ACIT, Circle-4(1), Kolkata, Kolkata V. M/s. Goodrick Group Ltd., Kolkata

ITA 2088/KOL/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4151 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 31-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SAURABH KUMAR CIT SRDR
• Keywords: Business income; Business expenditure; Services rendered outside India; Permanent establishment; Question of law; Corroborative evidences; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1)

Judgement Text

, C , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. A.L. SAINI, ACCOUNTANT MEMBER ITA NO. 2086 - 2088 / KOL / 20 16 ASSESSMENT YEARS :2009-10 TO 2011-12 ACIT, CIRCLE-4(1), P-7, CHOWRNGHEE SQUARE, 8 TH FLOOR, KOLKATA-69 V/S . M/S GOODRICK GROUP LTD., DUNCAN HOUSE, 4 TH FLOOR, 31, N.S. ROAD, KOLKATA-700 001 [ PAN NO.AABCG 1614 Q ] /APPELLANT .. / RESPONDENT /BY APPELLANT NONE /BY RESPONDENT SHRI SAURABH KUMAR, ADDL. CIT-SR-DR /DATE OF HEARING 12-07-2018 /DATE OF PRONOUNCEMENT 17-08-2018 / O R D E R PER S.S.GODARA, JUDICIAL MEMBER:- THESE THREE REVENUES APPEALS FOR ASSESSMENT YEARS 2009-10, 2010- 11 & 2011-12 ARISE FROM THE COMMISSIONER OF INCOME TAX (APPEALS)-17, KOLKATAS SEPARATE ORDERS; ALL DATED 29.07.2016, PA SSED IN CASE NO(S) 206/CIT(A)-17/KOL/15-16, 156/CIT(A)-17/KOL/15-16 & 158/CIT(A)-17/KOL/15- 16; RESPECTIVELY, INVOLVING PROCEEDINGS U/S. 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. 2. IT EMERGES AT THE OUTSET THAT REVENUES IDENTICA L FIRST GRIEVANCE IN ALL THESE THREE CASES CHALLENGES CORRECTNESS OF CIT(A) S ACTION REVERSING DISALLOWANCE OF ASSESSEES LEAST RENT(S) OF 36.48 LAKH, 40,02,936/- & ITA NO.2086-2088/KOL/2016 AYS 09-10 TO 11 -12 ACIT, CIR-4(1), KOL. VS. M/S GOODRICK GROUP LT D. PAGE 2 55,20,999/-; RESPECTIVELY PAID TO M/S KOOMBER PROPE RTIES & LEASING CO. PVT. LTD. LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY CONTENDS THAT ASSESSING OFFICER HAD RIGHTLY DISALLOWED THESE THRE E PAYMENTS IN RESPECT OF ALL ASSESSMENT YEARS WHICH HAVE BEEN WRONGLY DELETED IN LOWER APPELLATE PROCEEDINGS. WE FIND THAT THE INSTANT ISSUE IS ALRE ADY COVERED AS PER THE TRIBUNALS DIFFERENT ORDERS RIGHT FROM ASSESSMENT Y EAR(S) 1988-89 TO 1992-93 ONWARDS REGARDING THE VERY PAYEE. THE ASSESSING OFF ICERS SOLE REASON FOR INVOKING THE IMPUGNED DISALLOWANCE IS THAT REVENUE S APPEALS AGAINST THE SAID TRIBUNALS DECISION(S) ARE PENDING BEFORE HON' BLE JURISDICTIONAL HIGH COURT. HE FURTHER MADE IT CLEAR THAT THE IMPUGNED DISALLOW ANCE IS MEANT TO PROTECT REVENUES INTEREST ONLY. THE CIT(A)S FINDINGS IN P ARA-3 PAGE 4 MAKE IT CLEAR THAT ASSESSEE HAS ALREADY SUCCEEDED ON THE VERY ISS UE IN CASE OF M/S KOOMBER PROPERTIES & LEASING CO. PVT. LTD. HE HAS T HEREFORE ADOPTED JUDICIAL CONSISTENCY IN THE IMPUGNED ASSESSMENT YEAR AS WELL . WE THEREFORE FIND NO MERIT IN REVENUES INSTANT COMMON SUBSTANTIVE GROUN D FOR LACK OF DISTINCTION ON FACTS OR LAW IN THESE THREE ASSESSMENT YEAR(S). THE REVENUES FIRST SUBSTANTIVE GRIEVANCE IS THEREFORE REJECTED IN ALL THREE CASES. 3. THE REVENUES SECOND SUBSTANTIVE GRIEVANCE FOR A SSESSMENT YEARS 2009-10 AND 2010-11 SEEKS TO RESTORE THE ASSESSING OFFICERS IDENTICAL ACTION DISALLOWING ASSESSEES COMMISSION PAYMENTS TO NON-R ESIDENT EXPORT AGENTS AMOUNTING TO 23,87,696/- IN FORMER AND 22,09,101/- IN LATTER ASSESSMENT YEAR; RESPECTIVELY. THE ASSESSEES PAYEES IN BOTH T HESE ASSESSMENT YEARS) ARE M/S ROBERTSON BOIS DICKSON ANDERSON LTD. (UK) ( RBDA) AND LUDWIG HO SCHROEDER & RUDOLPH HAMANN, GERMANY. IT HAD ADMITTE DLY MADE THE IMPUGNED COMMISSION PAYMENTS IN LIEU OF THEIR SERVI CES RENDERED OUTSIDE INDIA IN THE NATURE OF PROCURING EXPORT ORDERS. THE ASSESSING OFFICER INVOKED SECTION 40(A)(I) OF THE ACT ON ACCOUNT OF NON DEDU CTION OF TDS THEREUPON. HE QUOTED TRANSMISSION CORPORATION OF INDIA OF AP LIMI TED 239 ITR 587 (SC) FOR DISALLOWING THE ASSESSEES INSTANT TWO EXPORTS COMM ISSION CLAIMS. THE CIT(A)S REVERSES THE ABOVE ASSESSMENT FINDINGS IN FORMER ASSESSMENT YEAR AS FOLLOWS:- ITA NO.2086-2088/KOL/2016 AYS 09-10 TO 11 -12 ACIT, CIR-4(1), KOL. VS. M/S GOODRICK GROUP LT D. PAGE 3 THE ARS OF THE ASSESSEE HAVE SUBMITTED THAT THE APP ELLANT HAD A CONTRACTUAL LIABILITY TO PAY COMMISSION TO NON-RESIDENT EXPORT AGENTS APP OINTED BY IT FOR SALE OF TEA ABROAD ON THE BASIS OF ORDERS PROCURED BY THEM ABRO AD. IT WAS ALSO SUBMITTED THAT ACCORDING TO AGREEMENTS WITH THE NON-RESIDENT EXPOR T AGENTS THEIR AREA OF OPERATION WAS OUTSIDE THE TERRITORIES OF INDIA AND THEIR SERV ICES WERE RENDERED OUTSIDE INDIA AND THE NON-RESIDENT EXPORT AGENTS CANNOT ENGAGE IN ANY OTHER ACTIVITY IN INDIA, NEITHER THEY HAVE ANY PERMANENT ESTABLISHMENT NOR ANY BRANC H OR LIAISON OFFICE IN INDIA. THE APPELLANT PAID COMMISSION OF RS.23,87,696/- AND DET AILS THEREOF WAS ALSO FURNISHED VIDE ITS LETTER DATED 15.12.2011 TO THE ASSESSING O FFICER, AS UNDER:- ROBERTSON BOIS DICKSON ANDERSON LTD. : RS.17,86, 331/- (IN SHORT RBDA) LINTON PARK, MAIDSTONE, KENT ME 174AB LUDWIG HO SCHROEDER & RUDOLPH HAMANN : RS. 6,01, 365/- (IN SHORT LUDWIG) GERMANY : RS.23,87,696/- THE A.RS OF THE ASSESSEE HAVE FURTHER STATED THAT T HE DISALLOWANCE MADE BY THE AO RELYING ON THE DECISIONS IN THE CASE OF TRANSMISSIO N CORPORATION OF INDIA OF AP LIMITED (SUPREME COURT 239 ITR 587) AND ON THE DECI SION IN THE CASE OF CIT 'VS. SAMSUNG ELECTRONICS CO. LTD (KARNATAKA HIGH COURT 3 20 ITR 209) WAS DUE TO ERRONEOUS APPRECIATION OF THE RATIO OF THE SAID DEC ISIONS OF THE RESPECTIVE HON'BLE COURTS. THE A.RS OF THE ASSESSEE HAVE SUBMITTED THA T THE HON'BLE KARNATAKA HIGH COURT DECISION IN 320 ITR 209 (SUPRA) WAS OVERRULED BY THE HON'BLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE PVT. LTD. VS. CIT AND ANOTHER, (327 ITR 456). IN GE INDIA TECHNOLOGY CENTRE'S CASE THE HON' BLE COURT EXPLAINED THE DECISION IN 239 ITR 587 (SUPRA) AND OBSERVED THAT IN THAT CA SE THE NON-RESIDENTS HAD ENTERED INTO A COMPOSITE CONTRACT WHICH CONSISTS SUPPLY OF PLANT AND MACHINERY AND EQUIPMENTS IN INDIA AND ALSO ITS INSTALLATION AND C OMMISSION IN INDIA AND ADMITTED THAT THE ERECTION AND COMMISSIONING OF PLANT AND MA CHINERY AND EQUIPMENTS GAVE RISE TO INCOME LIABLE TO TAX IN INDIA. IN VIEW THER EOF IT WAS HELD THAT THE PAYMENT REQUIRED TO BE MADE TO THE NON-RESIDENTS INCLUDED A N ELEMENT OF INCOME AND ACCORDINGLY SECTION 195( 1) IS ATTRACTED AND IT IS NECESSARY FOR THE TAX PAYER TO MAKE AN APPLICATION U/S 195(2) OF THE ACT TO THE INCOME TAX OFFICER AND OBTAIN HIS PERMISSION FOR DEDUCTING TAX AT SOURCE AT LOWER AMO UNT. THE HON'BLE SUPREME COURT IN THIS CASE ALSO OBSERVED THAT THE DECISION IN TRA NSMISSION CORPORATION CASE WAS MISUNDERSTOOD BY THE HON'BLE KAMATAKA HIGH COURT TO MEAN THAT IT IS NOT OPEN FOR THE PAYER TO CONTENT THAT IF THE AMOUNT PAID BY HIM TO A NON-RESIDENT IS NOT AT ALL CHARGEABLE TO TAX IN INDIA, THEN NO TAX AT SOURCE I S REQUIRED TO BE DEDUCTED FROM SUCH PAYMENT. THE HON'BLE SUPREME COURT FURTHER OBSERVED THAT THE HON'BLE KARNATAKA HIGH COURT COMPLETELY LOSES SIGHT OF THE PLAIN WORD S OF SECTION 195( I) WHICH IN CLEAR TERMS LAYS DOWN THAT TAX AT SOURCE IS DEDUCTIBLE FR OM ' SUMS CHARGEABLE ' UNDER THE PROVISIONS OF THE ACT, I.E. CHARGEABLE UNDER SECTIO NS 4, 5 AND 9(1) OF THE IT ACT. THUS THE RULING OF THE HON'BLE KARNATAKA HIGH COURT IN S AMSUNG CORPORATION'S CASE THAT THE MOMENT THERE IS A REMITTANCE AN OBLIGATION TO D EDUCT TAX AT SOURCE ARISES WAS OVER-RULED. THE A.RS THUS SUBMITTED THAT ONE OF THE DECISIONS RELIED BY THE AO WAS OVERRULED BY THE HON'BLE SUPREME COURT AND THE DECI SION OF THE HON'BLE SUPREME COURT RELIED BY THE AO IS DISTINGUISHABLE ON FACTS AND ACCORDINGLY THE DISALLOWANCE SO MADE BY THE AO IS NOT JUSTIFIED. THE A.RS OF THE APPELLANT HAVE FURTHER SUBMITTED TH AT AN APPLICATION U/S 195(1) OF THE ACT WOULD ATTRACT IF AND ONLY IF THE PAYMENT TO A N ON-RESIDENT PARTAKES THE CHARACTER OF INCOME PAYMENT AND IF THE PAYMENT IS NOT IN THE NATURE OF INCOME PAYMENT AT ALL THEN SECTION 195( I) OF THE ACT DOES NOT OPERATE AS THE SAID SECTION SAYS ' SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT' . IN THIS CONNECTION THE A.RS BY REFERRING TO SECTION 40(A)(I) SUBMIT THAT IT ALSO U SED THE EXPRESSION ' SUM CHARGEABLE UNDER THIS ACT ', WHICH SHOWS THAT THE REMITTANCE GOT TO BE OF A T RADING RECEIPT WHICH ITA NO.2086-2088/KOL/2016 AYS 09-10 TO 11 -12 ACIT, CIR-4(1), KOL. VS. M/S GOODRICK GROUP LT D. PAGE 4 IS LIABLE TO TAX IN INDIA. AS PER THE A.RS IF THE T AX IS NOT SO ASSESSABLE THERE IS NO QUESTION OF TAX AT SOURCE BEING DEDUCTED. IN SUPPOR T THEREOF, THE A.RS REFERRED TO THE DECISIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF VIJAY SHIP BREAKING CORPORATION AND OTHERS VS. CIT (314 ITR 309). SECTI ON 195 CASTS AN OBLIGATION THAT THE TAX IS TO BE DEDUCTED AT SOURCE TO BE PAID TO T HE REVENUE BY THE PAYER WHO MAKES PAYMENT TO A NON-RESIDENT IF SUCH PAYMENTS GI VE RISE TO AN INCOME CHARGEABLE TO TAX. THUS THE SAID SECTION ACCORDING TO THE A.RS IS TO BE READ IN CONFORMITY WITH THE CHARGING SECTIONS I.E. SECTIONS 4,5 & 9 AS BECAUSE OF THE WORDS 'SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT', IN VIEW THEREOF IF THE COMMISSION PAID TO THE EXPORT AGENT DOES NOT CONTAIN THE ELEME NT OF INCOME CHARGEABLE TO TAX IN INDIA, THE PAYER CANNOT BE MADE LIABLE TO DEDUCT TA X U/S 195 AND ACCORDINGLY SUCH PAYMENT CANNOT BE DISALLOWED UNDER CLAUSE A(I) OF S ECTION 40 OF THE ACT. THE A.RS OF THE APPELLANT ALSO REFERRED TO A CASE W HICH INTER ALIA DEALS WITH THE ISSUE OF DEDUCTION OF TAX AT SOURCE ON COMMISSION PAID TO NON-RESIDENT AGENTS IN THE CASE OF DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) VS. WIZCRAFT INTERNATIONAL ENTERTAINMENT PVT. LTD. (364 ITR 227 - BOMBAY HIGH COURT). THE FACT INVOLVED IN THIS CASE AS FAR AS IT RELATES TO PAYMENT OF COMMISSION TO NON-RESIDENT AGENTS WAS THAT A NON- RESIDENT AGENT OF ARTISTS IN FOREIGN COUNTRIES WAS ENGAGED BY THE RESIDENT ASSESSEE TO BRING FOREIGN ARTISTS TO PERFORM IN IND IA, BUT THE AGENT HAS NO PARTICIPATION IN THE EVENT ORGANIZED IN INDIA. THE AGENT WAS PAID COMMISSION FOR HIS SERVICES RENDERED OUTSIDE INDIA. ON THE FACT THE QU ESTION AROSE AS TO WHETHER TAX IS REQUIRED TO BE DEDUCTED AT SOURCE FROM THE COMMISSI ON PAID TO NON-RESIDENT