D.C.I.T Cir 10,kolkata, Kolkata V. M/s J.K.Agri Genetics Ltd., Kolkata

ITA 2128/KOL/2013

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6020 (ITAT-KOLKATA)
• Duration Of Justice: 6 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 15-06-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 15-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RABIN CHOWDHURY
• Assessee Lawyers: D S DAMLE
• Keywords: Depreciation; Earning of tax free income; Proportionate interest; Non-deduction of tax; Notional interest; Capital expenditure; TDS; Rule 8D
• Section: 143(3); 14A; 40(a)(ia); 133(6); 131; 263; 68

Judgement Text

, A , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. A.L. SAINI, ACCOUNTANT MEMBER ITA NO. 2216 / KOL / 2013 & ITA NO.18/KOL/2017 ASSESSMENT YEARS :2008-09 & 2009-10 FLORENCE INVESTECH LTD. ( EARLIER KNOWN AS J.K. AGRI GENETICS LTD ) 7, COUNCIL HOUSE STREET, KOLKATA-700 001 [ PAN NO.AACCR 3859 F ] V/S . ADDL. CIT, RANGE-10, / DCIT, CIRCLE-5(2),P- 7, CHOWRINGHEE SQUARE, KOLKATA-69 /APPELLANT .. / RESPONDENT ITA NO. 21 28 / KOL / 2013 ASSESSMENT YEAR :2008-09 DCIT, CIRCLE-10, P-7, CHOWRINGHEE SQUARE, 3 RD FLOOR, KOLKATA-69 V/S . M/S J.K. AGRI GENETICS LTD. 7, COUNCIL HOUSE STREET, KOLKATA-700 001 [ PAN NO.AACCR 3859 F ] /APPELLANT .. / RESPONDENT /BY ASSESSEE SHRI D.S. DAMLE, FCA /BY REVENUE SHRI RABIN CHOWDHURY, CIT-DR /DATE OF HEARING 25-07-2019 /DATE OF PRONOUNCEMENT 18-09-2019 / O R D E R PER S.S.GODARA, JUDICIAL MEMBER:- THE INSTANT BATCH OF THREE CASES PERTAINS TO A SIN GLE ASSESSEES M/S FLORENCE INVESTECH LTD. EARLIER KNOWN AS M/S J.K. AGRI GENETICES LTD . ASSESSMENT YEAR 2008-09 CONTAINS THE REVENUE AND AS SESSEES CROSS- ITA NO. 2216, 2128/K/13 & 18/KOL/2017 A.YS. 0 8-09 & 09-10 FLOURENCE INVESTECH LTD/M/S J.K.AGRI GENETICS LTD. VS. DCIT, CIR-10/5(2) KOL. PAGE 2 APPEALS ITA NO.2128/KOL/0213 AND 2216/KOL/2013 ARIS ING AGAINST THE COMMISSIONER OF INCOME TAX (APPEALS)-XII, KOLKATAS ORDER DATED 12.03.2013 PASSED IN CASE NO.361/XII/CI-10/10-11. LATTER ASSES SMENT YEAR 2009-10 COMPRISES ONLY TAXPAYERS APPEAL ITA NO.18/KOL/2017 DIRECTED AGAINST THE CIT(A)-10 KOLKATAS ORDER DATED 05.10.2016 PASSED I N CASE NO.485/CIT(A)- 10/11-12/2014-15/KOL. RELEVANT PROCEEDINGS IN BOTH ASSESSMENT YEAR(S) ARE U/S 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT T HE ACT. HEARD BOTH THE PARTIES. CASE FILE(S) PERUSED. 2. WE COME TO REVENUES APPEAL ITA NO.2128/KOL/2013 . ITS SOLE SUBSTANTIVE GRIEVANCE IS THAT THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN REVERSING THE ASSESSING OFFICERS ACTION DISALLOWIN G AASSESSEES SCIENTIFIC EXPENDITURE INCURRED ON RESEARCH AND DEVELOPMENT AM OUNTING TO 1,85,49,462/- DURING THE COURSE OF ASSESSMENT. THE CIT(A)S FINDINGS UNDER CHALLENGE TO THIS EFFECT READ AS FOLLOWS:- 4. I HAVE CONSIDERED THE FINDING OF THE A.O. IN HIS ORDER DT. 31-12-2010 AND THE WRITTEN SUBMISSION FILED BY THE A.R. DURING THE APP ELLATE PROCEEDING. APPEAL ON GROUND NO. IS AGAINST NON-CONSIDERATION OF REVISED INCOME BY THE A.O. DURING THE APPELLATE PROCEEDING THE A.R. SUBMITTED THAT ASSESS EE DOES NOT INTEND TO PRESS THIS GROUND. ACCORDINGLY, APPEAL ON THIS GROUND IS DISMI SSED. 5. APPEAL ON GROUNDS NO. 2, 3 AND 4 ARE AGAINST THE DISALLOWANCE OF RS. 44,29,779/- AS DEPRECIATION ON WDV OF INTANGIBLE ASSET BEING TR ADE MARK AND BRAND. THE A.O HAS GIVEN HIS FINDING THAT THE COST ATTRIBUTED TOWA RDS INTANGIBLE ASSETS IS NOT BRAND BUT GOODWILL AND NO DEPRECIATION IS ALLOWABLE ON TH E SAME. THE A.O. HAS FURTHER HELD THAT NO EVIDENCE IS THERE TO PROVE THAT THE INTANGI BLE ASSET IS A TRADE MARK OR BRAND. THE AR. HAS SUBMITTED THAT DURING A.Y. 2003-04 CIT, KOL-IV, KOLKATA HAD ISSUED NOTICE U/S. 263 ON THE SAME ISSUE AND AFTER EXAMINI NG THE SUBMISSIONS AND EVIDENCES PRODUCED THE CIT WAS SATISFIED THAT DEPRE CIATION U/S. 32(1L(II) WAS ALLOWABLE IN THIS CASE HAVE CONSIDERED THE FINDING OF THE AO. AND 'THE WRITTEN SUBMISSION. I THINK THAT ON ACTUAL COST OF TRADE MA RK AND BRAND NAME DEPRECIATION ON WDV IS ALLOWABLE. IT IS A KNOWN FACT THAT J.K. BRAH D IS A FAMOUS IN THE FIELD OF SEEDS OF AGRO PRODUCTS. THEREFORE, IT CANNOT BE DENIED TH AT IT IS A BRAND IN ITSELF, ACCORDINGLY, ALLOWABILITY OF DEPRECIATION' ON WDV O F THE ACTUAL COST IS REQUIRED IN THIS FIELD. THUS, AO'S APPEAL, ON' GROUNDS NO. 2, 3 AND 4 ARE ALLOWED. 6. APPEAL ON GROUNDS NO. 5, 6 AND 7 ARE, AGAINST TH E DISALLOWANCE OF SUNDRY CREDITORS. THE AO.' HAS GIVEN HIS FINDINGS THAT THE ASSESSEE DID NOT FILE ALL THE REQUIRED DETAILS DURING THE ASSESSMENT PROCEEDING. THEREFORE, THE ASSESSING OFFICER DISALLOWED RS. 9053492/- U/S. 68 OF THE I.T.ACT, 19 61. THE AR. HAS SUBMITTED A WRITTEN SUBMISSION EXPLAINING THAT DUE TO PAUCITY O F TIME THE ASSESSEE WAS UNABLE TO PROVIDE CERTAIN DOCUMENTARY EVIDENCE IN RESPECT OF CREDITORS. SO IN THE APPELLATE PROCEEDING THAT HAS BEEN FILED. THE MATER WAS REFER RED TO THE AO FOR VERIFICATION AND REMAND REPORT. THE AO. HAS FILED A REMAND REPORT VI DE LETTER NO. DCLT, CIR- 1O/KOL/REPORT/2011-12/1025 DT. 24-08-2011. THE AO H AS SUBMITTED THAT ON ADDRESSES PROVIDED BY THE AR. THE EXISTENCE OF MANY PARTIES ARE NOT ESTABLISHED. ITA NO. 2216, 2128/K/13 & 18/KOL/2017 A.YS. 0 8-09 & 09-10 FLOURENCE INVESTECH LTD/M/S J.K.AGRI GENETICS LTD. VS. DCIT, CIR-10/5(2) KOL. PAGE 3 THE AO. HAS FURTHER SUBMITTED IN THE REMAND REPORT THAT LEDGER ACCOUNTS OF MANY SUPPLIERS IN THE BOOKS OF ACCOUNTS IN THE ASSESSEE HAS BEEN SUBSEQUENTLY ADJUSTED. SO IT IS NOT POSSIBLE TO COMMENT ON THE GENUINENESS OF SUCH CREDITORS. I HAVE CONSIDERED THE FINDING OF THE AO. IN THE ASSESSMENT ORDER AS WELL AS IN THE REMAND REPORT AND THE WRITTEN SUBMISSION FILED BY THE AR. FROM THE REMAND REPORT IT IS CLEAR THAT IN MANY CASES EXISTENCE OF CREDITORS' ON THE G IVEN ADDRESS HAVE NOT BEEN FOUND. SIMILARLY, IN THE CASE OF SUPPLIERS, GENUINENESS RE GARDING THEIR TRANSACTIONS HAS NOT BEEN PROVED BEYOND DOUBT. THEREFORE, ASSESSEE'S APP EAL ON GROUNDS NO. 5, 6 AND 7 ARE DISMISSED. 7. APPEAL ON GROUNDS NO. 8 TO 11 ARE AGAINST THE DI SALLOWANCE OF RS. 79,42,598/- MADE BY THE AO. UNDER RULE 8D READ WITH SEC 14A OF THE IT. ACT, 1961 AS EXPENSES IN ORDER TO EARN EXEMPTED INCOME. THE AR. HAS SUBMI TTED THAT THE ASSESSEE HAS NOT INCURRED EXPENDITURE IN ORDER TO EARN EXEMPTED INCO ME. I HAVE CONSIDERED THE FINDING OF THE A.O. AND THE WRITTEN SUBMISSION FILED BY THE A.R. I FIND THAT ASSESSEE'S ARGUMENT ON THIS ISSUE CANNOT BE ACCEPTED. BECAUSE AFTER THE AMENDMENT IN SEC.. 14A INSERTED IN THE FINANCE ACT, 2006 W.E.F. 01-04- 2007 THE ACT SAYS 11 THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXP ENDITURE LNCURREC IN RELATION TO SUCH INCOME ..... ' THUS, IT IS CLEAR THAT THIS PRO VISION IS MANDATORY AS PER THE STATUE BOOK. THEREFORE, CALCULATION OF EXPENDITURE UNDER R ULE 8D READ WITH SEC. 14A W.E.F. A.Y. 2008-09 IS JUSTIFIED. HENCE, ASSESSEE'S APPEAL ON GROUNDS NO. 8 TO 11 ARE DISMISSED. 8. APPEAL ON GROUND NO. 12 TO 14 ARE AGAINST THE DI SALLOWANCE OF RS.10665536/- U/S. 40(A)(IA) IN RESPECT OF CASH DISCOUNT ALLOWED TO CU STOMERS. THE A.O. IN THE ASSESSMENT ORDER HAS GIVEN HIS FINDING THAT THE DIS COUNT IS IN THE NATURE OF COMMISSION/BROKERAGE. THEREFORE, TDS SHOULD HAVE BE EN THERE U/S. 194H OF THE IT. ACT, 1961. DURING THE APPELLATE PROCEEDING THE A.R. HAS SUBMITTED THAT IN ORDER TO REDUCE DEPENDENCE OF BANK BORROWINGS AND REDUCE INT EREST BURDEN AND TO IMPROVE THE LIQUIDITY THE COMPANY FOLLOWS PRACTICE OF OFFER ING PREPAYMENT/ CASH DISCOUNTS TO ITS CUSTOMERS TO PAY THE INVOICE VALUE AHEAD OF CRE DIT PERIOD OF 90 DAYS. I HAVE CONSIDERED THE FINDING OF THE A.O. AND THE WRITTEN SUBMISSION FILED BY THE A.R. I THINK CASH INCENTIVES FOR FULL INVOICE PAYMENT BEFORE THE CREDIT PERIOD MAY BE TREATED AS INCENTIVE AND BY NO STRETCH OF IMAGINATION IT CAN B E CALLED COMMISSION/BROKERAGE. THEREFORE, ASSESSEE'S APPEAL ON GROUNDS NO., 12 TO 14 ARE ALLOWED. 9. APPEAL ON GROUND NO. 15 TO 18 ARE AGAINST THE DI SALLOWANCE OF RS. 7419691/- BEING NOTIONAL INTEREST ON INTEREST FREE .ADVANCE T O SUPPLIERS. THE A.O HAS MADE AN ADDITION ON THE PRESUMPTION THAT SUCH INTEREST FREE ADVANCES MIGHT HAVE BEEN PAID FROM BORROWED FUNDS. THE A.R. DURING THE APPELLATE PROCEEDING HAS SUBMITTED THAT IN THE LINE OF BUSINESS OF THE ASSESSEE GIVING AND REC EIVING INTEREST FREE ADVANCES TO SUPPLIERS AND PURCHASERS IS A NORMAL PRACTICE. THE A.R. HAS ALSO BROUGHT ON RECORD THAT DURING THE YEAR THE ASSESSEE HAS GIVEN ADVANCE S TO ITS SUPPLIERS AND BUSINESS ASSOCIATES AMOUNTING TO RS. 61830760/- AND IT HAS A LSO RECEIVED INTEREST FREE ADVANCES AGAINST ITS OWN SUPPLIES TO PURCHASERS AMO UNTING TO RS 283059000/-. I HAVE CONSIDERED THE FINDING; OF THE AO AND THE WRIT TEN SUBMISSION FILED BY THE AR. I FIND THAT GIVING AND RECEIVED ADVANCES IN ASSESSEE' S LINE OF BUSINESS IS A NORMAL PRACTICE. IN FACT THE ASSESSEE HAS RECEIVED MORE AD VANCES THAN IT HAS GIVEN TO ITS OWN SUPPLIERS. THEREFORE, THE AO IS NOT JUSTIFIED T O MAKE ADDITION OF NOTIONAL INTEREST ON THIS GROUND. ACCORDINGLY, ASSESSEE'S APPEAL ON G ROUND NO: 15 TO 18 ARE ALLO.WED . 10. APPEAL ON GROUND NO. 19 TO 21 ARE AGAINST THE DISALLOWANCE OF RS.1,13,52,917/- ON ACCOUNT OF FAILURE TO DEDUCT' TAX U/S. 194H OF T HE I.T. ACT, 1961. THE A.O. HAS HELD THAT THE REAL CHARACTER OF TRANSACTION BETWEEN THE ASSESSEE AND THE SEED GROWERS IS OF A PRINCIPLE AGENT NATURE OF RELATIONSHIP. THEREF ORE, THE ASSESSEE SHOULD HAVE ITA NO. 2216, 2128/K/13 & 18/KOL/2017 A.YS. 0 8-09 & 09-10 FLOURENCE INVESTECH LTD/M/S J.K.AGRI GENETICS LTD. VS. DCIT, CIR-10/5(2) KOL. PAGE 4 DEDUCTED TDS ON PAYMENTS TO SEED GROWERS. DURING TH E APPELLATE PROCEEDING THE AR. HAS SUBMITTED THAT ALTHOUGH THERE IS AN ARRANGE MENT/UNDERSTANDING BETWEEN THE APPELLANT AND THE GROWERS. BUT ALL ACTS, DEED AND T HINGS RELATING TO CULTIVATION AD HARVESTING OF UN PROCESSED SEEDS ARE CARRIED OUT BY THE GROWERS IN THEIR OWN RIGHT AT THEIR OWN COST AND RISK AND ON THEIR OWN LAND. I HA VE CONSIDERED THE FINDING OF THE A.O AND THE WRITTEN SUBMISSION FILED BY THE AR. I F IND THAT IT IS TRUE THAT ALL ACTS, DEEDS AND THINGS RELATING TO CULTIVATION, HARVESTING AND PROCESSING OF SEEDS ARE CARRIED OUT BY CULTIVATORS ON THEIR OWN RISK, ON THEIR OWN LAND AND AT THEIR OWN' COST. BUT THERE IS NO DENYING THE FACTS THAT CULTIVATORS DO SO WITH UN DERSTANDING/CONTRACT BETWEEN THE ASSESSEE AND THEMSELVES (SEED GROWERS/CULTIVATORS). THEREFORE, THE ASSESSEE SHOULD HAVE DEDUCTED TAX AT SOURCE U/S. 194H OF THE I.T. ACT, 1961 IN THIS CASE. ACCORDINGLY, ASSESSEE'S APPEAL ON GROUNDS NO. 19 TO 21 ORE DISMISSED. 11. APPEAL ON GROUND NO. 22 TO 26 ARE AGAINST THE DISALLOWANCE OF DEDUCTION U/S. 35 OF RS. 18549462/-. THE AO HAS GIVEN HIS FINDING THA T EQUIPMENTS USED BY THE ASSESSEE AT ITS RESEARCH CENTERS OF DEVELOPMENT OF NEW HYBRID SEEDS CAN ALSO BE USED BY THE ASSESSEE IN THE ORDINARY COURSE OF BUSI NESS AS WELL. THEREFORE, SUCH EQUIPMENTS WOULD NOT QUALIFY FOR DEDUCTION U/S. 35 OF THE IT. ACT, 1961. THE AR. DURING THE APPELLATE PROCEEDING HAS SUBMITTED THAT THE -FINDING OF THE AO. IS ON THE BASIS OF HIS APPREHENSION AND NOT ON SOME CONCRETE FINDING. I HAVE CONSIDERED THE FINDING OF THE AO AND THE SUBMISSION FILED BY THE A R. I THINK THE AO HAS DISALLOWED DEDUCTION U/S35 OF THE I. T ACT. 1961 WITHOUT GIVIN G ANY SPECIFIC FINDING OF THE DUAL USE OF MACHINES. THEREFORE, AOP'S ACTION CANNOT BE JUSTIFIED ON THE BASIS OF APPREHENSION ONLY. ACCORDINGLY, ASSESSEES APPEAL O N GROUND NO. 22 TO 26 ARE ALLOWED. 3. MR. CHOWDHURY, VEHEMENTLY CONTENDS DURING THE CO URSE OF HEARING THAT THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETIN G THE IMPUGNED DISALLOWANCE. HIS CASE IS THAT THE ASSESSING OFFICE R HAD RIGHTLY REJECTED THE ASSESSEES DEDUCTION CLAIM SINCE IT HAD PURCHASED T HE CORRESPONDING R & D ITEMS FOR CARRYING OUT ITS NORMAL BUSINESS ACTIVITY THAN THAT ANY SCIENTIFIC RESEARCH AND DEVELOPMENT (R&D ONLY). WE FIND NO MER IT IN THE REVENUES INSTANT GRIEVANCE. THE RELEVANT ASSESSMENT ORDER DA TED 31.12.2010 NOWHERE INDICATES THAT THE ASSESSEE HAD PUT TO USE THE IMPU GNED PLANT AND MACHINERY IN REGULAR BUSINESS OPERATIONS AND VICE VERSA . IT IS MADE CLEAR THAT THE DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH (D SIR) HAD DULY GRANTED APPROVAL TO THE TAXPAYERS CAPITAL EXPENDITURE AS P ER RULES. WE CONCLUDE IN THIS FACTUAL BACKDROP THAT THE CIT(A) HAS RIGHTLY D ELETED THE IMPUGNED SCIENTIFIC RESEARCH AND DEVELOPMENT DISALLOWANCE OF 1,85,49,462/- MADE U/S 35(1)(I) MADE DURING THE COURSE OF ASSESSMENT WITHO UT ANY MATERIAL BUT ON ASSUMPTIONS AND PRESUMPTIONS. THE REVENUES INSTANT SOLE GRIEVANCE AS WELL THE MAIN APPEAL ITA NO.2128/KOL/2013 FAIL ACCORDING LY. ITA NO. 2216, 2128/K/13 & 18/KOL/2017 A.YS. 0 8-09 & 09-10 FLOURENCE INVESTECH LTD/M/S J.K.AGRI GENETICS LTD. VS. DCIT, CIR-10/5(2) KOL. PAGE 5 4. NEXT COMES THE ASSESSEES CROSS APPEAL ITA NO.22 16/KOL/2013. ITS FIRST AND FOREMOST SUBSTANTIVE GROUND CHALLENGES SEC. 68 ADDITION OF BOGUS / SUNDRY LIABILITY OF 92,53,492/- TREATED AS UNEXPLAINED DURING THE COURS E OF ASSESSMENT AS WELL AS THE LOWER APPELLATE PROCEEDIN GS. 5. THE ASSESSEE-COMPANY IS A MANUFACTURER / PRODUCE R OF HYBRID SEEDS. IT CARRIED OUT RESEARCH, PRODUCTION & MARKETING OF HYB RID SEEDS AS WELL. THERE IS FURTHER NO QUARREL THAT THE ASSESSEE HAD A VERY WID E PORTFOLIO OF ALL MAJOR CROPS INCLUDING BAJRA, JOWAR, COTTON, HYBRID RICE, MAIZE, SUNFLOWER AS WELL AS VEGETABLES TOMATO, CHILLI, LADIESFINGER BRINJAL, G OURDS &MELONS ETC. IN LATTER LINE OF SEED DEVELOPMENT BUSINESS. 6. CASE FILE SUGGESTS THAT THE ASSESSEE HAD SUBMITT ED A LIST OF 246 PARTIES / PAYEES. THE ASSESSING OFFICERS OBSERVED IN HIS A SSESSMENT ORDER DATED 31.12.2010 THAT THE ASSESSEE HAD NOT FURNISHED COMP LETE ADDRESSES OF 109 OUT OF SAID 240 PARTIES INVOLVING THE SUM IN QUESTI ON OF 90,53,492/-.HE THEREFORE WAS OF THE VIEW THAT THE SAID 109 PARTIES COULD NOT BE PUT TO CONFIRMATION EITHER U/S 131 SUMMONS U/S 133(6) NOTI CE. AND ALSO THAT THE ASSESSEE HAD NOT PLACED ON RECORD THEIR PAN DETAILS & BANK STATEMENTS AS WELL. THE ASSESSEES GROSS CREDIT FIGURE IN CASE OF ALL 109 PARTIES INVOLVED A SUM OF 6,21,48,167/- AGAINST THE CLOSING BALANCE OF 90,53,492/-. THE ASSESSING OFFICER THEREFORE TREATED THE LATTER SUM AS UNEXPLAINED SEC. 68 OF THE ACT. THE CIT(A) HAS UPHELD THE SAME IN HIS LOWE R APPELLATE DISCUSSION. 7. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO RI VAL PLEADINGS ON THE INSTANT FIRST ISSUE. THE ASSESSEE-COMPANY; ADMITTED LY ENGAGED IN SEED DEVELOPMENT AND PROCUREMENT THEREOF IN VARIOUS CROP S AND VEGETABLE, DOES NOT OWN ANY LAND FOR THE PURPOSE OF FIELD TRIALS IN RESEARCH DEVELOPMENT. LEARNED DEPARTMENTAL REPRESENTATIVE FAILS TO REBUT THE CLINCHING FACT THAT THE ASSESSEE HAS TO CONDUCT THE FIELD TRIALS OF ALL FOR EGOING CROPS AND VEGETABLES THROUGHOUT THE COUNTRY BY WAY OF ITS ENGAGEMENT WIT H THE FARMERS / GROWERS. THE ASSESSEE IS THEREFORE REQUIRED TO ISSUE THE MOD IFIED / PROCESSED SEED TO ITA NO. 2216, 2128/K/13 & 18/KOL/2017 A.YS. 0 8-09 & 09-10 FLOURENCE INVESTECH LTD/M/S J.K.AGRI GENETICS LTD. VS. DCIT, CIR-10/5(2) KOL. PAGE 6 THE GROWERS BY WAY OF INCENTIVE AND SAID GROWERS AR E SUPPOSED TO RETURN THE ENTIRE SEED PRODUCE AT HIGHER INCENTIVES RATES THAN ONLY THE MINIMUM SUPPORT PRICE SHALL THE PRODUCE INVOLVING SEEDS ARE YET TO BE INTRODUCED IN THE MARKET. WE FIND THAT THE LOWER AUTHORITIES HAVE FAILED TO C ONSIDER THIS CUMBERSOME PROCESS INVOLVED IN ASSESSEES LINE OF SEED PROCESS ING AND PRODUCTION BUSINESS. 8. LEARNED DEPARTMENTAL REPRESENTATIVE AT THIS STAG E INVITED OUR ATTENTION TO PAGES 9 TO 14 IN THE ASSESSMENT ORDER THAT THE A SSESSING OFFICER COULD NOT HAVE ISSUED THE RELEVANT FACTUAL VERIFICATION PROCE SS TO 109 PARTIES ON ACCOUNT OF THEIR INCOMPLETE ADDRESSES. WE FIND THAT ONLY 24 OUT OF THE SAID 109 CREDITORS DID NOT CONTAIN THE COMPLETE ADDRESSES. I T FURTHER EMERGES THAT THE ASSESSING OFFICER IS HIMSELF VERY FAIR IN MAKING IT CLEAR IN HIS ASSESSMENT ORDER THAT THE TOTAL CREDIT FIGURE IN RESPECT OF THESE 10 9 PARTIES WAS 6,21,48,167/- AS AGAINST CLOSING BALANCE IN ISSUE (SUPRA) WHICH S TAND TREATED AS BOGUS. THIS ACTION OF ASSESSING OFFICER PART IS HARDLY ACCEPTAB LE BEING AN INSTANCE OF MUTUAL CONTRADICTORY FINDINGS. WE MAKE IT CLEAR THA T THE ASSESSING OFFICER HAS TREATED THE DIFFERENTIAL FIGURE OF 530,94,675/- IN CASE OF VERY PARTIES AS CORRECT. THE FACT ALSO REMAINS THAT THE ASSESSEE HA S NOT COMPLETELY DISCHARGED ITS ONUS OF PROVING LIABILITY BY FILING ALL THE NECESSARY PARTICULARS AS WELL. FACED WITH THIS PECULIAR SITUATION, WE DEEM I T APPROPRIATE THAT A LUMP SUM DISALLOWANCE OF 5 LAC ONLY THAN 90,53,743/- IN ISSUE WOULD MEET THE ENDS OF JUSTICE WITH A RIDER THAT SAME SHALL NOT BE TREATED AS PRECEDENT IN ANY OTHER ASSESSMENT YEAR; AS THE CASE MAY BE. THE ASSE SSEES FIRST SUBSTANTIVE GRIEVANCE PARTLY SUCCEEDS TO THE 85,53,942/-. NECESSARY COMPUTATION TO FOLLOW AS PER LAW. 9. NEXT COMES THE SECOND ISSUE OF SEC. 14A R.W.S. R ULE 8D DISALLOWANCE OF 79,42,598/- COMPRISING OF PROPORTIONATE INTEREST AN D ADMINISTRATIVE EXPENDITURE FIGURE(S) OF 46,08,448/- AND 3,34,150 UNDER RULE 8D(2)(II) &(III) OF THE INCOME TAX RULES, 1962; RESPECTIVELY. THERE IS NO DISPUTE THAT THE ITA NO. 2216, 2128/K/13 & 18/KOL/2017 A.YS. 0 8-09 & 09-10 FLOURENCE INVESTECH LTD/M/S J.K.AGRI GENETICS LTD. VS. DCIT, CIR-10/5(2) KOL. PAGE 7 ASSESSEES RELEVANT EXEMPT INCOME DERIVED FROM DIVI DEND READS AN AMOUNT OF 416,41,398/- AS AGAINST ITS SUO MOTU DISALLOWANCE OF 3.26 LAC ONLY. PAPER BOOK PAGE 43 SUGGESTS THAT THE ASSESSEE HAD HELD SH ARES IN M/S J.K.PAPER LTD. M/S ASHIM INVESTMENT CO. LTD., J.K. INDUSTRIES LTD. & JK LAKSHMI CEMENT LTD. INVOLVING 6675248, 758057, 4525553 AND 6822520 UNITS EARNING DIVIDENDS OF 2.25, 1, 2.7 AND 2 PER SHARE; RESPECTIVELY. SUFFICE TO SAY, BOTH THE LOWER AUTHORITIES HAVE COMPUTED IMPUGNED PROPOR TIONATE INTEREST AND ADMINISTRATIVE EXPENDITURE DISALLOWANCE AS PER THE STATUTORY FORMULA IN RULE 8D OF THE INCOME-TAX RULES, 1962. 10. LEARNED AUTHORIZED REPRESENTATIVE VEHEMENTLY SU BMITS DURING THE COURSE OF HEARING THAT BOTH THE LOWER AUTHORITIES H AVE ERRED IN LAW AND ON FACTS IN INVOKING THE IMPUGNED DISALLOWANCE U/S.14A R.W.S RULE 8D DISALLOWANCE DURING THE COURSE OF ASSESSMENT AS WEL L AS IN LOWER APPELLATE PROCEEDINGS. WE ARE TAKEN TO PAGES 44 TO 81 IN PAPE R BOOK CONTAINING THE RELEVANT AMALGAMATION SCHEME(S) APPROVED BY HON'BLE JURISDICTIONAL HIGH COURT IN COMPANY APPLICATION NO.16 OF 2003 REGARDIN G TRANSFER OF INVESTMENTS OF THE ABOVE STATED FIRST ENTITY M/S J.K. INDUSTRIE S LTD. TO THE ASSESSEE AND HON'BLE KARNATAKA HIGH COURTS ORDER IN COMPANY APP LICATION NO. 58 OF 2003 TO THIS EFFECT. THE ASSESSEE APPEARS TO HAVE ACQUIRED SHARES OF M/S J.K. INDUSTRIES LTD. AND M/S J.K. PAPER LTD. INCLUDING 6 67524 AND 4525553 UNITS; RESPECTIVELY. IT DERIVED DIVIDEND INCOME IN RESPECT OF THESE TWO COMPANIES IN ASSESSMENT YEAR 2004-05 AS WELL. THE CIT(A)S CORRE SPONDING LOWER APPELLATE ORDER DATED 09.09.2014 PAGE 82 TO 93 AND MORE PARTI CULARLY AT PAGES 92 HELD THAT THE ABOVE STATED AMALGAMATION SCHEME INVOLVED ZERO COUPON BONDS AND ZERO COUPON PREFERENCE SHARES NOT INCLUDING ANY INT EREST AT ALL. THIS CLINCHING FACT HAS NOT BEEN REBUTTED IN EITHER OF THE LOWER P ROCEEDINGS NOR BEFORE US. WE THEREFORE DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED PROPORTIONATE INTEREST EXPENDITURE DISALLOWANCE IN RESPECT OF ASSESSEES DIVIDEND INCOME OF 150,19,308 AND 7,58,057/- RELATING TO THESE TWO ENTITIES; RESPECTIVELY. ITA NO. 2216, 2128/K/13 & 18/KOL/2017 A.YS. 0 8-09 & 09-10 FLOURENCE INVESTECH LTD/M/S J.K.AGRI GENETICS LTD. VS. DCIT, CIR-10/5(2) KOL. PAGE 8 11. COMING TO ASSESSEES REMAINING DIVIDEND INCOME IN RESPECT TO M/S ASHIM INVESTMENT CO. LTD., & JK LAKSHMI CEMENT LTD. IT EMERGES THAT ASSESSING OFFICER HAS NOWHERE GIVEN A CLEAR-CUT FIN DING ABOUT ITS NON INTEREST BEARING FUND AVAILABLE AT THE TIME OF MAKING TAX FR EE INCOME YELDING INVESTMENTS. WE THEREFORE DEEM IT APPROPRIATE TO RE STORE THE INSTANT REMAINING COMPONENT OF PROPORTIONATE INTEREST DISALLOWANCE BA CK TO THE ASSESSING OFFICER FOR FINALIZING CONSEQUENTIAL COMPUTATION AS PER LAW IN VIEW OF INTEREST FREE FUNDS AVAILABLE IN THE TAXPAYERS BALANCE-SHEE T. NECESSARY COMPUTATION TO FOLLOW AS PER LAW. 12. WE NOW ADVERT TO THE LATTER LIMB OF DISALLOWANC E OF ADMINISTRATIVE EXPENDITURE AMOUNTING TO 33,34,150/- (SUPRA). PAGE 11 OF THE PAPER BOOK REVEALS THAT ASSESSEES OTHER INCOME AND INCOME FRO M INVESTMENTS. MR. DAMLE SUBMITS THAT THE ASSESSEES OTHER INCOME RELA TING TO INVESTMENTS READ FIGURE OF 4.16 LAC OUT OF WHICH IT HAD ITSELF DISALLOWED 3.26 LAC (SUPRA) @ 78.33% ON PRO RATA BASIS. WE MAKE IT CLEAR THAT THE IMPUGNED HEAD OF ADMINISTRATIVE EXPENDITURE IS AN INDIRECT ONE WHERE IN THE NECESSARY COMPUTATION PRO RATA BASIS CANNOT BE FAULTED. WE HOLD IN THESE FACTS TH AT BOTH THE LOWER AUTHORITIES HAVE ERRED IN GOING BY THE ST ATUTORY COMPUTATION THAN TAKING INTO CONSIDERATION THE RELEVANT ACTUAL FIGUR E(S) HEREINABOVE. WE THEREFORE DIRECT THE ASSESSING OFFICER TO DELETE TH E IMPUGNED ADMINISTRATIVE EXPENDITURE DISALLOWANCE. THIS SECOND SUBSTANTIVE G RIEVANCE IS TAKEN AS PARTLY ACCEPTED IN FOREGOING TERMS. 13. NEXT COMES THE ASSESSEES THIRD AND LAST GRIEV ANCE OF SEC. 194H R.W.S 40(A)(IA) DISALLOWANCE OF 1,13,52,917/- ON ACCOUNT OF ITS FAILURE IN DEDUCTI NG TDS ON SEED PURCHASES TREATED AS BROKERAGE AND COMM ISSION PAYMENTS IN BOTH THE LOWER PROCEEDINGS. THE CIT(A)S DETAILED D ISCUSSION ON THE ISSUE READS AS UNDER:- 10. APPEAL ON GROUND NO. 19 TO 21 ARE AGAINST THE D ISALLOWANCE OF RS.1,13,52,917/- ON ACCOUNT OF FAILURE TO DEDUCT TAX U/S. 194H OF T HE I.T. ACT, 1961. THE AO HAS HELD THAT THE REAL CHARACTER OF TRANSACTION BETWEEN THE ASSESSEE AND THE SEED GROWERS IS ITA NO. 2216, 2128/K/13 & 18/KOL/2017 A.YS. 0 8-09 & 09-10 FLOURENCE INVESTECH LTD/M/S J.K.AGRI GENETICS LTD. VS. DCIT, CIR-10/5(2) KOL. PAGE 9 OF A PRINCIPLE AGENT NATURE OF RELATIONSHIP. THEREF ORE, THE ASSESSEE SHOULD HAVE DEDUCTED TDS ON PAYMENTS TO SEED GROWERS. DURING TH E APPELLATE PROCEEDING THE AR HAS SUBMITTED THAT ALTHOUGH THERE IS AN ARRANGEMENT /UNDERSTANDING BETWEEN THE APPELLANT AND THE GROWERS. BUT ALL ACT, DEED AND TH INGS RELATING TO CULTIVATION AND HARVESTING OF UNPROCESSED SEEDS ARE CARRIED OUT BY THE GROWERS IN THEIR OWN RIGHT, AT THEIR OWN COST AND RISK AND N THEIR OWN LAND. I HAV E CONSIDERED THE FINDING OF THE AO AND THE WRITTEN SUBMISSIONS FILED BY THE AR. I FIND THAT IT IS TRUE THAT ALL ACTS, DEEDS AND TINGS RELATING TO CULTIVATION, HARVESTING AND P ROCESSING OF SEEDS ARE CARRIED OUT BY CULTIVATORS ON THEIR OWN RISK, ON THEIR OWN LAND AND AT THEIR OWN COST. BUT THERE IS NO DENYING THE FACTS THAT CULTIVATORS DO SO WITH UN DERSTANDING/CONTRACT BETWEEN THE ASSESSEE AND THEMSELVES ( SEED GROWERS/CULTIVATORS ). THEREFORE, THE ASSESSEE SHOULD HAVE DEDUCTED TAX AT SOURCE U/S. 194H OF THE I.T. ACT, 1961 IN THIS CASE. ACCORDINGLY ASSESSEES APPEAL ON GROUNDS NO. 10 TO 21 ARE DISMISSED . 14. IT THEREFORE EMERGES THAT BOTH THE LOWER AUTHOR ITIES HAVES TREATED THE ASSESSEES PAYMENTS TO ITS GROWERS FOR THE PURPOSE OF CROPS / SEEDS TRIALS AS COMMISSION / BROKERAGE PAYMENTS REQUIRING TDS DEDUC TION U/S. 194H OF THE ACT. WE FIND THAT THE CIT(A) HIMSELF IS VERY FAIR I N HOLDING THAT GROWERS / RECIPIENTS ENJOY TITLE ON THEIR OWN AGRICULTURAL LA NDS, THEY HAVE THEMSELVES CARRIED OUT ALL ACTIVITIES OF CULTIVATION, HARVEST ING AND SEED PROCESSING AT THEIR OWN RISK. IT IS THEREFORE AN INSTANT OF OUTRIGHT PU RCHASE OF THE SEED PRODUCE BETWEEN THE ASSESSEE AND SAID SEED GROWERS WITHOUT INVOLVING AN AGENT OR MIDDLEMAN. THIS TRIBUNALS CO-ORDINATE BENCHS DECI SION IN (2011) 46 SOT 133 (VISAKH.)/10 TAXMANN.COM 47 (VISAKH.-ITAT) ADDITIONAL COMMISSIONER OF INCOME-TAX, RANG-4, VISAKHAPATNAM VS. PEARL BOTTLIN G (P) LTD. HOLDS THAT 194H DOES NOT APPLY IN CASE OF PRINCIPAL-TO-PRINCIP AL RELATIONSHIP BETWEEN THE BUYER AND THE RECIPIENT . WE THEREFORE DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED SEC. 194H DISALLOWANCE OF 1,13,52,917/- ON THIS COUNT ALONE. THE ASSESSEES CROSS-APPEAL ITA NO.2216/KOL/2013 IS PARTLY ALLOWED IN ABOVE TERMS. 15. MR. DAMLE INVITES OUR ATTENTION THE ASSESSEES LATTER APPEAL ITA NO.18/KOL/2017 FOR ASSESSMENT YEAR 2009-10 RAISING THE SOLE SUBSTANTIVE ISSUE OF SEC. 194H R.W.S. 40(A)(IA) DISALLOWANCE OF 90,24,062/- INVOLVING PAYMENTS TO FARMERS / GROWERS WITHOUT DEDUCTING TDS IDENTICAL TO OUR FOREGOING DISCUSSION IN PRECEDING ASSESSMENT YEAR. WE ADOPT JUDICIAL CONSISTENCY TO ACCEPT THE IMPUGNED SOLE GRIEVANCE R AISED IN THE MAIN APPEAL. ITA NO. 2216, 2128/K/13 & 18/KOL/2017 A.YS. 0 8-09 & 09-10 FLOURENCE INVESTECH LTD/M/S J.K.AGRI GENETICS LTD. VS. DCIT, CIR-10/5(2) KOL. PAGE 10 16. TO SUM UP, THE REVENUES APPEAL ITA NO.2128/KOL/2013 FOR ASSESSMENT YEAR 2008-09 IS DISMISSED. THE ASSESSEE S CROSS-APPEAL ITA NO.2216/KOL/2013 IS PARTLY ALLOWED AND LATTER APPEAL ITA NO.18/KOL/2017 FOR ASSESSMENT YEAR 2009-10 IS ALLOWED IN ABOVE TERMS. ORDER PRONOUNCED IN THE OPEN COURT 18/ 09/2019 SD/- SD/- ( ) (( ) ( A.L.SAINI) (S.S.GODARA) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) KOLKATA, *DKP )- 18 / 09 /201 9 / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE-FLORENCE INVESTECH LTD.7, COUNCIL HOUSE S TREET, KOLKATA-001 / M/S J.K. AGRI GEN ETICS LTD.,7, COUNCIL HOUSE ST, KOLKATA-001 2. /REVENUE-ACIT, RANGE-10/DCIT, CIRCLE-5(2),/DCIT, CI R-10, P-7, CHOWRINGHEE SQUARE, 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/ 4,