Jay Shree Tea & Industries Ltd., Kolkata V. JCIT, CIR-4, KOLKATA, Kolkata

ITA 359/KOL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1338 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 03-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Keywords: Depreciation; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : KOLKATA [BEFORE HONBLE SHRI M.BALAGANESH, AM & HONBLE S HRI S.S.VISWANETHRA RAVI, JM] I.T.A NO. 359/KOL/201 4 ASSESSMENT YEAR : 2009-1 0 JAY SHREE INDUSTRIES LTD. -VS- JCIT,OSD-CIR-4 , KOLKATA [PAN: AAACJ 7788 D] (APPELLANT) (RESPONDEN T) FOR THE APPELLANT : SHRI RAVI TULSIYAN , FCA FOR THE RESPONDENT : SHRI S. DASGUPTA, ADDL. CIT(DR) DATE OF HEARING : 08.03.2018 DATE OF PRONOUNCEMENT : 16.03.2018 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-IV, KOLKATA [IN SHORT THE LD CI T(A)] IN APPEAL NO.209/CIT(A)- IV/2011-12 DATED 05.12.2013 AGAINST THE ORDER PASSE D BY THE JCIT, OSD-CIR-4, KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 27.12.2011 FOR THE ASSESSME NT YEAR 2009-10. 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN PARTIALLY CONFIRMING THE DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D OF THE RULES. 2 ITA NO.359/KOL/2014 JAY SHREE TEA & INDUSTRIES LTD. A.YR. 2009-10 2 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS EE HAS DERIVED DIVIDEND INCOME AND HAD CLAIMED THE SAME AS EXEMPT INCOME IN THE RETURN OF INCOME AND DISALLOWED THE SUM OF RS. 30,57,783/- UNDER RULE 8D(2)(III) BEING 0.5% OF AVERAGE VALUE OF INVESTMENT AND ALSO CONSIDERING CERTAIN DIRECT EXPENSES INCURRED F OR THE PURPOSE OF EARNING EXEMPT INCOME. THE LD. AO RECOMPUTED THE DISALLOWANCE UNDE R RULE 8D AND ARRIVED AT THE FIGURE AS BELOW UNDER RULE 8D(2)(II) RS. 1,00,55,126/- RULE 8D(2)(III) RS. 22,75,746/- TOTAL RS. 1,23,30,872/- LESS: DISALLOWED BY THE ASSESSEE RS. 30,57,783/- BALANCE DISALLOWED BY AO RS. 92,73,089/- THE LD. CIT(A) APPRECIATED THE CONTENTIONS OF THE A SSESSEE THAT IT IS HAVING SUFFICIENT OWN FUNDS WHICH ARE MUCH MORE THAN THE INVESTMENTS MADE AND ALSO GIVING FINDING THAT THE INVESTMENTS WERE MADE ONLY OUT OF OWN FUND S OF THE ASSESSEE AND NOT OUT OF BORROWED FUNDS. ACCORDINGLY, HE DELETED THE DISALL OWANCE MADE UNDER RULE 8D(2)(II) OF THE RULES. NO FINDING WHATSOEVER WAS GIVEN BY TH E LD. CIT(A) FOR THE DISALLOWANCE MADE UNDER RULE 8D(2)(III). AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND: 1. FOR THAT THE LEARNED CIT(APPEALS) CONFIRMED THE DIS ALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER U/S 14A OF THE INCOME TAX ACT, 1961 READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 ALTHOUGH THE LEARNED ASSESSING OFFICER DID NOT ESTABLISH THE NEXUS OF EXPENDITURE INCURRED WITH THE EARNING OF EXEMPTED INCOME. 