DCIT,CC-XXV,KOLKATA, Kolkata V. M/s DPIL LTD., Kolkata

ITA 209/KOL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4142 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 07-09-2016
• Assessment Year: 2002-2003
• Appeal Filed On: 06-02-2014
• Court: TRIBUNAL
• Assessee Lawyers: AGNIBESH SENGUPTA
• Keywords: Capital asset; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B, BENC H KOLKATA BEFORE DR. A.L.SAINI, AM & SHRI K. NARASIMHA CHARY , JM ./ ITA NO209/KOL/2014 ( / ASSESSMENT YEAR :2002-2003) DCIT, CC-XXV, 110, SHANTIPALLY, 5 TH FLOOR, KOLKATA-700107 VS. M/S DPIL LIMITED, 4B, HUNGERFORD STREET, SUVIRA HOUSE, KOLKATA-700017 ./ ./PAN/GIR NO. : AABCD 1665 N ( /APPELLANT ) .. ( / RESPONDENT ) /REVENUE BY : SHRI BISWANATH DAS, JCIT /ASSESSEE BY : SHRI AGNIBESH SENGUPTA, ADVOCATE / DATE OF HEARING : 16/11/2016 /DATE OF PRONOUNCEMENT 05/12/2016 / O R D E R PER DR. ARJUN LAL SAINI, AM: THE CAPTIONED APPEAL FILED BY THE REVENUE, PERTAINI NG TO THE ASSESSMENT YEAR 2002-2003, IS DIRECTED AGAINST THE ORDER PASSED BY LD. COMMISSIONER OF INCOME TAX (APPEALS)-IV,KOLKATA, IN APPEAL NO.160/CIT(A)-IV/04-05, DATED 30.09.2013, WHICH IN TURN ARISES OUT OF ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (A O) UNDER SECTION143(3) OF THE INCOME TAX ACT 1961, (IN SHORT THE ACT), DATED 15.02.2005. 2. BRIEF FACTS OF THE CASE QUA THE ASSESSEE ARE THA T THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.10.2002 ALONG WITH THE A UDITED BALANCE SHEET AND THE TAX AUDIT REPORT, DECLARING A LOSS OF RS.5, 18,44,247/-. THE CASE WAS SELECTED FOR SCRUTINY U/S.143(3) OF THE ACT AND THE AO HAS COMPLETED THE ASSESSMENT BY MAKING THE ADDITION ON ACCOUNT OF INTEREST ON TERM LOAN, PROPORTIONATE EXPENSES ON ACCOUNT OF EXEMPTED INCOME U/S 14A, ITA NO.209/2014 M/S DPIL LTD. 2 INTEREST ON TERM LOAN FOR ACQUISITION OF TEA ESTATE S FIRMS AND ON ACCOUNT OF LOAN PAYMENT TO PROVIDENT FUND DUES. THE ASSESSE E IS A MANUFACTURER OF TEA AND HAS ITS TEA GARDENS LOCATED IN ASSAM, DA RJEELING AND DOOARS. 3. AGGRIEVED FROM THE ORDER OF AO, THE ASSESSEE FIL ED APPEAL BEFORE THE LD. CIT(A), WHO HAS ALLOWED THE APPEAL PARTIALL Y OBSERVING THE FOLLOWINGS :- 4.3 I HAVE PERUSED THE ASSESSMENT ORDER AND THE SUB MISSION MADE BY THE APPELLANT. IT IS NOT IN DISPUTE THAT THE APP ELLANT INCURRED INTEREST EXPENDITURE ON THE TERM LOAN OF RS.37.50 C RORES TAKEN FROM THE LCICI BANK FOR THE ACQUISITION OF TWO TEA ESTAT ES NAMELY, KATALGURI TEA ESTATE IN DOOARS, WEST BENGAL AND TIP PUK TEA ESTATE, ASSAM IN THE FINANCIAL YEAR 1999-2000. THIS INTEREST EXPENDITURE WAS SHOWN SEPARATELY IN THE BALANCE SHE ET AS AN ITEM OF DEDUCTION FROM RESERVES AND SURPLUS AS EXPLAINED IN NOTE NO 5 IN SCHEDULE 17 TO THE ACCOUNTS AND CLAIMED AS EXPEN DITURE ALLOWABLE UNDER SECTION 36(1)(III) OF THE ACT. THE A.O. MADE THE DISALLOWANCE OF SUCH INTEREST ON THE GROUND THAT INTEREST ON TERM LOANS WAS INCURRED FOR A PERIOD BE FORE THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE. THE A.O. ALS O FOUND FORCE, FOR MAKING SUCH DISALLOWANCE, FROM SCHEDULE 16 CLAUSE ( 5) OF THE NOTES ON ACCOUNT OF ANNUAL FINANCIAL STATEMENT WHER EIN THE AUDITOR MENTIONED THAT 'INTEREST ON BORROWING FOR A CQUISITION OR TEA ESTATES NOW HELD BY THE COMPANY BY VIRTUE OF AMALGA MATION OF COMPANIES AS APPROVED BY THE HON'BLE HIGH COURT AT CALCUTTA IS NOT RELATED TO REGULAR BUSINESS ACTIVITIES OF THE COMPA NY AND HAS THEREFORE BEEN ADJUSTED AGAINST APPROPRIATE BALANCE S OF RESERVES AND SURPLUS.' HOWEVER, I FIND THAT BOTH THE TEA ESTATES NAMELY, K ATALGURI TEA ESTATE IN DOOARS, WEST BENGAL AND TIPPUK TEA ESTATE , ASSAM WERE TAKEN OVER ON A GOING CONCERN BASIS. HENCE, CAPITAL IZATION OF INTEREST WITH COST WOULD NOT BE PROPER IN THE CASE OF THE APPELLANT. IT IS ALSO SEEN THAT THE APPELLANT INCURRED INTEREST E XPENDITURE ON LOAN WHICH WAS USED EXCLUSIVELY FOR THE PURPOSE OF ACQUISITION OF TEA ESTATES. IN THE CASE OF DCIT VS. CORE HEALTHCARE LTD. (2001) 251 ITR 61 (GUJ), THE HON'BLE HIGH COURT OF GUJARAT HELD THAT INTEREST PAID TOWARDS BORROWINGS MADE FOR THE PURPOSE OF ACQUIRIN G NEW MACHINERIES IN AN EXISTING BUSINESS, THOUGH PERTAIN ING TO THE PERIOD PRIOR' TO COMMENCEMENT OF PRODUCTION, WAS ALLOWABLE AS DEDUCTION UNDER S.36(L)(III). THE RELEVANT PORTION OF THE ORD ER, FOR THE SAKE OF CONVENIENCE, IS REPRODUCED AS UNDER: - ITA NO.209/2014 M/S DPIL LTD. 3 'BUSINESS EXPENDITURE - INTEREST ON BORROWED CAPITA L-ACQUISITION OF CAPITAL ASSETS FOR NEW UNITS OF EXISTING BUSINESS - FOR APPLICABILITY OF S. 36(1)(III) THE ONLY REQUIREMENT IS THAT THE INTE REST MUST BE IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF BUS INESS-SEC. 36(1)(III) NOWHERE STIPULATES THAT SUCH BORROWING H AS TO BE ONLY ON REVENUE ACCOUNT- THERE IS ALSO NO REQUIREMENT THAT THE CAPITAL ASSET FOR THE ACQUISITION OF WHICH THE BORROWINGS W ERE MADE SHOULD HAVE BEEN PUT TO USE -EXPLN. 8 TO S. 43(1) NOWHERE PROVIDES THAT THE INTEREST PERTAINING TO THE PERIOD PRIOR TO THE ASSET BEING FIRST PUT TO USE HAS NECESSARILY TO BE CAPITALIZED AND WILL NOT BE ALLOWED AS DEDUCTION UNDER S. 36(1)(III)- SAID EXPLANATION DOE S NOT IN ANYWAY CURTAIL THE SCOPE OF S. 36(1.)(III)--ASSESSEE HAD CAPITALIZED THE INTEREST BUT HAS GIVEN UP ITS CLAIM TOR DEPRECIATIO N ON LARGER AMOUNT OF ACTUAL COST OF MACHINES PURCHASED OUT OF BORROWI NGS THEREFORE, DEDUCTION WAS ALLOWABLE IN RESPECT OF IN TEREST ON BORROWINGS THOUGH PERTAINING TO THE PERIOD PRIOR TO COMMENCEMENT OF PRODUCTION. I ALSO FIND THAT IN THE ASST YEARS 2001-02 AND 2003 -04, THE AO MADE THE SIMILAR DISALLOWANCE WHICH WAS DELETED BY THE HONBLE ITAT, KOLKATA VIDE ORDER IN ITA NO.201/KOL/2005, DA TED 04.08.2005 (PARA NO.17) FOR ASST. YEAR 2001-02 AND ITA NO.1420 / KOL/2007 DT. 07.09.2007 (PARA-NO.8) FOR ASST YEAR 2003-04. THE R ELEVANT PORTION OF THE ORDER DT.04.08-2005 IN ITA NO,201/KO1/2005 I S REPRODUCED BELOW FOR BETTER APPRAISAL OF FACTS:- '17. WE HAVE