M/s the Methoni Tea Co. Ltd., Kolkata V. DCIT, CIR-4(2), , Kolkata

ITA 439/KOL/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 8724 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 07-03-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RANU BISWAS
• Keywords: Opportunity of being heard; Earning of tax free income; Capital expenditure; TDS; Rule 8D; Set aside; FORM 26AS
• Section: 32; 37; 40A(3); 143(3); 14A; 37(1); 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH KOLKATA BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No.439/Kol/2019 Assessment Year: 2015-16 The Methoni Tea Co. Ltd. (PAN: AABCT3901H) Vs. Deputy Commissioner of Income Tax, Circle-4(2), Kolkata. (Appellant) (Respondent) Present for: Appellant by : Shri P. J. Bhide, FCA Respondent by : Smt. Ranu Biswas, Addl. CIT, DR Date of Hearing : 31.03.2022 Date of Pronouncement : 10.06.2022 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal by the assessee is directed against the order of ld. CIT(A)-2, Kolkata Appeal No. 10471/CIT(A)-2/2017-18 dated 05.12.2018 for A.Y. 2015-16 passed against the assessment order u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) by DCIT, Circle-4(2), Kolkata, dated 13.12.2017. 2. Brief facts as culled out from records are that the assessee is a widely held company deriving income from its business of cultivation and manufacturing of tea and investment in shares and securities. The assessee had filed its return of income on 27.09.2015 declaring loss (-) of Rs.57,45,310/-. In the course of assessment proceedings u/s. 143(3) of the Act, Ld. AO took note of certain details from the tax audit report in Form 3CD and called for explanations from the assessee. Ld. AO also enquired on the claim of certain expenses made in the P&L Account for their justification. Certain queries were also raised in respect of reconciliation of entries contained in Form 26AS. Considering the submissions and explanations of the assessee, Ld. AO proceeded to ITA No.439/Kol/2019 The Methoni Tea Co. Ltd. A.Y. 2015-16 2 complete the assessment by making the additions, details of which is reproduced hereunder: 2.1 Aggrieved, assessee preferred an appeal before the Ld. CIT(A), before whom submissions were made for each of the grounds taken in appeal, who gave partial relief on certain additions and sustained the others. It is noted that for the addition sustained, Ld. CIT(A) briefly noted as under: “I have considered the grounds of appeal statement of facts and submission of the authorized representative of the appellate company as well as the order of the assessing officer framed in the light of the materials available on record before the assessing officer during the assessment proceedings. The AO has mentioned that the assessee was unable to explain how these expenses were related to business of the assessee. I agree with the view as taken by the AO in the matter. Keeping in view of the facts as mentioned above, in the absence of any cogent material evidence, I do not find any infirmity in the order of the assessing officer and the same is hereby upheld. In view of above, this ground of appeal is dismissed.” 2.2. Aggrieved by the additions so sustained, the assessee is in appeal before the Tribunal, raising the following grounds which are dealt seriatim: “1. That the Ld. CIT(A)-2, Kolkata, erred in confirming the addition of Rs.5,20,300/- made by the Assessing Officer on account of Bonus Unpaid. ITA No.439/Kol/2019 The Methoni Tea Co. Ltd. A.Y. 2015-16 3 2 That the Ld. CIT(A)-2, Kolkata, erred in confirming the disallowance of Rs.1,01,473/- being the expenditure incurred by the Appellant for purchase of Stores items like Knives, Wrenches etc, each piece costing less than Rs.5000/-. 3 That the Ld. CIT(A)-2, Kolkata, erred in confirming the disallowance of Rs.67,191/- made by the Assessing Officer on estimated basis out of the expenses incurred by the Appellant under the head Miscellaneous/General Expenses. 4 That the Ld. CIT(A)-2, Kolkata, erred in confirming the addition of Rs.3,73,695/- made by the Assessing Officer for TDS as per Form-26AS. 5 That the Ld. CIT(A)-2, Kolkata, ought to have deleted the addition of Rs.3,87,497/- made by the Assessing Officer u/s. 14A of the Act. 6. That the Ld. CIT(A)-2, Kolkata, erred in not admitting and adjudicating the Additional Ground submitted by the Appellant against the disallowance of Rs.73,945/- out of the expenditure being incurred by the Appellant exclusively for the purpose of its own business. 7 That the Appellant craves leave to submit further grounds and o amend, alter or otherwise modify the grounds already taken, if necessary, before or at the time of hearing of the appeal.” 