M/s Long View Tea Company Ltd., Kolkata V. D.C.I.T., Circle-6, Kolkata, Kolkata

ITA 1570/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1692 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 25-07-2014
• Court: TRIBUNAL
• Department Lawyers: MD G HYAS UDDIN
• Keywords: Depreciation; Scheme of amalgamation; Revenue expenditure; Capital expenditure
• Section: 143(3); 263

Judgement Text

1 ITA NO.1570/KOL/2014 LONG VIEW TEA CO. LTD., AY 2006-07 , A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA () BEFORE .. , /AND ... , ) [BEFORE SHRI A. T. VARKEY, JM & DR. A. L. SAINI, A M] / I.T.A NO. 1570/KOL/2014 / ASSESSMENT YEAR: 2006-07 M/S. LONG VIEW TEA COMPANY LTD. (PAN: AAACL5564F) VS. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-6, KOLKATA. ( /APPELLANT ) ( / RESPONDENT ) DATE OF HEARING 20.03.2017 DATE OF PRONOUNCEMENT 07.06.2017 FOR THE APPELLANT/ SHRI SUJOY SEN, FCA FOR THE RESPONDENT/ MD. GHYAS UDDIN, JCIT / ORDER PER SHRI A.T.VARKEY, JM THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-VI, KOLKATA DATED 19.05.2014 FOR AY 2006-07. 2. THE SOLE ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF CIT(A) CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE AMORTISED MISCELLANEOUS EXPENSES OF RS.76,81,390/- WRITTEN OFF IN THE BOOKS OF ACCOUNT IN (@ 1/10 TH OF RS.7,68,13,902/- BEING THE NET REALIZABLE VALUE OF THE ADVANCE MADE AGAINST CA PITAL GOODS) AS PER SPECIFIC DIRECTION OF HON'BLE JURISDICTIONAL HIGH COURT VIDE ORDER DATED 16-10-2001. FOR THIS, ASSESSEE HAS RAISED FOLLOWING CONCISE GROUND:- 1. THAT ON THE FACTS AND ON THE CIRCUMSTANCES OF T HE CASE THE CIT(A) HAD GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF RS.76,81,390/-, MADE BY THE AO, IN THE ASSESSMENT FRAMED UNDER SECTION 143(3) OUT OF THE MISCELLANEOUS EXPEN DITURE, REPRESENTING 1/10 TH OF RS.7,68,13,902/- BEING THE REALIZABLE VALUE OF ADVA NCE AGAINST CAPITAL GOODS BY WRONGLY AND ILLEGALLY, TREATING THE SAME AS CAPITAL EXPENDITURE , WITHOUT PLACING COGNIZANCE TO THE ORDER DATED 16.10.2011, PASSED BY THE HONBLE HIGH COURT AT CALCUTTA, WHEREIN THE HONBLE COURT, WHILE APPROVING THE SCHEME OF AMALGAMATION, ISSUED SPECIFIC AND BINDING DIRECTION TO THE APPELLANT COMPANY, BEING TRANSFEREE/AMALGAMATED COM PANY TO WRITE OFF THE SAID REALIZABLE 2 ITA NO.1570/KOL/2014 LONG VIEW TEA CO. LTD., AY 2006-07 VALUE AS ADVANCE AGAINST CAPITAL GOODS, TRANSFERRED TO IT FROM THE TRANSFEROR/AMALGAMATING COMPANY, M/S. HIMADRI PLANTATIONS LIMITED IN TEN EQ UAL INSTALLMENTS AS MISCELLANEOUS EXPENSE. THE CIT(A) AND THE AO, HAD FURTHER FAILED TO APPRECIATE THE FACT, THAT SIMILAR EXPENDITURE HAD BEEN ALLOWED IN THE ASSESSMENTS FRA MED, IN RESPECT OF THE APPELLANT, FOR ALL THE EARLIER AND THE SUBSEQUENT ASSESSMENT YEARS. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY FOR THE RELEVANT AY 2006-07 FILED ITS RETURN OF INCOME ON 17.11.2006. THE AO N OTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS FROM P&L ACCOUNT THAT THE ASSESSEE HAS CLAIMED MISCELLANEOUS EXPENSES BY CLAIMING AMORTIZATION OF EXPENSES I.E. 1/10 TH OF ADVANCE ON AMALGAMATION. THE ASSESSEE EXPLAINED THAT THE SCHEME OF AMALGAMATION WAS APPRO VED BY HON'BLE CALCUTTA HIGH COURT VIDE ORDER DATED 16.10.2001 IN THE CO. PETITION NO. 368 OF 2001 AND CA NO.221 OF 2001. BY VIRTUE OF THIS AMALGAMATION SCHEME AS APPROVED B Y HON'BLE HIGH COURT, HIMADRI PLANTATION LTD. AND BIHARIJI FIBRES AND TEA INDUSTR IES PVT. LTD. GOT AMALGAMATED WITH THE ASSESSEE COMPANY W.E.F. 01.04.2000. THE ASSESSEE C LAIMED THE SAID WRITING OFF IN INSTALLMENTS UNDER THE ORDER OF HON'BLE HIGH COURT AND WRITTEN OFF 1/10 TH OF EXPENSES CREDITED UNDER THE HEAD MISCELLANEOUS EXPENSES OUT OF THE TOTAL EXPENSES OF RS.7,68,13,902/-. THE AO NOTED THAT AS PER COURTS ORDER ALL ASSETS AND LIABILITIES OF TRANSFEROR COMPANIES GOT TRANSFERRED INTO THE BOOK VALUE EXCEPT ADVANCE MADE BY THESE PARTIES. ACCORDING TO HIM, THE ADVANCE GOT TRANSFER RED AT NET REALIZABLE VALUE AND DIFFERENTIAL OF BOOK VALUE OF THE ADVANCE AND ACCORDINGLY, REALI ZABLE VALUE WAS CREDITED TO THE TRANSFEREE ACCOUNT AS MISCELLANEOUS EXPENSES. ACCORDING TO AO , THESE MISC. EXPENSES IS A CAPITAL ITEM AND TO BE DISALLOWED. FOR THIS HE RECORDED THE FOL LOWING FINDINGS: THE ITEM CREDITED IN THE BALANCE SHEET AS MISCELL ANEOUS EXPENDITURE IS A CAPITAL ITEM, THUS, AMORTIZATION TO THIS CAPITAL EXPENDITURE DOES NOT COVER SEC. 36(2) OF AS LOSS U/S. 28. IT IS NOT COVERED U/.S. 35D, NEITHER CAN THE ASSESSEE CLAIM DEPRECIATION U/S. 32(1)(II) TREATING IT AN INTANGIBLE ASSET, AS IT DOES NOT HAVE ANY INT EREST VALUE OUT OF WHICH INCOME CAN BE GENERATED IN FUTURE. THEREFORE, THE SUM OF RS.76,8 1,390/- IS DISALLOWED AS REVENUE EXPENDITURE AND TO BE REDUCED FROM TOTAL LOSS OF TH E ASSESSEE. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A), WHO ALSO CONFIRMED THE ACTION OF THE AO. AGGRIEVED, NOW ASSESSEE IS BEFORE US. 4. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE STATED THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF HON'BLE CALCUTTA HIGH COURT IN ASSE SSEES OWN CASE FOR AY 2002-03, WHERE 3 ITA NO.1570/KOL/2014 LONG VIEW TEA CO. LTD., AY 2006-07 SIMILAR ADDITIONS AS DELETED BY THE TRIBUNAL WAS CO NFIRMED BY HON'BLE HIGH COURT, ALTHOUGH IN THE PROCEEDINGS U/S. 263 OF THE ACT ON MERITS. LD. COUNSEL FOR THE ASSESSEE REFERRED TO THE DECISION OF HON'BLE CALCUTTA HIGH COURT IN ITA NO.25 OF 2008 G.A NO. 79 OF 2008 FOR THE AY 2002-03 VIDE ORDER DATED 21 ST FEBRUARY, 2008, WHEREIN IT IS HELD AS UNDER: HEARD LEARNED COUNSEL FOR THE APPELLANT. PERUSED T HE ORDER PASSED BY THE TRIBUNAL. IT APPEARS TO US THAT THE TRIBUNAL DEALT WITH THE MATT ER EXTENSIVELY AND SPECIFICALLY STATED AS FOLLOWS: WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THAT THE CIT HAS INVOKED JURISDICTION ON THE PREMISES THAT THE AO HAD NOT MADE PROPER ENQUIRIES AS TO THE SUM OF RS.76,81,390/- OF ADVANCE WRITTEN OFF AND RS.3,08,8 76/- OF GOODWILL ARISING ON AMALGAMATION BEING WRITTEN OFF AS MISCELLANEOUS EXP ENDITURE IS NOT ALLOWABLE AND AS SUCH THE ACTION OF THE AO RENDERED THE ASSESSMEN T ORDER BAD IN LAW AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE FACT OF SUCH ADVANCE WRITTEN OFF AND GOODWILL WRITTEN OFF WAS DULY DISCLOSED BY THE ASSE SSEE IN THE AUDITED ACCOUNTS AND THE AO