CONSIDERED THE SUBMISSIONS AND THE FAC TS OF THE CASE. THE SUBMISSIONS MADE BEFORE THE LD. CIT (APPEALS) H AVE BEEN FULLY CONSIDERED. WE HAVE ALSO CONSIDERED VARIOUS D ECISIONS ON WHICH RELIANCE WAS PLACED BY THE LD. COUNSEL OF THE ASSESSEE. AFTER CAREFUL CONSIDERATION WE FIND THAT THE LD. CIT(APPE ALS) HAS CORRECTLY DECIDED THE ISSUE. THE RELEVANT PORTION OF HIS ORDE R IS REPRODUCED BELOW :- '3.8 I HAVE CONSIDERED THE RIVAL SUBMISSION CAREFUL LY. IN THIS CASE THE COMPANY BORROWED FROM ICICI BANK LTD. FOR ACQUI SITION OF TEA ESTATE ON 01- 4-1999 AND INTEREST WAS PAID IN THE P OST ACQUISITION PERIOD TO ICICI BANK. SUCH PAYMENTS OF INTEREST AR E ALLOWABLE UNDER SECTION 36(1)(III) OF THE IT. ACT AND THE ISS UE IS SETTLED AS IN THE CASE OF CHALLAPALLI SUGAR LTD. VS. CIT (1975) 9 8 ITR 167(SC) AND CALICO DYEING VS. CIT (1958) 34 ITR 265 (BOMBAY ). IT SEEMS THAT THE MAIN CONTENTION OF THE ASSESSING OFFICER H AS BEEN THE COMMENT IN THE SCHEDULE 16 CLAUSE 5 OF THE NOTES ON ACCOUNTS OF ANNUAL FINANCIAL STATEMENT WHICH STATED :- INTEREST ON BORROWING FOR ACQUISITION OF TEA ESTAT ES NOW HELD BY THE COMPANY BY VIRTUE OF AMALGAMATION OF COMPANIES AS A PPROVED BY THE HONBLE HIGH COURT AT CALCUTTA IS NOT RELATED T O REGULAR BUSINESS ACTIVITIES OF THE COMPANY AND HAS THEREFORE BEEN AD JUSTED AGAINST APPROPRIATE BALANCES OF RESERVES AND SURPLUS. THUS, THE ASSESSEE ITA NO.209/2014 M/S DPIL LTD. 4 ITSELF STATES THAT THIS EXPENSE IS NOT IN THE NORMA L COURSE OF BUSINESS. IT SEEMS THAT THE ASSESSING OFFICER HAS NOT APPRECI ATED THE FACT OF THE CASE. THE EXPENSE DO NOT RELATE TO THE REGULAR ACTIVITY OF THE BUSINESS MEANS THAT THE APPELLANT IS NOT IN THE REG ULAR BUSINESS OF ACQUIRING TEA 'ESTATES AND DUE TO ACQUISITION THIS YEAR, THE INTEREST LIABILITY HAS BEEN INCURRED. SUCH INTEREST PAYMENTS ARE DEDUCTIBLE UNDER SECTION 36(1)(III). IN VIEW OF THE FACT: AND CIRCUMSTANCES OF THE CASE AS DISCUSSED ABOVE, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE DISALLOWANCE ON ACCOUNT OF INTEREST PAYMENT. ACCORDINGLY THE DECISION OF THE LD. CIT (APPEALS) I S UPHELD AND THE GROUND 'TAKEN BY THE REVENUE IS DISMISSED. SINCE THE FACTS OF THE PRESENT CASE, WHICH IS FOR T HE ASST. YEAR 2002-03, ARE, IN NO WAY, DIFFERENT FROM THOSE OF TH E ASST. YEARS 2001-02 & 2003-04, I DO NOT THINK IT WOULD BE PROPE R TO TAKE A VIEW CONTRARY TO WHAT HAS BEEN-DECIDED BY THE HON'BLE IT AT IN THE ASST. YEARS 2001-02 & 2003-04. UNDER THE CIRCUMSTANCES RESPECTFULLY FOLLOWING THE ORDER OF THE HON'BLE HIGH COURT IN THE CASE OF DCIT V CORE HEAL THCARE LTD. (SUPRA) AND THE ORDERS OF THE HON'BLE JURISDICTIONA L TRIBUNAL IN APPELLANT'S OWN CASES FOR THE ASST. YEAR 2001-02 AN D ASST. 2003-04 IN ITA NO.201/KOL/2005 & ITA NO.1420/KOL/2007, RESP ECTIVELY, I HOLD THAT THE INTEREST AMOUNTING TO RS.4,25,05,039/ - INCURRED ON ACCOUNT OF THE TERM LOAN TAKEN FOR THE EXPANSION OF THE EXISTING BUSINESS ACTIVITIES OF THE APPELLANT IS ALLOWABLE A S A DEDUCTION U/S 36(1)(III) OF THE INCOME TAX ACT 1961. HENCE, THE A O IS DIRECTED TO DELETE THE DISALLOWANCE OF RS.4,25,05,039/- MADE IN THE ASSESSMENT. THIS GROUND OF APPEAL IS, THUS, ALLOWED . 