Kannan Devan Hills Planatations Co P Ltd, V. The ACIT, Ernakulam

ITA 157/COCH/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7213 (ITAT-COCHIN)
• Duration Of Justice: 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 26-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 09-04-2014
• Court: TRIBUNAL
• Department Lawyers: M ANIL KUMAR
• Keywords: Business expenditure
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND CHANDRA POOJ ARI, AM I.T.A. NO.157/COCH/2014 ASSESSMENT YEAR : 2008-09 M/S. KANNAN DEVAN HILLS PLANTATION CO. PVT. LTD., KDHP HOUSE, MUNNAR-685 612. [PAN: AACCK 5399M] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX,CIRCLE-1(2), ERNAKULAM. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) ASSESSEE BY SHRI ABRAHAM JOSEPH MARKOS, ADV. REVENUE BY SHRI M. ANIL KUMAR, CIT(DR) DATE OF HEARING 26/08/2014 DATE OF PRONOUNCEMENT 19/09/2014 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 15-01-2014 PASSED BY THE LD. CIT(A)-II, KOCHI FOR THE ASSESSMENT YEAR 2008-09. 2. THE BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESS EE IS ENGAGED IN THE BUSINESS OF GROWING, MANUFACTURING AND SALE OF TEA. THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 80IA AMOUNTING TO RS.58, 91,000/- U/S. 80IA(4)(IV)(C) OF THE I.T. ACT. THE ASSESSING OFFI CER DISALLOWED THE SAME I.T.A. NO.157/COCH/2014 2 ON THE REASON THAT THE ASSESSEE HAS NOT COMPLIED WI TH THE PROVISIONS OF SEC. 80IA(4)(IV)(C) WITH THE FOLLOWING OBSERVATIONS : THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 80IA OF TH E INCOME TAX ACT, 1961 ON ACCOUNT OF THE INCOME GENERATED FROM THE EL ECTRICITY IT DISTRIBUTED WHICH IN TURN IT RECEIVED FROM THE KSEB. ON AN ENQUIRY THE AR SUBMITTED THAT THE ASSESSEE COMPANY HAS ACQUIRED WITH EFFECT FROM 1 ST APRIL 2005, CERTAIN TEA ESTATES AT MUNNAR, AS A GO ING CONCERN, INCLUDING ERSTWHILE DEVIKULAM ESTATE FROM 1 ST JULY 2005, FROM TATA GLOBAL BEVERAGES LIMITED (THE TATA TEA LTD LESSOR ). BY LEASE OF LAND AND SALE/TRANSFER OF OTHER ASSETS, INCLUDING BUILDI NG AND MACHINERIES AND LIABILITIES TO THE AFORESAID ESTATE. THE ABOVE MENTIONED PLANT AND MACHINERY INCLUDES TH E PLANT AND MACHINERY FOR WHICH IT CLAIM THE DEDUCTION U/S. 80I A AND WHICH IS USING FOR DISTRIBUTION AND TRANSMISSION OF ELECTRIC ITY. THE ERSTWHILE TATA TEA LTD. HAS BEEN USING FOR THIS PLANT MACHINE RY FOR LONG TIME. IT IS NOTED THAT AS A WIND FALL GAIN THE ASSESSEE COMP ANY RECEIVED THE ABOVE PLANT AND MACHINERY AND CLAIMED TO HAVE RENOV ATED AND MODERNIZED THE TRANSMISSION LINE AND CLAIMED DEDUCT ION U/S. 80IA. IT IS SUBMITTED BY THE AR THAT THE ASSESSEE COMPANY HA S DONE SUBSTANTIAL RENOVATION AFTER 01-04-2004. A PLAIN READING OF SUB-SECTION (4), CLAUSE (IV) MAK ES IT CLEAR THAT DEDUCTION U/S. 80IA WILL BE AVAILABLE UNDER CLAUSE (IV) TO AN UNDERTAKING WHICH FULFILLS ALL THE THREE CONDITION S LAID OUT IN SUB-CLAUSE (A), (B) AND (C) OF THE CLAUSE, I.E. THE UNDERTAKIN G MUST HAVE BEEN SET UP FOR THE GENERATION OR GENERATION AND DISTRIB UTION OF POWER DURING THE SPECIFIED PERIOD; IT SHOULD HAVE STARTED TRANSMISSION OR DISTRIBUTION BY LAYING NETWORK OF NEW LINES DURING THE SPECIFIED PERIOD; AND IT MUST UNDERTAKE SUBSTANTIAL RENOVATION AND MO DERNIZATION OF THE EXISTING NETWORK OF TRANSMISSION OR DISTRIBUTION LI NES DURING THE SPECIFIED PERIOD. IN THE INSTANT CASE, THE ASSESSEE COMPANY WAS INCOR PORATED FOR GROWING, MANUFACTURING AND SALE OF TEA. INCIDENTAL BUSINESS IS NON TEA OPERATIONS SUCH AS GROWING, TRADING AND SALE OF SPI CES ETC. AND LETTING OUT OF BUNGALOWS. POWER RELATED BUSINESS IS NOT AM ONG THE MAIN OR ANCILLARY BUSINESS OF THE ASSESSEE COMPANY. THE AS SESSEE IS PURCHASING POWER FROM KSEB AND DISTRIBUTING THE SAME . TO BE ELIGIBLE FOR DEDUCTION UNDER THIS CLAUSE, THE ASSESSEE MUST BE AN UNDERTAKING I.T.A. NO.157/COCH/2014 3 WHICH HAS BEEN SET UP FOR THE GENERATION OR GENERAT ION AND DISTRIBUTION OF POWER, SATISFYING ALL THE CLAUSES. MERE DISTRIBUTION OF POWER DOES NOT MAKE IT AN ELIGIBLE UNDERTAKING WITH IN THE MEANING OF SECTION 80IA(4). SINCE THE ASSESSEE DOES NOT SATI SFY ALL THE CONDITIONS LAID OUT IN CLAUSE (IV) OF SUB-SECTION ( 4), IN THAT IT IS NOT AN UNDERTAKING SET UP FOR THE \GENERATION OR GENERATIO N AND DISTRIBUTION OF POWER, IT IS NOT AN ELIGIBLE BUSINESS WITHIN THE MEANING OF SECTION 80IA(4). HENCE THE CLAIM OF 80IA(4)(IV) IS NOT ALL OWED. 3. ON APPEAL, THE CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER BY OBSERVING THAT CONDITIONS AS LAID DOWN I N SECTION 80IA ARE TO BE FULFILLED. THE CIT(A) OBSERVED THAT IN THE CASE OF ASSESSEE, THE ASSESSEE COMPANY IS NOT A NEW INDUSTRIAL UNDERTAKIN G AND THE BUSINESS OF ELECTRICITY DISTRIBUTION WAS TRANSFERRE D TO THE ASSESSEE AS AN INTEGRAL PART OF WHOLE BUSINESS BY TATA TEA LTD. UNDER THESE CIRCUMSTANCES, ACCORDING TO THE CIT(A), THE BUSINES S OF THE ASSESSEE BECAME AN OLD BUSINESS AND THEREFORE, THE ASSESSEE DOES NOT FULFILL ALL THE CONDITIONS OF BEING A NEW INDUSTRIAL UNDERTAKI NG AS LAID DOWN IN SEC. 80IA(3) OF THE ACT. AS IT IS FORMED BY RECONS TRUCTION OF BUSINESS ALREADY IN EXISTENCE, AND AS TATA TEA LTD. HAS ESTA BLISHED THE SAID PLANT AND MACHINERY FOR TRANSMISSION AND DISTRIBUTI ON OF ELECTRICITY LONG BACK, THE LD. CIT(A) HELD THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S. 80IA. ACCORDING TO THE CIT(A) THE MACHINERY AND PLANT USED BY THE ASSESSEE WAS PREVIOUSLY USED BY TATA TEA LTD. A ND THE PLANT AND MACHINERY BEING PART OF THE BUSINESS OF TATA TEA L TD. WHICH HAS BEEN SPLITTED UP AND ACQUIRED BY THE ASSESSEE, HENCE, ON THIS GROUND ALSO THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S. 80I A. I.T.A. NO.157/COCH/2014 4 4. ACCORDING TO THE CIT(A) IF THE ASSESSEES CLAIM U/S. 80IA(4)(IV)(C) IS CONSIDERED, THE REQUIREMENT FOR BEING ELIGIBLE F OR SUCH BENEFIT IS TO SUBSTANTIALLY RENOVATE AND MODERNIZE THE EXISTING NETWORK OF TRANSMISSION OR DISTRIBUTION LINES AT ANY TIME DURI NG THE PERIOD BEGINNING ON THE 1 ST DAY OF APRIL, 2004 AND ENDING ON THE 31 ST DAY OF MARCH, 2010. THE FURTHER REQUIREMENT AND CONDITION OF THIS CLAUSE IS STATED IN THE EXPLANATION TO THIS SUB-CLAUSE WHEREI N IT IS LAID DOWN THAT SUBSTANTIAL RENOVATION AND MODERNIZATION MEANS AN INCREASE IN THE PLANT AND MACHINERY IN THE NETWORK OF TRANSMISSION OR DISTRIBUTION LINES BY AT LEAST FIFTY PER CENT OF THE BOOK VALUE OF SUC H PLANT AND MACHINERY AS ON THE 1 ST DAY OF APRIL, 2004. THE CIT(A) STATED THAT ALTHOUGH THE ASSESSEE HAS CLAIMED TO HAVE DONE SUBS TANTIAL RENOVATION AFTER 1.4.2004, HOWEVER THE ASSESSEE HAS NOT BEEN A BLE TO SATISFY CONDITIONS LAID DOWN IN EXPLANATION TO SEC.80IA(4)( IV) AS THE AMOUNT SPENT FOR RENOVATION AND MODERNIZATION IS NOT SHOWN TO BE MORE BY 50% OF THE BOOK VALUE OF SUCH PLANT AND MACHINERY A S ON 1.4.2004. SINCE THE ASSESSEE HAS NOT BEEN ABLE TO SHOW THAT I T HAS SPENT SUCH AMOUNT ON THE RENOVATION AND MODERNIZATION, THE CIT (A) HELD THAT THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S. 80IA AN D ACCORDINGLY CONFIRMED THE ADDITION OF