AI Insights
The case involves the revenue's appeal against the order of the National Faceless Appeal Centre, Delhi, concerning the assessment year 2020-21. The primary issues revolved around various disallowances made by the Assessing Officer, which were partly overturned by the CIT(A). The revenue contested these decisions, leading to the present appeal. The Tribunal examined each ground of appeal, referencing previous decisions and applicable laws, and made determinations based on the merits of each issue presented.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 132573 (ITAT-KOLKATA)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
2 year(s) 1 month(s) 11 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
02-08-2023
Appeal Filed By
Department
Order Result
PartlyAllowed
Bench Allotted
A
Next Hearing Date
24-05-2023
Assessment Year
2007-2008
Appeal Filed On
21-06-2021
Judgement Text
| आयकर अपीलीय अिधकरण ᭠यायपीठ, कोलकाता | IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, KOLKATA BEFORE SHRI SANJAY GARG, HON’BLE JUDICIAL MEMBER & DR. MANISH BORAD, HON’BLE ACCOUNTANT MEMBER I.T.A. No. 191/Kol/2021 Assessment Year: 2007-08 DCIT, Circle-4(1), Kolkata Vs M/s. Andrew Yule & Co. Ltd. 8, Dr. Rajendra Prasad Sarani Kolkata - 700001 [PAN: AACCA4245Q] अपीलाथᱮ/ (Appellant) ᮧ᭜ यथᱮ/ (Respondent) Assessee by : Shri A.K. Bandyopahdyay, A/R Revenue by : Shri P.P. Barman, Addl. CIT, Sr. D/R सुनवाई कᳱ तारीख/Date of Hearing : 25/05/2023 घोषणा कᳱ तारीख /Date of Pronouncement: 03/08/2023 आदेश/O R D E R PER DR. MANISH BORAD, ACCOUNTANT MEMBER : The present appeal is directed at the instance of the revenue against the order of the National Faceless Appeal Centre, Delhi (hereinafter the “ld. CIT(A)”) dt. 28/12/2022, passed u/s 250 of the Income Tax Act, 1961 (“the Act”) for the Assessment Year 2020-21. 2. The Registry has pointed out that there is a delay of 590 (five hundred ninety) days in filing the present appeal. Petition for condonation of delay dt. 20/09/2022 is placed on record by revenue explaining the reasons for delay which apart from delay in receiving the order of the ld. CIT(A) is owing to Covid-19 Pandemic. It is noted that the period of delay during the time of Pandemic of Covid-19 has been excluded by the Hon’ble Supreme Court in the case of suo moto Writ Petition (C) No. 3 of 2020 dated 10.01.2022 for the period from 15.03.2020 to 28.02.2022 for the purpose of limitation. Vide this I.T.A. No. 191/Kol/2021 Assessment Year: 2007-08 M/s. Andrew Yule & Co. Ltd. 2 order a further period of 90 days has been granted for providing the limitation from 01.03.2022. Accordingly, we condone the delay and proceed to admit the appeal for hearing. 3. The assessee is a company, engaged in the business of growing and manufacturing of tea and engineering goods and other activities. Loss of Rs.49,52,780/- declared in the return filed on 31/10/2007. This return was subsequently revised on 24/03/2008 and 14/04/2008 showing the same amount of loss. Thereafter, the case selected for scrutiny under CASS followed by issuance of notice u/s 143(2) and 142(1) of the Act. Various details as called for by the Assessing Officer were filed. The ld. Assessing Officer made various additions/disallowances and assessee the income of the assessee at a total loss of Rs.18,57,50,677/-. Assessee assailed the order of the ld. Assessing Officer before the ld. CIT(A) and got part relief. 4. Now, the revenue is in appeal before this Tribunal, raising the following grounds of appeal:- “1. On the issue of written off depreciated investments 2. On the issue of amortization of premium paid on investments 3.&4. On the issue of disallowance u/s 14A r.w. Rule 8D 5. On the issue of reserved created for unexpired risk 6. On the issue of addition of disallowance made u/s 14A 7. On the issue of provision for bad debts” 5. The ld. D/R, vehemently argued supporting the order of the ld. Assessing Officer and also filed the following written submissions highlighting the specific points in regard to the instant appeal:- I.T.A. No. 191/Kol/2021 Assessment Year: 2007-08 M/s. Andrew Yule & Co. Ltd. 3 “(i) Disallowance by Ld. CIT(A) of Liquidated Damage of Rs.46,14,000/-: It is strongly felt that Ld. CIT(A) should have called for a 'Remand' Report from the AO before deciding on the issue. (ii) Disallowance of Cold Weather Expenses by Ld. CIT(A) which the assessee claimed to be deferred revenue expenses of Rs.14,17,05,089/-: It is strongly felt that the Ld. CIT(A) should have called for a 'Remand' Report from the AO before deciding on the issue. (iii) Disallowance of maintenance expenses of Rs.32,53,675/- for Young Tea bushes being capital expenditure: The Ld. CIT(A) failed to address the issue independently and did not give any specific findings. It is strongly felt that the Ld. CIT(A) should have called for a 'Remand' Report from the AO before deciding on the issue. (iv) Disallowance of notional interest on loan to sister concern for Rs.14,52,000/- The CIT(A)'s contention is bereft of any independent finding. It is strongly felt that the Ld. CIT(A) should have called for a 'Remand' Report from the AO before deciding on the issue. (v) Disallowance of prior period expenses of Rs.3,83,36,969/-: The Ld. CIT(A) has not come out with any independent finding. It is strongly felt that the Ld. CIT(A) should have called for a 'Remand' Report from the AO before deciding on the issue. (vi) Disallowance of provision of doubtful debts of Rs.11,31,21,638/-: The Ld. CIT(A) mentioned of a re-computation having been submitted by the assessee to justify the allowance of the said amount during the I.T.A. No. 191/Kol/2021 Assessment Year: 2007-08 M/s. Andrew Yule & Co. Ltd. 4 appellate proceeding. He directed the AO to verify the re-computation and give necessary relief to the assessee. It is strongly felt that the Ld. CIT(A) should have called for a 'Remand' Report from the AO before deciding on the issue. (vii) Disallowance of West Bengal Education Cess of Rs.14,14,479/-: While giving relief to the assessee, the Ld. CIT(A) failed to consider that on the same issue the department has preferred SLP before the Apex Court against the Hon'ble Kolkata High Court's decision. 6. On the other hand, the ld. Counsel for the assessee placing heavy reliance on ld. CIT(A)’s finding stated that most of the issues raised by the revenue are covered in favour of the assessee by the decisions of the Tribunal in the assessee’s own case as well as other judgments. 7. We have heard rival contentions and perused the material placed before us. 8. Ground No. 1, is regarding the nursery expenses of Rs.22,93,000/-. We note that the ld. Assessing Officer made the said disallowance on observing that no income in respect of the unit, namely, Telepara has been shown but the expenses incurred for nursery activities in this unit have been claimed and since the activity is purely agricultural in nature, the same was disallowed. We, however, find that the ld. CIT(A) has relied on the decision of the Tribunal in the assessee’s own case for the Assessment Year 2008-09 in ITA No. 676/Kol/2014, dt. 20/03/2019. On perusal of the said order placed at page 42 to 58 of the paper book, we notice that similar type of disallowance was made during assessment year 2008-09 and the I.T.A. No. 191/Kol/2021 Assessment Year: 2007-08 M/s. Andrew Yule & Co. Ltd. 5 ground of the revenue was dismissed by this Tribunal observing as follows:- “5. We have heard rival submissions and gone through the facts and circumstances of the case. The AO’s reason for disallowing the claim of the assessee is not repeated for the sake of brevity. During the first appellate proceedings, we note that the Ld. CIT(A) has taken note that the assessee used to carry out agro- based activities from its Telepara unit. It is noted that in this year, the assessee entered into an arrangement with its group company namely, M/s. Yule Agro Industries Ltd. (YAIL) to carry out the agro based project activities on its behalf in the Telepara unit of the assessee taking the assistance of the labour forces of the assessee and other infrastructural facilities which the assessee was already having in its Telepara Unit, so that the assessee can earn profit after recovering fixed cost incurred by the assessee in this unit and without incurring any variable cost on its own. The Ld. CIT(A) took note that the M/s. YAIL could not implement the said project during the year and as such the assessee could not recover the fixed cost incurred by the assessee in the said unit. The Ld. CIT(A) took note of the fact that the details of expenditure were never called upon by the AO and he only referred to the note contained in the annual accounts of the assessee and has made the disallowance. The Ld. CIT(A) noted that the annual accounts of the assessee clearly stated that the assessee had incurred expenditure under the head ‘salaries’, ‘wages’ and other ‘administrative expenses’ in the Telepara Unit. Thus, from the details furnished by the assessee in respect to this claim of expenditure, the Ld. CIT(A) concluded that the payments made were in the nature of salaries and wages paid regularly to the employees of the assessee and some administrative expenses were incurred to maintain the infrastructure facility of the unit. The Ld. CIT(A) took note of the fact that the M/s. YAIL could not carry out any activity from the said unit and to keep the unit running, the expenditure was incurred by the assessee, which according to Ld. CIT(A), was administrative expenses and as such expenses are incidental to the assessee’s business and, therefore, even though the assessee has not earned any income from unit, the incidental expenditure incurred by the assessee could not be disallowed and the Ld. CIT(A) was pleased to allow the claim of the assessee. Moreover, it was brought to our notice that output of the Telepara Unit was being transferred to other gardens within the same group/company. We note that the assessment is on the assessee as an entity in its entirety. From a perusal of the audited accounts (para 7 in schedule 20), we note that the expenses incurred by the assessee are for salaries and wages and certain other administrative expenses which in the facts and circumstances discussed above are revenue in nature. Further, it was brought to our notice that the young tea bushes of the Telepara Unit was utilized as a part of uprooting and replacement programme in the existing plantation area and hence, allowable under Rule 8(2) of the I. T. Rules, 1962 (hereinafter referred to as the ‘Rules’) and the expenses for maintaining nursery are allowable as per the Tribunal’s order in ITA No. 2243/Kol/2010 dated 31.05.2011, therefore, we are of the opinion that the Ld. I.T.A. No. 191/Kol/2021 Assessment Year: 2007-08 M/s. Andrew Yule & Co. Ltd. 6 CIT(A)’s order does not require any interference from our part and, therefore, we confirm the order of Ld. CIT(A) and dismiss this ground of appeal of the revenue for AYs 2008-09 and 2009-10.” 8.1. Since the issue raised before us is identical for assessment year 2008-09, we thus, respectfully following the same hold that the assessee has rightly claimed the nursery expenses. Thus, Ground No. 1, raised by the revenue is dismissed. 9. Ground No. 2, is regarding the liquidated damage expenses of Rs. 46,14,000/-. We note that the assessee debited expenses at Rs.46,14,000/- in the profit and loss account claiming it to have been incurred towards liquidated damage and penalty. The said amount is on account of contractual obligation towards the customer and incurred due to later delivery of goods. However, the ld. Assessing Officer was of the view that no material evidence are on record wherefrom it could be substantiated that the same was paid by the assessee company. However, on perusal of the finding of the ld. CIT(A), we notice that similar issue came before this Tribunal in the assessee’s own case for assessment years 2008-09 to 2011-12 in ITA No. 676/Kol/2014 (supra), and referring to the said decision, the claim of liquidity damage was allowed. 9.1. Before us, the ld. Counsel for the assessee stated that owing to delay in execution of contracts, various customers deducted certain percentage of sales value at the time of making payment as per terms of contract. Since the books of accounts are finalised on mercantile basis and liability incurred on actual basis, the same has been charged to profit and loss account. We notice that this Tribunal while dealing I.T.A. No. 191/Kol/2021 Assessment Year: 2007-08 M/s. Andrew Yule & Co. Ltd. 7 with the similar issue of claim of liquidity damages and penalty has decided the issue against the revenue observing as follows:- “11. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the AO disallowed the liquidated damages on the ground that the evidence to substantiate the claim of the assessee was not filed before him. The Ld. CIT(A) has noted that on this issue the AO has not given proper opportunity to the assessee to produce the details to substantiate the claim. The Ld. CIT(A), therefore, called for the details of the expenses incurred under the head ‘liquidated damages’ along with the copies of the contract entered into by the assessee. It was brought to the notice of the Ld. CIT(A) that the liquidated damages arose out of the contractual obligation towards the customers in relation to timely execution of the job work and terms and conditions of orders placed by the customers which include enforcement of the liquidated damages clause in the contract. It was brought to the notice of the Ld. CIT(A) that whenever there is a late delivery of goods, the customers suo-motu deduct certain amount at a percentage of consideration as per the terms and conditions of the order/contract agreed upon by both parties at the time of contract. Before the Ld. CIT(A), the list of the liquidated damages incurred by the assessee company was enclosed which is brought to our notice and placed in the paper book at page 5. It was brought to our notice that the late delivery of the goods was due to various reasons like the sudden transport strike, Hartal, natural calamities etc. and since there is a liquidated damages clause in the contract for timely delivery of goods between the parties and for delay caused the other party deduct the amount while making the payment to assessee. The Ld. CIT(A) noted after perusal of the relevant contract entered into by the assessee that if there is a delay in delivery of the goods by the assessee, then a percentage of the consideration agreed upon by both the parties at the time of contract would be debited which is shown as liquidated damages. We note that the Ld. CIT(A) has gone through the details of the liquidated damages and noted that the amounts have been deducted from the bills and has taken note that due to the late delivery of goods, the customers have reduced the price. The Ld. CIT(A) has noted from the details submitted that the “liquidated damages” were deducted by the Tamilnadu Electricity Board and Damodar Valley Corporation. The Ld. CIT(A) also took note that the assessee was able to provide confirmation of this fact from Tamilnadu Electricity Board; and in respect of Damodar Valley Corporation the assessee was able to produce the copy of the voucher and the copy of the cheque received from the said party which depicted that the liquidated damages have been deducted. For giving relief to the assessee the Ld. CIT(A) has relied on I.T.A. No. 191/Kol/2021 Assessment Year: 2007-08 M/s. Andrew Yule & Co. Ltd. 8 the order of the Hon’ble Allahabad High Court in the case of Central Trading Agency Vs. CIT 56 ITR 561 (All) wherein the Hon’ble High Court allowed the expenses incurred for liquidated damages under the head commercial expediency and also the decision of the Hon’ble Madras High Court in the case of CIT Vs. Indane Bislers 91 ITR 427 (Mad). Our attention was drawn to the copies of the contract and other details and we agree with the Ld. CIT(A) that it was an inbuilt condition of the contract that in case of late delivery of goods, percentage of consideration as liquidated damages would be deducted by the customer while making payment. It is noted that the payment was made to the assessee by the parties while it was carrying on its business, and the deduction of payment made by the parties were as per the contractual terms and so, it is an allowable deduction and we confirm the order of the Ld. CIT(A) and dismiss this ground of appeal of the revenue.” 