4. NOT BEING SATISFIED WITH THE ORDER OF CIT(A), TH E REVENUE IS IN APPEAL BEFORE US AND HAS TAKEN THE FOLLOWING GROUND S OF APPEAL :- 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) ERRED IN RESTRICTING THE EXPENDITURE ATTRIBUTABLE TO DIVIDEN D AT ONLY 1% OF DIVIDEND CREDITED IN AN ARBITRARY MANNER WITHOUT AN Y PROPER BASIS, 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) ERRED IN ARRIVING AT THE CONCLUSION THAT NO INTERES T BEARING FUND HAS BEEN INVESTED FOR ACQUIRING OF ASSETS YIELDING DIVI DEND ON THE BASIS OF BALANCE SHEET FIGURE FOR THE A.Y.2002-03 AND THU S ENTIRELY IGNORING INVESTIBLE FUND (BOTH OWN FUND AND LOAN) AVAILABLE IN THE A.Y. 1998-99, WHICH IS THE YEAR OF INVESTMENT. ITA NO.209/2014 M/S DPIL LTD. 5 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF INTEREST ON BORROWED L OAN WHICH WAS IN FACT UTILIZED FOR ACQUIRING CAPITAL ASSETS AND THE INTEREST ON SUCH LOAN IS NOR ALLOWABLE. 4. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) HAS ERRED IN DELETING THE ADDITION FOR NON DEPOSIT OF PROVIDENT FUND CONTRIBUTION ON THE BASIS OF ADDITIONAL SUBMISSION MADE BY THE ASSESSEE WITHOUT PROVIDING OPPORTUNITY OF BEING HEA RD TO THE AO, THUS, VIOLATING THE PROVISIONS OF RULE 46A OF THE I .T.RULES, 1962. 5. THE APPELLANT IS CRAVE THE LEAVE TO INCLUDE ANY ADDITIONAL GROUND(S) OR TO MAKE ANY ADDITION, ALTERATION, MODI FICATION AND REMODELLING OR WITHDRAWING OF THE GROUNDS. 5. THE 1 ST GROUND RELATES TO EXPENDITURE ATTRIBUTABLE TO DIVI DEND AT ONLY 1% OF DIVIDEND (EXEMPTED INCOME) TO BE DISALLOWED AS AN EXPENDITURE U/S.14A OF THE ACT. 5.1 LD. DR FOR THE REVENUE HAS STATED THAT THE ASSE SSEE HAS CREDITED AN AMOUNT OF RS.1,03,97,000/- ON ACCOUNT OF DIVIDEN D RECEIVED AND HAS TREATED THE SAME AS EXEMPTED INCOME U/S.10(33), HOW EVER, THE CORRESPONDING DIRECT AND INDIRECT EXPENSES ATTRIBUT ABLE TO EARNING OF THIS EXEMPTED INCOME HAS BEEN OMITTED TO BE ADDED BACK IN VIOLATION OF SECTION 14A OF THE INCOME TAX ACT. SINCE THE ASSESS EE HAS HELD THE DIVIDEND EARNING SHARES AS INVESTMENT AND HAS NOT D EDUCTED ANY EXPENDITURE OUT OF THE DIVIDEND INCOME. THE DIVIDEN D EARNING SHARES WERE HELD AS AN INVESTMENT BY THE ASSESSEE AND, HENCE, I T IS IMPOSSIBLE TO BELIEVE THAT NO EXPENDITURE, HOWEVER, SMALL IT MAY BE, HAS BEEN INCURRED FOR EARNING THE ABOVE INCOME FROM DIVIDEND. IT HAS ALSO BEEN JUDICIALLY HELD BY HONBLE SUPREME COURT IN THE CASE OF CIT VS . UNITED GENERAL TRUST LTD., 200 ITR 488, THAT PROPORTIONATE MANAGE MENT EXPENSES HAVE ITA NO.209/2014 M/S DPIL LTD. 6 TO BE DEDUCTED FROM THE GROSS DIVIDEND. THE EARNING OF DIVIDEND REQUIRES HELP FROM THE MANAGEMENT OF THE COMPANY AND OTHER S TAFF MEMBERS TO COLLECT THE DIVIDEND WARRANT DEPOSIT IT IN THE BANK AND ALSO TO ATTEND THE BANKING