DCIT, Circle - 4, Kolkata, Kolkata V. M/s. Darjeeling Dooars Plantations (Tea) Ltd., Kolkata

ITA 2244/KOL/2010

• Counselvise Citation: 224423514 RSA 2010
• Duration Of Justice: 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 25-03-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 22-12-2010
• Court: TRIBUNAL
• Department Lawyers: P K MISHRA
• Assessee Lawyers: S K AGARWAL
• Keywords: Business income; Business expenditure; Revenue expenditure; Capital expenditure

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL, BEN CH C, KOLKATA () BEFORE , , , , , SHRI MAHAVIR SINGH, JUDICIAL MEMBER. /AND . .. . ! ! ! !. .. . , '# SHRI C.D.RAO, ACCOUNTANT MEMBER $ $ $ $ / ITA NOS . 2243 & 2244 & 2053/KOL/2010 %& '(/ ASSESSMENT YEARS : 2002-03 & 2004-05 (*+ / APPELLANT ) D.C.I.T., CIRCLE-4, KOLKATA - % - - VERSUS - . (-.*+/ RESPONDENT ) M/S.DARJEELING DOOARS PLANTATIONS (TEA)LTD., KOLKATA (PAN: AABCD 2697 J) *+ / 0 '/ FOR THE APPELLANT: SHRI P.K.MISHRA -.*+ / 0 '/ FOR THE RESPONDENT: SHRI S.K.AGARWAL '1 / ORDER ( (( ( . .. . ! ! ! !. .. . ) )) ), , , , '# PER SHRI C.D.RAO, AM THE ABOVE THREE APPEALS TWO FILED BY THE REVENUE AN D ONE BY THE ASSESSEE ARE AGAINST SEPARATE ORDERS DATED 14.07.2010 OF THE CI T(A)-XVI, KOLKATA PERTAINING TO A.YRS. 2002-03 AND 2004-05 RESPECTIVELY. FOR THE SA KE OF CONVENIENCE ALL THE THREE APPEALS ARE HEARD TOGETHER AND DISPOSED OFF BY A CO NSOLIDATED ORDER. ITA NO.2243/KOL/2010 (BY THE REVENUE) (A.YR.2002-03 ): 2. THERE IS A DELAY OF 65 DAYS IN FILING OF THE APPEAL BY THE REVENUE FOR WHICH THE REVENUE HAS FILED A CONDONATION PETITION EXPLAINING THE REASONS FOR SUCH DELAY. AFTER CONSIDERING THE SUBMISSIONS BY THE REVENUE THE DELA Y IS CONDONED. 3. THE REVENUE HAS TAKEN THE FOLLOWING GROUN DS :- 2 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD.CIT(A), KOLKATA HAS ERRED IN LAW IN ALLOWING SHARE AND SHADE MAINTENANC E, NURSERY IN FILLING AND PLANTING TEA EXPENSES AMOUNTING TO RS.25,14,062/- A S REVENUE EXPENSES INSTEAD OF CAPITAL EXPENSES HELD BY THE A.O. ON THE BASIS O F THE DECISION OF THE CALCUTTA HIGH COURT IN THE CASE OF TASATI TEA LTD. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A), KOLKATA HAS ERRED IN LAW IN NOT HOLDING THE FOREIGN EXCHANGE FL UCTUATION GAIN OF RS.1,45,308/- AS INCOME FROM TEA BUSINESS WHICH IS SUBJECTED TO APPOINTMENT UNDER RULE-8 WHEREAS THE AO HELD IT TO BE NOT RELAT ING TO TEA BUSINESS AND NOT COMING UNDER ANY APPOINTMENT. 