3.1 WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND TH AT THE ASSESSEE ITSELF HAS DISALLOWED RS. 30,57,783/- U/S 14A BY DULY CONSIDERING THE DIR ECT EXPENDITURE AND ALSO INDIRECT 3 ITA NO.359/KOL/2014 JAY SHREE TEA & INDUSTRIES LTD. A.YR. 2009-10 3 EXPENDITURE IN TERMS OF RULE 8D(2)(III) OF THE RULE S. AGAINST THE DISALLOWANCE DELETED BY THE LD. CIT(A) UNDER RULE 8D(2)(II), THE REVENUE IS NOT IN APPEAL BEFORE US. WE FIND THAT THE LD AO HAD NOT LOOKED INTO THE WORKINGS GIV EN BY THE ASSESSEE HAVING REGARD TO THE ACCOUNTS AND HAD TO RECORD SATISFACTION AS TO W HY THE CALCULATION MADE BY THE ASSESSEE IS INCORRECT AND AS TO WHY HE IS IGNORING THE SAME AND PROCEEDING TO INVOKE THE COMPUTATION MECHANISM PROVIDED IN RULE 8D(2) OF THE RULES. THIS HAS TO BE DONE WITH COGENT REASONS BY THE LD AO. THIS IS THE REQU IREMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS ASHISH JHUNJHUNWAL A . (MENTION THE CITATION HERE WHICH I GAVE YOU IN IMC LTD CASE) . H ENCE, WE HOLD THAT NO DISALLOWANCE IS TO BE MADE U/S 14A OF THE ACT OVER AND ABOVE RS. 30,57,783/- WHICH HAS ALREADY BEEN DISALLOWED BY THE ASSESSEE. ACCORDINGLY GROUND NO. 1 RAISED BY THE ASSESSEE IS ALLOWED. 4. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN UPHOLDING THE ACTION OF THE LD. AO IN DENIAL OF DEDUCTION U/S 80IE OF THE ACT, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSE SSEE IS ENGAGED IN THE BUSINESS OF GROWING AND MANUFACTURING OF TEA, MANUFACTURING CHE MICAL AND FERTILIZERS, TRADING OF TEA, WAREHOUSING AND DEVELOPMENT OF REAL ESTATE. TH E ASSESSEE CLAIMED DEDUCTION OF RS. 1,30,08,824/- U/S 80IE OF THE ACT IN RESPECT OF FO LLOWING UNITS SITUATED AT NORTH- EASTERN STATES. 4 ITA NO.359/KOL/2014 JAY SHREE TEA & INDUSTRIES LTD. A.YR. 2009-10 4 THE LD. AO DID NOT DISCUSS ANYTHING ABOUT THE CLAIM OF DEDUCTION U/S 80IE OF THE ACT IN THE ASSESSMENT ORDER BUT MERELY PROCEEDED TO DISALL OW THE DEDUCTION U/S 80IE WHILE COMPLETING THE ASSESSMENT. THE LD. CIT(A) ON GOING THROUGH THE ACCOUNTS OF THE ASSESSEE AS WELL AS AUDIT REPORT SUBMITTED IN FORM 10CCB IN RESPECT OF ELIGIBLE UNITS, OBSERVED THAT THE ASSESSEE HAD CARRIED OUT SUBSTANT IAL EXPANSION AND HAD NOT COMPLETED THE SAME WITHIN THE SAME YEAR IN WHICH SUCH SUBSTAN TIAL EXPANSION WERE UNDERTAKEN. IN OTHER WORDS, IN THE OPINION OF LD. CIT(A), THE SUBS TANTIAL EXPANSION ONCE UNDERTAKEN SHOULD BE COMPLETED WITHIN THE SAME FINANCIAL YEAR IN ORDER TO CLAIM DEDUCTION U/S 80IE