D.C.I.T Cir - 3,Siliguri, Siliguri V. M/s Nandi Tea Company Ltd., Siliguri

ITA 2283/KOL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4544 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 21-04-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 22-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S ALLONG YADEN CIT LD
• Assessee Lawyers: S K TULSYAN
• Keywords: Business income; Depreciation; Source of fund; Revised return
• Section: 143(3)

Judgement Text

ITA NO. 2283/KOL/2013-A-JM M/S. NANDI TEA CO.P.LTD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, K OLKATA BEFORE : SHRI P.M. JAGTAP , ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBE R I.T.A NO. 2283/KOL/2013 A.Y : 2010-11 D.C.I.T, CIRCLE-3, SILIGURI VS. M/S. NANDI TEA COM PANY PVT. LTD. PAN: AAACN 7285P (APPELLANT) (RESPONDENT) FOR THE APPELLANT/ DEPARTMENT: SHRI SALLONG YADEN, ADDL. CIT, LD. SR.DR FOR THE RESPONDENT/ ASSESSEE: SHRI S .K. TULSYAN, ADVOCATE, LD.AR DATE OF HEARING: 21-04-2016 DATE OF PRONOUNCEMENT: 08- 07-20 16 ORDER SHRI S.S.VISWANETHRA RAVI, JM THIS APPEAL OF THE REVENUE ARISES OUT OF THE ORDER OF THE CIT(A), SILIGURI IN APPEAL NO. 09/CIT(A)/SLG/13-14 DATED 19-06-201 3 FOR THE ASSESSMENT YEAR 2010-11 AGAINST THE ORDER OF ASSESSMENT FRAMED U/S . 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND EVIDENCE ON RECORD, THE LD.CIT(A), SILIGUR I, WAS JUSTIFIED IN DISALLOWING THE BIFURCATION OF EXPENSE S FOR APPLICATION OF RULE 8 OF THE I.T RULES, 1961, WHEN THE ASSESSING OFFICERS DECISION WAS BASED ON FACTS DERIVED FROM THE ASSESSEES OWN BOOKS OF ACCOUNT AFTER CONSIDERING A LL SUBMISSIONS MADE BY THE ASSESSEE. ITA NO. 2283/KOL/2013-A-JM M/S. NANDI TEA CO.P.LTD. 2 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A), SILIGURI, WAS JUSTIFIED IN TR EATING INTEREST EARNED FROM DEPOSITS AT PAR WITH BUSINESS INCOME FO R APPLICATION OF RULE-8 OF THE INCOME-TAX RULES, 1962 , WITHOUT APPRECIATING THE FACT THAT NO ELEMENT OF AGRICULTUR E WAS INVOLVED IN EARNING INTEREST INCOME. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY AND ENGAGED IN GROWING AND MANUFACTURING OF TEA AND FILED ITS RETU RN OF INCOME ON 17-09-2010 DECLARING TOTAL INCOME AT RS. NIL. UNDER SCRUTINY N OTICES U/S. 143(2)/142(1) OF THE ACT WERE ISSUED. IN RESPONSE TO WHICH THE AR OF THE ASSESSEE APPEARED AND PRODUCED BOOKS OF ACCOUNT. DURING SUCH VERIFICATION , THE AO FOUND THAT THE ASSESSEE COMPUTED THE INCOME OF TEA MADE FROM OWN G ROWN LEAVES AND PURCHASED LEAVES AND CLAIMED LOSS APPLYING THE RULE 8 OF I.T RULES 1962. THE AO CONSIDERING THE AUDIT REPORT AS SUBMITTED BY THE ASSESSEE REVISED THE TOTAL INCOME AT RS. 54,63,654.60. IN RESPONSE TO WHICH, THE ASSESSEE FILED ITS REVISED RETURN OF INCOME SHOWING TOTAL PROFIT AT RS.11,94,1 50.56. THE AO DID NOT ACCEPT THE COMPUTATION AS MADE BY THE ASSESSEE AGAINST THE REVISED RETURN ON FOLLOWING GROUNDS AND FORMULATED THE EXPENSES AS UNDER:- (II) THE ASSESSEE COMPANY IS GROWER OF GREEN TEA LE AVES AND MANUFACTURER OF MADE TEA AND THEREFORE, THE PLANT AND MACHINERY, BUILDINGS, LAND ETC ARE PERMANENT IN NATURE. THE ASSESSEE COMPANY HAS A PPORTIONED THE EXPENDITURE INCURRED FOR MANUFACTURING OF TEA IN TH E RATIO OF OWN LEAF AND PURCHASED LEAF CONSUMED. HOWEVER, WHILE APPORTIONIN G THE EXPENDITURE IN BETWEEN OWN LEAF AND PURCHASED LEAF, THE ASSESSE E HAS TAKEN WHOLE OF THE MANUFACTURING EXPENDITURE AND MIXED EXPENDITURE WITHOUT APPRECIATING THE FACT THAT THE FOLLOWING MIXED EXPE NDITURE ARE EXCLUSIVELY SUBJECT TO RULE 8 AS THESE EXPENDITURE ARE CONTINUO US AND PERMANENT IN NATURE AND DOES NOT HAVE IMPACT WHETHER TEA HAS BEE N MANUFACTURED OUT OF GREEN LEAVES PURCHASED OR NOT. PROFITS ARISING O UT OF TEA LEAVES PURCHASED FROM OUTSIDE BUT MANUFACTURED IN ASSESSEE 'S ESTATE, ARE SUBJECT TO TAX IN FULL. HOWEVER, NO SEPARATE ACCOUNTS ARE M AINTAINED IN RESPECT OF ITA NO. 2283/KOL/2013-A-JM M/S. NANDI TEA CO.P.LTD. 3 TEA MANUFACTURED FROM GREEN LEAVES GROWN BY THE ASS ESSEE, AND OUT OF GREEN LEAVES PURCHASED FROM OUTSIDE. THEREFORE, ALL OCATION OF COMMON EXPENSES TO THESE DISTINCT ACTIVITIES IS BEING MADE ON SOME FAIR AND REASONABLE BASIS AS UNDER:- HEAD OF EXPENDITURE TOTAL EXPENSES INCURRED FOR MANUFACTURING OF TEA OUT OF GREEN LEAVES PURCHASED COMPOSITE EXPENDITURE (SUBJECT TO RULE 8) GARDENING MAINTENANCE 1,63,39,317.25 NIL 1,63,39,31 7.25 EMPLOYMENT COST 1,34,80,443.00 NIL 1,34,80,443.00 ADMINISTRATIVE EXPENSES 35,67,889.26 NIL 35,67,889.26 *FINANCIAL CHARGES 36,14,489.21 13,37,704.20 22, 76,785.01 *SELLING AND DISTRIBUTION EXPENSES 19,86,457.58 7,35,117.91 12,51,279.67 *MANUFACTURING EXPENSES EXCLUDING GREEN LEAVES PURCHASE 1,52,32,363.96 56,37,420.94 95,94,943.02 DEPRECIATION 42,65,757.03 NIL 45,65,757.03 TOTAL 5,84,86,717.29 77,10,303.05 5,07,76,414.24 4. AS AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSE E PREFERRED FIRST APPEAL BEFORE THE CIT(A) AND CONTENDED THAT ALL THE ABOVE COST WERE INCURRED IN CONNECTION WITH BOTH SOURCES OF INCOME. THE ASSESSEE ALSO SUBMITTED THE DETAILS IN SUPPORT OF HIS CLAIM WHICH ARE DULY RECORDED IN THE ORDER OF AO. IN SUCH CIRCUMSTANCES, IT CAN BE SAID THAT THE ABOVE EXPENSES STAND INCIDENTAL TO BOTH AS REQUIRED FOR MANUFACTURING ACTIVITY PER SE IRRESPECTIVE OF THE SOURCE OF LEAF. THE ASSE SSEE SPECIFICALLY SUBMITTED THAT FOR GROWING TEA LEAVES AND MANUFACTURING TEA OUT OF GROWN LEAVES AND PURCHASED LEAVES, LABOUR AND STAFFS ARE REQUIRED TO BE HIRED AND HENCE ANCILLARY EXPENSES NEED TO BE INCURRED TOO. THUS, O N THE BASIS OF THE ABOVE ANALOGY, IT CAN BE SAID THAT THE AO HAD ERRED IN OP INION THAT EMPLOYMENT COST AMOUNTING TO RS. 97,37,480/- WAS INCURRED BY ASSESS EE FOR ONLY EARNING COMPOSITE INCOME AND NOT 100% TAXABLE INCOME . REGARDING ADMINISTRATIVE EXPENSES AN ORGANIZATION INCURS EXPENSES INDIRECTLY RELATED TO A SPECIFIC FUNCTION SUCH AS MANUFACTURING/PRODUCTION OR SALES. THESE EXPENSES ARE RELATED TO THE ORGANIZATION AS A WHOLE AS OPPOSED TO AN IND IVIDUAL DEPARTMENT. THUS, IT STANDS CLEAR THAT THESE EXPENSES ARE ACTUALLY INCID ENTAL & INDISPENSABLE FOR FACILITATING THE WORKABILITY OF ALL THE DEPARTMENTS IN AN ORGANIZATION. AN INFERENCE OF THE ABOVE IN THE FACTS OF THE CONCERNE D CASE IMPLIES THAT THESE ADMINISTRATIVE EXPENSES HAD TO BE ACTUALLY BORNE BY THE ASSESSEE FOR THE YEAR ITA NO. 2283/KOL/2013-A-JM M/S. NANDI TEA CO.P.LTD. 4 UNDER CONSIDERATION IN ORDER TO FACILITATE SMOOTH A ND FAST WORKING CAPACITY OF THE ENTIRE ORGANIZATION. SIMILARLY IN THE CASE OF D EPRECIATION EXPENSES ALMOST 90% OF THE ASSETS ENSHRINED THEREIN HAD TO BE UTILI ZED BY THE ASSESSEE FOR EARNING NOT ONLY COMPOSITE INCOME BUT ALSO 100% TAX ABLE INCOME. 5. HAVING CONSIDERED THE SUBMISSIONS OF THE ASSESSE E THE CIT(A) FOUND AS UNDER:- AFTER CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE I HOLD THAT THE METHOD OF COMPUTATION OF INCOME ADO PTED BY THE LD AO FOR TEA MANUFACTURED OUT OF TEA LEAVES GROWN IN OWN GARDEN AND TEA LEAVES BOUGHT FROM OUTSIDE IS ERRONEOUS AND NOT ACCEPTABLE IN THE INTEREST OF REVENUE. IT MAY BE POINTED OUT THA T IN THIS ASSESSMENT YEAR THE LD AO HAS ADOPTED THE SAME METHOD OF COMPU TATION OF INCOME OF THE ASSESSEE AS IN AY 2009-10 WHICH WAS F OUND ERRONEOUS AND UNACCEPTABLE IN THE APPELLATE ORDER DATED 14.01 .2011 IN APPEAL NO.50/CIT(A)/SLG/2010-11. KEEPING IN VIEW THE AFOREMENTIONED REASONS THE COMP UTATION OF BUSINESS INCOME TO THE TUNE OF RS.64,08,840/- MADE BY THE LD. AO CANNOT BE ACCEPTED. THEREFORE, CONSIDERING THE TOTA LITY OF FACTS AND THE INTEREST OF REVENUE, THE METHOD OF COMPUTATION OF I NCOME OF THE ASSESSEE AS SHOWN IN THE RETURN OF INCOME IS ACCEPT ED . THE ADDITION MADE BY THE LD.AO TO THE RETURNED INCOME DUE TO THE ADOPTION OF THE NEW METHOD OF COMPUTATION OF INCOME IN THE ASSESSME NT ORDER IS DELETED. GROUND NOS. 1,2 AND 3 OF APPEAL OF THE ASS ESSEE ARE ALLOWED. 6. HAVING AGGRIEVED BY THE ORDER OF THE CIT(A) NOW THE REVENUE IS IN APPEAL BEFORE US AND CONTENDED THAT THE CIT(A) WAS NOT JUS TIFIED IN DISALLOWING THE BIFURCATION EXPENSES FOR APPLICATION OF RULE 8 OF T HE I.T RULES 1962 AND RELIED ON THE ORDER OF THE AO. 7. IN REPLY, THE LD. AR SUBMITS THAT THE CASE IN HA ND IS SQUARELY COVERED BY THE EARLIER ORDER PASSED BY THE A BENCH OF KOLKAT A TRIBUNAL IN ITA NO. 887/KOL/2013 FOR ASSESSMENT YEAR 2008-09 BY AN ORDE R DATED 18-03-2016. ITA NO. 2283/KOL/2013-A-JM M/S. NANDI TEA CO.P.LTD. 5 8. HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL AVAILABLE ON RECORD. AS RIGHTLY POINTED BY THE LD.AR OF THE ASSESSEE THA T THE SIMILAR ISSUE CAME BEFORE THE A BENCH OF KOLKATA TRIBUNAL AND DECID ED THE ISSUE THEREIN IN FAVOUR OF THE ASSESSEE. THE RELEVANT PORTION OF WHI CH IS REPRODUCED HEREUNDER:- 4. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PART IES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US LD. DR REL IED ON THE ORDER OF AO WHEREAS LD. AR RELIED ON THE ORDER OF LD. CIT(A). F ROM THE FACTS OF THE CASE WE UNDERSTAND THAT THE ASSESSEE IS ENGAGED IN THE TWO SIMILAR BUSINESS ACTIVITIES AS DISCUSSED ABOVE. THERE WERE CERTAIN C OMMON EXPENDITURES SUCH AS EMPLOYMENT COST, ADMINISTRATIVE COST AND DE PRECIATION COST WHICH THE AO APPORTIONED 100% TO THE ACTIVITY I.E. GROWIN G AND MANUFACTURING OF TEA LEAVES OF THE ASSESSEE ON THE GROUND THAT THESE COST HAVE TO BE NECESSARILY INCURRED BY THE ASSESSEE IRRESPECTIVE O F ANY OTHER THE BUSINESS ACTIVITY. THEREFORE THE ALLOCATION OF THESE EXPENSE S IS NOT REQUIRED BETWEEN THE ABOVE SOURCES IS NOT REQUIRED. HOWEVER THE LD. CIT(A) DELETED THE ADDITION MADE BY THE AO. WE UNDERSTAND THAT FOR ANY ACTIVITY OF THE BUSINESS SEVERAL EXPENSES ARE REQUIRED TO BE INCURR ED. THE ADDITION HAS BEEN MADE BY THE AO ON THE SURMISE THAT THESE EXPEN SES ARE FIXED IN NATURE. THE LD. DR ALSO FAILED TO BRING ANYTHING ON RECORD CONTRARY TO THE FINDING OF THE LD. CIT(A). HENCE, WE HAVE NO HESITATION IN UPH OLDING THE ORDER OF LD. CIT(A) AND THIS GROUND OF REVENUES APPEAL IS DISMI SSED. 9. IN VIEW OF THE ABOVE, WE FIND NO INFIRMITY IN TH E IMPUGNED ORDER OF THE CIT(A) IN DISALLOWING THE BIFURCATION OF EXPENSES F OR APPLICATION OF RULE 8 OF THE I.T RULES 1962. 10. REGARDING GROUND NO.2, WHICH INVOLVES THE INTER EST EARNED FROM SECURITY AND FIXED DEPOSITS TOTALING TO RS.8,02,837.39 FROM WEST BENGAL STATE ELECTRICITY BOARD FOR SHORT WBSEB AND BANK OF INDIA, SILIGURI BRANCH RESPECTIVELY. TH E ASSESSEE CONTENTION WAS THAT BEFORE THE AO THE SAID INCOME IS SUBJECT TO RULE 8 OF THE I.T RULES 1962. THE AO WAS OF THE VIEW THE S AID INCOME IS NOT EARNED FROM BUSINESS AND PROFESSION AND TREATED THE SAME OTHERWISE AS INCOME FROM ITA NO. 2283/KOL/2013-A-JM M/S. NANDI TEA CO.P.LTD. 6 OTHER SOURCES AND ADDED THE SAME TO THE INCOME OF ASSESSEE. BEFO RE THE CIT-A THE ASSESSEE SUBMITTED THAT THE INTEREST ON SECURIT Y DEPOSITS FOR AN AMOUNT OF RS.31,514/- WAS RECEIVED FROM WBSEB AS AGAINST A S ECURITY DEPOSIT PROVIDED FOR AVAILING A ELECTRICITY CONNECTION FOR THE BUSIN ESS OF ASSESSEE, LIKEWISE, IN ORDER TO GET LOAN FROM BANK OF INDIA, SILIGURI BRANCH THE ASSESSEE HAS PLE DGED FIXED DEPOSITS WITH THE SAID BANK AND BOTH INCOMES WERE OFFERED AS INCOME FROM BUSINESS BY APPLYING RULE 8, CONSIDERING THE SUBMIS SIONS OF ASSESSEE THE CIT-A DELETED SAID ADDITION FOUND AS UNDER: AS REGARDS MISCELLANEOUS INCOME, ON CONSIDERATION OF THE WRITTEN SUBMISSION OF THE LD.AR OF THE ASSESSEE, I AGREE TH AT THE INTEREST ON SECURITY DEPOSITS AND INTEREST ON FIXED DEPOSITS TO THE TUNE OF RS.31,514/- AND RS.7,71,323.39 ARE COMPOSITE INCOME SUBJECT TO RULE 8. AS EXPLAINED INTEREST ON SECURITY DEPOSIT WAS RE CEIVED FROM W.B.S.E.B BY THE ASSESSEE AS IT HAD PROVIDED SECURI TY DEPOSIT TO W.B.S.E.B FOR ELECTRIC CONNECTION FOR USE IN THE MA NUFACTURE OF TEA FROM OWN TEA LEAVES AND TEA LEAVES BOUGHT FROM OUTS IDE. THE ASSESSEE HAD RECEIVED INTEREST ON FIXED DEPOSITS WH ICH WERE PLEDGED TO AVAIL LOAN FACILITIES FROM BANK OF INDIA, SILIGU RI WHICH WERE UTILIZED FOR THE BUSINESS OPERATIONS WHICH WAS SALE AND MANUFACTURE OF TEA FROM OWN TEA LEAVES AND TEA LEAVES BOUGHT F ROM OUTSIDE. IN SUCH SCENARIO THE TREATMENT OF THESE INCOME AS COMP OSITE INCOME SUBJECT TO RULE 8 IS JUSTIFIED AND THEREFORE, THE A CTION OF LD AO OF TREATING THESE INCOME AS 100% TAXABLE INCOME IS UNJ USTIFIED. WITH REGARD TO THE METHOD ADOPTED BY THE LD AO FOR THE C OMPUTATION OF INCOME ARISING OUT OF MANUFACTURE AND SALE OF TEA FROM TEA LEAVES GROWN IN OWN TEA GARDEN AND TEA LEAVES BOUGHT FROM OUTSIDE, ON PERUSAL IT IS FOUND THAT THE METHOD ADOPTED BY THE LD AO SUFFERS FROM DEFECTS WHICH ARE EXPLAINED. 11. WE FIND THAT THE INCOME RECEIVED FROM SECURITY AND FIXED DEPOSITS TOTALING TO RS.8,02,837.39 FROM WEST BENGAL STATE ELECTRICIT Y BOARD FOR SHORT WBSEB AND BANK OF INDIA, SILIGURI BRANCH RESPECTIVELY WER E IN THE PROCESS OF BUSINESS ACTIVITY OF ASSESSEE AS BOTH THE RECEIPT WERE DETER MINED FROM KIND OF SERVICES IN ITA NO. 2283/KOL/2013-A-JM M/S. NANDI TEA CO.P.LTD. 7 CONNECTION WITH THE BUSINESS OF ASSESSEE AND WE HOL D THAT THE SAID INCOME IS FROM BUSINESS OF ASSESSEE AND RULE 8 IS APPLICABLE, THE ORDER OF CIT-A IS JUSTIED AND GROUND NO-2 RAISED BY THE REVENUE IS DISMISSED. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 08/07/201 6 COPY OF THE ORDER FORWARDED TO: 1.. THE APPELLANT/DEPARTMENT: THE DCIT, CIR-3, AAY KAR BHAWAN, WING B PARIBAHAN NAGAR, MATIGARA, SILIGURI DIST: DARJEELING 734010. 2 THE RESPONDENT/ASSESSEE: M/S. NANDI TEA COMPANY PVT. LTD SAROJINI VILLA119 RAJA RAM MOHAN ROY ROAD, HAKIMPARA, SILIGURI 734001 . 3 4.. /THE CIT, /THE CIT(A) 5. DR, KOLKATA BENCH 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT REGISTRAR ** PRADIP SPS SD/- P.M. JAGTAP ACCOUNTANT MEMBER SD/- S.S.VISWANETHRA RAVI J JUDICIAL MEMBER DATE : 08 /07 /2016