RS.58,91,000/- MADE BY TH E ASSESSING OFFICER. AGAINST THIS THE ASSESSEE IS IN APPEAL BE FORE US. I.T.A. NO.157/COCH/2014 5 5. THE LD. AR SUBMITTED THAT THE CIT(A) ERRED IN CO NFIRMING THE DISALLOWANCE OF DEDUCTION U/S. 80IA AMOUNTING TO RS .58,91,00/- SINCE THE ASSESSEE HAS FULFILLED ALL THE CONDITIONS LAID DOWN IN SEC. 80IA(3) OF THE ACT. IN THE NATURE OF THE LOCATION OF THE ASSE SSEES ESTATE, IT WAS EVIDENT THAT THE GOVERNMENT OF KERALA SOLD ELECTRIC ITY TO THE ASSESSEE IN BULK AND DIRECTED THE ASSESSEE TO ALSO PROVIDE T HE SAME TO THE INHABITANTS IN AND AROUND THE AREA OF ITS BUSINESS OPERATIONS. THE LD. AR SUBMITTED THAT ELECTRICITY DISTRIBUTION REMAINS AN INTEGRAL PART OF THE TEA OPERATION AND ACCORDINGLY IT IS TO BE CONSI DERED AS PART OF THE OPERATION FROM TEA. IF THE DEDUCTION U/S. 80IA IS NOT BE ALLOWED, THE ADDING BACK OF ANY AMOUNT CAN ONLY BE TO THE INCOME FROM TEA GROWN AND MANUFACTURED. ACCORDING TO THE LD. AR, THE CONDITION LAID DOWN IN SEC. 80IA(4)(IV)(C) NEED NOT BE APPLIED CUMULATI VELY AND IF THE ASSESSEE HAS FULFILLED ANY ONE OF THE CONDITIONS LA ID DOWN IN SECTION 80IA(4)(IV)(B), THE ASSESSEE IS ENTITLED FOR DEDUCT ION U/S. 80IA(4)(IV)(C) OF THE I.T. ACT. ACCORDING TO HIM T HE LOWER AUTHORITIES HAVE TOTALLY MISINTERPRETED THE ABOVE PROVISIONS TO DENY DEDUCTION U/S. 80IA(4)(IV)(C) OF THE I.T. ACT. FURTHER, HE SUBMIT TED THAT THE ASSESSEE HAS COMPLIED WITH ALL THE REQUIREMENTS OF THE ABOVE SECTION TO ENTITLE FOR DEDUCTION U/S. 80IA(40(IV)(C) OF THE I.T. ACT. THE LD. AR FURTHER DREW OUR ATTENTION TO THE AUDITORS CERTIFICATE DAT ED 20 TH JANUARY, 2010 I.T.A. NO.157/COCH/2014 6 STATING THAT THE UNDERTAKING RELATING TO DISTRIBUTI ON OF ELECTRICITY BUSINESS WAS TAKEN OVER BY THE ASSESSEE FROM TATA T EA LIMITED W.E.F. FROM 01-07-2007 (PB PG. NOS. 13 TO 27) AND SPECIFIC ALLY WITH REFERENCE TO COST TOWARDS RENOVATION INCURRED BY THE ASSESSEE WHICH IS AS FOLLOWS: A.Y. 2008-09 : RS.50.31 LAKHS A.Y. 2009-10 : RS.41.32 LAKHS (APPROX .) 6. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT A P LAIN READING OF SUB-SECTION (4), CLAUSE (B) MAKES IT CLEAR THAT DED UCTION U/S. 80IA WILL BE AVAILABLE UNDER CLAUSE (IV) TO AN UNDERTAKING WH ICH FULFILLS ALL THE THREE CONDITIONS LAID OUT IN SUB-CLAUSE (A), (B) AN D (C) OF THE CLAUSE, I.E., THE UNDERTAKING MUST HAVE BEEN SET UP FOR THE GENER ATION OR GENERATION AND DISTRIBUTION OF POWER DURING THE SPECIFIC PERIO D AND IT SHOULD HAVE STARTED TRANSMISSION OR DISTRIBUTION BY LAYING NETW ORK OF NEW LINES DURING THE SPECIFIED PERIOD AND IT MUST UNDERTAKE SUBSTANT IAL RENOVATION AND MODERNIZATION OF THE EXISTING NETWORK OF TRANSMISSI ON OR DISTRIBUTION LINES DURING THE SPECIFIED PERIOD. 7. ACCORDING TO THE LD. DR IN THE INSTANT CASE, THE ASSESSEE COMPANY WAS INCORPORATED FOR GROWING, MANUFACTURING AND SALE OF TEA AND INCIDENTAL BUSINESS IS NON TEA OPERATIONS SUCH AS GROWING, TRADING I.T.A. NO.157/COCH/2014 7 AND SALE OF SPICES ETC. AND LETTING OUT OF BUNGALOW S. ACCORDING TO THE LD. DR POWER RELATED BUSINESS IS NOT AMONG THE MAIN OR ANCILLARY BUSINESS OF THE ASSESSEE COMPANY. THE LD. DR SUBMI TTED THAT THE ASSESSEE HAS BEEN PURCHASING POWER FROM KSEB AND DIS TRIBUTING THE SAME. TO BE ELIGIBLE FOR DEDUCTION UNDER THIS CLAUS E, ACCORDING TO THE LD. DR, THE ASSESSEE MUST BE AN UNDERTAKING WHICH H AS BEEN SET UP FOR THE GENERATION OR GENERATION AND DISTRIBUTION OF PO WER, SATISFYING ALL THE CLAUSES AND MERE DISTRIBUTION OF POWER DOES NOT MAK E IT AN ELIGIBLE UNDERTAKING WITHIN THE MEANING OF SECTION 80IA(4)(I V) OF THE I.T. ACT. SINCE THE ASSESSEE DOES NOT SATISFY ALL THE CONDITI ONS LAID OUT IN CLAUSE (IV) OF SUB-SECTION (4), THE LD. DR SUBMITTED THAT IN THAT IT IS NOT AN UNDERTAKING SET UP FOR THE GENERATION OR GENERATION AND DISTRIBUTION OF POWER, IT IS NOT AN ELIGIBLE BUSINESS WITHIN THE ME ANING OF SECTION 80IA(4)(IV) AND HENCE THE CLAIM OF 80IA(4)(IV) SHAL L NOT BE ALLOWED. 8. THE LD. DR SUBMITTED THAT AS MENTIONED IN SEC. 8 0IA(40(IV)(C), THE UNDERTAKING SHALL SUBSTANTIALLY RENOVATE AND MO DERNIZE THE EXISTING NETWORK OF TRANSMISSION OR DISTRIBUTION LINES AT AN Y TIME DURING THE PERIOD BEGINNING ON THE 1 ST DAY OF APRIL, 2004 AND ON THE 31 ST DAY OF MARCH, 2010. AS PER THE EXPLANATION BELOW THE CLAU SE, ACCORDING TO THE LD. DR, SUBSTANTIAL RENOVATION AND MODERNIZATION ME ANS AN INCREASE IN PLANT AND MACHINERY AT LEAST BY 50% OF THE BOOK VAL UE OF SUCH PLANT I.T.A. NO.157/COCH/2014 8 AND MACHINERY AS ON 1 ST DAY OF APRIL, 2004. IT WAS ALSO NOTED BY THE LD. DR THAT THE ASSESSEE COMPANY DOES NOT HAVE ANY EXIS TING TRANSMISSION OR DISTRIBUTION LINES TO CALCULATE THE BOOK VALUE. IT WAS ALSO NOTICED BY THE LD. DR THAT AS ON 01/04/2004, THE SAID PLANT AN D MACHINERY WAS IN THE BOOKS OF ACCOUNT OF TATA TEA LTD. AS THE SAME W AS ACQUIRED BY THE ASSESSEE COMPANY ONLY ON 01/04/2005 AND THE ASSESSE E CANNOT GO TO THE EXTENT OF CALCULATING THE BOOK VALUE OF THE PLA NT AND MACHINERY LYING IN SOME OTHER COMPANIES BOOKS OF ACCOUNT AND FIXED ASSETS, AND LATER ON RENOVATES BY ADDING 50% MORE VALUE TO IT AND CLA IM DEDUCTION U/S. 80IA. ACCORDING TO THE LD. DR THE CLAUSE 80IA(40(I V)(C) IS INTENDED FOR THE COMPANIES WHO ARE ENGAGED IN THE RELEVANT BUSIN ESS AND WHO HAVE EXISTING NETWORK OF TRANSMISSION AND DISTRIBUTION L INES AND HENCE, THE ASSESSEE COMPANY IS NOT ELIGIBLE FOR DEDUCTION U/S. 80IA ON THIS GROUND. 9. THE LD. DR SUBMITTED THAT THE ASSESSEE COMPANY H AS ACQUIRED CERTAIN TEA ESTATE AS A GOING CONCERN FROM TATA TEA LTD. BY LEASE OF LAND AND SALE/TRANSFER OF OTHER ASSETS INCLUDING BUILDIN GS AND MACHINERIES AND LIABILITIES PERTAINING TO THE ESTATES. ACCORDI NG TO THE LD. DR THE SAID PLANT AND MACHINERY RELATED TO ELECTRICITY TRANSMIS SION OF THE ERSTWHILE TATA TEA LTD. WAS ACQUIRED BY THE ASSESSEE COMPANY W.E.F. 01/04/2005 WHICH SHOWS THAT THE PLANT AND MACHINERY WERE PART OF THE BUSINESS OF TATA TEA LTD. WHICH HAS BEEN SPLITTED UP AND ACQUIR ED BY THE ASSESSEE I.T.A. NO.157/COCH/2014 9 COMPANY AND HENCE, THE ASSESSEE COMPANY WAS NOT ELI GIBLE FOR DEDUCTION U/S. 80IA. 10. THE LD. DR SUBMITTED THAT THE ASSESSEE COMPANY WAS NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINERY OR P LANT PREVIOUSLY USED FOR ANY PURPOSE. ACCORDING TO THE LD. DR, THE TATA TEA LTD. HAD ESTABLISHED THE SAID PLANT AND MACHINERY FOR TRANSM ISSION AND DISTRIBUTION OF ELECTRICITY LONG BACK AND HAS BEEN USING SINCE THEN. THE LD. DR SUBMITTED THAT THE PLANT AND MACHINERY ACQUI RED BY THE ASSESSEE COMPANY HAD BEEN INSTALLED LONG BACK AND WHICH HAS BEEN USING CONTINUOUSLY BY TATA TEA LTD. ACCORDING TO THE LD. DR EVEN IF THE ASSESSEE COMPANY CLAIMED TO HAVE STARTED A NEW BUSI NESS, IT DOES NOT FULFIL THE ELIGIBILITY CONDITIONS AND HENCE NOT EL IGIBLE FOR 80IA DEDUCTION. 11. THE LD. DR FURTHER SUBMITTED THAT AS PER SEC. 8 0IA(3) EXPLANATION 2 ANY PLANT AND MACHINERY PREVIOUSLY USED FOR ANY P URPOSE IS TRANSFERRED TO A NEW BUSINESS, THE TOTAL VALUE OF T HE MACHINERY OR PLANT TRANSFERRED SHALL NOT EXCEED 20% OF THE TOTAL VALUE OF THE PLANT AND MACHINERY USED IN THE BUSINESS. AS PER THE ASSESSEE COMPANYS CLAIM, THE WDV OF THE PLANT AND MACHINERY AS ON 01/04/2004 WAS RS. 88,39,340/-. ACCORDING TO THE LD. DR IN THE NAME O F SUBSTANTIAL RENOVATION THE ASSESSEE ADDED RS. 50,30,932/- WORTH PLANT AND I.T.A. NO.157/COCH/2014 10 MACHINERY AND THE EXISTING PLANT AND MACHINERY TO T HE TOTAL PLANT AND MACHINERY IS ABOVE 35% AND HENCE DOES NOT FULFIL TH E ELIGIBILITY CONDITIONS AS PER THE EXPLANATION AND HENCE NOT ELIG IBLE FOR DEDUCTION U/S. 80IA. 12. IN VIEW OF THE ABOVE DISCUSSIONS, THE LD. DR SU BMITTED THAT THE ASSESSEE COMPANY IS NOT ELIGIBLE FOR THE DEDUCTION U/S. 80IA AND HENCE THE CLAIM OF THE ASSESSEE COMPANY IS TO BE REJECTED AND THE DEDUCTION CLAIMED TO BE ADDED BACK TO THE TOTAL INCOME. 13. HE ALSO RELIED ON THE ORDER OF THE CIT(A). 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. IN THIS CASE, THE CLAIM OF THE ASSESSEE IS U/S. 80IA(4)(IV) OF THE I.T. ACT. SECTION 80IA(4)(IV) READS AS FOLLOWS: (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INC LUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRIS E FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (4) (SUCH BUSIN ESS BEING HEREINAFTER REFERRED TO AS THE ELIGIBLE BUSINESS), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF TH IS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSE SSEE, A DEDUCTION OF AN AMOUNT EQUAL TO HUNDRED PER CENT OF THE PROFI TS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSECUTIVE ASSE SSMENT YEARS. SUB- SECTION (4) HAS SIX CLAUSES (I) TO (VI), EACH OF WHICH DESCRIBES THE TYPES OF UNDERTAKING OR ENTERPRISE WHICH IS ELIGIBL E TO CLAIM THE DEDUCTION UNDER THIS SECTION, I.E. THE NATURE OF TH E ELIGIBLE BUSINESS IN THE ASSESSEES CASE, THE DEDUCTION IS BEING CLAI MED U/S. 80IA(4)(IV) READS AS FOLLOWS: I.T.A. NO.157/COCH/2014 11 (IV) AN UNDERTAKING WHICH:- (A) IS SET UP ANY PART OF INDIA FOR THE GENERATION OR GENERATION AND DISTRIBUTION OF POWER IF IT BEGINS TO GENERATE POWER AT ANY TIME DURING THE PERIOD BEGINNING ON THE 1 ST DAY OF APRIL,1993 AND ENDING ON 31 ST MARCH, 2010. (B) STARTS TRANSMISSION OR DISTRIBUTION BY LAYING A NETWORK OF NEW TRANSMISSION OR DISTRIBUTION LINES AT ANY TIME DUR ING THE PERIOD BEGINNING ON THE 1 ST DAY OF APRIL,1999 AND ENDING ON THE 31 ST DAY OF MARCH, 2010; PROVIDED THAT THE DEDUCTION UNDER THIS SECTION TO AN UNDERT AKING UNDER SUB-CLAUSE (B) SHALL BE ALLOWED ONLY IN RELA TION TO THE PROFITS DERIVED FROM LAYING OF SUCH NETWORK OF NEW LINES FOR TRANSMISSION OR DISTRIBUTION. (C) UNDERTAKES SUBSTANTIAL RENOVATION AND MODERNIZ ATION OF THE EXISTING NETWORK OF TRANSMISSION OR DISTRIBUTION L INES AT ANY TIME DURING THE PERIOD BEGINNING ON THE 1 ST DAY OF APRIL, 2004 AND ENDING ON THE 31 ST DAY OF MARCH, 2010. EXPLANATION FOR THE PURPOSES OF THIS SUB-CLAUSES, SUBSTANTI AL RENOVATION AND MODERNIZATION MEANS AN INCREASE IN THE PLANT AND MACHINERY IN THE NETWORK OF TRANSMISSION OR DI STRIBUTION LINES BY AT LEAST FIFTY PER CENT OF THE BOOK VALUE OF SU CH PLANT AND MACHINERY AS ON THE 1 ST DAY OF APRIL, 2004). 