Empire & Singlo Tea Tea Limited (Since merged with Apeejay Surrendra Corporate Services Ltd.), Kolkata V. DCIT, C.C. - III, Kolkata, Kolkata

ITA 926/KOL/2011

• Counselvise Citation: 92623514 RSA 2011
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2011
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 23-06-2011
• Court: TRIBUNAL
• Department Lawyers: M BHATTACHARYA
• Assessee Lawyers: MANISH TIWARI
• Keywords: Capital expenditure
• Section: 37; 11

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH B , KOLKATA [ () . .. . . .. . , ,, , , . .. .!' !'!' !'. .. . , , , , #$ ] ]] ] [BEFORE HONBLE SRI B.R.MITTAL, JM & HONBLE SRI C. D. RAO, AM] & & & & /ITA NOS. 926 & 927/KOL/2011 '( )*/ ASSESSMENT YEAR : 2007-08 (,- / APPELLANT ) - ' - ( /0,- /RESPONDENT) M/S.EMPIRE & SINGLO TEA LTD.. -VERSUS- D.C .I.T., CENTRAL CIRCLE-III, (SINCE MERGED WITH APEEJAY SURRENDRA KOLKATA CORPORATE SERVICES LTD.,KOLKATA (PAN AAECA 1925 D) ,- 1 2 #/ FOR THE APPELLANT: SHRI MANISH TIWARI /0,- 1 2 #/ FOR THE RESPONDENT: SHRI M.BHATTACHARYA #3 / ORDER ( (( ( . .. .!' !'!' !'. .. . ) )) ), , , , #$ PER SHRI C.D.RAO, AM THE ABOVE APPEALS ARE FILED BY ASSESSEE AGAINST SEP ARATE ORDERS DATED 17.03.2011 OF CIT(A)-CENTRAL-I, KOLKATA PERTAINING TO A.YR. 2007-08. ITA NO.926/KOL/2011 2 THE ONLY ISSUE RAISED BY ASSESSEE IN THIS APPEAL IS RELATING TO CONFIRMATION OF DISALLOWANCE OF RS.1,16,000/- ON ACCOUNT IMPAIRMENT LOSS IN RESPECT OF TWO TEA ESTATES. 3. THE BRIEF FACTS OF THIS ISSUE ARE THAT WHILE DO ING THE SCRUTINY ASSESSMENT AO HAS DISALLOWED AN AMOUNT OF RS.1,16,000/- BY OBSERV ING AS UNDER :- 5.1. IT IS NOTICED FORM THE AUDITED ACCOUNTS THAT IMPAIRMENT LOSS FOR THE YEAR HAD BEEN ESTIMATED AND RECOGNIZED AT RS.1, 29,01,000/- IN RELATION TO THE TWO TEA ESTATES OF THE ASSESSEE-COMPANY. SUCH L OSSES TO THE EXTENT OF RS.1,27,85,000/- HAD BEEN ADJUSTED AGAINST THE RELA TED REVALUATION RESERVE BALANCE, AND THE REMAINING LOSS OF RS.1,16,000/- WA S DEBITED TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31.03.2007. AMOUNT OF SUCH LOSS DEBITED TO THE P/L A/C IN THE IMMEDIATELY PRECEDING YEAR WAS RS.2, 95,000/-. 2 5.2. IN HIS WRITTEN SUBMISSION, THE LD. A/R STATED THAT IT WAS A PROVISION FOR LOSS WHICH THE ASSETS WERE LIKELY TO GENERATE. THE IMPAIRMENT LOSS PERTAINS TO THE BORJULI AND DHULAPADUNG TEA ESTATES OF THE COMP ANY. DETAILED CALCULATION OF LOSS WAS FURNISHED ALONG WITH THE TREATMENT OF T HE SAID LOSS, AS ENUMERATED IN PRECEDING PARAGRAPH. IT WAS CLAIMED THAT SUCH LO SS WAS DEBITED TO THE P & L A/C. AS PER THE ACCOUNTING STANDING AS-28. 5.3. SINCE THE IMPAIRMENT LOSS OF RS.1,16,000/- DEB ITED TO THE P & L A/C IS ADMITTEDLY A PROVISION ONLY AND NOT THE ACTUAL LOSS , THE SAID LOSS IS NOT ALLOWABLE UNDER THE INCOME TAX ACT. HENCE, THE SAME IS DISALLOWED AND ADDED BACK. 3.1. ON APPEAL LD.CIT(A) HAS CONFIRMED THE SAME BY OBSERVING AS UNDER :- 4.1. I HAVE CAREFULLY CONSIDERED THE SUBMISSION. THERE IS NO DISPUTE THAT THE LOSS CLAIMED IN QUESTION IS A NOTIONAL LOSS INCURRE D ON ACCOUNT OF REVALUATION OF THE ASSETS. FURTHER ANY LOSS ON ACCOUNT OF REVALUAT ION OF ASSET CANNOT BE PART OF THE P&L ACCOUNT. MOREOVER THE NOTIONAL LOSS CANNOT BE ALLOWED UNDER SECTION 37 OF THE ACT. UNDER SECTION 37 ONLY THOSE EXPENDIT URE ARE ALLOWABLE WHICH ARE NOT IN THE NATURE OF CAPITAL EXPENDITURE AND LAID O UT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE. SINCE NEITHER OF THE CONDITION IS SATISFIED THE LOSS IN QUESTION CANNOT BE ALLOWED UNDER SECTION 37 OF THE ACT. ACCORDINGLY THE GROUND NO.2 TAKEN BY THE A PPELLANT IS DISMISSED. 3.2. AGGRIEVED BY THIS ASSESSEE IS IN APPEAL BEFOR E US. 4. AT THE TIME OF HEARING THE LD. COUNSEL APPEARIN G ON BEHALF OF THE ASSESSEE HAS REITERATED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES WHICH IS AS UNDER :- THE CLAIM WAS EXPLAINED IN DETAIL DURING THE COURS E OF ASSESSMENT. IT AS STATED THAT THE COMPANY APPOINTED VALUER TO ASCERTAIN ACTU AL VALUE OF ASSETS APPEARING AT ITS BOOKS VALUE FROM EARLIER YEARS. ACCORDING TO THEIR OPINION THE PRESENT MARKET VALUE OF CERTAIN ASSETS AS COMPARED TO THEIR BOOKS VALUE IS LESS BY RS.1,29,01,000/-. THEREFORE REVALUATION RESERVE BAL ANCE EXISTING IN THE BOOK AT RS.1,27,85,000/- WAS REDUCED TO NIL TO ABSORVE LOSS TO THAT EXTENT. THE BALANCE OF RS.1,16,000/- WAS DEBITED IN PROFIT & LOSS A/C. THEREFORE HE REQUESTED THAT THE AMOUNT DEBITED TO T HE P&L ACCOUNT IS TO BE TREATED AS ALLOWABLE EXPENDITURE. 5. THE LD. DR APPEARING ON BEHALF OF THE REVENUE R ELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 6. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CARE FUL PERUSAL OF MATERIALS AVAILABLE ON RECORD, THE LOSS CLAIMED BY THE ASSESS EE IS A NOTIONAL LOSS ON ACCOUNT OF 3 REVALUATION OF THE ASSETS AND CIT(A) HAS RIGHTLY CO NFIRMED THE DISALLOWANCE MADE BY AO BY OBSERVING THAT UNDER SECTION 37 ONLY THOSE EX PENDITURES ARE ALLOWABLE WHICH ARE NOT IN THE NATURE OF CAPITAL EXPENDITURE. THERE FORE, WE FIND NO INFIRMITY IN THE ORDERS OF LD. CIT(A) AND DISMISS THE APPEAL OF THE ASSESSEE. 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DISM ISSED. ITA NO.927/KOL/2011 8. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS IN THIS APPEAL :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD. CIT(A) IS WRONG AND UNJUSTIFIED IN UPHOLDING THE ACTION OF ASSESSIN G OFFICER WHO REJECTED THE COMPUTATION OF TAXABLE FRINGE BENEFIT ON THE BASIS OF 40% OF THE EXPENDITURE ALLOWED IN COMPUTING TOTAL INCOME UNDER I.T.ACT, 19 61. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD.CIT(A) IS WRONG AND UNJUSTIFIED IN CONFIRMING A.O.S ACTION WITHOUT PROPER INTERPRETATION OF THE PROVISIONS OF SECTION 115WA(1) OF I.T.ACT, 1961 WHI CH IS THE BASIS OF CHARGING FRINGE BENEFIT TAX. 3. THAT THE PROVISIONS OF SECTION 115WA, INCLUDING THE NON-OBSTANTE CLAUSE, BEING PARAMATERIA SAME AS CONTAINED IN SECTION 115- O FOR DIVIDEND DISTRIBUTION TAX, WHERE IN CASE OF TEA COMPANIES, A PPLYING RULE 8 OF THE I.T.RULES, 1961, 40% OF THE INCOME DISTRIBUTED AS D IVIDEND IS LIABLE TO TAX, THE LD. CIT(A) SHOULD HAVE HELD THAT 40% OF TOTAL EXPEN DITURE IS ALLOWED TO THE APPELLANT COMPANY IN COMPUTING TOTAL INCOME AND SHO ULD THEREFORE BE CONSIDERED AS TAXABLE FRINGE BENEFITS PROVIDED OR D EEMED TO HAVE BEEN PROVIDED FOR THE PURPOSE OF SECTION 115WA. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD. CIT(A) IS WRONG AND UNJUSTIFIED IN DISMISSING ASSESSEES APPEAL AND THEREBY SUSTAINING ORDER U/S 115WE(3) OF INCOME TAX ACT, 1961 COMPUTING VALU E OF FRINGE BENEFIT AT RS.27,18,584/-. 5. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, A DDUCE OR AMEND ANY GROUND OR GROUNDS ON OR BEFORE THE DATE OF HEARING OF THE APPEAL. 9. THE BRIEF FACTS OF THIS ISSUE ARE THAT WHILE DOI NG SCRUTINY ASSESSMENT THE AO COMPUTED THE TOTAL VALUE OF FRINGE BENEFIT AT RS.27 ,18,584/- U/S 115WA OF THE IT ACT BY OBSERVING AS UNDER :- IT IS OBSERVED THAT THE LD. A.R. HAS TAKEN RECOURS E TO RULE-8 OF THE I.T. RULES, 1962, FOR COMPUTATION OF TAXABLE VALUE OF FRINGE BENEFIT. IT IS PERTINENT TO NOTE THAT RULE 8 HAS IT S APPLICATION FOR 4 APPORTIONMENT OF INCOME BETWEEN THE AGRICULTURAL AC TIVITY AND THE NON- AGRICULTURAL ACTIVITY. THE SAID RULE-8 DOES NOT PRE SCRIBE ANY METHODOLOGY FOR BIFURCATION OF EXPENSES BETWEEN DIF FERENT ACTIVITIES CARRIED ON BY THE ASSESSEE. THE FBT U/S. 115WA IS C HARGEABLE ON THE FRINGE BENEFITS DEFINED U/S. 115WB. THE FRINGE BENE FITS BASICALLY INCLUDE CERTAIN EXPENSES INCURRED BY THE ASSESSEE T O PROVIDE CERTAIN PRIVILEGE, FACILITY OR AMENITIES TO ITS EMPLOYEES. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND HAVING REGARD TO THE PROVISIONS OF SECTION 115WA TO 115WL OF THE INCOME TAX ACT, 1961, THE APPLICATION OF RULE-8, AS CLAIMED BY THE LD. A/R, D OES NOT APPEAR TO BE CONVINCING. RATHER, THE LD. A/R HAS FAILED TO ESTAB LISH THE CLAIM FOR APPLICATION OF RULE-8 FOR DETERMINATION OF TAXABLE VALUE OF FRINGE BENEFITS. HENCE ASSESSEES CLAIM IS REJECTED AND IT IS HELD THAT RULE-8 IS NOT APPLICABLE FOR CALCULATION OF FBT. 9.1. ON APPEAL LD. CIT(A) CONFIRMED THE SAME BY FOL LOWING THE DECISION OF THE HONBLE ITAT, KOLKATA IN THE CASE OF APEEJAY TEA LT D. VS VIDE ITA NO.556/KOL/2010 DATED 07.01.2011. 9.2. AGGRIEVED BY THIS ASSESSEE IS IN APPEAL BEFORE US . 10. AT THE TIME OF HEARING BOTH THE PARTIES HAS FAI RLY CONCEDED THAT THIS ISSUE IS COVERED AGAINST ASSESSEE AND LD. CIT(A) HAS DISMISS ED THE APPEAL FOLLOWING THE DECISION OF THIS TRIBUNAL IN THE CASE OF APEEJAY TE A LTD. VIDE ITA NO.556/KOL/2011 DATED 07.01.2011. 11. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CARE FUL PERUSAL OF MATERIALS AVAILABLE ON RECORD IT IS OBSERVED THAT LD. CIT(A) HAS FOLLOWED THE DECISION OF THIS TRIBUNAL IN THE CASE OF APEEJAY TEA LTD. (SUPRA) WH EREIN THE TRIBUNAL HAS HELD AS UNDER :- 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES AND THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO CONSIDERED THE RELEVANT PROVISIONS I.E. SECTION 115WA, 115WB & 115 WE OF THE INCOME TAX ACT. WE OBSERVE THAT AN EMPLOYER ASSESSEE IS LIABLE TO PAY FRINGE BENEFIT TAX U/S. 115WA OF THE INCOME TAX ACT, IN RELATION TO FR INGE BENEFITS PROVIDED BY HIM TO ITS EMPLOYEES. SUB-SECTION (2) OF SECTION 11 5WA STARTS WITH A NON OBSTANTE CLAUSE AND STATES THAT NOTHWITHSTANDING TH AT NO INCOME-TAX IS PAYABLE BY AN EMPLOYER TO ITS TOTAL INCOME COMPUTED IN ACCO RDANCE WITH THE PROVISIONS OF THE ACT, THE TAX ON FRINGE BENEFITS SHALL BE PAY ABLE BY SUCH AN EMPLOYER. THEREFORE, AN EMPLOYER IS LIABLE TO PAY FRINGE BENE FIT TAX EVEN WHEN NO INCOME-TAX IS PAYABLE BY AN EMPLOYER ON HIS TOTAL I NCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME TAX AC T. THEREFORE, THE 5 CONTENTION OF THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE THAT VALUE OF FRINGE BENEFIT SHOULD BE COMPUTED BY APPLYING RULE 8 OF INCOME TAX RULE HAS NO MERIT AS FRINGE BENEFIT TAX IS NOT PAYABLE ON TH E INCOME OF AN ASSESSEE BUT ONLY FRINGE BENEFITS PROVIDED BY AN EMPLOYER TO ITS EMPLOYEES. IN VIEW OF THE ABOVE, WE AGREE WITH THE LD. DEPARTMENTAL REPRESENT ATIVE THAT THE CONTENTION OF THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESS EE HAS NO MERIT AND ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD. CIT(A) BY REJECTING GROUNDS OF APPEAL TAKEN BY THE ASSESSEE. 11.1. SINCE LD. CIT(A) HAS FOLLOWED THE DECISION OF THIS TRIBUNAL IN THE CASE OF APEEJAY TEA LTD. (SUPRA) WE FIND NO INFIRMITY IN TH E ORDERS OF LD.CIT(A) AND DISMISS THE APPEAL OF THE ASSESSEE. 12. IN THE RESULT BOTH THE APPEALS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 23.08.2011. SD/- SD/- [ .. , ] [ .!'., #$ ] [ B.R.MITTAL ] [ C. D. RAO ] JUDICIAL MEMBER ACCOUNTANT MEMBER ( (( ('$ '$ '$ '$) )) ) DATE: 23.08.2011. R.G.(.P.S.) #3 1 /4 5#4)6- COPY OF THE ORDER FORWARDED TO: 1. M/S. EMPIRE & SINGLO TEA LTD. (SINCE MERGED WITH AP EEJAY SURRENDRA CORPORATE SERVICES LTD.), 15, PARK STREET, KOLKATA- 700016. 2 THE D.C.I.T.,CENTRAL CIRCLE-III, KOLKATA 3. THE CIT, 4. THE CIT(A)-CENTRAL-I, KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA 04 // TRUE COPY, #3';/ BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES 6