10. Since the issue raised before us is identical for assessment year 2008-09, we thus, respectfully following the same hold that the assessee has rightly claimed the liquidated damage expenses. Thus, Ground No. 2, raised by the revenue is dismissed. 11. Ground No. 3, is regarding cold weather expenses of Rs.14,17,05,089/-. We note that the cold weather expenses comprises of salary, wages, material/PF contribution/repair which are incurred during winter season when no manufacturing activities are carried out. The ld. Assessing Officer has observed that the assessee company has claimed similar expenses for the whole year and again as part of the expenses claimed as deferred revenue expenditure as it tantamounts to double deduction and not permissible. The ld. AO has also observed that the amount of debit in the books was required to be added back first before claiming such deduction. However, as per the details filed by the assessee before the lower authorities, Rs.4,98,09,089/- was added back as the said amount was claimed in the Assessment Year 2006-07 and due to adoption of Accounting I.T.A. No. 191/Kol/2021 Assessment Year: 2007-08 M/s. Andrew Yule & Co. Ltd. 9 Standard AS 26, total expenditure of Rs.19,15,13,178/- is claimed to be entitled to be charged to the profit and loss account and no part of the expenditure out of Rs.19,15,13,178/- is deferred and, therefore, no double deduction has been claimed. We, however, observe that similar issue came up before this Tribunal in the assessee’s own case for Assessment Years 2002-03 to 2003-04 in ITA Nos. 628 to 630/Kol/2018; order dt. 26/02/2020, and the issue of claim of cold weather expenses was restored to the ld. Assessing Officer for limited purpose of verifying if there is double disallowance, observing as follows:- “5.4. The ld. Counsel for the assessee submitted that cold season expenses is a revenue expenditure and is debited to the profit and loss account of the year in which it was incurred. As the economic benefit of such expenditure are obtained in the subsequent years, the expenditure claimed in the previous year is offered to tax in that year by adding it back in the computation of income. It is further submitted that the action of the Assessing Officer has caused a double addition. On a perusal of the facts we find that the Assessing Officer has disallowed the amount on the ground that this is a deferred revenue expenditure. This view is not in accordance with law. On the issue whether this is a double addition or not, we restore the matter to the file of the Assessing Officer to examine the claim of the assessee and dispose off the issue, in accordance with law. By adding back expenditure which was claimed in the year one to the income of the year two, in effect the assessee is not claiming expenditure in question at all. Such accounting system, in our view is defective and confusing. When admittedly the assessee submits that cold season expenses incurred in a particular year is not allowable in that particular year as the benefit of the expenditure is derived in the subsequent year on matching principle, and hence, though claimed as a deduction in the year in which it is incurred, is being offered to tax in the subsequent year. If expenditure has to be claimed on the basis of matching the concept with income earned, then, the same should be claimed in the subsequent Assessment Year when the income relatable to this expenditure is earned or the claim should be made only in the year in which it is incurred. The system of write back in our opinion is not necessary because cold season expense is a revenue expenditure and has to be allowed in the year in which it is incurred I.T.A. No. 191/Kol/2021 Assessment Year: 2007-08 M/s. Andrew Yule & Co. Ltd. 10 as the assessee is a going concern and as the expenditure has crystallised in the year in which it was incurred. 5.5. In view of the above discussion, we set aside the matter to the file of the Assessing Officer for fresh adjudication in accordance with law, for the limited purpose of verifying if there was a double disallowance. If the assessee has suo moto disallowed the amount in his books or offered the same to tax in its computation of income, no separate disallowance or addition may be made.” 12. Since the issue raised before us is identical for assessment years 2002-03, we thus, respectfully following the same, set asid the matter to the file of the ld. Assessing Officer for fresh adjudication in accordance with law for limited purpose of verifying whether there is a double claim of deduction. Thus, Ground No. 3, raised by the revenue is allowed for statistical purposes. 13. Ground No. 4 is regarding the maintenance of immature tea bushes (young tea bushes) claim at Rs.32,53,675/-. As per the ld. Assessing Officer Rule 8(2) of the Income Tax Rules, 1962 (hereinafter ‘the Rules’), allows the expenses for replanting only and no provision for allowing of expenses for the purpose of maintaining of immature tea bushes is available. Accordingly the entire expenses has been treated as capital expenditure by the ld. Assessing Officer. We, however, considering the finding of the ld. CIT(A), placing reliance on the decision of this Tribunal in the assessee’s own case for the assessment years 2008-09 to 2011-12, observe that the entire expenditure relates to maintenance of immature and young tea bushes for re-plantation area already and the cultivation existing gardens. Since the expenses are incurred on existing gardens, there is no