Keventer Agro Limited, Kolkata V. DCIT, Cir. 4(1), Kolkata

ITA 396/KOL/2024

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 6636 (ITAT-KOLKATA)
• Duration Of Justice: 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2024
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 26-02-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Commercial expediency; TDS; FORM 26AS
• Section: 28; 43B; 143(3); 234B; 37(1); 250; 192

Judgement Text

आयकर अपीलीय अधिकरण कोलकाता 'ए' पीठ, कोलकाता म ें IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘A’ BENCH, KOLKATA श्री संजय गग ग , न्याधयक सदस्य एवं श्री संजय अवस्थी, ल े खा सदस्य क े समक्ष Before SRI SANJAY GARG, JUDICIAL MEMBER & SRI SANJAY AWASTHI, ACCOUNTANT MEMBER I.T.A. No.: 396/KOL/2024 Assessment Year: 2015-16 Keventer Agro Limited.............................................................Appellant [PAN: AABCK 1716 D] Vs. DCIT, Cir.-4(1), Kolkata.........................................................Respondent Appearances: Assessee represented by: S.K. Tulsiyan, Adv. & Lata Goyel, AR. Department represented by: Sallong Yaden, Addl. CIT(DR). Date of concluding the hearing : May 13 th , 2024 Date of pronouncing the order : June 5 th , 2024 ORDER Per Sanjay Awasthi, Accountant Member: The present appeal arises from the order passed u/s 250 of the Income Tax Act, 1961 (in short the 'Act') dated 12.02.2024 by the Commissioner of Income Tax (Appeals)-NFAC, Delhi [in short ld. 'CIT(A)'], pertaining to AY 2015-16. 2. In this case, the brief facts of the case may be mentioned for appreciating the grievance of the appellant, ventilated through as many as 8 grounds of appeal. The appellant filed his return of income for AY 2015-16 on 21.11.2015 declaring an income of 3,46,43,245/-. The case was subsequently I.T.A. No.: 396/KOL/2024 Assessment Year: 2015-16 Keventer Agro Limited. Page 2 of 11 picked up for scrutiny and an order u/s 143(3) of the Act was passed on 22.12.2017, enhancing the income through the following additions: i) Disallowance of provision for leave encashment of Rs. 86,20,351/-. ii) Alleged excess claim of depreciation to the tune of Rs. 21,56,949/-. iii) Disallowance of interest on deduction of tax at source of Rs. 16,307/-. iv) Addition on account of wastage/shortage of milk to the tune of Rs. 55,94,374/-. v) Disallowance on account of brought forward losses of Rs. 56,20,620/-. vi) Disallowance of advertisement expenditure of Rs. 6,86,000/-. vii) Short credit of TDS amounting to Rs. 46,829/-. It is seen from the ld. CIT(A)’s order that with respect to Sl. Nos. iii & iv above partial relief was afforded to the appellant. 2.1. However, aggrieved with the action of ld. CIT(A), the following grounds have been taken for adjudication before us: “1. That, on the facts and in the circumstances of the case, the Ld. CIT(A), NFAC, Delhi erred in law in having upheld the entire disallowance of deduction of Rs.86,20,351/- under clause (f) of sec.43B of the Act towards liability for leave encashment debited to the P/L Account in view of direction of Hon’ble Supreme Court on SLP in the case of Excide Industries Ltd. vs. UOI when the assessee sought relief of Rs.47,90,224/- only on actual payment basis which was included in the said deduction of Rs.86,20,351/- and not claimed separately in the ROI. 2. That, the Ld. CIT(A) erred on facts and in law in having upheld the disallowance of depreciation of Rs.21,56,949 on the presumption of excess depreciation claimed for non-adjustment of grants received from NDDB in spite of the fact that quantum of depreciation of Rs.3,67,38,221/- claimed u/s 32 of the Act on the WDV of the assets was arrived at after reducing the grant received from the value of assets and the same was in accordance with AS-12 issued by ICAI. 3. That, the Ld. CIT(A) further erred in having sustained on estimate basis 50% of the unrealistic disallowance of Rs.55,94,374/- made as abnormal loss to Rs.27,97,187/- when he himself has endorsed such loss as normal in the nature of the assessee’s business and also without considering that loss on account of shortage in finished products due to normal wear and tear, transportation, filling, packing etc., that too at 0.2% of total quantity of I.T.A. No.: 396/KOL/2024 Assessment Year: 2015-16 Keventer Agro Limited. Page 3 of 11 8,18,66,279 liters of finished product sold, is an unavoidable normal business loss and hence an allowable deduction. ; 4. That, the Ld. CIT(A) erred in having upheld the disallowance of brought forward loss to the extent of Rs.56,20,620/- as against claimed in the ROI of Rs. 1,03,87,212/- on the basis of assessment order u/s 143(3) for A.Y. 2014-15 in spite of the fact that an appeal against the said 143(3) assessment has already been disposed of in favour of assessee and hence sanction of such an arbitrary reduction in brought forward loss by Rs.56,20,620/- is erroneous in so far as appeal proceeding for A.Y. 2014- 15 is settled. 