money advanced by M/s Eastman Exports Global Clothing Pvt. Ltd., this Tribunal is of the considered opinion that the same cannot be treated as income in the hands of the assessee.
The matter would stand differently in case the assessee 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 Global Clothing Pvt. Ltd. for business of M/s Eastman Exports Global Clothing Pvt. Ltd. and not for business of the assessee. Therefore, this Tribunal do not find any justification in disallowing the claim of the assessee. Accordingly, the orders of the lower authorities are set aside for the assessment year 2011-12 in 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.
The cross-objection filed by the assessee is only to support the order of the CIT(Appeals) for assessment year 2010-11, therefore, it becomes infructuous.