AGENT EVEN THOUGH TAX WAS DEDUCTED AT SOURCE ON THE PAYME NT MADE TO ARTISTS FOR PERFORMANCE IN INDIA. THE HON'BLE TRIBUNAL AFTER CO NSIDERING THE FACTUAL POSITION OF THE RIVAL CONTENTIONS CONCLUDED THAT THE NON-RESIDE NT AGENT NEVER TOOK PART IN THE EVENT ORGANIZED AND DID NOT EXERCISE ANY PERSONAL A CTIVITIES IN INDIA. ALL, THAT, THE AGENT WAS CONCERNED WITH THE SERVICES WHICH WERE RE NDERED OUTSIDE INDIA. ON THE SET OF FACTS THE CIT(A) AND THE TRIBUNAL ARRIVED AT THE CONCLUSION THAT THE SAID AGENT DID NOT PERFORM ANY SERVICES IN INDIA BUT THEY WERE RENDERED OUTSIDE INDIA. THE COMMISSION INCOME TO THE AGENT IS NOT LIABLE TO TAX IN INDIA AND THERE WAS NO OBLIGATION ON THE PART OF THE ASSESSEE TO DEDUCT TA X AT SOURCE AT THE TIME OF MAKING THE PAYMENT. THE HON'BLE COURT ACCORDINGLY OBSERVED THAT THE FINDINGS OF FACT WHICH ARE EMINENTLY POSSIBLE IN THE GIVEN FACTS AND CIRCU MSTANCES DO NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW AND ACCORDINGLY DISMISS ED THE APPEAL. THE A.RS OF THE APPELLANT ALSO REFERRED TO THE DECI SION OF THE HON 'BLE SUPREME COURT IN THE CASE OF CIT VS. TOSHOKU LIMITED (125 ITR 525 ) AND EMPHASIZED THE OBSERVATIONS OF THE COURT AT PAGE 531 WHICH IS AS U NDER: 'IN THE INSTANT CASE, THE NON-RESIDENT ASSESSEE DID NOT CARRY ON ANY BUSINESS OPERATION IN THE TAXABLE TERRITORIES. THEY ACT AS S ELLING AGENTS OUTSIDE INDIA. THE RECEIPT IN INDIA OF THE SALE PROCEEDS OF TOBACC O REMITTED OR CAUSED TO BE REMITTED BY THE PURCHASER FROM ABROAD DOES NOT AMOU NT TO AN OPERATION CARRIED OUT BY THE ASSESSEE IN INDIA AS CONTEMPLATE D BY CL. (A) OF THE EXPLANATION TO SECTION 9(1)(I) OF THE ACT. THE COMM ISSION AMOUNTS WHICH WERE EARNED BY THE NON-RESIDENT ASSESSEE FOR SERVICES RE NDERED OUTSIDE CANNOT, THEREFORE, BE DEEMED TO BE INCOME WHICH ARE EITHER ACCRUED OR ARISEN IN INDIA. THE HIGH COURT WAS, THEREFORE, RIGHT IN ANSW ERING THE QUESTION AGAINST THE DEPARTMENT. ' THE A.RS OF THE APPELLANT, THEREFORE, SUBMITTED THA T THE DISALLOWANCE OF COMMISSION PAID TO NON- RESIDENT EXPORT AGENTS FOR THE SERVICE S RENDERED OUTSIDE INDIA MADE BY THE AO FOR THE REASON OF TAX NOT BEING DEDUCTED AT SOURCE IS NOT TENABLE EITHER ON FACTS OR IN LAW. ITA NO.2086-2088/KOL/2016 AYS 09-10 TO 11 -12 ACIT, CIR-4(1), KOL. VS. M/S GOODRICK GROUP LT D. PAGE 5 THE A.RS OF THE APPELLANT ALSO SUBMITTED THAT AN AP PLICATION U/S 195(2) WAS MADE FOR REMITTANCE OF COMMISSION WITHOUT DEDUCTION OF TAX A T SOURCE TO ITS NON-RESIDENT EXPORT AGENTS FOR SUBSEQUENT YEARS AND SUCH REMITTA NCE WAS APPROVED WITHOUT DEDUCTION OF TAX AT SOURCE BY THE ASSESSING OFFICER CONCERNED OF THE INTERNATIONAL TAXATION, KOLKATA. THE A.RS OF THE APPELLANT ALSO SUBMITTED THAT SIMIL AR DISALLOWANCE MADE IN THE ASSESSMENT YEAR 2007-08 WAS DELETED BY THE CIT(APPE ALS) VIDE HIS ORDER DATED 27.02.2015 IN APPEAL NO. 582/CIT(A)-2/14-15 WHEREIN HE HAS OBSERVED AS UNDER: 'I HAVE CONSIDERED THE VIEWS EXPRESSED BY THE AO AN D THE SUBMISSIONS OF THE COMPANY AND I AM OF THE VIEW THAT THE DECISIONS IN TRANSMISSIONS CORPORATION'S CASE AND SAMSUNG ELECTRONICS' CASE RE LIED BY THE AO HAS NO APPLICATION TO THE FACTS OF THE PRESENT CASE. IN TH E CASE OF ASSESSEE COMPANY SERVICES HAD BEEN RENDERED OUTSIDE INDIA AND THE RE MITTANCE FOR SUCH SERVICES WAS ALSO MADE OUTSIDE INDIA. IT IS ALSO FO UND FROM THE AGREEMENT THAT THE NON-RESIDENT EXPORT AGENTS IS NOT REQUIRED TO BE RENDERED ANY SERVICES IN INDIA NOR THEY HAVE ANY PERMANENT ESTAB LISHMENT IN INDIA. THEREFORE, THE REMITTANCES MADE FOR THE SERVICES RE NDERED OUTSIDE INDIA DO NOT PARTAKE THE INCOME PAYMENTS AND ACCORDINGLY IT IS NOT TAXABLE IN INDIA. IT IS WELL SETTLED THAT IF THE PAYMENTS MADE TO NON-RE SIDENT EXPORT AGENTS ARE CHARGEABLE TO TAX IN INDIA ONLY THEN SUCH PAYMENTS ARE LIABLE TO BE TAXED IN INDIA. CONSIDERING THE CASE LAWS AND CIRCULAR OF CB DT CITED BY THE AIR, I AM INCLINED TO HOLD THAT THE COMMISSION PAID TO NON-RE SIDENT AGENTS IS NOT CHARGEABLE TO TAX IN INDIA AND THE OPERATION OF SEC TION 195 DOES NOT ARISE. I AM, THEREFORE, OF THE VIEW THAT THE PROVISIONS OF S ECTION 40(A)(I) IS ALSO NOT APPLICABLE IN THIS CASE. A SIMILAR VIEW WAS TAKEN B Y THE INCOME TAX OFFICER, INTERNATIONAL TAXATION, KOLKATA, ON THE APPLICATION MADE U/S. 195(2) OF THE ACT IN SUBSEQUENT YEARS AND HE AUTHORIZED THE REMITTANC E OF COMMISSION TO NON- RESIDENT AGENTS WITHOUT DEDUCTION OF TAX AT SOURCE. THUS I HOLD THAT THE DISALLOWANCE MADE BY THE AO IS LIABLE TO BE DELETED AND ACCORDINGLY I DIRECT THE AO TO ALLOW DEDUCTION OF RS. 11885513/- AS CLAI MED BY THE ASSESSEE COMPANY. ' THEREFORE, IT IS SEEN THAT MY PREDECESSOR HAS TAKEN A VIEW IN FAVOUR OF THE ASSESSEE. THE SECTION 195(1) CASTS AN OBLIGATION TO DEDUCT TA X ONLY WHEN ANY SUM IS CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT A ND THIS POSITION IN LAW WAS CONFIRMED BY THE HON'BLE SUPREME COURT IN GE INDIA TECHNOLOGY CENTRE PVT. LTD'S CASE REPORTED IN 327 ITR 456. THE FACT THAT THE SER VICES OF THE EXPORT AGENT WERE RENDERED OUTSIDE INDIA, THEY ARE NOT MAINTAINING AN Y PERMANENT ESTABLISHMENT IN INDIA, THEY ARE NOT ENGAGED IN ANY ACTIVITIES IN IN DIA AND THE PAYMENTS WERE RECEIVED OUTSIDE INDIA HAS NOT BEEN DISPUTED BY THE AO. I AM , THEREFORE, OF THE VIEW THAT SECTION 40(A)(I) IS NOT APPLICABLE IN THIS CASE FOR COMMISSION PAID. I, THEREFORE, DIRECT THE AO TO DELETE THE DISALLOWANCE OF RS.23,87,696/- . 4. NEEDLESS TO SAY, THE CIT(A) HAS ADOPTED THE VERY ANALOGY IN ASSESSMENT YEAR 2010-11 AS WELL. THE REVENUES CASE BEFORE US IS THAT THE ASSESSEE HAD FAILED TO PLACE ON RECORD ANY NON-DEDU CTION OF TDS CERTIFICATE U/S. 195(1) OF THE ACT. WE FIND NO MERIT IN THE INS TANT ARGUMENT. THE FACT REMAINS THAT THERE IS NO MATERIAL ON RECORD INDICAT ING THE ASSESSEES PAYEES TO HAVE RENDERED ANY SERVICE IN INDIA SO AS TO BE A SSESSABLE IN INDIA. HON'BLE ITA NO.2086-2088/KOL/2016 AYS 09-10 TO 11 -12 ACIT, CIR-4(1), KOL. VS. M/S GOODRICK GROUP LT D. PAGE 6 MADRAS HIGH COURT IN CASE CIT VS. FAIZAN SHOES PVT. LTD., (2014) 367 ITR 155 (MAD) HOLDS THAT SECTION 9(1)(I) R.W.S SECTION 9(1) (VII) OF THE ACT DOES NOT APPLY IN ABSENCE OF ANY SERVICES RENDERED IN INDIA. HON'B LE APEX COURTS DECISION IN GE INDIA TECHNOLOGY CENTRE PVT. LTD. VS. CI T AND ANOTHER 327 ITR 456 (SC) SETTLES THE LAW THAT CHAPTER XVII OF THE ACT APPLIE S ONLY IN CASE THE PAYMENTS IN ISSUE ARE TAXABLE IN THE HANDS OF OVERSEAS RECIP IENTS HANDS IN INDIA AND NOT OTHERWISE. THE ASSESSEE HAS ALSO SUCCEEDED ON THE V ERY ISSUE IN PRECEDING ASSESSMENT YEAR 2007-08 AS WELL. WE THEREFORE DECLI NE REVENUES INSTANT SUBSTANTIVE GROUNDS IN BOTH OF THESE CAPTIONED APPE ALS. 5. THE REVENUES THIRD SUBSTANTIVE GROUND IDENTICAL IN ASSESSMENT YEAR 2009-10 AND 2010-11 SEEKS TO REVIVE THE ASSESSING O FFICERS ACTION DISALLOWING ASSESSEES STORES AND SPARES CONSUMPTI ON CLAIMS OF 31,53,42,998/- AND 58,,51,350/-; RESPECTIVELY AS DELETED IN THE COURSE OF LOWER APPELLATE PROCEEDINGS. LEARNED DEPARTMENTAL R EPRESENTATIVE TAKES US TO CIT(A)S DETAILED DISCUSSION IN THE ABOVE FORMER ASSESSMENT YEAR 2009-10 DISCUSSING THE ENTIRE ISSUE AS FOLLOWS:- I HAVE CONSIDERED THE VIEWS EXPRESSED BY THE AO AND THE SUBMISSIONS OF THE ARS ALONG WITH THE REMAND REPORT AND COMMENT THEREON BY THE ARS. IT IS A FACT THAT THE APPELLANT HAS 17 TEA GARDENS 2 IN UPPER ASSAM, 3 IN THE HILLY REGIONS OF DARJEELING AND 12 IN THE TERIANS OF DOOARS IN JALPAIGURI AND A LIPURDUAR DISTRICT OF WEST BENGAL. DURING THE APPELLATE PROCEEDINGS THE ARS OF THE APP ELLANT HAVE URGED THAT BRINGING DOCUMENTARY EVIDENCE OF CONSUMPTION OF STORES AND S PARE PARTS ARE VOLUMINOUS AND THE TRANSPORTATION THEREOF WOULD INVOLVE CONSIDERAB LE TIME AND CUMBERSOME AS THE GARDENS ARE LOCATED FAR FLEDGED REMOTE AREAS OF UPP ER ASSAM, HILLY REGIONS OF DARJEELING AND THE TERRIANS OF DOOARS IN JALPAIGURI DISTRICT. THE REQUISITIONS FOR ISSUE OF STORES AND SPARE PARTS WOULD BE APPROXIMATELY 10 00 IN A MONTH PER GARDEN. SMILARLY THE ARS SUBMITTED THAT IT HAS A LABOUR FOR CE OF APPROXIMATELY 23000 EMPLOYED IN 17 GARDENS. THE WAGE PAYMENT, BENEFITS UNDER THE PLANTATION LABOUR ACT SUCH AS SUBSIDIZED RATION, FREE MEDICAL TREATME NT, UNIFORM, HOSPITAL EXPENDITURE, CRCHE, PLAY GROUNDS ETC. OF THE 23000 WORKFORCE WE RE MAINTAINED IN THE GARDENS IN THE FORM OF WAGE REGISTER, ATTENDANCE REGISTER, WEI GHMENT REGISTER, PLUCKING REGISTER ETC AND THESE RECORDS ARE SUBJECT TO VERIFICATION B Y THE FACTORY INSPECTORS AND OTHER GOVERNMENT OFFICIALS FROM TIME TO TIME TO SATISFY T HEMSELVES WHETHER THE ASSESSEE COMPANY COMPLIES WITH THE PLANTATION LABOUR ACT, FA CTORIES ACT ETC. NON-COMPLIANCE THEREOF WAS SUBJECT TO IMPOSITION OF FINE AND PENAL TY. THUS IT WAS CONTENDED THAT THE PAYMENT REFLECTED UNDER THE STAFF WELFARE EXPENSES WERE FULLY SUPPORTED BY THE DOCUMENTARY EVIDENCES WHICH WERE SUBJECT TO SCRUTIN Y BY VARIOUS GOVERNMENT AUTHORITIES. ITA NO.2086-2088/KOL/2016 AYS 09-10 TO 11 -12 ACIT, CIR-4(1), KOL. VS. M/S GOODRICK GROUP LT D. PAGE 7 IT WAS ALSO URGED AT THE HEARING THAT THE DETAILS O F MISCELLANEOUS EXPENSES AT GARDENS WERE SUBMITTED. THE EXPENDITURE SO DEBITED IN THE MISCELLANEOUS EXPENSES WAS VERIFIED NOT ONLY BY THE COMPANYS INTERNAL AUD ITORS BUT ALSO BY THE STATUTORY AUDITORS WITH REFERENCE TO THE SUPPORTING DOCUMENTS . IT WAS ALSO URGED THAT WHERE SUCH EXPENDITURE WERE NOT SUPPORTED WITH DOCUMENTS AN ADVERSE REPORT WAS MADE AND INCORPORATED IN THE AUDIT REPORTS, BUT NO SUCH ADVERSE REMARK WAS MADE AGAINST THE SAID EXPENDITURE IN THE AUDITED REPORTS . THE AO DID NOT DISPUTE THE AFORESAID FACTS IN HIS R EMAND REPORT, BUT STATED AMONG OTHER THINGS THAT THE SUPPORTING VOUCHERS WITH REFE RENCE TO THE SAID EXPENDITURE IF PRODUCED SHOULD NOT BE TAKEN INTO CONSIDERATION WHI LE DISPOSING OF THE APPEAL. A COMPARATIVE ANALYSIS OF THE PRECEDING THREE PREVI OUS YEARS OF THE CONSUMPTION OF STORES AND SPARES PER KG OF SALEABLE PRODUCTION, WORKMEN AND STAFF WELFARE EXPENSES PER KG OF SALEABLE PRODUCTION AND MISCEL LANEOUS EXPENSES AS % AGE OF GROSS SALES WERE FILED FOR SUBSTANTIATING THE APPEL LANTS CONTENTION THAT THERE WAS NO WIDE VARIANCE OF THESE EXPENDITURE AS COMPARED TO L AST THREE YEARS. THE SAID STATEMENT IS AS UNDER: CONSUMPTION OF STORES & SPARE PARTS OF 3 