DCIT, Circle - 4, Kolkata, Kolkata V. M/s. Tirrihannah Co. Ltd, Kolkata

ITA 781/KOL/2011

• Counselvise Citation: 78123514 RSA 2011
• Duration Of Justice: 4 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2002-2003
• Appeal Filed On: 20-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PINAKI MUKHERJEE
• Assessee Lawyers: SARNATH GHOSH
• Keywords: Unexplained expenditure; Notional interest; Revenue expenditure
• Section: 69C; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C, KOLKATA (BEFORE SHRI M. BALAGANESH, A.M. & SHRI S.S.VISWANE THRA RAVI, J.M.) ITA NO. 781/KOL/2011 : ASSTT. YEAR : 2002-2003 DCIT, CIRCLE-4, KOLKATA VS M/S. TIRRIHANNAH CO. LTD. (PAN: AAACT 9495P) (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI PINAKI MUKHERJEE, JC IT, SR.DR ASSESSEE BY : S/SHRI SOMNATH GHOSH & SARNATH GHOSH, ADVOCATES DATE OF HEARING : 01.10.2015 DATE OF PRONOUNCEMENT : 24-11-2015 ORDER PER SHRI S.S.VISWANETHRA RAVI, J.M. THIS APPEAL IS FILED BY THE REVENUE HAVING AGGRIEVE D BY THE ORDER DATED 02.11.2010 PASSED BY THE CIT(APPEALS)-IV, KOL KATA IN APPEAL NO. 45/CIT(A)-IV/05-06 FOR THE ASSESSMENT YEAR 2002 -03 FRAMED UNDER SECTION 143(3) OF THE I.T.ACT. 2. THE EFFECTIVE GROUNDS OF APPEAL RAISED BY THE RE VENUE ARE AS UNDER: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, LD. CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS.35,519/- TOWARDS DISCREPANCY ON ACCOUNT OF STORE S CONSUMED WITHOUT APPRECIATING THE FACT THAT DISCREP ANCY IS ALWAYS DISCREPANCY AND THERE IS NO SUCH DEGREE FOR MEASUREMENT OF ANY DISCREPANCY. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS.53,301/- TOWARDS DISCREPANCY ON ACCOUNT OF STOCK OF SPARES SINCE THE A.O. HAD TO ADD THE SAME FOR MAINT AINING PRINCIPLE OF ACCOUNTS. 2 ITA NO.781/KOL/11 M/S. TIRRIHANNAH CO.LTD. ASSESSMENT YEAR: 2002-03 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS.2,598/- ON ACCOUNT OF UNEXPLAINED EXPENDITURE WI THOUT BRINGING ANY SPECIFIC REASON IN SUPPORT OF HIS ACTI ON. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS.61,55,197/- ON ACCOUNT OF NOTIONAL INTEREST RELY ING ON THE DECISION OF THE HON'BLE ITAT IN THE CASE OF THE ASS ESSEE FOR A.Y. 2001-02 AGAINST WHICH THE DEPARTMENT ALREADY F ILED APPEAL U/S.260A BEFORE THE HON'BLE HIGH COURT AT KO LKATA. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW IN DIRECTING THE A.O. TO AL LOW RS.42,88,661/- BEING EXPENDITURE INCURRED ON ACCOUN T OF YOUNG TEA MAINTENANCE SINCE LD CIT(A) DID NOT CONSI DER THE GROUND ON THE BASIS OF WHICH THE A.O. HAD DISALLOWE D THE SAID ALLEGED EXPENDITURE. 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND CULTIV ATION OF TEA. A SURVEY WAS CONDUCTED ON ASSESSEE COMPANY ON 12.03.2 002 AND LEDGER ACCOUNTS WERE TAKEN AND SAME WERE COMPARED WITH THE BOOKS OF ACCOUNTS. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND SOME DISCREPANCIES BETWEEN THE STORES CONSUMED AND STOCK OF SPARES. IT FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2002-0 3 ON 30.10.2002. THE AO MADE SEVERAL ADDITIONS AND DISALLOWANCE IN T HE INCOME RETURNED BY THE ASSESSEE. 