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Apeejay Tea Limited Versus Deputy Commis sioner of income Tax, Central Circle-III, Kolkata and Vica-Versa

2015 (10) TMI 2008 - ITAT KOLKATA

Disallowance of the Foreign Exchange loss under section 43A - Held that:- It is seen from the ECB loan agreement, which was filed based on a speci fic query from the Bench by the A.R. that the loan was utilized for general corporate purposes and not for acquisition of any fixed assets. Hence, we hold that the borrowings were utilized on Revenue Account and the provisions of section 43A of the Act were not applicable at all in the fact s of the case. Based on this, it could logically be concluded .....

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exchange loss would be allowed as deduction under section 37(1) of the Act for the assessment year 2005-06. - Decided in favour of assessee.

Addition made towards employees’ contribution to Provident Fund (E.P.F.) - amount remitted beyond the due date prescribed under the P.F. Act but before the due date of filing the return of income under sect ion 139(1) - CIT(A) deleted the addition - Held that:- This issue is directly covered in favour of the assessee by the decision of the Apex C .....

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inclined to interfere with the decision of the ld. CIT(Appeal's). Accordingly, Ground raised by the Revenue is dismissed. - Decided in favour of assessee.

Addition made on account of cess on green leaves - CIT(A) deleted the addition - Held that:- Rule 8 of the Income-tax Rules, 1962, requires that the computation is to be made as if by fiction the entire income out of the tea grown and manufactured as income assessable under the Income-tax Act, 1961 - The entire amount paid as cess .....

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assessee in i ts revised return. However, while adopting the figure of income from other sources, the Assessing Officer did not adopt the figures as stated in the revised return but adopted a totally different figure. Hence, in the facts and circumstances of the case, we deem it fit and appropriate, in the interest of justice and fair play, to set aside this issue to the file of the Assessing Officer to adopt the correct figure of income from other sources after verification of proper workings i .....

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the same is considered as the income from other sources. Interest on income-tax refund could definitely be construed only as income from other sources. We direct the Assessing Officer to re-compute accordingly. - Decided in favour of revenue for statistical purposes. - I.T.A. No. 1406/KOL/ 2009, I.T.A. No. 1233/KOL/ 2009 - Dated:- 11-9-2015 - Shri Mahavir Singh, Judicial Member and Shri M. Balaganesh, Accountant Member For The Assessee : Shri Manish Tiwari, F.C.A., For The Department : Shri Arin .....

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is as to whether the ld. CIT(Appeal s) is correct in disallowing the Foreign Exchange loss of ₹ 10,00,000/- under section 43A of the Act without appreciating the fact that the said prov ision is not applicable in the fact s and ci rcumstances of the case. 2.1. Brief fact s of the case are that the assessee is engaged in the business of cultivation of green leaves and manufacture and sale of Black Tea. The assessee had borrowed External Commercial Borrowings (hereinafter referred to as ECB .....

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such restatement in view of the increase in liability payable on the loan account. This is worked out as under:- Loan balance as on 31.03.2004 21,77,50,000 Less: Value of loan as on 31.03.2005 USD 50,00,000 @ 43.75 21,87,50,000 The difference representing exchange loss by way of increase in liability Rs.10,00,000/ 2.2. The Assessing Officer disallowed the same as the exchange loss incurred thereon was notional in nature by invoking the provisions of sect ion 43A of the Act, wherein pursuant to a .....

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e the Assessing Officer did not hold water. Aggrieved, the assessee preferred appeal before the ld. CIT(Appeals), who upheld the decision of the Assessing Officer. Aggrieved, the assessee is in appeal before us on the following grounds:- (a) That on the facts and in the circumstances of the case, ld. CIT(A) erred in confirming the action of Assessing Officer who disallowed loss of ₹ 10,00,000/- u/s 43A of Income Tax Act, 1961, without appreciating the fact that section 43A is not applicabl .....

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on Revenue Account. On speci fic query from the Bench, he placed on record a copy of the ECB loan agreement. He further argued that since the ECB loan was utilized on revenue account and no fixed asset s were purchased out of the same, the provisions of section 43A of the Act per se are not applicable to the assessee. He relied on the decision of the Hon ble Supreme Court in the case of Woodward Governor India P. Ltd. reported in 312 ITR 254 (SC) in support of his contention that the exchange l .....

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uisition of any fixed assets. Hence, we hold that the borrowings were utilized on Revenue Account and the provisions of section 43A of the Act were not applicable at all in the fact s of the case. Based on this, it could logically be concluded that any exchange fluctuat ion arising out of the restatement of the said loan at the end of the year, be it gain or loss, would also fall on revenue account and hence, automatically comes under the ambit of taxation if it is a gain and allowable as an exp .....

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37(1) in the year of fluctuation in the rate of exchange or whether the same could only be allowed in the year of repayment of such loans? (ii) Whether, the assessee is entitled to adjust the actual cost of imported assets acquired in foreign currency on account of fluctuation in the rate of exchange at each balance sheet date, pending actual payment of the varied liability? 2.6. Their Lordships had categorically held that since the loan was borrowed for general business purposes i.e. on Revenue .....

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vy reliance was placed on the judgment of this Court in the case of Indian Molasses Company (supra). Relying on the said judgment, it was sought to be argued that the increase in liability at any point of time prior to the date of payment cannot be said to have gone irretrievably as it can always come back. According to the learned counsel, in the case of increase in liability due to foreign exchange fluctuations, if there is a revaluation of the rupee vis-vis foreign exchange at or prior to the .....

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ther there was a distinction between the actual liability in presenti and a liability de futuro. The word "expenditure" is not defined in the 1961 Act. The word "expenditure" is, therefore, required to be understood in the context in which it is used. Section 37 enjoins that any expenditure not being expenditure of the nature described in Sections 30 to 36 laid out or expended wholly and exclusively for the purposes of the business should be allowed in computing the income ch .....

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cover an amount which is really a "loss" even though the said amount has not gone out from the pocket of the assessee. 14. In the case of M.P. Financial Corporation v. CIT reported in 165 ITR 765 the Madhya Pradesh High Court has held that the expression "expenditure" as used in Section 37 may, in the circumstances of a particular case, cover an amount which is a "loss" even though the said amount has not gone out from the pocket of the assessee. This view of the Ma .....

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ordinary principles of commercial accounting. (see page 617 of the eighth edition). It is this principle which attracts the provisions of Section 145. That section recognizes the rights of a trader to adopt either the cash system or the mercantile system of accounting. The quantum of allowances permitted to be deducted under diverse heads under Sections 30 to 43C from the income, profits and gains of a business would differ according to the system adopted. This is made clear by defining the wor .....

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regularly maintained in the course of business are to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. One more aspect needs to be highlighted. Under Section 28(i), one needs to decide the profits and gains of any business which is carried on by the assessee during the previous year. Therefore, one has to take into account stock-in-trade for determination of profits. The 1961 Act makes no provision with regard to valuation of stock. But the .....

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rofits/loss is embedded in the closing stock. While anticipated loss is taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into account, as no prudent trader would care to show increase profits before actual realization. This is the theory underlying the Rule that closing stock is to be valued at cost or market price, whichever is the lower. As profits for income-tax purposes are to be computed in accordance with ordinary principles of co .....

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mphasise once again that the above system of commercial accounting can be superseded or modified by legislative enactment. This is where Section 145(2) comes into play. Under that section, the Central Government is empowered to notify from time to time the Accounting Standards to be followed by any class of assessees or in respect of any class of income. Accordingly, under Section 209 of the Companies Act, mercantile system of accounting is made mandatory for companies. In other words, accountin .....

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accounting standards. 15. For the reasons given hereinabove, we hold that, in the present case, the "loss" suffered by the assessee on account of the exchange difference as on the date of the balance sheet is an item of expenditure under Section 37(1) of the 1961 Act . 2.7. In view of the aforesaid judgment of the Hon ble Apex Court, we hold that the sum of ₹ 10,00,000/- being the exchange loss would be allowed as deduction under section 37(1) of the Act for the assessment year .....

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einafter referred to as the Act ). 5. The first issue to be decided in this appeal of the Revenue is whether the ld. CIT(Appeal s) is correct in deleting the addition made towards employees cont ribution to Provident Fund (E.P.F.) amounting to ₹ 1,84,308/-, which was remitted beyond the due date prescribed under the P.F. Act but before the due date of filing the return of income under sect ion 139(1) of the Act. 5.1. The Assessing Officer disallowed the employees cont ribution to P.F. unde .....

