Apeejay Tea Ltd., Kolkata V. D.C.I.T., CC - III, Kol, Kolkata

ITA 1406/KOL/2009

• Counselvise Citation: 140623514 RSA 2009
• Duration Of Justice: 6 year(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-08-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 14-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MANISH TIWARI F
• Keywords: Business income; Depreciation; Business expenditure; Opportunity of being heard; Revised return
• Section: 145; 37; 28; 143(3); 37(1)

Judgement Text

I.T.A. NO . 1406 / KOL ./20 09 ASSESSMENT YEAR: 200 5 - 20 0 6 & ITA NO. 1233/KOL/2009 ASSESSMENT YEAR : 2005 - 2006 PAGE 1 OF 14 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA B BENCH, KOLKATA BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI M. BALAGANESH , ACCOUNTANT MEMBER I.T.A. NO. 140 6 / KOL / 20 09 ASSESSMENT YEAR : 200 5 - 20 0 6 APEEJAY TEA LIMITED,.................... . ..... ........ .......... . . APPELLANT 15, PARK STREET, APEEJAY HOUSE, KOLKATA - 700 016 [PAN : AACCA 1955 F] - VS. - DEPUTY COMMISSIONER OF INCOME TAX,........ .. ...... .... ..... . . RESPONDENT CENTRAL CIRCLE - III, KOLKATA, 18, RABINDRA SARANI, KOLKATA - 700 001 - VS. - I.T.A. NO. 1233 / KOL / 20 09 ASSESSMENT YEAR : 200 5 - 2006 DEPUTY COMMISSIONER OF INCOME TAX,.......... .................. . APPELLANT CENTRAL CIRCLE - III, KOLKATA, 18, RABINDRA SARANI, KOLKATA - 700 001 - VS. - APEEJAY TEA LIMITED,...................... ....................... . RESPONDENT 15, PARK STREET, APEEJAY HOUSE, KOLKATA - 700 016 [PAN : AACCA 1955 F] APPEARANCES BY: SHRI MANISH TIWARI, F.C.A. , FOR THE ASSESSEE SHRI ARINDAM BHATTACHARYA, JCIT, SR. D.R. , FOR THE DEPARTMENT DATE OF CONCLUDING TH E HEARING : AUGUST 24 , 2 01 5 DATE OF PRONOUNCING THE ORDER : SEPTEMBER 11 , 201 5 O R D E R PER SHRI M. BALAGANESH, A.M .: I.T.A. NO. 1406/KOL/ 2009 TH IS APPEAL OF THE ASSESSE E ARISES OUT OF ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS) , CENTRAL - I, K OLKATA IN APPEAL NO. 04 / CC - I.T.A. NO . 1406 / KOL ./20 09 ASSESSMENT YEAR: 200 5 - 20 0 6 & ITA NO. 1233/KOL/2009 ASSESSMENT YEAR : 2005 - 2006 PAGE 2 OF 14 III/ CIT(A) C - I/ 08 - 09 D ATED 2 3 . 0 4 .20 09 FOR THE ASSESSMENT YEAR 200 5 - 0 6 , WHICH IS AGAINST THE ORDER OF ASSESSMENT FRAMED UNDER SECTION 143 ( 3 ) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) . 2. THE ONLY ISSUE TO BE DECIDED IN TH E APPEAL OF THE ASSESSEE IS AS TO WHETHER THE LD. CIT(APPEALS) IS CORRECT IN DISALLOWING THE FOREIGN EXCHANGE LOSS OF RS.10,00,000/ - UNDER SECTION 43A OF THE ACT WITHOUT APPRECIATING THE FACT THAT THE SAID PROVISION IS NOT APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2.1. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CULTIVATION OF GREEN LEA VES AND MANUFACTURE AND SALE OF BLACK TEA. THE ASSESSEE HAD BORROWED E XTERNAL COMMERCIAL BORROWINGS (HEREINAF TER REFERRED TO AS ECB ) OF USD 50,00,000 AND UTILIZED THE SAME FOR GENERAL BUSINESS PURPOSES. HENCE, THIS GOES TO PROVE THAT THE LOAN HAS BEEN OBTAINED FOR REVENUE ACCOUNT. THIS LOAN WAS OUTSTANDING AS ON 31 ST MARCH, 2005 AND THE SAME WAS RESTATED AT THE EXCHANGE RATE PREVAILING AT THE END OF THE YEAR IN CONSONANCE WITH THE ACCOUNTING STANDARD 11 (AS - 11) ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANT S OF INDIA (ICAI) BY THE ASSESSEE - COMPANY. THE ASSESSEE INCURRED A NOTIONAL EXCHANGE LOSS OF RS.10,00,000/ - ON SUCH RESTATEMENT IN VIEW OF THE INCREASE IN LIABILITY PAYABLE ON THE LOAN ACCOUNT. THIS IS WORK ED OUT AS UNDER: - LOAN BALANCE AS ON 31.03.2004 21,77,50,000 LESS: VALUE OF LOAN AS ON 31.03.2005 USD 50,00,000 @ 43.75 21,87,50,000 THE DIFFERENCE REPR ESENTING EXCHANGE LOSS BY WAY OF INCREASE IN LIABILITY ____________________ RS.10,00,000/ - ____________________ I.T.A. NO . 1406 / KOL ./20 09 ASSESSMENT YEAR: 200 5 - 20 0 6 & ITA NO. 1233/KOL/2009 ASSESSMENT YEAR : 2005 - 2006 PAGE 3 OF 14 2.2. THE ASSESSING OFFICER DISALLOWED THE SAME AS THE EXCHANGE LOSS INCURRED THEREON WAS NOTIONAL IN NATURE BY INVOKING THE PROVISIONS OF SECTION 43A OF THE ACT, WHEREIN PURSUANT TO AN A MENDMENT BROUGHT WITH EFFECT FROM 1 ST APRIL, 2003, A N Y EXCHANGE LOSS ARISING OUT OF RESTATEMENT COULD BE ALLOWED TO BE CAPITALISED OR ALLOWED AS DEDUCTION ONLY ON PAYMENT BASIS AND NOT ON MERE RESTATEMENT . THE ASSESSEE PLEADED THAT THE PROVISION S OF SECTION 43A PER SE ARE NOT APPLICABLE TO THE FACTS OF THE CASE AS NO ASSET W AS ACQUIRED OUT OF ECB LOAN AVAILE D BY THE ASSESSEE AS ADMITTEDLY THE SAID LOAN WAS AVAILED FOR GENERAL WORKING CAPITAL BUSINESS PURPO SES ON LY . BUT THIS EXPLANATION BEFORE THE ASSESSING OFFICER DID NOT HOLD WATER. AGGRIEVED , THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(APPEALS) , WHO UPHELD THE DECISION OF THE ASSESSING OFFICER. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FO LLOWING GROUNDS: - (A) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER WHO DISALLOWED LOSS OF RS.10,00,000/ - U/S 43A OF INCOME TAX ACT, 1961, WITHOUT APPRECIATING THE FACT THAT SECTION 4 3A IS NOT APPLICABLE IN APPELLANT S CASE. (B) THAT THE LD. CIT(A) HAVING ADMITTED THAT THE APPELLANT FOLLOWING MERCANTILE SYSTEM HAS TO PROVIDE LOSS ON ACCOUNT OF INCREASE OF FOREIGN EXCHANGE LIABILITY HAS ERRED IN DISMISSING THE ASSESSEE S APPEAL. 2.3. SHRI MANISH TIWARI, FCA, A.R., ARGUED ON BEHALF OF THE ASSESSEE AND SHRI ARINDAM BHATTACHARYA, JCIT, SR. D.R., ARGUED ON BEHALF OF THE REVENUE. 2.4. THE LD. A.R. ARGUED THAT THE ASSESSEE HAD BORROWED ECB LOAN FOR ITS GENERAL WORKING CAPITAL PURPOSES WHICH IS ONLY ON REVENUE ACCOUNT. ON SPECIFIC QUERY FROM THE BENCH, HE PLACED ON RECORD A COPY OF THE ECB LOAN AGREEMENT. HE FURTHER ARGUED THAT SINCE THE ECB LOAN WAS UTILIZED ON REVENUE ACCOUNT AND NO FIXED ASSETS WERE PURCHASED OUT OF THE SAME, THE I.T.A. NO . 1406 / KOL ./20 09 ASSESSMENT YEAR: 200 5 - 20 0 6 & ITA NO. 1233/KOL/2009 ASSESSMENT YEAR : 2005 - 2006 PAGE 4 OF 14 PROVISION S OF SECTION 43A OF THE ACT PER SE ARE NOT APPLICABLE TO THE ASSESSEE. HE RELIED ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDIA P. LTD. REPORTED IN 312 ITR 254 (SC) IN SUPPORT OF HIS CONTENTION THAT THE EXCHANGE LOSS ON RESTATEMENT OF THE FOREIGN CURRENCY LOAN FOR THE END OF THE YEAR LEADING TO INCREASE IN LIABILITY IS AN ALLOWABLE BUSINESS EXPENDITURE. IN RESPONSE TO THIS, LD. D.R. VEHEMENTLY SUPPORTED THE ORDER OF THE LOWER AUTHORITIES. 2.5. WE HAVE HEARD THE RIVAL SU BMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SEEN FROM THE ECB LOAN AGREEMENT, WHICH WAS FILED BASED ON A SPECIFIC QUERY FROM THE BENCH BY THE A.R. THAT THE LOAN WAS UTILIZED FOR GENERAL CORPORATE PURPOSES AND NOT FOR ACQUISITION OF ANY FI XED ASSET S . HENCE, WE HOLD THAT THE BORROWINGS WERE UTILIZED ON REVENUE ACCOUNT AND THE PROVISIONS OF SECTION 43A OF THE ACT WERE NOT APPLICABLE AT ALL IN THE FACTS OF THE CASE. BASED ON THIS, IT COULD LOGICALLY BE CONCLUDED THAT ANY EXCHANGE FLUCTUATION A RISING OUT OF THE RESTATEMENT OF THE SAID LOAN AT THE END OF THE YEAR, BE IT GAIN OR LOSS, WOULD ALSO FALL ON REVENUE ACCOUNT AND HENCE, AUTOMATICALLY COMES UNDER THE AMBIT OF TAXATION IF IT IS A GAIN AND ALLOWABLE AS AN EXPENDITURE IF IT IS A LOSS. THIS I SSUE IS SQUARELY COVERED BY THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. - WOODWARD GOVERNOR INDIA P. LTD. REPORTED IN 312 ITR 254 (SC), WHEREIN THE QUESTIONS RAISED BEFORE T HEIR LORDSHIPS WERE AS UNDER: - (I) WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ADDITIONAL LIABILITY ARISING ON ACCOUNT OF FLUCTUATION IN THE RATE OF EXCHANGE IN RESPECT OF LOANS TAKEN FOR REVENUE PURPOSES COULD BE ALLOWED AS DEDUCTION UNDER SECTION 37(1) IN THE YEAR OF FLUCTUATION IN THE RATE OF EXCHANGE OR WHETHER THE SAME COULD ONLY BE ALLOWED IN THE YEAR OF REPAYMENT OF SUCH LOANS? (II) WHETHER, THE ASSESSEE IS ENTITLED TO ADJUST THE ACTUAL COST OF IMPORTED ASSETS ACQUIRED IN FOREIGN CURRENCY ON ACCOUNT OF FLUCTUATION IN THE RATE OF EXCHAN GE AT EACH I.T.A. NO . 1406 / KOL ./20 09 ASSESSMENT YEAR: 200 5 - 20 0 6 & ITA NO. 1233/KOL/2009 ASSESSMENT YEAR : 2005 - 2006 PAGE 5 OF 14 BALANCE SHEET DATE, PENDING ACTUAL PAYMENT OF THE VARIED LIABILITY? 2.6. THEIR LORDSHIPS HAD CATEGORICALLY HELD THAT SINCE THE LOAN WAS BORROWED FOR GENERAL BUSINESS PURPOSES I.E. ON REVENUE ACCOUNT, ANY LOSS ARISING OUT OF RESTATEMENT AT THE E ND OF THE YEAR WOULD BE SQUARELY ALLOWABLE UNDER SECTION 37(1) OF THE ACT. THE RELEVANT OPERATIVE PORTION OF THE SAID JUDGMENT IS REPRODUCED BELOW: - 13. AS STATED ABOVE, ONE OF THE MAIN ARGUMENTS ADVANCED BY THE LEARNED ADDITIONAL SOLICITOR GENERAL ON BE HALF OF THE DEPARTMENT BEFORE US WAS THAT THE WORD 'EXPENDITURE' IN SECTION 37(1) CONNOTES 'WHAT IS PAID OUT' AND THAT WHICH HAS GONE IRRETRIEVABLY. IN THIS CONNECTION, HEAVY RELIANCE WAS PLACED ON THE JU DGMENT OF THIS COURT IN THE CASE OF INDIAN MOLASSES COMPANY (SUPRA). RELYING ON THE SAID JUDGMENT, IT WAS SOUGHT TO BE ARGUED THAT THE INCREASE IN LIABILITY AT ANY POINT OF TIME PRIOR TO THE DATE OF PAYMENT CANNOT BE SAID TO HAVE GONE IRRETRIEVABLY AS IT C AN ALWAYS COME BACK. ACCORDING TO THE LEARNED COUNSEL, IN THE CASE OF INCREASE IN LIABILITY DUE TO FOREIGN EXCHANGE FLUCTUATIONS, IF THERE IS A REVALUATION OF THE RUPEE VIS - ` - VIS FOREIGN EXCHANGE AT OR PRIOR TO THE POINT OF PAYMENT, THEN THERE WOULD BE NO QUESTION OF MONEY HAVING GONE IRRETRIEVABLY AND CONSEQUENTLY, THE REQUIREMENT OF 'EXPENDITURE' IS NOT MET. CONSEQUENTLY, THE ADDITIONAL LIABILITY ARISING ON ACCOUNT OF FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE WAS MERELY A CONTINGENT/NOTIONAL LIABILITY W HICH DOES NOT CRYSTALLIZE TILL PAYMENT. IN THAT CASE, THE SUPREME COURT WAS CONSIDERING THE MEANING OF THE EXPRESSION 'EXPENDITURE INCURRED' WHILE DEALING WITH THE QUESTION AS TO WHETHER THERE WAS A DISTINCTION BETWEEN THE ACTUAL LIABILITY IN PRESENTI AND A LIABILITY DE FUTURO. THE WORD 'EXPENDITURE' IS NOT DEFINED IN THE 1961 ACT. THE WORD 'EXPENDITURE' IS, THEREFORE, REQUIRED TO BE UNDERSTOOD IN THE CONTEXT IN WHICH IT IS USED. SECTION 37 ENJOINS THAT AN Y EXPENDITURE NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BU SINESS SHOULD BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS'. IN SECTIONS 30 TO 36 , THE EXPRESSIONS 'EXPE NSES INCURRED' AS WELL AS 'ALLOWANCES AND DEPRECIATION' HAS ALSO BEEN USED. FOR EXAMPLE, DEPRECIATION AND ALLOWANCES ARE DEALT WITH IN SECTION 32. THEREFORE, PARLIAMENT HAS USED THE EXPRESSION 'ANY EXPENDITURE' IN SECTION 37 TO COVER BOTH. THEREFORE, THE EXPRESSION 'EXPENDITURE' AS USED IN SECTION 37 MAY, IN THE CIRCUMSTANCES OF A PARTICULAR CASE, COVER AN AMOUNT WHICH IS REALLY A 'LOSS' EVEN THOUGH TH E SAID AMOUNT HAS NOT GONE OUT FROM THE POCKET OF THE ASSESSEE. I.T.A. NO . 1406 / KOL ./20 09 ASSESSMENT YEAR: 200 5 - 20 0 6 & ITA NO. 1233/KOL/2009 ASSESSMENT YEAR : 2005 - 2006 PAGE 6 OF 14 14. IN THE CASE OF M.P. FINANCIAL CORPORATION V. CIT REPORTED IN 165 ITR 765 THE MADHYA PRADESH HIGH COURT HAS HELD THAT THE EXPRESSION ' EXPENDITURE' AS USED IN SECTION 37 MAY, IN THE CIRCUMSTANCES OF A PARTICULAR CASE, COVER AN AMOUNT WHICH IS A 'LOSS' EVEN THOUGH THE SAID AMOUNT HAS NOT GONE OUT FROM THE POCKET OF THE ASSESSEE. THIS VIEW OF THE MADHYA PRADESH HIGH COURT HAS BEEN APPROVED BY THIS COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. V. CIT REPORTED IN 225 ITR 802. ACCORDING TO THE LAW AND PRACTICE OF INCOME T AX BY KANGA AND PALKHIVALA, SECTION 37(1) IS A RESIDUARY SECTION EXTENDING THE ALLOWANCE TO ITEMS OF BUSINESS EXPENDITURE NOT COVERED BY SECTIONS 30 TO 36 . THIS SECTION, ACCORDING TO THE LEARNED AUTHOR, COVERS CASES OF BUSINESS EXPENDITURE ONLY, AND NOT OF BUSINESS LOSSES WHICH ARE, HOWEVER, DEDUCTIBLE ON ORDINARY PRINCIPLES OF COMMERCIAL ACCOUNTING. (S EE PAGE 617 OF THE EIGHTH EDITION). IT IS THIS PRINCIPLE WHICH ATTRACTS THE PROVISIONS OF SECTION 145 . THAT SECTION RECOGNIZES THE RIGHTS OF A TRADER TO ADOPT EITHER THE CASH SYSTEM OR THE MERCANTILE SYST EM OF ACCOUNTING. THE QUANTUM OF ALLOWANCES PERMITTED TO BE DEDUCTED UNDER DIVERSE HEADS UNDER SECTIONS 30 TO 43C FROM THE INCOME, PROFITS AND GAINS OF A BUSINESS WOULD DIFFER ACCORDING TO THE SYSTEM ADOPTED. THIS IS MADE CLEAR BY DEFINING THE WORD 'PAID' IN SECTION 43(2) , WHICH IS USED IN SEVERAL SECTI ONS 30 TO 43C , AS MEANING ACTUALLY PAID OR INCURRED ACCORDING TO THE METHOD OF ACCOUNTING UPON THE BASIS ON WHICH PROFITS OR GAINS ARE COMPUTED UNDER S ECTION 28 / 29 . THAT IS WHY IN DECIDING THE QUESTION AS TO WHETHER THE WORD 'EXPENDITURE' IN SECTION 37(1) INCLUDES THE WORD 'LOSS' ONE HAS TO READ SECTION 37(1) WITH SECTION 28 , SECTION 29 AND SECTION 145(1) . ONE MORE PRINCIPLE NEEDS TO BE KEPT IN MIND. ACCOUNTS REGULARLY MAINTAINED IN THE COURSE OF BUSINESS ARE TO BE TAKEN AS CORRECT UNLESS THERE ARE STRONG AND SUFFICIENT REASONS TO INDICATE THAT THEY ARE UNRELIABLE. ONE MORE ASPECT NEEDS TO BE HI GHLIGHTED. UNDER SECTION 28(I) , ONE NEEDS TO DECIDE THE PROFITS AND GAINS OF ANY BUSINESS WHICH IS CARRIED ON BY THE ASSESSEE DURING THE PREVIOUS YEAR. THEREFORE, ONE HAS TO TAKE INTO ACCOUNT STOCK - IN - TRA DE FOR DETERMINATION OF PROFITS. THE 1961 ACT MAKES NO PROVISION WITH REGARD TO VALUATION OF STOCK. BUT THE ORDINARY PRINCIPLE OF COMMERCIAL ACCOUNTING REQUIRES THAT IN THE P&L ACCOUNT THE VALUE OF THE STOCK - IN - TRADE AT THE BEGINNING AND AT THE END OF THE YEAR SHOULD BE ENTERED AT COST OR MARKET PRICE, WHICHEVER IS THE LOWER. THIS IS HOW BUSINESS PROFITS ARISING DURING THE YEAR NEEDS TO BE COMPUTED. THIS IS ONE MORE REASON FOR READING SECTION 37(1) WITH SECTION 145 . FOR VALUING THE CLOSING STOCK AT THE END OF A PARTICULAR YEAR, THE VALUE PREVAILING ON THE LAST DATE IS RELEVANT. THIS IS BECAUSE PROFITS/LOSS IS EMBEDDED IN THE CLOSING STOCK. WHILE ANTICIPAT ED LOSS IS TAKEN INTO ACCOUNT, ANTICIPATED PROFIT IN THE SHAPE OF APPRECIATED VALUE OF THE CLOSING STOCK IS NOT BROUGHT INTO ACCOUNT, AS NO PRUDENT TRADER WOULD CARE TO SHOW INCREASE PROFITS BEFORE ACTUAL REALIZATION. THIS IS THE THEORY UNDERLYING THE RULE THAT CLOSING STOCK IS TO BE VALUED AT COST OR MARKET PRICE, WHICHEVER IS THE LOWER. AS PROFITS FOR INCOME - TAX PURPOSES I.T.A. NO . 1406 / KOL ./20 09 ASSESSMENT YEAR: 200 5 - 20 0 6 & ITA NO. 1233/KOL/2009 ASSESSMENT YEAR : 2005 - 2006 PAGE 7 OF 14 ARE TO BE COMPUTED IN ACCORDANCE WITH ORDINARY PRINCIPLES OF COMMERCIAL ACCOUNTING, UNLESS, SUCH PRINCIPLES STAND SUPERSEDED OR MODIFIED BY LEGISLATIVE ENACTMENTS, UNREALIZED PROFITS IN THE SHAPE OF APPRECIATED VALUE OF GOODS REMAINING UNSOLD AT THE END OF THE ACCOUNTING YEAR AND CARRIED OVER TO THE FOLLOWING YEARS ACCOUNT IN A CONTINUING BUSINESS ARE NOT BROUGHT TO THE CHARGE AS A MATTER OF PRACTICE, THOUGH, AS STATED ABOVE, LOSS DUE TO FALL IN THE PRICE BELOW COST IS ALLOWED EVEN THOUGH SUCH LOSS HAS NOT BEEN REALIZED ACTUALLY. AT THIS STAGE, WE NEED TO EMPHASISE ONCE AGAIN THAT THE ABOVE SYSTEM OF COMMERCIAL ACCOUNTING CAN BE SUPERSEDED OR MODIFIED BY LEGISLATIVE ENACTMENT. THIS IS WHERE SECTION 145(2) COMES INTO PLAY. UNDER THAT SECTION, THE CENTRAL GOVERNMENT IS EMPOWERED TO NOTIFY FROM TIME TO TIME THE ACCOUNTING STANDARDS TO BE F OLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. ACCORDINGLY, UNDER SECTION 209 OF THE COMPANIES ACT, MERCANTILE SYSTEM OF ACCOUNTING IS MADE MANDATORY FOR COMPANIES. IN OTHER WORDS, ACCOUNTING STANDARD WHICH IS CONTINUOUSLY ADOPTED BY AN ASSESSEE CAN BE SUPERSEDED OR MODIFIED BY LEGISLATIVE INTERVENTION. HOWEVER, BUT FOR SUCH INTERVENTION OR IN CASES FALLING UNDER SECTION 145(3) , T HE METHOD OF ACCOUNTING UNDERTAKEN BY THE ASSESSEE CONTINUOUSLY IS SUPREME. IN THE PRESENT BATCH OF CASES, THERE IS NO FINDING GIVEN BY THE AO ON THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE. EQUALLY, THERE IS NO FINDING GIVEN BY THE AO STATING THAT THE ASSESSEE HAS NOT COMPLIED WITH THE ACCOUNTING STANDARDS. 15. FOR THE REASONS GIVEN HEREINABOVE, WE HOLD THAT, IN THE PRESENT CASE, THE 'LOSS' SUFFERED BY THE ASSESSEE ON ACCOUNT OF THE EXCHANGE DIFFERENCE AS ON THE DATE OF THE BALANCE SH EET IS AN ITEM OF EXPENDITURE UNDER SECTION 37(1) OF THE 1961 ACT . 2.7. IN VIEW OF THE AFORESAID JUDGMENT OF THE HON BLE APEX COURT, WE HOLD THAT THE SUM OF RS.10,00,000/ - BEING THE EXCHANGE LOSS WOULD BE ALLOWED AS DEDUCTION UNDER SECTION 37(1) OF THE ACT FOR THE ASSESSMENT YEAR 2005 - 06. ACCORDINGLY, GROUNDS NO. 1 & 2 RAISED BY THE ASSESSEE WERE ALLOWED. 3. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO. 1406/KOL/2009 IS ALLOWED. ITA NO. 1 233/KOL/2009 4. THIS APPEAL OF THE REVENUE ARISES OUT OF ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS), CENTRAL - I, KOLKATA IN APPEAL NO. 04/CC - I.T.A. NO . 1406 / KOL ./20 09 ASSESSMENT YEAR: 200 5 - 20 0 6 & ITA NO. 1233/KOL/2009 ASSESSMENT YEAR : 2005 - 2006 PAGE 8 OF 14 III/CIT(A)C - I/08 - 09 DATED 23.04.2009 FOR THE ASSESSMENT YEAR 2005 - 06, WHICH IS AGAINST THE ORDER OF ASSESSMEN T FRAMED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ). 5 . THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL OF THE REVENUE IS WHETHER THE LD. CIT(APPEALS) IS CORRECT IN DELETING THE ADDITION MADE TOWARDS EMPLOYEES C ONTRIBUTION TO PROVIDENT FUND (E.P.F.) AMOUNTING TO RS.1,84, 308/ - , WHICH WAS REMITTED BEYOND THE DUE DATE PRESCRIBED UNDER THE P.F. ACT BUT BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT. 5.1 . THE ASSESSING OFFICER DISA LLOWED THE EMPLOYEES CONTRIBUTION TO P.F. UNDER SECTION 36(1)(VA), READ WITH SECTION 2(24)(X) OF THE ACT, IN VIEW OF THE FACT THAT THE SAME WERE NOT REMITTED WITHIN THE DUE DATE PRESCRIBED UNDER THE P.F. ACT. AGGRIEVED, THE ASSESSEE CHALLENGED THIS ISSUE BEFORE THE LD. CIT(APPEALS), WHO DELETED THIS ADDITION. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND: - IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE U/S 36(1)(VA) READ WITH SEC TION 2(24)(X) OF THE INCOME TAX ACT, 1961 FROM RS.1,84,308/ - TO RS.18,048/ - . 5.2. LD. D.R. VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER. IN RESPONSE TO THIS, LD. A.R. ARGUED THAT THE DATE OF REMITTANCES OF EPF I S MENTIONED IN PAGES 9 - 10 OF TH E ASSESSMENT ORDER AND ARGUED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON BLE APEX COURT IN THE CASE OF VINAY CEMENT LIMITED REPORTED IN 3 13 I TR 1 (SC) . 6. WE HAVE HEARD THE RIVAL SUBMISSIONS ON THIS ISSUE AND HOLD THAT THIS ISSUE IS DIRECTLY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE APEX COURT IN VINAY CEMENT LIMITED REPORTED IN (20090) 313 ITR 1 (SC), I.T.A. NO . 1406 / KOL ./20 09 ASSESSMENT YEAR: 200 5 - 20 0 6 & ITA NO. 1233/KOL/2009 ASSESSMENT YEAR : 2005 - 2006 PAGE 9 OF 14 WHEREIN IT HAS BEEN HELD THAT STATUTORY ITEM LIKE EPF IS PAID BEFORE THE DUE DATE OF FILING THE RETURN O F INCOME BE ALLOWED IRRESPECTIVE OF THE FACT WHERE THE CONTRIBUTION RELATED TO THE EMPLOYEE AND EMPLOYER . FROM THE VERIFICATION OF THE DATES AS STATED IN THE ASSESSMENT ORDER, IT IS OBSERVED THAT THE ASSESSEE HAD DULY REMITTED THE ENTIRE EPF DUES BEFORE T HE DUE DATE OF FILING THE RETURN OF INCOME. RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE APEX COURT AS STATED (SUPRA), WE ARE NOT INCLINED TO INTERFERE WITH THE DECISION OF THE LD. CIT(APPEALS). ACCORDINGLY, GROUND NO. 1 RAISED BY THE REVENUE IS DISM ISSED. 7 . SECOND ISSUE TO BE DECIDED IN THIS APPEAL OF THE REVENUE IS WHETHER THE LD. CIT(APPEALS) IS CORRECT IN DELETING THE ADDITION MADE ON ACCOUNT OF CESS ON GREEN LEAVES. 7 .1. THE ASSESSEE DEBITED A SUM OF RS.1,67,03,000/ - IN ITS PROFIT & LOSS A/C. TOWARDS CESS ON GREEN LEAVES. THE ASSESSING OFFICER SOUGHT TO DISALLOW THE SAME ON THE GROUND THAT THOUGH THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. - AFT INDUSTRIES LIMITED REPORTED IN 270 ITR 167 (CAL.) IS FAVOURABLE TO ASSESSEE ON THIS ISSUE, BUT SINCE SPECIAL LEAVE PETITION IS PREFERRED BY THE DEPARTMENT AGAINST THAT ORDER, RELIEF IS NOT GRANTED. ON FIRST APPEAL, LD. CIT(APPEALS) RESPECTFULLY FOLLOWED THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT AND DELETED THE ADDITION. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND: - IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.1,67,03,000/ - TOWARDS CESS PAYABLE ON GREEN LEAVES . 7 .2. WE HAVE H EARD THE RIVAL SUBMISSIONS AND WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HON BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. - AFT INDUSTRIES LIMITED REPORTED IN [2004] 270 ITR 167 (CAL.), WHEREIN THEIR LORDSHIPS HAD HELD AS UNDER: - I.T.A. NO . 1406 / KOL ./20 09 ASSESSMENT YEAR: 200 5 - 20 0 6 & ITA NO. 1233/KOL/2009 ASSESSMENT YEAR : 2005 - 2006 PAGE 10 OF 14 HAVING REGARD TO THE PROVISIONS CONTAINED IN RULE 8 WITH WHICH WE HAD OCCASION TO DEAL IN UNION OF INDIA V. WARREN TEA LTD. [2004] 266 ITR 226 (CAL), APO NO. 792 OF 1999, DISPOSED OF BY US ON JANUARY 15, 2004, IT APPEARS THAT IN RESPECT OF COMPUTATION OF INCOME OF TEA GROWN AND MANUFACTURED, A FICTION HAS BEEN CREATED UNDER WHICH BOTH THE AGRICULTURAL COMPONENT AND THE BUSINESS COMPONENT OF THE INCOME WOULD BE ASSESSED TOGETHER FOR THE PURPOSE OF COMPUTING THE INCOME UNDER THE ACT AND ONLY AFTER THE COMPU TATION OF THE TOTAL INCOME, THE APPORTIONMENT IS TO BE MADE DETERMINING 60 PER CENT AS AGRICULTURAL INCOME AND 40 PER CENT AS EXIGIBLE TO TAX UNDER THE ACT. DURING THE PROCESS OF THE COMPUTATION, ALL DEDUCTIONS ALLOWABLE AT THE TIME OF COMPUTATION ARE TO B E ALLOWED AND THAT WAS RIGHTLY ALLOWED. INASMUCH AS IF THE INCOME FOR TEA GROWN WAS ASSESSED UNDER THE AGRICULTURAL INCOME - TAX, IN THAT EVENT, THE SAME CESS PAID OF GREEN LEAF WOULD HAVE BEEN ELIGIBLE FOR DEDUCTION AT THE TIME OF COMPUTATION OF THE AGRICUL TURAL INCOME. BUT WHEN BY FICTION IN RESPECT OF TEA GROWN AND MANUFACTURED, THE AGRICULTURAL COMPONENT OF THE INCOME OUT OF TEA GROWN IS ALSO COMPUTED UNDER THE INCOME - TAX ACT ALONG WITH THE INCOME OUT OF THE TEA MANUFACTURED FROM THE TEA GROWN. WHEN BY FI CTION THE INCOME AS COMPUTED AS AN INCOME UNDER THE ACT, ALL DEDUCTIONS AS ARE AVAILABLE BOTH FOR THE AGRICULTURAL COMPONENT AND FOR THE BUSINESS COMPONENT OF THE INCOME ARE TO BE ALLOWED AS A NATURAL COROLLARY TO THE FICTION SO CREATED. SUCH DEDUCTIONS, W HICH ARE ALLOWED IN ORDER TO ARRIVE AT THE TOTAL INCOME EXIGIBLE TO TAX, ARE TO BE ALLOWED AND THE APPORTIONMENT OF THE TOTAL INCOME SO COMPUTED IS TO BE MADE. IF THE AGRICULTURAL PART OF THE DEDUCTIONS IS MADE APPLICABLE FOR DEDUCTION FROM THE 60 PER CENT OF THE TOTAL INCOME SO COMPUTED, IN THAT EVENT, THIS 60 PER CENT WOULD BE AGAIN MADE ASSESSABLE UNDER THE AGRICULTURAL INCOME TAX ACT WHICH IS NOT PERMISSIBLE. IN THAT EVENT, THE PURPOSE OF CREATING FICTION WOULD STAND FRUSTRATED. IT WOULD THEN BE A CONCE PT COMPLETELY FOREIGN TO THE FICTION SO CREATED. THEREFORE, THE ENTIRE AMOUNT PAID AS CESS ON GREEN LEAF SEEMS TO BE ELIGIBLE FOR DEDUCTION WITH REGARD TO WHICH WE DO NOT FIND ANY CONFUSION . 7 .3. RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE JURISDI CTIONAL HIGH COURT AS STATED SUPRA, WE DISMISS THIS GROUND OF THE REVENUE. 8 . THE THIRD ISSUE TO BE DECIDED IS AS TO WHETHER THE LD. CIT(APPEALS) IS CORRECT IN DELETING THE INCOME FROM OTHER SOURCES OF RS.36,25,990/ - DETERMINED BY THE ASSESSING OFFICER IN THE FACTS AND CIRCUMSTANCES OF THE CASE. I.T.A. NO . 1406 / KOL ./20 09 ASSESSMENT YEAR: 200 5 - 20 0 6 & ITA NO. 1233/KOL/2009 ASSESSMENT YEAR : 2005 - 2006 PAGE 11 OF 14 8 .1. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IN ADVERTE NTLY DECLARED THE FOLLOWING RECEIPTS AS INCOME UNDER THE H E AD OTHER SOURCES IN THE ORIGINAL RETURN: - NAME OF ITEM AMOUNT SALE OF DEPB LICENSE RS.29,16 ,263/ - EXCHANGE GAIN RS. 4,88,847/ - INTEREST ON INVESTMENT RS. 2,20,880/ - TOTAL RS.36,25,990/ - 8 .2. LATER THE SAME WAS CHANGED IN THE REVISED RETURN AND OFFERED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION , A S ADMITTEDLY, THE SAID R ECEIP TS ONLY RELATE TO THE TEA BUSINESS OF THE ASSESSEE. THE REVISED RETURN WAS DULY ACTED UPON BY THE ASSESSING OFFICER BUT WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER EVEN THOUGH ACCEPTED THE AFORESAID RECEIPTS OF RS.36,25,990/ - AS INCOME FROM BUSINESS, DID NOT CONSIDER THE INCOME FROM OTHER SOURCES FIGURE A S DECLARED IN THE REVISED RETURN. AGGRIEVED, THE ASSESSEE CHALLENGED THIS ISSUE BEFORE THE LD. CIT(APPEALS), WHO DIRECTED THE ASSESSING OFFICER TO RE - VISIT THE REVISED RETURN OF INCOME, WHI CH MODIFIED THE FIGURE OF INCOME FROM OTHER SOURCES AND INCOME FROM BUSINESS. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND: - IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE INCOME FROM OTHER SOU RCES OF RS.36,25,990/ - DETERMINED BY THE ASSESSING OFFICER . 8 .3. LD. D.R. ARGUED THAT THE FINDINGS OF THE LD. CIT(APPEALS) HAD NO BASIS AND PRAYED FOR SETTING ASIDE THE ORDER OF THE LD. CIT(APPEALS) TO THE FILE OF THE ASSESSING OFFICER. IN RESPONSE TO TH IS, LD. A.R. STATED THAT THE AFORESAID THREE RECEIPT S AMOUNTING TO RS.36,25,990/ - HAS BEEN ACCEPTED AS INCOME FROM BUSINESS AS REQUESTED IN THE REVISED RETURN BY THE ASSESSING OFFICER IN THE ASSESSMENT PROCEEDINGS ITSELF. I.T.A. NO . 1406 / KOL ./20 09 ASSESSMENT YEAR: 200 5 - 20 0 6 & ITA NO. 1233/KOL/2009 ASSESSMENT YEAR : 2005 - 2006 PAGE 12 OF 14 8 .4. WE HAVE HEARD THE RIVAL SUBM ISSIONS. IT IS SEEN FROM THE ASSESSMENT ORDER THAT THE AFORESAID THREE RECEIPTS HAD BEEN DULY ACCEPTED BY THE ASSESSING OFFICER AS BUSINESS INCOME IN THE ASSESSMENT PROCEEDINGS ITSELF, WHICH WAS ALSO THE CLAIM OF THE ASSESSEE IN ITS REVISED RETURN. HOWEVER , WHILE ADOPTING THE FIGURE OF INCOME FROM OTHER SOURCES, THE ASSESSING OFFICER DID NOT ADOPT THE FIGURES AS STATED IN THE REVISED RETURN BUT ADOPTED A TOTAL LY DIFFERENT FIGURE. HENCE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DEEM IT FIT AND APPROPRI ATE, IN THE INTEREST OF JUSTICE AND FAIR PLAY , TO SET ASIDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER TO ADOPT THE CORRECT FIGURE OF INCOME FROM OTHER SOURCES AFTER VERIFICATION OF PROPER WORKINGS IN THIS REGARD FROM THE ASSESSEE. NEEDLESS TO MENTION , THAT THE ASSESSEE BE GIVEN REASONABLE OPPORTUNITY OF BEING HEARD TO PRESENT ITS WORKINGS. ACCORDINGLY, GROUND NO. 3 RAISED BY THE REVENUE IS PARTLY ALLOWED. 