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ACIT Ci rcle-3, Darjeeling Versus M/s Nandi Tea Co. Pvt. Ltd.

2016 (4) TMI 1118 - ITAT KOLKATA

Method adopted for working out the profit - Held that:- The assessee is engaged in the two similar business activities. There were certain common expenditures such as employment cost, administrative cost and depreciation cost which the AO apportioned 100% to the activity i.e. growing and manufacturing of tea leaves of the assessee on the ground that these cost have to be necessarily incurred by the assessee irrespective of any other the business activity. Therefore the allocation of these expens .....

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s appeal is dismissed. - Decided in favour of assessee

Deduction u/s 80IB - Held that:- The assessee did not submit the relevant details at the time return filing for the deduction under section 80IB of the Act on the presumption that the return of income was filed declaring loss. So there was no point to claim the deduction under section 80IB of the Act. However when the AO framed the assessment under section 143(3) of the Act at positive income then the assessee raised the issue of .....

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ur considered view the issue of 80IB of the Act becomes irrelevant for the year under consideration. Therefore we are not adjudicating the same in the light of the provisions of the Act. Hence, we decide this effective ground against Revenue. - ITA No.887/Kol /2013 - Dated:- 18-3-2016 - Shri N.V.Vasusdevan, Judicial Member and Shri Waseem Ahmed, Accountant Member For The Appellant Shri Anil Kr. Pande, JCIT-SR-DR For The Respondent : Shri S.K. Tulsiyan, Advocate ORDER PER Waseem Ahmed, Accountant .....

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adopted by the AO as an erroneous and not acceptable. During the curse of assessment proceedings, for the sake of clarity, the AO analyzed all the expenses and incomes claimed in the audit report and recomputed the income on the basis of facts and figure available in the audit report. The method AO adopted for computation of income was within the provisions of Income Tax Act, 1961. Rule 8 of Income Tax Rules 1962 outlines the method by which income from sale of tea grown and manufactured could b .....

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t of tea manufactured from green leaves grown by the assessee and out of green leaves purchased from outside. Without pointing out any defect specifically in the said computation, the Ld. CIT(A) s computation was an erroneous. Therefore, there was no reason to treat the method adopted by the AO as erroneous and not acceptable. 2. Whether the facts and circumstances of the case the Ld. CIT(A) was justified in granting disallowance u/s. 80IB of the Act ignoring the fact that the assessee had not s .....

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ces of the business. Source- 1 1) Growing and manufacturing of tea. As per rule 8 of Income Tax Rules 1962 40% income from such activity chargeable to tax. Source- 2 2) Manufacturing of tea from the tea leaves purchased from outside. The rule 8 of Income Tax Rules 1962 is not applicable to the income from this activity so 100% income from such activity is chargeable to tax. In the present case, assessee has incurred numerous expenses which are directly attributable to the above sources and some .....

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Expenditure of which details are given below. 1) Mixed Expenditure (i) Employment cost ₹ 97,37,480.00 (ii) Administrative Expenses ₹ 37,16,428.36 (iii) Financial charges ₹ 64,60,274.51 (iv) Selling & Distribution expenses ₹ 38,44,754.81 (v) Depreciation ₹ 59,53,237.02 Rs.2,96,92,174.70 While framing assessment, the AO has apportioned the above expenses in the following manner : The AO has apportioned 100% employment, administrative expenses and depreciation to t .....

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ut at the same time the rate of tax for growing and manufacturing of tea business is different. As per rule 8 of Income Tax Rules 1962 40% income from such activity is chargeable to tax. The assessee has also not maintained separate accounts in respect of tea manufactured from green leaves grown by the assessee, and out of green leaves purchased from outside. Accordingly the AO has apportioned the 100% employment, administrative expenses and depreciation to the source of growing and tea manufact .....

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the source of leaf. The assessee specifically submitted that for growing tea leaves and manufacturing tea out of grown leaves and purchased leaves, labour and staffs are required to be hired and hence ancillary expenses need to be incurred too. Thus, on the basis of the above analogy, it can be said that the AO had erred in opinion that employment cost amounting to ₹ 97,37,480/- was incurred by assessee for only earning composite income and not 100% taxable income. Regarding administrativ .....

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e actually borne by the assessee for the year under consideration in order to facilitate smooth and fast working capacity of the entire organization. Similarly in the case of depreciation expenses almost 90% of the assets enshrined therein had to be utilized by the assessee for earning not only composite income but also 100% taxable income. 3.1 In view of above Ld. CIT(A) rejected the working done by AO for profit earned from the sources of assessee s business i.e., growing and manufacturing of .....

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penses and depreciation were incurred only for composite income subject to Rule 8 and not for both composite as well as 100% taxable income. However, with regard to employment cost, on perusal it is found that labour and staff are required for manufacturing and sale of tea from tea leaves grown in own garden and tea leaves brought from outside. Without labour and staff, manufacturing and sale of tea from tea leaves grown in own garden and tea leaves bought from outside cannot be carried on. Ther .....

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elivery mechanism in the organization. As explained by the Ld. AR such expenditure is required for smooth functioning of Corporate Office to promote efficiency, growth and productivity. Therefore, it is clear that administrative expenses of ₹ 37,16,426/- were incurred by the assessee for earning composite income as well as 100% taxable income. Such expenditure was incurred by the assessee not only for manufacturing and sale of tea from tea leaves grown in own garden but also from tea leave .....

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et, plant & machinery, factory building, generator, road development for plant, electrical installations etc. are such assets which are used by the assessee in the manufacture of tea not only from its own gown leaves but also from tea leaves bought from outside. It is equally true that cycle, motor vehicles, trailer etc. are used for transiting finished products from the factory premises to the auction centers and also for bringing raw materials e.g. bought tea leaves to the factory premises .....

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to be not justified. As common expenses are involved which cannot be allocated specifically for either own grown leaves or bought leaves the attempt to allocate them by the Ld. AO is not practical. The expenses incurred in garden maintenance is definitely exclusively for own grow leaves but there is substantial force in the argument of the Ld. AR that it cannot become no allocable between own leaves and bought leaves as it is compensated by cost of bought leave. Therefore, I hold that the alloca .....

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Ld. DR relied on the order of AO whereas Ld. AR relied on the order of Ld. CIT(A). From the facts of the case we understand that the assessee is engaged in the two similar business activities as discussed above. There were certain common expenditures such as employment cost, administrative cost and depreciation cost which the AO apportioned 100% to the activity i.e. growing and manufacturing of tea leaves of the assessee on the ground that these cost have to be necessarily incurred by the asses .....

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Hence, we have no hesitation in upholding the order of Ld. CIT(A) and this ground of Revenue s appeal is dismissed. 5. Next issue raised by Revenue is that Ld. CIT(A) erred in giving relief u/s. 80IB of the Act. 5.1 The AO during the course of assessment proceedings observed from the tax audit report that assessee is eligible for deduction u/s. 80IB of the Act. But the assessee failed to furnish the supporting documents for claiming deduction u/s. 80IB of the Act. Therefore, AO has disallowed th .....

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carefully examined and considered the submissions of the Ld AR and also perused the assessment order. I have also perused the remand reports submitted by the Ld. AO. After careful consideration I hold that the L AO was no justified in denying deduction u/s 80IB of the Act to the assessee in view of the specific comments of the Auditors on page 5 of the Audited Accounts for FY 2007-08 declaring the eligibility of deduction u/s. 80IB of the Act. on perusal of the assessment orders u/s. 143(3) for .....

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sed to be completed at positive total income. As the Ld AO denied the benefit of deduction u/s. 80IB of the Act while completing the assessment u/s. 143(3) at total income of ₹ 23,32,260/- the assessee has raised this issue in this ground of appeal. In the paper book submitted in course of appellate proceedings the assessee has submitted Form No. 10CCB duly certified by the Chartered Accountants on 02.03.2012 certifying deduction of ₹ 6,99,678/- out of profits and gains of ₹ 23 .....

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ceedings as the assessee was showing total loss of ₹ 89,53,392/-. In spite of having eligibility for deduction u/s 80IB of the Act the assessee could not claim it considering the returned loss of ₹ 80,53,392/-. Further, the Ld AO has not brought out any material on record to show that the assessee did not fulfill the eligibility criteria for claiming deduction u/s. 80IB of the Act. the Ld. AR has given in detail the fulfillment of the eligibility criteria for claiming deduction u/s. .....

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