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TMI Blog2014 (9) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... ose trees, the gain accrued to the assessee is a capital gain. On the other hand the Assessing Officer treated it as a business income. According to the Assessing Officer, the assessee has a timber division where wood is being converted into plywood etc. The sale of timber out of shade trees is to be treated as business income. 2. On appeal, the learned first appellate authority has accepted the claim of the assessee that on sale of timber, capital gain accrued to it. The learned CIT (A) directed the Assessing Officer to compute the capital gain at 30% of the sale value. 3. Thus, Revenue is challenging the action of the CIT (A) treating the profits earned on sale of timber as capital gain. On the other hand, the assessee is challenging the action of the CIT (A) for computng the capital gain at Rs. 57,26,619/- by taking the capital gain at 30% of the sale consideration instead of considering the indexation and the determination of fair market value as on 1.4.1981 as cost of acquisition. 5. Before the learned CIT (A) the assessee has placed on record a note exhibiting how shade trees are essential for protection of coffee bushes. How the assessee has been recognising the income on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le proceeds of Rosewood and Silver Oak as capital gains by following the decision of the Hon'ble Kerala High Court in Pullangode Rubber and produce Co. Ltd (189-ITR-580). Respectfully following the decision of the Hon'ble ITAT Bengaluru A-Bench, I direct the Assessing Officer to recompute the income from long term capital gains from the sale of timber as under: Total sale consideration Rs. 2,65,08,526 Less: Expenses incurred for sale Rs. 22,25,939/- Cost of acquisition (taken Rs. 1,85,55,968/- As 70% of sale value). Rs. 2,07,81,907 Long Term capital Gains from Rs. 57,26,619/- Sale of timber". 6. With the assistance of the learned representative, we have gone through the record carefully. It emerges out from the record that this issue had been traveled to the Hon'ble High Court in assessment years 1997-98 to 1999-2000. The Hon'ble High Court has accepted the contention of the assessee that shade trees are capital asset of the assessee. However, with regard to the determination of fair market value as on 1.4.1981, the Hon'ble High Court has remitted the issue to the Assessing Officer for further enquiry. The assessee has been relying upon the letter dated 31.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of some letter written by the officer of the Government Department, the cost of acquisition of the assets cannot be assessed. Accordingly, the CIT (Appeals) while setting aside the order passed by the assessing authority directed the assessing authority to work out the market value of the assets as on 1.4.1981 after obtaining the specific notification from the Conservator of Forests with regard to market value in respect of rosewood and silver oak trees as on 01.04.1981 and to work out the capital gain by working out the indexed market value. Except the letter dated 31.3.1981, no other materials has been produced before the authorities. We find that the order passed by the Income-tax Appellate Tribunal in setting aside the order passed by the CIT (Appeals) wherein the Commissioner has directed the assessing authority to re-consider the matter is contrary to law. The Appellate Tribunal has also not examined the market value of the assets as on 01.04.1981. Hence, the matter has to be re-examined by the assessing authority by working out the indexed market value in respect of rosewood and silver oak trees......" 3.1.7 As the issue (ground No.1) for the AYs 2006- 07, 2007-08 and (gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is whereas it has been maintaining accounts on mercantile basis. When questioned by the Assessing Officer, the assessee submitted that it has to sell the Rosewood only through Govt. Forest Department and they are accounting for the receipts only when they actually receive the money or when the Forest Department confirms that the money was received from the bidder. However, the Assessing Officer rejected the claim of the assessee and treated the timber lying in the Govt. Depot as on 31.03.2005 as sold by the assessee. On this basis the Assessing Officer arrived at the sale proceeds at Rs. 1,84,60,430/- and added to the income returned by the assessee on the ground that this income had accrued to the assessee during the relevant financial year. 10. On appeal, the learned CIT (A) has deleted the addition. 11. With the assistance of the learned representatives, we have gone through the record carefully. The stand of the assessee is that under the auction sale, the successful bidder is required to remit the sale proceeds to the Govt. Depot. Once the money is received by the Govt. Dept, a Range Forest Officer at the Depot will prepare a list of sale made which is called sale note and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of proceedings, the assessee was asked to furnish details, business relevance of this expenditure. In the discussion held on 23.11.2007 the representatives of the assessee company mentioned that this expenditure was incurred on cutting/felling of the trees and its transportation to the manufacturing units. However, no supporting evidence in this regard would be furnished by the assessee. Considering the facts of the case, 50% of this expenditure is disallowed and added back in the hands of the assessee, which works out to Rs. 14,16,570/-". 