9 . THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD. CIT(APPEALS) IS CORRECT IN ALLOWING THE CLAIM OF THE ASSESSEE THAT THE MISCELLANEOUS RECEIPTS AGGREGATING TO RS.46,26,553/ - AROSE FROM TEA BUSINESS AND ACCORDINGLY TREATING THE SAME AS BUSINESS INCOME AS AGAINST THE TREATMENT BY THE ASSESSING OFFICER AS INCOME FROM OTHER SOURCES. 9 .1. THE LD. D.R. ARGUED THAT FROM THE VERY NATURE OF THE MISCELLANEOUS RECEIPTS, IT SHOULD BE ASSESSED ONLY AS INCOME FROM OTHER SOURCES AND ACCORDINGLY HE ARGUED THAT THE ACTION OF THE LD. CIT(APPEALS) IS WRONG AND PRAYED FOR SETTING ASIDE THE ORDER OF THE LD. CIT(APPEALS) IN THIS REGARD. IN RESPONSE TO THIS, THE LD. A.R. FILED THE BREAK - UP OF THE RECEIPTS AMOUNTING TO RS.46,26,553/ - AND PLEADED THAT THE SAME ARE TO BE CONSIDERED ONLY AS BUSINESS INCOME AS THEY HAD AROSE IN THE COURSE OF TEA BUSINESS. I.T.A. NO . 1406 / KOL ./20 09 ASSESSMENT YEAR: 200 5 - 20 0 6 & ITA NO. 1233/KOL/2009 ASSESSMENT YEAR : 2005 - 2006 PAGE 13 OF 14 9 .2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE DETAILS OF RS.46,26,553/ - ARE AS BELOW: - A . DISCOUNT OUT OF PACKING MATERIAL RS.2,76,732/ - B . MACHINERY BREAK DOWN CLAIM RS. 11,600/ - C . STREET REMOVAL CHARGES RS.4,25,9 28/ - D . DISCOUNT ON WAREHOUSING CHARGES RS. 14,000/ - E . TEA BOARD SUBSIDY RS.1,14,975/ - F . SCRAP SALE RS. 41,548/ - G . STORM DAMAGE CLAIM RS.1,48,693/ - H . RECEIVED FROM IOL (INDIAN OIL LIMITED) RS.2,34,000/ - I . REALISED FROM AUTO ENTINES RS. 81,142/ - J . BAZAR RENT RS. 54,450/ - K . INTEREST ON I.T. REFUND (99 - 2000) RS.3,78,515/ - L . SUNDRY RECEIPTS RS.28,45,070/ - TOTAL RS.46,26,553/ - 9 .3. FROM THE AFORESAID LIST IT COULD BE SEEN THAT ITEMS A TO J WERE ONLY ARISING OUT OF TEA BUSINESS TOTALLING TO RS.14,02,968/ - AND AC CORDINGLY TO BE TREATED AS INCOME FROM BUSINESS. SINCE NO DETAILS COULD BE FILED REGARDING THE SUNDRY RECEIPTS BEFORE US, THE SAME IS CONSIDERED AS THE INCOME FROM OTHER SOURCES. INTEREST ON INCOME - TAX RE FUND COULD DEFINITELY BE CONSTRUED ONLY AS INCOME FR OM OTHER SOURCES. WE DIRECT THE ASSESSING O FFICER TO RE - COMPUTE ACCORDINGLY. ACCORDINGLY, GROUND NO. 4 OF THE REVENUE IS PARTLY ALLOWED. I.T.A. NO . 1406 / KOL ./20 09 ASSESSMENT YEAR: 200 5 - 20 0 6 & ITA NO. 1233/KOL/2009 ASSESSMENT YEAR : 2005 - 2006 PAGE 14 OF 14 10 . IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO. 1233/KOL/2009 IS PARTLY ALLOWED AND THE APPEAL OF THE ASSESSEE IN ITA NO. 1406/KOL/2009 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH SEPTEMBER , 201 5 . SD/ - SD/ - MAHAVIR SINGH M. BALAGANESH (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, THE 11 TH D AY OF SE PTEMBER , 201 5 COPIES TO : (1) APEEJAY TEA LIMITED, 15, PARK STREET, APEEJAY HOUSE, KOLKATA - 700 016 (2) DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - III, KOLKATA, 18, RABINDRA SARANI, KOLKATA - 700 001 (3) COMMISSIONER OF INCOME - TAX (APPEAL S) , CENTRAL - I, KOLKATA (4) COMMISSIONER OF INCOME TAX , KOLKATA ( 5 ) THE DEPARTMENTAL REPRESENTATIVE ( 6 ) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APP ELLATE TRIBUNAL KOLKATA B ENCHES, KOLKATA LAHA/SR. P.S .