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2015 (7) TMI 608 - ITAT KOLKATA

2015 (7) TMI 608 - ITAT KOLKATA - TMI - Increase in stock - Disallowance made on account of bifurcation of expenses by application of Rule 8D - CIT(A) deleted addition - Held that:- The formula adopted by the AO is non-scientific and irrational. We find from the facts of the case that while completing the assessment the AO has made an addition of ₹ 51,12,814/- on account of increase in closing stock. The above addition on account of increase in stock is neither permitted under the principl .....

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ng any addition under the above head and assessed income is at ₹ 62,91,510/- and the addition on account of increase in closing stock is ₹ 51,12,814/- and if this addition is deleted then the assessed income will stand at ₹ 11,78,696/- and the returned income of assessee was at ₹ 20,28,108/-. Ld. counsel for the assessee strongly raised that the formula adopted by the AO is unscientific and CIT(A) did not accept the said formula but for argument sake if the formula accept .....

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leaf. In the field of agriculture particularly in produce of green tea leaf there is no mechanism to divide the profit as agriculture and nonagriculture i.e. while after giving deep thought to the point and after taking expert opinion on this subject the government introduce Rule 8 of IT Rules for arriving the income and dividing the same at 60:40 ratio for agriculture and non-agriculture income and assessee also applied the same in its computation from long paste years and it was accepted by t .....

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ith NABARD in Tea Development Scheme in 2007. In view of this, CIT(A) directed the AO to allow the rebate to the assessee. We find no infirmity in the order of CIT(A) and same is confirmed. - Decided against revenue. - I.T.A Nos. 278 & 2284/Kol/2013,I.T.A Nos. 1420/Kol/2014 - Dated:- 10-7-2015 - Shri P.K.Bansal & Shri Mahavir Singh, JJ. For the Petitioner : Shri S.K.Tulsiyan, Advocate For the Respondent : Shri R.P.Nag, JCIT,Sr. DR ORDER Per Shri Mahavir Singh, JM: These three appeals by Reve .....

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n ITA No.278/K/2013. 2. The first issue in the appeal of Revenue is against the order of CIT(A) in deleting the disallowance made by Assessing Officer on account of bifurcation of expenses by application of Rule 8D of the I.T. Rules, 1962 (hereinafter referred to as the Rules ) and also an increase in value of stock. For this, Revenue has raised following grounds No. 1 & 2:- 1. Whether the facts and circumstances of the case, Ld. CIT(A), Siliguri was justified in deleting the addition of  .....

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anufactured could be computed in terms of Rule 8 of Income Tax Rules 1962. The Ld. CIT(A) could not point out any defect in the said computation of the AO but simply stated that the AO was wrong invading ₹ 51,12,814/- towards increase in stock without appreciating that the AO had simply adopted the figure (closing stock ₹ 1,99,62,814/-, opening stock ₹ 1,48,50,000/-) by the assessee itself. Thus the Ld. CIT(A) was wrongly assumed that the AO had made further addition of ₹ .....

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Income Tax Act, 1961. Without pointing out any defect specifically in the said computation, the Ld. CIT(A) but simply stated that the AO was wrong in adopting the said method. Therefore, there was no reason to treat the method adopted by the AO as not reasonable and logical. 3. Briefly stated facts are that Assessing Officer made addition of increase in stock by applying Rule-8 of the IT Rules and increased the stock to the extent of ₹ 51,12,814/- by giving following calculations as is re .....

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was computed and sent to the assessee for comments incorporating reasons for disagreement, if any on each of the point as mentioned hereunder: [A] 100% agriculture expenditure as: Garden expenses, cultivation : Rs.1,24,18,479.50 Wags (garden) : ₹ 55,64,247.83 Wages(increased arrear) : ₹ 1,20400.00 Wages(plucking) : ₹ 56,95,391.00 Rs.2,37,98,518.33 [B] Mixed Expenditure (i) Salary, wages and bonus except The wages mentioned at [A] : ₹ 55,05,697.29 (ii) Repair and maintena .....

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be computed as if it were income derived from business but only 40% of such income shall be deemed to be the income liable to tax. Taking into consideration of the above ratio, the mixed expenditure has been divided in 60:40 ratio as agriculture expenditure and manufacturing expenditure. (1) Agriculture expenditure ₹ 2,22,85,842.84 (2) Manufacturing expenditure ₹ 1,48,57,228.57 [C] 100% Manufacturing expenditure: Excise Duty : ₹ 3,75,606.00 Selling Expenses :Rs.27,06,240.37  .....

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27,940.8 Kg [K] Total sale value Rs.9,17,61,996.45 [M] Percentage of yield as per audit report 21.80% [N] Quantity of manufactured tea out of green leaf purchased 21,19,73 kgs x 21.80% = 4,62,101.35 kg [O] Total sale consideration of tea manufactured out of Green leaf purchased [N] x [L] = Rs.3,75,91,945.47 [P] Profit on sale of tea out of green leaf purchased [O]-[H]-[I]= Rs.20,22,889.23 [Q] Total expenditure incurred in tea grown and manufactured excluding the expenditure incurred manufacturin .....