4. IN RESPECT OF GROUND NO.1 WHETHER THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.35,319/- TOWARDS THE DISCREPANCY ON ACCOUNT OF STORES. THE CASE OF THE ASSESSEE COMPANY IS THAT DU RING THE COURSE OF SURVEY OPERATION, IT WAS FOUND THAT THE CONSUMPTION OF TOTAL STORES WAS RS.1,59,63,026/- BUT WHEN COMPARED TO BOOKS OF ACCO UNTS, IT WAS RS.1,59,27,507/-. THUS THERE IS A DIFFERENCE OF RS. 35,519/-. THE AO STATES IN HIS ASSESSMENT ORDER THAT THE ASSESSEE CO MPANY DID NOT 3 ITA NO.781/KOL/11 M/S. TIRRIHANNAH CO.LTD. ASSESSMENT YEAR: 2002-03 RECONCILE THE SAID DIFFERENCE. THEREBY, HE ADDED TH E SAME TO THE COMPOSITE INCOME. THE SUBMISSIONS OF THE ASSESSEE C OMPANY BEFORE THE CIT(A) WAS THAT THE AO DID NOT AFFORD AN OPPORTUNIT Y TO RECONCILE BEFORE HIM BUT WITHOUT THERE BEING AN OPPORTUNITY, A QUERY RAISED BY THE AO ERRONEOUSLY ADDED TO THE COMPOSITE INCOME THE SA ID DIFFERENCE AMOUNT. THE CIT(A) OPINED THAT THE DISCREPANCY OR D IFFERENCE IS ONLY 0.02%, WHEN COMPARED TO THE TOTAL STORES OF RS.160 LAKHS. THEREBY, HE OBSERVED THAT THE DISCREPANCY IS NEGLIGIBLE AND THE ADDITION IS NOT MAINTAINABLE WHEN THE STOCK IS NEGATIVE. IN VIEW OF THE ABOVE, WE FIND THE ORDER OF THE CIT(A) IS JUSTIFIED ON THIS GROUND . THEREFORE, THE ORDER OF THE LD. CIT(A) ON THIS ISSUE IS CONFIRMED AND TH E GROUND TAKEN BY THE REVENUE IS DISMISSED. 5. WITH REGARD TO GROUND NO.2, THE AO FOUND DISCREP ANCY IN STOCK OF SPARES TO BE RS.21,45,204/- BUT IN THE BOOKS OF ACC OUNTS, IT WAS STATED TO BE RS.20,86,903/-. THUS, THERE IS A DIFFERENCE O F RS.58,301/-. THE AO ADDED THIS AMOUNT ALSO WITH THE COMPOSITE INCOME ON THE GROUND THAT THE ASSESSEE COMPANY HAS FAILED TO RECONCILE THE SA ME. THE SUBMISSIONS OF THE A.R. BEFORE THE LD. CIT(A) IS THAT DURING TH E ASSESSMENT PROCEEDINGS, THE AO DID NOT SPECIFY OR MENTION OR M AKE A QUERY RAISED AND ERRONEOUSLY ADDED THE SAME TO THE COMPOSITE INC OME. THE FINDING OF THE LD. CIT(A) IS THAT THE ADDITION IN THIS REGA RD IS UNWARRANTED ONLY ON THE GROUND THAT THE STOCK IS NEGATIVE. THEREFORE , THE ORDER OF THE CIT(A) IS QUITE REASONABLE ON THE ABOVE ISSUE AND W E DISMISS THE GROUND RAISED BY THE REVENUE BY CONFIRMING THE ORDE R OF THE LD. CIT(A) ON THIS ISSUE. 6. WITH REGARD TO GROUND NO.3, THE AO ADDED A SUM O F RS.2,598/- TO THE COMPOSITE INCOME, THE DIFFERENCE BEING THE CASH IN HAND AND THE CASH AS PER THE BOOKS UNDER UNEXPLAINED EXPENDITURE . THE FINDINGS OF 4 ITA NO.781/KOL/11 M/S. TIRRIHANNAH CO.LTD. ASSESSMENT YEAR: 2002-03 THE LD. CIT(A) THAT SECTION 69C IS ONLY APPLICABLE WHERE THE ASSESSEE INCURS ANY EXPENDITURE AND DOES NOT OFFER ANY EXPLA NATION REGARDING THE SOURCE OF SUCH EXPENDITURE. THE LD. CIT(A) DELETED THE SAID ADDITION ON THE BASIS THAT THE AO ADDED THE SAME ON SUSPICION A ND WITHOUT ADEQUATE EVIDENCE. WE AGREE WITH THE FINDINGS OF THE LEARNED CIT(A) THAT SECTION 69C- UNEXPLAINED EXPENDITURE WOULD BE APPLICABLE ON LY WHEN AN EXPENDITURE IS INCURRED FOR WHICH SOURCE OF EXPENDI TURE IS NOT PROVED BY THE ASSESSEE. ACCORDINGLY, WE ARE NOT INCLINED T O INTERFERE WITH THE FINDINGS OF LD. CIT(A) IN THIS REGARD. HENCE, GROUN D NO.3 RAISED BY THE REVENUE IS DISMISSED. 7. WITH REGARD TO GROUND NO.4, BEFORE THE AO THE AS SESSEE SUBMITTED THAT IT ADVANCED LOANS TO PARTIES TO AN EXTENT OF R S.3,41,95,538/- AND THERE IS NO POSSIBILITY ON RECOVERY OF SUCH AMOUNT, BASING ON A JUDGMENT PASSED BY HONBLE SUPREME COURT IN THE CAS E OF CIT-VS- SHIVPRAKASH JANAKRAJ CO. PVT. LTD. REPORTED IN 220 ITR 583 WHEREIN IT WAS HELD THAT ACCRUAL OF INCOME HAS ALWAYS INVOLVED TAX LIABILITY. THEREBY, THE AO HAS TAKEN A NOTIONAL INTEREST AT 18 % PER ANNUM ON THE SAID AMOUNT TOTALING TO RS.61,55,197/-. THE LD. CIT (A) ALLOWED THE CLAIM RELYING ON AN ORDER PASSED IN ASSESSEES OWN CASE IN ITA NO.2233/KOL/04 FOR ASSESSMENT YEAR 2001-02 BY C B ENCH OF KOLKATA ITAT, WHICH IS REPRODUCED AS UNDER: 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND GON E THROUGH THE MATERIAL AVAILABLE ON RECORD. KEEPING I N VIEW THE RESOLUTION OF THE BOARD GIVEN AT PAGE -10 OF TH E PAPER BOOK AND THE FACT THAT RIGHT FROM 1997-98 THE COMPA NY'S P/L ACCOUNT HAS BEEN SHOWING DEBIT AND THAT DEBIT IS IN CREASING EVERY YEAR AND THE FACT THAT THIS POSITION WAS EXPL AINED TO THE CIT(A), IT ESTABLISHES THAT M/S. ROCK COPCO LTD ., WAS IN FINANCIAL DIFFICULTY. WHETHER THE COMPANY HAS GONE INTO BIFR OR NOT, THESE FACTS TO SHOW THAT THE COMPANY WAS IN FINANCIAL HARDSHIP. THEREFORE, THERE WAS NOT QUESTION OF REAL IZING OF ANY INTEREST FROM THAT COMPANY. SO THE ASSESSEE COM PANY HAS 5 ITA NO.781/KOL/11 M/S. TIRRIHANNAH CO.LTD. ASSESSMENT YEAR: 2002-03 ALSO PASSED A RESOLUTION TO THIS EXTENT WHICH CLEAR LY ESTABLISHES THAT THERE WAS NO CASE OF ADDING NOTION AL INTEREST IN THE HANDS OF THE ASSESSEE. IN VIEW OF THIS, WE ARE OF THE OPINION THAT THE A.O. HAS GONE WRONG IN ADDING NOTI ONAL INTEREST AND THE CIT(A) HAS RIGHTLY DELETED THE SAM E. WE ORDER ACCORDINGLY. 7.1 DURING THE COURSE OF ARGUMENT, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE GROUND NO.4 IS COVERED BY THE OR DER OF THE ITAT C BENCH OF KOLKATA IN ITA NO.2232/KOL/04 VIDE ORDER D ATED 03.08.2005. HE DREW OUR ATTENTION TO THE PAGE NO.68 OF PAPER BO OK VIDE PARA NO.5 WHEREIN THE SAME ASSESSEE COMPANY HAS GONE INTO BIF R AND THE COMPANY WAS IN DEEP FINANCIAL HARDSHIP AND THERE WA S NO QUESTION OF REALIZING ANY INTEREST FROM THAT COMPANY AND DELETE D THE NOTIONAL INTEREST THEREIN FOR THE ASSESSMENT YEAR 2001-02. T HEREFORE, BY RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL ABOVE, WE DISMISS THE GROUND NO.4 RAISED BY THE REVENUE, THEREBY DELE TING THE ADDITION OF RS.61,55,197/- ON ACCOUNT OF NOTIONAL INTEREST. 8. IN RESPECT OF GROUND NO.5, THE CASE OF THE ASSES SEE COMPANY IS THAT THE INCURRED EXPENDITURE OF RS.42,88,661/- WAS ON A CCOUNT OF MAINTENANCE OF YOUNG TEA PLANTATIONS. THE AO ADDED THE SAME AMOUNT TREATING THE EXPENSES INCURRED TOWARDS EXTENTION OF TEA PLANTING BUT HOWEVER, NOT ON YOUNG TEA PLANTS MAINTENANCE, BASIN G ON THE DECISION REPORTED IN 129 TAXMAN 647. THE LD.CIT(A) ALLOWED T HE SAID EXPENDITURE AS REVENUE EXPENDITURE RELYING ON JUDGM ENT PASSED BY THE HONBLE SUPREME COURT IN THE CASE OF KARIMTHARUVI T EA ESTATE VS. STATE OF KERALA 48 ITR 83(SC). THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE IS THAT THE EXPENDITURE INCURRED TO MAINTA IN YOUNG TEA PLANTS IS OF REVENUE EXPENDITURE, THEREBY THE ASSESSEE COMPAN Y CLAIMED DEDUCTION OF THE SAID AMOUNT IN ACCORDANCE WITH THE DECISION REPORTED IN [2003] 262 ITR 388 (CAL) IN THE CASE OF CIT-VS- TASATI TEA LTD. THE 6 ITA NO.781/KOL/11 M/S. TIRRIHANNAH CO.LTD. ASSESSMENT YEAR: 2002-03 LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE PAGE NO.71 OF THE PAPER BOOK IN PARA IV, WHICH IS EXTRACTED BELOW: EXPENDITURE ON YOUNG TEA MAINTENANCE : DURING THE FINANCIAL YEAR ASSESSEE COMPANY HAS CLAIMED RS.60,0 2,965/- AS REVENUE EXPENDITURE ON YOUNG TEA MAINTENANCE. ON THE ISSUE ASSESSEE COMPANY SUBMITTED THAT :- AS PER GENERAL ACCOUNTING PRINCIPLE OF THE COMPANY WE ARE CAPITALIZING THE ENTIRE EXPENDITURE (INCIUDING MAINTENANCE ON YOUNG TEAS) AND SAME ARE BEING REFLE CTED UNDER THE HEAD LAND IN SCHEDULE 5 OF THE PRINTED AU DITED BALANCE SHEET OF THE COMPANY HOWEVER, THE EXPENDITU RE INCURRED BY THE COMPANY ON MAINTENANCE OF YOUNG TEA I.E. MAINTENANCE EXPENDITURE INCURRED BY THE COMPANY ON NEW PLANTATION DONE BY THE COMPANY DURING 'EARLIER YEAR S ARE ALLOWABLE AS REVENUE EXPENDITURE AS PER INCOME-TAX ACT, 1961 IN VIEW OF THE JUDGEMENT OF THE SUPREME COURT IN THE CASE OF KARIMTHARUVI TEA ESTATE VS. STATE OF KERALA 48 ITR 83 (SC). HENCE IN THE COMPUTATION OF INCOME STATEME NT SUCH EXPENDITURE BY WAY OF YOUNG TEA MAINTENANCE HAS BEE N TAKEN AS A REVENUE EXPENDITURE. EXPENSES ON MAINTENANCE OF YOUNG TEA HAS BEEN HELD TO BE REVENUE IN NATURE WITHOUT THEIR BEING ANY EXP ANSION OF THE PLANTATION AREA. THE MAINTENANCE OF AN AREA ALR EADY UNDER CULTIVATION WOULD BE A MAINTENANCE OF THE PLA NTATION ITSELF AND THEREFORE, IS A REVENUE EXPENDITURE. COM MISSIONER OF INCOME TAX VS. TASATI TEA LTD. - 262 ITR 388.' AS PER ANNUAL RETURN SUBMITTED TEA BOARD, FOR AY.01 - 02 & A.Y 00-01 IT IS SEEN THAT THERE HAS NOT BEEN A NY EXPANSION OF THE PLANTATION AREA AND THEREFORE ON B ASIS OF JUDGEMENTS CITED ABOVE, EXPENDITURE ON PLANTING TEA MAINTENANCE IS ALLOWED AS REVENUE EXPENDITURE TO TH E EXTENT CLAIMED BY THE ASSESSEE . 9. IN VIEW OF THE DISCUSSION ABOVE AND MATERIALS PL ACED BEFORE US, WE ARE OF THE OPINION THAT THE ORDER OF THE LD. CIT(A) IS JUSTIFIED AND 7 ITA NO.781/KOL/11 M/S. TIRRIHANNAH CO.LTD. ASSESSMENT YEAR: 2002-03 REQUIRES NO INTERFERENCE AND HENCE DISMISS THE GROU ND RAISED BY THE REVENUE. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH NOVEMBER, 2015. SD/- SD/- ( M. BALAGANESH) (S.S.VISWANETHRA RAVI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 24/11/2015 COPY OF ORDER FORWARDED TO: 1 M/S. TIRRIHANNAH CO. LTD., 5, KIRAN SANKAR ROY ROAD , KOLKATA 700 001 2 DCIT, CIRCLE-4, KOLKATA 3 THE CIT(A), 4 5 CIT, 5. D.R. TRUE COPY, BY ORDER, ASSTT. REGISTRAR , ITAT, KOLKATA TALUKDAR/SR.PS