ACTIVITIES IN THIS BEHALF. THEREFORE, IT CA NNOT BE SAID THAT NO PROPORTION OF STAFF EXPENSES HAS BEEN INCURRED TO E ARN DIVIDEND INCOME. FURTHER, THE ASSESSEE MAINTAINS A CONSOLIDATED CASH BOOK WHEREIN BOTH RECEIPTS OUT OF SALE PROCEEDS AND RECEIPTS OUT OF I NTEREST BEARING FUND IS ENTERED AND UTILIZED. THEREFORE, SOME ELEMENT OF IN TEREST BEARING FUND BEING UTILISED FOR THE PURPOSE OF INVESTMENT IS DEF INITELY NOT RULED OUT. HENCE, THE ADDITION MADE BY THE AO IS JUSTIFIED. 5.2 ON THE OTHER HAND, LD. AR FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY FR OM ASSESSEES OWN CASE. THE HONBLE TRIBUNAL B BENCH KOLKATA IN ITA NO.144/KOL/2005 IN ASSESSEES OWN CASE OBSERVED AS FOLLOWS :- 8. WE HAVE CONSIDERED THE SUBMISSIONS AND THE FACTS OF THE CASE. WE HAVE ALSO PERUSED CAREFULLY VARIOUS SUBMISSIONS MADE BEFORE THE CIT(APPEALS) AND BEFORE US. WE ARE IN AGREEMENT WITH THE LD. COUNSEL FOR THE ASSESSEE THAT THERE IS NO EVIDENCE OF INCURRING ANY EXPENDITURE DIRECTLY FOR EARNING DIVIDEND INCOME BU T IT CANNOT BE SAID THAT EARNING OF DIVIDEND IS AN INDEPENDENT ACT IVITY OF THE ASSESSEE. THE EARNING OF DIVIDEND INCOME AND RUNNIN G OF THE BUSINESS ARE CONNECTED IN SOME WAY OR THE OTHER. TH EREFORE, THROUGH THERE IS NO DIRECT EVIDENCE TO SHOW THAT TH E ASSESSEE HAS INCURRED EXPENDITURE 'ON EARNING OF DIVIDEND INCOME , SOME EXPENDITURE INDIRECTLY INCURRED FOR EARNING OF DIVI DEND INCOME CANNOT BE DENIED, THEREFORE, A TOKEN AMOUNT OR EXPE NDITURE IS TO BE DISALLOWED. IN OUR CONSIDERED OPINION, THE DISAL LOWANCE OF RS.50,000/- WILL MEET THE ENDS OF JUSTICE. ACCORDIN GLY, THE A.O. IS DIRECTED TO RESTRICT THE DISALLOWANCE OF EXPENDITUR E AT RS.50,000/- THIS DISPOSES OR GROUND NO.1 IN BOTH THE APPEALS. LD. AR FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY DID NOT INVEST IN THE SHARE OF WARREN TEA LIMITED OUT OF TH E BORROWED FUND. THIS ITA NO.209/2014 M/S DPIL LTD. 7 CAN BE CORROBORATED BY THE FACT THAT THE SHAREHOLDE RS OWN FUNDS AS ENUMERATED IN THE FACTS WHICH IS MUCH IN EXCESS OF THE VALUE OF EVEN THE TOTAL INVESTMENT OF THE ASSESSEE COMPANY. IT IS SUB MITTED THAT THE ASSESSEE COMPANY BESIDES USES OF ITS OWN FUNDS EXCL USIVELY FOR THE PURPOSE OF INVESTMENTS, INTEREST DEBITED IN THE PRO FIT & LOSS ACCOUNTS REPRESENTS COST OF BORROWINGS INCURRED BY THE ASSES SEE FOR THE PURPOSE OF WORKING BUSINESS ACTIVITIES. 5.3 HAVING HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THERE IS MERIT I N THE SUBMISSIONS OF THE ASSESSEE, AS THE PROPOSITIONS CANVASSED BY THE LD. AR FOR THE ASSESSEE ARE SUPPORTED BY HONBLE ITAT JUDGMENT IN ASSESSEE S OWN CASE AND THE FACTS NARRATED BY THE ASSESSEE. THERE IS NO EVIDENC E OF INCURRING ANY EXPENDITURE DIRECTLY FOR EARNING OF DIVIDEND. THERE FORE, THERE IS NO DIRECT EVIDENCE TO SHOW THAT THE ASSESSEE HAS INCURRED EXP ENDITURE FOR EARNING OF DIVIDEND INCOME, HOWEVER, SOME EXPENDITURE INDIR ECTLY INCURRED FOR EARNING OF DIVIDEND INCOME CANNOT BE DENIED. THEREF ORE, AN ESTIMATED AMOUNT OF EXPENDITURE HAS BEEN DISALLOWED BY THE LD . CIT(A). MOREOVER SECTION 14A OF THE INCOME TAX ACT DOES NOT APPLY TO THE ASSESSMENT YEAR 2001-02. CONSIDERING THE FACTUAL POSITION, WE ARE O F THE VIEW THAT THE LD. CIT(A) HAS ALREADY PASSED A LOGICAL ORDER AND WE DO NOT FIND ANY REASON TO DISTURB THE ORDER OF THE LD. CIT(A). THEREFORE, WE CONFIRM THE ORDER OF LD. CIT(A). 