ITC Limited, Kolkata V. DCIT, C ircle- 8, Kolkata, Kolkata

ITA 475/KOL/2010

• Counselvise Citation: 47523514 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 05-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: L S NEGI
• Assessee Lawyers: RAHUL KRISHNA MITR A
• Keywords: Capital asset; Business income; Earning of tax free income
• Section: 14A; 37(1)

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : KOLKATA ( ) . . , , , ,) [BEFORE HONBLE SRI B.R. MITTAL, J.M. & HONBLE SRI AKBER BASHA, A.M.] ! ! ! ! / I.T.A NO. 475/KOL/2010 '# '# '# '# $% $% $% $% /ASSESSMENT YEAR : 2005-2006 ITC LIMITED, KOLKATA -VS.- DEPUTY COMMISSIONER OF INCOME TAX, (PAN : AAACI 5950 L) CIRCLE-8, KOLKATA ( &' &' &' &' /APPELLANT) ( ()&' ()&' ()&' ()&' /RESPONDENT) & ! ! ! ! / I.T.A NO. 476/KOL/2010 '# '# '# '# $% $% $% $% /ASSESSMENT YEAR : 2005-2006 DEPUTY COMMISSIONER OF INCOME TAX, -VS. - M/S. ITC LIMITED, KOLKATA CIRCLE-8, KOLKATA ( &' &' &' &' /APPELLANT) ( ()&' ()&' ()&' ()&' /RESPONDENT) FOR THE ASSESSEE : SHRI RAHUL KRISHNA MITR A, A.R. FOR THE DEPARTMENT : SHRI L.S. NEGI, CIT, D.R. / ORDER PER SHRI B. R. MITTAL, JUDICIAL MEMBER/ . . , : THESE CROSS APPEALS ARE FILED BY THE ASSESSEE AND DEPARTMENT FOR ASSESSMENT YEAR 2005- 06 AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME- TAX (APPEALS)-VIII, KOLKATA DATED 30.12.2009 ON THE FOLLOWING GROUNDS :- ITA NO. 475/KOL./2010 (ASSESSEES APPEAL) EXPENDITURE ON STAFF WELFARE DISALLOWED UNDER SECT ION 40A(9) : RS.9,00,111/- FOR THAT THE LEARNED CIT(A.) ERRED IN DISALLOWING T HE EXPENDITURE FOR STAFF WELFARE UNDER SECTION 40A(9). FOR THAT THE LEARNED CIT(A.) FAILED TO APPRECIATE T HAT GENUINE EXPENDITURE FOR STAFF WELFARE IS FULLY ALLOWABLE UNDER THE INCO ME TAX ACT. RELIEF PRAYED : THE DISALLOWANCE OF RS.9,00,111/- SHOULD BE DELETED . ITA NOS. 475/KOL./2010 & 476/KOL./2010 2 ITA NO. 476/KOL./2010 (DEPARTMENTAL APPEAL) (1) THAT LD. CIT(A.) ERRED ON FACTS AND CIRCUMSTAN CES OF THE CASE AND IN LAW IN HOLDING THAT IRRECOVERABLE AMOUNT OF RS.3,93,303/- IN THE NATURE OF SECURITY DEPOSITS AND OTHER DEPOSITS ARE REVENUE IN NATURE.. (2) THAT LD. CIT(A.) ERRED ON FACTS AND CIRCUMSTANC ES OF THE CASE AND IN LAW IN ALLOWING ASSESSEES CLAIM OF DISALLOWANCE OF RS.1,0 2,700/- UNDER SECTION 14A OF THE ACT WITHOUT FOLLOWING THE PROVISIONS OF RULE 8D . (3) THAT LD. CIT(A.) ERRED ON FACTS AND CIRCUMSTANC ES OF THE CASE AND IN LAW IN HOLDING THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION OF 100 PER CENT OF THE PROFIT OF THE POWER UNDERTAKING AT BHADRACHALAM WHEN THE CONC ERNED UNDERTAKING COMMENCED OPERATION IN FY 1997-98. (4) THAT LD. CIT(A.) ERRED ON FACTS AND CIRCUMSTANC E OF THE CASE AND IN LAW IN HOLDING THAT INCOME OF RS.65,55,048/- FROM SALE OF CLONAL PLANTS, COCONUT AND SUGARCANE, ETC. IS IN THE NATURE OF AGRICULTURAL IN COME AND ACCORDINGLY, THE SAME IS EXEMPTED. 2. THE ASSESSEE VIDE LETTER DATED 14.09.2010 HAS AL SO TAKEN AN ADDITIONAL GROUND, WHICH IS AS UNDER :- THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE TH E LD. CIT(APPEALS) MAY PLEASE BE DIRECTED TO REEXAMINE THE GROUND ON DISALLOWANCE OF PROPORTIONATE MANAGEMENT EXPENSES WITH RESPECT TO EARNING OF EXEM PTED INCOME UNDER SECTION. 14A READ WITH RULE 8D AGGREGATING TO RS.4,90,29,742 /-, IN LIGHT OF THE PRINCIPLES LAID DOWN BY THE RECENT DECISION OF THE HONBLE BOM BAY HIGH COURT IN THE CASE OF M/S. GODREJ & BOYCE MFG. CO. LTD. VS.- DCIT (WP NO . 758 OF 2008), WHICH WAS DELIVERED SUBSEQUENT TO THE DISPOSAL OF THE IMPUGNE D APPEAL BY THE LD. CIT(APPEALS), WHEREIN IT WAS HELD THAT RULE 8D IS A PPLICABLE PROSPECTIVELY ON AND FROM THE ASSESSMENT YEAR 2008-09; AND NOT RETRO SPECTIVELY. 3. WE FIRST TAKE UP THE APPEAL FILED BY ASSESSEE BE ING I.T.A. NO. 475/KOL./2010. 4. IN RESPECT OF DISALLOWANCE OF RS.9,00,111/- UNDE R SECTION 40A(9) OF THE ACT, THE ASSESSING OFFICER HAS STATED THAT AS PER TAX AUDIT REPORT, FILED ALONG WITH THE RETURN OF INCOME, THE AUDITORS HAVE IDENTIFIED PAYMENTS AMOUN TING TO RS.22,51,916/- AS ITEMS OF EXPENSES COVERED BY SECTION 40A(9) OF THE ACT. HOWE VER, THE AUDITORS HAVE MENTIONED THAT, THE SAME IS ALLOWABLE IN VIEW OF THE DECISION OF HONBL E KOLKATA HIGH COURT IN THE CASE OF DCIT VS.- CHLORIDE INDUSTRIES LIMITED [76 ITD 1]. THE AS SESSING OFFICER HAS STATED THAT THE ASSESSEE FILED DETAILS OF PAYMENTS. HE HAS STATED THAT ON PE RUSAL OF THE DETAILS, IT IS OBSERVED THAT PAYMENTS HAVE BEEN MADE TO EMPLOYEES WELFARE FUNDS , STAFF CLUBS, EMPLOYEES COOPERATIVES AND SPORTS COMMITTEES. THE ASSESSING OFFICER AFTER CONSIDERING THE PROVISION OF SECTION 40A(9) ITA NOS. 475/KOL./2010 & 476/KOL./2010 3 OF THE ACT AND ALSO OBSERVING THAT THE SAID PAYMENT S ARE NOT COVERED UNDER SECTION 36(1)(IV) AND (V) HAS DISALLOWED THE SAID AMOUNT OF RS.22,51, 916/- AND ADDED TO THE INCOME OF THE ASSESSEE. BEING AGGRIEVED, THE ASSESSEE FILED APPEA L BEFORE LD. CIT(APPEALS). 5. LD. CIT(APPEALS) AFTER CONSIDERING THE SUBMISSIO N OF THE ASSESSEE AND FOLLOWING ORDER OF FIRST APPELLATE AUTHORITY IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 DATED 07.09.2009 WORKED OUT THE DISALLOWANCE OF RS.9,00,1 11/- AND DISALLOWED THE SAME. IT IS RELEVANT TO STATE THAT LD. CIT(APPEALS) HAS STATED THAT EXPENDITURE ON WORKMEN WELFARE OF RS.9,31,805/- AND EXPENDITURE OF RS.4,20,000/- ON T RIBENI TISSUES VIDYAPITH IS THE EXPENDITURE ON SPECIFIC WELFARE SCHEMES, WHICH IS ALLOWABLE. HE NCE, THE ASSESSEE IS IN FURTHER APPEAL FOR THE BALANCE CONFIRMATION OF DISALLOWANCE OF RS.9,00,111 /-. 6. AT THE TIME OF HEARING, LD. AR REFERRED PAGE 5 O F THE PAPER BOOK FILED ALONG WITH THE LETTER DATED 29.06.2010, WHICH CONTAINS THE BREAK-U P OF THE AMOUNT AGGREGATING RS.9,00,111/- AND THE NATURE OF ACTIVITIES UNDERTAKEN BY THE CLUB S/ ASSOCIATION TO WHOM THE ASSESSEE MADE SUBSCRIPTIONS. WE CONSIDER IT PRUDENT TO STATE THE SAID DETAILS, FILED BY THE ASSESSEE, WHICH IS AS UNDER :- SUMS PAID TOWARDS EMPLOYEES WELFARE ACTIVITIES DISA LLOWED UNDER SECTION. 