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t, 1961 from ₹ 1,84,308/- to ₹ 18,048/- . 5.2. Ld. D.R. vehemently supported the order of the Assessing Officer. In response to this, ld. A.R. argued that the date of remittances of EPF is mentioned in pages 9-10 of the assessment order and argued that the issue is covered in favour of the assessee by the decision of the Hon ble Apex Court in the case of Vinay Cement Limited reported in 313 ITR 1 (SC). 6. We have heard the rival submissions on this issue and hold that this issue is d .....

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due date of filing the return of income. Respectfully following the decision of the Hon ble Apex Court as stated (supra), we are not inclined to interfere with the decision of the ld. CIT(Appeal s). Accordingly, Ground No. 1 raised by the Revenue is dismissed. 7. Second issue to be decided in this appeal of the Revenue is whether the ld. CIT(Appeals) is correct in delet ing the addition made on account of cess on green leaves. 7.1. The assessee debited a sum of ₹ 1,67,03,000/- in its Profi .....

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onal High Court and deleted the addition. Aggrieved, the Revenue is in appeal before us on the following ground:- In the facts and circumstances of the case, the ld. CIT(A) has erred in deleting the disallowance of ₹ 1,67,03,000/- towards cess payable on green leav es . 7.2. We have heard the rival submissions and we find that this issue is squarely covered by the decision of the Hon ble Calcutta High Court in the case of CIT -vs.- AFT Industries Limited reported in [2004] 270 ITR 167 (Cal .....

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computing the income under the Act and only after the computation of the total income, the apportionment is to be made determining 60 per cent as agricultural income and 40 per cent as e xigible to tax under the Act. During the process of the computation, all deductions allowable at the time of computation are to be allowed and that was rightly allowed. Inasmuch as if the income for tea grown was assessed under the agricultural income-tax, in that event, the same cess paid of green leaf would ha .....

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e to be allowed as a natural corollary to the fiction so created. Such deductions, which are allowed in order to arrive at the total income exigible to tax, are to be allowed and the apportionment of the total income so computed is to be made. If the agricultural part of the deductions is made applicable for deduction from the 60 per cent of the total income so computed, in that event, this 60 per cent would be again made assessable under the Agricultural Income Tax Act which is not permissible. .....

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correct in deleting the income from other sources of ₹ 36,25,990/- determined by the Assessing Officer in the fact s and ci rcumstances of the case. 8.1. Brief facts of the case are that the assessee inadvertently declared the following receipts as income under the head other sources in the original return:- Name of i tem Amount Sale of DEPB license Rs.29,16,263/- Exchange gain ₹ 4,88,847/- Interest on investment ₹ 2,20,880/- TOTAL Rs.36,25,990/- 8.2. Later the same was changed .....

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ssessee challenged this issue before the ld. CIT(Appeals), who di rected the Assessing Officer to re-visit the revised return of income, which modified the figure of income from other sources and income from business. Aggrieved, the Revenue is in appeal before us on the following ground:- In the facts and circumstances of the case the ld. CIT(A) has erred in deleting the income from other sources of ₹ 36,25,990/- determined by the Assessing Officer . 8.3. Ld. D.R. argued that the findings .....

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d been duly accepted by the Assessing Officer as business income in the assessment proceedings itself, which was also the claim of the assessee in i ts revised return. However, while adopting the figure of income from other sources, the Assessing Officer did not adopt the figures as stated in the revised return but adopted a totally different figure. Hence, in the facts and circumstances of the case, we deem it fit and appropriate, in the interest of justice and fair play, to set aside this issu .....

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us receipts aggregating to ₹ 46,26,553/- arose from tea business and accordingly treating the same as business income as against the treatment by the Assessing Officer as income from other sources. 9.1. The ld. D.R. argued that from the very nature of the miscellaneous receipts, it should be assessed only as income from other sources and accordingly he argued that the action of the ld. CIT(Appeal s) is wrong and prayed for setting aside the order of the ld. CIT(Appeals) in this regard. In .....

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