D.C.I.T., Circle-4, Kolkata, Kolkata V. M/s The Scottish Assam (India) Ltd., Kolkata

ITA 2725/KOL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4205 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 26-10-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 05-12-2013
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income
• Section: 142(1); 14A

Judgement Text

ITA NO. 2725/KOL/2013 M/S. THE SCOTTISH ASSAM (I) LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A B ENCH, KOLKATA BEFORE : SHRI M.BALAGANESH, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBE R I.T.A. NO.2725/KOL/2013 ASSESSMENT YEAR: 2009-10 D.C.I.T., CIR-4, KOLKATA, AAYKAR BHAWAN, 8 TH FLOOR, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069. APPELLANT -VS- THE SCOTTISH ASSAM (INDIA) LTD, 1, CRROKED LANE, KOLKATA-700 069, PAN: AAACT9788P. RESPONDENT APPEARANCES BY: SHRI S.SINGHI, FCA, AR FOR ASSESSEE SHRI SALLONG YADEN, ADDL.CIT, DR, FOR REVENUE DATE OF HEARING : 26-10- 2016 DATE OF PRONOUNCEMENT : 2 5-11-2016 SHRI. S.S.VISWANETHRA RAVI, JM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 26-07-2013 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)- IV, KOLKATA FOR THE ASSESSMENT YEAR 2009-10. 2. IT IS NOTICED THAT THE APPEAL FILED BY THE REVEN UE IS TIME BARRED BY 18 DAYS. FOR WHICH THE REVENUE FILED AN A FFIDAVIT DATED ITA NO. 2725/KOL/2013 M/S. THE SCOTTISH ASSAM (I) LTD 2 05-12- 2013 STATING THE REASONS FOR DELAY IN FILING THE APPEAL. ON PERUSING THE SAME AND HEARING BOTH THE PARTIES, WE CONDONE THE DELAY AND DISPOSE OFF THE SAME ON MERITS. 3. THE APPELLANT REVENUE HAS RAISED FOLLOWING GROUN DS:- 1. THAT CIT(A) ERRED IN DELETING THE DISALLOWANCE U/ S. 14A READ WITH RULE 8D(2)(II), IGNORING THE FACT THAT ASSESSEE FAILED TO PROVE THAT BORROWED FUND WAS NOT USED IN INVESTMENT FROM WHERE DIVIDEND RECEI VED. 2. THAT CIT(A) ERRED IN DELETING THE DISALLOWANCE OF CESS ON GREEN LEAF, IGNORING THE FACTS THAT CESS ON GREEN LEAF ATTRIBUTA BLE TO AGRICULTURE ACTIVITIES DOES NOT FALL IN THE AMBIT OF I.T ACT AND ON THIS ISSU E SLP PENDING BEFORE APEX COURT IN THE CASE OF AFT INDUSTRIES. 3. THAT CIT(A) ERRED IN DELETING THE LIABILITY WRIT TEN BACK ON ACCOUNT OF GRATUITY, IGNORING THE PROVISIONS OF SECTION 40(A)(7). 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS COMPANY AND INVOLVED IN THE BUSINESS OF MANUFACTURING OF TEA AND FILED RETU RN OF INCOME THROUGH ONLINE ON 24.09.2009 SHOWING A TOTAL INCOME OF RS.81,85,76 9/-. UNDER SCRUTINY, NOTICES U/S. 143(2) AND 142(1) WERE ISSUED AND, IN RESPONSE TO THE SAID NOTICES, THE ASSESSEE APPEARED. 