DCIT, Circle - 4, Kolkata, Kolkata V. M/s. Cheviot Agro Industries Ltd., Kolkata

ITA 2179/KOL/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8098 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2001-2002
• Appeal Filed On: 08-12-2010
• Court: TRIBUNAL
• Department Lawyers: D J MEHTA
• Keywords: Depreciation; Question of law

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA () BEFORE , ! /AND ' #!' , ) [BEFORE SHRI PRAMOD KUMAR, AM & SHRI MAHAVIR SINGH, JM] !$ !$ !$ !$ / I.T.A NO. 2179/KOL/2010 #%& '( #%& '( #%& '( #%& '(/ // / ASSESSMENT YEAR: 2001-02 DEPUTY COMMISSIONER OF INCOME-TAX, VS. M/S. CHEV IOT AGRO INDUSTRIES LTD. CIRCLE-4, KOLKATA. (PAN: AABCC0652L) (*+ /APPELLANT ) (,*+/ RESPONDENT ) DATE OF HEARING: 15.10.2012 DATE OF PRONOUNCEMENT: 19.10.2012 FOR THE APPELLANT: SHRI D. J. MEHTA FOR THE RESPONDENT: SHRI MANISH TIWARY - / ORDER PER MAHAVIR SINGH, JM ( ' #!' ' #!' ' #!' ' #!', , , , ) THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF C IT(A)-XVI, KOLKATA IN APPEAL NO.290/CIT(A)-XVI/CIR.4/08-09 DATED 26.07.2010. ASS ESSMENT WAS FRAMED BY DCIT, CIRCLE- 4, KOLKATA U/S.143(3)/263 OF THE INCOME TAX ACT, 19 61 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2001-02 VIDE HIS ORDER DATED 28.12. 2005. 2. AT THE OUTSET, IT IS NOTICED THAT THIS APPEAL O F REVENUE IS BARRED BY LIMITATION BY 51 DAYS. LD. COUNSEL FOR THE ASSESSEE FAIRLY CONCEDED THAT T HE DELAY CAN BE CONDONED IN VIEW OF THE AFFIDAVIT FILED BY REVENUE. IN VIEW OF THE CONCESS ION GIVEN BY LD. COUNSEL FOR THE ASSESSEE, WE CONDONE THE DELAY AND ADMIT THE APPEAL. 3. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE OF NURSERY EXPENSES. FOR THIS, REVENU E HAS RAISED FOLLOWING GROUND NO.1: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) HAS ERRED IN LAW IN DIRECTING THE A.O. TO DELETE THE NURSERY EXPENSES IN ADDED AR EA OF RS.5,33,850/- WITHOUT APPRECIATING THE FACT THAT NURSERY EXPENSES WERE ALWAYS BEEN HEL D AS CAPITAL IN NATURE AND AS PER LAW NURSERY EXPENSES AND REPLANTING OF BUSHES IS NOT TH E SAME. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAS DEBITED A SUM OF RS.5,33,850/- ON ACCOUNT OF NURSERY EXPENSES . AS PER AO, THE ASSESSEE HAS BROUGHT FRESH LAND UNDER CULTIVATION I.E. FRESH TEA CULTIVA TION AREA OF 26.31 HECTARES WAS ADDED. 2 ITA 2179/K/2010 CHEVIOT AGRO INDUSTRIES LTD. A.Y.0 1-02 THEREFORE, THE AO TREATED THIS EXPENDITURE AS CAPIT AL IN NATURE AND MADE ADDITION. THE CIT(A) AFTER CONSIDERING THE EXPENDITURE OF THE ASSESSEE THAT THE EXTENSION PERTAINS TO FY 2001-02 RELEVANT TO AY 2002-03 AND NOT THE PRESENT AY 2001- 02. HENCE, HE DELETED THE ADDITION. AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 5. BEFORE US LD. SR. DR FAIRLY CONCEDED THE POSITIO N AND ADMITTED THAT IN THE PRESENT CASE THERE OCCURS FACTUAL MISTAKE ABOUT THE PERIOD IN WH ICH EXTENSION WAS CARRIED OUT AND ON THAT BASIS THE EXPENSES ARE HELD TO BE CAPITAL IN NATURE . THE LD. SR. DR PRACTICALLY HAS NOT PRESSED THIS ISSUE AND CONCEDED THE POSITION. WE FIND THAT THE ASSESSEE BEFORE CIT(A) AS WELL AS BEFORE US CONTENDED THAT EXTENSION OF CULTIVATION ON VIRGI N SOIL WAS SHOWN IN THE RETURN FILED WITH TEA BOARD AT 26.31 HECTARES IN THE YEAR 2001. BUT ACCOR DING TO ASSESSEE, THIS IS NEW EXTENSION OF 26.31 HECTARES WAS DONE DURING THE PERIOD 01.04.200 1 TO 31.12.2001 I.E. RELEVANT AY 2002-03 AND NOT AY 2001-02. ONCE THIS IS A FACT, AS ADMITTE D BY LD. SR. DR, THAT THIS EXPENDITURE PERTAINS TO AY 2002-03 AND NOT TO RELEVANT AY 2001- 02, THE YEAR IN DISPUTE, WE HAVE NO HESITATION IN CONFIRMING THE ORDER OF CIT(A). THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 6. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) DELETING THE ADDITION MADE ON ACCOUNT OF CESS ON GREEN LEAF. FO R THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.2: 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS.11,55,000/- ON ACCOUNT OF CESS ON GREEN LEAF WITHOUT CONSIDERING THE FACT THAT EXPENSES ON ACCOUNT OF CE SS ON GREEN LEAF IS RELATED TO 100% AGRICULTURAL OPERATION AND SLP IS PENDING BEFORE TH E HONBLE SUPREME COURT AGAINST THE DECISION OF CALCUTTA HIGH COURT IN THE CASE OF AFT INDUSTRIES LTD. VS. CIT (270 ITR 167) IN THE LIGHT OF WHICH LD. CIT(A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 7. AT THE OUTSET, IT IS NOTICED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF JURISDIC TIONAL HIGH COURT IN THE CASE OF AFT INDUSTRIES LTD. (SUPRA), WHEREIN HONBLE HIGH COURT HAS HELD AS UNDER: HAVING REGARD TO THE PROVISIONS CONTAINED IN RULE 8 WITH WHICH WE HAD OCCASION TO DEAL IN UNION OF INDIA V. WARREN TEA LTD. [2004) 266 ITR 226 (CAL), A.P.O. NO.792 OF 1999, DISPOSED OF BY US ON JANUARY 15, 2004, IT APPEARS T HAT IN RESPECT OF COMPUTATION OF INCOME OF TEA GROWN AND MANUFACTURED, A FICTION HAS BEEN CREATED UNDER WHICH BOTH THE AGRICULTURAL COMPONENT AND THE BUSINESS COMPONENT O F THE INCOME WOULD BE ASSESSED TOGETHER FOR THE PURPOSE OF COMPUTING THE INCOME UN DER THE ACT AND ONLY AFTER THE COMPUTATION OF THE TOTAL INCOME, THE APPORTIONMENT IS TO BE MADE DETERMINING 60 PER CENT, AS AGRICULTURAL INCOME AND 40 PER CENT. AS EX IGIBLE TO TAX UNDER THE ACT. DURING THE PROCESS OF THE COMPUTATION, ALL DEDUCTIONS ALLOWABL E AT THE TIME OF COMPUTATION ARE TO BE ALLOWED AND THAT WAS RIGHTLY ALLOWED. INASMUCH AS I F THE INCOME FOR TEA GROWN WAS ASSESSED UNDER THE AGRICULTURAL INCOME-TAX, IN THAT EVENT, THE SAME CESS PAID OF GREEN LEAF WOULD HAVE BEEN ELIGIBLE FOR DEDUCTION AT THE TIME OF COMPUTATION OF THE AGRICULTURAL INCOME. BUT WHEN BY FICTION IN RESPECT OF TEA GROWN AND MANUFACTURED, THE AGRICULTURAL 3 ITA 2179/K/2010 CHEVIOT AGRO INDUSTRIES LTD. A.Y.0 1-02 COMPONENT OF THE INCOME OUT OF THE TEA GROWN IS ALS O COMPUTED UNDER THE INCOME-TAX ACT ALONG WITH THE INCOME OUT OF THE TEA MANUFACTURED F ROM THE TEA GROWN. WHEN BY FICTION THE INCOME AS COMPUTED AS AN INCOME UNDER THE ACT, ALL DEDUCTIONS AS ARE AVAILABLE BOTH FOR THE AGRICULTURAL COMPONENT AND FOR THE BUSINESS COMPONENT OF THE INCOME ARE TO BE ALLOWED AS A NATURAL COROLLARY TO THE FICTION SO CR EATED. SUCH DEDUCTIONS, WHICH ARE ALLOWED IN ORDER TO ARRIVE AT THE TOTAL INCOME EXIG IBLE TO TAX, ARE TO BE ALLOWED AND THE APPORTIONMENT OF THE TOTAL INCOME SO COMPUTED IS TO BE MADE. IF THE AGRICULTURAL PART OF THE DEDUCTIONS IS MADE APPLICATION FOR DEDUCTION FR OM THE 60 PER CENT OF THE TOTAL INCOME SO COMPUTED, IN THAT EVENT, THIS 60 PER CENT WOULD BE AGAIN MADE ASSESSABLE UNDER THE AGRICULTURAL INCOME-TAX ACT WHICH IS NOT PERMISSIBL E. IN THAT EVENT, THE PURPOSE OF CREATING FICTION WOULD STAND FRUSTRATED. IT WOULD T HEN BE A CONCEPT COMPLETELY FOREIGN TO THE FICTION SO CREATED. THEREFORE, THE ENTIRE AMOUN T PAID AS CESS ON GREEN LEAF SEEMS TO BE ELIGIBLE FOR DEDUCTION WITH REGARD TO WHICH WE DO N OT FIND ANY CONFUSION. FOR THE AFORESAID REASONS, WE DO NOT FIND ANY SUBS TANTIAL QUESTION OF LAW INVOLVED IN THIS CASE. THE PETITION IS, THEREFORE, DISMISSED. RESPECTFULLY FOLLOWING THE HONBLE JURISDICTIONAL H IGH COURT DECISION, AS THE ISSUE IS EXACTLY SAME ON FACTS, WE UPHOLD THE ORDER OF CIT(A) AND DI SMISS THE REVENUES GROUND OF APPEAL. 8. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY AO ON ACCOUNT OF EXPENSES TREATING THE SAME AS CAPITAL IN NATURE. FOR THIS REVENUE HAS RAISED FOLLOWING GROUND NO.3: 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS.5,47,147/- WITHOUT APPR ECIATING THE FACT THAT THE EXPENSES ARE CAPITAL IN NATURE AND ARE NOT ALLOWABLE UNDER THE I NCOME TAX ACT. 9. THE FACTS OF THIS ISSUE ARE EXACTLY IDENTICAL TO WHAT WE HAVE ALREADY DELIBERATED IN GROUND NO.1 ABOVE. TAKING A CONSISTENT VIEW, WE CO NFIRM THE DELETION MADE BY CIT(A). THEREFORE, THIS GROUND OF REVENUES APPEAL IS ALSO DISMISSED. 10. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE OF CLAIM OF DEPRECIATION ON LEASED ASS ET LEASED OUT TO SISTER CONCERN. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO. 4: 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) HAS ERRED IN LAW IN ALLOWING THE CLAIM OF DEPRECIATION ON LEASED ASSETS OF RS.2,39,128/- LEASED TO THE SISTER CONCERN AT A MEAGRE LEASE RENT OF RS.12,000/- ONLY DISREGARDING THE PRINCIPLE LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF MCDOWEL L & CO. LTD. IN THE CONCEPT OF TAX AVOIDANCE WHILE THE MACHINERIES LEASED OUT WERE NOT REMOTELY CONNECTED WITH THE BUSINESS OF THE ASSESSEE. 11. WE HAVE HEARD RIVAL PARTIES AND GONE THROUGH FA CTS AND CIRCUMSTANCES OF THE CASE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESSEE HAS INCOME ON ACCOUNT OF LEASE RENTALS AT RS.12,000/- ONLY AND TH IS MEAGRE INCOME CANNOT BE THE BASIS FOR ALLOWANCE OF DEPRECIATION ON LEASED ASSETS. ACCORD ING TO AO, THE CLAIM OF DEPRECIATION ON LEASED ASSET IS FOR MEAGRE RENTAL INCOME AND HENCE, ASSETS CANNOT BE SAID TO BE CONNECTED WITH 4 ITA 2179/K/2010 CHEVIOT AGRO INDUSTRIES LTD. A.Y.0 1-02 THE BUSINESS ACTIVITY I.E. MANUFACTURING OF TEA. W HEN A QUERY WAS MADE BY AO, THE ASSESSEE FURNISHED THE DEPRECIATION SCHEDULE AND DEMONSTRATE D THAT THE MACHINERIES HAVE BEEN PURCHASED IN AY 1994-95 AND THE SAME ARE LEASED OUT TO CHEVIOT CO. LTD., A SISTER CONCERN. THE ASSESSEE ALSO FURNISHED THE DETAILS OF EARLIER YEARS LEASE INCOME AND DEPRECIATION CLAIMS. BUT ACCORDING TO AO, THE MACHINERY PURCHASED AND SO LD OUT WERE NOT EVEN DISTINCTLY CONNECTED WITH THE BUSINESS ACTIVITY OF THE ASSESSEE. HENCE, HE MADE DISALLOWANCE OF CLAIM OF DEPRECIATION AT RS.2,39,128/-. HOWEVER, CIT(A) ALL OWED THE CLAIM OF ASSESSEE ON THE BASIS THAT THE ASSESSEE FROM THE VERY BEGINNING I.E. FROM 1994 IT IS RECEIVING LEASE RENTAL INCOME WHICH ARE HIGHER THAN THE AMOUNT OF DEPRECIATION CLAIMED BY ASSESSEE. ACCORDING TO CIT(A), THE MACHINERY IN QUESTION ARE VERY OLD AND THEY WERE N OT USED BY ASSESSEE BUT IT WAS LEASED OUT TO SISTER CONCERN AT A VERY NOMINAL RENTALS AND ONCE T HE ASSESSEE HAS RECEIVED LEASE RENTALS, DEPRECIATION CANNOT BE DISALLOWED. BEFORE US LD. CO UNSEL FOR THE ASSESSEE FAIRLY STATED THAT THE ASSESSEE FROM THE VERY BEGINNING I.E. FROM 1994, IT IS DISCLOSING RENTAL INCOME ON LEASED MACHINERIES AND ALSO CLAIMING DEPRECIATION WHICH WA S NEVER DISALLOWED. IT MEANS THAT THIS IS A FACT THAT THE MACHINERIES ARE LEASED OUT AND ASSESS EE IS EARNING RENTAL INCOME FROM LEASING OUT OF THESE MACHINERIES AND ONCE THIS IS A FACT, THE D EPRECIATION ON THE ABOVE LEASED MACHINERIES CANNOT BE DISALLOWED. HENCE, WE CONFIRM THE ORDER OF CIT(A). THIS GROUND OF REVENUES APPEAL IS ALSO DISMISSED. 12. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE OF DEPRECIATION ON VEHICLES. FOR THIS REVENUE HAS RAISED FOLLOWING GROUND NO.5: 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) HAS ERRED IN LAW IN ALLOWING DEPRECIATION OF VEHICLES OF RS.83,185/- WI THOUT VERIFYING WHETHER ROAD TAX AND INSURANCE WERE PAID BEFORE THE VEHICLES WERE USED. 13. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. THE AO MADE DISALLOWANCE OF DEPRECIATION ON THE BA SIS THAT THE ASSESSEE COULD NOT PRODUCE ANY PAYMENT OF INSURANCE OR ANY MOTOR VEHICLES TAX OR ANY OTHER EVIDENCE TO SHOW THAT VEHICLES WERE PUT TO USE FOR THE PURPOSE OF BUSINESS. THE C IT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY DISCUSSING THAT THE CLAIM OF DEPRECIATION ON VEHICL ES BEING 2 NOS. OF TRACTOR AND 2 NOS. OF TRAILERS WERE DISALLOWED BY AO FOR THE REASON THAT THE ASSESSEE HAS NOT PRODUCED ANY PAPERS IN RESPECT TO PAYMENT OF INSURANCE AND ROAD TAX. BEFO RE CIT (A) AS WELL AS BEFORE AO ASSESSEE FILED COPIES OF BILLS, DELIVERY CHALLANS, ORDERS, T RANSPORTER BILLS AND EVIDENCE OF RECEIPT OF THESE VEHICLES. ACCORDING TO CIT(A), THE MANAGER OF TEA GARDEN HAS RECEIVED THE TRACTORS AND TRAILERS ON 20.03.2001 AND 27.03.2001. AS THE CIT(A) HAS AL LOWED THE CLAIM OF DEPRECIATION ON THE BASIS OF USES OF VEHICLES THAT THESE WERE PUT TO US E BEFORE 31.03.2001. AS THE LD. SR. DR 5 ITA 2179/K/2010 CHEVIOT AGRO INDUSTRIES LTD. A.Y.0 1-02 CONCEDED THAT PRACTICALLY HE IS NOT PRESSING THIS I SSUE, WE HAVE NO HESITATION IN CONFIRMING THE ORDER OF CIT(A) ALLOWING THE CLAIM OF ASSESSEE. TH IS GROUND OF APPEAL OF REVENUE IS DISMISSED. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. 15. ORDER PRONOUNCED IN OPEN COURT ON 19 TH OCT., 2012. SD/- SD/- , ' #!' ' #!' ' #!' ' #!' , (PRAMOD KUMAR) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( . . . .) )) ) DATED : 19TH OCTOBER, 2012 /0 #%12 #3 JD.(SR.P.S.) 6 ITA 2179/K/2010 CHEVIOT AGRO INDUSTRIES LTD. A.Y.0 1-02 - 4 ##5 65'7- COPY OF THE ORDER FORWARDED TO: 1 . *+ / APPELLANT DCIT, CIRCLE-4, KOLKATA 2 ,*+ / RESPONDENT M/S. CHEVIOT AGRO INDUSTRIES LTD., 2 4, PARK STREET, 9 TH FLOOR, KOLKATA-700 001 3 . #-% ( )/ THE CIT(A), KOLKATA 4. #-% / CIT, KOLKATA 5 . >#? #% / DR, KOLKATA BENCHES, KOLKATA ,5 #/ TRUE COPY, -%/ BY ORDER, ' !2 /ASSTT. REGISTRAR .