PRECEDING YEARS: YEAR ENDED ASSMT. YEAR SALEABLE PRODUCTION CONSUMPTION OF STORES & SPARES CONSUMPTION OF STORES & SPARES PER KG OF SALEABLE PRODUCTION 31.03.06 31.03.07 31.03.08 31.03.09 06-07 07-08 08-09 09-10 (KG) 18,228,797 19,575.505 20,949.531 21,504,140 (RS) 235.000.615 237,161,851 257,191,786 273,125,105 (RS) 12.89 12.12 12.28 12.70 WORKMEN & STAFF WELFARE EXPENSES OF 3 PRECEDING YEA RS YEAR ENDED ASSMT. YEAR SALEABLE PRODUCTION WORKMEN & STAFF WELFARE EXPENSES WORKMEN & STAFF WELFARE EXPENSES PER KG OF SALEABLE PRODUCTION 31.03.06 31.03.07 31.03.08 31.03.09 06-07 07-08 08-09 09-10 (KG) 18,228.797 19,575.505 20,949,531 21,504,140 (RS) 112,541,059 126,487,325 143,186,899 134,385,070 (RS) 6.18 6.46 6.83 6.25 MISCELLANEOUS EXPENSES OF 3 PRECEDING YEARS YEAR ENDED ASSMT. YEAR GROSS SALES MISCELLANEOUS EXPENSES % OF MISC EXPENSES TO GROSS SALES 31.03.06 31.03.07 31.03.08 31.03.09 06-07 07-08 08-09 09-10 (RS) 2,098,933.736 2,210,328,576 2,352,889,724 3,076,851,031 (RS) 86,658,434 91,411,580 94,235,066 119,176,327 4.13 4.14 4.01 3.87 I HAVE PERUSED THE COMPARATIVE ANALYSIS AS SHOWN IN THE ABOVE TABLES AND ALSO THE REMAND REPORT OF THE AO. THE PROPORTION OF THE EXPE NSES HAS REMAINED MORE OR LESS SAME AS IN THE EARLIER YEARS AS CAN BE SEEN FROM TH E TABLES ABOVE. IT IS NOT THE CASE OF THE AO THAT THE EXPENSE CLAIMED IS NON-GENUINE. I HAVE CONSIDERED THE SUBMISSION MADE BY THE ARS IN ITS BEHALF IN RESPECT OF THE AFORESAID EXPENDITURE TOGETHER WITH AOS REMAND REP ORT AND CAME TO THE CONCLUSION THAT ON THE FACTS OF THE CASE THE APPELLANT DID MAI NTAIN ALL NECESSARY RECORDS AND DOCUMENTS AT ITS GARDENS IN RESPECT OF THE STATED E XPENDITURE ESPECIALLY WHEN THOSE RECORDS ARE UNDER SCRUTINY BY DIFFERENT GOVERNMENT AUTHORITIES AND AUDITORS OF THE COMPANY. I HAVE ALSO NOTICED THAT IN ESTIMATING 20% OF SUCH EXPENDITURE THERE IS NO ITA NO.2086-2088/KOL/2016 AYS 09-10 TO 11 -12 ACIT, CIR-4(1), KOL. VS. M/S GOODRICK GROUP LT D. PAGE 8 SPECIFIED FINDING OF THE AO RELATED TO THE EXPENDIT URE WHICH HE CONSIDERED AS INFLATED BY THE ASSESSEE FROM DETAILS FILED. THE THAT THE AF ORESAID EXPENDITURE WAS INFLATED TO REDUCE PROFIT WAS NOT BORNE OUT BY EVIDENCES. THUS TAKING INTO ACCOUNT ALL THE FACTS I AM OF THE CONSIDERED VIEW THAT THE DISALLOWANCE MAD E BY THE AO IS NOT JUSTIFIED. THE EXPENDITURE SO INCURRED BY THE ASSESSEE COMPANY WAS ALL RELATED TO THE BUSINESS AND DEDUCTIBLE U/S. 37(1) OF THE ACT. THE OBSERVATI ON OF THE HON'BLE SUPREME COURT IN THE CASE OF GANAPATHY & CO. VS. CIT, REPORTED IN 381 ITR 363, AT PAGE 372, 1 ST PARA, 5 TH LINE, IS THAT THE MAIN INGREDIENTS TO BE SATISFIED BY THE ASSESSEE FOR CLAIMING THE DEDUCTION U/S. 37(1) IS THAT THE EXPENDITURE LA ID OUT OR EXPENDED IS EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. FROM THE FACTS SUBMITTED B Y THE ARS AND SEEN FROM THE DETAILS FURNISHED AT THE HEARING OF THE ASSESSMENT, I AM OF THE VIEW THAT THE EXPENSES DISALLOWED BY THE AO WERE WHOLLY LAID OUT AND EXPENDED EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS. THE ARS ALSO BROUGHT TO MY NOTICE THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF FRIENDS CLE AR AGENCY (P) LTD VS. CIT, REPORTED IN 332 ITR 269. IN THIS CASE DISALLOWANCE OF BUSINESS EXPENDITURE ON ESTIMATE BASIS WAS CONSIDERED WHERE SIMILAR EXPENSE S WERE ALLOWED IN TOTALITY IN PREVIOUS YEARS IS TO BE FOLLOWED IN SUBSEQUENT YEAR S. THESE EXPENSES HAVE ALWAYS BEEN ALLOWED PRIOR TO AYR. 2009-10 AND ALSO HAVE BE EN ALLOWED IN AYRS 2011-12 AND SUBSEQUENT ASSESSMENT YEARS. IN VIEW OF THE ABOVE J UDICIAL PRONOUNCEMENTS AND ALSO ON THE FACTS OF THE CASE THE DISALLOWANCE OF R S.3,53,42,998/- MADE BY THE AO IN THE ASSESSMENT IS HEREBY DELETED. THE ASSESSEE COMP ANY GETS RELIEF OF RS.3,5342,998/- . 6. WE HAVE HEARD THE REVENUE SEEKING TO REVIVE THE IMPUGNED DISALLOWANCE. BOTH CASE FILES PERUSED. SUFFICE TO S AY, THE CIT(A) HAS FOLLOWED HIS ABOVE EXTRACTED DETAILED FINDINGS MUTATIS MUTAN DIS IN LATTER ASSESSMENT YEAR (2010-11) AS WELL. IT EMERGES THAT THE ASSESSE E HAS BEEN CONSISTENTLY SUCCEEDING ON THE VERY ISSUE SINCE PRECEDING ASSESS MENT YEARS REGARDING ITS CLAIM OF CONSUMPTION OF STORES AND SPARES COMPRISIN G OF VARIOUS FACILITIES OFFERED TO WORKMEN IN ALL OF ITS TEA ESTATES. THERE IS NO REBUTTAL FORTHCOMING TO THE CLINCHING FIGURES OF COMPARISON QUA THE IMPUGNED EXPENDITURE VIS-A-VIS THE THREE PRECEDING ASSESSMENT YEARS HEREINABOVE. T HE ASSESSING OFFICER APPEARS TO HAVE CONDUCTED REMAND PROCEEDINGS WHEREI N HE COULD NOT FIND OUT EVEN A SINGLE IRREGULARITY IN ASSESSEES BOOKS OF A CCOUNT AS WELL AS ALL OTHER DETAILS PRODUCED. WE THEREFORE UPHOLD THE CIT(A)S FINDING UNDER THE CHALLENGE IN THIS INSTANT COMMON ISSUE IN THESE TWO ASSESSMENT YEARS. THE REVENUES APPEAL ITA NO.2087/KOL/2016 RAISING THE A BOVE THREE SUBSTANTIVE GROUNDS FAILS THEREFORE. 7. WE NOW ADVERT TO REVENUES FOURTH AND LAST GRIEV ANCE IN ASSESSMENT YEAR 2009-10 CHALLENGING CORRECTNESS OF CIT(A)S FI NDINGS DELETING NURSERY ITA NO.2086-2088/KOL/2016 AYS 09-10 TO 11 -12 ACIT, CIR-4(1), KOL. VS. M/S GOODRICK GROUP LT D. PAGE 9 EXPENDITURE OF 1,13,48,486/- MADE BY THE ASSESSING OFFICER IN ASSE SSMENT ORDER. THERE IS NO DISPUTE THAT THIS ASSESSEE IS GR OWING MANUFACTURING AND SELLING TEA. IT CLAIMED THE IMPUGNED NURSERY EXPEND ITURE OF 1,13,48,486/- RELATING TO INITIAL BUDDING OF TEA. THE ASSESSING O FFICER DISALLOWED THE SAME ON THE GROUND THAT THIS NURSERY HEAD OF EXPENDITURES G AVE ENDURING ADVANTAGE SPREAD OVER TO NUMBER OF YEARS NOT TO BE FORMING A REVENUE EXPENDITURE CLAIMS. THE CIT(A) ACCEPTS ASSESSEES ARGUMENT AS F OLLOWS:- THE ARS OF THE APPELLANT HAVE FILED A DETAILED SUBM ISSION EXPLAINING THE NATURE OF EXPENSES AND THE METHOD OF ACCOUNTING FOLLOWED IN R ESPECT OF NURSERY EXPENSES. THE ARS HAVE CITED DECISION REPORTED IN 262 ITR 388 (CALCUTTA HIGH COURT) IN THE CASE OF CIT VS. TASATI TEA COMPANY LTD. THE SUBMISS IONS OF THE APPELLANT ARE REPRODUCED AS UNDER:- THE APPELLANT MAINTAINS NURSERY IN ITS GARDENS FOR THE PURPOSE OF REPLANTING AND PLANTING OF TEA BUSHES IN AN AREA WHERE THE TEA BUSHES ARE DEAD OR BECAME USELESS OR IN AN AREA PREVIOUSLY ABANDONED A ND ALSO FOR EXTENSIONS PLANTING. THE TOTAL EXPENDITURE INCURRED ON ACCOUNT OF MAINTENANCE OF PLANTS IN THE NURSERY WAS RS.2,72,80,342/-. THE GARDEN-WIS E EXPENDITURE INCURRED FOR MAINTENANCE AND UPKEEP OF THE NURSERY TREATED A S REVENUE AND DEBITED TO PROFIT AND LOSS A/C WAS FURNISHED TO THE ASSESSING OFFICER VIDE LETTER DATED 15.12.2011. THE APPELLANT IN COMPLIANCE WITH THE AS SESSING OFFICERS QUERY REGARDING THE ACCOUNTING OF NURSERY EXPENSES THE SA ME WAS EXPLAINED TO HIM IN THE SAID LETTER. THE EXPENDITURE INCURRED ON TEA BUSHES USED FOR REPLANTING AND REPLACEMENT OF THE TEA BUSHES WHICH HAVE DIED O R BECOME USELESS IN AN AREA ALREADY PLANTED DURING THE YEAR WAS RS.1,13,48 ,486/- AND THE SAID EXPENDITURE WAS CHARGED TO THE PROFIT AND LOSS A/C AND CLAIMED IT AS A DEDUCTIBLE EXPENDITURE. THE ASSESSING OFFICER, HOWE VER, DISALLOWED THE SAID EXPENDITURE STATING THAT IT WAS RELATED TO THE INI TIAL BUDDING OF TEA WHICH GIVES ADVANTAGE TO THE ASSESSEE FOR NUMBER OF YEARS. THE ASSESSING OFFICER IN DISALLOWING THE SAID EXPENDITURE RELIED ON THE RULI NG OF THE HON'BLE CALCUTTA HIGH COURT IN CIT VS TASATI TEA LTD. (262 ITR 388) THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER MI SDIRECTED HIMSELF IN RELYING ON THE RATIO OF THEE HON'BLE CALCUTTA HIGH COURT IN 262 IT R 388 (SUPRA) AND IT WAS DUE TO AN ERRONEOUS APPRECIATION OF THE FACTS AND EXPLANATION FURNISHED TO HIM IN SUPPORT OF THE SAID CLAIM AS A DEDUCTION. THE NURSERY EXPENSES OF RS.1,13,48,486/- DEBITED TO THE PROFIT AND LOSS A/C WAS AN YEARLY RECURRING REVENUE EXPENDITURE AND THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE APPELLANT IN R ESPECT THEREOF WAS ALSO EXPLAINED TO THE ASSESSING OFFICER AT THE HEARING AS FOLLOWS : OPENING STOCK OF PLANT IN THE NURSERY AS ON 01.04.2 008 ADD: COST OF PLANTS DEBITED TO PROFIT AND LOSS A/C 1,63,97,003 1,07,31,904 TOTAL COST OF NURSERY PLANTS EXCLUDING THE COST OF PLANTS USED FOR EXTENSION PLANTING LESS: COST OF PLANTS UTILIZED DURING THE YEAR FOR R EPLANTING OF TEA BUSHES IN A PLANTED AREA NOT FOR EXPANSION AND PLANTING IN A PREVIOUSLY ABANDONED AREA 2,71,28,907 1,13,48,486 STOCK OF PLANTS AS AT 31.03.2009 1,57,80,421 ITA NO.2086-2088/KOL/2016 AYS 09-10 TO 11 -12 ACIT, CIR-4(1), KOL. VS. M/S GOODRICK GROUP LT D. PAGE 10 THE COST OF TEA PLANTS IN THE NURSERY UTILIZED FOR EXTENSION PLANTING DURING THE YEAR AND DEBITED UNDER THE HEAD ESTATES AND DEVELOPMEN T AND THE MOVEMENT OF COST OF NURSERY PLANTS DURING THE YEAR WAS AS UNDER: COST OF STOCK OF PLANT IN NURSERY AS ON 01.04.2008 ADD: COST OF PLANTS RAISED DURING THE YEAR 1,63,97,003 1,08,83,339 LESS: COST OF PLANTS UTILIZED FOR REFILLING AND REPLANTATION IN AN EXISTING PLANTED AREA DURING THE YEAR LESS: COST OF PLANTS USED FOR EXTENSION PLANTING DURING THE YEAR 1,13,48,486 1,51,435 2,72,80,342 1,14,99,921 COST OF STOCK OF PLANTS IN NURSERY AS AT 31.03.2009 1,57,80,421 THE METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED BY T HE APPELLANT IN REGARD TO THE ACCOUNTING OF NURSERY EXPENDITURE DEBITED TO THE PR OFIT AND LOSS A/C IS ONLY THE COST OF MAINTENANCE AND UPKEEP OF TEA PLANTS IN THE NURS ERY USED DURING THE YEAR FOR REPLANTATION OR REPLACEMENT OF TEA BUSHES IN AN ARE A ALREADY PLANTED WITHOUT ANY EXPANSION OR PLANTATION OF AREA WHICH WAS PREVIOUSL Y ABANDONED. THUS THE ASSESSING OFFICERS DISALLOWANCE OF THE SAID NURSER Y EXPENDITURE CANNOT BE JUSTIFIED EITHER ON FACTS OR IN LAW. THUS THE ENTIRE EXPENDIT URE DISALLOWED BY THE ASSESSING OFFICER BE DELETED. THUS THE EXPLANATION PROVIDED TO THE ASSESSING OFFI CER WAS TO THE EFFECT THAT THE NURSERY EXPENSES CLAIMED AS A REVENUE EXPENDITURE W AS RELATED TO THE COST OF MAINTENANCE AND UPKEEP OF IMMATURE PLANTS IN THE NU RSERY USED FOR INFILLING AND REPLANTING OF AN AREA ALREADY UNDER CULTIVATION DUR ING THE YEAR WHERE THE TEA PLANT ARE EITHER DEAD OR BECAME PERMANENTLY USELESS. IT WAS F URTHER EXPLAINED THAT IN A CASE WHERE THE NURSERY PLANTS ARE USED FOR EXTENSION PLA NTING OR IN AN AREA PREVIOUSLY ABANDONED SUCH EXPENDITURE ARE TREATED AS CAPITAL E