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ved from NABARD and WBSEB Rs. 56,644.00 Revised total income Rs. 60,40,558.23 4. Aggrieved, against the action of AO, assessee preferred appeal before CIT(A), who after considering the submissions of assessee deleted the addition by observing as under:- I have carefully considered the submissions of the Ld. AR and also perused the assessment order. I have also considered the remand report submitted by the Ld. AO. On perusal it is found that the assessee company is engaged in manufacturing and sa .....

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or taxation whereas 40% of the income arising out of tea manufactured from tea leaves grown in own gardens was offered or taxation as per Rule 8 of IT Rules, 1961. The assessee company has claimed that it has been following this method of computation of income since assessment year 1996-97 and the Department has been accepting such computation. The Ld AO in this assessment year adopted new method of computation of income by considering expenditure in three different categories - 10% agriculture .....

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nse to this letter the assessee company submitted a revised computation of income showing net loss of ₹ 25,44,920- without deduction u/s.33AB claiming that it has followed the same method of computation as applied by the Ld. AO. The Ld. AO after considering the contention of the assessee and revised computation of income of the assessee rejected it by stating reasons as mentioned in the assessment order. The d AO thereafter computed revised total income to the tune of ₹ 62,91,510/- a .....

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s not commented on the addition of increase in stock to the tune of ₹ 51,12,814/-. The Ld AR in his written submission dated 10.09.2012 has contested the addition of increase of stock sating that the addition on account of increase stock is not warranted as per the principles of accountancy or under the law. Closing stock is always valued under the settled principles of law of accountancy i.e. cost or market value whichever is lower. The Ld. AR has stated that the Auditor has already certi .....

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g stock of 30712.2 ks of tea valued at ₹ 1,99,62,814/- is also clearly reflected in the audited accounts. The Ld AO has not disputed either the quantity of tea or its value of either the opening or closing stock in theism order. In such situation the Ld AO has not appreciated that the addition of increase in stock is not warranted and also without assigning any reason. Therefore, the action of the Ld. AO in taking addition of increase in stock to the tune of ₹ 51,12,814/- is not at a .....

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or in deciding and computing the income from manufacture of tea Rule 8(1) stated as under:- Income derived from the sale of tea grown and manufactured by the seller in India shall be computed as if it was income derived from business and 40% of such income shall be deemed to be income liable to tax. We have perused the above rule, which does not given any formula for arriving mixed income or composite income but rules stated categorically that the income from tea grown, manufactured and sold has .....

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the law. Closing stock is always valued under the settled principle of law and accountancy i.e, cost or market value whichever is lower. The auditor of assessee has already certified the value of closing of assessee in his audit report and the said value has been taken in trading and profit and loss account in arriving at the gross profit of the business of the assessee. The increase or decrease in closing stock as compared with the last year cannot be a basis for making any addition under the .....

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per the above formula will be much lesser then the returned income of assessee and in that case there will be a revenue loss to the government. 6. But we find the total expenditure incurred for manufacture of tea out of green leaf purchased by assessee as per calculation of the AO is erroneous, hence profit on tea manufacture out of our own leaf is also erroneous. And the formula adopted by the AO gives distorted figures for profit made out of the assessee s own leaf and bought leaf. We find fro .....

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ure, secondly mixed expenditure and thirdly 100% manufacturing expenditure. The AO divided mixed expenditure at the ratio 60:40 and arrived at agriculture expenditure and mixed expenditure and adopted the formula of 60% and 40% in mixed expenditure which is not permissible in law. In the present case percentage of bought leaf purchased is less than assessee s own crops, but in case of assessee where bought leaf purchase is much more than own crop of green leaf then applying the ration of 60:40 i .....

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y as adopted by the AO is not tenable Further we find that assessee is not maintaining separate account for manufacture of tea from purchase leaf and its own produced leaf and there is no system which can divide the expenditure in terms of purchase and assessee s own leaf and as such the formula as adopted by the AO is totally absurd. In the field of agriculture particularly in produce of green tea leaf there is no mechanism to divide the profit as agriculture and nonagriculture i.e. while after .....

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rdingly, this issue of revenue s appeal is dismissed. 7. Next issue in this appeal of Revenue is against the order of CIT(A) in granting rebate u/s 33AB of the Act. For this, Rev has raised following ground No.3:- 3. Whether the facts and circumstances of the case the Ld. CIT(A) was justified in granting rebate of ₹ 12,00,000/- u/s 33AB of the I.T. Act. In the assessment order the AO has clearly brought out the facts on the basis of which closing stock was determined and other details rega .....

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