13. Before the learned CIT (A) it was contended by the assessee that it has a timber division wherein the wood from the estate are converted into plywood. Curing and processing charges incurred in this Division represent the job work charges paid for converting the timber into plywood. These expenses were incurred only and exclusively in connection with the timber business of the assessee and the payments were made as per invoices raised by the contractor on the assessee. The Assessing Officer has disallowed the claim on adhoc basis without assigning any reason. The learned CIT (A) has deleted the disallowance. The learned CIT (A) has obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Rs. 8,20,402/- in estate supply division. Under this Division, the assessee undertakes to take plantation inputs i.e. it used to purchase urea fertilizer and other plantation requirements which not only used by the company but also sold to the outside plantors. According to the assessee a small loss has been incurred on account of normal business activity of the Division. The learned Assessing Officer did not point out any specific reason but disallowed the claim by observing as under: "I have considered the facts of the case. If the loss has been incurred in purchase of urea etc. and its sale to other planters then the assessee ahs to explain the reasons as to why did he incur the losses. The assessee however has not given any cogent reason for incurring losses. I accordingly treat this loss of Rs. 8,20,042/- as deliberate and unjustified and disallow the same". 18. On appeal the learned CIT (A) has partly allowed the claim of the assessee and confirmed the disallowance at Rs. 4,10,201/-. 19. On due consideration of the facts and circumstances and after hearing the representatives, we are of the view that the learned first appellate authority has erred in confirming the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent from incentive expenditure claimed separately as mentioned in the above table. The assessee could not furnish any satisfactory explanation in respect of this issue and only mentioned that this expenditure might have been incurred at the fag end of the financial year and might have been categorized as other expense". 21. On appeal the learned CIT(A) ahs restricted this disallowance to Rs. 25.00 lakhs. The learned Counsel for the assessee contended that from the last number of assessment years, it is incurring a loss in this Division and it could not break even, because low volume of transactions and advertising, selling and marketing expenses. On the other hand the learned DR relied upon the order of the Assessing Officer. 22. We have duly considered the rival contentions and gone through the record carefully. If any expenditure which is to be incurred wholly and exclusively for the purpose of the business which is not in the nature of capital expenditure or any other expenditure provided in section 30 to 36, that can be claimed under the residuary provision of section 37. The assessee has to demonstrate that the expenditure is wholly (representing the quantum) and exclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... situated, which is 60 kms from Secunderabad. The administrative office was located at Secunderabad, therefore, it had incurred expenditure for hiring cars which were used by the management and staff for commuting. The book value of the car as observed by the Assessing Officer as on 31.03.2005 was s.2.51 crores at Toopran Division and the value of vehicles is only Rs. 26,63,127/- . Thus according to the assessee, all these expenses were wholly and exclusively incurred for the purpose of the business. The learned CIT (A) allowed the claim of the assessee partly. She observed that 12 vehicles owned by the company as on 31.03.2005 were available at Toopran. The assessee hired four more vehicles. Therefore, at the most 10% of the expenses could be disallowed. The learned Cit (A) has observed that possibility of personal usage of car by the management cannot be ruled out. 24. With the assistance of the learned representatives, we have gone through the record carefully. The assessee has not been maintaining the log book of the vehicles, exhibiting their exclusive usage. Therefore, the learned first appellate authority has rightly observed that possibility of users other than for business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tertainment expenses & miscellaneous expenses on adhoc basis. Proper reasons for the disallowances have not been clearly mentioned. Further, it is submitted that the commercial expediency of expenditure must be adjudged from the point of view of the businessman and not of the Revenue. 14.2 I have carefully considered the stand taken by the Assessing Officer and the submissions made on behalf of the appellant. On examination of the facts of the case, I am inclined to restrict the disallowance made by the Assessing Officer to 10% of the expenditure incurred. Therefore, the Assessing Officer is directed to restrict the addition to Rs. 91,349/- instead of Rs. 4,56,973/- and this ground of appeal is partly allowed". 26. With the assistance of the learned representatives, we have gone through the record carefully. On an analysis of the accounts, it revealed to the Assessing Officer that the assessee had incurred an expenditure of Rs. 28,00,983/- under the head "other miscellaneous expenses". The learned Assessing Officer has called for the break up of these expenditures. The break-up was given under six heads. Out of that a sum of Rs. 3,14,177/- represented software and development exp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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