40A(9) PARTICULARS NATURE OF PAYMENT AMOUNT (IN RS.) NATURE OF ACTIVITIES UNDERTAKEN BY THE CLUBS/ ASSOCIATION ITC STAFF CLUB SUBSCRIPTION 344,716 ITC STAFF CLUB (AT CHENNAI) WAS FORMED WITH THE OBJECTIVE OF PROVIDING RECREATIONAL FACILITIES TO ITS MEMBERS WHO ARE EMPLOYEES OF THE COMPANY POSTED AT TIRUVOTTITYUR, CHENNAI TRIBENI TISSUES COOPERATIVE STORES LTD. SUBSCRIPTION 25,800 THE EMPLOYEES OF TRIBENI FACTORY OF THE COMPANY HAD CREATED A COOPERATIVE STORES TO ASSIST MEMBERS IN OBTAINING THEIR REQUIREMENTS AT REASONABLE RATES AND WITHIN PROXIMITY OF THE FACTORY TRIBENI TISSUES RECREATION CLUB SUBSCRIPTION 137,00 0 THIS CLUB WAS FORMED FOR THE EXCLUSIVE USE OF ITA NOS. 475/KOL./2010 & 476/KOL./2010 4 EMPLOYEES (INCLUDING MANAGERS) TO FOSTER CORDIAL SOCIAL RELATIONS AMONGST THE EMPLOYEES OF THE TRIBENI FACTORY & KEEP THEM HAPPY. ITC LADIES SOCIAL & WELFARE SOCIETY WELFARE ACTIVITIES 8,945 THE SOCIETY WAS FORMED BY THE WIVES OF THE EMPLOYEES OF ITC LIMITED TO PROMOTE THE INTEREST OF THE WOMEN BY CREATING FORUM AND CARRYING OUT WELFARE ACTIVITIES. THE AMOUNT PAID IS FOR REIMBURSEMENT OF EXPENSES INCURRED FOR ORGANIZING A FETE FOR THE MEMBERS OF THE ITC LADIES SOCIAL & WELFARE SOCIETY. TRIBENI TISSUES EMPLOYEES RECREATION CLUB SUBSCRIPTION 100,100 THIS CLUB FORMED FOR THE EXCLUSIVE USE OF THE UNIONIZED EMPLOYEES OF ITC LIMITED, TRIBENI FACTORY TO FOSTER CORDIAL & COOPERATIVE SPIRIT AMONGST THE EMPLOYEES WHICH WILL HELP TO MAINTAIN INDUSTRIAL PEACE. TRIBENI TISSUES SPORTS CLUB SUBSCRIPTION 100,000 TH IS CLUB WAS FORMED TO BUILD UP AWARENESS AMONGST THE EMPLOYEES OF TRIBENI FACTORY AND THEIR FAMILIES REGARDING THE VALUE OF SPORTS WHICH WILL CHANCE THEIR QUALITY OF LIFE AND KEEP THEM HAPPY AND HEALTHY. TRIBENI TISSUES MANAGEMENT STAFF CLUB SUBSCRIPTION 156,550 THIS CLUB WAS FORMED FOR THE EXCLUSIVE USE OF THE MANAGEMENT STAFFS OF TRIBENI FACTORY AND THEIR FAMILY MEMBERS FOR RECREATION WHICH WILL HELP TO ENHANCE EMPLOYER-EMPLOYEE RELATIONSHIP. TRIBENI TISSUES MAHILA SAMITY SUBSCRIPTION 10,000 THE ASSOCIATION OF THE WIVES OF THE MANAGERS ITA NOS. 475/KOL./2010 & 476/KOL./2010 5 WORKING IN TRIBENI FACTORY WAS ESTABLISHED AS A FORUM TO GET- TOGETHER AND DO SOCIAL WORK WITH A FEELING OF ONENESS WITH EACH OTHER. THIS HELPS TO MAINTAIN INDUSTRIAL HARMONY AND COOPERATION. THIS PAYMENT WAS FOR ADVERTISEMENT IN SOUVENIR PUBLISHED ON THE OCCASION OF AN ANNUAL FETE BEING ORGANIZED BY THE ITC MAHILA SAMITY AT THE TRIBENI MILL COLONY. TRIBENI TISSUES NATYA SAMAJ SUBSCRIPTION 1,000 THIS SAMAJ WAS FORMED TO GIVE AN OPPORTUNITY TO THE EMPLOYEES OF TRIBENI FACTORY TO DEVELOP OR PURSUE THEIR DRAMATICS LITERARY TALENTS WHICH WILL KEEP THEM HAPPY. THIS PAYMENT WAS FOR ADVERTISEMENT IN THE SOUVENIR WHICH WAS USED FOR ORGANIZING & DRAMA FOR THE EMPLOYEES OF TRIBENI FACTORY. ITC RECREATION SOCIETY SUBSCRIPTION 16,000 THIS S OCIETY WAS FORMED TO PROVE RECREATIONAL FACILITIES TO THE EMPLOYEES OF KIDDERPORE FACTORY WHICH HELPS TO PROMOTE CORDIAL RELATIONS WITH THE EMPLOYEES AND MAINTAIN INDUSTRIAL PEACE. THIS PAYMENT WAS FOR ADVERTISEMENT IN SOUVENIR OF THE SOCIETY WHICH WAS PUBLISHED ON THE OCCASION OF THE ANNUAL SOCIAL OF THE SOCIETY. TOTAL 900,111 ITA NOS. 475/KOL./2010 & 476/KOL./2010 6 LD. AR SUBMITTED THAT IN THE PRECEDING ASSESSMENT Y EARS, VIZ. ASSESSMENT YEARS 2002-03 AND 2003-04, ITAT VIDE ITS ORDER DATED 18.06.2009 IN IT A NOS. 245 & 246/KOL./2008 RESTORED THE MATTER TO LD. CIT(APPEALS) WITH A DIRECTION TO DECI DE THE ISSUE AFRESH AS PER LAW AS THE ASSESSEE FAILED TO GIVE DETAILS AND NO REASONS WERE GIVEN BY THE AUTHORITIES BELOW. LD. AR SUBMITTED THAT IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASS ESSEE FILED ALL THE DETAILS OF THE CONTRIBUTIONS MADE BY IT AND THE CONTRIBUTIONS WERE MADE TO SCHOO LS AND WORKMEN ORGANIZATION FOR THEIR WELFARE ACTIVITIES DUE TO BUSINESS EXPEDIENCY. LD. AR SUBMITTED THAT ITAT, KOLKATA BENCH IN THE CASE OF CHLORIDE INDUSTRIES LIMITED (SUPRA) HAS HELD THAT STAFF RECREATION CLUB AND STAFF CLUB WERE A PART AND PARCEL OF THE ORGANIZATION ITS ELF AND THEY WERE GIVEN MONEY BY WAY OF SUBSIDY AND ACCORDINGLY FOLLOWING ITS EARLIER DECIS ION IN THE CASE OF DCIT VS.- A.P.E. BELLISS INDIA LIMITED IN I.T.A. NOS. 527 TO 537/CAL./1989 H ELD THAT IN SUCH KIND OF CONTRIBUTION/ EXPENDITURE, PROVISIONS OF SECTION 40A(9) ARE NOT A PPLICABLE AND THE CLAIM IS ALLOWABLE UNDER SECTION 37(1) OF THE ACT. 7. ON THE OTHER HAND, LD. D.R. SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT SIMILAR CLAIM OF THE ASSESSEE WAS NOT ALLOWED BY THE TRIBUNAL IN THE PRECEDING ASSESSMENT YEARS OF THE ASSESSEE ITSELF. 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES AND THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE AL SO GONE THROUGH THE DETAILS OF THE EXPENDITURE AGGREGATING RS.9,00,111 CLAIMED BY THE ASSESSEE, THE BREAK-UP OF WHICH HAS ALREADY BEEN MENTIONED HEREINABOVE. WE OBSERVE THAT THE ASSESSEE HAS MADE THE CONTRIBUTION TO STAFF CLUB/ RECREATION CLUB OF ITS EMPLOYEES. ON PE RUSAL OF THE DETAILS, IT IS OBSERVED THAT THE SAID AMOUNTS WERE REIMBURSED BY THE ASSESSEE FOR SA LARY OF THE STAFFS EMPLOYED AT THE CLUB, MAINTENANCE OF LIBRARY AT THE CLUB, EXPENSES FOR MA INTENANCE OF INDOOR GAME SECTION EXPENSES FOR CONDUCT OF SPORTS COMPETITION AND THEIR FAMILIE S, REIMBURSEMENT OF EXPENSES TOWARDS ELECTRICITY, EXPENSES INCURRED ON PROVIDING CULTURA L RECREATION TO THE MEMBERS/ CULTURAL EVENTS, EXPENSES FOR ORGANIZING FETE FOR THE MEMBERS/ FAMIL IES OF ASSESSEES EMPLOYEES, EXPENSES INCURRED ON ORGANIZING CULTURAL EVENTS ON DIFFERENT OCCASIONS, ANNUAL SOCIAL MEETS OF THE EMPLOYEES/ THEIR FAMILIES, ETC., EXCEPT DIRECT SUBS CRIPTION MADE TO ONE COOPERATIVE SOCIETY OF RS.25,800/-. CONSIDERING THE FACTS OF THE CASE, WE DO AGREE WITH THE ASSESSEE THAT IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE H AS FILED THE DETAILS OF THE EXPENSES ITA NOS. 475/KOL./2010 & 476/KOL./2010 7 REIMBURSED TO THE RECREATION CLUBS/ ORGANIZATIONS/ SOCIETIES OF THE EMPLOYEES AND THEIR FAMILIES AND IT WAS NOT AN EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS SETTING UP FORMATION OR GIVING DIRECT CONTRIBUTION TO A FUND, TRUST, COMPAN Y, ASSOCIATION OF PERSONS, BODY OF INDIVIDUALS, SOCIETY REGISTERED UNDER SOCIETIES RE GISTRATION ACT, 1860 (EXCEPT TO ONE CONTRIBUTION OF RS.25,800/- AS MENTIONED HEREINABOV E), BUT THE REIMBURSEMENT IS OF THE EXPENDITURE ACTUALLY INCURRED FOR THE WELFARE ACTIV ITIES OF THE EMPLOYEES AND THEIR FAMILIES. HENCE, WE ARE OF THE CONSIDERED VIEW THAT THE STAFF RECREATION CLUB AND STAFF CLUB FOR WHICH THE ASSESSEE HAS INCURRED THE EXPENSES ARE FOR THE WELFARE OF ITS EMPLOYEES DUE TO BUSINESS EXPEDIENCY. STAFF RECREATION CLUB AND STAFF CLUB AR E A PART AND PARCEL OF THE ORGANIZATION ITSELF. CONSIDERING THE EARLIER DECISION OF ITAT, K OLKATA IN THE CASE OF CHLORIDE INDUSTRIES LTD. (SUPRA) AND ALSO THE FACT THAT THE ASSESSEE HAS GIV EN THE BREAK-UP OF THE EXPENSES INCURRED/ REIMBURSED, AS MENTIONED HEREINABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE PROVISIONS OF SECTION 40A(9) OF THE ACT ARE NOT ATTRACTED FOR A S UM OF RS.8,74,311/- AND THE SAID EXPENDITURE IS ALLOWABLE UNDER SECTION 37(1) OF THE ACT. THEREF ORE, WE ALLOW GROUND OF APPEAL TAKEN BY THE ASSESSEE IN PART BY RESTRICTING THE DISALLOWANCE TO RS.25,800/- AND BY DELETING THE SUM OF RS.8,74,311/- OUT OF RS.9,00,111/-. 9. AS MENTIONED HEREINABOVE THAT THE ASSESSEE HAS A LSO TAKEN THE ADDITIONAL GROUND. 10. RELEVANT FACTS ARE THAT THE ASSESSING OFFICER O BSERVED THAT THE ASSESSEE EARNED EXEMPTED INCOME OF RS.142,85,05,284/- FROM INVESTME NT IN TAX-FREE BONDS AND DIVIDEND. THE ASSESSEE SUBMITTED AT THE TIME OF ASSESSMENT PROCEE DINGS, THE EXPENDITURE OF RS.1,02,700/- ATTRIBUTABLE TO EARNING EXEMPTED INCOME. ASSESSING OFFICER STATED THAT THE FIGURE GIVEN BY ASSESSEE IS HIGHLY UNREALISTIC. ASSESSING OFFICER D ISALLOWED THE PROPORTIONATE MANAGEMENT EXPENSES AMOUNTING TO RS.4,91,32,442/- UNDER SECTIO N 14A OF THE ACT. THE ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. HOWEVE R, AT THE TIME OF HEARING OF THE APPEAL, THE ASSESSEE WITHDREW THE GROUND BY LETTER DATED 10.11. 2009 AND LD. CIT(APPEALS) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. THE ASSESSEE HAS N OW FILED AN APPEAL STATING THAT THE ASSESSEE WITHDREW THE ABOVE GROUND IN VIEW OF THE DECISION O F ITAT, SPECIAL BENCH, MUMBAI IN THE CASE OF ITO VS.- DAGA CAPITAL MANAGEMENT PVT. LTD. [312 ITR 1 (AT)] VIDE WHICH IT WAS HELD THAT RULE 8D IS RETROSPECTIVE IN NATURE FOR THE PUR POSE OF WORKING OUT DISALLOWANCE UNDER SECTION 14A OF THE ACT. LD. AR SUBMITTED THAT THE S AID DECISION OF ITAT, SPECIAL BENCH HAS ITA NOS. 475/KOL./2010 & 476/KOL./2010 8 BEEN OVERRULED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS.- DCIT [328 ITR 81 (BOM.)] AND IT HAS BEEN HELD THAT RULE 8D IS PROSPECTIVE AND IS APPLICABLE FROM ASSESSMENT YEAR 2008-09. HE SUBM ITTED THAT THE ASSESSEE DID NOT PRESS THIS GROUND BEFORE LD. CIT(APPEALS) DUE TO A VALID REASO N AND ON ACCOUNT OF THE ABOVE DECISION OF THE HONBLE BOMBAY HIGH COURT, THE ASSESSEE HAS TAK EN UP THIS GROUND. HE SUBMITTED THAT THE ASSESSEE COULD TAKE THE GROUND BEFORE THE TRIBUNAL EVEN IF IT WAS NOT TAKEN BEFORE THE AUTHORITIES BELOW AND RELIED ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF NATIONAL THERMAL POWER CORPN. LIMITED VS.- CIT [229 ITR 383 ]. LD. AR ALSO REFERRED THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V S.- TAMILNADU TOURISM DEVELOPMENT CORPORATION LIMITED [139 ITR 146] AND SUBMITTED THA T THE ADMISSION OF ADDITIONAL GROUND BY THE TRIBUNAL WAS CONFIRMED BY THE HONBLE HIGH COUR T. LD. AR SUBMITTED THAT THE MATTER COULD BE RESTORED TO LD. CIT(APPEALS) FOR HIS FRESH CONSI DERATION. 11. ON THE OTHER HAND, LD. D.R. SUBMITTED THAT THE DECISIONS CITED BY THE ASSESSEE ARE NOT APPLICABLE TO THE FACTS OF THE CASE. HE SUBMITTED T HAT ASSESSING OFFICER DID NOT DISALLOW BY APPLYING RULE 8D WHILE CONSIDERING THE EXEMPTED INC OME OF THE ASSESSEE. HE FURTHER SUBMITTED THAT THE ASSESSEE VOLUNTARILY DID NOT PRESS THE ABO VE GROUND. HE SUBMITTED THAT THE ASSESSEE COULD NOT AGITATE THE SAME ISSUE IN FURTHER APPEAL ONCE, HE HAD ACCEPTED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. LD. DR SUBMITTED THAT IF THE ASSESSEE IS ALLOWED TO RE-AGITATE THE SAME ISSUE FOR WHICH HE AGREED TO BEFORE THE LOWER AUTHO RITIES, THERE COULD BE NO END. 12. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES AND THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE AL SO CONSIDERED THE CASES CITED BY LD. A.R. IN SUPPORT OF HIS SUBMISSION. CONSIDERING THE FACTS OF THE CASE THAT THE ASSESSING OFFICER MADE PROPORTIONATE DISALLOWANCE WHILE CONSIDERING THE EX EMPTED INCOME OF THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERATION FOR THE PURPOSE OF SECTION 14A OF THE INCOME TAX ACT, HE DID NOT CONSIDER RULE 8D OF THE INCOME TAX RULE. WE AGREE WITH LD. AR THAT RULE 8D IS NOT APPLICABLE TO THE ASSESSMENT YEAR UNDER CONSIDERATI ON. IT IS ALSO A FACT THAT THE ASSESSEE DID NOT PRESS FOR THIS GROUND BEFORE LD. CIT(APPEALS) AND A DMITTED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. THEREFORE, THE PLEA TAKEN BY LD. A.R. THAT THE ASSESSEE DID NOT DISPUTE THIS GROUND BECAUSE OF RULE 8D AND THE DECISION OF SPECI AL BENCH, ITAT, MUMBAI IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. HAS NO SUBSTANCE. THERE IS NO SUCH SUBMISSION OF THE ITA NOS. 475/KOL./2010 & 476/KOL./2010 9 ASSESSEE BEFORE LD. CIT(APPEALS) THAT THE ASSESSEE DID NOT TO WANT AGITATE THE MATTER IN VIEW OF THE DECISION OF ITAT, SPECIAL BENCH, MUMBAI. IT IS OBSERVED THAT THE ASSESSEE, FOR THE REASONS BEST KNOWN TO HIM, ACCEPTED THE DISALLOWANCE MADE B Y THE ASSESSING OFFICER UNDER SECTION 14A OF THE INCOME TAX ACT. CONSIDERING THE ABOVE FA CTS, WE AGREE WITH LD. D.R. THAT CASES RELIED UPON BY LD. A.R. ARE NOT APPLICABLE TO THE F ACTS OF THE CASE BEFORE US. ON CONSIDERING THE FACTS, WE OBSERVE THAT IT IS NOT A LEGAL ISSUE, WHI CH THE ASSESSEE HAS AGITATED BEFORE US. ON THE OTHER HAND, THE ASSESSEE WANTS TO RE-AGITATE THE IS SUE WHICH HAD BEEN SETTLED AT THE END OF LD. CIT(APPEALS) BY ACCEPTING THE DISALLOWANCE MADE BY ASSESSING OFFICER. WE AGREE WITH LD. D.R. THAT IF THE ASSESSEE IS ALLOWED TO RE-AGITATE THE SAME ISSUE, WHICH HAS BEEN CONCEDED BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW, THERE IS NO END TO A DISPUTE. CONSIDERING THE ABOVE FACTS, WE REJECT THE ADDITIONAL GROUND TAKEN BY THE ASSESS EE. 13. NOW WE TAKE UP THE APPEAL FILED BY THE DEPARTME NT BEING I.T.A. NO. 476/KOL./2010. 14. THE ASSESSEE HAD WRITTEN OFF BAD ADVANCES, DEPO SITS OF RS.46,64,381/-. ASSESSING OFFICER HAS STATED THAT FOLLOWING ITEMS ARE NOT REV ENUE IN NATURE :- PARTY NAME AMOUNT ASSESSEES COMMENT ON NATURE OF A MOUNT WHICH IS WRITTEN OFF AKBARALLY ESUFALLY ESTATES 3,17,520/- SECURITY DEPO SIT MISCELLANEOUS 25,783/- REPRESENT DEPOSITS MADE TO VARIOUS PARTIES BETWEEN 1956 TO 1992 FOR WHICH RECEIPTS ARE NOT AVAILABLE A ND DESPITE BEST EFFORTS THE AMOUNTS IS NOT RECOVERABLE FROM PARTIES AND HENCE, WRITTEN OFF SUDHIR CHANDRA MALAKAR 50,000/- DEPOSIT TOTAL 3,93,303/- THUS ASSESSING OFFICER TREATED THE SAID AMOUNT AGGR EGATING RS.3,93,303/- AS CAPITAL IN NATURE AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. BEIN G AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. LD. CIT(APPEALS) HAD DELETED THE SAID AMOUNT STATING THAT THE ISSUE IS COVERED BY THE ITAT JUDGMENT IN ASSESSEES OWN C ASE FOR ASSESSMENT YEAR 2002-03 IN I.T.A. NO. 18/KOL./2006 AND FOR ASSESSMENT YEAR 2003-04 IN ITA NO. 1338/KOL./2006. HENCE, THE DEPARTMENT IS IN FURTHER APPEAL BEFORE THE TRIBUNAL . 15. DURING THE COURSE OF HEARING, LD. D.R. RELIED O N THE ORDER OF ASSESSING OFFICER. ON THE OTHER HAND, LD. A.R. OF THE ASSESSEE SUBMITTED THAT THE AMOUNT AGGREGATING RS.25,783/- WAS GIVEN AS SECURITY DEPOSIT TO ELECTRICITY BOARD AND FOR SUPPLY OF GAS TO VARIOUS AGENCIES AS ITA NOS. 475/KOL./2010 & 476/KOL./2010 10 NORMAL BUSINESS REQUIREMENT. IT WAS SUBMITTED THAT IT WAS AN OLD AMOUNT AND IF LITIGATION WAS INITIATED, ITS COST WOULD BE HIGHER THAN RECOVERY. HE FURTHER SUBMITTED THAT RS.3,17,520/- WAS GIVEN AS SECURITY DEPOSIT FOR LEASED GODOWN AT CHEN NAI IN 1995 AND 1999. THERE WAS A DISPUTE ON FIXATION OF RENT SINCE JANUARY, 2001. THE RENT W AS HIKED TO RS.38,580/-, BUT THE ASSESSEE- COMPANY DISPUTED THE SAME AND CONTINUED TO PAY OLD RENT. ULTIMATELY, THE LESSOR COMPROMISED AND THE ASSESSEE-COMPANY VACATED THOSE GODOWNS IN 2 004-05. THE SECURITY DEPOSIT WAS NOT RETURNED TO WHICH ASSESSEE-COMPANY AGREED TO. LD. A R FURTHER SUBMITTED THAT THE SUM OF RS.50,000/- WAS GIVEN AS DEPOSIT FOR A RESIDENTIAL FLAT AT KOLKATA. THE EMPLOYEE HANDED OVER THE KEY TO LANDLORD WHILE VACATING THE PREMISES AND THE LANDLORD DID NOT RETURN THE SECURITY DEPOSIT ON THE GROUND THAT HE HAD ACUTE FINANCIAL P ROBLEMS. HE SUBMITTED THAT THE CASE WAS FILED BUT LANDLORD WAS NO LONGER TRACEABLE, HENCE, THE AM OUNT WAS WRITTEN OFF. LD. AR SUBMITTED THAT WRITTEN OFF AMOUNT AGGREGATING RS.3,93,303/- WAS DE POSITED AS SECURITY DEPOSITS IN THE ORDINARY COURSE OF BUSINESS AND THE SAID AMOUNT HAS BEEN WRI TTEN OFF IN THE ASSESSMENT YEAR UNDER CONSIDERATION CONSIDERING THE MATERIAL ASPECT AS WE LL AS THE TIME AND COST INVOLVED IN SUCH RECOVERY. LD. AR SUBMITTED THAT LD. CIT(APPEALS) HA S RIGHTLY DELETED THE SAID AMOUNT AS IT IS A TRADING LOSS UNDER SECTION 28. HE SUBMITTED THAT SU CH SIMILAR WRITE OFF OF TRADE ADVANCES/ DEPOSITS HAD BEEN ALLOWED BY THE TRIBUNAL IN THE EA RLIER ASSESSMENT YEARS. 16. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES AND THE ORDERS OF THE AUTHORITIES BELOW. 17. CONSIDERING THE NATURE OF THE DEPOSITS GIVEN BY THE ASSESSEE, THE DETAILS OF WHICH MENTIONED HEREINABOVE, WE FIND SUBSTANCE IN THE SUB MISSION OF LD. A.R. THAT TRADE ADVANCES WERE GIVEN IN THE NORMAL COURSE OF ITS BUSINESS OF PURCHASING GAS, TAKING GODOWN AND FLAT ON RENT, ETC. DEPOSITS COULD NOT BE SAID TO HAVE BEEN MADE TO ACQUIRE ANY CAPITAL ASSETS BY THE ASSESSEE. NOR THE ADVANCES WERE IN THE NATURE OF AN Y INVESTMENT MADE BY THE ASSESSEE-COMPANY OR FOR ANY PURCHASE OF CAPITAL ASSETS. WE ARE OF TH E CONSIDERED VIEW THAT WRITE OFF OF THE ABOVE AMOUNTS BY THE ASSESSEE ARE LOSS, WHICH COULD BE AL LOWED AS DEDUCTION. IN THIS REGARD, WE ARE FORTIFIED BY THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS.- MYSORE SUGAR COMPANY LIMITED [46 ITR 649]. WE ARE ALSO OF THE CO NSIDERED VIEW THAT THE ASSESSEE HAS TAKEN A BONAFIDE DECISION TO WRITE OFF OF ABOVE AMOUNT CO NSIDERING THE COST AND THE TIME INVOLVED., IF ASSESSEE HAD INITIATED LEGAL ACTION. HENCE, WE DO N OT FIND ANY REASON TO INTERFERE WITH THE ORDER ITA NOS. 475/KOL./2010 & 476/KOL./2010 11 OF LD. CIT(APPEALS). THEREFORE, GROUND NO. 1 OF THE APPEAL TAKEN BY THE DEPARTMENT IS REJECTED. 19. IN RESPECT OF GROUND NO. 2 OF THE APPEAL TAKEN BY THE DEPARTMENT, LD. A.R. SUBMITTED THAT THE ASSESSEE ITSELF DISALLOWED A SUM OF RS.1,0 2,700/- UNDER SECTION 14A OF THE INCOME TAX ACT AND REFERRED PARA 4 OF THE ASSESSMENT ORDER. HE SUBMITTED THAT NO RELIEF HAS BEEN GIVEN BY LD. CIT(APPEALS) IN REGARD THERETO. LD. D.R. HAS NO T DISPUTED THE SAID SUBMISSION OF LD. A.R. 20. WE ALSO ON PERUSAL OF THE ORDER OF ASSESSING OFFICE R AGREE WITH THE CONTENTION OF LD. A.R. THAT THE ASSESSEE ITSELF MADE DISALLOWANCE OF RS.1,02,700/- UNDER SECTION 14A OF THE ACT WHILE CONSIDERING THE EXEMPTED INCOME SHOWN BY IT A ND LD. CIT(APPEALS) HAS NOT DELETED IT. HENCE, GROUND NO. 2 OF THE APPEAL TAKEN BY THE DEPA RTMENT DOES NOT ARISE OUT OF THE ORDER OF LD. CIT(APPEALS). ACCORDINGLY, GROUND NO. 2 OF THE APPEAL IS REJECTED. 21. IN RESPECT OF GROUND NO. 3 OF THE APPEAL TAKEN BY THE DEPARTMENT, RELEVANT FACTS ARE THAT THE POWER UNDERTAKING 1 AT BHADRACHALAM COMMENCED ITS OPERATION ON 18.07.1997, I.E. IN FINANCIAL YEAR 1997-98. THE ASSESSEE STATED THAT TI LL FINANCIAL YEAR 2000-01, I.E. ASSESSMENT YEAR 2001-02 THE SAID POWER UNDERTAKING BELONGED TO ANOT HER COMPANY, VIZ. ITC BHADRACHALAM PAPERBOARDS LIMITED (HEREINAFTER TO BE REFERRED AS ITCBPL). ITCBPL NEVER CLAIMED ANY DEDUCTION UNDER SECTION 80IA IN VIEW OF RECURRING L OSSES. THE ASSESSEE STATED THAT IN ASSESSMENT YEAR 2002-03, ITCBPL MERGED WITH THE ASS ESSEE-COMPANY AND THEREAFTER THE MERGED COMPANY HAVING A POSITIVE GROSS TOTAL INCOME , STARTED CLAIMING THE DEDUCTION UNDER SECTION 80IA OF THE ACT IN RESPECT OF THE SAID POWE R UNDERTAKING. THE ASSESSEE CLAIMED THAT THE DEDUCTION FOR THE FIRST TIME WAS CLAIMED IN RESPECT OF THE SAID POWER UNDERTAKING IN ASSESSMENT YEAR 2002-03. 22. AT THE RELEVANT PERIOD, I.E. WHEN THE ASSESSEE- UNDERTAKING COMMENCED ITS OPERATION ON 18.07.1997, SECTION 80IA PROVIDED THAT THE ASSESSEE COULD CLAIM DEDUCTION @ 100% FOR FIRST FIVE ASSESSMENT YEARS AND AT THE RATE OF 30% FOR NE XT FIVE ASSESSMENT YEARS. HOWEVER, BY THE FINANCE ACT, 2001 W.E.F. 1 ST APRIL, 2002, PROVISIONS OF SECTION 80IA WERE AMEND ED AND AS PER SAID AMENDMENT IF AN UNDERTAKING IS SET UP FOR GENE RATION OR GENERATION AND DISTRIBUTION OF POWER, IF IT BEGINS TO GENERATE POWER AT ANY TIME D URING THE PERIOD BEGINNING ON THE 1 ST DAY OF ITA NOS. 475/KOL./2010 & 476/KOL./2010 12 APRIL, 1993 AND ENDING ON THE 31 ST DAY OF MARCH, 2006THE DEDUCTION UNDER SECTION 80I A DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (4), THE DEDUCTION OF AN AMOUNT EQUAL TO 100% OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS COULD BE CLAIMED FOR TEN CONSECUTIVE ASSESSMENT YEA RS OUT OF FIFTEEN YEARS BEGINNING FROM THE YEAR IN WHICH THE UNDERTAKING OR THE ENTERPRISE, IN TER ALIA, GENERATES POWERS OR COMMENCES TRANSMISSION OR DISTRIBUTION OF POWER. THE ASSESSEE CLAIMED THAT THE AMENDED PROVISIONS OF SECTION 80IA OF THE ACT WERE APPLICABLE TO IT FOR A SSESSMENT YEAR UNDER CONSIDERATION AND SINCE THE ASSESSEE DID NOT CLAIM ANY DEDUCTION PRIOR TO A SSESSMENT YEAR 2002-03 AND CLAIMED DEDUCTION IN RESPECT OF THE SAID UNDERTAKING FOR TH E FIRST TIME IN ASSESSMENT YEAR 2002-03, IT WAS ENTITLED FOR 100% DEDUCTIONS IN THE ASSESSMENT YEAR UNDER CONSIDERATION, I.E. ASSESSMENT YEAR 2005-06. THE ASSESSING OFFICER DID NOT ACCEPT THE SAID CONTENTION OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE COMMENCED ITS GENERATION O F POWER FROM ASSESSMENT YEAR 1998-99 AND AS SUCH IT COULD CLAIM DEDUCTION @ 100% OF THE PROF IT FROM ASSESSMENT YEARS 1998-99 TO 2002- 03 AND SUBSEQUENTLY FOR A PERIOD OF 5 YEARS I.E. FR OM ASSESSMENT YEAR 2003-04 TO 2008-09 @ 30%. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER RE STRICTED THE DEDUCTION TO THE ASSESSEE UNDER SECTION 80IA OF THE ACT TO 30% OF THE PROFITS OF TH E SAID UNDERTAKING BEING RS.8,42,56,800/- INSTEAD OF RS.28,08,56,000/- AS CLAIMED BY THE ASSE SSEE. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 23. LD. CIT(APPEALS) AFTER CONSIDERING THE SUBMISSI ON OF THE ASSESSEE HAS HELD THAT THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80IA FOR T HE FIRST TIME IN ASSESSMENT YEAR 2002-03. LD. CIT(APPEALS) HAS STATED THAT THE ASSESSEE EXERC ISED ITS OPTIONS AS PER THE AMENDED PROVISIONS FOR CHOOSING 10 YEARS FROM ASSESSMENT YE AR 2002-03 AND AS SUCH, THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION UNDER SECTION 80IA @ 10 0% OF THE PROFIT OF THE SAID UNIT FOR A PERIOD OF FIVE ASSESSMENT YEARS COMMENCING FROM ASS ESSMENT YEAR 2002-03 AND ACCORDINGLY, DIRECTED THE ASSESSING OFFICER TO ALLOW THE ASSESSE ES CLAIM. THE RELEVANT ORDER OF LD. CIT(APPEALS) IS AT PAGES 18 TO 20 OF THE IMPUGNED O RDER, WHICH IS AS UNDER :- IN THIS GROUND THE APPELLANT IS DISPUTING THE AOS ACTION IN LIMITING DEDUCTION UNDER SEC. 80IA OF THE INCOME TAX ACT IN RESPECT OF ITS POWER GENERATION UNIT AT BHADRACHALAM TO @ 30% OF PROFITS OF THE SAID UNIT INSTEAD OF @ 100% CLAIMED BY IT. THE APPELLANTS C ASE IS THAT THE DEDUCTION IN RESPECT OF THE SAID UNIT WAS FIRST CLA IMED IN THE ASSESSMENT YEAR 2002-03 AND WAS IN ACCORDANCE WITH THE EXTANT PROVISIONS OF SEC. 80IA OF THE INCOME TAX ACT AS APPLICABLE TO THAT AS SESSMENT YEAR. THEREFORE, AS PER ITS CONTENTION, THE CLAIM FOR ASS ESSMENT YEAR 2005- ITA NOS. 475/KOL./2010 & 476/KOL./2010 13 2006 IS THE FOURTH YEAR. THE AO HAS DENIED THE APPE LLANTS CLAIM ON THE GROUND THAT THE UNIT COMMENCED OPERATION IN THE FIN ANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 1998-1999 AND AS PER THE PROVISI ONS OF SEC. 80IA(2)(IV)(B) OF THE INCOME TAX ACT PREVAILING IN THAT ASSESSMENT YEAR THE APPELLANT WAS ENTITLED TO CLAIM DEDUCTION @ 100 % FOR FIRST FIVE ASSESSMENT YEARS AND @ 30% FOR NEXT FIVE ASSESSMENT YEARS, THE DEDUCTION BEING PERMISSIBLE FOR 10 CONSECUTIVE ASSE SSMENT YEARS. IT IS TO BE MENTIONED THAT SEC. 80IA OF THE INCOME TAX ACT W AS AMENDED BY THE FINANCE ACT, 2001 W.E.F. 01.04.2002. AS PER THE AME NDED PROVISIONS IN FORCE FROM ASSESSMENT YEAR 2002-2003, THE APPELLANT IS ENTITLED TO CHOOSE ANY 10 CONSECUTIVE YEARS OUT OF 15 YEARS BEG INNING FROM THE YEAR IN WHICH ITS BUSINESS OF POWER GENERATION HAS COMME NCED. THE APPELLANT HAS PLEADED BEFORE ME THAT THE LAW TO BE APPLIED IS THAT WHICH IN FORCE IN THE RELEVANT ASSESSMENT YEAR RELYING ON THE DECISIO N IN THE CASE OF KARIMTHARUVI TEA ESTATE LTD. VS.- STATE OF KERALA [60 ITR 262 (SC)]. THE AOS MAIN CONTENTION APPEARS TO BE THAT IT IS I MMATERIAL WHETHER THE APPELLANT COULD CLAIM DEDUCTION UNDER SEC. 80IA OF THE INCOME TAX ACT IN THE ASSESSMENT YEAR 1998-1999 OR NOT. THE PE RIOD OF 10 YEARS WAS FIXED AS PER THE PROVISIONS OF SEC. 80IA OF THE INC OME TAX ACT WHICH EXISTED IN ASSESSMENT YEAR 1998-1999 AND THIS PERIO D COULD NOT BE CHANGED BY A SUBSEQUENT AMENDMENT. IT IS NOT IN DIS PUTE THAT THE APPELLANT HAS FIRST CLAIMED DEDUCTION UNDER SEC. 80 IA OF THE INCOME TAX ACT FOR ITS BHADRACHALAM UNIT IN ASSESSMENT YEAR 20 02-2003. THEREFORE, IT IS SEEN THAT THE APPELLANT HAD EXERCISED ITS OPT ION FOR CHOOSING 10 YEARS FROM THE ASSESSMENT YEAR 2002-2003. THE AMEND MENT TO SEC. 80IA OF THE INCOME TAX ACT BROUGHT ABOUT FROM ASSESSMENT YEAR 2002-2003 INDICATES THAT THE INTENTION OF THE LEGISLATURE WAS TO EXTEND THE BENEFIT OF SEC. 80IA OF THE INCOME TAX ACT FOR FULL 10 YEARS O UT OF INITIAL 15 YEARS TO ALL SUCH INDUSTRIES WHICH HAVE BEGUN OPERATION O N OR AFTER 01.04.1995 AND WHICH, DUE TO SUBSTANTIAL CAPITAL INVESTMENT WE RE NOT ABLE TO MAKE PROFITS IN THE INITIAL YEAR OF OPERATION. THIS INTE NTION HAS BEEN FURTHER CLARIFIED BY THE CBDT IN ITS CIRCULAR NO. 14 OF 200 1. THE UNIT IN QUESTION HAVING COMMENCED OPERATION FOR ASSESSMENT YEAR 1998-1999, THE APPELLANT HAS STILL ASSESSMENT YEAR 2013-2014 T O EXERCISE ITS OPTION OF CHOOSING 10 CONSECUTIVE YEARS OUT OF THIS PERIOD . HAVING MADE ITS CHOICE THE INITIAL YEAR OF THE APPELLANT IN THIS CA SE WILL BE ASSESSMENT YEAR 2002-2003 AND FOR A PERIOD OF FIVE ASSESSMENT YEAR COMMENCING FROM THAT INITIAL ASSESSMENT YEAR IT WOULD BE ENTIT LED TO A DEDUCTION OF 100% OF ITS PROFIT OF THE SAID UNIT. THEREFORE, I H OLD THAT THE CONTENTION OF THE APPELLANT IS CORRECT AND ACCORDINGLY DIRECT THE AO TO ALLOW THE APPELLANTS CLAIM UNDER SEC. 80IA OF THE INCOME TAX ACT IN RESPECT OF BHADRACHALAM UNIT. THIS GROUND OF APPEAL IS ALLOWED . HENCE, DEPARTMENT IS IN FURTHER APPEAL BEFORE THE T RIBUNAL. ITA NOS. 475/KOL./2010 & 476/KOL./2010 14 24 AT THE TIME OF HEARING, LD. D.R. RELIED ON THE O RDER OF ASSESSING OFFICER. HOWEVER, LD. A.R. OF THE ASSESSEE MADE HIS SUBMISSIONS ON THE LI NES OF THE SUBMISSIONS MADE BEFORE LD. CIT(APPEALS). HE FURTHER SUBMITTED THAT A SIMILAR I SSUE WAS CONSIDERED BY ITAT, AHMEDABAD BENCH IN RESPECT OF PROVIDING CELLULAR SERVICES IN THE CASE OF ACIT VS.- VODAFONE ESSAR GUJARAT LIMITED (2010) 38 SOT 51. HE SUBMITTED THAT IN THE SAID CASE, THE TRIBUNAL HELD THAT THE ASSESSEE COULD NOT BE DENIED BENEFIT OF THE AME NDED PROVISIONS ONCE IT FULFILLED THE CONDITIONS STIPULATED IN THE RELEVANT PROVISIONS AN D THE SUBSTITUTED PROVISIONS OF SECTION 80IA WOULD APPLY TO THE ASSESSEE. IN THE SAID CASE, THE ASSESSEE COMMENCED ITS COMMERCIAL OPERATION ON 24.01.1997, I.E. IN ASSESSMENT YEAR 1997-98 BUT DID NOT CLAIM DEDUCTION UNDER SECTION 80IA FROM ASSESSMENT YEARS 1997-98 TO 1999-2000. THE QUE STION AROSE AS TO WHETHER THE PRE- AMENDED PROVISIONS OF SECTION 80IA OF THE ACT, I.E. THE PROVISIONS, WHICH WERE IN EXISTENCE, WHEN THE ASSESSEE COMMENCED PRODUCTION WOULD BE APP LICABLE OR THE AMENDED PROVISIONS OF SECTION 80IA OF THE ACT APPLICABLE WITH EFFECT FROM 1 ST APRIL, 2000 WOULD APPLY TO THE ASSESSEE. IT IS RELEVANT TO STATE THAT PRIOR TO THE AMENDMENT , ASSESSEE WAS ENTITLED TO GET DEDUCTION UNDER SECTION 80IA OF THE ACT IN RESPECT OF PROFITS AND G AINS FROM INFRASTRUCTURE UNDERTAKING @ 100% FOR FIRST FIVE YEARS AND THEREAFTER @ 30% IN NEXT F IVE YEARS. HOWEVER, AS PER AMENDED PROVISIONS APPLICABLE W.E.F. 01.04.2000 IN RESPECT OF PROVIDING TELECOMMUNICATION SERVICES ON OR AFTER 01.04.1995, THERE WAS AN OPTION TO THE ASS ESSEE TO CLAIM BENEFIT OF SECTION 80IA OF THE ACT FOR ANY TEN CONSECUTIVE YEARS OUT OF FIFTEEN YE ARS COMMENCING FROM WHICH THE YEAR IN WHICH THE ASSESSEE STARTED PROVIDING TELECOMMUNICAT ION SERVICES. THE ASSESSEE EXERCISED ITS OPTION OF CLAIMING DEDUCTION UNDER SECTION 80IA FRO M ASSESSMENT YEAR 2005-06. ASSESSING OFFICER AND LD. COMMISSIONER (APPEALS) WERE OF THE OPINION THAT THE RELEVANT PROVISIONS, AS THEY STOOD IN THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 1996-97, WOULD DETERMINE THE DEDUCTION UNDER SECTION 80IA IN THE YEAR UNDER CONS IDERATION, I.E. ASSESSMENT YEAR 2006-07. IT WAS STATED THAT THE ASSESSEE DID NOT HAVE ANY OPTIO N IN CHOOSING THE INITIAL YEAR AS DEFINED IN THE PROVISIONS RELEVANT TO THE ASSESSMENT YEAR 1997-98 NOR ASSESSEE COULD HAVE CLAIMED ANY DEDUCTION UNDER SECTION 80IA IN THE ASSESSMENT YEAR S 1996-97 TO 1999-2000 OR EVEN AFTER UNTIL THE ASSESSMENT YEAR 2003-04 DUE TO LOSSES, WHILE TH E AMENDED PROVISIONS PROVIDED OPTION TO THE UNDERTAKING, WHICH HAD STARTED PROVIDING TELECO MMUNICATION SERVICES ON OR AFTER 1 ST APRIL, 1995 AND THE ASSESSEE FULFILLED ALL OTHER CONDITION S STIPULATED UNDER SECTION 80IA, THE TRIBUNAL HELD THAT LD. CIT(APPEALS) WAS NOT JUSTIFIED IN HOL DING THAT THE ASSESSEE WAS NOT ENTITLED TO EXERCISE OPTION IN TERMS OF THE AMENDED PROVISIONS APPLICABLE FROM ASSESSMENT YEAR 2000-01 ITA NOS. 475/KOL./2010 & 476/KOL./2010 15 ONWARDS. IT WAS HELD THAT THE AMENDED PROVISIONS AP PLICABLE W.E.F. 1.4.2000 ALLOWED OPTION EVEN TO THOSE UNDERTAKINGS, WHICH HAD ALREADY START ED PROVIDING TELECOMMUNICATION SERVICES ON OR AFTER 1.4.1995 AND SINCE THE ASSESSEE UNDISPU TEDLY, DID NOT CLAIM DEDUCTION FROM ASSESSMENT YEARS 1997-98 TO 1999-2000, THE ASSESSEE , THEREFORE, COULD NOT BE DENIED BENEFIT OF THE AMENDED PROVISIONS, ONCE IT FULFILLED THE CONDI TIONS STIPULATED IN THE RELEVANT PROVISIONS. 25. AT THE TIME OF HEARING, LD. A.R. SUBMITTED THAT THE ABOVE DECISION OF ITAT, AHMEDABAD BENCH (SUPRA) SQUARELY APPLIES TO THE CASE OF THE A SSESSEE AND AS SUCH THE INITIAL ASSESSMENT YEAR IN THE CASE OF THE ASSESSEE FOR CLAIMING DEDUC TION UNDER SECTION 80IA WAS ASSESSMENT YEAR 2002-03, WHICH WOULD BE AVAILABLE FOR NEXT TEN YEAR S I.E. UPTO ASSESSMENT YEAR 2011-12. HE SUBMITTED THAT THE ORDER OF LD. CIT(APPEALS) SHOULD BE CONFIRMED. 26. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW AND THE SUBMISSIONS OF LD. REPRESENTATIVES OF THE PARTIES. WE HAVE ALSO GO NE THROUGH THE ORDER OF ITAT, AHMEDABAD BENCH IN THE CASE OF VODAFONE ESSAR GUJARAT LIMITED (SUPRA). WE OBSERVE THAT THE ISSUE INVOLVED IN THE APPEAL BEFORE US AND THE ISSUE INVO LVED IN THE APPEAL BEFORE THE ITAT, AHMEDABAD BENCH IS IDENTICAL SAVE AND EXCEPT THE FA CT THAT IN THE CASE OF APPEAL OF ITAT, AHMEDABAD BENCH, THE UNDERTAKING WAS PROVIDING TELE COMMUNICATION SERVICES AND WHEREAS IN THE CASE BEFORE US IT IS A POWER UNDERTAKING. THERE IS NO DISPUTE TO THE FACT THAT THE UNDERTAKING PROVIDING TELECOMMUNICATION SERVICES AN D/ OR POWER UNDERTAKING BOTH ARE INFRASTRUCTURE UNDERTAKINGS AS PER EXPLANATION TO S UB-SECTION (4) OF SECTION 80IA OF THE ACT. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE-C OMPANY FULFILLS ALL THE REQUISITE CONDITIONS AS LAID DOWN IN SECTION 80IA OF THE ACT TO CLAIM DEDUC TIONS UNDER SECTION 80IA OF THE ACT. THE ONLY ISSUE IS AS TO WHETHER THE PRE-AMENDED PROVISI ONS OF SECTION 80IA I.E. THE PROVISIONS AS APPLICABLE WHEN THE ASSESSEE-UNDERTAKING COMMENCED ITS GENERATION OF POWER WOULD APPLY OR AMENDED PROVISION OF SECTION 80IA OF THE ACT, WHICH WERE AMENDED BY THE FINANCE ACT, 2001 W.E.F. 1 ST APRIL, 2002 WOULD BE APPLICABLE TO THE ASSESSEE-CO MPANY. THERE IS NO DISPUTE TO THE FACT THAT AS PER ERSTWHILE PROVISION OF SECTION 80I A OF THE ACT, THERE WAS A TWO TIER DEDUCTIONS, I.E. 100% OF ITS PROFIT OF POWER GENERATING FOR THE FIRST FIVE YEARS AND THEREAFTER @ 30% FOR SUBSEQUENT FIVE YEARS AVAILABLE TO AN ASSESSEE, BUT AS PER AMENDED PROVISIONS OF SECTION 80IA OF THE ACT, THE ASSESSEE IS ENTITLED TO HAVE AN OPT ION TO CLAIM 100% OF ITS PROFIT OF POWER GENERATING UNDERTAKING IN ANY OF TEN YEARS WITHIN A PERIOD OF FIFTEEN YEARS, AT THE OPTION OF THE ITA NOS. 475/KOL./2010 & 476/KOL./2010 16 ASSESSEE. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE DID NOT CLAIM ANY DEDUCTION UNDER SECTION 80IA OF THE ACT FROM ASSESSMENT YEAR 1998-9 9 TO ASSESSMENT YEAR 2001-02 AS THERE WAS A NEGATIVE GROSS TOTAL INCOME. THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80IA OF THE ACT FOR THE FIRST TIME IN ASSESSMENT YEAR 2002-03. THE ASSESSEE HAS STATED THAT THE INITIAL ASSESSMENT YEAR FOR CLAIMING DEDUCTION UNDER SECTION 80IA IS T HUS ASSESSMENT YEAR 2002-03 AND THE ASSESSEE IS ENTITLED FOR CLAIMING DEDUCTION FOR NEX T TEN YEARS, I.E. UPTO ASSESSMENT YEAR 2011-12. HOWEVER, THE ASSESSING OFFICER HAS STATED THAT PRE- AMENDED PROVISIONS OF SECTION 80IA WOULD BE APPLICABLE AND WHEREAS LD. CIT(APPEALS) HAS AGRE ED WITH THE CONTENTION OF THE ASSESSEE. WE OBSERVE THAT SIMILAR ISSUE HAD BEEN CONSIDERED BY I TAT, AHMEDABAD BENCH IN THE CASE OF VODAFONE ESSAR GUJARAT LIMITED (SUPRA) AND THE RELE VANT PART OF THE SAID ORDER READS AS UNDER :- WE ARE OF THE OPINION THAT THE ASSESSEE WAS JUSTIF IED IN EXERCISING OPTION IN TERMS OF THE AMENDED PROVISIONS, ESPECIALLY WHEN THE PROVISIONS OF SECTION 80-IA(4)(II) CLEARLY STIPULATE THAT THE OPT ION IS AVAILABLE EVEN TO THOSE UNDERTAKINGS WHICH HAD STARTED PROVIDING TELE COMMUNICATION SERVICES ON OR AFTER 1.4.1995. THEREFORE, WHEN THE ASSESSEE FULFILLED ALL OTHER STIPULATED CONDITIONS IN TERMS OF THE RELEVAN T PROVISIONS OF SECTION 80-IA OF THE ACT, THE LD. CIT(A.) WAS NOT JUSTIFIED IN HOLDING THAT THE BENEFIT OF SUBSTITUTED PROVISIONS WAS AVAILABLE ONL Y TO THOSE UNDERTAKINGS WHICH WERE GRANTED A LICENSE AFTER 1.4.1995 AND COU LD NOT START OPERATIONS UNTIL 1.4.2002. WE ARE OF THE OPTION THAT SUCH AN R ESTRICTIVE INTERPRETATION DOES NOT EMERGE FROM THE AMENDED PROVISIONS. THE LD . CIT(A.) WAS ALSO NOT JUSTIFIED IN CONCLUDING THAT THE ASSESSEE HAVIN G EXERCISED OPTION IN THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 1997-98 [EVE N THOUGH THERE WAS NO SUCH PROVISION OF EXERCISING OPTION AND THE ASSESSE E COULD NOT CLAIM ANY SUCH DEDUCTION IN VIEW OF LOSS], PROVISIONS OF SECT ION 80-IA OF THE ACT SUBSTITUTED FROM THE ASSESSMENT YEAR 2002-03 WOULD NOT APPLY. WE OBSERVE THAT ITAT, AHMEDABAD BENCH ALSO CONSIDER ED THE CBDT CIRCULAR NO. 14 OF 2001, WHICH WAS ISSUED EXPLAINING THE PURPOSE OF AMENDMEN T UNDER SECTION 80IA OF THE ACT, WHICH READS AS UNDER :- THE FISCAL BENEFIT AVAILABLE HAS BEEN FURTHER RELA XED AND SUCH UNDERTAKINGS (READ UNDERTAKING ENGAGED IN THE GENER ATION OR GENERATION AND DISTRIBUTION OF POWER) SHALL NOW BE ENTITLED TO A TEN YEAR TAX HOLIDAY IN PLACE OF THE EXISTING TWO TIER TAX BENEFIT. THE TEN- YEAR TAX HOLIDAY CAN BE AVAILED OF CONSECUTIVELY IN THE BLOCK OF INITIAL FIFTEEN YEARS. THE AMENDMENT WILL TAKE EFFE CT FROM THE FIRST DAY OF APRIL, 2002, AND WILL APPLY IN RELATION TO ASSES SMENT YEAR 2002-03 AND SUBSEQUENT YEARS. ITA NOS. 475/KOL./2010 & 476/KOL./2010 17 ITAT, AHMEDABAD BENCH AFTER CONSIDERING THE AMENDED PROVISIONS AND THE ABOVE CBDT CIRCULAR HELD THAT THE ASSESSEE WAS ENTITLED OF DED UCTION @ 100% FOR TEN CONSECUTIVE YEARS OUT OF THE FIRST FIFTEEN YEARS. WE ARE OF THE CONSIDERE D VIEW THAT THE ISSUE BEFORE US IS SQUARELY COVERED BY THE DECISION OF ITAT, AHMEDABAD BENCH (S UPRA) AND, THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(APPEALS) TO DELET E THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. HENCE, WE CONFIRM THE ORDER OF LD. CIT(APP EALS) BY REJECTING GROUND NO. 3 OF THE APPEAL TAKEN BY THE DEPARTMENT. 27. IN REGARD TO GROUND NO. 4 OF THE APPEAL (DEPART MENT), RELEVANT FACTS ARE THAT THE ASSESSEE CLAIMED EXEMPTION OF INCOME FROM SALE OF C LONAL PLANTS, COCONUT, SUGARCANE, ETC. AMOUNTING TO RS.65,55,048/- CONSIDERING IT AS AGRIC ULTURAL INCOME. ASSESSING OFFICER STATED THAT THE EXEMPTION GRANTED FOR AGRICULTURAL INCOME UNDER SECTION 10(1) OF THE ACT IS MEANT AND INTENDED FOR SUCH INCOME AND PERSON IN WHOSE HANDS INCOME IS COMING OUT OF AGRARIAN ACTIVITIES. HE STATED THAT THE ASSESSEE-COMPANY IS IMPLEMENTING ITS OBJECT OF DIVERSIFICATION BY TRYING TO REACH TO RURAL MASS AND ECONOMY WITH A VI EW TO A BETTER FOOTHOLD IN THE NEW AND EMERGING COMMERCIALIZED SCIENTIFIC RESEARCH AND DEV ELOPMENT. THE SAID PROFIT ARISING OUT OF SALE OF CLONAL PLANT IS NOT SOMETHING SIMILAR OR CO MMONLY ACCEPTED INCOME FROM AGRICULTURAL ACTIVITIES. ASSESSING OFFICER OBSERVED THAT THE ASS ESSEE IS ENGAGED IN THESE NEW DIMENSIONS OF BIO-TECHNOLOGICAL RESEARCH, TESTING AND DEVELOPING ITS TOOLS, TECHNOLOGY AND PRODUCT THEREOF. IT IS ALL PART OF AGRO-BUSINESS OF THE ASSESSEE-COMPAN Y AND CANNOT QUALIFY FOR EXEMPTION. HENCE, THE ASSESSING OFFICER ADDED THE SAID INCOME OF RS.6 5,55,048/- TO THE TOTAL INCOME OF THE ASSESSEE AND TREATED IT AS BUSINESS INCOME. BEING A GGRIEVED, ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 28. LD. CIT(APPEALS) AFTER CONSIDERING THE SUBMISSI ON OF THE ASSESSEE AND ALSO CONSIDERING THE AMENDMENT MADE BY FINANCE ACT, 2008 INCORPORATE D IN SECTION 2(1A) EXPLANATION 3 AND ALSO CONSIDERING CBDT CIRCULAR NO. 1 OF 2009 DATED 27.03.2009 DIRECTED THE ASSESSING OFFICER TO ALLOW EXEMPTION TO THE ASSESSEE UNDER SECTION 10 (1) OF THE INCOME TAX ACT AS PER ASSESSEES CLAIM. THE RELEVANT PART OF THE ORDER OF LD. CIT(AP PEALS) READS AS UNDER :- IN THIS GROUND, THE APPELLANT IS DISPUTING THE AO S ACTION IN NOT ALLOWING EXEMPTION UNDER SEC. 10(1) OF THE INCOME TAX ACT ON INCOME CLAIMED BY IT TO BE AGRICULTURAL INCOME. THE AOS CONTENTION IS T HAT THE APPELLANT IS ENGAGED IN AGRO BUSINESS WHICH INCORPORATED BY TECH NOLOGICAL RESEARCH AND ITS PRODUCTS, THE OUTCOME OF SUCH ACTIVITY, WHI CH MAKES IT INELIGIBLE ITA NOS. 475/KOL./2010 & 476/KOL./2010 18 THE CLAIMED EXEMPTION UNDER SEC. 10(1) OF THE INCOM E TAX ACT FOR INCOME FROM SALE OF SUCH PRODUCTS. IN COURSE OF ITS SUBMIS SION BEFORE ME HAS RELIED ON THE DECISION IN THE CASE OF RAJA BENOY KU MAR SAHAS ROY [32 ITR 466 (1957) (SC)], WHEREIN THE HONBLE SUPREME COURT DEFINED TERM AGRICULTURE. IT HAS ALSO RELIED ON OTHER JDUCIAL DE CISIONS WHICH HAVE INCORPORATED IN ITS SUBMISSION MENTIONED ABOVE AS A LSO CBDTS CIRCULAR NO. 1 OF 2009 DATED 27.03.2009. THESE HAVE BEEN PER USED. I FIND THE CASE OF THE APPELLANT IS COVERED BY THESE DECISIONS AS A LSO CBDTS CIRCULAR MENTIONED ABOVE. IT CANNOT BE DENIED THAT THE APPEL LANT IS CARRYING OUT BASIC OPERATIONS ON LAND AND WHETHER SUBSEQUENT OPE RATIONS ARE CARRIED OUT IN CONTINUATION OF SUCH BASIC OPERATIONS IS IMM ATERIAL TO THE FACTS OF THE CASE. THE APPELLANTS ACTIVITIES WOULD COME WIT HIN THE DEFINITION OF AGRICULTURE AND THEREFORE, THE AO IS DIRECTED TO AL LOW EXEMPTION UNDER SEC. 10(1) OF THE INCOME TAX ACT AS PER APPELLANTS CLAIM. THIS GROUND OF APPEAL IS ALLOWED. HENCE, DEPARTMENT IS IN FURTHER APPEAL BEFORE THE T RIBUNAL. 29. DURING THE COURSE OF HEARING, LD. D.R. SUPPORTE D THE ACTION OF THE ASSESSING OFFICER. HE SUBMITTED THAT AMENDMENT MADE BY FINANCE ACT, 2008 IS W.E.F. 1 ST DAY OF APRIL, 2009, I.E. APPLICABLE FROM ASSESSMENT YEAR 2009-10 AND IT IS N OT RETROSPECTIVE. HE FURTHER SUBMITTED THAT EVEN OTHERWISE, THE AMENDMENT MADE BY INSERTING EXP LANATION 3 TO SECTION 2(1A) IS NOT APPLICABLE AS IT ONLY STATES THAT THE INCOME DERIVE D FROM SAPLINGS OR SEEDLING GROWN IN A NURSERY SHALL BE DEEMED TO BE AN AGRICULTURAL INCOME BUT CL ONING PROCESS IS HIGHLY TECHNICAL. IT INVOLVES A LOT OF TECHNOLOGY. HE SUBMITTED THAT THE ASSESSIN G OFFICER HAS RIGHTLY HELD THAT THE SAID INCOME DOES NOT QUALIFY FOR EXEMPTION THOUGH THE PR ODUCT HAS A COLOUR OF AGRICULTURAL INCOME. 30. ON THE OTHER HAND, LD. A.R. OF THE ASSESSEE MAD E HIS SUBMISSIONS ON THE LINES OF THE SUBMISSIONS MADE BEFORE LD. CIT(APPEALS). HE SUBMIT TED THAT THE ACTIVITIES UNDERTAKEN BY THE ASSESEE ARE AS UNDER :- IN THE INITIAL STAGE THE NURSERIES CULTIVATE SEEDS. IN ORDER TO CULTIVATE SUCH SEEDS IT UNDERTAKES ACTIVITIES LIKE PREPARING OF LA ND, LEVELING, PREPARATION OF BEDS, SOWING OF SEEDS, PLAN TING, ETC. AFTER A C ERTAIN STAGE THE BEST RESPONSIVE PLANT IS EARMARKED AS THE MOTHER SEED. T HESE ACTIVITIES UNDERTAKEN FOR GROWING THE SEEDLINGS ARE AGRICULTUR AL ACTIVITIES. THEREAFTER, THE LABORATORIES MAINTAINED BY THE NURS ERIES COME INTO OPERATION. THE DNA OF THE MOTHER CLONE IS COLLECTED FROM THE MOTHER PLANT/ SEEDLING AND THE SAME IS IMPLANTED INTO OTHE R SEEDS. IN OTHER WORDS, A FAIR DEGREE OF BIO-TECHNOLOGICAL INPUT GOES INTO PREPARATION OF CLONES OF THE BEST PLANT IN ORDER TO ACHIEVE THE BEST GENETIC GROWTH PATTERNS. ITA NOS. 475/KOL./2010 & 476/KOL./2010 19 THE SAID SEEDS ARE ONCE AGAIN PLANTED BY THE NURSER IES THEREBY DEVELOPING CLONAL PLANTS AND SEEDLINGS. THE NURSERIES UNDERTAK ES ALL THE ACTIVITIES LIKE PREPARING OF LAND, LEVELING, PREPARATION OF BEDS, S OWING OF SEEDS, PLANTING ETC., WHICH TANTAMOUNT TO AGRICULTURAL ACTIVITIES. THESE SAPLINGS ARE THEN SOLD TO THE LOCAL FARMERS. IN OTHER WORDS, THE NURSERIES UNDERTAKE BASIC OPERA TIONS IN LAND ONCE FOR IDENTIFYING THE MOTHER CLONE AND THEREAFTER TO CULT IVATE CLONAL SAPLINGS FIT FOR MARKET. THE ACTIVITIES UNDERTAKEN IN BOTH THE S TAGES REQUIRE HUMAN LABOUR AND SKILL IN PREPARING THE LAND FIT FOR PLAN TATION OF THE SEEDS AND RAISING THE SAPLINGS. LEARNED AUTHORIZED REPRESENTATIVE FURTHER PLACED RE LIANCE ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS.- SOUNDARY A NURSERY [241 ITR 530] AND SUBMITTED THAT THE HONBLE HIGH COURT HELD THAT INCOME FROM S ALE OF PLANTS AND SEEDLINGS GROWN IN NURSERIES IS AGRICULTURAL INCOME. HE SUBMITTED THAT SIMILAR VIEW HAS ALSO TAKEN BY THE HONBLE UTTARAKHAND HIGH COURT IN THE CASE OF CIT VS.- GRE EN GOLD TREE FARMERS (P) LTD. (2008) 167 TAXMAN 151 AND ALSO BY HONBLE ITAT, DELHI BENCH IN THE CASE OF MRS. ARUNA JAIN VS.- DCIT (2008) 21 SOT 218. HE SUBMITTED THAT THE AMEND MENT MADE BY THE FINANCE ACT, 2008 IS RETROSPECTIVE AS IT WAS INSERTED WITH A VIEW TO SET TLE THE CONTROVERSIES THAT HAD ARISEN BY JUDICIAL AUTHORITIES AND REFERRED CBDT CIRCULAR NO. 1 OF 200 9 DATED 27.03.2009. HE SUBMITTED THAT THE EXPLANATION IS RETROSPECTIVE AS THE SAME ARE INSERT ED TO SECURE DEFICIENCIES ARISING OUT OF THE DISPUTE. LEARNED AR SUBMITTED THAT THE ORDER OF LD. CIT(APPEALS) BE CONFIRMED. 31. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES AND THE ORDERS OF THE AUTHORITIES BELOW AND ALSO TH E PROVISIONS OF SECTION 2(1A) OF THE ACT ALONG WITH SECTION 10(1) OF THE ACT. WE HAVE ALSO GONE TH ROUGH THE CASES CITED BY LD. A.R. OF THE ASSESSEE. 32. WE OBSERVE ON PERUSAL OF SUMMARY OF THE ACTIVIT IES UNDERTAKEN BY THE ASSESSEE AS MENTIONED HEREINABOVE THAT THE BASIC OPERATION TO C ULTIVATE SEEDS IS ON LAND AND THEREFORE, SUBSEQUENT OPERATIONS ARE CARRIED OUT. THE ENTIRE A CTIVITIES UNDERTAKEN BY THE ASSESSEE RIGHT FROM THE STAGE OF CULTIVATION OF SEEDS IS ON LAND T ILL IT IS MARKETED AND WE OBSERVE THAT THE ACTIVITIES UNDERTAKEN REQUIRE HUMAN LABOUR AND SKIL L IN PREPARING THE LAND FIT FOR PLANTATION OF ITA NOS. 475/KOL./2010 & 476/KOL./2010 20 SEEDS AND RAISING SAPLINGS. THE HONBLE APEX COURT IN THE CASE OF CIT VS.- RAJA BENOY KUMAR SAHAS ROY [32 ITR 466] HAS HELD AS UNDER :- AGRICULTURE IN ITS PRIMARY SENSE DENOTES THE CULT IVATION OF THE FIELD AND IS RESTRICTED TO CULTIVATION OF THE LAND IN THE STRICT SENSE OF THE TERM, MEANING THEREBY TILLING OF THE LAND, SOWING OF THE SEEDS, P LANTING AND SIMILAR OPERATIONS ON THE LAND. THESE ARE BASIC OPERATIONS AND REQUIRE THE EXPENDITURE OF HUMAN SKILL AND LABOUR UPON THE LAND ITSELF. THOSE OPERATIONS WHICH THE AGRICULTURIST HAS TO RESORT TO AND WHICH ARE ABSOLUTELY NECESSARY FOR THE PURPOSE OF EFFECTIVELY RAISING PRODUCE FRO M THE LAND, OPERATIONS WHICH ARE TO BE PERFORMED AFTER THE PRODUCE SPROUTS FROM THE LAND, E.G. WEDDING, DIGGING THE SOIL AROUND THE GROWTH, REMOVA L OF UNDESIRABLE UNDERGROWTH, AND ALL OPERATIONS WHICH FOSTER THE GR OWTH AND PRESERVATION OF THE SAME NOT ONLY FROM INSETS AND PESTS BUT ALSO FROM DEPRADATION FROM OUTSIDE, TENDING, PRUNING, CUTTING, HARVESTING AND RENDERING THE PRODUCE FIT FOR THE MARKET, WOULD ALL BE AGRICULTURAL OPERATION S WHEN TAKEN IN CONJUNCTION WITH THE BASIC OPERATIONSONLY IF T HIS INTEGRATED ACTIVITY WHICH CONSTITUTES AGRICULTURE IS UNDERTAKE N AND PERFORMED IN REGARD TO ANY LANDTHE INCOME DERIVED THEREFROM BE S AID TO BE AGRICULTURAL INCOME. IT IS ALSO RELEVANT TO STATE THE FOLLOWING EXTRACTS FROM THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF SOUNDARYA NURSERY (SUPRA), WHE REIN IT WAS HELD THAT INCOME FROM SALE OF PLANTS AND SEEDLINGS GROWN IN NURSERIES IS AGRICULT URAL INCOME, WHICH READS AS UNDER :- ALL THE PRODUCTS OF THE LAND WHICH HAVE SOME UTILI TY EITHER FOR SOME CONSUMPTION OR FOR TRADE OR COMMERCE IF THEY ARE BA SED ON LAND WOULD BE AGRICULTURAL PRODUCTS. IF THE PLANTS SOLD IN POTS WERE THE RESULT OF BASIC OPERATIONS ON THE LAND EXPENDING HUMAN SKILL AND LA BOUR THEREON AND IF AFTER PERFORMANCE OF THE BASIC OPERATIONS ON LAND THE RESULTANT PRODUCT GROWN OR SUCH PART THEREOF WAS SUITABLE FOR BEING N URTURED IN A POT WITH WATER OR BY PLACING THEM IN THE GREEN HOUSE OR IN S HARE OR AFTER PERFORMING SEVERAL OPERATIONS SUCH AS WEEKING, WATE RING, MANURING, ETC., AND ARE MADE READY FOR SALE, ALL THESE OPERATIONS A RE AGRICULTURAL OPERATIONS AND THE PLANTS ARE PRODUCTS OF AGRICULTU RE. THE ASSESSEE WAS CARRYING ON BUSINESS OF A NURSERY AND VARIOUS TYPES OF FRUIT PLANTS, FLOWER PLANTS, VEGETABLE PLANTS AND S EEDLING WERE GROWN. THE ASSESSEES ACTIVITIES WERE TO PREPARE SEEDLINGS ON SCIENTIFIC BASIS, GROW PLANTS ON PREPARED BEDS AND AFTER SEVERAL OPERATION S CARRIED OUT ON THE LAND, VIZ. CUTTING GOOTYING AND INARCHING, THEY WER E TRANSPLANTED IN SUITABLE CONTAINERS INCLUDING POTS AND KEPT IN THE GREEN HOUSES OR IN SHARE AND THEN SOLD. THE ASSESSEE CLAIMED THAT THE INCOME DERIVED FROM THE SALE OF PLANTS GROWN IN POTS AND SALE OF SEEDS CONSTITUTED AGRICULTURAL INCOME. THE TRIBUNAL UPHELD THE CONTENTIONS. ON A R EFERENCE : ITA NOS. 475/KOL./2010 & 476/KOL./2010 21 HELD, THAT THE INCOME FROM THE SALE OF PLANTS GROWN IN POTS AND THE SALE OF SEEDS DERIVED ON ACCOUNT OF CULTIVATION BY THE ASSE SSEE WAS AGRICULTURAL INCOME. IT IS EVIDENT THAT THE INCOME OF THE ASSESSEE FROM MARKETING OF CLONAL PLANTS IS AN AGRICULTURAL INCOME. NOW THE QUESTION ARISES AS TO WHETHER THE A MENDMENT MADE BY FINANCE ACT, 2008 BY INSERTING EXPLANATION 3 TO SECTION 2(1A) IS RETROSP ECTIVE OR IS PROSPECTIVE. EXPLANATION 3 AS INSERTED BY FINANCE ACT, 2008 TO SECTION 2(1A) READ S AS UNDER :- FOR THE PURPOSES OF THIS CLAUSE, ANY INCOME DERIVE D FROM SAPLINGS OR SEEDLINGS GROWN IN A NURSERY SHALL BE DEEMED TO BE AGRICULTURAL INCOME. THE EXPLANATORY NOTES TO THE SAID PROVISION OF THE FINANCE ACT, 2008 IS CONTAINED IN CBDT CIRCULAR NO. 1 OF 2009 DATED 27.03.2009, WHICH IS A S UNDER :- 4.1. AGRICULTURAL INCOME IS DEFINED IN SUB-SECTION (1A) OF SECTION 2 OF THE ACT TO MEAN, INTER ALIA, INCOME DERIVED FROM LAND WHICH IS SITUATED IN INDIA AND IS USED FOR AGRICULTURAL PURP OSES. SUCH AGRICULTURAL INCOME IS EXEMPT FROM TAX UNDER SUB-SE CTION (1) OF SECTION 10 OF THE INCOME TAX ACT, 1961. IT HAS BEEN HELD BY JUDICIAL AUTHORITIES THAT WHETHER INCOME FROM NURSERY OPERATIONS CONSTIT UTES AGRICULTURAL INCOME OR NOT, WILL DEPEND ON THE FACTS OF EACH CAS E. IF THE NURSERY IS MAINTAINED BY CARRYING OUT BASIC OPERATIONS ON LAND AND SUBSEQUENT OPERATIONS ARE CARRIED OUT IN CONTINUATION OF THE B ASIC OPERATIONS, THEN INCOME FROM SUCH NURSERY WOULD BE AGRICULTURAL INCOME NOT LIABLE TO TAX UNDER SECTION 10. HOWEVER, IF THE NUR SERY IS MAINTAINED INDEPENDENTLY WITHOUT RESORTING TO BASIC OPERATIONS ON LAND, THEN INCOME FROM SUCH NURSERY WOULD NOT BE AGRICULTURAL INCOME AND WOULD BE LIABLE TO BE INCLUDED IN THE TOTAL INCOME. 4.2. WITH A VIEW TO GIVING FINALITY TO THE ISSUE, A N EXPLANATION IN SECTION 2 OF THE INCOME TAX ACT, HAS BEEN INSERTED PROVIDING THAT INCOME DERIVED FROM SAPLINGS OR SEEDLINGS GROWN IN A NURSERY SHALL BE DEEMED TO BE AGRICULTURAL INCOME. ACCORDINGLY, IRRE SPECTIVE OF WHETHER THE BASIC OPERATIONS HAVE BEEN CARRIED OUT ON LAND, SUCH INCOME WILL BE TREATED AS AGRICULTURAL INCOME, THUS QUALIFYING FOR EXEMPTION UNDER SUB-SECTION (1) OF SECTION 10 OF TH E ACT. 33. ON PERUSAL OF ABOVE CBDT CIRCULAR, IT IS EVIDEN T THAT THE AMENDMENT HAS BEEN MADE BY INSERTING EXPLANATION 3 BY FINANCE ACT, 2008 IS TO SETTLE THE CONTROVERSY WHICH HAS ARISEN BECAUSE OF THE JUDICIAL PRONOUNCEMENTS. THEREFORE, WE AGREE WITH LD. AR THAT THE SAID AMENDMENT IS CURATIVE IN NATURE AND IT HAS TO BE CO NSIDERED RETROSPECTIVE. THE HONBLE BOMBAY ITA NOS. 475/KOL./2010 & 476/KOL./2010 22 HIGH COURT HAS HELD IN THE CASE OF GODREJ & BOYCE M ANUFACTURING CO. LTD. VS.- DCIT 328 ITR 81, INTER ALIA, THAT WHEN THE AMENDMENT IS CURA TIVE OR IT IS INTENDED TO REMEDY UNINTENDED CONSEQUENCES OR TO RENDER A STATUTORY PROVISION WOR KABLE, THE AMENDMENT MAY BE CONSTRUED TO RELATE BACK TO THE PROVISION IN RESPECT OF WHICH IT SUPPLIES A REMEDIAL EFFECT. 34. CONSIDERING THE ABOVE DECISIONS AND THE AMENDME NT NOW MADE BY THE FINANCE ACT, 2008, WE ARE OF THE CONSIDERED VIEW THAT THE INCOME DERIVED BY THE ASSESSEE FROM MARKETING OF CLONAL PLANTS IS IN THE NATURE OF AGRICULTURAL INCO ME. THUS IT IS EXEMPTED UNDER SECTION 10(1) OF THE INCOME TAX ACT. HENCE, WE AGREE WITH THE ORDER OF LD. CIT(APPEALS) AND REJECT GROUND NO. 4 OF THE APPEAL TAKEN BY THE DEPARTMENT. 35. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D IN PART AND WHEREAS APPEAL OF THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10.06. 2011. SD/- SD/- [AKBER BASHA/ ] [ B.R. MITTAL / . . ] ACCOUNTANT MEMBER/ JUDICIAL MEMBER/ DATED : 10/ 06/ 2011 PRONOUNCED BY SD/- SD/- (A.M.) 10/06 (J.M.) (S.V. MEHROTRA) (B.R. MITTAL) COPY OF THE ORDER FORWARDED TO: 1. M/S. I.T.C. LIMITED, 37, J.L. NEHRU ROAD, KOLKATA-7 1, 2 DCIT, CIRCLE-8 AAYAKAR BHAWAM, 5 TH FLOOR, P-7, CHOWRINGHEE SQUARE, KOLKATA-69, 3. COMMISSIONER OF INCOME-TAX (APPEALS), CENTRAL-II, K OLKATA, 4 CIT, KOLKATA- 5 . DR, KOLKATA BENCHES, KOLKATA (TRUE COPY) BY ORDER ASSIS TANT REGISTRAR, I.T.A.T., KOLKATA LAHA, SR. P.S.