DCIT, Bangalore V. M/s Tata Coffee Ltd., Bangalore

ITA 1108/BANG/2012

• Counselvise Citation: 110821114 RSA 2012
• Duration Of Justice: 1 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 22-07-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 03-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: FARHAT HUSSAIN QURESHI
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Capital asset; Business income; Business expenditure; Cost of acquisition; Fair market value; Commercial expediency; Capital expenditure

Judgement Text

ITA NOS.1108 & 1113 TATA COFFEE LTD BANGALORE PAGE 1 OF 22 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE B BENCH, BANGALORE BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.1108/BANG/2012 (ASSESSMENT YEAR: 2005-06) DCIT, CIRCLE 12 (4) 14/3, 4 TH FLOOR, RASTROTHANA BHAVAN, OPP:RBI, NRUPATHUNGA ROAD, BANGALORE-560001 VS. M/S. TATA COFFEE LTD NO.57, RAILWAY PARALLEL ROAD, KUMARA PARK WEST BANGALORE 560 020 PAN: AABCC 0241 R (APPELLANT) (RESPONDENT) ITA NO.1113/BANG/2012 (ASSESSMENT YEAR: 2005-06) M/S. TATA COFFEE LTD NO.57, RAILWAY PARALLEL ROAD, KUMARA PARK WEST BANGALORE 560 020 PAN: AABCC 0241 R VS. DCIT, CIRCLE 12 (4) 14/3, 4 TH FLOOR, RASTROTHANA BHAVAN, OPP:RBI, NRUPATHUNGA ROAD, BANGALORE-560001 (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI FARHAT HUSSAIN QURESHI (DR) ASSESSEE BY: SHRI K.R. VASUDEVA N, ADVOCATE DATE OF HEARING: 22/07/2014 DATE OF PRONOUNCEMENT: 28/08/201 4 O R D E R PER RAJPAL YADAV, J.M. THE ASSESSEE AND THE REVENUE ARE IN CROSS APPEALS AGAINST THE ORDER OF THE LEARNED CIT (A) DATED 29.06.2012 P ASSED FOR THE ASSESSMENT YEAR 2005-06. GROUND NO.1 IN THE ASSESSE ES APPEAL AND GROUND NO.2 IN THE REVENUES APPEAL ARE INTER-C ONNECTED ITA NOS.1108 & 1113 TATA COFFEE LTD BANGALORE PAGE 2 OF 22 WITH EACH OTHER; WE FIRST TAKE THESE TWO COMMON GRO UNDS. THE ASSESSEE IS A COMPANY ENGAGED IN CULTIVATION, PROCE SS AND EXPORT OF COFFEE. IT HAS BEEN GROWING ARABICA AND R OBUSTA VARIETIES OF COFFEE. IT HAS FILED ITS RETURN OF INC OME ON 29.10.2005 DECLARING TOTAL INCOME OF RS.8,22,13,273. IN THE RE TURN, THE ASSESSEE HAD SHOWN LONG TERM CAPITAL LOSS OF RS.1,0 3,76,488/- ON SALE OF WOOD. ACCORDING TO THE ASSESSEE THE TREE S GROWN IN THE COFFEE/TEA ESTATE AS SHADE TREES, ARE CAPITAL ASSET AND THEREFORE, ON SALE OF TIMBER, OUT OF THOSE TREES, THE GAIN ACC RUED TO THE ASSESSEE IS A CAPITAL GAIN. ON THE OTHER HAND THE A SSESSING OFFICER TREATED IT AS A BUSINESS INCOME. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HAS A TIMBER DIVISI ON WHERE WOOD IS BEING CONVERTED INTO PLYWOOD ETC. THE SALE OF TI MBER OUT OF SHADE TREES IS TO BE TREATED AS BUSINESS INCOME. 2. ON APPEAL, THE LEARNED FIRST APPELLATE AUTHORITY HAS ACCEPTED THE CLAIM OF THE ASSESSEE THAT ON SALE OF TIMBER, CAPITAL GAIN ACCRUED TO IT. THE LEARNED CIT (A) DIRECTED TH E ASSESSING OFFICER TO COMPUTE THE CAPITAL GAIN AT 30% OF THE S ALE VALUE. 3. THUS, REVENUE IS CHALLENGING THE ACTION OF THE C IT (A) TREATING THE PROFITS EARNED ON SALE OF TIMBER AS CA PITAL GAIN. ON THE OTHER HAND, THE ASSESSEE IS CHALLENGING THE ACT ION OF THE CIT (A) FOR COMPUTNG THE CAPITAL GAIN AT RS.57,26,619/- BY TAKING THE CAPITAL GAIN AT 30% OF THE SALE CONSIDERATION INSTE AD OF CONSIDERING THE INDEXATION AND THE DETERMINATION OF FAIR MARKET VALUE AS ON 1.4.1981 AS COST OF ACQUISITION. 5. BEFORE THE LEARNED CIT (A) THE ASSESSEE HAS PLAC ED ON RECORD A NOTE EXHIBITING HOW SHADE TREES ARE ESSENT IAL FOR ITA NOS.1108 & 1113 TATA COFFEE LTD BANGALORE PAGE 3 OF 22 PROTECTION OF COFFEE BUSHES. HOW THE ASSESSEE HAS B EEN RECOGNISING THE INCOME ON SALE OF WOODS COMING OUT FROM THESE SHADES. FOR APPRECIATING THE CONTROVERSY IN RIGHT P ERSPECTIVE, LET US TAKE NOTE OF THE FACTS AND OBSERVATIONS OF THE C IT (A) ON THIS ISSUE. IT READ AS UNDER:- 3.2 BEFORE ME IT WAS SUBMITTED ON BEHALF OF THE APPELLANT THAT ROSEWOOD, SILVER OAK AND EUCALYPTUS ARE MAINTAINED AS SHADE TREES FOR THE COFFEE BUSHES . SHADE TREES ARE ABSOLUTELY ESSENTIAL FOR THE PROTEC TION OF COFFEE BUSHES. IT IS NOT POSSIBLE TO GROW COFFEE IN INDIA WITHOUT THE NECESSARY SHADE TREES. SHADE TREES EXIS TING IN A COFFEE ESTATE ARE AS MUCH IMPIORTANT AS THE CO FFEE BUSHES WHICH YIELD THE COIFFEE CROP. THE HON'BLE KARNATAKA HIGH COURT IN THE APPELLANTS OWN CASE REPORTED IN 76 ITR 29 HAS HELD THAT SHADE TREES ARE CAPITAL ASSETS AS MUCH AS THE COFFEE BUSHES. WE SUB MIT THAT THE CUTTING OF THE SHADE TREES HAPPENS UNDER T HE FOLLOWING SCENARIOS: S.NO TIMBER SCENARIO 1 ROSEWOOD ONLY WIND FALLEN, DEAD WOOD AND OLD TREES ARE CUT 2 SILVER OAK AND EUCALYPTUS CUT BASED ON SHADE MANAGEMENT POLICY 3.3 NATURE OF VARIOUS SHADE TREES AND TREATMENT OF SALE PROCEEDS OF SUCH TREES FOR TAX PURPOSES IS TABULATE D BELOW: PARTICULARS MODE OF SALE TAX TREATMENT OF SALE PROCEEDS IN RETURN OF INCOME TAX TREATMENT AS PER ASSESSMENT ORDER ROSEWOOD CUT UNDER GOVT. SUPERVISION AND SOLD COMPULSORILY THROUGH GOVT. AUCTION. THEY ARE NOT SUED FOR MANUFACTURE OF PLYWOOD TREATED AS CAPITAL ASSETS AND CAPITAL GAINS ON SALE OF ROSEWOOD TREES HAS BEEN COMPUTED CONSIDERING FAIR MARKET VALUE (FMV) AS ON APRIL 1, 1981 AS COST OF ACQUISITION AND CLAIMING INDEXATION BENEFIT ON THE SAME. SALE PROCEEDS TREATED AS BUSINESS INCOME ITA NOS.1108 & 1113 TATA COFFEE LTD BANGALORE PAGE 4 OF 22 THE FMV OF ROSEWOOD HAS BEEN CONSIDERED AT RS.12,400 PER C.MT AS PER THE STATE GOVT. AUCTION RATE SILVER OAK THESE TREES ARE TRANSFERRED TO TIMBER VALUE ADDITION DIVISION AND CONVERTED INTO STOCK IN TRADE OF TIMBER VALUE ADDITION DIVISION TREATED AS CAPITAL ASSET TILL THE TIME TREES ARE CONVERED TO STOCK IN TRADE AT TIMBER VALUE ADDITION DIVISION. CAPITAL GAIN ARISING AT THE TIME OF CONVERSION INTO STOCK-IN-TRADE IS COMPUTED CONSIDERING FMV AS ON APRIL 1, 1981 AS COST OF ACQUISITION AND CLAIMING INDEXATION BENEFIT ON THE SAME. THE FMV HAS BEEN CONSIDERED AT RS.858 PER C.MT IN LINE WITH THE REPORT OF DY. CONSERVATOR OF FORESTS DATED OCTOBER 7, 2002. INCOME FROM SALE OF STOCK-IN-TRADE POST THEIR PROCESSING IN TIMBER VALUE ADDITION DIVISION IS OFFERED TO TAX AS INCOME FROM BUSINESS. SALE PROCEEDS TREATED AS BUSINESS INCOME EUCALYPTUS THEY ARE SOLD UNDER SEALED TENDER TO THIRD PARTIES TREATED AS CAPITAL ASSET AND CAPITAL GAIN HAS BEEN COMPUTED AT 30% OF THE SALE CONSIDEREATION RELYING ON THE JUDGMENT OF KERALA HIGH COURT IN THE CASE OF PULLENGODE RUBBER PRODUCE COMPANY LTD 189 IR 580 SALE PROCEEDS TREATED AS BUSINESS INCOME ITA NOS.1108 & 1113 TATA COFFEE LTD BANGALORE PAGE 5 OF 22 3.4 IN HIS REMAND REPORT DATED 27.10.2011, THE PRESENT ASSESSING OFFICER I.E. DCIT CIRCLE 12(4) BENGALURU STRONGLY SUPPORTED THE STAND OF THE ASSESSING OFFICER TREATING THE INCOME FROM SALE OF TIMBER AS BUSINESS INCOME. I HAVE CAREFULLY CONSIDERED THE STAND TAKEN BY THE ASSESSING OFFICER AND THE ARGUMENTS MADE ON BEHALF OF THE APPELLANT. I HAVE NOTICED THAT THERE ARE A NUMBER OF JUDICIAL PRONOUNCEMENTS TREATING THE SHADE TREES AS CAPITAL ASSETS. IN THE APPELLANTS OWN CASE THERE ARE A NUM BER OF DECISIONS TO THIS EFFECT. THEREFORE, I AM INCLIN ED TO ACCEPT THE STAND TAKEN BY THE APPELLANT THAT ITS IN COME FROM SALE OF TIMBER HAS TO BE TAXED AS INCOME FROM LONG TERM CAPITAL GAINS. THEREFORE, THE ADDITIONS MADE B Y THE ASSESSING OFFICER AMOUNTING TO RS.2,43,82,587/- TREATING THE INCOME AS BUSINESS INCOME OF THE APPEL LANT IS DELETED. HOWEVER, I AM NOT IN AGREEMENT WITH A METHOD ADOPTED BY THE APPELLANT IN COMPUTING INCOME FROM LONG TERM CAPITAL GAINS. 3.5 IN THE APPELLANTS OWN CASE FOR THE ASSESSMENT YEAR 2003-04 & 2004-05 THE HON'BLE ITAT BENGALURU A BENCH HAD UPHELD THE DECISION OF THE ASSESSING OFFI CER IN THEIR ORDERS IN ITA NO.422 & 423/BNG/2008 DATED 31.10.2008 WHEREIN THE ASSESSING OFFICER HAD ADOPTE D 30% OF THE SALE PROCEEDS OF ROSEWOOD AND SILVER OAK AS CAPITAL GAINS BY FOLLOWING THE DECISION OF THE H ON'BLE KERALA HIGH COURT IN PULLANGODE RUBBER AND PRODUCE CO. LTD (189-ITR-580). RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE ITAT BENGALURU A-BENCH, I D IRECT THE ASSESSING OFFICER TO RECOMPUTE THE INCOME FROM LONG TERM CAPITAL GAINS FROM THE SALE OF TIMBER AS UNDER : TOTAL SALE CONSIDERATION RS.2,65,08,526 LESS: EXPENSES INCURRED FOR SALE RS.22,25,939/- COST OF ACQUISITION (TAKEN RS.1,85,55,968/- AS 70% OF SALE VALUE). RS.2,07,81,907 LONG TERM CAPITAL GAINS FROM RS. 57,26,619/- SALE OF TIMBER. ITA NOS.1108 & 1113 TATA COFFEE LTD BANGALORE PAGE 6 OF 22 6. WITH THE ASSISTANCE OF THE LEARNED REPRESENTATIV E, WE HAVE GONE THROUGH THE RECORD CAREFULLY. IT EMERGES OUT F ROM THE RECORD THAT THIS ISSUE HAD BEEN TRAVELED TO THE HON'BLE HI GH COURT IN ASSESSMENT YEARS 1997-98 TO 1999-2000. THE HON'BLE HIGH COURT HAS ACCEPTED THE CONTENTION OF THE ASSESSEE T HAT SHADE TREES ARE CAPITAL ASSET OF THE ASSESSEE. HOWEVER, W ITH REGARD TO THE DETERMINATION OF FAIR MARKET VALUE AS ON 1.4.19 81, THE HON'BLE HIGH COURT HAS REMITTED THE ISSUE TO THE AS SESSING OFFICER FOR FURTHER ENQUIRY. THE ASSESSEE HAS BEEN RELYING UPON THE LETTER DATED 31.3.1981 WRITTEN BY THE DY. CONSE RVATOR OF FOREST FOR DETERMINING THE RATE OF WOOD. THE HON'BL E HIGH COURT HAS OBSERVED THAT IT IS NOT DISCERNIBLE WHETHER THI S LETTER IS A GENUINE OR NOT. THEREFORE, HON'BLE HIGH COURT HAS R EMITTED THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER. TH E LEARNED CIT (A) IN THE FINDING EXTRACTED (SUPRA) HAS FOLLOWED THE O RDER OF THE ITAT IN ASSESSMENT YEARS 2003-04 & 2004-05. HOWEVER, IT WAS BROUGHT TO OUR NOTICE THAT IN ASSESSMENT YEARS 2006 -07 TO 2008- 09, THIS ISSUE HAD COME UP BEFORE THE TRIBUNAL AND THE TRIBUNAL HAS SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSIN G OFFICER FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH C OURT. THE OBSERVATION OF THE TRIBUNAL READ AS UNDER: 3.1.6 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE RELEVANT MATERIALS ON RECORD AND ALSO THE CASE LAWS ON WHICH THE LEARNED AR HAD PLACED RELIANCE. AT THE OUTSET, WE WOULD LI KE TO POINT OUT THAT THE LEARNED CIT (A) HAD, IN CONFORMITY WITH THE FINDINGS OF THE EARLIER BENCH O F THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE AY S 2003-04 AND 2004-05 (SUPRA), DIRECTED THE AO TO RE- COMPUTE THE INCOME FROM LTCG FROM THE SALE OF TIMBER TAKING THE COST OF ACQUISITION AS 70% OF THE SALE VALUE OF ALL THE VARIETIES OF TIMBER SOLD. I N THE ITA NOS.1108 & 1113 TATA COFFEE LTD BANGALORE PAGE 7 OF 22 MEANWHILE, IT IS OBSERVED THAT THE HONBLE JURISDICTIONAL HIGH COURT HAD, ON AN IDENTICAL ISSU E IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1997-98 TO 1999-2000 [(2012) 27 TAXMANN.COM 98 (KAR) DATED 24.9.2012] REMANDED THE ISSUE TO THE ASSESSING AUTHORITY FOR RE-EXAMINATION FOR THE FOLLOWING REASONS: 10.IN THE INSTANT CASE, THERE WAS NO DISPUTE WITH REGARD TO THE FAIR MARKET VALUE DETERMINED BY THE STATE GOVERNMENT AS ON 01.04.1981 AT THE RATE OF RS.12,400/- PER CUBIC METER. THE APPEL LANTS ENTIRE CASE IS RELIED UPON THE LETTER DATED 31.3.19 81 WRITTEN BY THE DEPUTY CONSERVATOR OF FORESTS. WHET HER THE SAID LETTER IS GENUINE OR NOT, IS NOT EXAMINED BY THE AUTHORITIES BELOW. IT IS NOT IN DISPUTE THAT THE T REES ARE HELD TO BE THE CAPITAL ASSET AND PART OF THE FIXED STRUCTURE OF A COFFEE OR TEA PLANTATION. WHEN THE TREES HAVE BEEN CUT AND REMOVED, THE CAPITAL GAIN HAS TO BE ASSESSE D ON THE BASIS OF SECTION 48 OF THE ACT. IN THE INSTANT CASE, THE COST OF ACQUISITION OF THE ASSETS HAS NOT BEEN PROP ERLY EXAMINED BY THE AUTHORITIES BELOW. SOLELY ON THE B ASIS OF SOME LETTER WRITTEN BY THE OFFICER OF THE GOVERN MENT DEPARTMENT, THE COST OF ACQUISITION OF THE ASSETS C ANNOT BE ASSESSED. ACCORDINGLY, THE CIT (APPEALS) WHILE SETTING ASIDE THE ORDER PASSED BY THE ASSESSING AUT HORITY DIRECTED THE ASSESSING AUTHORITY TO WORK OUT THE MA RKET VALUE OF THE ASSETS AS ON 1.4.1981 AFTER OBTAINING THE SPECIFIC NOTIFICATION FROM THE CONSERVATOR OF FORES TS WITH REGARD TO MARKET VALUE IN RESPECT OF ROSEWOOD AND SILVER OAK TREES AS ON 01.04.1981 AND TO WORK OUT T HE CAPITAL GAIN BY WORKING OUT THE INDEXED MARKET VALU E. EXCEPT THE LETTER DATED 31.3.1981, NO OTHER MATERIA LS HAS BEEN PRODUCED BEFORE THE AUTHORITIES. WE FIND THAT THE ORDER PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL I N SETTING ASIDE THE ORDER PASSED BY THE CIT (APPEALS) WHEREIN THE COMMISSIONER HAS DIRECTED THE ASSESSING AUTHORITY TO RE-CONSIDER THE MATTER IS CONTRARY TO LAW. THE APPELLATE TRIBUNAL HAS ALSO NOT EXAMINED THE MARKET VALUE OF THE ASSETS AS ON 01.04.1981. HENCE , THE MATTER HAS TO BE RE-EXAMINED BY THE ASSESSING AUTHO RITY BY WORKING OUT THE INDEXED MARKET VALUE IN RESPECT OF ROSEWOOD AND SILVER OAK TREES ITA NOS.1108 & 1113 TATA COFFEE LTD BANGALORE PAGE 8 OF 22 3.1.7 AS THE ISSUE (GROUND NO.1) FOR THE AYS 2006- 07, 2007-08 AND (GROUND NO.2) FOR THE AY 2008-09 UNDER CONSIDERATION BEING SIMILAR WHICH HAS BEEN DEALT WITH BY THE HONBLE JURISDICTIONAL HIGH COURT (SUPRA) IN THE ASSESSEES OWN CASE, WE ARE OF THE CONSIDERED VIEW THAT THE PRESENT ISSUE ALSO REQUIRE S TO BE RE-EXAMINED BY THE AO BY WORKING OUT THE INDEXED MARKET VALUE IN RESPECT OF ROSEWOOD AND SILVER OAK TREES AS RULED BY THE HONBLE COURT (SUPRA). TO FACILITATE THE AO TO CARRY OUT THE DIRECTIONS OF THE HONBLE COURT, THE ISSUE (GROUND NO.1) RAISED FOR THE AYS 2006-07, 2007-08 AND (GROUND NO.2) 2008-09 RESPECTIVELY ARE RESTORED ON THE FILES OF THE AO. IT IS ORDERED ACCORDINGLY. 3.1.8 WITH REGARD TO THE DISALLOWANCE OF EXPENSES OF RS.3.28 LAKHS BEING 10% OF RS.32.83 LAKHS FOR THE AY 2006-07, WE WOULD LIKE POINT OUT THE SALE CONSIDERATION OF TIMBERS OF RS.32.83 LAKHS HAS BEEN ARRIVED AT BY THE ASSESSEE ON THE BASIS OF F.M.V OF THE TREES AS ON 1.4.1981. THE FMV OF TREES AS ON 1.4.1981 HAS SINCE BEEN RESTORED ON THE FILES OF TH E AO FOR RE-EXAMINATION ON THE RULING OF THE HONBLE HIGH COURT (SUPRA), THIS ISSUE IS ALSO RESTORED ON THE FILE OF THE AO FOR FRESH LOOK AND TO TAKE APPROPRIA TE ACTION, KEEPING IN VIEW THE RULING OF THE HONBLE COURT (SUPRA). IT IS ORDERED ACCORDINGLY 7. CONSIDERING ALL THESE ASPECTS AND THE JUDGMENT O F THE HON'BLE HIGH COURT AS WELL AS OF THE COORDINATE BEN CH, WE DEEM IT FIT TO SET ASIDE THIS ISSUE TO THE FILE OF THE A SSESSING OFFICER FOR RE-CONSIDERATION. THE LEARNED ASSESSING OFFICER SHA LL RE- ADJUDICATE THE ISSUE IN ACCORDANCE WITH LAW AND KEE PING IN VIEW THE JUDGMENT OF THE HON'BLE HIGH COURT IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEARS 1997-98 TO 1999-2000. GROUND NO1 IN ASSESSEES APPEAL AND GROUND NO.2 IN REVENUE S APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. ITA NOS.1108 & 1113 TATA COFFEE LTD BANGALORE PAGE 9 OF 22 8. NOW WE FIRST TAKE REMAINING GROUNDS OF REVENUE S APPEAL IN ITA NO.1108/BANG/2012. GROUND NO.1 IS GENERAL I N NATURE. IT DOES NOT CALL FOR RECORDING OF ANY SPECIFIC FIND ING. HENCE IT IS REJECTED. 9. GROUND NO.3: IN THIS GROUND, REVENUE HAS PLEAD ED THAT THE LEARNED CIT (A) HAS ERRED IN DELETING THE ADDIT ION OF VALUE OF TIMBER LYING WITH THE GOVT. FOR AUCTION WHICH THE A SSESSEE OUGHT TO HAVE OFFERED FOR TAX. THE BRIEF FACTS ARE THAT D URING COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT THE ASSESSEE WAS SHOWING THE REVENUE ON SALE OF ROSEWOO D ON RECEIPT REALIZATION BASIS WHEREAS IT HAS BEEN MAINT AINING ACCOUNTS ON MERCANTILE BASIS. WHEN QUESTIONED BY TH E ASSESSING OFFICER, THE ASSESSEE SUBMITTED THAT IT H AS TO SELL THE ROSEWOOD ONLY THROUGH GOVT. FOREST DEPARTMENT AND T HEY ARE ACCOUNTING FOR THE RECEIPTS ONLY WHEN THEY ACTUALLY RECEIVE THE MONEY OR WHEN THE FOREST DEPARTMENT CONFIRMS THAT T HE MONEY WAS RECEIVED FROM THE BIDDER. HOWEVER, THE ASSESSIN G OFFICER REJECTED THE CLAIM OF THE ASSESSEE AND TREATED THE TIMBER LYING IN THE GOVT. DEPOT AS ON 31.03.2005 AS SOLD BY THE ASS ESSEE. ON THIS BASIS THE ASSESSING OFFICER ARRIVED AT THE SAL E PROCEEDS AT RS.1,84,60,430/- AND ADDED TO THE INCOME RETURNED B Y THE ASSESSEE ON THE GROUND THAT THIS INCOME HAD ACCRUED TO THE ASSESSEE DURING THE RELEVANT FINANCIAL YEAR. 10. ON APPEAL, THE LEARNED CIT (A) HAS DELETED THE ADDITION. ITA NOS.1108 & 1113 TATA COFFEE LTD BANGALORE PAGE 10 OF 22 11. WITH THE ASSISTANCE OF THE LEARNED REPRESENTAT IVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THE STAND OF THE ASSESSEE IS THAT UNDER THE AUCTION SALE, THE SUCCESSFUL BIDDER IS REQUIRED TO REMIT THE SALE PROCEEDS TO THE GOVT. DEPOT. ONCE TH E MONEY IS RECEIVED BY THE GOVT. DEPT, A RANGE FOREST OFFICER AT THE DEPOT WILL PREPARE A LIST OF SALE MADE WHICH IS CALLED SA LE NOTE AND FORWARDED THE SAME TO THE DY. CONSERVATOR OF FOREST . COPY OF THIS NOTE IS BEING MARKED TO THE ASSESSEE. THE DY. CONSE RVATOR OF FOREST WOULD SCRUTINIZE THE SALE DETAILS AND FORWAR D THE SAME TO THE CHIEF CONSERVATOR OF FOREST FOR ISSUE OF LETTER OF CREDIT IN FAVOUR OF THE TIMBER OWNER. THE CHIEF CONSERVATOR O F FOREST AFTER SCRUTINY OF SALE DETAILS WOULD ISSUE LETTER OF CRED IT TO THE DY. CONSERVATOR OF FOREST DIRECTING HIM TO ISSUE A CHEQ UE TO THE TIMBER OWNER. THUS ACCORDING TO THE ASSESSEE, A RIG HT TO RECEIVE WAS ACCRUED TO IT ON FULFILLMENT OF THESE PROCEEDIN GS. IT WAS ALSO POINTED OUT BEFORE THE LEARNED CIT (A) THAT THE INS TITUTE OF CHARTERED ACCOUNTANTS OF INDIA HAD ISSUED ACCOUNTIN G STANDARD. AS-9.4 PROVIDES RECOGNITION OF REVENUE IN SUCH TYPE OF SITUATION WHICH READ AS UNDER: AN ESSENTIAL CRITERION FOR THE RECOGNITION OF REVE NUE IS THAT THE CONSIDERATION RECEIVABLE FOR THE SALE OF G OODS, THE RENDERING OF SERVICES OR FROM THE USE BY OTHERS OF ENTERPRISE RESOURCES IS REASONABLY DETERMINABLE. WHEN SUCH CONSIDERATION IS NOT DETERMINABLE WITHIN REASONABLE LIMITS, THE RECOGNITION OF REVENUE IS POSTPONED. THE CONTENTION OF THE ASSESSEE IS THAT MERELY TRANS MITTING THE WOOD TO THE AUCTION DEPOT WOULD NOT ENTITLE IT TO R ECOGNIZE THE INCOME FROM THE SALE OF ROSEWOOD IN ITS BOOK, BECAU SE UP TO THAT STAGE IT CANNOT CLAIM SUCH INCOME HAS RECEIVED OR A RIGHT ENTITLING IT TO RECEIVE HAS BEEN ACCRUED. WE FIND T HAT THE LEARNED ITA NOS.1108 & 1113 TATA COFFEE LTD BANGALORE PAGE 11 OF 22 FIRST APPELLATE AUTHORITY HAS APPRECIATED THIS ASPE CT IN RIGHT PERSPECTIVE, BECAUSE NO RIGHT WAS ACCRUED TO THE AS SESSEE BY THE TIME THE WOOD WAS HANDED OVER TO THE GOVT. DEPOT. O NLY ON FINALIZATION OF ITS AUCTION AND DEPOSIT MADE BY THE BIDDER, ITS SALE CAN BE RECOGNIZED. THEREFORE, THE LEARNED CIT (A) H AS RIGHTLY DELETED THE ADDITION. WE DO NOT FIND ANY MERIT IN T HE GROUND OF APPEAL, IT IS REJECTED. 12. GROUND NO.4: IN THIS GROUND OF APPEAL, GRIEVANC E OF THE REVENUE IS THAT THE LEARNED CIT (A) HAS ERRED IN DE LETING THE DISALLOWANCE OF 50% OF WOOD PROCESSING CHARGES INCU RRED BY THE ASSESSEE. THE LEARNED ASSESSING OFFICER ON THIS ISS UE HAS RECORDED THE FOLLOWING FINDING: 11. WOOD PROCESSING CHARGES: THE ASSESSEE HAS INCURRED AN EXPENDITURE OF RS.28,33,157/- AS EXTRACTION CHARGES IN RESPECT OF PROCESSING OF WOOD, WHICH IS OVER AND ABOVE THE AMO UNT PAID TO THE MANUFACTURING UNITS, WHICH ARE MAKING PLYWOOD ON BEHALF OF THE ASSESSEE. DURING THE COURS E OF PROCEEDINGS, THE ASSESSEE WAS ASKED TO FURNISH DETA ILS, BUSINESS RELEVANCE OF THIS EXPENDITURE. IN THE DISC USSION HELD ON 23.11.2007 THE REPRESENTATIVES OF THE ASSES SEE COMPANY MENTIONED THAT THIS EXPENDITURE WAS INCURRE D ON CUTTING/FELLING OF THE TREES AND ITS TRANSPORTAT ION TO THE MANUFACTURING UNITS. HOWEVER, NO SUPPORTING EVIDENC E IN THIS REGARD WOULD BE FURNISHED BY THE ASSESSEE. CONSIDERING THE FACTS OF THE CASE, 50% OF THIS EXPE NDITURE IS DISALLOWED AND ADDED BACK IN THE HANDS OF THE ASSESSEE, WHICH WORKS OUT TO RS.14,16,570/-. 13. BEFORE THE LEARNED CIT (A) IT WAS CONTENDED BY THE ASSESSEE THAT IT HAS A TIMBER DIVISION WHEREIN THE WOOD FROM THE ESTATE ARE CONVERTED INTO PLYWOOD. CURING AND PROCESSING CHARG ES INCURRED ITA NOS.1108 & 1113 TATA COFFEE LTD BANGALORE PAGE 12 OF 22 IN THIS DIVISION REPRESENT THE JOB WORK CHARGES PAI D FOR CONVERTING THE TIMBER INTO PLYWOOD. THESE EXPENSES WERE INCURRED ONLY AND EXCLUSIVELY IN CONNECTION WITH TH E TIMBER BUSINESS OF THE ASSESSEE AND THE PAYMENTS WERE MADE AS PER INVOICES RAISED BY THE CONTRACTOR ON THE ASSESSEE. THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM ON ADHOC BASIS WIT HOUT ASSIGNING ANY REASON. THE LEARNED CIT (A) HAS DELET ED THE DISALLOWANCE. THE LEARNED CIT (A) HAS OBSERVED THAT THE EXPENDITURE WAS INCURRED BY THE ASSESSEE IN NORMAL COURSE OF BUSINESS AND NO DISALLOWANCE OUGHT TO HAVE BEEN MAD E. 14. THE LEARNED DR RELIED UPON THE ORDER OF THE ASS ESSING OFFICER, WHEREAS THE LEARNED COUNSEL FOR THE ASSESS EE SUBMITTED THAT IT HAS COMPLETE DETAILS. THE COMPANY HAS OFFER ED AN INCOME OF MORE THAN RS.8.00 CRORES, ITS ACCOUNTS CANNOT BE IN-COMPLETE AND IT CANNOT AFFORD NON MAINTENANCE OF ACCOUNTS. T HE ASSESSING OFFICER IN A SWEEPING WAY HAS OBSERVED THAT NO SUPP ORTING DOCUMENTS WERE SUBMITTED BY THE ASSESSEE. WHAT DOCU MENTS HE CALLED FOR AND WHICH WAS NOT SUBMITTED BY THE ASSES SEE, THEN ONLY THE LEARNED ASSESSING OFFICER CAN RECORD SUCH TYPE OF OBSERVATION. 15. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND CAREFULLY GONE THROUGH THE RECORD. FROM THE FINDINGS OF THE A SSESSING OFFICER EXTRACTED (SUPRA), IT IS NOWHERE DISCERNIBL E WHAT SPECIFIC DEFECT WAS NOTICED BY HIM IN THE DETAILS OF EXPENDI TURE MAINTAINED BY THE ASSESSEE. IN A VERY VAGUE WAY, HE OBSERVED THAT NO SUPPORTING MATERIAL WAS AVAILABLE. THE CONT ENTION OF THE ITA NOS.1108 & 1113 TATA COFFEE LTD BANGALORE PAGE 13 OF 22 ASSESSEE IS THAT PAYMENTS WERE MADE ON THE BASIS OF THE INVOICES RAISED BY THE CONTRACTOR. HAD THE ASSESSING OFFICER CONFRONTED THE ASSESSEE WITH REGARD TO THOSE INVOICES AND POIN TED OUT THE DEFECTS, WE MAY APPRECIATE HIS CONTENTION. HE HAS N OT DIRECTED THE ASSESSEE TO BRING CONFIRMATION FROM THE CONTRAC TOR OR HE HIMSELF HAS NOT DIRECTLY VERIFIED FROM THE CONTRACT OR ABOUT THE INVOICE. IT IS NOT JUSTIFIABLE TO DISALLOW 50% OF T HE EXPENDITURE CLAIMED BY THE ASSESSEE BY MAKING SUCH OBSERVATION. THEREFORE, WE ARE OF THE VIEW THAT THE LEARNED CIT (A) HAS RIG HTLY DELETED THE DISALLOWANCE. 16. GROUND NO.5 & 6 : THESE ARE GENERAL GROUNDS OF APPEAL. IN THESE GROUNDS, THE REVENUE RESERVED ITS RIGHT TO RA ISE ANY ADDITIONAL PLEA OR GROUNDS AND ALSO PRAYED FOR SETT ING ASIDE THE ORDER OF THE CIT (A) ON THESE GROUNDS AND RESTORING THAT OF THE ASSESSING OFFICER. NO SPECIFIC FINDING SEPARATELY I S TO BE RECORDED ON THESE ISSUES. THEREFORE, THESE GROUNDS OF APPEAL ARE REJECTED. 17. NO WE TAKE REMAINING GROUNDS OF ASSESSEES APPE AL IN ITA NO.1113/BANG/2012. IN GROUND NO.2, THE ASSESSEE HAS PLEADED THAT THE LEARNED CIT (A) HAS ERRED IN CONFIRMING TH E DISALLOWANCE OF RS.4,10,201/- WHICH WAS MADE BY THE ASSESSING OF FICER OUT OF THE LOSSES CLAIMED IN THE SUPPLY DIVISION. THE BRIE F FACTS ARE THAT THE ASSESSEE HAD CLAIMED A LOSS OF RS.8,20,402/- IN ESTATE SUPPLY DIVISION. UNDER THIS DIVISION, THE ASSESSEE UNDERTA KES TO TAKE PLANTATION INPUTS I.E. IT USED TO PURCHASE UREA FER TILIZER AND OTHER PLANTATION REQUIREMENTS WHICH NOT ONLY USED BY THE COMPANY BUT ALSO SOLD TO THE OUTSIDE PLANTORS. ACCORDING TO THE ASSESSEE A ITA NOS.1108 & 1113 TATA COFFEE LTD BANGALORE PAGE 14 OF 22 SMALL LOSS HAS BEEN INCURRED ON ACCOUNT OF NORMAL B USINESS ACTIVITY OF THE DIVISION. THE LEARNED ASSESSING OFF ICER DID NOT POINT OUT ANY SPECIFIC REASON BUT DISALLOWED THE CL AIM BY OBSERVING AS UNDER: I HAVE CONSIDERED THE FACTS OF THE CASE. IF THE LO SS HAS BEEN INCURRED IN PURCHASE OF UREA ETC. AND ITS SALE TO OTHER PLANTERS THEN THE ASSESSEE AHS TO EXPLAIN THE REASONS AS TO WHY DID HE INCUR THE LOSSES. THE ASSE SSEE HOWEVER HAS NOT GIVEN ANY COGENT REASON FOR INCURRI NG LOSSES. I ACCORDINGLY TREAT THIS LOSS OF RS.8,20,04 2/- AS DELIBERATE AND UNJUSTIFIED AND DISALLOW THE SAME. 18. ON APPEAL THE LEARNED CIT (A) HAS PARTLY ALLOWE D THE CLAIM OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE AT R S.4,10,201/-. 19. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTA NCES AND AFTER HEARING THE REPRESENTATIVES, WE ARE OF THE VI EW THAT THE LEARNED FIRST APPELLATE AUTHORITY HAS ERRED IN CONF IRMING THE DISALLOWANCE. THE ASSESSEE HAS OFFERED AN INCOME OF RS.8.22 CRORES. THERE COULD NOT BE ANY REASON TO INFLATE TH E EXPENSES OF SUCH A SMALL NATURE IN ONE OF THE DIVISION. THE ASS ESSING OFFICER IN THE FINDINGS EXTRACTED (SUPRA) FAILED TO ASSIGN ANY REASON, HOW THE CLAIM MADE BY THE ASSESSEE IS NOT RELIABLE. MER ELY LOSS HAS OCCURRED IN SUCH A DIVISION, DOES NOT MEAN THAT SUC H A LOSS IS TO BE DISALLOWED BY JUST DISBELIEVING THE ACCOUNTS. NO REASONS ARE DISCERNIBLE EITHER IN THE ASSESSMENT ORDER OR IN TH E ORDER OF THE CIT (A). THEREFORE, WE ALLOW THIS GROUND OF APPEAL AND DELETED THE DISALLOWANCE. ITA NOS.1108 & 1113 TATA COFFEE LTD BANGALORE PAGE 15 OF 22 20. GROUND NO.3: IN THIS GROUND THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF DISALLOWANCE OUT OF MARKETING E XPENSES AT RS.25.00 LAKHS. THE BRIEF FACTS OF THE CASE ARE THA T THE ASSESSEE HAS INCURRED LOSS OF RS.66,16,072/- IN THE MARKETIN G DIVISION. THE LEARNED ASSESSING OFFICER HAS DIRECTED THE ASSE SSEE TO EXPLAIN THE LOSS. THE ASSESSEE HAS EXPLAINED THAT A LOSS OF RS.4.98 CRORES WAS INCURRED IN FINANCIAL YEAR 2003- 04, RS.3.50 CRORES IN FINANCIAL YEAR 2002-03 AND RS.2.80 CRORES FOR ASSESSMENT YEAR 2001-02. THE EXPENSES WERE INCURRED ON PROVIDING INCENTIVE TO THE STOCKISTS, RETAILERS AND CONSUMERS. THE LEARNED ASSESSING OFFICER HAS MADE A DETAILED ANALY SIS. HE OBSERVED THAT THE ACCOUNT HAS SHOWN EXPENDITURE OF RS.2,46,47,822/- IN RESPECT OF SALE PROMOTION, ADVE RTISING IN THE MARKETING DIVISION. HE NOTICED THE DETAILS OF THESE EXPENDITURE. THEREAFTER HE OBSERVED AS UNDER AND DISALLOWED RS.5 0.00 LAKHS: 9.4 FROM THE ABOVE DETAILS, IT IS CLEAR THAT A HUG E AMOUNT HAS BEEN INCURRED IN RESPECT OF VARIOUS INCENTIVES VIZ., STOCKISTS INCENTIVE, RETAILER INCE NTIVE, CONSUMER INCENTIVE AND MARKET RESEARCH. HOWEVER, APART FROM THE ABOVE, EXPENDITURE OF RS.41,88,715+RS.3,49,732 + RS.15,40,152/- HAS BEEN INCURRED AS OTHER EXPENSES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO EXPLAIN THE HUGE AMOUNTS CLAIMED AS OTHER EXPENSES. IN RESPECT OF EXPENDITURE OF RS.41,88,715/- THE ASSESS EE FURNISHED THE FOLLOWING BREAK-UP: I. STOCKISTS INCENTIVE RS. 13,94,480 II. RETAIL INCENTIVE RS. 10,46,725 III. MARKET RESEARCH RS. 3,74,975 IV. AD TV RS. 8,80,591 9.5 FROM THE ABOVE BREAKUP, IT IS CLEAR THAT THE OT HER MARKETING EXPENDITURE IS ALSO IN NATURE OF INCENTIV ES AND MARKET RESEARCH EXPENDITURE ONLY. IT IS NOT CLE AR AS TO HOW THIS INCENTIVE EXPENDITURE IS DIFFERENT FROM INCENTIVE EXPENDITURE CLAIMED SEPARATELY AS MENTION ED ITA NOS.1108 & 1113 TATA COFFEE LTD BANGALORE PAGE 16 OF 22 IN THE ABOVE TABLE. THE ASSESSEE COULD NOT FURNISH ANY SATISFACTORY EXPLANATION IN RESPECT OF THIS ISSUE A ND ONLY MENTIONED THAT THIS EXPENDITURE MIGHT HAVE BEE N INCURRED AT THE FAG END OF THE FINANCIAL YEAR AND M IGHT HAVE BEEN CATEGORIZED AS OTHER EXPENSE. 21. ON APPEAL THE LEARNED CIT(A) AHS RESTRICTED THI S DISALLOWANCE TO RS.25.00 LAKHS. THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT FROM THE LAST NUMBER OF ASS ESSMENT YEARS, IT IS INCURRING A LOSS IN THIS DIVISION AND IT COULD NOT BREAK EVEN, BECAUSE LOW VOLUME OF TRANSACTIONS AND ADVERTISING, SELLING AND MARKETING EXPENSES. ON THE OTHER HAND T HE LEARNED DR RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 22. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND GONE THROUGH THE RECORD CAREFULLY. IF ANY EXPENDITURE WH ICH IS TO BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS WHICH IS NOT IN THE NATURE OF CAPITAL EXPENDITURE O R ANY OTHER EXPENDITURE PROVIDED IN SECTION 30 TO 36, THAT CAN BE CLAIMED UNDER THE RESIDUARY PROVISION OF SECTION 37. THE AS SESSEE HAS TO DEMONSTRATE THAT THE EXPENDITURE IS WHOLLY (REPRESE NTING THE QUANTUM) AND EXCLUSIVELY (REPRESENTING THE OBJECT) FOR THE BUSINESS ONLY. THE LEARNED ASSESSING OFFICER HAS P OINTED OUT THAT UNDER THE STOCKISTS INCENTIVE, THE ASSESSEE HA D SHOWN EXPENDITURE OF RS.13,94,480/-. HE HAS MADE ANALYSIS OF THE TOTAL EXPENDITURE ON PAGE NO.27 OF THE ASSESSMENT ORDER. HE OBSERVED THAT IN THE PROJECT AD-MR.BEAN, STOCKISTS INCENTIVE HAD BEEN INCURRED AT RS.22,59,328/-. THIS IS PART OF THE EXP ENDITURE MEANT FOR EXCLUSIVE HEAD, THEN HOW IT IS COMING UND ER THE HEAD OF EXPENSES (OTHER MARKETING EXPENSES) AMOUNTING TO ITA NOS.1108 & 1113 TATA COFFEE LTD BANGALORE PAGE 17 OF 22 RS.41,88,713/-. THUS FROM THE FINDINGS OF THE ASSES SING OFFICER EXTRACTED (SUPRA) IT IS DISCERNIBLE THAT THE DETAIL S OF EXPENDITURE ARE NOT DIRECTLY RELATABLE TO EACH HEAD. THE LEARNE D ASSESSING OFFICER HAS BIFURCATED THE EXPENDITURE CLAIMED BY T HE ASSESSEE UNDER VARIOUS HEADS AND THEN POINTED OUT WHY EXPENS ES MEANT FOR A PARTICULAR HEAD HAS BEEN DEBITED IN A DIFFERE NT HEAD NAMELY OTHER MARKETING EXPENSES. THE ASSESSEE FAILED TO GIVE ANY REPLY TO THIS ASPECT. THE LEARNED FIRST APPELLATE AUTHORI TY HAS RE- APPRECIATED AND OBSERVED THAT QUANTIFICATION OF DIS ALLOWANCE IS ON HIGHER SIDE. ON AN ANALYSIS OF THESE DETAILS POI NTED OUT BY THE ASSESSING OFFICER, ONE THING IS CERTAIN THAT ACCOUN TS UNDER THIS HEAD DID NOT GIVE CORRECT PICTURE. SOME DISALLOWANC E ON AN ADHOC BASIS HAS TO BE MADE, BECAUSE OF UNSATISFACTO RY EXPLANATION GIVEN BY THE ASSESSEE. THE LEARNED CIT (A) HAS RESTRICTED THE DISALLOWANCE AT RS.25.00 LAKHS. WE D O NOT SEE ANY REASON TO INTERFERE IN THE FINDINGS OF THE CIT (A). THIS GROUND OF APPEAL IS REJECTED. 23. GROUND NO.4 : IN THIS GROUND OF APPEAL, THE ASSESSEE HAS PLEADED THAT THE LEARNED CIT (A) HAS ERRED IN UPHOL DING THE DISALLOWANCE AT 10% OUT OF THE CAR HIRE CHARGES CLA IMED BY TOOPRAN DIVISION. THE BRIEF FACTS OF THE CASE ARE T HAT THE ASSESSEE HAD INCURRED AN EXPENDITURE OF RS.16,09,673/- TOWAR DS CAR HIRE CHARGES AT TOOPRAN DIVISION. THE ASSESSING OFFICER ON AN ANALYSIS OF THE RECORD OBSERVED THAT THE ASSESSEE H AD SHOWN VALUE OF CAR AS ON 31.03.2005 AT RS.4.02 CRORES. IF IT HAD SUCH A BIG FLEET OF CARS, THEN WHY IT HAD INCURRED EXPENDI TURES ON HIRING OF CAR. HE ACCORDINGLY DISALLOWED 50% OF THE CLAIM MADE BY THE ASSESSEE. AN ADDITION OF RS.8,04,836 WAS MADE BY TH E ASSESSING ITA NOS.1108 & 1113 TATA COFFEE LTD BANGALORE PAGE 18 OF 22 OFFICER. ON APPEAL IT WAS CONTENDED BY THE ASSESSEE THAT AT TOOPRAN DIVISION IN MEDAK DISTRICT OF ANDHRA PRADES H, ITS FACTORY FOR INSTANT COFFEE IS SITUATED, WHICH IS 60 KMS FROM SECUNDERABAD. THE ADMINISTRATIVE OFFICE WAS LOCATED AT SECUNDERABAD, THEREFORE, IT HAD INCURRED EXPENDITUR E FOR HIRING CARS WHICH WERE USED BY THE MANAGEMENT AND STAFF FO R COMMUTING. THE BOOK VALUE OF THE CAR AS OBSERVED BY THE ASSESSING OFFICER AS ON 31.03.2005 WAS S.2.51 CRORE S AT TOOPRAN DIVISION AND THE VALUE OF VEHICLES IS ONLY RS.26,63 ,127/- . THUS ACCORDING TO THE ASSESSEE, ALL THESE EXPENSES WERE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF THE BUSINES S. THE LEARNED CIT (A) ALLOWED THE CLAIM OF THE ASSESSEE PARTLY. S HE OBSERVED THAT 12 VEHICLES OWNED BY THE COMPANY AS ON 31.03.2 005 WERE AVAILABLE AT TOOPRAN. THE ASSESSEE HIRED FOUR MORE VEHICLES. THEREFORE, AT THE MOST 10% OF THE EXPENSES COULD BE DISALLOWED. THE LEARNED CIT (A) HAS OBSERVED THAT POSSIBILITY O F PERSONAL USAGE OF CAR BY THE MANAGEMENT CANNOT BE RULED OUT. 24. WITH THE ASSISTANCE OF THE LEARNED REPRESENTATI VES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THE ASSESSEE HAS NOT BEEN MAINTAINING THE LOG BOOK OF THE VEHICLES, EXHIBITIN G THEIR EXCLUSIVE USAGE. THEREFORE, THE LEARNED FIRST APPEL LATE AUTHORITY HAS RIGHTLY OBSERVED THAT POSSIBILITY OF USERS OTHE R THAN FOR BUSINESS PURPOSE CANNOT BE RULED OUT. IN SUCH SITUA TION, 10% DISALLOWANCE OUT OF THE TOTAL EXPENSES CANNOT BE TE RMED ON HIGHER SIDE. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE CIT (A), THIS GROUND IS REJECTED. ITA NOS.1108 & 1113 TATA COFFEE LTD BANGALORE PAGE 19 OF 22 25. IN GROUND NO.5 THE ASSESSEE IS IMPUGNING THE CO NFIRMATION OF DISALLOWANCE AT RS.5.00 LAKHS OUT OF MISCELLANEO US EXPENDITURE AND IN GROUND NO.6, IT IS IMPUGNING DIS ALLOWANCE OF RS.91,394/- OUT OF THE ENTERTAINMENT EXPENSES. THE ORDER OF THE LEARNED CIT (A) ON BOTH THESE ISSUES READ AS UNDER: 13.7 THE ASSESSING OFFICER ALSO NOTICED THAT THE TOOPRAN DIVISION OF THE APPELLANT COMPANY HAD INCUR RED OTHER MISCELLANEOUS EXPENSES OF RS.2,67,915/- AND OFFICE MISCELLANEOUS EXPENSES OF RS.19,60,110/-. AS THE APPELLANT WAS UNABLE TO FURNISH COMPLETE DETAILS, T HE ASSESSING OFFICER DISALLOWED A SUM OF RS.5 LAKHS OU T OF THIS EXPENDITURE CLAIMED AND ADDED TO THE INCOME RETURNED BY THE APPELLANT. 13.8 THE A.R OF THE APPELLANT SUBMITTED THAT THE ASSESSING OFFICER HAS DISALLOWED THE OTHER MISCELLANEOUS EXPENSES AT TOOPRAN DIVISION ON ADHOC BASIS WITHOUT ASSIGNING REASONS FOR THE SAME. FURTH ER, WE SUBMIT THAT THE COMMERCIAL EXPEDIENCY OF EXPENDITURE MUST BE ADJUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT OF THE REVENUE. 13.9 I HAVE CAREFULLY CONSIDERED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND THE SUBMISSIONS MADE ON BEHALF OF THE APPELLANT. EXCEPT STATING THA T THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINES S THE APPELLANT COMPANY WAS UNABLE TO FURNISH ANY FURTHER DETAILS IN RESPECT OF THIS EXPENDITURE. THE REFORE, I INCLINED TO AGREE WITH THE ASSESSING OFFICER AND TH E ADDITION MADE BY THE ASSESSING OFFICER TO THE EXTEN T OF RS.5.00 LAKHS IS CONFIRMED AND THIS GROUND OF APPEA L IS DISMISSED. ITA NOS.1108 & 1113 TATA COFFEE LTD BANGALORE PAGE 20 OF 22 14. ENTERTAINMENT EXPENSES THE ASSESSING OFFICER ALSO NOTICED THAT THE APPELLA NT COMPANY HAD INCURRED ENTERTAINMENT EXPENDITURE, GUE ST HOUSE EXPENDITURE, SUBSCRIPTION TO CLUBS AND OTHER MISCELLANEOUS EXPENDITURE OF RS.9,13,946. THE ASSESSING OFFICER OBSERVED THAT THE BUSINESS RELEVA NT OF THIS EXPENDITURE WAS NOT FULLY PROVED BY THE APPELL ANT AND CONSIDERING THE NATURE OF EXPENDITURE, NON- BUSINESS EXPENDITURE CANNOT BE RULED OUT. THEREFORE , THE ASSESSING OFFICER HAD DISALLOWED 50% OF THE EXPENDITURE AND ADDED RS.4,56,973/- TO THE INCOME RETURNED BY THE APPELLANT. 14.1 THE A.R. OF THE APPELLANT SUBMITTED THAT THE ASSESSING OFFICER HAS DISALLOWED ENTERTAINMENT EXPENSES & MISCELLANEOUS EXPENSES ON ADHOC BASIS. PROPER REASONS FOR THE DISALLOWANCES HAVE NOT BEEN CLEARLY MENTIONED. FURTHER, IT IS SUBMITTED THAT TH E COMMERCIAL EXPEDIENCY OF EXPENDITURE MUST BE ADJUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT OF THE REVENUE. 14.2 I HAVE CAREFULLY CONSIDERED THE STAND TAKEN BY THE ASSESSING OFFICER AND THE SUBMISSIONS MADE ON BEHAL F OF THE APPELLANT. ON EXAMINATION OF THE FACTS OF TH E CASE, I AM INCLINED TO RESTRICT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TO 10% OF THE EXPENDITURE INCURRE D. THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO RES TRICT THE ADDITION TO RS.91,349/- INSTEAD OF RS.4,56,973/ - AND THIS GROUND OF APPEAL IS PARTLY ALLOWED. 26. WITH THE ASSISTANCE OF THE LEARNED REPRESENTATI VES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. ON AN ANALYSIS O F THE ACCOUNTS, IT REVEALED TO THE ASSESSING OFFICER THAT THE ASSESSEE HAD INCURRED AN EXPENDITURE OF RS.28,00,983/- UNDER THE HEAD OTHER MISCELLANEOUS EXPENSES. THE LEARNED ASSESSI NG OFFICER HAS CALLED FOR THE BREAK UP OF THESE EXPENDITURES. THE BREAK-UP WAS GIVEN UNDER SIX HEADS. OUT OF THAT A SUM OF RS. 3,14,177/- REPRESENTED SOFTWARE AND DEVELOPMENT EXPENSES AND R S.7,400/- ITA NOS.1108 & 1113 TATA COFFEE LTD BANGALORE PAGE 21 OF 22 AS STAFF TRAINING EXPENSES. REST OF THE EXPENDITURE S IS FACTORY MISCELLANEOUS EXPENSES, OFFICE MISCELLANEOUS EXPENS ES, OTHER MISCELLANEOUS EXPENSES AND SUBSCRIPTION AND MEMBERS HIP OF THE CLUB. THE ASSESSING OFFICER HAS EXAMINED THESE DETA ILS AND THEN ARRIVED THAT THESE ARE NOT EXCLUSIVELY FOR THE BUSI NESS PURPOSE. HE MADE ADHOC DISALLOWANCE. SIMILARLY UNDER THE HEA D, ENTERTAINMENT EXPENDITURE, THE ASSESSEE HAD INCURRE D A SUM OF RS.9,13,946/-. THE LEARNED ASSESSING OFFICER HAS CO NSIDERED THE BREAK UP OF THE TOTAL EXPENDITURE AND THEREAFTER DI SALLOWED 50% OF THE ENTERTAINMENT EXPENDITURE. THE LEARNED CIT (A) HAS CONFIRMED THE ACTION OF THE ASSESSING OFFICER OF DI SALLOWING RS.5.00 LAKHS OUT OF OTHER MISCELLANEOUS EXPENSES A ND OFFICE MISCELLANEOUS EXPENSES. SHE CONFIRMED DISALLOWANCE OF 10% OF THE TOTAL ENTERTAINMENT EXPENDITURE. 27. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE ARE EXPENSES INCURRED FOR THE PURPOSE OF THE BUSINESS, WHEREAS THE LEARNED DR RELIED UPON THE ORDERS OF TH E REVENUE AUTHORITIES BELOW. ON DUE CONSIDERATION OF THE FACT S AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT CLAIM OF ANY EXPENDITURE CAN BE ALLOWED TO AN ASSESSEE, IF IT IS PROVED ON T HE RECORD THAT SUCH EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF THE BUSINESS. THERE IS A LACUNA IN THE C LAIM MADE BY THE ASSESSEE. IT COULD NOT SUBSTANTIATE ALL THE EXP ENSES WITH SUPPORTING VOUCHERS. THE LEARNED ASSESSING OFFICER HAS OBSERVED THAT DURING THE COURSE OF HEARING, DEFECTS WERE NOT ICED AND POINTED OUT. HE THEREAFTER MADE ADHOC DISALLOWANCE WHICH HAVE BEEN RE-APPRECIATED BY THE LEARNED FIRST APPELLATE AUTHORITY. ITA NOS.1108 & 1113 TATA COFFEE LTD BANGALORE PAGE 22 OF 22 CONSIDERING THEIR FINDINGS, WE DO NOT SEE ANY REASO N TO INTERFERE IN IT. THEREFORE, BOTH THESE GROUNDS OF APPEAL ARE REJECTED. 28. IN THE RESULTS, BOTH THE APPEALS ARE PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH AUGUST, 2014. SD/- SD/- (JASON P. BOAZ) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE DATED 28 TH AUGUST , 2014. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHES, BANGALORE