XPENDITURE UNDER THE ACCOUNTS HEAD ESTATES AND DEVELOPMENT . THUS ON THE STATED FACTS THE DECISION IN 262 ITR 388 (SUPRA) RELIED BY THE ASSESSING OFFICER IN DISA LLOWING THE NURSERY EXPENSES WAS IN FAVOUR OF THE APPELLANTS CLAIM OF DEDUCTION OF SUCH EXPENSES. THE RULING OF THE HON'BLE CALCUTTA HIGH COURT IN 2 62 ITR 388 (SUPRA) WAS TO THE EFFECT THAT: ... ... IF THE PLANTS ARE RAISED AND MAINTAINED IN A NURSERY FOR BEING UTILIZED FOR THE PURPOSE OF REPLANTATION WITHOUT AN Y EXPANSION OF THE PLANTATION AREA OR REPLANTATION IN AN ABANDONED AREA, THEN IT CANNOT BE SAID TO BE A CAPITAL EXPENDITURE. CAPITAL EXPENDITURE INVOLVES A N INVESTMENT INCREASING THE CAPITAL FOR HIGHER PROFIT. THE EXPANSION MEANS EXTE NSION OF PLANTATION TO AN ADDITIONAL AREA. AN AREA ALREADY ABANDONED, IF REPL ANTED WOULD BE AN EXPANSION OF THE AREA UNDER CULTIVATION FOR THE PRE VIOUS YEAR CONCERNED. THE MAINTENANCE OF AN AREA ALREADY UNDER CULTIVATION CA NNOT BE TREATED TO BE AN EXPANSION OF THE PLANTATION NOR CAN IT BE TREATED T O BE AN INVESTMENT OR EXPANSION ADDING TO THE CAPITAL ALREADY INVESTED. O N THE OTHER HAND, IT WOULD BE MAINTENANCE OF PLANTATION ITSELF AND, THEREFORE, REVENUE EXPENDITURE. FROM THE ABOVE QUOTE IT IS CLEAR THAT IF THE PLANTS RAISED AND MAINTAINED IN A NURSERY ARE TO BE UTILIZED FOR REPLANTATION OF DEAD OR USEL ESS BUSHES WITHIN THE PLANTATION AREA, IT WOULD NOT COME UNDER RULE 8(2) OF THE RULE S. HOWEVER, IF THE PLANTS RAISED AND MAINTAINED IN A NURSERY ARE UTILIZED DURING THE YEAR FOR THE PURPOSE OF REPLANTATION WITHOUT EXPANSION OF THE PLANTATION AR EA SUCH EXPENDITURE IS REVENUE EXPENDITURE. IT IS TO BE NOTED FROM THE ORDER OF THE ASSESSING O FFICER THAT IN DISALLOWING THE SAID EXPENDITURE HE HAS NOT GIVEN ANY REASON FOR HOLDING THIS EXPENDITURE AS CAPITAL ITA NO.2086-2088/KOL/2016 AYS 09-10 TO 11 -12 ACIT, CIR-4(1), KOL. VS. M/S GOODRICK GROUP LT D. PAGE 11 EXPENDITURE EXCEPT SAYING THAT IT IS INITIAL BUDD ING OF TEA WHICH GIVES ADVANTAGE TO THE ASSESSEE FOR NUMBER OF YEARS.. THE ASSESSING O FFICERS SUCH ASSERTION WAS NOT SUPPORTED BY ANY MATERIALS ON RECORD. THE APPELLANT SUBMITTED THAT FROM THE NATURE AND CHARACTER OF THE EXPENDITURE AND THE PURPOSE FO R WHICH NURSERY IS BEING MAINTAINED AND THE EXPENDITURE DEBITED TO THE PROFI T AND LOSS A/C IT IS CLEAR THAT IT IS A REVENUE EXPENDITURE FOR MAINTENANCE OF PLANTATION FOR THE PURPOSE OF ITS BUSINESS. THUS IN FACT THE RULING OF THE CALCUTTA HIGH COURT IN 262 ITR 388 (SUPRA) SUPPORTS APPELLANTS CONTENTION THAT THE EXPENDITURE CLAIMED WAS REVENUE EXPENDITURE. THE APPELLANT FURTHER SUBMITS THAT THE MAINTENANCE AND UPKEEP OF NURSERY FOR THE PURPOSE OF RAISING TEA BUSHES FOR UTILIZATION OF IT IN FUTURE FOR REPLANTATION OF DEAD OR USELESS BUSHES WAS NOT DEBITED TO THE PROFIT AND LO SS A/C, BUT IT WAS SHOWN AS STOCK OF TEA PLANTS IN THE BALANCE SHEET UNDER THE ACCOUN T HEAD ADVANCE . THUS THE CLAIM OF NURSERY EXPENDITURE AS REVENUE EXPENDITURE DURING THE YEAR WOULD COME WITHIN THE SCOPE AND AMBIT OF RULE 8(2) OF THE RULE S. FURTHER THE EXPENDITURE ON PLANTS RAISED IN THE NURSERY FOR EXPANSION OF THE P LANTED AREA IS TREATED AS CAPITAL EXPENDITURE. IT WAS WELL SETTLED THAT UPKEEP AND MAINTENANCE EXP ENDITURE OF PLANTS TILL ITS BEARING IS DEDUCTIBLE BUSINESS EXPENDITURE. IN SUPPORT THER E OF THE FOLLOWING DECISIONS OF THE HON'BLE SUPREME COURT ARE CITED: 1. KARIM THARUVI VS. STATE OF KERLA 48 ITR 83 2. TRAVANCORE RUBBER AND TEA CO. LTD. VS. COMMISSIO NER OF AGIT 41 ITR 751 I HAVE CONSIDERED THE VIEWS EXPRESSED BY THE AO AND THE SUBMISSIONS OF THE A/R OF THE APPELLANT. THE METHOD OF ACCOUNTING OF NURSERY EXPENSES IS ALSO NOT IN DISPUTE. THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THE SA ID METHOD OF ACCOUNTING. THE NURSERY EXPENSES CLAIMED AS A DEDUCTION IS ACTUALLY THE COST OF MAINTENANCE AND UPKEEP OF IMMATURE PLANTS WHICH ARE USED FOR REPLAN TING OR INFILLING, AREAS WHERE THE TEA PLANTS ARE EITHER DEAD OR BECOME PERMANENTLY US ELESS. THERE IS NO EXPANSION OR CULTIVATION IN A ANEW AREA. ACCORDINGLY, THE NURSER Y EXPENSES HAVE BEEN DEBITED TO THE P/L ACCOUNT. THE DECISION OF THE HON'BLE CALCUT TA HIGH COURT IN TASATI TEA LTD CASE REPORTED IN 262 ITR 388 IS SQUARELY APPLICATIO N TO THE FACTS OF THE CASE. RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE KOLKATA HIGH COURT IN CASE OF TASATI TEA LTD, I DIRECT THE AO TO DELETE THE DISAL LOWANCE OF RS.1,13,48,486/- ON ACCOUNT OF NURSERY EXPENSES . HEARD LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY SEEKING TO REVIVE THE ASSESSING OFFICERS ACTION TREATING THE IMPUGNED NU RSERY EXPENDITURE AS CAPITAL IN NATURE. RELEVANT FINDINGS PERUSED. THE R EVENUES ONLY ARGUMENT IS THAT SUCH NURSERY EXPENDITURE AS THE ONE IN HAND BE FORE US OUGHT NOT TO HAVE BEEN TREATED AS A REVENUE ITEM OF CLAIM IN THE LOWE R APPELLATE PROCEEDINGS. COMING TO ENDURING ADVANTAGE SPREAD OVER NUMBER OF YEARS HON'BLE APEX COURTS DECISION IN TAPARIA TOOLS LTD. VS. JCIT (2015) 372 ITR 605 (SC) REJECTS REVENUES SIMILAR REASONING IN CONCLUDING T HAT SUCH AN APPROACH DOES NOT FORM A JUSTIFIABLE GROUND TO REJECT A CLAIM OF REVENUE EXPENDITURE. WE FURTHER REITERATE THAT HON'BLE JURISDICTIONAL HIGH COURTS DECISION IN CIT VS.TASATI TEA LTD (2003) 263 ITR 388 (CAL) ALSO HOLDS SIMILAR EXPENDI TURE TO BE REVENUE ITA NO.2086-2088/KOL/2016 AYS 09-10 TO 11 -12 ACIT, CIR-4(1), KOL. VS. M/S GOODRICK GROUP LT D. PAGE 12 IN NATURE AS DISCUSSED IN THE CIT(A)S ADJUDICATION HEREINABOVE. WE THUS DECLINE REVENUES INSTANT SUBSTANTIVE GROUND AS WEL L AS MAIN APPEAL ITA 2086/KOL/2016 FOR ASSESSMENT YEAR 2009-10. 8. THIS LEAVES US WITH THIS REVENUES APPEAL 2088/K OL/2016 FOR AY 2011- 12 RAISING THE LATTER GROUND IN SEEKING TO REVIVE S ALES PROMOTION EXPENDITURE DISALLOWANCE OF 9,48,411/- MADE BY THE ASSESSING OFFICER AND DELETE D IN COURSE OF LOWER APPELLATE PROCEEDINGS AS FOLLOWS:- GROUND NOS. 3 IS AGAINST THE DISALLOWANCE OF SALES PROMOTION EXPENSES AMOUNTING TO RS.9,48,411/-. THE ASSESSING OFFICER ON PAGE 2 OF THE ASSESSMENT O RDER HAS STATED AS UNDER:- THE ASSESSEE CLAIMED SALES PROMOTION EXPENSES OF R S.15,41,48,965/- WHICH INCLUDES AN AMOUNT OF RS.12,36,81,695/- UNDER THE S UB-HEAD TRADE PROMOTIONAL SCHEMES. IN COURSE OF HEARING OF THE C ASE, DETAILS WERE CALLED FOR AND TO THE EXTENT OF RS.9,48,411/-, THE A/R COU LD NOT FILE SUPPORTING EVIDENCE AND COINED THE SAME AS OTHER SMALL PARTIE S. IN ABSENCE OF SUPPORTING EVIDENCE ADDITION OF RS.9,48,411/- IS MA DE FOR TRADE PROMOTIONAL EXPENSES THE ARS OF THE APPELLANT SUBMITTED THE BREAKUP OF SALES PROMOTION EXPENSES AMOUNTING TO RS.15,41,48,965/- DURING THE ASSESSMENT PROCEEDINGS AS UNDER: CONSUMER OFFERS : RS.2,76,25,561/- SALES AGENTS EXPENSES : RS. 28,41,709/- TRADE PROMOTIONAL SCHEMES RS.12,36,81,695/- TOTAL : RS.15,41,48,965/- THEY FURTHER SUBMITTED THAT THE ASSESSING OFFICER C ALLED FOR PARTY-WISE DETAILS WITH PAN OF THE TRADE PROMOTIONAL SCHEMES WHICH WRE FILE D. THE ARS HAVE ALSO SUBMITTED THAT AN AGGREGATE SUM OF RS.9,48,411/- WH ICH WAS SHOWN AS OTHER SMALL PARTIES AND IT WAS EXPLAINED TO THE ASSESSING OFFI CER THAT THE SAID AMOUNT REPRESENTS THE TOTAL OF SMALL AMOUNTS PAID TO VARIOUS VENDORS. IT WAS ALSO SUBMITTED BY THE A/RS OF THE APPELLANT THAT THERE HAD BEEN NO DISALLOWANC E OF SALES PROMOTION EXPENSES IN THE PAST ASSESSMENT YEARS. THE ARS HAVE SUBMITTE D THAT THERE WERE ABOUT 130 ODD PARTIES WHERE PAYMENTS WERE MADE FROM RS.4,000 TO R.9,000 AND IT CONSTITUTE 0.767% OF THE TRADE PROMOTIONAL SCHEMES. I HAVE CONSIDERED THE FINDINGS OF THE AO AND THE SU BMISSIONS OF THE ARS OF THE APPELLANT. OUT OF THE EXPENSES OF RS.12,36,81,695/- PART-WISE BREAK UP OF RS.9,48,411/-, WHICH IS VERY NOMINAL COULD NOT BE M ADE AVAILABLE, DUE TO THE NUMBERS OF PARTIES BEING ABOUT 130. THE AGGREGATE A MOUNT OF RS.9,48,41/- WAS THE PAYMENT MADE TO ABOUT 130 PARTIES TOWARDS SALES PRO MOTION EXPENSES WHERE THE PAYMENT RANGED FROM RS.4000 TO RS.9000. THESE PAYME NTS HAD BEEN CATEGORIZED AS HAVING BEEN MADE TO OTHER SMALL PARTIES. WHEN TH E TOTAL SALES PROMOTION EXPENSES IS RS.15.41 CRORES AN DETAILS HAVE BEEN FU RNISHED TO THE AO THAN I DO NOT SEE ANY REASON FOR DISALLOWING SALES PROMOTION EXPE NSES TO THE EXTENT OF RS.9,48,411/-. THE AO HAS NOT DOUBTED THE VERACITY OR GENUINENESS OF THESE EXPENSES. I, THEREFORE, DIRECT THE AO TO DELETE THE DISALLOWANCE OF RS,9,48,411/-. ITA NO.2086-2088/KOL/2016 AYS 09-10 TO 11 -12 ACIT, CIR-4(1), KOL. VS. M/S GOODRICK GROUP LT D. PAGE 13 9. HEARD LEARNED DEPARTMENTAL REPRESENTATIVE VEHEM ENTLY CONTENDING THAT THE CIT(A) HAS ERRED IN LAW AS WELL AS ON FACT S IN REVERSING THE IMPUGNED DISALLOWANCE. HE FAILS TO DISPUTE THE FACT THAT THE IMPUGNED SUM OF 9,48,411/- FORMS A MINUSCULE PERCENTAGE OF THE TOTAL CLAIM AMO UNTING TO 15,41,48,965/- I.E. LESS THAN 1% OF THE TOTAL FIGURE. THE RELEVANT PAYEES COUNT IS MORE THAN 100 INVOLVING CORRESPONDING SUMS OF 4,000/- TO 9,000/-. THE ASSESSEE HAS CATEGORIZED ALL OF THEM AS SMALL PARTIES. THE FACT ALSO REMAINS THAT THE ASSESSEE HAS ALSO NOT BEEN ABLE TO FILE ALL THE REL EVANT DETAILS OF REGARDING THESE ALLEGED SMALL PARTIES. WE THEREFORE CONCLUDE IN LARGER INTEREST OF JUSTICE THAT A LUMP SUM DISALLOWANCE OF 1.00 LAKH OUT OF THE IMPUGNED FIGURE OF 9,48,411/-WOULD BE JUST AND PROPER IN THE GIVEN FAC TS AND CIRCUMSTANCES WITH A RIDER THAT THE SAME SHALL NOT BE TREATED AS A PRE CEDENT IN PRECEDING OR SUCCEEDING ASSESSMENT YEAR. WE PARTLY ACCEPT REVENU ES INSTANT APPEAL ITA NO.2088/KOL/2016 THEREFORE. 10. THE REVENUES FORMER TWO APPEALS ITA NO.2086/KO L/2016 & 2087/KOL/2016 ARE DISMISSED WHEREAS ITS LAST APPEAL ITA 2088/KOL/2016 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 17/08/2018 SD/- SD/- ( ) (( ) (DR. A.L. SAINI) (S.S.GODARA) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) KOLKATA, *DKP, SR.P.S )- 17 / 08 /201 8 / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE-M/S GOODRICK GROUP LTD., DUNCAN HOUSE, 4 TH FLOOR, 31, N.S.RD,KOL-01 2. /REVENUE-ACIT, CIR-4(1), P-7, CHOWRINGHEE SQ, 8 TH FLOOR, KOLKATA-69 3. 4 5 / CONCERNED CIT KOLKATA 4. 5- / CIT (A) KOLKATA 5. 8 ((4, 4, / DR, ITAT, KOLKATA 6. = / GUARD FILE. BY ORDER/ , /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO 4,