2.3. Before us, for the first ground relating to addition made in respect of bonus to employees unpaid for Rs.5,20,300/-, Ld. Counsel for the assessee made submissions by referring to the written submission and paper book placed on record. Ld. AO made this addition by taking note from clause 26 of Form 3CD wherein the total bonus liability of Rs.63,13,178/- was reported whereas in the computation of total income, the assessee had added back only Rs.57,92,878/-. Thus, the difference of the two figures coming to Rs.5,20,300/- was added back by the Ld. AO for arriving at the assessed total income. Ld. Counsel pointed out that the tax audit report in Form 3CD was obtained by the assessee from the tax auditor on 26.09.2015. Till this date of 26.09.2015, assessee had not paid bonus to its employees of Rs.5,20,300/- which was paid on 27.09.2015 and on the same day, assessee had filed its return of income. Ld. Counsel thus submitted that this bonus of Rs.5,20,300/- was paid before filing of the return by the ITA No.439/Kol/2019 The Methoni Tea Co. Ltd. A.Y. 2015-16 4 assessee and hence, rightfully claimed the deduction. Before the ld. CIT(A) the assessee had submitted that the deduction in respect of payment of bonus should have been allowed as it was paid before the filing of the return. Ld. Sr. DR placed reliance on orders of authorities below. We find that there is no documentary evidence available on record in respect of the claim of payment made by the assessee of Rs.5,20,300/- on 27.09.2015 even though it has been claimed to have been so paid. In the given set of facts, we find it proper to remit this matter to the file of Ld. AO for the limited purpose of verification of fact averted by the assessee. We direct the Ld. AO to consider the claim of the assessee if the verification reveals that the amount has been paid by the assessee before filing of return for which no addition is called for. However, if the verification reveals otherwise, the addition shall remain sustained. Accordingly, this ground of appeal of the assessee is allowed for statistical purposes. 3. Ground no. 2 relates to disallowance of Rs.1,01,473/- in respect of expenditure incurred by the assessee for purchase of store items like knives, wrenches etc. which costs less than Rs. 5000/- per piece. It is pointed out by the ld. Counsel that these are general expenditure for tea garden which is commensurate to the line of business in which the assessee is engaged in. According to the ld. Counsel, these are expenses which are related to its business activities and are allowable expenditure u/s.37(1) of the Act. Ld. Counsel referred to the ledger of these expenses claimed during the year along with certain vouchers and invoices placed on record in the paper book at page 96 to 107. From the perusal of these documents, we note that these are general expenses relating to the business activities of the assessee which are covered within the meaning of section 37(1) of the Act. ITA No.439/Kol/2019 The Methoni Tea Co. Ltd. A.Y. 2015-16 5 3.1 Section 37 of the Income Tax Act contemplates that any expenditure not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly and exclusively for the purpose of the business or profession shall be allowed in computing the income chargeable under the head “Profits & Gains of the Business or Profession”. In other words, the specific nature of expenditure enumerated in sections 30 to 36 or expenditure of capital nature should not be claimed by the assessee under section 37. The only restriction put in this section is that expenditure should not be identifiable as dealt with under section 32 to 36 or capital expenditure or it should not be personal expenditure. The expenditure should be laid out or expended wholly or exclusively for the purpose of the business. The expression ‘wholly’ emphasizes the quantification of the expenditure, whereas expression ‘exclusively’ provides that such expenditure should be only for the purpose of the business. The objection raised by the ld. Assessing Officer is that how these expenditures are related to the business of the assessee. To our mind, ld. Assessing Officer failed to appreciate the nature of the business of the assessee which is cultivation and manufacturing of tea. Also, the ld. CIT(A) has given stereotyped findings by stating the observation of the ld. AO for sustaining the addition, without dealing with the matter on merit. 