AFTER CONSIDERING SUCH MATERIAL ON RECORD HA S TAKEN ONE OF THE POSSIBLE VIEWS. THE ALLEGATION OF THE CIT WAS THAT THE AO HA S NOT MADE A PROPER ENQUIRY. IN OUR CONSIDERED OPINION, THE MATTER HAS NO RELEVA NCE SINCE SUCH CLAIM WAS MADE BY THE ASSESSEE AS PER THE ORDER OF THE HONBLE HIG H COURT AND THIS FACT WAS DULY DISCLOSED IN THE AUDITED ACCOUNTS AND THE AO AFTER CONSIDERING SUCH MATERIAL AND AFTER MAKING THE NECESSARY ENQUIRIES PASSED THE ASS ESSMENT ORDER. THE COURSE ADOPTED BY THE AO IS CERTAINLY PERMISSIBLE IN THE L AW. MOREOVER, ISSUE OF ADVANCE WRITTEN OFF AND GOODWILL WRITTEN OFF ARE DEFINITELY ISSUES OF WHICH TWO VIEWS ARE POSSIBLE. IT HAS BEEN HELD BY THE HONBLE SUPREME C OURT THAT IF TWO VIEWS ARE POSSIBLE ON AN ISSUE AND THE AO HAD CONSIDERED ONE OF THE VIEWS ALTHOUGH THE SAME MAY NOT HAVE BEEN ELABORATED IN SUCH ORDER, TH E LD. CIT WOULD NOT BE JUSTIFIED IN SETTING ASIDE THE AOS ORDER U/S.263 O F THE INCOME-TAX ACT. IN THIS CONNECTION, THE FOLLOWING OBSERVATION OF THE HONBL E APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO LTD VS. CIT [243 ITR (SC)] IS VERY RELEVANT:- THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE RE VENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE A O. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE AO, CAN NOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, FOR EX AMPLE, WHEN AN INCOME- TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME-TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH TH E COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORD ER PREJUDICIAL TO THE INTEREST OF THE REVENUE UNLESS THE VIEW TAKEN BY TH E INCOME-TAX OFFICER IS UNSUSTAINABLE IN LAW. IN VIEW OF THE ABOVE, WE RESPECTFULLY FOLLOWING TH E DECISION OF THE HONBLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO LTD (SUPRA) HOLD THAT THE CIT WAS NOT JUSTIFIED IN SETTING ASIDE THE ASSESSME NT ORDER DATED 08.03.2005 PASSED U/S. 143(3) OF THE ACT. WE, THERE FORE, QUASH THE ORDER PASSED BY THE CIT U/S/ 263 AND RESTORE THE ASSESSME NT ORDER DATED 08.03.2005. 4 ITA NO.1570/KOL/2014 LONG VIEW TEA CO. LTD., AY 2006-07 IN VIEW OF THAT WE DO NOT FIND THAT SUBSTANTIAL QU ESTION OF LAW IS INVOLVED IN THIS MATTER. IN OUR OPINION THE LEARNED TRIBUNAL HAS CORRECTLY CAME TO THE CONCLUSION. HENCE THIS APPLICATION BEING ITA NO. 25 OF 2008 IS DISMISSED. WE FIND THAT THE ISSUE IS SQUARELY COVERED AS THE S AME HAS BEEN ALLOWED IN AY 2002-03 BY THE TRIBUNAL AND CONFIRMED BY HON'BLE HIGH COURT OF CALCUTTA AND THE SLP (CIVIL) NO. 5905/2009 PREFERRED BY THE DEPARTMENT AGAINST THE O RDER OF THE HONBLE HIGH COURT HAS BEEN DISMISSED ON 24.08.2009. HENCE, THIS APPEAL O F THE ASSESSEE IS ALLOWED. 5. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 07.06.201 7 SD/- SD/- (DR. A. L. SAINI) (ABY. T. VARKEY) (...) ( .. ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 7 TH JUNE, 2017 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT M/S. LONG VIEW TEA COMPANY, LTD., SALAR PURIA JAJODIA & CO., 7, CHITTARANJAN AVENUE, KOLKATA-700 072. 2 RESPONDENT DCIT, CIRCLE-6, KOLKATA. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .