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2016 (10) TMI 196 - ITAT KOLKATA

2016 (10) TMI 196 - ITAT KOLKATA - TM - Cess on green leaf - whether it is allowable expenditure or not? - Held that:- As decided in CIT-vs- AFT Industries Ltd. [2004 (7) TMI 81 - CALCUTTA High Court] the assessee should have been allowed cess on green leaf by the AO - Decided against revenue - Subsidy received - whether taxable as income of the Assessee u/s 41(1) or income from other sources - Held that:- There is no dispute of the amount on subsidy received, is taxable as income of the ass .....

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ncome and the expenditure incurred by the assessee. Apart from this, the AO has not recorded any satisfaction with regard to provision of section 14A read with rule 8D. Therefore, we are of the view that the addition made by the AO under rule 8D (2)(ii) ₹ 44,85,098/- should be deleted. So far the addition by the ld. AO under rule 8D(2)(iii) at ₹ 12,30,089/- is concerned, it is towards general and administrative expenses which normally a company incurs while making investment decision .....

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; 44,85,098/- is deleted. - ITA Nos. 170 to 172/Kol/2014, C.O. Nos.20 & 21/Kol/2014 - Dated:- 19-8-2016 - Shri N.V.Vasudevan, J.M. and Dr.A.L.Saini, A.M. For The Department : None For The Assesseeby : Shri P. J. Bhide, FCA ORDER Per Dr. A.L.Saini, A.M.: The captioned three appeals filed by the Revenue pertaining to assessment year 2007-08, 2008-09 and 2009-10 are directed against the orders passed by the Ld. Commissioner of Income-Tax (Appeals)-IV, Kolkata in appeals No.233/ CIT(A)-IV/2009-10, N .....

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he Assessing Officer U/s 143(3) of the Income Tax Act, 1961. Since these three appeals and two Cross Objections relate to the same assessee and involve common issues, therefore, they have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. None appeared on behalf of the Revenue, even though notice of hearing was sent to it on more than one occasion. Hence, we proceed to dispose of the appeal ex-parte, without presence of the Departmen .....

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nly 40% of the composite income is taxable under Central Income Tax. The AO observed that the assessee debited expenditure in the Profit & Loss a/c. under the head Green Leaf Cess and claimed the same @ 100% as expenditure against manufacturing of tea. The ld. AO further held in his assessment order that cess is payable only upto the plucking stage of green leaf. Even if an assessee who has the activity of cultivation alone but no tea factory, has to pay cess on green leaf, though its income .....

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ears 2007-08, 2008-09 and 2009-10. 2.1. Aggrieved from the order of the ld. AO, the assessee filed appeals before the Commissioner of Income Tax(A) - IV, Kolkata. The Commissioner of Income- Tax (Appeals) vide page 3 page 4 of his order wherein he held that assessee s appeal against the disallowance of claim for cess paid to the State Government on the quantity of green leaf plucked and consumed in manufacture of tea, income from which is determined in terms of rule 8 of the Income-tax Rule, 196 .....

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ecision of the Hon ble Calcutta High Court and the same is pending in the Hon ble Supreme Court should not be ground for disallowance of the appellant s claim. Therefore, he held that the appellant s claim is allowed and the AO is directed to allow deduction on account of cess derived by the appellant for cultivation and manufacturing of tea. Not being satisfied, the Revenue is in appeal before the Tribunal. 2.2. We noticed the stand of the Revenue which has mentioned in the Assessment Order tha .....

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rder that a Special Leave Petition on this account has been filed by the department and it is pending before the Hon ble Supreme Court against the above decision on this issue. Therefore, in order to maintain judicial consistency, the claim of the assessee is disallowed and expenses on green leaf cess is added back. 2.3. The Ld. AR for the assessee vehemently submitted that this ground has already been decided in favour of the assessee and following the decision of the Hon ble Calcutta High Cour .....

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ore, decided in favour of the assessee and against the Revenue by upholding the order of the CIT(A) who has allowed the deduction of payment of cess on green leaves in computing the composite income from tea business of the assessee under rule 8 of the Income Tax Rules. The fact that the Special leave Petition is pending before the Hon ble Supreme Court against the decision of the Hon ble Calcutta High Court in respect of AFT Industries Ltd. -vs- CIT (supra) will not have any effect since the Ho .....

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ced that there is merit in the submission of the ld. AR for the assessee, as the propositions canvassed by him are supported by the decision of the Hon ble Calcutta High Court in the case of CITvs- AFT Industries Ltd. (supra) and the facts cited by him. As the AO did not allow this claim merely because the department has filed a SLP against the decision of the Hon ble Calcutta High Court in the case of CIT-vs- AFT Industreis Ltd. (supra) and the same is pending in the Supreme Court. Such pendenc .....