5.4 IN THE RESULT, APPEAL FILED BY THE REVENUE ON T HIS GROUND IS DISMISSED. ITA NO.209/2014 M/S DPIL LTD. 8 6. NEXT GROUND NO.2 RELATES TO GROUND NO.1, WHICH W E HAVE ALREADY ADJUDICATED, THEREFORE, IT DOES NOT REQUIRE ANY SEP ARATE ADJUDICATION. 7. GROUND NO.3 RELATES TO DISALLOWANCE OF INTEREST ON BORROWED LOAN WHICH WAS UTILISED BY THE ASSESSEE FOR ACQUIRING CA PITAL ASSET. 7.1 LD. DR FOR THE REVENUE HAS STATED THAT THE ASSE SSEE HAS CLAIMED THE DEDUCTION OF RS.4,25,05,039/- ON ACCOUNT OF INT EREST ON TERM LOAN FOR ACQUISITION/PURCHASE OF BUSINESS ACTIVITIES. THE AS SESSEE HAS CLAIMED THE INTEREST ON TERM LOAN AS A REVENUE EXPENDITURE. THE ASSESSEE BORROWED LOAN AND THE LOAN WAS UTILISED FOR THE PURPOSE OF A CQUISITION OF TWO TEA ESTATES NAMELY, KATALGURI TEA ESTATE IN DOOARS, WE ST BENGAL AND TIPPUK TEA ESTATE, ASSAM. LD. DR ARGUED THAT IT IS NOT A R ECURRING BUSINESS EXPENSES AND IT HAS NOT BEEN DEBITED IN THE PROFIT AND LOSS ACCOUNT BY THE ASSESSEE BUT HAS BEEN SHOWN AS AN APPROPRIATION OF THE RESERVES AND SURPLUS. LD. DR FURTHER STATED THAT ASSESSEE HAS CL AIMED THE INTEREST AS BUSINESS EXPENDITURE U/S.36(1)(III). THE ASSESSEE C ONSIDERED THE SAID LOAN FOR THE PURPOSE OF BUSINESS AND INTEREST THERE ON WERE CLAIMED AS REVENUE EXPENDITURE WHICH IS WRONG. LD. DR STATED T HAT THE SAID EXPENSES IS NOT ALLOWABLE U/S.36(1)(III) SINCE IT I S NOT INCURRED BY THE ASSESSEE BY DOING NORMAL BUSINESS. THE ASSESSEE HA S TAKEN THE LOAN FOR THE PURPOSE OF PURCHASE OF TEA GARDEN THEREFORE IT IS CAPITAL IN NATURE. THAT IS, IT IS EXPANSION OF THE BUSINESS OF THE ASS ESSEE, THEREFORE, IT IS CAPITAL EXPENDITURE. THE ASSESSEE HAS HIMSELF SHOWN IN SCHEDULE 16 CLAUSE 5 OF THE NOTES ON ACCOUNT OF HIS ANNUAL FINA NCIAL STATEMENT THAT INTEREST ON BORROWING WAS INCURRED BY THE ASSESSEE FOR ACQUISITION OF TEA ITA NO.209/2014 M/S DPIL LTD. 9 ESTATES FOR THE PURPOSE OF AMALGAMATION OF THE COMP ANIES AS APPROVED BY THE HONBLE HIGH COURT AT KOLKATA. INTEREST ON B ORROWING IS NOT RELATED TO THE BUSINESS ACTIVITIES OF THE ASSESSEE. THEREFO RE, IT HAS BEEN ADJUSTED AGAINST THE RESERVE AND SURPLUS OF THE ASSESSEE. TH US, THE ASSESSEE ITSELF STATES IN HIS FINANCIAL STATEMENT THAT THIS EXPENSE IS NOT IN THE NORMAL COURSE OF THE BUSINESS. THEREFORE, THE LOAN TAKEN B Y THE COMPANY FOR EXPANSION OF BUSINESS AND THAT IS WHY THE INTEREST ON THE SAID LOAN SHOULD NOT BE ALLOWED AS A REVENUE EXPENDITURE. 