3.2 These expenses of Rs.1,01,473/- incurred by the assessee towards general expenses for garden are not covered as described in section 30 to 36, these are not capital in nature or personal expenses of the assessee, it being a widely held company. Ld. Sr. DR placed reliance on orders of authorities below. There is nothing brought on record to suggest that these are not wholly and exclusively for the purpose of the business of the assessee. We, therefore, direct to delete the disallowance ITA No.439/Kol/2019 The Methoni Tea Co. Ltd. A.Y. 2015-16 6 made in this respect. Accordingly, this ground of appeal of assessee is allowed. 4. Ground no. 3 relates to ad-hoc disallowance of Rs.67,191/- from the miscellaneous/general expenses claimed by the assessee by applying an estimate rate of 20%. The actual claim of the assessee in respect of miscellaneous/general expenses is of Rs.3,35,952/- comprising of guest messing and at garden and other expenses. In this respect, ld. Counsel submitted that books of account of the assessee are audited and the auditors have not given any adverse report/remark on the same. These expenditures are general expenses incurred in respect of garden both at the work site and the Kolkata office of the assessee. Ld. Counsel further pointed out that visits to the tea garden of the assessee included officers of various inspection agencies and customers of the assessee. Accordingly, there is no justification for an ad hoc and estimated disallowance by adopting a rate of 20% of the expenses so claimed. These are also covered by the provisions of section 37(1) of the Act. Ld. Sr. DR placed reliance on orders of authorities below. 4.1 We note that the assessee is in the business of cultivation and manufacturing of tea and these expenses are in relation to business activities of the assessee. The conditions stipulated in section 37(1) of the Act as noted in our finding given for ground no. 2 above, are also applicable in respect of this ground and in the given set of facts, we do not find any reason to sustain the addition. We, thus, direct to delete the addition of Rs.67,191/-. This ground of appeal of assessee is allowed. 5. Ground no. 4 relates to the addition of Rs.4,73,695/- made by the Ld. AO on the basis of entries reflected in Form 26AS. It is submitted that as per Form 26AS, assessee has received total interest of ITA No.439/Kol/2019 The Methoni Tea Co. Ltd. A.Y. 2015-16 7 Rs.31,72,252/-. However, in the audited P&L Account under the head “Other Income”, the amount of interest income reported is Rs.27,98,577/-. Thus, the difference of these two figures of Rs.3,73,675/- was added to the total income of the assessee. Ld. Counsel submitted that assessee made detailed submission and gave explanation by furnishing the copies of ledger account and TDS certificates in respect of loans given to Elder Pharmaceuticals Ltd. from which interest was receivable. The explanation submitted before the Ld. CIT(A) did not find favour and the addition was sustained. 5.1 Before us, the Ld. Counsel made a detailed explanation by corroborating with the ledger account of Elder Pharmaceuticals Ltd. towards the principal and interest explaining that assessee had accounted for interest receivable on accrued basis for FY 2012-13 and no interest was received during FY 2014-15 relevant to AY 2015-16. It is contended that the entries in Form 26AS cannot be the basis for holding that the assessee has received any interest income as entry in Form 26AS is not the conclusive proof of accrual or receipt of any income in the hands of the assessee. For this contention, Ld. Counsel placed reliance on the decision of coordinate bench of ITAT, Mumbai in the case of i2i Telesource Pvt. Ltd. v. ITO, ITA No. 6823/Mum/2017 dated 18.02.2019. He also referred to the CBDT instruction no. 5/2013 dated 08.07.2013. Per contra, Ld. Sr. DR submitted that the AO has rightly made the addition on account of entries in Form 26AS by treating it as undisclosed income of the assessee. 5.2 We have heard rival submissions and gone through the material placed on record. We find that the explanation given by the Ld. Counsel of the assessee relating to the ledger account of Elder Pharmaceuticals Ltd. for FY 2012-13 and thereafter needs to be verified by the ld. AO to ascertain the correct fact as to accounting treatment given in respect of ITA No.439/Kol/2019 The Methoni Tea Co. Ltd. A.Y. 2015-16 8 interest income. We thus, set aside this issue before the Ld. AO for a limited purpose to make proper examination and verification of the claim of the assessee and decide it in accordance with law. Needless to say that the assessee be given reasonable opportunity of being heard and make any further submission in this respect. Accordingly, this ground of appeal by the assessee is allowed for statistical purpose. 