14.1 FURTHER, IT IS TO BE NOTED THAT THE EXPLANAT ION DEFINES WHAT IS SUBSTANTIAL RENOVATION AND MODERNIZATION AND IT LAY S DOWN THAT THE VALUE OF TRANSMISSION AND DISTRIBUTION LINES SHOULD INCRE ASE AS PER THE BOOKS, AT LEAST BY 50% AS COMPARED TO THE BOOK VALUE AS ON 01-04-2004. ADMITTEDLY IN THIS CASE, AS ON 01/04/2004, THE SAID PLANT AND MACHINERY WAS IN THE BOOKS OF ACCOUNT OF TATA TEA LTD. BEING SO, THE QUESTION OF INCREASE IN THE VALUE OF TRANSMISSION OR DISTRIBUTI ON LINES DOES NOT ARISE. I.T.A. NO.157/COCH/2014 12 THE ASSESSEE SOUGHT TO RELY ON THE EXPENDITURE INCU RRED TOWARDS RENOVATION AND MODERNIZATION OF TRANSMISSION LINE D URING THE PERIOD A.Y. 2008-09 WHICH WAS RS.50.31 LAKHS AND A.Y. 2009-10 W HICH WAS RS.41.32 LAKHS AND THEREFORE, IT WAS SUBMITTED THAT THE ASSESSEE HAS COMPLIED WITH THE PROVISIONS OF SEC. 80IA(4)(IV) OF THE I.T. ACT. THIS FACT SHOWS THAT THE ASSESSEE WAS IN THE BUSINESS OF TEA PLANTATION AND THE PLANT AND MACHINERY WAS ACQUIRED BY THE ASSESSEE CO MPANY W.E.F. 01/04/2005. IT IS TO BE NOTED THAT THE ASSESSEE C OMPANY HAD ACQUIRED CERTAIN TEA ESTATES AS A GOING CONCERN FROM TATA TE A LTD INCLUDING PLANT AND MACHINERY USED FOR TRANSMISSION AND DISTRIBUTIO N OF ELECTRICITY. AS SUCH, IT CANNOT BE SAID THAT THE ASSESSEE HAS UNDER TAKEN SUBSTANTIAL RENOVATION AND MODERNIZATION OF TRANSMISSION AND DI STRIBUTION LINES AS STIPULATED U/S. 80IA(40(IV)(C) OF THE I.T. ACT. W E ACCEPT THE SUBMISSION OF LD. DR THAT THE PROVISIONS OF SEC. 80IA(4)(IV)(C ) OF THE I.T. ACT ARE MEANT TO ENCOURAGE MODERNIZATION AND UPGRADATION OF PLANT AND MACHINERY IN POWER SECTOR WITHIN A SPECIFIED PERIOD IN ORDER TO ENSURE WIDER NETWORK AND PREVENTION OF TRANSMISSION LOSES. THIS OBJECTIVE IS SOUGHT TO BE ACHIEVED BY PRESCRIBING A CRITERION OF INCREASE IN THE BOOK VALUE OF THE TRANSMISSION OR DISTRIBUTION LINES, WH ICH ARE TREATED AS PLANT AND MACHINERY BY THE ELECTRICITY SUPPLY COMPANY, CO MPARED TO THE BOOK VALUE AS ON 01-04-2004. WE ARE, THEREFORE OF THE O PINION THAT THE ASSESSEES CLAIM OF CAPITALIZATION OF EXPENDITURE I NCURRED ON RENOVATION I.T.A. NO.157/COCH/2014 13 AND MODERNIZATION IN THE BOOKS OF ACCOUNTS IS A CON DITION PRECEDENT FOR ALLOWING THE CLAIM OF DEDUCTION U/S. 80IA(40(IV)(C) OF THE ACT. IN THE PRESENT CASE, SINCE THE PLANT AND MACHINERY USED FO R TRANSMISSION AND DISTRIBUTION OF ELECTRICITY HAS BEEN ACQUIRED FROM TATA TEA LTD., IT CANNOT BE SAID THAT BOOK VALUE APPEARING IN THE BOOKS OF T ATA TEA LTD. AS ON 1 ST DAY OF APRIL, 2004 RELATES TO THE ASSESSEE-COMPANY. BEING SO, IN OUR OPINION THE ASSESSEE HAS NOT COMPLIED WITH THE PROV ISIONS OF SEC. 80IA(4)(IV)(C) OF THE I.T. ACT. FURTHER, WE MAKE I T CLEAR THAT INCOME SO INCREASED ON DISALLOWANCE OF DEDUCTION U/S. 80IA(4) (IV) OF THE I.T. ACT , IS TO BE CONSIDERED AS INCOME FROM PLANTATION OF TE A ONLY. WITH THIS OBSERVATION, WE REJECT THIS GROUND RAISED BY THE AS SESSEE. 15. THE NEXT GROUND IS WITH REGARD TO DISALLOWANCE OF GRATUITY CONTRIBUTION MADE TO THE APPROVED TRUST IN EXCESS O F THE AMOUNT DEBITED IN THE PROFIT AND LOSS ACCOUNT. 16. THE BRIEF FACTS OF THE ISSUE ARE THAT THE ASSES SING OFFICER HAS DISALLOWED THIS AMOUNT AS THIS AMOUNT WAS NOT CERTI FIED BY THE AUDITORS AND WAS CLAIMED ONLY IN THE COMPUTATION OF TOTAL IN COME. THE ASSESSING OFFICERS OBSERVATIONS ARE AS FOLLOWS: THE ASSESSEE COMPANY CLAIMED GRATUITY OF RS.72,15, 856/- IN THE COMPUTATION WITHOUT DISCLOSING IN THE AUDITED BALAN CE SHEET AND P&L I.T.A. NO.157/COCH/2014 14 ACCOUNT. THE ASSESSEE HAS CLAIMED THE SAME AS DEDU CTION IN THE COMPUTATION OF INCOME. HOWEVER THE STATUTORY AUDIT OR HAS NOT CERTIFIED IN THE AUDITED REPORT OF ACCOUNTS ANY SUC H AMOUNT AND AS SUCH THE SAID EXPENDITURE IS TREATED AS INADMISSIBL E AND ADDED BACK TO THE TOTAL INCOME. 17. ON APPEAL, THE CIT(A) OBSERVED THAT THIS AMOUNT WAS PAID TO LIC TOWARDS GRATUITY AND ALSO IN THE KHDP EMPLOYEES GRAT UITY FUND TRUST, APPROVED BY COMMISSIONER ON 22/08/2006. MOREOVER T HE AMOUNT CHARGED AND AS CERTIFIED BY THE AUDITORS CHARGED TO P&L ACCOUNT WAS RS. 38,77,125/- AND RS. 17,07,190/- WAS EARLIER YEARS LIABILITY AND THE BALANCE AMOUNT OF RS. 72,15,858/- WAS SHOWN AS ADJU STABLE FROM GRATUITY TRUST AND WAS INCLUDED UNDER LOANS AND ADV ANCES BY THE ASSESSEE HIMSELF AND NOT AS AN AMOUNT PAID TOWARDS GRATUITY. SINCE THIS AMOUNT HAS BEEN ADJUSTED FROM GRATUITY FUND DURING THE YEAR, AND INCLUDED UNDER LOANS AND ADVANCES, THE CIT(A) HELD THAT THE SAME WAS NOT AN ALLOWABLE EXPENDITURE U/S. 43B AND FOR THIS REASON ONLY, EVEN THE AUDITORS DID NOT CERTIFY THIS AMOUNT AS GRATUITY PA ID AND HENCE THE ASSESSING OFFICER WAS RIGHT IN LAW IN DISALLOWING T HE SAME. ACCORDING TO THE LD. CIT(A), THIS AMOUNT HAS BEEN OFFERED FOR DI SALLOWANCE IN THE A.Y. 2009-10 WHEN THIS AMOUNT WAS WRITTEN OFF IN TH E BOOKS OF ACCOUNT, WHEREAS GIVEN THE METHOD OF ACCOUNTING, THE SAME WA S DISALLOWABLE IN A.Y. 2008-09. ACCORDINGLY, THE CIT(A) CONFIRMED TH E ADDITION OF RS. 72,15,856/- MADE BY THE ASSESSING OFFICER. I.T.A. NO.157/COCH/2014 15 18. THE CIT(A) ALSO OBSERVED THAT SINCE THIS DISALL OWANCE IS SUSTAINED IN THIS ASSESSMENT YEAR 2008-09, THE ASSESSEE WOULD GET THE RELIEF OF THIS AMOUNT IN A.Y. 2009-10, WHERE THE SAME AMOUNT HAS BEEN DISALLOWED TO AVOID DOUBLE ADDITION OF THE SAME AMO UNT. 19. THE CIT(A) FURTHER OBSERVED THAT ALTHOUGH GRATU ITY RELATED TO THE STAFF WORKING IN TEA ESTATE, BUT IN THIS CASE THIS AMOUNT WAS NOT ACTUALLY PAID TO THE WORKERS AND WAS ONLY AN ADJUSTMENT IN T HE BOOKS. HENCE THE CIT(A) HELD THAT THIS EXPENDITURE CANNOT BE SAID TO BE RELATABLE TO TEA BUSINESS AND HENCE THE BENEFIT OF RULE 8 AND SECTIO N 33AB WOULD NOT BE ALLOWED TO THE ASSESSEE. AGAINST THIS, THE ASSESSE E IS IN APPEAL BEFORE US. 20. WE HAVE HEARD THE PARTIES AND PERUSED THE RECOR D. ADMITTEDLY, THE ASSESSEE HAS PAID TO THE GRATUITY CONTRIBUTION IN EXCESS OF THE AMOUNT DEBITED TO PROFIT AND LOSS ACCOUNT AND THE E XPENDITURE WAS NOT RELATABLE TO THE ASSESSMENT YEAR UNDER CONSIDERATIO N AND EACH ASSESSMENT YEAR IS INDEPENDENT ASSESSMENT YEAR AND ONLY EXPENDITURE RELATING TO THAT ASSESSMENT YEAR IS TO BE CLAIMED A S BUSINESS EXPENDITURE ACTUALLY INCURRED BY THE ASSESSEE AND F OR DETERMINING THE INCOME OF THE ASSESSEE, INCURRING OF EXPENDITURE SH OULD BE WHOLLY AND EXCLUSIVELY LAID DOWN FOR THE PURPOSE OF BUSINESS O F THE ASSESSEE. IN THE I.T.A. NO.157/COCH/2014 16 PRESENT CASE, THE CONTRIBUTION TO THE APPROVED GRAT UITY FUND CANNOT BE ALLOWED. BEING SO, THE CIT(A) IS JUSTIFIED IN DISA LLOWING THE SAME. THE CLAIM OF THE ASSESSEE THAT FOR INVOKING THE PROVISI ONS OF SEC. 43B, ACTUAL PAYMENT IS TO BE ALLOWED. THIS ARGUMENT OF THE ASSE SSEE IS TOTALLY MISCONSTRUED. ONLY THE EXPENDITURE RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION IS TO BE ALLOWED. BEING SO, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). 21. THE LD. AR MADE AN ALTERNATIVE CLAIM THAT IN TH E EVENT OF DISALLOWANCE, IT SHOULD BE CONSIDERED AS PART OF TH E INCOME FROM TEA BUSINESS. HE RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF KARIMTHARUVI TEA ESTATES LTD. AND ANOTHE R VS. STATE OF KERALA AND OTHERS (48 ITR 83). IF THE ASSESSEE CLA IMED AS EXPENDITURE RELEVANT TO THE TEA BUSINESS, THEN, IT SHOULD BE CO NSIDERED AS INCOME OF THE TEA BUSINESS ONLY. WITH THIS OBSERVATION, WE D ISMISS THIS GROUND. 22. THE NEXT GROUND IS WITH REGARD TO DISALLOWANCE OF PROVISION MADE FOR DA OF RS.2.93 CRORES ON THE GROUND THAT THE LIA BILITY IS UNASCERTAINED AND IS TO BE TREATED AS CONTINGENT LIABILITY. I.T.A. NO.157/COCH/2014 17 23. THE FACTS OF THE CASE ARE THAT THE ASSESSING OF FICER MADE THIS ADDITION HOLDING THAT THIS WAS AN UNASCERTAINED CON TINGENT LIABILITY OBSERVING AS FOLLOWING: THE ASSESSEE COMPANY HAS MADE A PROVISION FOR DA A FTER THE NOTIFICATION OF MINIMUM WAGES FOR PLANTATION WORKER S BY THE GOVT. OF KERALA DATED 18/02/2006. THE SAID ORDER WAS CHALLE NGED BY THE ASSOCIATION OF PLANTERS OF KERALA IN THE HON. HIGH COURT OF KERALA AND THE HIGH COURT STAYED THE ORDER TILL FINAL DISPOSAL OF THE CASE. IT IS NOTED THAT THE LIABILITY WILL BE CRYSTALLIZE D ONLY AFTER THE DISPOSAL OF THE CASE AND HENCE THE LIABILITY IS UNA SCERTAINED AND HENCE TREATED AS CONTINGENT LIABILITY NOT ADMISSIBL E AS EXPENDITURE AND HENCE THE CONTENTIONS OF THE AR IS REJECTED AND DISALLOWED THE AMOUNT. 24. THE LD. AR SUBMITTED THAT THE PROVISION OF RS. 2.93 CRORES WAS MADE TOWARDS FROZEN DEARNESS ALLOWANCE FOR THE WORK ERS. SINCE ALMOST THE ENTIRE LABOUR WORK FORCE WERE ENGAGED IN THE TE A OPERATIONS OF THE COMPANY, THE ENTIRE PROVISION WAS CHARGED TO TEA IN COME. THIS AMOUNT INCLUDED RS.51,66,192/- RELATING TO THE STATUTORY B ONUS AND PROVIDENT FUND CONTRIBUTIONS OF THE DA, WHICH THE ASSESSEE HA D ALREADY OFFERED AS DISALLOWANCE U/S. 43B. FOR THE BALANCE AMOUNT OF R S.2,41,05,985/- IT WAS SUBMITTED THAT THIS GROUND WAS NOT PRESSED AND HENCE SAME MAY BE TREATED AS WITHDRAWN. 25. ON APPEAL, THE CIT(A) OBSERVED THAT THE AMOUNT INCLUDED RS. 51,66,192/.- WHICH WAS ALREADY DISALLOWED BY THE AS SESSEE IN ITS I.T.A. NO.157/COCH/2014 18 COMPUTATION AND HENCE THIS AMOUNTED TO DOUBLE DISAL LOWANCE. HENCE THE ADDITION TO THE EXTENT OF RS.2,41,05,985/- WAS CONFIRMED BY THE CIT(A). 26. THE CIT(A) ALSO OBSERVED THAT SINCE THE AMOUNT WAS ONLY A PROVISION CREATED IN THE ACCOUNTS, THE SAME CANNOT BE TREATED AS DERIVED FROM GROWING AND MANUFACTURING OF TEA AND I T WOULD ACQUIRE THAT CHARACTER ONLY AT THE POINT WHEN IT IS ACTUALL Y PAID TO THE PLANTATION WORKERS. THUS THE CIT(A) HELD THAT THE PROVISION I N THE NATURE OF CONTINGENT LIABILITY WOULD BE ADDED BACK IN THE CEN TRAL INCOME. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 27. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. WE FIND THAT THE ASSESSEE HAS NOT SHOWN ANY REASON FOR NOT PRESSING THIS GROUND BEFORE THE LOWER AUTHORITIES. HENCE, THIS GROUND IS REJECTED. 28. THE ASSESSEE HAS MADE AN ALTERNATIVE CLAIM THAT ON DISALLOWANCE, AND ADDING BACK TO THE INCOME OF THE ASSESSEE, IT S HOULD BE TREATED AS INCOME FROM TEA BUSINESS SO AS TO APPLY THE PROVISI ONS OF SEC. 33AA R.W.S. RULE 8 OF THE I.T. RULES. AS DISCUSSED IN EA RLIER PARA WITH REGARD TO GRATUITY PAYMENT, IF THIS AMOUNT IS CLAIMED AS RELA TING TO TEA BUSINESS AS A EXPENDITURE ON ADDING BACK THE SAME TO THE INCOME OF THE ASSESSEE, I.T.A. NO.157/COCH/2014 19 THEN IT IS TO BE TREATED AS INCOME FROM TEA BUSINES S ONLY. WITH THIS OBSERVATION, WE DISMISS THIS GROUND. 29. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED ACCORDINGLY ON 19 -09-2014 SD/- SD/- (N.R.S.GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER AC COUNTANT MEMBER PLACE: KOCHI DATED: 19TH SEPTEMBER, 2014 GJ COPY TO: 1. M/S. KANNAN DEVAN HILLS PLANTATION CO. PVT. LTD. , KDHP HOUSE, MUNNAR-685 612. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1(2), ERNAKULAM. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCH I. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COCHIN