I.T.A. No. 191/Kol/2021 Assessment Year: 2007-08 M/s. Andrew Yule & Co. Ltd. 11 enduring benefit which can be termed as capital in nature. The observation of this Tribunal in the order dated 20/03/2019 (supra), is as follows:- “13. Facts of AY 2008-09 are taken into consideration. Brief facts of the case are that the AO noted from the computation of income that the assessee has deducted Rs.31,24,547/- under West Bengal Garden and Rs.10,24,157/- under the Assam Garden towards management of new tea bushes. During the assessment proceeding, the assessee stated that the cost is related for plantation/nourishment of young tea plants and also allied cost like labour charge/manure etc. According to AO, Rule 8(2) allows the expenses for replanting only. According to AO, there is no provision for allowance of expenses in relation to new tea bushes for the purpose. Therefore, the entire amount was treated as capital expenditure and added back to the total income. Thus, an addition of Rs.41,48,704/- was made. On appeal, the Ld. CIT(A) allowed the expenditure. Aggrieved, revenue is before us. 14. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the AO has disallowed the expenditure on the ground that Rule 8(2) allows only for replanting and there is no provision for allowance of expenses in relation to young tea bushes, therefore, he has treated the entire expenditure as capital expenditure and added back the same with the total income. On appeal, it was brought to the notice of the Ld. CIT(A) that the entire expenditure relates to maintenance of young tea bushes for the purpose of re- plantation only in area already under plantation and it is clearly allowable expenses under Rule 8(2) of the Rules. It was brought to the notice of the Ld. CIT(A) that the company has been claiming the expenditure consistently and this issue cropped up in AY 1998-99 in the case of assessee’s own case in ITA No. 2030/Kol/1996, the Tribunal by order dated 30.08.2004 has decided the case in favour of the assessee. The Ld. CIT(A) took note of the Tribunal’s order in assessee’s own case wherein the Tribunal has held that the expenses incurred for maintenance in respect of immature tea bushes in the existing garden is to be allowed as revenue expenditure and it was further held that since the expenses were incurred by the assessee company for maintenance and replacement of tea bushes in its existing garden, the same cannot be said to have created an enduring benefit which can be termed capital in nature and as accordingly, the expenses claimed by the assessee company was allowed as revenue expenditure. We note that the Ld. CIT(A) while giving relief to the assessee has relied on the Hon’ble Calcutta High Court decision in the case of Tasati Tea Ltd. Vs. CIT (2003) 262 ITR 388 (Cal) wherein the Hon’ble High court has held as under: “As we understand from the expression used in Rule 8(2), it applies only in respect of replacement of useless or dead plants in an area, which is already under cultivation and not abandoned earlier. It cannot be stretched to a stage prior to the replacement of the useless or dead bushes. The maintenance of Nursery for the purpose of raising bushes to be utilized for replantation of dead or useless bushes I.T.A. No. 191/Kol/2021 Assessment Year: 2007-08 M/s. Andrew Yule & Co. Ltd. 12 within the plantation area does not come under Rule 8(2). It is the replantation of dead or useless bushes within the plantation area that comes within the scope and ambit of rule 8(2). This cannot be extended to a stage prior to actual replacement or replantation.” 15. We note that this issue has been dealt with by the Tribunal in assessee’s own case for AY 1990-91 in ITA No. 2030/Kol/1996 vide order dated 03.08.2004, wherein vide para 12 the Tribunal held as under: “12. The learned counsel for the assessee stated that the expenses were incurred on maintenance in respect of immature tea bushes and since were incurred in the existing garden, is not that of capital nature. He stated that the other part of the expenses which were not spent on maintenance of immature tea bushes, were surrendered by the assessee company itself as that of capital nature. He argued that the issue is now well settled that the maintenance expenses on account of immature tea bushes in computing the tea business income of the assessee company are allowable expenses and placed reliance on the decisions in 120 Taxman 645 (Cal) and 48 ITR 83 (SC). The learned DR has relied on the orders of the AO and the CIT(Appeals). We have considered the rival submissions. We find that the expenses were incurred for maintenance in respect of immature tea bushes in the existing garden and, therefore, the expenses are of revenue nature. The cases cited by the learned Counsel for the assessee support the case of the assessee. Since the expenses were incurred by the assessee company for maintenance of and replacement of tea bushes in its existing garden only, the same cannot be said to be that of an enduring benefit of capital nature and accordingly we hold that the expenses claimed by the assessee company are allowable as revenue expenditure. Accordingly, the issue is decided in favour of the assessee and the ground of appeal no. 7 is allowed.” Respectfully following the decision of the Tribunal of this issue, cited supra, and since there is no change in facts or law we confirm the order of the Ld. CIT(A) and hence, this ground of appeal of revenue is dismissed.” 14. Since the issue raised before us is identical we thus, respectfully following the same hold that the assessee has rightly made the claim for maintenance of immature tea bushes and the same is allowed. Thus, Ground No. 4, raised by the revenue is dismissed. 15. Ground No. 5 relates to disallowance of notional interest amounting to Rs.14,52,000/-. We note that the assessee company has advanced a loan to its sister concern Yule Agro. No interest was charged against the amount advanced. It was stated by the ld. Counsel for the assessee that way back in Assessment Year 1992-93, some expenditure was incurred from tea division on account of mushroom I.T.A. No. 191/Kol/2021 Assessment Year: 2007-08 M/s. Andrew Yule & Co. Ltd. 13 and floriculture activity which was subsequently transferred to Yule Agro Industries Ltd., and the cost incurred was treated as loan. This is part of the business activity and Yule Agro Industries Ltd., is paying bank the loan received. Further it is submitted that similar issue of notional interest came up before this Tribunal for Assessment Year 2008-09 & 2009-10 in ITA No. 676/Kol/2014, dt. 20/03/2019, whereby the Tribunal deleted the disallowance of notional interest by observing as follows:- “7. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the AO has added 13% of Rs.128.78 lacs as notional interest which according to him has been given as loan to sister concern M/s. Yule Agro without adequate consideration. Before the Ld. CIT(A), it was submitted by the assessee that the loan represents the expenditure of tea division of the company on account of Mushroom and Floriculture activities initiated and carried out by Tea Division from 1992- 93 and subsequently transferred to the new company M/s. Yule Agro Industries Ltd. when it was later incorporated in the month of April, 1995. According to assessee, the Mushroom and Floriculture activity was initiated by the Tea Division of Andrew Yule & Co. Ltd. (assessee) and was transferred to the new company styled as M/s. Yule Agro Industries Ltd. and this was done based on commercial prudence and expediency. 8. The Ld. CIT(A) noted that assessee during the AY 1996-97 took a decision that the Mushroom and Floriculture projects which were being pursued by the assessee from the AY 1993-94 need to be transferred to M/s. Yule Agro industries Ltd. (hereinafter M/s. Yule Agro) so that the said company would be carrying out the aforesaid projects. Pursuant to the said decision taken by the assessee, all expenditure which were incurred by the assessee upto 31.03.1996 was transferred to M/s. Yule Agro and was shown in the books of the assessee under the head ‘loans and advances’ in the assessment year under consideration. Correspondingly, therefore, M/s. Yule Ago reflected the said amount in its books of account under the head ‘loan funds’. The Ld. CIT(A) has taken note that this amount would not bear any interest to be paid by the M/s. Yule Agro. The Ld. CIT(A) has gone through the relevant extracts of the annual accounts of the assessee and that of M/s. Yule Agro and after taking note of point no. 7 in schedule 20 of the annual I.T.A. No. 191/Kol/2021 Assessment Year: 2007-08 M/s. Andrew Yule & Co. Ltd. 14 accounts for the year ended 31.03.2008 has deleted the addition. We note that the loans represented the expenditure of Tea Division of the assessee on account of Mushroom and Floriculture activity from 1992-93 and subsequently, the said activity was transferred to M/s. Yule Agro Industries Ltd. in 1995-96. It was brought to our notice that an amount of Rs.128.78 lacs was incurred by the Tea Division on the date of transfer. Further, it was brought to our notice that the M/s. Yule Agro Industries ltd. has gradually started under repaying the advance which stand reduced to Rs.117.83 lacs as on 31.03.2009. We note that the assessee has not charged any interest in its books of account for the amount in question, so the notional interest charged by the AO cannot be accepted. Moreover, we note that the expenditure has been incurred by the assessee company way back in the year 1992-93 and because of restructuring of the company in the year 1995, the project of Mushroom and Floriculture activities was transferred to the new sister company called M/s. Yule Agro Industries Ltd. in the year 1995-96 so it cannot be called as loan/advance but in effect merely transfer of the assets and liabilities consequent upon restructuring. So, the entire value of the expenditure which has been incurred on the projects way back in the year 1992-93 was subsequently transferred to the M/s. Yule Agro sister company in the year 1995 due to the restructuring cannot be strictly termed as loan/advance and, therefore, question of notional interest as computed by the AO is unsustainable and has been rightly deleted by the Ld. CIT(A) which we confirm. This ground of revenue’s appeals is dismissed.” 16. Since the issue raised before us is identical for assessment years 2008-09 & 2009-10, we thus, respectfully following the same hold that the Assessing Officer erred in adding the notional interest on the said loan and the same is hereby deleted. Thus, Ground No. 5, raised by the revenue is dismissed. 17. Ground No. 6 relates to prior period expenses of Rs.1,94,97,505/- . The ld. Assessing Officer was of the view that since these expenditures are not expenses for the relevant Assessment Years and are for the prior period and, therefore, the same are disallowable and hence were added back to the income. We, however, considering the decision of this Tribunal in the assessee’s own case in ITA No. I.T.A. No. 191/Kol/2021 Assessment Year: 2007-08 M/s. Andrew Yule & Co. Ltd. 15 676/Kol/2014, dt. 20/03/2019, find that the Tribunal on the identical issue has held that expenses of such nature which though relates to earlier period had crystalised in the year under consideration due to certain reasons, such as change of law with retrospective effects and the same is allowable. The relevant finding of the Tribunal, reads as follows:- “19. The next ground of appeal of revenue is against the action of Ld. CIT(A) in allowing the prior period expenses claimed by the assessee for AYs 2009-10, 2010-11 and 2011-12. Brief facts of AY 2009-10 is that during the assessment proceedings, the AO from a perusal of the accounts noted that prior period expenses to the tune of Rs.91.84 lacs has been debited in the accounts by the assessee company. According to AO, from a perusal of the tax audit report of the non-tea division by Annexure – O, the amount of debit of prior period relating to Non tea division is Rs.44,45,091/- and Rs.16,95,838/- relating to West Bengal Garden and Rs.30,42,918/- relating to Assam Garden was reflected, therefore, the AO was of the opinion that these expenditures are not related expenses in the relevant AY 2009-10. So, the entire expenses under prior period expenses was disallowed and added back to the total income. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to allow the same. Aggrieved, the revenue is before us. 20. We have heard rival submissions and gone through the facts and circumstances of the case. The AO has disallowed the expenses on the reason that since these expenses are not related to the relevant assessment year, he disallowed the same. On appeal, the Ld. CIT(A) has gone through the details of the expenses item-wise and has reproduced the details which is given in Form No. 3CD annexure – 9 which reveals that expenditure of Rs.10,42,572/- was on account of bonus, interest on late deposit of TDS Rs.11,40,201/-, interest on sales tax Rs.2,34,898/-, ESI Rs.7,65,351/-, service tax Rs.62,441/-, Gratuity Rs.12,88,395/-, food staff Rs.4,46,542/-, fee Rs.1,07,583/- etc. had accrued only in the AY 2009-10 and not of any earlier assessment year. Therefore, expenses of such nature which though relates to earlier period had crystalised in the year under consideration either due to change of law with retrospective effect like bonus or till finalization of sales tax case or settlement with trade union with retrospective effect in respect to fee, allowance etc. or receipt of final bill after the cut-off date of the assessment years. The Ld. CIT(A) has duly considered the magnitude and I.T.A. No. 191/Kol/2021 Assessment Year: 2007-08 M/s. Andrew Yule & Co. Ltd. 16 the scale of operations of the assessee company and observed that many of the expenses could not be correctly estimated and there could arise exigencies which require calibration/correction and, therefore, taking note of the fact that these expenses are crystallized in this assessment year under consideration, the Ld. CIT(A) has given relief which according to us, does not require any interference from our part and we confirm the same. Therefore, this ground of appeal of the revenue for the assessment years under consideration is dismissed.” 18. Since the issue raised before us is identical for assessment years 2008-09 & 2009-10, we thus, respectfully following the same hold that the Assessing Officer has wrongly disallowed the prior period expenses. Thus, Ground No. 6, raised by the revenue is dismissed. 19. Ground No. 7, is regarding disallowance of interest on delayed payment of PF & ESI of employee and employers contribution at Rs.2,09,415/-. During the course of assessment proceedings, the ld. Assessing Officer held that in the statement of deduction the assessee has claimed deduction of Rs.2,09,415/- towards interest for delayed payment of PF for employers as well as for employers contribution. The ld. Assessing Officer observed that there is no provision in the Act for allowance of interest on PF, and accordingly disallowed the same. 20. Before us, the ld. Counsel for the assessee has demonstrated that in the computation of income, amount of Rs.2,09,415/- was claimed as deduction. This sum of Rs.2,09,415/-, was added while computing the income for Assessment Year 2006-07 and, therefore, the same is admissible as an expenditure u/s 43B of the Act for the reason that the assessee has paid the said amount in the year under consideration. Therefore, we find that the ld. CIT(A) has rightly decided the issue in favour of the assessee allowing the claim of interest of Rs.2,09,415/- I.T.A. No. 191/Kol/2021 Assessment Year: 2007-08 M/s. Andrew Yule & Co. Ltd. 17 paid on delayed payment of PF & ESI contribution, the same is upheld and Ground No. 7 raised by the revenue is hereby dismissed. 21. Ground No. 8 is regarding the disallowance of doubtful debt of Rs.11,31,21,638/-. The assessee debited provision for doubtful debts for an amount of Rs.11,31,21,638/-. The said claim was denied by the Assessing Officer. However, the ld. CIT(A) set aside the matter for necessary verification to the Assessing Officer holding that the said claim is allowable only if it has been written off in the books. Before the ld. CIT(A), it was also stated by the assessee that the Assessing Officer has ignored the re-computation submitted before the Assessing Officer during the course of assessment proceeding, wherein due amendment was already made by the assessee suo-moto and the aforesaid amount has been offered to tax. We, therefore, are of the considered view that the issue has rightly been restored to the Assessing Officer for making necessary verification and decide after examining the re-computation sheet filed by the assessee and after applying the relevant provisions of law. Accordingly, Ground No. 8 raised by the revenue is allowed for statistical purposes. 22. Ground No. 9 is regarding the disallowance of WB Rural Eduction and Primary Cess amounting to Rs.14,14,679/-. At the outset, the ld. Counsel for the assessee submitted that the issue is squarely covered in favour of the assessee by the judgment of the Hon’ble Calcutta High Court in the case of CIT vs. AFT Industries Ltd. reported in [2004] 141 Taxman 433 (Calcutta) and the same has been rightly applied by the ld. CIT(A) while deleting the said addition. It was also I.T.A. No. 191/Kol/2021 Assessment Year: 2007-08 M/s. Andrew Yule & Co. Ltd. 18 submitted that the Department has filed a SLP before the Hon’ble Apex Court but the same is yet to be heard and no stay order has been given. Considering the same, we fail to find any infirmity in the finding of the ld. CIT(A) deleting the said disallowance. Accordingly, Ground No. 9 raised by the revenue is dismissed. 23. Ground No. 10 is against the disallowance made u/s 40(a)(ia) of the Act at Rs.77,73,480/-. The ld. Assessing Officer made the said disallowance on account of non-deposit of TDS within the stipulated time. The ld. CIT(A) while dealing with the said issue held that it is apparent from the schedule of the Tax Audit Report that the assessee has made payment of TDS in certain cases before the due date of filing the return u/s 139(1) of the Act. The ld. Assessing Officer is directed to verify the payment and if it is found to be made before the due date of filing then relief may be given. We fail to find any infirmity in the finding of the ld. CIT(A) and thus direct the Assessing Officer to examine the said issue in the light of the details filed by the assessee regarding the deposit of TDS before the due date of filing the return of income u/s 139(1) of the Act and if found to be correct then, necessary relief may be granted. Accordingly, Ground No. 10 raised by the revenue is allowed for statistical purposes. 24. Ground No. 11, is regarding disallowance u/s 40A(3) of the Act at Rs.1,12,581/-. The ld. Assessing Officer made disallowance for the payment exceeding Rs.20,000/- in cash. However, the ld. CIT(A) has given relief by observing that the alleged payments fall under the exception provided under Rule 6DD(g) of the Income Tax Rules, 1962, I.T.A. No. 191/Kol/2021 Assessment Year: 2007-08 M/s. Andrew Yule & Co. Ltd. 19 as they were made in remote areas which do not have regular banking facilities. In our considered view, the ld. CIT(A) has rightly dealt with the issue since some of the operations of the tea gardens are located in remote areas and for necessary purchases, cash is utilised. Thus, since the case of the assessee falls under the exceptions as provided under Rule 6DD(g) of the Rules, and ld. CIT D/R failed to controvert the fact that, disallowance u/s 40A(3) of the Act is uncalled for. Accordingly, Ground No. 11 raised by the revenue is dismissed. 25. Ground No. 12 is against the disallowance u/s 14A of the Act at Rs.8,42,000/-. The ld. Assessing Officer has computed the said sum by applying rate of 0.5.% on average value of investment. We notice that Section 14A of the Act was amended vide Finance Act, 2006 w.e.f. 01/04/2007, as per which, the ld. Assessing Officer can determine the disallowance as per the method prescribed under the Income Tax Rules. Rule 8D of the Rules provides for such method. However, the said method was inserted by the Income-tax (Fifth Amendment) Rules, effective from 24/03/2008 i.e., from 2008-09 onwards. Therefore, since the Assessing Officer has applied Rule 8D for computing the said disallowance, which was not provided under the Act at that point of time for Assessment Year 2007-08. The Hon’ble Apex Court in the case of CIT vs. M/s. Essar Teleholdings Pvt. Ltd. CIVIL APPEAL NO.2165 OF 2012, judgment dt. 31 st January, 2018, has laid down that “.....Rule 8D is prospective in operation and could not have been applied to any assessment year prior to Assessment Year 2008- 09.” I.T.A. No. 191/Kol/2021 Assessment Year: 2007-08 M/s. Andrew Yule & Co. Ltd. 20 26. Respectfully following the same, we hold that the ld. Assessing Officer has erred in applying Rule 8D for computing disallowance u/s 14A of the Act for Assessment Year 2007-08 and hence the same is deleted. 27. In the result, appeal of the revenue is partly allowed for statistical purposes. Order pronounced in the Court on 3 rd August, 2023 at Kolkata Sd/- Sd/- (SANJAY GARG) (DR. MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER Kolkata, Dated 03/08/2023 *SC SrPs आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant 2. ᮧ᭜यथᱮ / The Respondent 3. संबंिधत आयकर आयुᲦ / Concerned Pr. CIT 4. आयकर आयुᲦ)अपील (/ The CIT(A)- 5. िवभागीय ᮧितिनिध ,आयकर अपीलीय अिधकरण, कोलकाता/DR,ITAT, Kolkata, 6. गाडᭅ फाई/ Guard file. आदेशानुसार/ BY ORDER, TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Kolkata
Other Referred Cases
CIT vs. AFT Industries Ltd., Central Trading Agency Vs. CIT, CIT Vs. Indane Bislers, Tasati Tea Ltd. Vs. CIT
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Income Tax Act, 1961
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