5. GROUND NO-1 IS RELATING TO DISALLOWANCE MADE U/S EC 14A R/W RULE 8D(2)(II) OF THE ACT. 6. THE AO FOUND THAT THE ASSESSEE EARNED DIVIDEND I NCOME AND WHILE CLAIMING AS EXEMPT INCOME DID NOT MAKE ANY PROVISIO N FOR DISALLOWANCE U/S. 14A TOWARDS THE EXPENDITURE INCURRED. ACCORDING TO AO, THE ASSESSE SHOULD HAVE INCURRED DIRECT AS WELL AS INDIRECT EXPENDITUR E FOR EARNING EXEMPT INCOME. SINCE THE ASSESSEE MADE NO CALCULATION IN RESPECT O F EXPENDITURE, THE AO ADOPTED THE METHOD AS PRESCRIBED IN RULE 8D, AS PER THE RATIO IN THE CASE OF ITO VS- DAGA CAPITAL MARKET PVT. LTD (2009) 312 IT R 1 (SB) (MUMBAI) AND ITA NO. 2725/KOL/2013 M/S. THE SCOTTISH ASSAM (I) LTD 3 DISALLOWED OF RS.15,63,660/- U/S.14A OF THE ACT, TH E COMPUTATION OF WHICH IS AS UNDER: I . DIRECT EXPENSES RELATED TO EXEMPT INCOME NIL II. INTEREST DEBITED TO P/L A/C (A) 13,09,358/- AVERAGE VALUE OF INVESTMENT (B) 10,10,09,365/- AVERAGE VALUE OF ASSETS (C) 12,49,34,581/- A X B/C 10,58,613 III. 0.5% OF 10,10,09,365/- 5 ,05,047 TOTAL DISALLOWANCE U/S. 14A 15,63,660 7. IN FIRST APPEAL, BEFORE THE CIT-A THE ASSESSEE S UBMITTED THAT THE INVESTMENTS MADE IN SHARES AND IN MUTUAL FUNDS FROM ITS SURPLUS FUNDS AND SUBMITTED A TABULAR FORM AS BELOW:- THE ASSESSEE ALSO SUBMITTED THE FACT THAT INVESTMEN TS IN SHARES AND MUTUAL FUNDS WERE MADE OUT OF ITS OWN FUNDS AND NOT OUT OF BO RROWED FUNDS WHICH IS DEMONSTRATED BELOW:- SL. NO. SOURCES OF FUNDS AMOUNT (RS.) UTILISATION 1. SHARE CAPITAL AND RESERVES & SURPLUS 11,41,24,395 FOR INVESTMENTS AND OTHER OPERATING ACTIVITIES 2. BOOK ENTRY FOR NON CASH ITEMS A ) P ROVISION FOR ACCUMULATED DEPRECIATION 5,06,49,702 FOR FIXED ASSETS, INVESTMENTS AND OTHER B) PROVISION FOR DIMINUTION IN VALUE OF INVESTMENTS 93,00,000 INVESTMENTS IN SHARES AND MUTUAL FUNDS C) PROVISION FOR DOUBTFUL ADVANCE 23,905 FOR WORKING CAPITAL REQUIREMENTS 3. TOTAL NON INTEREST BEARING FUNDS 17,40,98,002 ITA NO. 2725/KOL/2013 M/S. THE SCOTTISH ASSAM (I) LTD 4 4. SECURED LOANS A) FROM UNITED BANK OF INDIA 2,17,62,275 FOR WORKING CAPITAL REQUIREMENTS B) FROM TEA BOARD- SPECIAL PURPOSE TEA FUND SCHEME 27,78,081 REPLANTING IN HEELAKSH TEA ESTATE FROM THE ABOVE TABLE, IT CAN BE SEEN THAT THE ASSES SEE HAD TOTAL OWNED/ NON- INTEREST BEARING FUNDS OF RS. 17,40,98,002/- WHEREA S THE AMOUNT UTILIZED FOR INVESTMENTS ARE RS. 12,05,10,473/-ONLY. THUS, IT CAN BE INFERRED THAT THE INVESTMENTS HAVE BEEN MADE FROM THE OWN FUNDS AND NO PART OF BORROWING COSTS/ INTEREST IS INCURRED FOR EARNING SUCH EXEMPT INCOME. 4.1 THE LD. A.R. FURTHER DREW MY ATTENTION TO THE TE RMS OF LOAN SANCTIONED BY UNITED BANK OF INDIA WHICH WERE AT PAGES 12 TO 22 OF THE ADDITIONAL PAPER BOOK AND SANCTION LETTER FOR LOAN AVAILED FROM TEA BOARD OF IN DIA UNDER THE SPECIAL PURPOSE TEA FUND SCHEME WHICH WERE AT PAGES 23 TO 29 OF THE ADDITIONAL PAPER BOOK. ON PERUSING THESE DOCUMENTS IT IS OBSERVED THA T THE LOAN FROM UNITED BANK OF INDIA WAS OBTAINED FOR THE SPECIFIC PURPOSE OF MEETI NG THE WORKING CAPITAL REQUIREMENTS OF THE COMPANY DURING THE SEASONAL PERI OD FROM THE MONTH OF JANUARY, 2009 TO DECEMBER, 2009 WHEREAS LOAN FROM TEA BOARD OF INDIA WAS FOR THE SPECIFIC PURPOSE OF CARRYING OUT REPLANTING IN THE IR HEELEAKAH TEA ESTATE. IN FACT A SEPARATE BANK ACCOUNT WITH NO-LIEN CONSENT F ROM BANK HAS BEEN MAINTAINED IN COMPLIANCE OF CLAUSE 9 OF THE LOAN SANCTION LETTER OF THE TEA BOARD OF INDIA. THE LD. AR FURTHER DREW MY ATTENTION TO POINT (XVI) OF THE ANNEXURE TO THE AUDITOR'S REPORT WHEREIN IT IS STATED THAT: 'TO THE BEST OF OUR KNOWLEDGE AND BELIEF AND ACCORDIN G TO THE INFORMATION AND EXPLANATIONS GIVEN TO US, TERM LOANS HA VE BEEN APPLIED FOR THE PURPOSES FOR WHICH THEY WERE OBTAINED' . 4.2 THE LD. AR ARGUED THAT THE APPELLANT HAD SUFFIC IENT OWNED/ NON-INTEREST BEARING FUNDS TO FUND ITS INVESTMENT ACTIVITIES. THE LD. AR RELIED ON THE CASE OF RELIANCE UTILITIES & POWER LIMITED (ITA NO 1398 OF 20 08- ORDER DATED 09.01.2009 OF THE HON'BLE BOMBAY HIGH COURT) WHEREIN THE HON'BLE BOMBAY HIGH COURT OBSERVED THAT 'IF THERE BE INTEREST FREE FUNDS AVAI LABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASS ESSEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE MADE FROM THE INTEREST FREE FUNDS AVAILABLE'. 4.3 THE LD. AR ARGUED THAT SECTION 14(2) DOES NOT I PSO FACTO ENABLE THE ASSESSING OFFICER TO APPLY THE METHOD PRESCRIBED BY THE RULES STRAIGHTAWAY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE A SSESSEE IN RESPECT OF THE ITA NO. 2725/KOL/2013 M/S. THE SCOTTISH ASSAM (I) LTD 5 EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IS CORRECT. THE ASSESSING OFFICER MUST FIRST DETERMINE WHETHER THE CLAIM OF T HE ASSESSEE IN THAT REGARD IS CORRECT AND THE DETERMINATION MUST BE MADE HAVING REG ARD TO ITS ACCOUNTS. THE SATISFACTION OF THE ASSESSING OFFICER MUST BE ARRIVE D ON AN OBJECTIVE BASIS. IT IS ONLY WHEN THE ASSESSING OFFICER IS NOT SATISFIED WIT H THE CLAIM OF THE ASSESSEE THAT THE LEGISLATURE DIRECTS HIM TO FOLLOW THE METHOD THAT IS PRESCRIBED. THE LD. AR RELIED ON THE FOLLOWING DECISIONS: A. WALFORT SHARE & STOCK BROKERS P. LTD. B. ACIT V/S EICHER LTD [REPORTED IN 101 TT) 309 (DE L)] C. WIMCO SEEDLINGS LTD VS DCIT REFERRED IN 293 ITR (A.T) 0216,ITAT DELHI D. THACKER AND CO LTD VS ITO REFERRED IN 290 ITR (A .T) 0154, ITAT DELHI E. CIT VS HERO CYCLES 323 ITR 158 (PH) F. RELIANCE UTILITIES & POWER LTD (ITA NO 1398 OF 2 008 ORDER DATED 09.01.2009 OF HON'BLE BOMBAY HIGH COURT) G. EAST INDIA PHARMACEUTICAL WORKS 224 ITR 627. H. ASSESSEE'S OWN CASE (REPORTED IN ITAT NO.2638/KO L/2004,DT.28/07/2005 FOR THE ASSESSMENT YEAR 2001-02. I. REI AGRO LTD [ITA NO 1331/KOL/2011 & ITA NO 1423 /KOL/2011 DATED 19/06/2013] 4.4 THE LD AR FURTHER ARGUED THAT THE EXPENSES INCU RRED CAN BE DISALLOWED ONLY TO THE EXTENT THE SAME ARE RELATABLE TO THE EARNING O F EXEMPT INCOME. THE LD AR ARGUED THAT THE DIVIDEND WAS DEPOSITED IN THE BANK A CCOUNT THROUGH ECS DIRECTLY AND THE APPELLANT HAD NO OCCASION TO INCUR ANY EXPEND ITURE FOR COLLECTION OF THE DIVIDEND WARRANT OR CLEARING OF THE SAME IN THE BANK ACCOUNT. THE FACT THAT THE ASSESSEE DID NOT INCUR ANY ADMINISTRATIVE EXPENSES F OR INVESTING ACTIVITIES IS FURTHER SUPPORTED FROM THE CASH FLOW STATEMENT ATTACHE D TO THE AUDITED ACCOUNTS. 4.5 I HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AND ALSO APPLI CABLE LEGAL POSITION. 4.6 LET US DISCUSS THE APPLICABILITY OF SECTION 14A FIRST, AS THE LD AR CHALLENGES THE EVERY APPLICATION OF SECTION 14A TO THE FACTS OF THE CASE, BECAUSE THE ASSESSING OFFICER HAS NOT RECORDED A SPECIFIC SATISF ACTION TO THE EFFECT THAT CLAIM OF THE ASSESSEE, I.E. NO EXPENDITURE IS INCURRED ON E ARNINGS THE TAX EXEMPT DIVIDEND, IS INCORRECT. I SEE NO SUBSTANCE IN THIS PL EA. SECTION 14 A (2) PROVIDES THAT, '(T)HE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRI BED, IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESS EE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT PART FORM OF THE TOTAL INCOME UND ER THIS ACT' AND SECTION 14 A (3) PROVIDES THAT, '(T)HE PROVISION OF SUB-SECTION (2) SHALL ALSO APPLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT'. WHILE A LOT OF EMPHASIS IS PLA CED BY THE LD AR OF WORDINGS OF SECTION 14A(2) WHICH REFER TO THE NEED OF ASSESSING OFFICER'S ITA NO. 2725/KOL/2013 M/S. THE SCOTTISH ASSAM (I) LTD 6 SATISFACTION TO THE EFFECT THAT THE CLAIM MADE BY THE ASSESSEE IS INCORRECT, HE SIMPLY OVERLOOKS THE PROVISIONS OF SECTION 14A (3). THEREF ORE, A PLAIN READING OF THE STATUTORY PROVISIONS OF SECTION 14A(2) AND (3) SH OWS THAT WHEN ASSESSEE OFFERS A DISALLOWANCE UNDER SECTION 14A, THE PROVISION S OF SECTION 14A(2) READ WITH RULE 8 D CANNOT BE INVOKED UNLESS THE ASSESSING OFFICER IS SATISFIED ABOUT INCORRECTNESS OF THE DISALLOWANCE SO OFFERED, BUT WHEN ASSESSEE DOES NOT OFFER ANY DISALLOWANCE UNDER SECTION 14 A ON HIS OWN, THE P ROVISION OF SECTION 14A(2) WITH RULE 8D CAN BE INVOKED WITHOUT THERE BEING ANY NEED TO EXPRESS SATISFACTION ABOUT INCORRECTNESS OF SUCH CLAIM. 4.7 RULE 8D(2) HAS THREE SUB-PARTS. THE FIRST SUB- PART I.E. (I) DEALS WITH THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO THE INCOM E WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THAT ISSUE IS NOT IN DISPUTE HERE AND THEREFORE, WE DO NOT GO INTO IT IN THIS CASE. IN SECOND SUB-PART I.E.(II), I T IS A COMPUTATION PROVIDED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT. THIS CLEARLY MEANS THAT IF THERE IS ANY IN TEREST EXPENDITURE, WHICH IS DIRECTLY RELATABLE TO ANY PARTICULAR INCOME OR RECEIP T, SUCH INTEREST EXPENDITURE IS NOT TO BE CONSIDERED UNDER RULE 8D(2)(II). IN THE A SSESSEE'S CASE HERE THE INTEREST HAS BEEN PAID BY THE ASSESSEE ON THE LOANS TAKEN FROM THE UNITED BANK OF INDIA AND TEA BOARD OF INDIA FOR ITS BUSINESS PURPOSE. THER E IS NO ALLEGATION FROM EITHER THE BANK OR THE TEA BOARD NOR THE AO THAT THE LOAN FUN DS HAVE BEEN DIVERTED FOR MAKING THE INVESTMENT IN SHARES OR FOR NON-BUSINESS P URPOSES. FURTHER RULE 80(2)(II) CLEARLY IS WORDED IN THE NEGATIVE WITH TH E WORDS 'NOT DIRECTLY ATTRIBUTABLE'. THUS FOR BRINGING ANY INTEREST EXPEND ITURE, CLAIMED BY THE ASSESSEE, UNDER THE AMBIT OF RULE 80(2)(II) IT WILL HAVE TO BE SHOWN BY THE AO THAT THE SAID INTEREST IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT. 4.8 IN THE APPELLANT'S CASE, ADMITTEDLY, THE APPELL ANT HAS SUFFICIENT OWNED/ INTEREST FREE FUNDS AMOUNTING TO RS. 17,40,98,002/- WHEREAS AMOUNT UTILIZED FOR INVESTMENTS ARE RS.12,05,10,473/- ONLY. THE LOANS T AKEN DURING THE YEAR ADMITTEDLY ARE FOR THE WORKING CAPITAL REQUIREMENT O F THE ASSESSEE AND FOR REPLANTING AT HEELAKH TEA ESTATE AND THE ASSESSEE A RE BOUND TO PROVIDE TO THE BANK CASH BUDGETS AND FINAL CROP RECONCILIATION STAT EMENT AND OTHER DETAILS TO SHOW THE UTILIZATION OF THE LOANS. MOREOVER, A SEPARATE BANK ACCOUNT WITH NO-LIEN CONSENT FROM BANK HAS BEEN MAINTAINED FOR LOANS FROM T EA BOARD OF INDIA. NO BANK WOULD PERMIT THE LOAN GIVEN FOR ONE PURPOSE TO BE USED FOR MAKING ANY INVESTMENT IN SHARES AND SECURITIES. AFTER CONSIDERI NG THESE FACTS THAT THE APPELLANT HAD NOT USED ANY OF ITS BORROWINGS FOR PURCH ASING THE SHARES, THE DISALLOWANCE MADE BY THE AO APPLYING SUB-PART (II) O F RULE 80 IS DELETED IN FULL. 8. AGGRIEVED BY THE ORDER OF CIT-A THE REVENUE BEFO RE THIS TRIBUNAL CHALLENGING THE SAME. THE LD. DR SUBMITS THAT THE A SSESSEE COULD NOT FILE ANYTHING TO SHOW THAT THE BORROWED FUNDS WERE NOT U SED IN INVESTMENTS AND WITHOUT CONSIDERING THE SAME THE CIT-A DELETED THE ADDITION MADE ON ACCOUNT ITA NO. 2725/KOL/2013 M/S. THE SCOTTISH ASSAM (I) LTD 7 OF DISALLOWANCE AND RELIED ON THE ORDER OF AO. THE LD.AR REITERATED THE SUBMISSIONS AS MADE BEFORE THE CIT-A AND SUPPORTED THE ORDER OF CIT-A. 9. HEARD RIVAL SUBMISSIONS AND PERUSED THE EVIDENC E AVAILABLE ON RECORD. WE FIND FROM THE TABULAR FORM SCHEDULE AS REPRODUCE D IN PARA NO-7 HEREIN ABOVE THAT THE ASSESSEE HAS SURPLUS NON-INTEREST FU NDS TO AN EXTENT OF RS. 17,40,98,002/- AND ALSO SHOWS THE ASSESSEE MADE INV ESTMENTS TO AN EXTENT OF RS. 12,05,10,473/-ONLY AND WE HOLD THAT THE INVESTM ENTS WERE MADE FROM ITS SURPLUS OWN FUNDS. IN THIS REGARD, THE DISCUSSION IN ORDER OF CIT-A AT PARA NO- 7, THE CIT-A EXAMINED THE EVIDENCE AVAILABLE BEFORE HIM AND FOUND THAT THE ASSESSE PAID THE INTEREST ON THE LOANS TAKEN FROM T HE UNITED BANK OF INDIA AND TEA BOARD OF INDIA FOR ITS BUSINESS PURPOSE MORE SP ECIFICALLY AS MENTIONED AT TABULAR FORM SCHEDULE IN PARA NO-7 AND HE POINTED O UT THAT THERE WAS NO ALLEGATION FROM EITHER THE UNITED BANK OF INDIA OR THE TEA BOARD NOR THE AO THAT THE LOAN FUNDS HAVE BEEN DIVERTED FOR MAKING T HE INVESTMENT IN SHARES OR FOR NON-BUSINESS PURPOSES. IN VIEW OF THE ABOVE, WE FIND NO INFIRMITY IN THE ORDER OF CIT-A AND THE CIT-A IS JUSTIFIED IN DELETI NG THE ADDITION MADE ON ACCOUNT OF RULE 8D(2)(II) OF THE RULES AND THE GROU ND NO-1 RAISED TO THAT EFFECT IS FAILS AND IT IS DISMISSED. 10. GROUND NO.2 IS RELATING TO DISALLOWANCE MADE ON ACCOUNT OF CESS ON GREEN LEAF. THE CONTENTION OF THE ASSESSEE IS THAT IT HAS TEA GARDENS IN ASSAM AND THE PRODUCTION OF THE GREEN LEAF IS PURELY AN A GRICULTURAL ACTIVITY AND AS SUCH, THE CESS LEVIED ON THE PRODUCTION OF THE GREE N LEAF DOES NOT COME UNDER THE PURVIEW OF COMPOSITE INCOME AND CLAIMED DEDUCTI ON BEFORE APPLYING RULE 8. ACCORDING TO AO THE REVENUE CHALLENGED THE ORDER OF THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF AFT INDUSTRIES BEFORE THE HON'BLE SUPREME COURT AND THE HONBLE SUPREME COURT ADMITTED SAID SLP AND IN VIEW OF PENDENCY OF THE ITA NO. 2725/KOL/2013 M/S. THE SCOTTISH ASSAM (I) LTD 8 MATTER, THE AO TREATED THE CESS IS NON DEDUCTIBLE E XPENDITURE FROM THE COMPOSITE INCOME OF THE ASSESSE AND ADDED AN AMOUNT OF RS.18,37,501/- . 11. THE ASSESSEE SUBMITTED THE FOLLOWING BEFORE THE CIT-A AS UNDER: 7.1 IN RESPONSE THE LD AR ARGUED THAT THE APPELLANT SUBMITTED THAT THE CESS ON GREEN LEAF IS A LEVY ON THE RAW MATERIAL FOR MANUF ACTURE AND SALE OF TEA. IT ADDS TO THE COST OF GREEN LEAF PLUCKED AND BOUGHT F OR MANUFACTURING OF TEA. THEREFORE, IT IS EXCLUSIVELY AN EXPENDITURE FOR THE P URPOSE OF THE BUSINESS ACTIVITIES OF THE ASSESSEE AND, THEREFORE, ALLOWABLE AS AN EXPENDITURE TO ARRIVE AT THE PROFIT FROM THE BUSINESS OF GROWING, MANUFACTU RING AND SALE OF TEA. THE EXPENDITURE OF GREEN LEAF CESS IS ALLOWABLE FROM TH E COMPOSITE INCOME OF THE 100% TEA BUSINESS BEFORE COMPUTATION OF TAXABLE INC OME UNDER RULE 8 OF THE INCOME TAX ACT, 1961. THE LD AO RELIED ON A NUMBER OF DECISIONS INCLUDING DECISION IN THE APPELLANT'S OWN CASE OF THE ITAT, KOL KATA BENCHES IN ITA NO. 2627/KOL/2004 DT.28-7-2005 FOR THE ASSESSMENT YEAR 2 001-02 IN FAVOUR OF THE ASSESSEE 7.2 FURTHER THE LD AR ARGUED THAT, AS HELD IN THE C ASE OF DCIT VS. M/S ASSAMBROOK LTD. - ITA NO. 2049/KO1J2010 - ASSESSMENT Y EAR 2006-07, SLP IS PENDING BEFORE THE HON'BLE SUPREME COURT AGAINST THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT IN RESPECT OF AFT INDUSTRIES LTD . VS. CIT(270 ITR 167) WHICH HAVE NO EFFECT SINCE THE HON'BLE APEX COURT HAS NEITHER SET ASIDE THE ORDER OF THE HON'BLE CALCUTTA HIGH COURT NOR GRANTED ANY STAY. 7.3 I AM OF THE VIEW THAT THE HON'BLE APEX COURT HAS NOT STAYED OR SET ASIDE THE ORDER OF THE HON'BLE JURISDICTIONAL HIGH COURT OF KOLKATA AND HENCE AS ON DATE THE ORDER OF JURISDICTIONAL HIGH COURT WILL CONTI NUE TO BE EFFECTIVE. GROUND NO.5 RAISED BY THE ASSESSEE IS THUS ALLOWED AN D THUS ADDITION OF RS.18,37,501/-IS DELETED. 12. WE FIND THAT, AS MATTER STOOD THUS, THE HONOURA BLE SUPREME COURT DISMISSED THE SLP FILED BY THE APPELLANT REVENUE AN D AGREED WITH THE INTERPRETATION OF SCOPE OF RULE 8 OF INCOME TAX RUL ES 1962 RENDERED BY THE HONOURABLE HIGH COURT OF CALCUTTA. THE LEARNED AR P LACED COPY OF SUCH ORDER BEFORE US AND SUBMITTED THAT THE PRESENT APPEAL MAY BE DISPOSED OF IN PURSUANCE OF THE DECISION OF HONOURABLE SUPREME COU RT AND LEARNED DR SUBMITS THAT THE APPELLANT REVENUE DID NOT SUCCEED IN SLP A ND THE DECISION OF HONOURABLE HIGH COURT OF CALCUTTA HAS BECOME FINAL AND BINDING ON THE APPELLANT REVENUE IN VIEW OF THE CONFIRMATION OF TH E SUCH DECISION BY THE ITA NO. 2725/KOL/2013 M/S. THE SCOTTISH ASSAM (I) LTD 9 HONOURABLE SUPREME COURT. THE RELEVANT PORTION OF W HICH IS REPRODUCED HEREIN BELOW: THE RESPONDENT-ASSESSEE HAD PAID CESS ON GREEN LEA F TO THE GOVERNMENT OF ASSAM WHICH WAS LEVIED UNDER ASSAM TAX ATION ( ON SPECIFIED LAND) ACT, 1990. IN ITS INCOME TAX RETURN, IT HAD CLAIMED THE SAME AS DEDUCTION WHICH HAS BEEN ALLOWED BY THE HIGH COU RT. THE RELEVANT DISCUSSION IN THIS BEHALF IS AS UNDER:- 'HOWEVER, THE LEARNED TRIBUNAL HAD HELD THAT THE DED UCTION IS ELIGIBLE AFTER COMPUTING THE INCOME UNDER RULE 8 AND THE APP ORTIONMENT IS TO BE MADE ONLY AFTER THE INCOME IS SO COMPUTED. SUCH AP PORTIONMENT CANNOT BE MADE BEFORE THE DEDUCTION. RULE 8 OF THE IN COME TAX: RULES, 1962 REQUIRES THAT THE COMPUTATION IS TO BE M ADE AS IF BY FICTION THE ENTIRE INCOME OUT OF THE TEA GROWN AND MA NUFACTURED AS INCOME ASSESSABLE UNDER THE INCOME TAX ACT, 1961. IN VIEW OF RULE 8, THE INCOME SO COMPUTED IS TO BE APPORTIONED 60: 40 OF WHICH 40 IS ASSESSABLE TO TAX UNDER THE ACT. IT DOES NOT PROVIDE THAT AFTER APPORTIONMENT OF THE 60 % OF THE INCOME SO COMPUTED SHA LL AGAIN BE REQUIRED TO BE COMPUTED UNDER THE AGRICULTURAL INCOME TAX ACT. ON THE OTHER HAND, THIS 60% IS EXPOSED AND BECOMES EXIG IBLE TO TAX UNDER THE AGRICULTURAL INCOME TAX ACT. WITHOUT BEIN G REQUIRED TO BE ASSESSED UNDER THE SAID ACT BY REASON OF THE FICTION SO CREATED. THEREFORE, THE CESS PAID HAS RIGHTLY BEEN EXCLUDED W HILE COMPUTING THE INCOME UNDER RULE 8 OF THE TEA GROWN AND MANUFAC TURED.' IN ARRIVING AT THE AFORESAID CONCLUSION, THE HIGH COU RT HAS REFERRED TO THE VARIOUS JUDGMENTS OF THIS COURT. WE ARE OF THE OPINION THAT THE HIGH COURT HAS RIGHTLY INTERPRETED THE SCOPE OF RULE 8 OF THE INCOME TAX RULES 1962. WE, THU S, FIND NO MERIT IN THIS APPEAL WHICH IS, ACCORDINGLY, DISMISSED. 13. IN ACCORDANCE WITH THE PRINCIPLE AS LAID BY THE HONBLE HIGH COURT OF CALCUTTA IN THE CASE OF AFT INDUSTRIES WHICH HAS BEEN FURTHER STRENGTHENED BY DISMISSAL OF SLP BY THE HONBLE SUPREME COURT, W E HOLD THAT THE INCOME SO COMPUTED IS TO BE APPORTIONED 60: 40 OF WHICH 40 IS ASSESSABLE TO TAX UNDER THE ACT. THUS, GROUND NO-2 RAISED IS, ACCORDI NGLY DISMISSED. ITA NO. 2725/KOL/2013 M/S. THE SCOTTISH ASSAM (I) LTD 10 14. GROUND NO.3 IS RELATING TO DELETION OF ADDITION MADE AS DISALLOWANCE THEREON U/SEC 40(A)(7) OF THE ACT. THE AO FOUND TH AT ASSESSEE THE WRITTEN BACK LIABILITY TOWARDS GRATUITY IN THE PROFIT AND L OSS ACCOUNT FROM ANNEXURE 6 IN TAX AUDIT REPORT AND FOUND FROM COMPUTATION THE SAME WAS DEDUCTED FROM THE TOTAL INCOME. THE AO DISALLOWED OF RS.1,77,319/ - AND ADDED TO THE TOTAL INCOME. THE ASSESSEE CHALLENGED THE SAME BEFORE THE CIT-A AND CIT-A DELETED THE SAME BY OBSERVING AS UNDER: 8. THE SIXTH GROUND OF APPEAL IS AGAINST THE ADDITION OF PROVISIONS MADE AGAINST GRATUITY LIABILITY WRITTEN BACK IN THE PROFI T AND LOSS ACCOUNT AMOUNTING TO RS 1,77,319/-. BRIEF FACTS OF THE ISSUE IS THAT DU RING THE YEAR THE APPELLANT HAS WRITTEN BACK RS. 1,77,319/- BEING EXCESS PROVISI ON FOR GRATUITY LIABILITY PROVIDED IN EARLIER YEAR. ACCORDING TO SECTION 40 A (7) NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY PROVISION (WHETHER CALLED AS SUCH OR BY ANY OTHER NAME) MADE BY THE ASSESSEE FOR THE PAYMENT OF GRATUIT Y TO HIS EMPLOYEES ON THEIR RETIREMENT OR ON TERMINATION OF THEIR EMPLOYMENT FOR ANY REASON. MERE PROVISION OF THE LIABILITY SO WRITTEN BACK IN FACT WA S NEVER ALLOWED IN ANY EARLIER TAX ASSESSMENT. HENCE, THE EXCESS PROVISION F OR GRATUITY WRITTEN BACK DURING THE YEAR IS THEREFORE NOT LIABLE FOR TAX DURING THE YEAR IN ANY CIRCUMSTANCE. GROUND NO 6 RAISED BY THE ASSESSEE IS T HUS ALLOWED. I DIRECT THE AO TO DELETE THE ADDITION OF RS 1,77,319/-. 15. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L AVAILABLE ON RECORD. WE FIND THAT THE ADDITION MADE ON ACCOUNT OF WRITING B ACK OF GRATUITY TO THE PROFIT AND LOSS ACCOUNT WAS EXCESS PROVISION FOUND DURING THE YEAR UNDER CONSIDERATION. AS RIGHTLY POINTED OUT BY THE CIT-A THAT PROVISION OF LIABILITY OF GRATUITY WRITTEN BACK WAS NEVER ALLOWED IN EARLIER ASSESSMENT AND WE FIND THAT THE ASSESSEE HAS OFFERED THE SAME IN ITS COMPUTATIO N OF INCOME IN THE PREVIOUS YEARS. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT-A AND IT IS JUSTIFIED . THUS, GROUND NO. 3 RAISED IN THIS REGARD BY THE R EVENUE IS DISMISSED. ITA NO. 2725/KOL/2013 M/S. THE SCOTTISH ASSAM (I) LTD 11 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH NOVEMBER,2016. SD/- SD/- M.BALAGANESH S.S. VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DT: 25-11-2016 COPIES TO : **PP/SPS (1) APPELLANT/ASSESSEE: (2) ASSESSEE/DEPARTMENT: (3)COMMISSIONER OF INCOME-TAX (APPEALS) (4) COMMISSIONER OF INCOME TAX, KOLKATA (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA