Apeejay Surrendra Corporate Services Ltd. (Now known as Apeejay Tea Ltd.), Kolkata V. D.C.I.T.,Circle-8(1), Kolkata

ITA 1494/KOL/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0156 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 17-12-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANKAR HALDER
• Assessee Lawyers: MANISH TIWARI
• Keywords: Business income; Depreciation; Revised return
• Section: 143(3); 115JB; 43D; 41(2); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C, BENC H KOLKATA BEFORE SHRI A.T.VARKEY, JM &DR. A.L.SAINI, AM ./ITA NO.1494/KOL/2015 ( / ASSESSMENT YEAR:2010-11) APEEJAYSURRENDRA CORPORATE SERVICES LTD. (NOW KNOWN AS APEEJAY TEA LTD.) 15, PARK STREET, KOLKATA-700016 VS. DCIT, CIRCLE-8(1), KOLKATA ./ ./PAN/GIR NO.: AAECA1925D (ASSESSEE) .. (REVENUE) ASSESSEE BY :SHRI MANISH TIWARI, FCA RESPONDENT BY : SHRI SANKAR HALDER, JCIT, SR. DR / DATE OF HEARING : 13/02/2019 /DATE OF PRONOUNCEMENT : 29/03/2019 / O R D E R PER DR. A. L. SAINI: THE CAPTIONED APPEAL FILED BY THE ASSESSEE,PERTAIN ING TO ASSESSMENT YEAR 2010-11, IS DIRECTED AGAINST AN ORDER PASSED BY T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-11, KOLKATA (IN SHORT THE LD. CIT(A)], WHICH IN TURN ARISES OUT OF AN ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) DATED 31 .03.2013. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS FOLLOWS: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD. CI.T.(A) IS WRONG AND UNJUSTIFIED IN CONFIRMING THE ACTION OF ASSESSI NG OFFICER WHO HELD FOLLOWING RECEIPTS OF THE APPELLANT AS NOT RELATABLE TO TEA P RODUCTION: - APEEJAY SURRENDRA CORPORATE SERVICES LTD.( NOW KNOW N AS APEEJAY TEA LTD.) ITA NO.1494/KOL/2015 ASSESSMENT YEAR:2010-11 P PP PA AA AG GG GE EE E | || | 2 22 2 (A) HOSPITAL TREATMENT RS.42,35,820/- (B) INSURANCE CLAIM RS. 5,69,354/- (C) MISCELLANEOUS RECEIPT RS. 16,431/- RS.48,21,605/- 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD. CI.T. (A) IS WRONG AND UNJUSTIFIED IN UPHOLDING THE ACTION OF ASSESSIN G OFFICER WHO HELD SUNDRY RECEIPTS OF RS. 5,64,245/- AS NOT RELATABLE TO TEA PRODUCTION. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD. CI.T. (A) HAS ERRED IN UPHOLDING THE FINDINGS OF THE ASSESSING OFFICER WHO CONSIDERED CLUB EXPENSES OF RS. 3,51,587/- AS NOT INCIDENTAL TO BUSINESS. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD. CI.T. (A) IS WRONG AND UNJUSTIFIED IN UPHOLDING THE ACTION OF ASSESSIN G OFFICER WHO ENHANCED THE BOOK PROFIT U/S 115JB OF INCOME TAX ACT, 1961 ON AC COUNT OF CESS ON GREEN LEAF BY RS. 2,91,59,198/-. 5. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, A DDUCE OR AMEND ANY GROUND OR GROUNDS ON OR BEFORE THE DATE OF HEARING OF THE APP EAL. 3. WHEN THIS APPEAL WAS CALLED OUT FOR HEARING, LEA RNED COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE ORDER DATED 02.12.2016 , PASSED BY THE DIVISION BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.2 456/KOL/2013FOR THE ASSESSMENT YEAR 2009-10, WHEREBY THE ISSUE OF RECEI PTS HAVING NEXUS WITH GROWING AND MANUFACTURING OF TEA AND THEREBY NOT AP PLYING RULE 8 HAS BEEN DISCUSSED AND ADJUDICATED. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE GROUND NO. 1 AND 2 OF THE PRESENT APPEAL ARE SQUARE LY COVERED BY THE AFORESAID ORDER OF THE TRIBUNAL, A COPY OF WHICH WAS ALSO PLA CED BEFORE THE BENCH. 4. LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF ASSESSING OFFICER. 5. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE DIVISION BENCH OF THIS TRIBUNAL IN ASSESSEE S OWN CASE VIDE ORDER DATED 2 ND DECEMBER, 2016. IN THIS ORDER, THE TRIBUNAL HAS IN TER ALIA OBSERVED AS FOLLOWS: 2. GROUND NOS.1 & 3 RAISED BY THE ASSESSEE READ AS FOLLOWS :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, LD. CIT(A) IS WRONG AND UNJUSTIFIED IN HOLDING RECEIPTS UNDER FOLLOWING HEA DS AGGREGATING TO RS. 77,09,180/- AS HAVING NO NEXUS WITH GROWING AND MANUFACTURING OF T EA AND THEREBY NOT APPLYING RULE 8 TO THOSE RECEIPTS: - STREET REMOVAL CHARGES RS. 7,93,447 APEEJAY SURRENDRA CORPORATE SERVICES LTD.( NOW KNOW N AS APEEJAY TEA LTD.) ITA NO.1494/KOL/2015 ASSESSMENT YEAR:2010-11 P PP PA AA AG GG GE EE E | || | 3 33 3 INSURANCE CLAIM RS. 13,36,376 RENTAL FROM GENERATOR RS. 4,93,178 HOSPITAL & BAZAR COLLECTION RS. 49,85,206 OTHER RECEIPTS RS. 1,00,973 RS. 77,09,180 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD. CIT(A) ERRED IN HOLDING SALE CONSIDERATION OF RS. 5,47,286/ - IN RESPECT OF DEPB LICENSE AS HAVING NO NEXUS WITH THE BUSINESS OF GROWING AND MANUFACTURING OF TEA AND TH EREBY NOT APPLYING RULE 8 THEREON. 3. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF GROWING, MANUFACTURING AND SALE OF TEA AND PACKAGED TEA. INCOME FROM GROWI NG, MANUFACTURING AND SALE OF TEA WOULD BE COMPOSITE INCOME, WHICH MEANS IT COMPRISES AGRICULTURAL INCOME TO THE EXTENT OF GROWING TEA, WHICH IS NOT CHARGEABLE TO TAX AND NON-AGRICULTURAL INCOME TO THE EXTENT IT COMPRISES OF INCOME FROM MANUFACTURE AND SALE OF TEA, WHICH INCOME IS CHARGEABLE TO TAX. RULE 8 OF THE INCOME TAX RULES, 1962 PROVIDES METHOD OF COMPUTATION FOR COMPOSITE INCOME FROM GROWING AND MANUFACTURE OF TEA. UNDER R ULE 8 (1) OF THE INCOME TAX RULES, 1962 (RULES) INCOME DERIVED FROM SALE OF TEA GROWN AND MANUFACTURED BY THE SELLER IN INDIA SHALL BE COMPUTED AS IF IT WERE INCOME DERIVE D FROM BUSINESS, AND FORTY PER CENT OF SUCH INCOME SHALL BE DEEMED TO BE INCOME LIABLE TO TAX. 4. FOR A.Y.2009-10, M/S. APEEJAY TEA LTD FILED RETU RN OF INCOME ON 29.09.2009. CONSEQUENT TO AN ORDER OF THE HONBLE GAUHATI HIGH COURT DATED 22.12.2009 M/S. APEEJAY TYPHOO TEA LTD GOT AMALGAMATED WITH M/.S. A PEEJAY TEA LTD. THEREAFTER THE ASESSEE FILED REVISED RETURNS ON 20.09.2010 AND 27. 09.2010 TO GIVE EFFECT TO THE MERGER. SUBSEQUENTLY M/S. APEEJAY TEA LTD GOT MERGED WITH M /S. APEEJAYSURRENDRA CORPORATE SERVICES PVT. LTD., VIZ., THE ASSESSEE IN THIS APPE AL. 5. THE AO NOTICED THAT THE ASSESSEE HAD TREATED RS. 1,27,24,061/- WHICH WAS SUNDRY RECEIPTS AS PART OF THE COMPOSITE INCOME FROM GROWI NG AND MANUFACTURING OF TEA AND ONLY 40% OF SUCH COMPOSITE INCOME WAS LIABLE TO TAX. THE BREAK-UP OF SUCH RECEIPT WAS AS FOLLOWS PARTICULARS AMOUNT (RS.) 1) DISCOUNT RECEIVED 1,24,330/- 2) STREET REMOVAL CHARGES 7,93,447/- 3) SALE OF SAMPLE TEA 56,000/- 4) TEA WASTE SALE 48,34,521/- 5) INSURANCE CLAIM 13,36,376/- 6) RENTAL INCOME FROM GENERATOR TO HINDUSTAN 4,93 ,178/- 7) HOSPITAL RECOVERY & BAZAAR COLLECTION 