DCIT, CIR. 4(1), KOLKATA V. M/S AMALGAMATED PLANTATIONS PVT. LTD., KOLKATA

ITA 451/KOL/2021

AI Insights

The case involves the Revenue's appeal against the order of the CIT(A) which allowed the claim of M/s Amalgamated Plantations Pvt. Ltd. under Section 80IE of the Income Tax Act for the Assessment Year 2012-13. The primary contention was whether the substantial expansion of the assessee's undertakings, which was not completed within the financial year it was started, disqualified them from the deduction under Section 80IE. The Tribunal referenced decisions from similar cases, notably Jay Shree Industries Ltd. vs. JCIT and DCIT vs. Mcleod Russel India Ltd., which supported the assessee's position that the expansion need not be completed within the same financial year.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 32914 (ITAT-KOLKATA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Other Referred Cases: Jay Shree Industries Ltd. Vs. JCIT, DCIT Vs. Mcleod Russel India Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMULDEEP KAUR
• Assessee Lawyers: PRATUSH JHUNJHUNWALA
• Keywords: Depreciation
• Section: 143(3); 80IA

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, KOLKATA BEFORE SHRI RAJESH KUMAR, AM AND SHRI PRADIP KUMAR CHOUBEY, JM ITA No.451/KOL/2021 (Assessment Year:2012-13) DCIT, Circle 4(1) 8th Floor, P-7, Chowringhee Square, AaykarBhavan, Kolkata West Bengal-700069 Vs. M/s Amalgamated Plantations Pvt. Ltd. Unit No.302A, 3 rd Floor, Elgin Chambers, Ashutosh Mukherjee Road, 1A, Kolkata-700020, West Bengal (Appellant) (Respondent) PAN No. AAGCA6995B Assessee by : Shri PratushJhunjhunwala, AR Revenue by : Shri Amuldeep Kaur, DR Date of hearing: 19.12.2024 Date of pronouncement : 11.02.2025 O R D E R Per Rajesh Kumar, AM: This is an appeal preferred by the Revenue against the order of the Commissioner of Income-tax (Appeals)-7, Kolkata, (hereinafter referred to as the “Ld. CIT(A)”] dated 0.011.2019 for the AY 2012-13. 02. At the outset, we note that there is delay of 639 days in filing the appeal by the Revenue for which the condonation petition has been moved by the Revenue dated 24.12.2021, wherein it has been stated that in order to file the appeal, the file has to go through various stages in the hierarchy for obtaining necessary approvals and hence, the delay of 639 days in filing the appeal. The revenue has explained the delay with cogent reasons. Considering the contents of the condonation and the arguments of the rival parties, we are quite Page | 2 ITA No.451/KOL/2021 Amalgamated Plantations Pvt. Ltd.; A.Y. 2012-13 convinced about the sufficiency and genuineness of the reasons for delay and accordingly, we condone the same by admitting the appeal for adjudication. 03. The only issue raised by the assessee is against the order of ld. CIT (A) allowing the claim of the assessee u/s 80IE of the Act of ₹5,82,61,479/-. 04. The facts in brief are that the assessee filed the return of income dated 28.09.2012, which was revised on 31.03.2014, wherein the total income was computed at ₹ nil after claiming deduction u/s 80IE of the Act to the tune of ₹15,97,27,673/-. The case of the assessee was selected for scrutiny and statutory and other notices were issued along with questionnaires and served upon the assessee. The ld. AO during the course of assessment proceedings observed that the assessee has claimed during the impugned assessment year, a deduction u/s 80IE of the Act of ₹15,97,27,683/- for which the assessee has submitted certificate from the auditors in form 10CEB. According to the ld. AO, the assessee has claimed deduction u/s 80IE of the Act, in respect of 16 undertakings. The ld. AO further noted that the assessee further claimed the deduction u/s 80IE of the Act for 3 more undertakings from A.Y. 2012-13. The ld. AO noted assessee’s claim u/s 80IE of the Act, for above 16 undertakings was made in A.Y. 2010-11 as initial assessment year. In the assessments framed u/s 143(3) of the Act for A.Y. 2010-11 and 2011-12, out of the 16 gardens, deduction u/s 80IE of the Act was allowed in respect of 8 gardens which achieved substantial expansion in one financial year. Thereafter, the ld. AO noted that the claim of deduction in respect of remaining 8 gardens were rejected as increase in plant and machinery was over a period of three years. The ld. AO identified the items of plant and machineries which were not for the purpose of production or Page | 3 ITA No.451/KOL/2021 Amalgamated Plantations Pvt. Ltd.; A.Y. 2012-13 a manufacture of eligible items for the purpose of substantial expansion u/s 80IE sub section 2 of the Act. The ld. AO while framing the assessments u/s 143(3) for A.Y. 2010-11 and 2011-12 allowed the claim of the assessee u/s 80IE of the Act in respect of three undertakings namely Powai, Chubwa and Sagmootea and in respect of those five undertakings i.e. Borhat, Lattakojan, Nahorani, Majuli, and Hattigor, the claim u/s 80IA of the Act was not available as there is a loss during the year. So far as the three undertakings namely;Namroop, Nahakutia and Lamabarifor, which the assessee made claim in A.Y. 2012-13 as initial assessment year ,are concerned , the ld. AO noted that the assessee achieved the substantial expansion in respect of such three undertakings by making addition to the plant and machinery over period of three years and thus, concluded that the expansion has not been concluded in one financial year which is a condition for claim of deduction u/s 80IE of the Act and accordingly, rejected the same. Thus the AO disallowed the claim u/s 80IE of the Act to the extent of ₹58261479/- in the assessment framed u/s 143(3) of the Act vide order dated 27.02.2015. 05. In the appellate proceedings, the ld. CIT (A) dismissed the appeal of the assessee by observing and holding as under:- “7.2 I have considered the submission of the Ars of the appellant in the backdrop of the assessment order. The brief facts of the matter are that the AO had disallowed an amount of ₹5,82,61,479/- claimed by the appellant company u/s 80IE of the Act on the ground that there was no substantial expansion of the appellant’s value of capital investment in plant and machinery to the extent of 25% for the purpose of expansion of capacity/ modernization and diversification as against an increase by 33 ½% which was prescribed in NEIP, 1997. The matter is discussed by the AO from page 3 to page 8 of the assessment order. The AR of the appellant had laid stress on the point that the substantial expansion can be done in any year and the definition of ‘initial assessment year’ should be the year in which substantial expansion is made. The only requirement of the Act is substantial expansion should be any data between 01.04.2007 and 31.03.2017, which the appellant had complied. Nowehere, has it mandated that the substantial expansion once completed should be completed within same financial year. On an overall analysis of the matter, I find the case of the appellant has been squarely covered in its favour by the judgement of the jurisdictional Tribunal in the case of jay Page | 4 ITA No.451/KOL/2021 Amalgamated Plantations Pvt. Ltd.; A.Y. 2012-13 Shree Industries Ltd. Vs. JCIT (2018) 170 ITD 479 (Kolkata-Trib) and also by the judgment of the jurisdictional Tribunal in the case of DCIT Vs. McleodRusselIndia Ltd. (2019) in ITA No.116 & 117/KOL/2016 dated 01.02.2019 (copies of the orders on record), facts and circumstances being on similar footings. In such view of the matter, the AO is directed to delete the impugned disallowance of ₹5,82,61,479/- claimed by the appellant u/s 80IE of the Act.” 06. The ld. AR submitted that Section 80-IE was enacted to encourage industrialization of the North Eastern States including Assam by providing for a ten-year tax holiday. It applies to a new undertaking which begins manufacture or production of any eligible article or thing during the specified period viz. from April 1, 2007 to March 31, 2017 [please see section 80-1E(2)(i)]. It also applies where any existing undertaking begins to undertake substantial expansion to manufacture or produce any eligible article or thing during the same period [please see section 80-IE(2)(ii)]. In order to qualify as \"substantial expansion\" there has to be increase in the investment in the plant and machinery by at least 25% of the book value of the plant and machinery (before taking depreciation in any year) as on the first day of the previous year in which the substantial expansion is undertaken [please see section 80- IE(7)(iii)]. In case of substantial expansion, the initial AY for allowing deduction is the year in which such expansion is completed [please see section 80-IE(7)(i)]. The definition of \"eligible article or thing\" shows that all articles and things are included except the goods mentioned against serial Nos. (a) to (d) of clause (iv) of sub-section (7) [please see section 80-1E(7)(iv)]. The section does not stipulate that substantial expansion should be completed in the very same year in which it is undertaken. What the section says is that in order to ascertain substantial expansion of at least 25%, the book value as on the first day of the previous year in which the substantial expansion is undertaken has to considered. It further says that deduction shall be allowed only from the year in which the substantial expansion is completed. The reason why the