OF THE ACT. THE LD. CIT(A) ALSO MADE A PASSING REFE RENCE THAT THE ADDITIONS TO PLANT AND MACHINERIES WERE MADE IN 2 TO 3 YEARS TIME BY THE ASSESSEE IN THE NORMAL WAY WHICH ARE ON ACCOUNT OF REPLACEMENT OF OLD MACHINERIES. T HE LD. CIT(A) DID NOT AGREE TO THE CONTENTION OF THE ASSESSEE THAT THERE IS NO TIME LI MIT PRESCRIBED IN SECTION 80IE OF THE ACT TO COMPLETE THE SUBSTANTIAL EXPANSION WITHIN TH E YEAR IN WHICH IT WAS UNDERTAKEN.. BASED ON THIS OBSERVATION, THE LD. CIT(A) UPHELD TH E ACTION OF THE LD. AO IN DENYING DEDUCTION U/S 80IE OF THE ACT. AGGRIEVED, THE ASSES SEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS: 5 ITA NO.359/KOL/2014 JAY SHREE TEA & INDUSTRIES LTD. A.YR. 2009-10 5 2. FOR THAT THE LEARNED CIT(APPEALS) CONFIRMED THE ACTION TAKEN BY THE LEARNED ASSESSING OFFICER FOR NOT ALLOWING DEDUCTION AGAINS T INCOME EARNED FROM OUR UNIT/GARDEN SITUATED IN THE NORTH-EAST, WHICH IS DE DUCTIBLE U/S 80IE OF THE INCOME TAX ACT, 1961 ALTHOUGH THE APPELLATE HAS INCREASE I N THE INVESTMENT IN THE PLANT AND MACHINERY BY MORE THEN TWENTY-FIVE PER CENT OF THE BOOKS VALUE OF PLANT AND MACHINERY (BEFORE TAKING DEPRECIATION IN ANY YEAR), AS ON THE FIRST DAY OF THE PREVIOUS YEAR IN WHICH THE SUBSTANTIAL EXPANSION I S UNDERTAKEN. 4.2 WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD SET UP TEA ESTATES IN NORTH-EASTERN STATES. THE ASSESSEE H AD CARRIED OUT CERTAIN SUBSTANTIAL EXPANSION IN ITS EXISTING ELIGIBLE UNDERTAKINGS AND HAD CLAIMED DEDUCTION U/S 80IE OF THE ACT IN THE RETURN OF INCOME. IT IS A FACT T HAT THE LD. AO HAD NOT DISCUSSED ANYTHING ABOUT THE CLAIM OF DEDUCTION U/S 80IE OF THE ACT IN HIS ASSESSMENT ORDER. WE FIND THAT THE DEDUCTION U/S 80IE OF THE ACT IS ELIGIBLE TO AS SESSEE WHO BEGINS TO MANUFACTURE IN ANY OF THE NORTH EASTERN STATES DURING THE PERIOD 01.04.2007 TO 31.03.2017 EITHER BY SETTING UP A NEW UNIT OR BY UNDERTAKING SUBSTANTIAL EXPANSION TO MANUFACTURE OR PRODUCE ANY ELIGIBLE ARTICLE OR THING. THE PROVISION OF SEC TION 80IE(1) STIPULATES THAT THE ASSESSEE WOULD BE ENTITLED TO 100% OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS AS DEDUCTION FOR 10 ASSESSMENT YEARS COMMENCING WITH T HE INITIAL ASSESSMENT YEAR. THE EXPRESSION INITIAL ASSESSMENT YEAR IS DEFINED IN SECTION 80IE(7) AS UNDER: (7) FOR THE PURPOSES OF THIS SECTION, (I ) 'INITIAL ASSESSMENT YEAR' MEANS THE ASSESSMENT Y EAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PROD UCE ARTICLES OR THINGS, OR COMPLETES SUBSTANTIAL EXPANSION; [UNDERLINING PROVIDED BY US] FROM THE AFORESAID DEFINITION OF INITIAL ASSESSMEN T YEAR, IT COULD BE INFERRED THAT THE INITIAL ASSESSMENT YEAR SHALL BE THE YEAR IN WHICH THE SUBSTANTIAL EXPANSION IS COMPLETED BY THE ASSESSEE WHICH WOULD ENABLE IT TO GENERATE R EVENUES AND CLAIM DEDUCTION THEREON U/S 80IE OF THE ACT. THIS GOES TO PROVE THAT THERE IS NO TIME LIMIT PRESCRIBED IN SECTION 80IE AS TO WHEN THE SUBSTANTIAL EXPANSION SHOULD BE COMPLETED BY THE ASSESSEE. THE PROVISIONS OF SECTION 80IE(2) OF THE ACT STIPULATES THAT IF AN UNDERTAKING BEGINS TO 6 ITA NO.359/KOL/2014 JAY SHREE TEA & INDUSTRIES LTD. A.YR. 2009-10 6 MANUFACTURE OR ELIGIBLE ARTICLE OR THING BY UNDERTA KING SUBSTANTIAL EXPANSION ON ANY DATE AFTER 01.04.2007 AND BEFORE 31.03.2017. THIS IS THE ONLY REQUIREMENT WITH REGARD TO TIME LIMIT SPECIFIED IN SECTION 80IE OF THE ACT. NO WHERE IT MANDATES, AS POINTED OUT BY THE REVENUE HEREIN, THAT THE SUBSTANTIAL EXPANSION ONCE COMMENCED SHOULD BE COMPLETED WITHIN SAME FINANCIAL YEAR. HENCE, THE DENIAL OF DE DUCTION U/S 80IE OF THE ACT BY THE REVENUE IS NOT TENABLE AS PER LAW. HOWEVER, WE FIND THAT THE EXPRESSION SUBSTANTIAL EXPANSION IS ALSO DEFINED IN 80IE(7)(III) OF THE A CT WHEREIN, IT SHOULD RESULT IN INCREASE IN INVESTMENT OF PLANT AND MACHINERY BY AT LEAST 25 % OF THE BOOK VALUE OF PLANT AND MACHINERY. THIS FACTUAL ASPECT AS TO WHETHER THE AS SESSEE HAD INDEED INVESTED IN PLANT AND MACHINERY MORE THAN 25% OF THE BOOK VALUE OF P LANT AND MACHINERY (BEFORE DEPRECIATION IN ANY YEAR); AS ON THE FIRST DAY OF T HE PREVIOUS YEAR IN WHICH SUBSTANTIAL EXPANSION IS UNDERTAKEN, WAS NOT VERIFIED BY THE A UTHORITIES BELOW. HENCE, IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE DEEM IT FIT A ND APPROPRIATE, TO REMAND THIS ISSUE TO THE FILE OF THE LD. AO, FOR THIS LIMITED PURPOSE OF VERIFICATION OF QUANTUM OF INVESTMENT IN PLANT AND MACHINERY SO AS TO SATISFY THE DEFINIT ION OF SUBSTANTIAL EXPANSION WITHIN THE MEANING OF 80IE(7)(III) OF THE ACT. IF THE ASSESSEE IS FOUND TO BE SO SATISFIED, THEN DEDUCTION U/S 80IE OF THE ACT SHOULD BE ALLOWED TO THE ASSESSEE. ACCORDINGLY, GROUND NO. 2 RAISED BY THE ASSESSEE IS ALLOWED FOR STATIS TICAL PURPOSES. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 16.03.2018 SD/- SD/- [S.S. VISWANETHRA RAVI] [ M.BAL AGANESH ] JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 16.03.2018 SB, SR. PS 7 ITA NO.359/KOL/2014 JAY SHREE TEA & INDUSTRIES LTD. A.YR. 2009-10 7 COPY OF THE ORDER FORWARDED TO: 1. JAY SHREE TEA & INDUSTRIES LTD., 10, CAMAC STREE T, KOLKATA-700017. 2. JCIT(OSD)-CIR-4, KOLKATA, P-7, CHOWRINGHEE SQUAR E, KOLKATA-700069. 3..C.I.T.- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S