49,85,20 6/- 8) OTHERS 1,00,973/- TOTAL RECEIPT 1,27,24,061/- 6. THE AO WAS OF THE VIEW THAT THE AFORESAID ITEMS OF INCOME HAD NO DIRECT NEXUS WITH THE OPERATION OF GROWING & MANUFACTURING OF TEA AT THE GARDENS OF THE ASSESSEE AND HE TRACED THE SOURCE OF THESE RECEIPTS AS FOLLOWS: (A)STREET REMOVAL CHARGES USE RS.7,93,447/-[RENT REC EIVED FROM OUTSIDERS FOR USEOF WAREHOUSE] (B) INSURANCE CLAIM RS. 13,36,376/-[REC EIVED OTHER THAN FOR LOSS OF STOCK] (C) RENTAL INCOME FROM GENERATOR TO HINDUSTAN LEVER RS. 4,93,178/- [NOT RELATED TO TEA GROWING OR MANUF ACTURING] (D) HOSPITAL RECOVERY & BAZAR COLLECTION RS. 49,85,2 06 [NOT RELATED TO TEA GROWING OR MANUFACTURING] (E) OTHERS RS. 1,00,973/- TOTAL 77,09,180/- APEEJAY SURRENDRA CORPORATE SERVICES LTD.( NOW KNOW N AS APEEJAY TEA LTD.) ITA NO.1494/KOL/2015 ASSESSMENT YEAR:2010-11 P PP PA AA AG GG GE EE E | || | 4 44 4 7. THEREFORE, THE AO HELD THAT THE AFORESAID SUM OF RS.77,09,180/- HAS TO BE KEPT OUTSIDE THE PURVIEW OF COMPOSITE INCOME 40% OF WHIC H IS LIABLE TO TAX. HE HELD THAT THE ENTIRE AMOUNT OF RS.77,09,180/- WAS TO BE TAXED AS PER REGULAR PROVISION WITHOUT APPLYING RULE 8. 8. SIMILARLY THE ASSESSEE SOLD DEPB LICENSE ENTITLE MENT DURING THE RELEVANT PREVIOUS YEAR AND THE PROCEEDS OF RS.5,47,286/- ON SUCH SALE WAS RECEIVED BY IT ON 10-09-2008. THE AO ACCEPTED THE FACT THAT AS PER SEC 28(IIID), THE INCOME IS TAXABLE AS BUSINESS RECEIPT, BUT AGAIN, SINCE IT HA D NO NEXUS WITH THE BUSINESS OF GROWING AND MANUFACTURING OF TEA, HE HELD THAT RULE 8 IS NOT APPLICABLE ON ANY PROFIT OUT OF SUCH RECEIPT. HENCE THEAMOUNT OF RS.5 ,47,286/- WAS BROUGHT TO TAX BY THE AO AS INCOME CHARGEABLE TO TAX AS PER REGULAR T AX RATE AS PART OF REGULAR INCOME. 9. IN COMING TO THE ABOVE CONCLUSION, THE AO PLACE D RELIANCE ON THE JUDGMENT OF THE HONBLE GAUHATI HIGH COURT IN THE CASE OF SOOKE RATING CO LTD.111 ITR 457 (GAU) WHEREIN IT WAS HELD THAT RULE 8 WAS NOT APPLI CABLE TO INCOME WHICH HAD NO NEXUS WITH TEA BUSINESS. 10. AGGRIEVED BY THE ORDER OF AO THE ASSESSEE PREFE RRED AN APPEAL BEFORE CIT(A). BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT ALL THE I TEMS OF INCOME HAD NEXUS WITH THE GROWING AND MANUFACTURING OF TEA AND HAD TO BE REGARDED AS PART OF THE COMPOSITE INCOME BEFORE APPORTIONMENT. THE ASSESSEE CONTENDED THAT MAINTAINING WAREHOUSE IS PART AND PARCEL OF TEA MAN UFACTURING BUSINESS AND ITS TEMPORARY LETTING OUT WAS INCIDENTAL TO THE BUSINES S ACTIVITY. THE RENTAL RECEIPTS FROM SUCH LETTING ARE THEREFORE PART OF THE COMPOSI TE INCOME. SIMILARLY, RENT RECEIPTS FOR PROVIDING TEMPORARY GENERATOR SERVICES TO HINDUSTAN LEVER WERE INCIDENTAL TO THE BUSINESS OF THE ASSESSEE. IT WAS ARGUED THAT THE ASSESSEE PROVIDED HOSPITAL AND MARKET AREA FOR STAFF WELFARE AND RECOVERY FROM THEM FOR USE OF HOSPITAL AND BAZAAR TO SELL THEIR OTHER PROD UCTS WAS NOTHING BUT RELATABLE TO GROWING AND MANUFACTURE OF TEA AND WAS TO BE REG ARDED AS PART OF THE COMPOSITE INCOME. 11. THE CIT(A) DID NOT FIND FORCE IN THE SUBMISSION MADE BY THE ASSESSEE HE HELD THAT BY NO STRETCH OF IMAGINATION, RENTING OUT OF W AREHOUSE OR GENERATOR SETS OR RECOVERY FROM HOSPITAL OR MARKET AREA CAN BE TREATE D AS PART OF THE OPERATIONS OF GROWING AND MANUFACTURING OF TEA AND THAT THE AO HA S RIGHTLY HELD THAT SUCH RECEIPTS WERE ASSESSABLE AS BUSINESS INCOME UNDER T HE NORMAL PROVISIONS OF THE ACT. HE ALSO HELD THAT THE ASSESSEE HAS NOT EXPLAIN ED THE NATURE OF RECEIPTS UNDER INSURANCE CLAIM OR OTHER RECEIPTS TO JUSTIFY I TS CLAIM AND THE ASSESSEE HAS FAILED TO ESTABLISH THAT THE RECEIPTS UNDER CONSID ERATION HAD ANY DIRECT NEXUS WITH THE BUSINESS OR GROWING AND MANUFACTURING OF TEA. 12. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE H AS RAISED GROUND NO.1 BEFORE THE TRIBUNAL. 13. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THAT THE ORDER OF ITAT IN ASSESSEES OWN CASE FOR A .Y.2005-06 IN ITA NO.1406/KOL/2009 AND 1233/KOL/2009 ORDER DATED 11.0 9.2015 WHEREIN THE TRIBUNAL HAD AN OCCASION TO CONSIDER SIMILAR ISSUE. SOME OF THE ITEMS OF INCOME THAT WERE CONSIDERED BY THE TRIBUNAL IN THE AFORESA ID ASSESSMENT ORDER ARE APEEJAY SURRENDRA CORPORATE SERVICES LTD.( NOW KNOW N AS APEEJAY TEA LTD.) ITA NO.1494/KOL/2015 ASSESSMENT YEAR:2010-11 P PP PA AA AG GG GE EE E | || | 5 55 5 SIMILAR TO THE ITEMS OF INCOME THAT ARE CONSIDERED AS NORMAL BUSINESS OF THE ASSESSEE BY THE AO IN THE PRESENT ASSESSMENT YEAR. THE FOLLOWING WERE THE OBSERVATIONS OF THE TRIBUNAL :- 9.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED 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.4,2S,928/- 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. L,48,693 /- H. RECEIVED FROM IOL(INDIAN OIL LIMITED)RS . 2,34,0 00/ - 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.14,02,9 68/- AND ACCORDINGLY TO BE TREATED AS INCOME FROM BUSINESS. SINCE NO DETAIL S COULD BE FILED REGARDING THE SUNDRY RECEIPTS BEFORE US, THE SAME I S CONSIDERED AS THE INCOME FROM OTHER SOURCES. INTEREST ON INCOME-TAX R EFUND COULD DEFINITELY BE CONSTRUED ONLY AS INCOME FROM OTHER SOURCES. WE DIRECT THE ASSESSING OFFICER TO RE-COMPUTE ACCORDINGLY. ACCORDINGLY, GRO UND NO. 4 OF THE REVENUE IS PARTLY ALLOWED. 14. THE LD. DR HOWEVER SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES AND PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPR EME COURT IN THE CASE OF LIBERTY INDIA LTD. 317 ITR 218 (SC). 15. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS. IN CIT VS. KOTHARI PLANTATIONS & INDUSTRIES LTD. 203 ITR 547 ( CAL) THE HONBLE CALCUTTA HIGH COURT HAD TO EXAMINE THE PROVISIONS OF RULE 8 OF THE RULES IN THE CONTEXT OF THE ACTION OF THE REVENUE IN TAXING RECEIPT BY AN A SSESSEE TO WHICH RULE 8 APPLIES OF A SUM WHICH FELL WITHIN THE DESCRIPTION OF RECEI PTS TAXABLE U/S.41(2) OF THE ACT. THE REVENUE TAXED THE SAID RECEIPT AS BUSINESS INCO ME WITHOUT INCLUDING THE SAME IN THE COMPOSITE INCOME BEFORE APPORTIONMENT BETWEE N AGRICULTURAL AND BUSINESS INCOME. THE HONBLE CALCUTTA HIGH COURT HELD RULE 8 PROVIDES THAT THE INCOME DERIVED FROM THE SALE OF TEA GROWN AND MANUFACTURED BY THE SELLER IN INDIA SHALL BE COMPUTED AS IF IT WERE INCOME DERIVED FROM BUSIN ESS AND 40 PER CENT OF SUCH INCOME SHALL BE DEEMED TO BE INCOME LIABLE TO TAX U NDER THE ACT. SEC. 29 PROVIDES THAT THE BUSINESS INCOME REFERRED TO IN S. 28 SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SS. 30 TO 43D. ACCORDIN GLY THE INCOME FROM TEA BUSINESS HAS TO BE COMPUTED AS PROVIDED IN S. 29 IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SS. 30 TO 43D AND 40 PER CE NT OF THE INCOME SO COMPUTED ALONE CAN BE ASSESSED UNDER THE ACT. SEC. 41(2) FAL LS WITHIN THE SCOPE OF S. 29 AND ONLY 40 PER CENT OF SUCH INCOME CAN BE SUBJECTED TO TAX UNDER THE ACT. THERE CANNOT BE A SEPARATE COMPUTATION OF THE INCOME UNDE R S. 41(2). UNDER R. 8, TAX CANNOT BE LEVIED ON THE ENTIRE SUM ASSESSED UNDER S . 41(2). SEC. 41(2) APPLIES IN APEEJAY SURRENDRA CORPORATE SERVICES LTD.( NOW KNOW N AS APEEJAY TEA LTD.) ITA NO.1494/KOL/2015 ASSESSMENT YEAR:2010-11 P PP PA AA AG GG GE EE E | || | 6 66 6 RESPECT OF ASSETS WHICH WERE USED FOR THE PURPOSES OF TEA BUSINESS AND ON SALE WHEREOF, THE AMOUNT IN EXCESS OF THE WRITTEN DOWN VALUE IS REALISED. SEC. 41(2) IS A DEEMING PROVISION. IT FICTIONALLY TREATS A CAPITA L RECEIPT AS A BUSINESS RECEIPT. THE EXPLN. TO S. 41(2) PROVIDES THAT, WHERE THE MON EYS PAYABLE IN RESPECT OF THE BUILDING, MACHINERY, PLANT OR FURNITURE BECOME DUE IN A PREVIOUS YEAR IN WHICH THE BUSINESS OR PROFESSION FOR THE PURPOSE OF WHICH THE BUILDING, MACHINERY, PLANT OR FURNITURE WAS BEING USED IS NO LONGER IN EXISTEN CE, THE PROVISIONS OF THE SAID SUB-SECTION SHALL APPLY AS IF THE BUSINESS OR PROFE SSION IS IN EXISTENCE IN THE PREVIOUS YEAR. THE FICTION PROVIDED UNDER S. 41(2) THUS TREATS THE BUSINESS IN WHICH THE ASSET IN QUESTION HAD BEEN USED AS IN EXI STENCE AND PROVIDES THAT ANY AMOUNT REALISED IN EXCESS OF THE WRITTEN DOWN VALUE NOT EXCEEDING THE ACTUAL COST IS TO BE CHARGED TO INCOME-TAX AS INCOME OF THE BUS INESS OF THE PREVIOUS YEAR IN WHICH SUCH MONEYS BECOME PAYABLE. THE EFFECT OF S. 41(2) R/W THE EXPLANATION IS THAT THE EXCESS OVER THE WRITTEN DOWN VALUE IS DEEM ED TO BE THE INCOME OF THE TEA BUSINESS AND HAS TO BE ACCORDINGLY COMPUTED WITH RE FERENCE TO R. 8. THE CONTENTION OF THE IT AUTHORITIES THAT SUCH INCOME D OES NOT ARISE OUT OF CULTIVATION OF TEA LEAVES AND/OR MANUFACTURE OF TEA IS NOT CORR ECT IN VIEW OF THE STATUTORY FICTION CREATED UNDER S. 41(2) R/W THE EXPLANATION THERETO AND THE PROVISIONS OF S. 29. TO SUM UP, BY VIRTUE OF THE FICTION UNDER S. 41 (2), PROFIT, THOUGH IN THE NATURE OF A CAPITAL GAINS, IS TREATED AS INCOME OF THE BUS INESS, THOUGH NOT IN EXISTENCE, WHERE PROFIT ARISES ON SALE OF DEPRECIABLE ASSETS O F THE BUSINESS AFTER BEING USED FOR THE PURPOSE OF THE BUSINESS. THE BUSINESS IN TH E PRESENT CASE BEING BUSINESS OF GROWING AND MANUFACTURING TEA, THE FICTIONAL PROFIT OF THE BUSINESS SO ARISING UNDER S. 41(2) CANNOT BUT BE A PROFIT OF THE SAME C OMPOSITE BUSINESS. THUS, THE APPORTIONMENT OF THE PRESCRIBED PERCENTAGE AS BETWE EN GROWING TEA AND MANUFACTURING TEA UNDER R. 8(1) IS UNAVOIDABLE. THE STATUTE AS ALSO THE RULES FRAMED THERE UNDER CONSISTENTLY ACCEPT THE BUSINESS OF GROWING TEA AND THE BUSINESS OF MANUFACTURING TEA AS ONE INDIVISIBLE CO MPOSITE BUSINESS CALLING FOR APPORTIONMENT OF ITS INCOME UNDER ALL CIRCUMSTANCES . SECONDLY, DEPRECIATION OF THE ASSETS, EVEN THOUGH USED EXCLUSIVELY FOR MANUFA CTURING TEA, ALSO GETS SLICED DOWN TO 40 PER CENT BY THE OPERATION OF THE SAID R. 8(1). IT IS ILLOGICAL TO SAY THAT THE SAME RULE OF APPORTIONMENT SHALL NOT APPLY TO T HE FICTIONAL PROFIT ARISING UNDER THE CIRCUMSTANCES DESCRIBED UNDER S. 41(2). THE FIC TION IS THAT THE CAPITAL PROFIT UNDER S. 41(2) IS TO BE TREATED AS PROFIT OF THE PR E-EXISTING BUSINESS OF GROWING AND MANUFACTURING TEA. 16. IN MCLEOD RUSSEL INDIA LTD. VS. CIT (2013) 260 CTR 0337 (GAU), THE HONBLE GAUHATI HIGH COURT HAD AN OCCASION TO EXAMI NE SIMILAR CLAIM BY AN ASSESSEE WHO RECEIVED (A) PROFITS ON SALE OF LICENC E, GRANTED UNDER CUSTOMS AND CENTRAL EXCISE DUTIES DRAWBACK RULES, 1971, (B) SAL E OF SCRAP AND (C) MISC. GARDEN INCOME, AND (D) EXCISE DUTY REMISSION, WHETH ER SHOULD BE CONSIDERED AS PART OF THE COMPOSITE INCOME BEFORE APPORTIONMENT B ETWEEN AGRICULTURAL AND NON AGRICULTURAL INCOME. THE HONBLE GAUHATI HIGH COURT HELD THAT AS PER RULE 8 INCOME WHICH IS DERIVED FROM SALE OF TEA GROWN AND MANUFACTURED BY SELLER SHALL BE TREATED AS IF IT WERE 'INCOME DERIVED FROM THE B USINESS' AND 40 PERCENT OF SUCH INCOME SHALL BE DEEMED TO BE INCOME CHARGEABLE UNDE R INCOME TAX ACT, 1961. THE HONBLE COURT HELD THAT AS PER SECTION 28 (III A), PROFITS ON SALE OF LICENCE, GRANTED UNDER CUSTOMS AND CENTRAL EXCISE DUTIES DRA WBACK RULES, 1971, ARE TO BE TREATED AS INCOME DERIVED FROM BUSINESS WHICH IN THE CASE OF THE ASSESSEE WAS FROM SALE OF TEA GROWN AND MANUFACTURED. SIMILARLY SUM CLAIMED AS RECEIPT FROM EXCISE DUTY WAS COMPOSITE INCOME UNDER SECTION 28 ( III C) BEFORE APPORTIONMENT THEREOF UNDER RULE 8 OF RULES. SUM CLAIMED AS RECEI PT FROM SALE OF SCRAPS FORMS APEEJAY SURRENDRA CORPORATE SERVICES LTD.( NOW KNOW N AS APEEJAY TEA LTD.) ITA NO.1494/KOL/2015 ASSESSMENT YEAR:2010-11 P PP PA AA AG GG GE EE E | || | 7 77 7 PART OF COMPOSITE INCOME OF ASSESSE. CLAIM OF MISCE LLANEOUS GARDEN INCOME WAS PART OF COMPOSITE INCOME OF ASSESSE. THE HONBLE CO URT OBSERVED THAT WHEN STATUTORY PROVISIONS HAVE BEEN MADE IN FORM OF CLAU SE (III A) AND CLAUSE (III C) OF SECTION 28, AS AND WHEN AN INCOME SHALL BE CHARGEAB LE TO INCOME TAX UNDER HEADS OF PROFITS AND GAINS DERIVED OF BUSINESS, IT WOULD BE WHOLLY IMPERMISSIBLE FOR AO TO TREAT INCOME, WHICH FELL WITHIN AMBIT OF CLAUSE (III A) AND CLAUSE (III C) OF SECTION 28 AS INCOME, WHICH WAS NOT COMPOSITE INCOM E. RECEIPTS CLAIMED BY ASSESSE AS COMPOSITE INCOME BEFORE APPORTIONMENT HA D DIRECT NEXUS WITH ASSESSEE ACTIVITIES OF GROWING, MANUFACTURING AND SELLING OF TEA. 17. IT IS CLEAR FROM THE RATIO LAID DOWN IN THE AFO RESAID DECISIONS THAT RULE MAKING AUTHORITY HAS PRESCRIBED THAT INCOME, WHICH IS DERI VED FROM SALE OF TEA GROWN AND MANUFACTURED BY SELLER, SHALL BE TREATED AS IF IT W ERE 'INCOME DERIVED FROM THE BUSINESS'. THEREFORE WHATEVER INCOME IS TAXED AS BU SINESS INCOME IN THE ABSENCE OF ANY OTHER SOURCE OF INCOME EXCEPT GROWING AND MA NUFACTURING OF TEA HAS TO BE REGARDED AS PART OF COMPOSITE INCOME. IN FACT THE A O HAS ALSO TAXED THESE ITEMS OF INCOME AS BUSINESS INCOME ONLY BUT HAS NOT CONSIDER ED THEM AS PART OF THE COMPOSITE INCOME. 18. IN THE LIGHT OF THE LAW AS LAID DOWN IN THE AF ORESAID DECISIONS AND IN THE LIGHT OF THE DECISION OF THE TRIBUNAL RENDERED IN ASSESSE ES OWN CASE, WE SHALL NOW EXAMINE EACH OF THE ITEMS OF INCOME THAT WERE REGAR DED BY THE REVENUE AS NOT FORMING PART OF THE COMPOSITE INCOME. ALL INCOMES ( INCLUDING DEPB RECEIPTS ) EXCLUDED BY THE AO FROM THE COMPOSITE INCOME BUT TA XED AS INCOME FROM BUSINESS SEPARATELY HAVE TO BE REGARDED AS PART OF BUSINESS INCOME U/S.28 TO 44 OF THE ACT. WE ARE ALSO OF THE VIEW THAT IN THE LIGHT OF INTERP RETATION OF RULE 8 AS LAID DOWN IN THE AFORESAID DECISIONS, THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA) WHICH WAS RENDERED IN THE CONTEXT OF SEC.80IA WHICH SPEAKS OF A DIRECT NEXUS WITH THE ELIGIBLE BUSINESS CANNOT BE APPLIED. AS ALREADY OBSERVED, THE TESTS TO BE APPLIED WHILE COMPUTING C OMPOSITE INCOME UNDER RULE 8, IS TO SEE WHETHER THE RECEIPTS FALL WITHIN THE AMBI T OF RECEIPTS UNDER SEC.28 TO 44 OF THE ACT. WE THEREFORE HOLD THAT INCOME SET OUT I N GROUND NO. 1 & 3 HAVE TO BE INCLUDED AS PART OF THE COMPOSITE INCOME. THUS GROU ND NO.1 AND GR.NO.3 ARE ALLOWED. 6. AS THE ISSUE IS SQUARELY COVERED IN FAVOUR OF TH E ASSESSEE BY THE DECISION OF THE COORDINATE BENCH, IN ASSESSEE`S OWN CASE (SUPRA) AN D THERE IS NO ANY CHANGE IN FACTS AND LAW AND THE REVENUE IS UNABLE TO PRODUCE ANY MATERIAL TO CONTROVERT THE AFORESAID FINDINGS OF THE COORDINATE BENCH. THEREFO RE, RESPECTFULLY FOLLOWING THE JUDGMENT OF THE COORDINATE BENCH IN ASSESSEE`S OWN CASE (SUPRA), WE ALLOW GROUNDS NOS.1 & 2 OF APPEAL OF THE ASSESSEE. 7. GROUND NO. 3 RAISED BY THE ASSESSEE RELATES TO DISALLOWANCE OF CLUB EXPENSES OF RS. 3,51,587/-. APEEJAY SURRENDRA CORPORATE SERVICES LTD.( NOW KNOW N AS APEEJAY TEA LTD.) ITA NO.1494/KOL/2015 ASSESSMENT YEAR:2010-11 P PP PA AA AG GG GE EE E | || | 8 88 8 8. THE BRIEF FACTS QUA THE ISSUE ARE THAT AS PER TH E TAX AUDIT REPORT, CLUB ENTRANCE FEES OF RS.3,51,587/- WAS INCURRED BY THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION. HOWEVER,AO NOTED THAT IN ABSENCE OF DETAILS AND JUSTIFICATIONS FURNISHED BY THE ASSESSEE COMPANY, IT COULD NOT ASC ERTAINED WHETHER SUCH EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINES S. THEREFORE, AO DISALLOWED THE SAME. 9. AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. AGGRIEVED, THE ASSESSEE I S IN APPEAL BEFORE US. 10. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REI TERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. ON THE OTHER HAND, T HE LD. DR HAS PRIMARILY REITERATED THE STAND TAKEN BY THE ASSESSING OFFICER WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND THE SAME IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT THE ASSESSEE HAS PAID RS. 3,51,587/- O N ACCOUNT OF CLUB ENTRY FEE.AS PER ASSESSING OFFICERS FINDING IN PARA-7 OF THE AS SESSMENT ORDER, NO DETAILS AND JUSTIFICATIONS HAVE BEEN FURNISHED BY THE ASSESSEE TO JUSTIFY THAT THE EXPENDITURE WAS FOR THE PURPOSE OF BUSINESS. THE ASSESSING OFFI CER WAS UNABLE TO ASCERTAIN WHETHER SUCH EXPENDITURE WAS INCURRED FOR THE PURPO SE OF BUSINESS. EVEN DURING THE APPEAL PROCEEDINGS, SUCH DETAILS WERE NOT SUBMI TTED BEFORE THE LD CIT(A). HOWEVER, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT CLUB ENTRY FEE HAS BEEN PAID FOR THE PURPOSE OF BUSINESS TO FACILI TATE THE CUSTOMERS OF THE ASSESSEE COMPANY. AFTER GOING THROUGH THE FACTS AND CIRCUMST ANCES, WE NOTE THAT THE ASSESSEE HAS NOT PROVED THE CLUB ENTRY FEE WHETHER IT RELATES TO BUSINESS PURPOSE OR NOT, THEREFORE WE CONFIRM THE ORDER PASSED BY THE L D. CIT(A). ACCORDINGLY, GROUND NO. 3 RAISED BY THE ASSESSEE IS DISMISSED. APEEJAY SURRENDRA CORPORATE SERVICES LTD.( NOW KNOW N AS APEEJAY TEA LTD.) ITA NO.1494/KOL/2015 ASSESSMENT YEAR:2010-11 P PP PA AA AG GG GE EE E | || | 9 99 9 12. GROUND NO. 4 RAISED BY THE ASSESSEE RELATES TO ADDITION IN BOOK PROFIT U/S 115JB ON ACCOUNT OF CESS ON GREEN LEAF BY RS. 2,91,59,198 /-. 13. THE BRIEF FACTS QUA THE ISSUE ARE THAT THE ASSE SSING OFFICER HAS ADDED THE EXPENDITURE RELATING TO CESS ON GREEN LEAF TO THE T UNE OF RS. 2,91,59,198/- IN THE COMPUTATION OF MINIMUM ALTERNATE TAX U/S 115JB OF T HE ACT. 14. AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSIN G OFFICER THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS CONFIRMED THE ACTION OF THE ASSESSING OFFICER. AGGRIEVED, THE ASSESSEE IS IN AP PEAL BEFORE US. 15. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REI TERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. ON THE OTHER HAND, T HE LD. DR HAS PRIMARILY REITERATED THE STANDS TAKEN BY THE ASSESSING OFFICE R WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND THE SAME IS NOT BEING REPEA TED FOR THE SAKE OF BREVITY. 16. WE HAVE HEAD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. WE NOTE THAT THE METHOD OF DETERMINATION OF BOOK PR OFIT HAS BEEN DEFINED U/S 115JB(2) OF THE ACT. THE PROVISIONS OF SECTION 115J B OF THE ACT, IS ITSELF A CODE AND THEREFORE, BOOK PROFIT HAS TO BE DETERMINED ON LY AS PER THE PROVISIONS OF THE SECTION 115JB OF THE ACT. EXPLANATION 1, OF SUB-SEC TION (2) OF SECTION 115JB STATES AS FOLLOWS: EXPLANATION 1-FOR THE PURPOSE OF THIS SECTION, BO OK PROFIT MEANS THE PROFIT, AS SHOWN IN THE STATEMENT OF PROFIT AND LOSS, FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION (2), AS INCREASED BY- .. .. WE NOTE THAT DOWN BELOW THE ABOVE EXPLANATION 1, OF SUB-SECTION (2) OF SECTION 115JB, NOTHING HAS MENTIONED ABOUT THE CESS ON GRE EN LEAF, THEREFORE, BOOK PROFIT UNDER SECTION 115JB SHOULD NOT BE INCREASED ON ACCOUNT OF CESS ON GREEN LEAF. THE MINIMUM ALTERNATE TAX (MAT) AND THE COMP UTATION THEREOF U/S 115JB OF THE ACT, OVERRIDES THE OTHER PROVISIONS OF ACT THEREFORE, WE NOTE THAT THE APEEJAY SURRENDRA CORPORATE SERVICES LTD.( NOW KNOW N AS APEEJAY TEA LTD.) ITA NO.1494/KOL/2015 ASSESSMENT YEAR:2010-11 P PP PA AA AG GG GE EE E | || | 1 11 10 00 0 ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINE D BY THE LD. CIT(A) IS HIGHLY ARBITRARILY AND NEEDS TO BE DELETED. HENCE, BASED O N THE FACTUAL POSITION EXPLAINED ABOVE AND CONSIDERING THE PROVISIONS OF SECTION 115 JB, WHICH IS A CODE ITSELF, WE DELETE THE ADDITION OF RS.2,91,59,198/- MADE BY AO IN THE BOOK PROFIT OF THE ASSESSEE COMPANY. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 29.03.2019 SD/- ( A.T.VARKEY ) SD/- (A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA; / DATE: 29/03/2019 ( SB, SR.PS ) COPY OF THE ORDER FORWARDED TO: 1. APEEJAY SURRENDRA CORPORATE SERVICES LTD.( NOW K NOWN AS APEEJAY TEA LTD.) 2. DCIT, CIRCLE-8(1), KOLKATA 3. C.I.T(A)- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. 6. GUARD FILE. TRUE COPY BY ORDER ASSIST ANT REGISTRAR ITAT, KOLKA TA BENCHES