3. THAT THE APPELLANT CRAVES FOR LEAVE TO ADD, DELE TE OR MODIFY ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 4. THE FIRST ISSUE IS RELATING TO THE DISALLOWA NCE MADE IN RESPECT OF SHADE MAINTENANCE, NURSERY INFILLING AND PLANTING TEA EXP ENSES AMOUNTING TO RS.25,14,062/-. 5. THE BRIEF FACTS OF THE CASE ARE THAT TH E AO WHILE DOING THE SCRUTINY ASSESSMENT DISALLOWED THE SAME BY OBSERVING AS UNDER :- THE ASSESSEE HAS DEBITED THE FOLLOWING EXPENSES IN TO THE PROFIT AND LOSS ACCOUNT : SHADE & SHADE MAINTENANCE 28,172 TEA NURSERY 6,385 INFILLING & PLANTING TEA 24,79,505 25,14,062 FURTHER NO EVIDENCE HAS BEEN FILED BY THE ASSESSEE TO SUGGEST THAT THERE HAS BEEN NO EXTENSION PLANTING. THUS APPLYING THE RATIO OF THE DECISION OF KOLKATA HIGH COURT IN THE CASE OF TASATI TEA CO.LTD. REPORT ED IN 262 ITR 388 THESE EXPENSES ARE ADDED BACK TO THE COMPOSITE INCOME TRE ATING THE SAME AS CAPITAL IN NATURE. 5.1. ON APPEAL THE LD. CIT(A) HAS DELETED THE SAME BY OBSERVING AS UNDER :- DURING THE COURSE OF APPELLATE PROCEEDINGS, IT WAS SUBMITTED BY THE APPELLANT THAT THE AO HAS TREATED EXPENSES AGGREGATING TO RS. 25,14,062/- AS CAPITAL EXPENDITURE AND HAS ALLEGED THAT THE APPELLANT DID NOT FILE ANY EVIDENCE TO SUGGEST THAT THERE HAS BEEN NO EXTENSION PLANTATION . IT WAS CONTENDED BY THE APPELLANT THAT THE ALLEGATION OF THE A.O. IS CONTRA RY TO THE FACTS AND EVIDENCES ALREADY ON RECORD. THE APPELLANT HAD FILED COPIES O F REPORTS SUBMITTED TO THE TEA BOARD PROVING THAT THERE WAS NO EXTENSION PLANT ATION. IT WAS SUBMITTED THAT THE SHADE & SHADE MAINTENANCE EXPENSE WERE INCURRED FOR PROVIDING SHADE TO THE TEA BUSHES SPREAD THROUGH OUT THE GARDEN AND HA S GOT NO CONNECTION EITHER WITH THE EXTENSION PLANTATION OR REPLANTATION. A SM ALL EXPENDITURE OF RS.6,385/- WAS INCURRED ON TEA NURSERY MAINTENANCE. THE EXPEND ITURE OF RS.24,79,505/- 3 WAS INCURRED FOR (I) INFILLING OF TEA PLANTS PRIMAR ILY IN THE MATURED TEA SECTIONS WHERE REJUVENATION PRUNING WAS DONE WITH HIGH VACAN CIES WITH THE INTENTION OF INCREASING THE BUSH POPULATION LEADING TO HIGHER YI ELDS WITHOUT CARRYING OUT ANY EXTENSION PLANTATION AND (II) FOR REPLANTATION OF TEA BUSHES IN THE AREAS WHERE TEA BUSHES WERE UPROOTED. IT WAS ARGUED BY TH E APPELLANT THAT IT IS A ROUTINE PRACTICE IN THE TEA GARDEN TO UPROOT THE OL D UNECONOMICAL TEA BUSHES WITH LOW YIELD AND REPLANT IN THE UPROOTED AREAS WI TH NEW PLANTS LEADING TO HIGHER BUSH POPULATION. IT WAS SUBMITTED THAT INFIL LING AND REPLANTATION DOES NOT LEAD TO EXTENSION OF TEA PLANTATION. IT IMPLIES REP LACEMENT OF USELESS OR DEAD PLANTS IN AN AREA WHICH IS ALREADY UNDER CULTIVATIO N. SIMILARLY IS THE CASE FOR REPLANTATION WHICH AMOUNTS TO UPROOTING OF DEAD OR USELESS BUSHES AND REPLANTATION OF NEW BUSHES IN THE SAME AREA AND NOT IN ANY NEW AREA. THEREFORE, IN THE CASE OF APPELLANT THERE WAS NO EXTENSION PLA NTING. IT WAS ARGUED BY THE APPELLANT THAT IN THE CASE RELIED UPON BY THE AO RE PORTED IN 262 ITR 388, IN THE LAST BUT ONE PARA OF THE ORDER, THE HONBLE CALCUTT A HIGH COURT HAS OBSERVED THAT IF THE PLANT ARE RAISED AND MAINTAINED IN A NU RSERY FOR BEING UTILIZED FOR THE PURPOSE OF REPLANTATION WITHOUT ANY EXTENSION OF TH E PLANTATION AREA OR REPLANTATION IN AN ABANDONED AREA, THEN IT CANNOT B E SAID TO BE A CAPITAL EXPENDITURE. THE EXTENSION NEEDS EXPLANATION OF PLA NTATION TO AN ADDITIONAL AREA. AN AREA ALREADY ABANDONED, IF REPLANTED WOULD BE AN EXPANSION OF THE AREA UNDER CULTIVATION FOR THE PREVIOUS YEAR CONCER NED. THE MAINTENANCE OF AN AREA ALREADY UNDER CULTIVATION CANNOT BE TREATED TO BE AN EXPANSION OF PLANTATION NOR CAN IT BE TREATED TO BE AN INVESTMEN T OR EXPANSION ADDING TO THE CAPITAL ALREADY INVESTED. ON THE OTHER HAND, IT WOU LD BE MAINTENANCE OF THE PLANTATION ITSELF AND, THEREFORE, IS A REVENUE EXPE NDITURE. IT WAS SUBMITTED BY THE APPELLANT THAT THE REPORTS OF TEA BOARD SUBMITT ED BEFORE THE AO WILL PROVE THAT DURING THE YEAR UNDER CONSIDERATION THERE WAS NO EXTENSION PLANTING IN THE CASE OF APPELLANT AND THE EXPENSES WERE INCURRED FO R MAINTENANCE OF EXISTING AREA UNDER CULTIVATION. IT WAS PLEADED BY THE APPEL LANT THAT THE EXPENSES AGGREGATING TO RS.25,14,062/- INCURRED ON MAINTENAN CE OF PLANTATION ARE ALLOWABLE AS REVENUE EXPENDITURE. 6. AT THE TIME OF HEARING, THE LD. DR APPEAR ING ON BEHALF OF THE REVENUE RELIED ON THE ORDERS OF THE AO AND THE LD. COUNSEL APPEARING ON BEHALF OF THE ASSESSEE RELIED ON THE ORDERS OF THE LD. CIT(A). 7. AFTER HEARING THE RIVAL SUBMISSIONS AND ON PERUSAL OF MATERIALS AVAILABLE ON RECORD, KEEPING IN VIEW OF THE FACT THAT THE ASSESS EE HAS PROVIDED THE REPORT OF THE TEA BOARD EVEN BEFORE THE AO IT IS NOT FAIR ON THE PART OF THE AO TO DISALLOW THE SAME WITHOUT EXAMINING THE SAME AND SIMPLY FOLLOWING THE DECISION OF THE HONBLE CALCUTTA HIGH COURT WHICH IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 4 THEREFORE, WE CONFIRM THE ACTION OF THE LD. CIT(A) AND DISMISS GROUND NO.1 OF THE REVENUES APPEAL. 8. THE OTHER ISSUE RAISED BY THE REVENUE IS RE LATING TO THE FOREIGN EXCHANGE FLUCTUATION GAIN AMOUNTING TO RS.1,45,308/- AS INC OME FROM TEA BUSINESS. 9. THE BRIEF FACTS OF THE CASE ARE THAT THE A O HAS DISALLOWED THE SAME BY OBSERVING AS UNDER :- UPON PERUSAL OF THE DETAILS FILED BY THE ASSESSEE IT IS SEEN THAT AN AMOUNT OF 1,45,308./- ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUAT ION AND AN AMOUNT OF 40,55,892/- ON ACCOUNT OF INTEREST HAS BEEN OFFERED FOR TAX UNDER RULE 8. THE APPLICATION OF RULE 8 IS SPECIFIC TO ONLY THOSE REC EIPTS OR EXPENSES WHICH ARE A RESULT OF AN INTEGRATED ACTIVITY OF CULTIVATION AND MANUFACTURE I.E. PARTLY AGRICULTURAL ACTIVITY AND PARTLY MANUFACTURING ACTI VITY. INCOME ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION ARISES OUT OF ACTIVITY THAT IS ONLY INCIDENTAL TO THE CULTIVATION OF TEA. THUS FOREIGN EXCHANGE FLUCTUATI ON CANNOT BE GOVERNED BY RULE 8. 9.1. ON APPEAL THE LD. CIT(A) HAS DELETED THE S AME BY OBSERVING AS UNDER :- 15. I HAVE CONSIDERED THE SUBMISSION OF THE APPEL LANT AND PERUSED THE ASSESSMENT ORDER. ON CAREFUL CONSIDERATION OF THE F ACTS, I AM OF THE OPINION THAT THE FOREIGN EXCHANGE GAIN OF RS.1,45,308/- IS ASSES SABLE AS INCOME FROM BUSINESS BECAUSE THE SAID GAIN HAS ARISEN FROM THE AMOUNTS RECEIVABLE FORM THE SUNDRY DEBTORS TO WHOM TEA WAS EXPORTED IN EARLIER YEARS. THUS, THERE IS A DIRECT NEXUS BETWEEN THE GAIN AND THE BUSINESS ACTI VITY OF THE APPELLANT. THE AO IS DIRECTED TO TREAT THE FOREIGN EXCHANGE GAIN A S INCOME ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS. 9.2. AGGRIEVED BY THIS THE REVENUE IS IN APPEAL BEFORE US. 10. AT THE TIME OF HEARING THE LD. DR APPEARING ON BEHALF OF THE REVENUE HAS REITERATED THE OBSERVATIONS MADE BY THE AO IN THE A SSESSMENT ORDER. ON THE OTHER HAND, THE LD. COUNSEL APPEARING FOR THE ASSESSEE ST RONGLY RELYING ON THE ORDERS OF THE LD. CIT(A) FURTHER CONTENDED THAT SINCE THE FOREIGN EXCHANGE IS RELATING TO THE SUNDRY DEBTORS FLUCTUATIONS ON FOREIGN EXCHANGE AGAINST TH ESE ISSUES SHOULD BE TREATED AS BUSINESS INCOME AND THEREFORE HE REQUESTED TO UPHOL D THE ORDERS OF THE LD. CIT(A). 5 11. AFTER HEARING THE RIVAL SUBMISSIONS AND ON P ERUSAL OF MATERIALS AVAILABLE ON RECORD KEEPING IN VIEW OF THE FACT THAT THE FOREIGN EXCHANGE FLUCTUATION IS RELATING TO THE SUNDRY DEBTORS. WE ARE OF THE VIEW THAT THE INC OME ARISING OUT OF FOREIGN EXCHANGE FLUCTUATION GAIN SHOULD BE TREATED AS BUSINESS INCO ME. THEREFORE WE FIND NO INFIRMITY IN THE ORDERS OF THE LD. CIT(A) TO BE INTERFERED WI TH AND WE CONFIRM THE SAME. GROUND NO.2 OF THE REVENUES APPEAL IS DISMISSED. 12. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. ITA NO.2053/KOL/2010 (BY THE ASSESSEE)(A.YR.2004-05 ): 13. THE ASSESSEE HAS RAISED ONLY ONE ISSUE RELATI NG TO THE DISALLOWANCE OF RS.25,53,863/- ON ACCOUNT OF TRAINING AND EDUCATION EXPENSES. 14. THE BRIEF FACTS OF THE CASE ARE THAT THE A O WHILE DOING THE SCRUTINY ASSESSMENT DISALLOWED THE SAME BY OBSERVING AS UNDER :- DURING THE COURSE OF HEARING IT IS GATHERED THAT T HE ASSESSEE CLAIMED EXPENSES OF RS.23,53,863/- ON ACCOUNT OF TRAINING AND EDUCAT ION EXPENSES UNDER THE HEAD EMPLOYEES WELFARE EXPENSES ACCOUNT. THE A/R W AS REQUESTED TO FURNISH DETAILS OF SUCH EXPENSES ALONG WITH THE NAME OF THE PERSONS TO WHOM SUCH TRAINING WAS IMPARTED AND BREAK UP OF EXPENSES UNDE R THIS HEAD. VIDE LETTER DATED 12/12/2006 A COPY OF RESOLUTION PASSED IN THE MEETING OF THE BOARD OF DIRECTORS DATED 25/5/2001 WAS FILED WHEREIN IT WAS RESOLVED AS FOLLOWS :- RESOLVED THAT THE BOARD OF DIRECTORS OF THE COMPAN Y HEREBY ACCORDS ITS CONSENT TO THE SPONSORSHIP OF MR.ABHYUDAY PRASHAD F OR OVERSEAS STUDIES IN GEORGETOWN UNIVERSITY, WASHINGTON, USA FOR A PER IOD OF 4 YEARS AND THAT HE BE PAID STIPEND OF US $40,000 PER ANNUM TO ENABLE HIM TO MEET HIS STUDY, BOARD AND LODGING AND OTHER RELATED INCI DENTAL EXPENSES EFFECTIVE ACADEMIC SESSION AUGUST, 2001. MR.ABHYUDAY PRASHAD, AS IT APPEARS DURING THE COURS E OF HEARING, IS THE SON OF MR.SHASHANK PRASHAD, MANAGING DIRECTOR OF THE COMPA NY. HE WAS TO PURSUE OVERSEAS UNDER GRADUATE BUSINESS STUDY FOR WHICH TH E AMOUNT WAS INCURRED BY THE COMPANY. MR.ABHYUDAY PRASHAD IS NOT AN EMPLOYEE OF THE COMPANY AND EXPENSES INCURRED BY THE COMPANY AS ABOVE IS NOT RE LATED TO THE BUSINESS OF THE ASSESSEE COMPANY. THE ASSESSEES INTENTION WAS TO I NCREASE ITS EXPENSES BY CLAIMING UNRELATED EXPENSES AND INFLATE THE LOSS. 14.1. ON APPEAL THE LD. CIT(A) HAS CONFIRMED THE SAME BY OBSERVING THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS HINDUSTHAN HOSIERY INDUSTRIES REPORTED IN 209 ITR 383. 6 14.2. AGGRIEVED BY THIS THE ASSESSEE IS IN AP PEAL BEFORE US. 15. AT THE TIME OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE HAS REITERATED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES THA T DURING THE PERIOD OF STUDIES MR.ABHYUDAY PRASHAD ADVISED THE COMPANY FROM TIME T O TIME AND AFTER HIS RETURN VARIOUS NEW TECHNIQUES OF MANAGEMENT IN THE TEA GAR DENS AS WELL AS IN THE HEAD OFFICE AS ADVISED BY MR.PRASHAD HAS SUBSTANTIALLY BENEFITE D THE COMPANY AND IN SUPPORT OF THIS HE FILED COPIES OF THE CERTIFICATES ISSUED BY THE COMPANY TO THE EFFECT THAT AFTER THE COMPLETION OF THE STUDIES MR.PRASHAD HAS JOINED THE COMPANY AND PERFORMED THE FUNCTION OF AN EXECUTIVE DIRECTOR. THEREFORE, HE RE QUESTED TO ALLOW THE SAME AS BUSINESS EXPENDITURE. 16. THE LD. DR FOR THE REVENUE RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES AND FURTHER POINTED OUT THAT THOUGH THE ASSESSEE HAS SU BMITTED THAT MR.PRASHAD IS GIVING ADVICE FROM TIME TO TIME DURING HIS STUDIES ALSO BU T THERE IS NO EVIDENCE TO THIS EFFECT. THEREFORE, HE REQUESTED TO UPHOLD THE ACTION OF THE REVENUE AUTHORITIES. 17. AFTER HEARING THE RIVAL SUBMISSIONS AND O N PERUSAL OF THE MATERIALS AVAILABLE ON RECORD, THOUGH SHRI PRASHAD HAS JOINED THE COMPANY AS EXECUTIVE DIRECTOR AFTER HIS COMPLETION IT IS OBSERVED THAT THERE IS NO SUBSTANT IAL EVIDENCE THAT HE HAS GIVEN TIME TO TIME ADVICE TO THE COMPANY BASED ON WHICH THE COMPA NY IS BENEFITED. THEREFORE, WE CONSIDER IT FIT TO RESTORE THE ISSUE TO THE FILE OF THE AO TO DECIDE THE SAME AFRESH AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. THE ASSESSEE IS ALSO AT LIBERTY TO FILE THE EVIDENCES IN SUPPORT OF HIS CLA IM TO THE REVENUE AUTHORITIES. 18. IN THE RESULT THE ASSESSEES APPEAL IS AL LOWED FOR STATISTICAL PURPOSES. ITA NO.2244/KOL/2010 (BY THE REVENUE) (A.YR.2004-05 ): 19. THERE IS A DELAY OF 65 DAYS IN FILING OF THE APPEAL BY THE REVENUE FOR WHICH THE REVENUE HAS FILED A CONDONATION PETITION EXPLAI NING THE REASONS FOR SUCH DELAY. AFTER CONSIDERING THE SUBMISSIONS BY THE REVENUE TH E DELAY IS CONDONED. 7 20. THE REVENUE HAS RAISED THE SOLE ISSUE IN THIS APPEAL WHICH RELATES TO DISALLOWANCE OF RS.3,07,940/- ON ACCOUNT OF FOREIGN EXCHANGE LOSS. 21. AFTER HEARING THE RIVAL SUBMISSIONS SINCE THE COMPANY IS REGULARLY TREATING THE FOREIGN EXCHANGE GAINS AS BUSINESS INCOME AND THE R EVENUE ALSO HAS ASSESSED THE SAME AS BUSINESS INCOME. UNDER THESE CIRCUMSTANCES IT IS NOT FAIR ON THE PART OF THE AO TO IGNORE THE LOSS ON ACCOUNT OF FOREIGN EXCHANG E AND DISALLOW THE SAME. WE HAVE ALREADY CONFIRMED THE ACTION OF THE LD. CIT(A) IN R EVENUES APPEAL FOR A.YR.2002-03 I.E. IN ITA NO.2243/KOL/2010. THEREFORE, WE CONFIRM THE SAME IN THIS A.YR ALSO I.E. 2004-05 AND DISMISS THE APPEAL OF THE REVENUE. 22. IN THE RESULT THE REVENUES APPEAL IS DI SMISSED. 23. IN THE RESULT THE APPEALS OF THE REVENUE A RE DISMISSED AND THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 31.5.2011. SD/- SD/- MAHAVIR SINGH, JUDICIAL MEMBER . .. . ! ! ! !. .. . , ,, , '# '# '# '# , C.D.RAO, ACCOUNTANT MEMBER. ( (( (!# !# !# !#) )) ) DATE: 31.05.2011. '1 / -2 3'2'4- COPY OF THE ORDER FORWARDED TO: 1. M/S.DARJEELING DOOARS PLANTATIONS (TEA) LTD., 2, HA RE STREET, NICCO HOUSE, KOLKATA-700001. 2 THE DCIT, CIRCLE-4, KOLKATA 3. THE CIT, 4. THE CIT(A)-XVI, KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA .2 -/ TRUE COPY, '1%9/ BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES R.G.(.P.S.) 8