7.2 ON THE OTHER HAND, LD. AR FOR THE ASSESSEE HAS STATED THAT AS PER SECTION 36(1)(III), DEDUCTION WOULD BE ALLOWED IN R ESPECT OF AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR TH E PURPOSE OF BUSINESS. LD. AR SUBMITTED THAT WHATEVER BE THE ACCOUNTING TR EATMENT, THE FACT REMAINS THAT THE INTEREST ON LOAN FOR ACQUISITION I S REVENUE CHARGE IRRESPECTIVE OF THE TREATMENT IN THE BALANCE SHEET. LD. AR STATED THAT INTEREST ON LOAN BORROWED FOR ACQUISITION OF BUSINE SS IS TO BE RECORDED AS BUSINESS EXPENDITURE AS WRITTEN IN THE STATEMENT IT SELF AND IN THAT CONTEXT THE AO DISREGARDED THIS FACT AND RELATED IT TO THE ACCOUNTING TREATMENT AS FOLLOWED BY THE ASSESSEE. THE INCOME TAX ACT IS A S EPARATE LEGISLATION AND THE AO MUST NOT TRAVERSE THE LIMITS OF TAXATION STATUTE AND EMBARK UPON THE ACCOUNTING TREATMENT AND DISCLOSURE MADE B Y THE ASSESSEE COMPANY UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956. LD. AR FURTHER POINTED OUT THAT IN THE ASSESSEE YEAR 2001-02 AND A .Y.2003-04, LD. AO ATTEMPTED A SIMILAR DISALLOWANCE BUT THE SAME WAS D ELETED BY THE ITAT KOLKATA BENCH VIDE ITS ORDER IN ITA NO.201/KOL/2005 , DATED 4-8-2003 FOR ITA NO.209/2014 M/S DPIL LTD. 10 THE A.Y.2001-02 AND ITA NO.1420/KOL/2007, DATED 7-9 -2007 FOR A.Y.2003- 04. 7.3 HAVING HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THERE IS MERIT I N THE SUBMISSIONS OF THE ASSESSEE, AS THE PROPOSITIONS CANVASSED BY LD. AR F OR THE ASSESSEE ARE SUPPORTED BY THE JUDGMENTS OF THE HON`BLE ITAT KOLK ATA BENCH IN ASSESSEES OWN CASE AND THE FACTS NARRATED BY HIM. LD. AR POINTED OUT THAT BOTH THE TEA ESTATES NAMELY, KATALGURI TEA EST ATE IN DOOARS, WEST BENGAL AND TIPPUK TEA ESTATE, ASSAM WERE TAKEN OVER ON A GOING CONCERN BASIS. HENCE, CAPITALIZATION OF INTEREST WI TH COST WOULD NOT BE PROPER IN THE CASE OF THE ASSESSEE. IT IS ALSO SEEN THAT THE ASSESSEE INCURRED INTEREST EXPENDITURE ON LOAN WHICH WAS USE D EXCLUSIVELY FOR THE PURPOSE OF ACQUISITION OF TEA ESTATES. WE ALSO OBSE RVE THAT IN THE ASSESSMENT YEAR 2001-02 AND 2003-04, THE AO MADE TH E SIMILAR DISALLOWANCE WHICH WAS DELETED BY THE HONBLE ITAT, KOLKATA VIDE ORDER IN ITA NO.201/KOL/2005, DATED 04.08.2005 FOR ASST. YEAR 2001-02 AND ITA NO.1420/ KOL/2007 DT. 07.09.2007 FOR ASST YEAR 2003-04. SINCE THE FACTS OF THE PRESENT CASE, WHICH IS FOR THE ASST. Y EAR 2002-03, ARE, IN NO WAY, DIFFERENT FROM THOSE OF THE ASST. YEARS 2001-0 2 & 2003-04, THEREFORE,WE DO NOT THINK IT WOULD BE PROPER TO TAK E A VIEW CONTRARY TO WHAT HAS BEEN-DECIDED BY THE ITAT KOLKATA BENCH IN THE ASST. YEARS 2001-02 & 2003-04 IN ASSESSEES OWN CASE. THEREFORE , WE DO NOT FIND ANY REASON TO DISTURB THE ORDER PASSED BY LD. CIT(A ). IN THE RESULT, APPEAL FILED BY THE REVENUE ON THIS GROUND IS DISMISSED. ITA NO.209/2014 M/S DPIL LTD. 11 8. 4 TH GROUND OF APPEAL RELATES TO ADDITION FOR NON-DEPOS IT OF PROVIDENT FUND CONTRIBUTION. 8.1 LD. DR FOR THE REVENUE HAS SUBMITTED THAT ASSE SSEE HAS QUOTED AN AMOUNT OF RS.39,03,804.70 ON ACCOUNT OF EMPLOYEES A ND EMPLOYERS CONTRIBUTION TO TIPPUK TEA ESTATE BUT HAS DEPOSITED ONLY RS.30,76,775.71 OUT OF THE ABOVE. THE BALANCE UNPAID AMOUNT OF RS.8 ,27,029/- IS, THEREFORE, TO BE DISALLOWED. 8.2 LD. AR FOR THE ASSESSEE HAS SUBMITTED THAT IT I S THE FACT THAT TEA ESTATES SITUATED IN ASSAM ARE GUIDED BY THE PROVIDE NT FUND AND PENSION FUND ACT, 1968 FRAMED UNDER THE ASSAM TEA PLANTATIO NS PROVIDENT & PENSION FUND ACT, 1965. THIS SCHEME HAS SPECIAL FEA TURES. IT IS APPARENT FROM THE SCHEME THAT THE EMPLOYER HAS AN ADDITIONAL OBLIGATION TOWARDS SETTLEMENTS AND PAYMENTS OF ADVANCES TO A MEMBER. I T WAS, THEREFORE, NECESSARY ON THE PART OF THE ASSESSEE TO ADJUST SUC H PAYMENTS BEFORE ANY DEPOSIT IS MADE WITH THE APPROPRIATE AUTHORITIE S FROM THE PROVIDENT FUND COLLECTIONS AND CONTRIBUTIONS. ACCORDINGLY, TH E ASSESSEE AFTER ADJUSTING SUCH SETTLEMENTS, ADVANCE ETC. FROM COLLE CTION OF RS.39,03,804.70, FROM THE TIPPUK TEA ESTATE SITUATE D IN ASSAM, DEPOSITED NET BALANCE OF RS.30,71,774.81 AS PER THE PROVISION OF LAW. OBVIOUSLY, THE DIFFERENCE BETWEEN COLLECTION AND DE POSIT OF PROVIDENT FUND AMOUNTING TO RS.8,27,029/- WAS THE NET EFFECT OF SETTLEMENT AND ADVANCES GIVEN TO MEMBERS UNDER THE GUIDANCE OF THE ASSAM TEA PLANTATION PROVIDENT FUND AND PENSION FUND SCHEME. THE ISSUE IS ALSO ITA NO.209/2014 M/S DPIL LTD. 12 COVERED BY THE ASSESSEE`S OWN CASE IN ITA NO.822/KO L/06:DPILV.DCIT, ORDER DATED 29-12-2006. 8.3 HAVING HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THERE IS MERIT I N THE SUBMISSIONS OF THE ASSESSEE, AS THE PROPOSITIONS CANVASSED BY LD. AR F OR THE ASSESSEE ARE SUPPORTED BY THE FACTS NARRATED BY HIM ABOVE. LD. A R FOR THE ASSESSEE POINTED OUT THAT IT IS NECESSARY ON THE PART OF THE ASSESSEE TO ADJUST SUCH PAYMENTS BEFORE ANY DEPOSIT IS MADE WITH THE APPROP RIATE AUTHORITIES FROM THE PROVIDENT FUND COLLECTIONS AND CONTRIBUTIO NS. THE DIFFERENCE BETWEEN THE COLLECTION AND DEPOSIT OF PROVIDENT FUN D AMOUNTING TO RS.8,27,029/- WAS THE NET EFFECT OF SETTLEMENT AND ADVANCES GIVEN TO MEMBERS UNDER THE GUIDANCE OF THE ASSAM TEA PLANTAT ION PROVIDENT FUND AND PENSION FUND SCHEME. CONSIDERING THE ABOVE FACTUAL POSITION, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY LD. CIT(A), THEREFORE, WE DO NOT HESITATE TO CONFIRM THE ORDER PASSED BY L D. CIT(A). ACCORDINGLY, WE CONFIRM THE ORDER OF LD. CIT(A). 8.4 IN THE RESULT, APPEAL FILED BY THE REVENUE ON T HIS GROUND IS DISMISSED. 9. IN THE RESULT, APPEAL FILED BY THE REVENUE ON AL L THE GROUNDS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 05/1 2/2016. SD/ - (NARASIMHA CHARY) S D/ - (DR. A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA ; $% DATED 05/12/2016 & ()* /PRAKASH MISHRA , . / PS ITA NO.209/2014 M/S DPIL LTD. 13 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) & ' , / ITAT, KOLKATA 1. / THE APPELLANT-DCIT, CC-XXV, KOLKATA 2. / THE RESPONDENT.-M/S DPIL LTD. 3. 4 ( ) / THE CIT(A), KOLKATA. 4. 4 / CIT 5. 56 7 8 , 8 , / DR, ITAT, KOLKATA 6. 7 9 / GUARD FILE. 5 //TRUE COPY//