6. Ground no. 5 is in respect of disallowance of Rs.3,87,497/- u/s. 14A of the Act. Ld. AO noted that assessee has earned dividend Income of Rs.2,90,007/- as reported in its audited financial statements placed on record. Ld. AO further noted that the assessee has failed to disallow any sum relating to this exempt income and accordingly proceeded to make a disallowance by applying Rule 8D(2)(ii) and 8D(2)(iii) of the Income-tax Rules, 1962 (hereinafter referred to as the Rules). The disallowance made u/s. 14A read with Rule 8D(2) comprises of Rs.977/- towards interest under sub-clause (ii) of Rule 8D(2) and Rs.3,86,520/- under sub-clause (iii) of Rule 8D(2) of the Rules. In this respect ld. CIT(A) accepted the contention of the assessee that the own fund of the assessee are far in excess of the value of investment made by the assessee and, therefore, the provision of section 14A of the Act are not applicable which is also covered by the decision of Hon’ble Jurisdictional High Court of Calcutta in the case of DCIT v. Rasoi Ltd. in 407 ITR 126. The Ld. CIT(A) by following the decision of coordinate bench of ITAT, Kolkata and the Hon’ble High Court, directed the AO to recalculate the disallowance by taking investments which yielded dividend income. Ld. CIT(A) further directed the AO to verify and recompute the disallowance u/s. 14A read with Rule 8D and hence, allowed this ground of appeal before him for statistical purpose. Before us, by referring to the provisions of section 250 of the Act, Ld. Counsel submitted that Ld. CIT(A) ought to have deleted the addition made by ITA No.439/Kol/2019 The Methoni Tea Co. Ltd. A.Y. 2015-16 9 the AO as there is no power available to the Ld. CIT(A) to remand the matter to the file of AO. We find that the claim of the assessee that its own funds are far in excess of the investments made and that this issue is covered by the decision of Hon’ble jurisdictional High Court referred above holds the field. We thus direct the Ld. AO to verify the claim of the assessee and recompute the disallowance u/s. 14A read with Rule 8D in terms of the judicial precedents relied upon by the assessee supra. Accordingly, this ground of appeal of assessee is allowed for statistical purpose. 7. Ground no. 6 is in respect disallowance of Rs.79,945/- towards expenditure incurred by the assessee for which it has been alleged by the ld. AO that these are paid in cash in excess of Rs.20,000/- as prescribed u/s. 40A(3) of the Act. Assessee made payment of Rs.23,000/- towards system repairing and Rs.50,945/- towards water pollution consent fees which the ld. AO disallowed on the ground that such payments were made in cash. Ld. CIT(A) confirmed this addition. Ld. Counsel submitted that in respect of payment of Rs.23,000/-, Rs. 10,000/- were paid for non-encumbrance certificate of Dalamara Division for which reason was furnished and for the balance of Rs.13,000/- though there is no documentary evidence available but was paid to the department. In respect of payment of Rs.50,945/-, it was submitted that it was a regular annual payment to the water pollution control board, Assam, which was paid by issuing a demand draft. In this respect a debit voucher was furnished and thus, it was claimed that no disallowance ought to have been made for this payment. He further submitted that incurring of these expenses by the assessee is not in dispute except for mode of their payment. Ld. Counsel submitted that this issue may be restored to the file of ld. AO for verification of the documents furnished to which ld. Sr. DR did not object. Accordingly, ITA No.439/Kol/2019 The Methoni Tea Co. Ltd. A.Y. 2015-16 10 considering the facts on record and explanation furnished by the ld. Counsel which requires verification of the records, we find it proper to set aside this issue to the file of ld. AO for limited purpose of verification and examination of documents furnished by the assessee and decide the matter in terms of law. Accordingly, this ground of appeal is allowed for statistical purpose. 8. In the result, the appeal of assessee is partly allowed. Order pronounced in the open court on 10.06.2022. Sd/- Sd/- (RAJPAL YADAV) (GIRISH AGRAWAL) VICE-PRESIDENT ACCOUNTANT MEMBER Kolkata, Dated: 10.06.2022 JD, Sr. P.S. Copy to: 1. The Appellant: The Methoni Tea Co. Ltd., 75C, Ruby Park Street, 1 st floor, Kolkata-700 016. 2. The Respondent: DCIT, Circle-4(2), Kolkata. 3. The CIT, Kolkata 4. The CIT (A) - 2, Kolkata 5. The DR, ITAT, Kolkata Bench, Kolkata //True Copy// [ By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata