DCIT, CIR-4(2), KOLKATA, Kolkata V. M/s The Bormah Jan Tea Co. (1936) Ltd., Kolkata

ITA 665/KOL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1725 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 18-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SALLONG YADEN CI T DR RESPONDE
• Section: 6

Judgement Text

ITA NO. 665/KOL/2015 BORMAH JAN TEA CO. (1936) LTD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A B ENCH, KOLKATA BEFORE : SHRI J.SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBE R I.T.A. NO. 665/KOL/2015 A.Y : 2010-11 DCIT, CIRCLE-4(2), KOLKATA P-7, CHOWRINGHEE SQUARE, KOLKATA-700069 AP PELLANT -VS- M/S THE BORMAH JAN TEA CO.(1936) LTD. 3, N.S.ROAD, KOLKATA-700001 PAN: AABCT 2010 K RESPONDENT APPEARANCES BY: FOR THE APPELLANT : SHRI SALLONG YADEN, ADDL. CI T DR FOR THE RESPONDENT :SHRI SANJAY BHATTACHARYA, FCA DATE OF HEARING : 24-10- 2017 DATE OF PRONOUNCEMENT : 19-01-2018 SHRI. S.S.VISWANETHRA RAVI, JM: 1. THIS APPEAL BY THE REVENUE AGAINST THE ORDER DAT ED 29.01.2015 PASSED BY THE LD. CIT(A)-2, KOLKATA FOR ASSESSMENT YEAR 2010-11. 2. THE LD. DR SUBMITS THE PRESENT APPEAL WAS FILED WITH A DELAY OF 17 DAYS AND REFERRED TO AFFIDAVIT FILED BY THE CONCERN ED AO PRAYING TO CONDONE THE SAID DELAY AND ARGUED, THE SAID DELAY WAS CAUSE D DUE TO ADMINISTRATIVE ITA NO. 665/KOL/2015 BORMAH JAN TEA CO. (1936) LTD. 2 CONSTRAINTS AND THE DELAY IS NOT DELIBERATE. ACCORD INGLY, HE PRAYED TO CONDONE THE DELAY AND ADMIT THE APPEAL. THE LD. AR REPORTED NO OBJECTION IN CONDONING THE DELAY. ON PERUSAL OF THE AFFIDAVIT AN D HEARING BOTH THE PARTIES, WE ARE OF THE OPINION THE REASONS STATED I N THE AFFIDAVIT ARE REASONABLE AND BONAFIDE AND IT WAS NOT DELIBERATE O R INTENTIONAL TO FILE THE APPEAL WITH DELAY. ACCORDINGLY, WE CONDONE THE DELA Y OF 17 DAYS IN FILING THE APPEAL. 3. GROUND NO. 1 IS RELATING TO DELETION OF DISALLO WANCE ON ACCOUNT OF LEVY OF CESS ON GREEN LEAVES. 4. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT T HE ASSESSEE IS A COMPANY AND ENGAGED IN THE BUSINESS OF MANUFACTURING AND SE LLING OF BLACK TEA. THE AO HELD THE PAYMENT UNDER GREEN LEAF CESS IS NON-DE DUCTIBLE EXPENDITURE FROM THE COMPOSITE INCOME AND DISALLOWED THE AMOUNT OF RS. 36,40,244/- STATING THAT APPELLANT REVENUE HAS FILED SLP AGAINS T THE DECISION OF HONBLE HIGH COURT OF CALCUTTA IN THE CASE OF AFT INDUSTRIE S LTD. AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) CONTENDI NG THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION IN PURSUANCE OF THE DEC ISION OF HONBLE HIGH COURT OF CALCUTTA IN THE CASE OF AFT INDUSTRIES LTD SUPRA AS THE HONBLE SUPREME COURT DID NOT GRANT ANY STAY OF OPERATION O F DECISION OF HONBLE HIGH COURT OF CALCUTTA IN THE CASE OF AFT INDUSTRIE S LTD SUPRA. THE CIT-A BY FOLLOWING THE DECISION OF HONBLE HIGH COURT OF CAL CUTTA SUPRA , DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: 3.2. I HAVE EXAMINED THE ASSESSMENT ORDER AS WELL AS THE WRITTEN SUBMISSION OF THE AR OF THE APPELLANT. ALTHOUGH THE DEPARTMENTAL SLP AGAINST TH E DECISION OF THE HONBLE HIGH COURT OF KOLKATA IN THE CASE OF AFT INDUSTRIES LTD, HAS BEEN ADMITTED IN THE HON'BLE SUPREME COURT OF INDIA, THE HONBLE APEX COURT WHILE ADMITTING THE S LP HAS NEITHER GRANTED ANY STAY NOR KEPT IN ABEYANCE THE APPLICABILITY OF THE DECISION OF THE J URISDICTIONAL HIGH COURT. THE LEGAL POSITION THEREFORE IS THAT THE DECISION OF HONBLE KOLKATA H IGH COURT IN THE CASE OF AFT INDUSTRIES LTD, ITA NO. 665/KOL/2015 BORMAH JAN TEA CO. (1936) LTD. 3 CONTINUES TO BE APPLICABLE. THEREFORE, HUMBLY FOLLO WING THE DECISION OF JURISDICTIONAL HIGH COURT OF KOLKATA, I DIRECT THE AO TO DELETE ADDITION OF R S. 36,40,224/- ON ACCOUNT OF CESS ON GREAN LEAVE. GROUND NO. 1 OF THE APPEAL IS ALLOWED. 5. AFTER HEARING THE BOTH THE PARTIES, WE FIND THA T, THE HONOURABLE SUPREME COURT DISMISSED THE SLP FILED BY THE APPELL ANT REVENUE AND AGREED WITH THE INTERPRETATION OF SCOPE OF RULE 8 OF INCOM E TAX RULES 1962 RENDERED BY THE HONBLE HIGH COURT OF CALCUTTA IN T HE CASE OF AFT INDUSTRIES LTD SUPRA . THE LEARNED AR PLACED COPY OF SUCH ORDER BEFORE U S AND SUBMITTED THAT THE PRESENT APPEAL MAY BE DISPOSED O F IN PURSUANCE OF THE DECISION OF HONBLE SUPREME COURT AND LEARNED DR SU BMITTED THAT THE APPELLANT REVENUE DID NOT SUCCEED IN SLP AND THE DE CISION OF HONOURABLE HIGH COURT OF CALCUTTA HAS BECOME FINAL AND BINDING ON THE APPELLANT REVENUE IN VIEW OF THE CONFIRMATION OF THE SUCH DEC ISION BY THE HONOURABLE SUPREME COURT. THE RELEVANT PORTION OF WHICH IS REP RODUCED HEREIN BELOW: THE RESPONDENT-ASSESSEE HAD PAID CESS ON GREEN LEA F TO THE GOVERNMENT OF ASSAM WHICH WAS LEVIED UNDER ASSAM TAXATION (ON SPE CIFIED LAND) ACT, 1990. IN ITS INCOME TAX RETURN, IT HAD CLAIMED THE SAME AS DEDUC TION WHICH HAS BEEN ALLOWED BY THE HIGH COURT. THE RELEVANT DISCUSSION IN THIS BEHALF IS AS UNDER:- 'HOWEVER, THE LEARNED TRIBUNAL HAD HELD THAT THE DE DUCTION IS ELIGIBLE AFTER COMPUTING THE INCOME UNDER RULE 8 AND THE APPORTION MENT IS TO BE MADE ONLY AFTER THE INCOME IS SO COMPUTED. SUCH APPORTIONMENT CANNOT BE MADE BEFORE THE DEDUCTION. RULE 8 OF THE INCOME TAX: RULES, 196 2 REQUIRES THAT THE COMPUTATION IS TO BE MADE AS IF BY FICTION THE ENTI RE INCOME OUT OF THE TEA GROWN AND MANUFACTURED AS INCOME ASSESSABLE UNDER T HE INCOME TAX ACT, 1961. IN VIEW OF RULE 8, THE INCOME SO COMPUTED IS TO BE APPORTIONED 60: 40 OF WHICH 40 IS ASSESSABLE TO TAX UNDER THE ACT. IT DOE S NOT PROVIDE THAT AFTER APPORTIONMENT OF THE 60 % OF THE INCOME SO COMPUTED SHALL AGAIN BE REQUIRED TO BE COMPUTED UNDER THE AGRICULTURAL INCOME TAX AC T. ON THE OTHER HAND, THIS 60% IS EXPOSED AND BECOMES EXIGIBLE TO TAX UNDER TH E AGRICULTURAL INCOME TAX ACT. WITHOUT BEING REQUIRED TO BE ASSESSED UNDER TH E SAID ACT BY REASON OF THE FICTION SO CREATED. THEREFORE, THE CESS PAID HAS RI GHTLY BEEN EXCLUDED WHILE COMPUTING THE INCOME UNDER RULE 8 OF THE TEA GROWN AND MANUFACTURED.' IN ARRIVING AT THE AFORESAID CONCLUSION, THE HIGH C OURT HAS REFERRED TO THE VARIOUS JUDGMENTS OF THIS COURT. WE ARE OF THE OPINION THAT THE HIGH COURT HAS RIGHT LY INTERPRETED THE SCOPE OF RULE 8 OF THE INCOME TAX RULES 1962. WE, THUS, FIND NO MERIT IN THIS APPEAL WHICH IS, ACCORDINGLY, DISMISSED. ITA NO. 665/KOL/2015 BORMAH JAN TEA CO. (1936) LTD. 4 6. IN ACCORDANCE WITH THE PRINCIPLE AS LAID BY THE HONBLE HIGH COURT OF CALCUTTA IN THE CASE OF AFT INDUSTRIES WHICH HAS BE EN FURTHER STRENGTHENED BY DISMISSAL OF SLP BY THE HONBLE SUP REME COURT, WE HOLD THAT THE CESS LEVIED ON THE PRODUCTION OF GREEN LEA F WOULD COME UNDER THE PURVIEW OF COMPOSITE INCOME. THUS, GROUND NO-1 RAIS ED BY THE REVENUE IS, ACCORDINGLY DISMISSED. 7. GROUND NO. 2 IS RELATING TO DELETION OF ADDITION MADE ON ACCOUNT OF SECTION 80IE (2)(II) OF THE ACT. 8. THE ASSESSEE CLAIMED DEDUCTION OF RS. 26,10,851/ - U/S 80IE(6) OF THE ACT. THE AO SOUGHT THE DETAILS OF THE CLAIM. THE AS SESSEE FILED A REPLY VIDE LETTER DATED 09.01.2013 STATING THAT THE ASSESSEE O BTAINED CERTIFICATE DATED 12.10.2010 FROM CHARTERED ACCOUNTANT AS REQUIRED U/ S 80IE(7) OF THE ACT FOR THE PURPOSE OF CLAIMING THE AFORESAID DEDUCTION . THE ASSESSEE ALSO FILED THE DETAILS OF ADDITIONS MADE TO PLANT AND MACHINER Y ON BORMAHAJAN TEA GARDEN AND CLAIMED SUBSTANTIAL EXPANSIONS WERE MADE IN THE PREVIOUS YEAR. THE AO FOUND THE SUBMISSION OF THE ASSESSEE NOT ACC EPTABLE AS THE ASSESSEE HAD NOT CONSIDERED THE VALUE OF PLANT & MACHINERY O F WATER SUPPLY SYSTEM AND IRRIGATION WHICH IS IN FARM ACCOUNT AS THE VALU E OF PLANT AND MACHINERY AS ON 01.04.2009 AND HENCE THE ADDITION TOWARDS PLA NT AND MACHINERY WHICH IS LESS THAN 25% OF THE BOOK VALUE OF PLANT A ND MACHINERY AS ON THE FIRST DAY OF PREVIOUS YEAR AND ACCORDINGLY, DENIED CLAIM OF ASSESSEE AND ADDED AN AMOUNT OF RS. 26,10,851/- TO THE TOTAL INC OME OF THE ASSESSEE. 9. AGGRIEVED, THE ASSESSEE CHALLENGED THE SAME BEFO RE THE CIT(A), CONTENDING THAT THE OPENING VALUATION OF TWO I.E. W ATER SUPPLY SYSTEM AND ITA NO. 665/KOL/2015 BORMAH JAN TEA CO. (1936) LTD. 5 IRRIGATION SYSTEM SHOULD NOT BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF TESTING THE COMPLIANCE OF THE CONDITIONS IN CLAUSE (II) OF SECTION 80IE(2) READ WITH CLAUSE (III) OF SECTION 80IE(7) OF THE ACT. THE ASS ESSEE ALSO CONTENDED SUBSTANTIAL EXPANSIONS SHOULD BE CONSIDERED AFTER T AKING INTO ACCOUNT ONLY THOSE MACHINERIES WHICH ARE ACTUALLY BEING UTILIZED BY THE ASSESSEE FOR THE PURPOSE OF ITS MANUFACTURING BUSINESS AND NOT OTHER WISE. THE CIT(A) CONSIDERING THE SUBMISSIONS OF ASSESSEE, SOUGHT REM AND REPORT FROM THE AO TO FIND OUT WHETHER THE VALUE OF PLANT AND MACHINER Y SHOULD INCLUDE THE VALUE OF FIXED ASSET PERTAINING TO FARM AND IRRIGAT ION OR WHETHER PLANT AND MACHINERY SHOULD BE RELATABLE ONLY TO THOSE PROCESS OF MANUFACTURING. THE AO IN ITS REMAND REPORT STATED THAT THE IRRIGATION AND WATER SUPPLY SYSTEM IS THE PRIME REQUIREMENT FOR GROWING TEA AS NO PLANT C AN GROW WITHOUT WATER AND PROPER IRRIGATION AND ALSO IRRIGATION AND WATER SUPPLY SYSTEM ALSO FORMS PLANT AND MACHINERY. THE CIT(A) CONSIDERING THE SUB MISSIONS AS WELL AS REMAND REPORT OF THE AO DELETED THE ADDITION MADE B Y THE AO BY OBSERVING AS UNDER: 9.6. THE DEDUCTION U/S. 80LE IS IN RELATION TO PRO DUCE OR MANUFACTURE A THING OR ARTICLE. IN THE CASE OF THE APPELLANT THERE WERE TWO STAGES, TH E FIRST BEING THE GROWING OF THE GREEN TEA LEAVES FOR WHICH THE MACHINERIES SHOWN UNDER TH E HEAD 'FARM ACCOUNT' WERE RELEVANT AND THE SECOND STAGE WAS THE MANUFACTURING OF TEA F ROM THE GROWN GREEN TEA LEAVES WHERE THE MACHINERIES OTHER THAN THOSE SHOWN UNDER THE HEAD 'FARM ACCOUNT' HAD BEEN UTILIZED. THE AR'S SUBMISSION, THAT IF ONE ASSESSEE MANUFACTURES TEA FROM GREEN TEA LEAVES PURCHASED FROM THE MARKET AND ANOTHER ASSESSEE MANU FACTURES TEA FROM ITS OWN GREEN TEA LEAVES, BOTH THE ASSESSEES ARE ELIGIBLE FOR DEDUCTI ON U S. T IN RE A ION TO THE PROFIT ARISING FROM THE MANUFACTURING PROCESS, LENDS SUPPORT TO T E APPELLANT'S CLAIM THAT GROWING AND MANUFACTURING ARE TWO DIFFERENT INDEPENDENT PROCESS ES. FURTHER THE PROVISIONS OF RULE 8 OF INCOME TAX RULES, 1962 PROVIDING THE BIFURCATION OF INCOMES ARISING FROM GROWING AND MANUFACTURING TEA FOR THE PURPOSE OF STATE TAXATION AND CENTRAL INCOME-TAX, POINT TOWARDS THE CONCEPT OF SEPARATE PROCESSES OF GROWING AND MA NUFACTURING. HENCE, THE MACHINERIES RELEVANT FOR THESE TWO INDEPENDENT PROCESSES, VIZ. GROWING AND MANUFACTURING, SHOULD BE CONSIDERED SEPARATELY AS REGARDS THEIR UTILIZATION. FURTHER, AS EXPLAINED BY THE AR THAT OUT OF TWO DIFFERENT PROCESSES - PRODUCTION I. E. GROWING AND MANUFACTURING, THE APPELLANT CLAIMED DEDUCTION ONLY IN RELATION TO THE MANUFACTURING PRO CESS, IT APPEARS THAT FOR THE PURPOSE OF SECTION 80LE, ONLY THE MACHINERIES RELEVANT FOR THE MANUFACTURING PROCESS, SHOULD BE CONSIDERED AS RELEVANT. 9N THE BASIS OF THIS UNDERS TANDING, THE APPELLANT'S CLAIM FOR NOT TAKING INTO ACCOUNT THE MACHINERIES VIZ., WATER SUP PLY SYSTEM RS. 97,777) AND IRRIGATION (RS. 14,35,49 SHOWN UNDER 'FARM ACCOUNT', APPEARS T O BE JUSTIFIABLE. ACCORDINGLY,' I AM INCLINED TO ACCEPT THE APPELLANT'S CLAIM THAT TO DE TERMINE AS TO WHETHER THERE HAD OCCURRED SUBSTANTIAL EXPANSION, AS REQUIRED U/S. 80LE(2)(II) /(7)(II), THE ABOVE MENTIONED TWO MACHINERIES VIZ., WATER SUPPLY SYSTEM (RS. 97,777) AND IRRIGATION (RS. 14,35,499), SHOULD NOT BE CONSIDERED AND CONSEQUENTLY, THE APPELLANT S HOULD BE TREATED AS ELIGIBLE FOR ITA NO. 665/KOL/2015 BORMAH JAN TEA CO. (1936) LTD. 6 DEDUCTION U/S. 80LE. HENCE, THE ASSESSING OFFICER I S DIRECTED TO CONSIDER THAT THE APPELLANT HAD DULY COMPLIED WITH THE REQUIREMENT OF SUBSTANTI AL EXPANSION AS SPECIFIED IN SECTION 80LE (2)(II)/(7)(II) AND THEREFORE THE APPELLANT SHOULD BE ALLOWED DEDUCTION OF RS. 26,10,851 U/S. 80LE. GROUND NO. 8 OF THE APPEAL, IN VIEW OF THE DI SCUSSION AT PARA 9.4, 9.5 & 9.6 IS ALLOWED. 10. BEFORE US, THE LD. DR SUBMITS THAT THE WATER SU PPLY SYSTEM AND IRRIGATION SYSTEM IS THE PRIME REQUIREMENT WITHOUT THERE BEING ANY SUCH SYSTEM THE ASSESSEE CANNOT GROW TEA IN ITS GARDENS. THE SAID IRRIGATION AND WATER SUPPLY SYSTEM ALSO FORMS PART OF PLANT AND MA CHINERY. THE VALUE OF SAID SYSTEMS SHOULD BE CONSIDERED FOR THE PURPOSE V ALUATIONS OF THE MACHINERIES UTILIZED FOR MANUFACTURING OF TEA. THE LD. DR SUPPORTED THE VIEW TAKEN BY THE AO AND PRAYED TO ALLOW THE GROUND RAIS ED IN THIS REGARD. THE LD. AR SUBMITS THAT THERE ARE TWO PROCESSES IN TEA BUSINESS I.E ONE IS GROWING AND OTHER ONE IS MANUFACTURING. THE ASSESSEE CLAIMED DEDUCTI ON ONLY IN RELATION TO MANUFACTURING PROCESSES AND ONL Y MACHINERIES RELEVANT FOR THE MANUFACTURING PROCESSES SHOULD BE CONSIDERE D FOR THE PURPOSE OF OPENING BOOK VALUE. THE LD. AR SUPPORTED THE ORDER OF CIT(A). 11. HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MA TERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT THE ASSESSEE HAS TWO PR OCESSES IN TEA BUSINESS I.E. GROWING OF TEA AND MANUFACTURING OF TEA. THE A SSESSEE GROWS TEA IN ITS OWN GARDENS AND MANUFACTURES TEA FROM SUCH PRODUCE. THE CASE OF THE ASSESSEE IS THAT THIS DEDUCTION IS AVAILABLE IN CAS E A ASSESSEE MANUFACTURING OF TEA AND HENCE ONLY PLANT AND MACHINERY OF MANUFA CTURING IS TO BE CONSIDERED. WHETHER THE OPENING VALUATIONS OF PLANT AND MACHINERIES OF WATER SUPPLY SYSTEM AND IRRIGATION SYSTEM AS SHOWN UNDER FARM ACCOUNT IS TO BE CONSIDERED THE PART AND PARCEL OF THE VALUE O F PLANT AND MACHINERY AS ON 01.04.2009 FOR CALCULATING THE PERCENTAGE OF ADD ITION TO PLANT AND MACHINERY FOR CLAIMING DEDUCTION U/S 80IE OR NOT IS THE ISSUE BEFORE US. WE ITA NO. 665/KOL/2015 BORMAH JAN TEA CO. (1936) LTD. 7 FIND THAT THE WATER SUPPLY SYSTEM AND IRRIGATION SY STEM ADMITTEDLY ARE NOT PART OF TEA MANUFACTURING PROCESSES. THEREFORE, THE SAID OPENING VALUATION OF SAID MACHINERIES SHOULD NOT BE CONSIDERED FOR TH E PURPOSE OF CLAIMING DEDUCTION U/S 80IE OF THE ACT. THEREFORE, WE FIND N O INFIRMITY IN THE ORDER OF CIT(A) AND THUS, THE GROUND RAISED BY THE REVENUE I N THIS REGARD IS DISMISSED. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 9-01-2018. SD/- SD/- J.SUDHAKAR REDDY S.S. VI SWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 19-01-2018 SB,SR. PS COPIES TO : (1) APPELLANT/DEPARTMENT: DCIT, CIRCLE-4(2), KOLKA TA (2) RESPONDENT/ASSESSEE: BORMAH JAN TEA CO.(1936)LT D. (3)COMMISSIONER OF INCOME-TAX (APPEALS) (4) COMMISSIONER OF INCOME TAX, KOLKATA (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER SR.PS/H.O.O ITAT, KOLKATA ITA NO. 665/KOL/2015 BORMAH JAN TEA CO. (1936) LTD. 8