section does Page | 5 ITA No.451/KOL/2021 Amalgamated Plantations Pvt. Ltd.; A.Y. 2012-13 not stipulate any time frame for completion of substantial expansion is not far to seek. It is a matter of business expediency having regard to the needs of the business as to how much ought to and can be spent on expansion and how long it will take to complete. The legislature did not deem it fit to interfere with such business decisions. The legislature only required that substantial expansion should be commenced during the specified period and that deduction shall be allowed only after it is completed. The stand of the revenue that expansion should be completed in the same year in which it is commenced does not find any support from the statute. The revenue wants to be read words into the section which law does not permit. The above issue is squarely covered in favour of the appellant by the decision of the Hon’ble Tribunal in Jay Shree Industries Ltd. v. JCIT (2018) 170 ITD 479 (Kolkata Trib.) wherein it was held that that substantial expansion need not be completed within the same financial year (Page 174-182 of the Paper Book). The above decision was subsequently followed in DCIT v. Mcleod Russel India Ltd., ITA No. 116 & 117/Kol/2016 decided on February 1, 2019 (Page 164-173 of the Paper Book). On the aspect as to what items of plant and machinery should be considered for substantial expansion, it is submitted that it is indisputable that the business of growing and manufacturing tea is a composite activity. Because it is so, rule 8 of the Income Tax Rules, 1962, provides that income derived from the sale of tea grown and manufactured by the seller in India has to be computed in a composite manner as if the whole of it were derived from business and 40% of such income shall be deemed to be the income liable to tax under the provisions of the Income Tax Act, 1961, the rest 60% being agricultural income which cannot be so taxed. In computing such composite income, that is, before apportionment of the composite income in the ratio of 40:60, depreciation is computed Page | 6 ITA No.451/KOL/2021 Amalgamated Plantations Pvt. Ltd.; A.Y. 2012-13 and allowed on all the plant and machinery including those used for agricultural operations [please see Explanation 7 to section 43(6)], except of course tea bushes [please see section 43(3)). The reason why tea bushes are not treated as plant is because the cost of planting bushes in replacement of bushes that have died or become permanently useless in an area already planted is allowed as a deduction under rule 8(2) of the Income Tax Rules, 1962. Such provisions for computation and apportionment have been made because of the composite nature of the business. It is well-known that there are many tea garden undertakings in the State of Assam. Section 80-IE applies also to tea garden undertakings inasmuch as tea is not excluded from the definition of \"eligible article or thing\". In case of a tea garden undertaking, all plant and machinery added for achieving substantial expansion, whether the same are used in agricultural operations or in the factory or for administrative purposes of the business, have to be taken into consideration as it is only upon addition of all of them that the expansion gets completed. When the business is a composite one such that even its income needs to be computed on a composite basis after allowing depreciation on all plant and machinery including those used for agriculture, for ascertaining substantial expansion, the value of the entire plant and machinery added to the assets of such composite business needs to be considered. Even the plant and machinery added for administrative purposes of the business or for boosting employee morale and promoting the welfare of the employees of the business by providing a school bus for the children have to be considered. If it was intended to exclude any plant or machinery installed in office premises or any office appliances or any road transport vehicle, provision in that behalf would have been made in section 80-IE. Reference in this behalf is invited to the provisions of section 32A (second proviso) and section Page | 7 ITA No.451/KOL/2021 Amalgamated Plantations Pvt. Ltd.; A.Y. 2012-13 32AC ((sub-section (4)] wherein specific provisions were made for exclusion of such items. In the absence of any such exclusion provision in section 80-IE, the Assessing Officer ought not to have excluded the plant and machinery used in agricultural operations or those used for administrative purposes of the business including staff welfare. It is neither fair nor reasonable to say that only additions to the plant and machinery in the factory will be considered for ascertaining substantial expansion of a composite business undertaking. The ld. AR submitted that for the reasons aforesaid, the Assessing Officer should have allowed the entire claim of the appellant under section 80-IE. 07. The ld. DR vehemently submitted before us that the appeal of the assessee was wrongly allowed by the ld. CIT (A) on this issue by holding that the substantial expansion undertaken by the three units even if completed even beyond the financial year in which it was first undertaken, the deduction u/s 80(IE) is available. The ld. Authorized Representative vehemently submitted that the substantial expansion has been completed in the assessment year in which it is started and therefore, the ld. AO has taken a very correct view of the matter by rejecting the claim u/s 80IE of the Act in respect of three units namely;Namroop, Nahakutia and Lamabari. 08. After hearing the rival contentions and perusing the materials available on record, we find that the assessee has acquired North India plantation division from Tata Tea Ltd. during the F.Y. 2007-08 and undertook substantial expansion thereafter. The assessee claimed deduction u/s 80IE of the Act for the first time in the A.Y. 2010-11 in respect of 16 undertakings. The A.Y. 2012-13 is the third year of claim in respect of 16 undertakings and the amount of deduction involved was ₹10,50,77,120/-. The assessee claimed the deduction of Page | 8 ITA No.451/KOL/2021 Amalgamated Plantations Pvt. Ltd.; A.Y. 2012-13 ₹5,46,50,563/- for three undertaking namely; Namroop, Nahakutia and Lamabarix A.Y. 2012-13 as the first year claim. Thus, the assessee claimed deduction u/s 80IE of the Act to the tune of ₹15,9727,683/-, in respect of 19 tea garden undertakings for which the assessee furnished the Chartered Accountant report in form 10CEB in respect of audited of accounts of the eligible undertakings. We note that in order to qualify as substantial expansion , there has to be increase in the investment in plant and machinery by atleast 25% of the book value of the plant and machinery before taking into account the appreciation of any year as on the first day of the previous year in which substantial expansion was undertaken as per the provisions of Section 80IE(iii) of the Act. In our opinion the direction u/s 80IE of the is allowable to the Assessee in the year of completion of substantial expansion and it is not mandatory that the substantial expansion should be completed in the year in which it was first initiated and that is the mandate of the Section 80IE of the Act. There is no time frame mentioned for the purpose of completion of substantial expansion in the Act. The case of the assessee is squarely covered by the decision of Jay Shree Industries Ltd. Vs. JCIT (2018) 170 ITD 479 (Kolkata-Trib.) (supra) and DCIT Vs. McleodRussel India Ltd., ITA No.116 & 117/KOL/2016, wherein it has been held that substantial expansion need not be completed within the same financial year. So far as the items of additions as noted by the ld. AO in page no. 5,6 and 7 in respect of Kakajan and Kellyden units are concerned which aggregated to ₹1,22,39,002/- and which has been reduced by the ld. AO on account of non-qualifying items which aggregated to ₹39,45,818/-, we note that the activity of growing and manufacturing tea is a composite activity and is only after determining the total income under rule 8 of the income tax rules 1962, the business income is taken as 40% and the remaining 60% is considered as Page | 9 ITA No.451/KOL/2021 Amalgamated Plantations Pvt. Ltd.; A.Y. 2012-13 agricultural income. Even the depreciation is allowable from the gross income before the said apportionment. Therefore, excluding the depreciation as being relating to machinery relating agricultural operation / office equipments is not correct. Therefore, even the machinery install in the office/ administrative buildings/agricultural operations are eligible for such expansion which is apparent from the provisions of Section 32A (second proviso) and Section 32AC (4) which specifically stipulate the exclusion of certain items. Therefore, in absence of any specific exclusion in Section 80IE of the Act, the ld. AO has no power to exclude the plant and machinery used in agricultural operation/ those used in administrative activities of the assessee including staff welfare. Considering these facts and circumstances, we are inclined to uphold the order of the ld. CIT (A) by dismissing the appeal of the Revenue. 09. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 11.02.2025. Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 11.02.2025 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Kolkata "