5. That, the Ld. CIT(A) further erred in having upheld the disallowance of expenditure of Rs.6,86,800/- towards advertisement as not coming within the purview of sec 37(1) of the Act in spite of the fact that payment towards advertisements in souvenirs during festivities for commercial expediency is to be considered from the businessman’s stand point and hence an allowable expenditure u/s 37(1) of the Act. 6. That, the Ld. CIT(A) in his impugned appellate order dated 6. 12/02/2024 omitted to have considered and adjudicated the ground raised against allowance of short credit of TDS by Rs.46,829/-which was erroneously disallowed in the assessment order without assigning any reason whatsoever. 7. That, therefore, as the impugned appellate order u/s 250 of the Act dated 12/02/2024 on the above issues suffers from illegality and is devoid of any merit, non-adjudication of the grounds against charging of interest u/s 234D, 234B & 234C of the Act as consequential in nature is uncalled for in view of the facts and merits of the case. 8. That, the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/or rescind any or all of the above grounds.” 2.2. Now, adjudication is taken up with reference to each ground of appeal. 3. The first ground protests the disallowance of provision for leave encashment of Rs. 86,20,351/-. It is seen that during the relevant assessment year the appellant had made provision for leave encashment of Rs. 86,20,351/- on account of entitlement of employees for the same during the relevant financial year. It has been recorded that out of this amount the appellant had paid an amount of Rs. 47,90,224/- before the due date for filing the return of income. The Assessing Officer (in short ld. 'AO') disagreed with the contention of the appellant who had claimed deduction on the basis of the case of Exide Industries Ltd. vs. Union of India reported in [2007] 292 ITR 470 I.T.A. No.: 396/KOL/2024 Assessment Year: 2015-16 Keventer Agro Limited. Page 4 of 11 (Calcutta) in which it was stated that such amounts were not subject to the provisions of Section 43B(f) of the Act. The ld. AO proceeded to disallow the entire amount of provision claimed u/s 43B(f) of the Act stating that the constitutional validity of this Section is still in force as no adverse decision is rendered on the judgment delivered by the Hon'ble Calcutta High Court in the case of Exide Industries Ltd. (supra). Rather the constitutional validity is affirmed by the Hon'ble Supreme Court in [2020] 425 ITR 1 (SC). Ld. CIT(A) confirmed the action of the AO in disallowing the entire provision of Rs. 86,20,351/- following the reasoning given in the order of ld. AO. 3.1. Before us, the ld. Counsel for the assessee also taken us through the judgments in the case of Exide Industries Ltd. (supra) and demonstrated that the said case law applies to cases where merely a provision has been made, without actual payment on account of leave salary. The ld. A/R has further, averred that the relief sought is only for the amount actually paid before the due date of filing of return of income, being Rs. 47,90,224/-. It has been demonstrated that in the audited accounts filed before the authorities below and even before us through a paperbook, it is seen that the provision for salary head as an opening balance for FY 2014-15 is Rs. 1,82,55,257/- and the closing balance of provision for leave salary is Rs. 2,20,85,384/-. Through these figures the ld. A/R has pointed out that the figure of closing balance has been arrived at in the following manner [Rs. 1,82,55,257/- {opening balance} (+) Rs. 86,20,351/- {provision made} (-) Rs. 47,90,224/- {actually paid}] = Rs. 2,20,85,384/-. 3.2. Ld. D/R has relied on the orders of the authorities below. 3.3. At this stage, Section 43B of the Act may be reproduced for ready reference which is as under: “Certain deductions to be only on actual payment. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of— (f) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee, or I.T.A. No.: 396/KOL/2024 Assessment Year: 2015-16 Keventer Agro Limited. Page 5 of 11 shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him:” 3.4. It is clear in unambiguous terms that in this case, it has been demonstrated that Rs. 47,90,224/- was actually paid, and thus, it deserves to be allowed as a deduction to the assessee u/s 43B(f) of the Act, out of the addition made of Rs. 86,20,351/-. 4. Ground no. 2 protests the non-adjustment of depreciation on assets on which a grant was received from National Dairy Development Board (NDDB) for purchase of assets between FY 1992-93 to FY 2000-01. The ld. AO made an addition of Rs. 21,56,949/- being the proportionate amount of alleged excess depreciation on fixed assets claimed due to the non-adjustment of the amount of grants received. It may be mentioned that the ld. AO has recorded the finding that the appellant treated an amount of Rs. 10,30,603/- as deferred income being the proportionate amount of depreciation related to depreciable assets against the grants from NDDB. Thereafter, ld. AO has resorted to estimating the impugned disallowance as under: 1 Amount of depreciation as per Books of Accounts 1,75,53,872/- 2 Amount of depreciation as per IT Act 3,67.38.221/- 3 Ratio of depreciation as per Books of Accounts and IT Act 202.29% 4 Amount of depreciation related to grants against NDDB 10,30,603/- 5 Excess allowance of depreciation i.e. 50.92% of Rs. 69,07,255/- 21,56,949/- 4.1. Ld. CIT(A) has confirmed this disallowance. Before us, the ld. A/R recapitulated the facts involved in this issue and stated that the appellant company (which was then known as Metro Dairy Ltd.) received grants amounting to Rs. 14,49,99,838/- from NDDB for purchase of assets between FY 1992-93 to FY 2000-01. He further averred that at the time of purchase, the assets were dealt with at their gross purchase value and the corresponding grant was recognised separately in the liability side of the balance sheet. During the year under consideration, an amount of Rs. 10,30,603/-, being proportionate depreciation on assets purchased out of the I.T.A. No.: 396/KOL/2024 Assessment Year: 2015-16 Keventer Agro Limited. Page 6 of 11 grants received from NDDB, was reduced from the depreciation charged in the books and also adjusted with grants in accordance with para 8.3 of the Accounting Standard-12. Ld. A/R pointed out that the appellant has accounted for book depreciation of Rs. 1,75,53,872/- [Rs. 1,85,84,475/- (-) Rs. 10,30,603/-]. Thereafter, Rs. 1,75,53,872/- was charged to the PML account and duly added back in the computation of income for the relevant assessment year. Thereafter, it has been pointed out that after adding back the depreciation of Rs. 1,75,53,872/-, computed as per the Companies Act, 2013, depreciation as per Income Tax Act, 1961 was claimed at Rs. 3,67,38,221/-. Thus, it has been demonstrated that the depreciation of Rs. 10,30,603/- on the grants of NDDB was not claimed in the P&L account and has also not been added back to arrive at the total taxable income from ‘business and profession’. To understand the issue better and to appreciate the fact that this issue has been dealt with in the appellant’s own case for the AY 2008-09 and AY 2009-10. Some portions from the written submission deserve to be extracted which are as under: “' Further, in order to show that the depreciation as per income tax act is computed after giving effect to the grants from NDDB, it is submitted that the last grant was received in the year 2001-02. Thus, FY 2001-02 (corresponding to AY 2002-03) was the last year in which the WDV of the assets was adjusted with grants for the purpose of arriving at depreciation as per Income Tax Act. The entire value of grant of Rs.14,49,99,838/- was already reduced in order to arrive at the WDV of the assets as per Tax Audit Report for FY 2001-02. Thus, the WDV of assets as on 31 March 2002 which had already been reduced by the value of grants, was carried forward to the succeeding years. This is also evident from para 5 of the IT AT order in appellant’s own case at page 114 of the paper book. The opening WDV of assets for the subject assessment year, being AY 2015- 16 has thus been arrived at only after reduction of the entire amount of grants received in the earlier years. Therefore, no further adjustment for depreciation on assets bought out of grants is required to be again made in the current year. The opening value of WDV has not been disputed by the learned AO in the current year. Here, please note that the same issue of excess depreciation on assets acquired out of grants was a subject matter of 263 proceedings in your Appellant Company’s own case for the A Y 2008-09 and A Y 2009-10 in ITA No.l655/Kol/2013 andITA No.729/Kol/2014 respectively. The Hon’ble ITAT duly perused the facts of the case and held that, I.T.A. No.: 396/KOL/2024 Assessment Year: 2015-16 Keventer Agro Limited. Page 7 of 11 “7.1 The appellant received the grant from NDDB in the earlier years in relation to capital assets -which -was shown on the liability side of the balance sheet under the head reserve and surplus in the books of accounts. On the other hand, appellant recognized the capital assets at gross purchase value. As per the policy of the appellant the depreciation pertaining to the grant was written off against the grant value shown in the balance sheet and the balance depreciation pertaining to the net value of the fixed assets was charged in the profit & loss account. The appellant for the year under consideration has calculated the depreciation in the books of accounts for Rs.3,42,10,774/- out of which proportionate depreciation of Rs. 73,34,650/- was adjusted against the grant value shown in the balance sheet and the balance depreciation of Rs. 2,68,76,124/- proportionate to the net value of fixed assets was debited in the profit & loss account. The appellant accordingly has added the depreciation of Rs. 2,68,76,124/- in the statement of income and reduced the depreciation by the amount as worked out as per written down value of the assets under the income tax Act for an amount of Rs.1,84,61,661/-. We also find that the depreciation under the income tax act was calculated at the WDV which was brought forward from the earlier years. The WDV was duly accepted by the lower authorities. In the year under consideration no grant was received by the appellant in relation to any capital assets. The Id. DR failed to bring anything contrary to the arguments made by the Id. AR at the time of hearing. In view of above, we opined that the depreciation claimed by the appellant under the Companies Act and Income Tax Act is representing the correct figure." Copy of the said judgment of Ld. ITAT, Kolkata is enclosed herewith for your kind consideration at page 111-119 of the Paper Book.” 4.2. Ld. D/R has relied on the orders of the authorities below. 4.3. The averments of ld. A/R, the findings of ld. AO and of ld. CIT(A) have been carefully considered. It is clear that the appellant has been able to demonstrate that the grant received from NDDB has been correctly accounted for in the books of accounts and the depreciation claimed for the year is in line with the provisions of the Act. Strength is also drawn from the finding given in the appellant’s own case i.e. the case of Metro Dairy Ltd. (as the appellant was then known) reproduced earlier. 4.4. In light of this, the appellant deserves to succeed on this ground and the addition of Rs. 21,56,949/- is hereby deleted. I.T.A. No.: 396/KOL/2024 Assessment Year: 2015-16 Keventer Agro Limited. Page 8 of 11 5. The third ground pertains to a deduction of Rs. 55,94,374/- claimed on account of shortage of finished product (Milk). It is seen that the appellant claimed loss of milk to the tune of 1,68,556 litres in the tax audit report. This loss purportedly occurred in the normal course of business and was apparently a recurring feature over past several years. Ld. AO has opined that the loss of 1,68,556 litres was an abnormal loss and proceeded to make an addition of Rs. 55,94,374/- by estimating the sale consideration per litre of milk at Rs. 33.19/-. Ld. CIT(A) restricted the disallowance to 50% of the amount at Rs. 27,97,187/-, thereby affording partial relief. 5.1. Ld. A/R averred that in the line of business of the appellant there is invariably some loss of milk and the same has been duly accounted for in the audited accounts. It has been stated that the loss of milk is merely to the tune of 0.2% and has relied on several authorities to canvass the point that some losses in this kind of business are inevitable. Ld. A/R has also summarised the position of losses in two earlier years as under: A.Y. Loss/shortage Remarks Assessment order 2013-14 158838 litres (0.184% of Sales) Refer page 175 of additional Paper Book No addition made - Refer page 195-201 of additional Paper Book 2014-15 159859 litres (0.185% of Sales) Refer page 192 of additional Paper Book No addition made - Refer page 202-207 of additional Paper Book 5.2. Ld. D/R relied on the order of the AO and also stated that the action of ld. CIT(A) was fair considering the facts and circumstances. 5.3. We have carefully considered the findings of ld. AO, ld. CIT(A) and the contentions of the ld. D/R. In this case, it is clear that losses in business have been claimed in earlier years also and there is a certain consistency in terms of the percentage claimed as loss. Thus, in the AY 2013-14 the losses are to the tune of 0.184% of sales and for AY 2014-15 they are 0.185% of the sales. Considering that such losses have been accepted by the authorities below in previous years has great persuasive value for us in deleting the surviving addition [after the action of ld. CIT(A)] of Rs. 27,97,187/-. I.T.A. No.: 396/KOL/2024 Assessment Year: 2015-16 Keventer Agro Limited. Page 9 of 11 6. Ground no. 4 challenges the disallowance of brought forward losses of Rs. 56,20,620/-. It is seen that during the relevant assessment year, the appellant claimed brought forward losses of Rs. 1,03,87,212/-. The ld. AO has reduced the said loss to Rs. 39,69,325/- on the consideration that for AY 2014-15 certain additions/disallowances were made and an order u/s 143(3) of the Act was passed due to which the said losses were reduced to Rs. 39,69,325/-. The ld. CIT(A) affirmed the action of the AO. 6.1. Before us, the ld. A/R has stated that the assessment order for AY 2014-15 was the subject matter of appeal before the ld. CIT(A) and issues were decided in favour of the assessee with the direction to verify the claim of the appellant. 6.2. ld. D/R relied on the orders of the authorities below. 6.3. After considering the facts and circumstances and going through the orders of the authorities below, we feel that it would be in the fitness of things to direct the ld. AO to verify and allow the settled quantum of brought forward losses and to give relief after considering the figure of loss carried forward as settled by the order of ld. CIT(A) for AY 2014-15. 7. Ground no. 5 challenges the disallowance of advertisement expenditure of Rs. 6,86,000/-. On this issue, it is seen that the appellant incurred advertisement and sales promotion expense mainly pertaining to advertisements in various souvenirs. The AO held that the said expenses were not incurred wholly and exclusively for the purpose of business and were thus, not allowable. The ld. CIT(A) sustained this disallowance as it was made out of total sales promotion expenses claimed at Rs. 2,09,28,779/-. The case law relied upon by the authorities below was of Hira Ferro Alloys Ltd. vs. DCIT reported in [2010] 326 ITR 261 (Chhattisgarh). 7.1. Ld. A/R has averred that considering the nature of business of the appellant which pertains to the manufacturing and sale of dairy products, there is considerable commercial expediency in incurring such expenses. Ld. A/R has relied on the case of CIT vs. Bata India Ltd. reported in [1993] I.T.A. No.: 396/KOL/2024 Assessment Year: 2015-16 Keventer Agro Limited. Page 10 of 11 201ITR884 (Calcutta). The ld. A/R has also attempted to distinguish the facts of his case from the facts in the case of Hira Ferro Alloys Ltd. (supra). 7.2. Ld. D/R relied on the orders of the authorities below. 7.3. We have gone through the findings and the orders of ld. AO and ld. CIT(A) as also the averments made by the ld. A/R. The case of Bata India Ltd. (supra) of the Hon'ble Jurisdictional High Court relied upon by the ld. A/R has considerable persuasive value as it is felt that any business involving selling of mass market products would normally require a number of methods for boosting sales and winning over potential customers. Thus, the addition of Rs. 6,86,000/- cannot be sustained and the same deserves to be allowed u/s 37(1) of the Act. 8. Ground no. 6 pertains to short credit of TDS amounting to Rs. 46,829/- . It has been averred that there is an alleged error in grant of TDS to the tune of the said amount and copy of Form 26AS has been filed through the paperbook. 8.1. On a consideration of this issue, we direct the ld. AO to verify the claim of the appellant through the Form 26AS and give credit as per law. 9. In light of the discussions above, the appeal filed by the assessee is partly allowed. Order pronounced in the open Court on 5 th June, 2024. Sd/- Sd/- [Sanjay Garg] [Sanjay Awasthi] Judicial Member Accountant Member Dated: 05.06.2024 Bidhan (P.S.) I.T.A. No.: 396/KOL/2024 Assessment Year: 2015-16 Keventer Agro Limited. Page 11 of 11 Copy of the order forwarded to: 1. Keventer Agro Limited, Keventer, 34/1, Diamond Harbour Road, Kolkata, West Bengal, 700027. 2. DCIT, Cir.-4(1), Kolkata. 3. CIT(A)-NFAC, Delhi. 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata. //True copy // By order Assistant Registrar ITAT, Kolkata Benches Kolkata