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facts and circumstances of the case, the Ld. CIT(A) erred in acceptingthat the interest subsidy of ₹ 28,24,072/- was income derived from manufacturing and production of tea instead of income from other sources as shown by the assessee in its return of income, ignoring the fact that since assessee did not file revised return, income shown in the original return could not be revised as decided by the Hon ble Supreme Court in the case of Goetze India . 3.1. Facts of this issue are stated in .....

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and manufacturing of tea and not from income from other sources. The relevant para 6.1 and 6.2 at page 5 of the order of the CIT(A) read as follows: 6.1 The A.R. of the appellant stated that the Appellant, during the year relevant to previous year, received Subsidy of ₹ 28,24,072/- from the Government. The Appellant had paid Bank interest on the moneys borrowed and utilized for the purpose of cultivation and manufacture of Tea in excess of 10%. In respect of such excess, the Appellant, cl .....

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The Appellant submits that the Assessinq Officer should not have assessed the amount of the said Subsidy as Appellant's income from other sources. 6.2 I find that the claim is logical and the same is, therefore, accepted. The Assessing Officer is directed to assess the Subsidy income as income from cultivation and manufacture of Tea and not from income of other sources and should not be taxed @ 100%. 3.2. We noticed from the Assessment Order that this issue has not been raised by the assess .....

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ing accepted the assessee s submissions the, LdCIT(A) directed to the AO to treat the subsidy as business income of the assessee. 3.3. The ld. AR for the assessee has submitted that the assessee had paid bank interest on the money borrowed and utilised for the purpose of cultivation and manufacturing of tea in excess of 10% and in respect of such excess, the assessee claimed and received subsidy of ₹ 28,24,072/-. The assessee submitted that there is no dispute of the amount on subsidy rece .....

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d be shown under the head income from business or profession only. The ld. AR for the assessee has also submitted that it is always open for the assessee to raise new ground which was not raised by the assessee before the AO. The ld. AR for the assessee has also placed reliance of the judgement in CIT-vs- Sam Global Securities Ltd. delivered by the Hon ble High Court at Delhi in Income Tax Appeal 214/2013, the relevant para of the said judgment are reproduced below: 7. Reference was also made to .....

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have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income Tax Officer. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground .....

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(India) Ltd. Vs. CIT [2006] 284 ITR 323 (SC) wherein deduction claimed by way of a letter before the Assessing Officer, was disallowed on the ground that there was no provision under the Act to make amendment in the return without filing a revised return. Appeal to the Supreme Court, as the decision was upheld by the Tribunal and the High Court, was dismissed making clear that the decision was limited to the power of the assessing authority to entertain claim for deduction otherwise than by a re .....

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taxable income of the assessee in accordance with the law. In this sense, assessment proceedings are not adversarial in nature. 3.4. From the above cited facts and circumsatnces, we noticed merit in the submission of the ld. AR for the assessee, as the propositions canvassed by him are supported by the judgment rendered by the Hon ble Delhi High Court in the case of CIT-vs- Sam Global Securities Ltd. (supra) and the facts narrated by him. The power of the Tribunal in dealing with appeals is exp .....

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n the above cited reasoning, we do not intend to interfere in the findings of the ld. CIT(A) on this issue. 3.5 In the result, the appeal filed by the Revenue on this ground is dismissed. 4. In ITA No.171/Kol/2014 for the assessment year 2008-09, the ground No.2 reads as under: That on the facts and circumstances of the case the Ld. CIT(A) erred in holding that the disallowances u/s 14A of ₹ 58,15,187/- was not warranted as the nexus between expenses and except income was not established, .....

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also held that the assessee has incurred interest expenses proportionately to earn the exempt income and the same should be disallowed. The working of the disallowance as per Rule 8D(2)(ii) and Rule 8D(2)(iii) is reproduced below: 1) Gross Interest (A) - ₹ 2,38,99,779 2) Average value of Investments - ½ of [34405685 + 457629892] (B) - ₹ 24,60,17,789 3) Average value of Assets ½ of [988792720 + 322164371] (C) - ₹ 1,81,09,57,091 A x B = 23899779 x 246017789 = Rs.44, .....

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r holding investment and for earning purely agricultural income. No attempt has been made by the A.O. to establish linkages and nexus between the exempted earned and the expenditure incurred. Such a finding is essential if the A.O. intends to invoke Sec. 14A read with Rule 8D. Several case laws have held that invocation of Sec. 14A read with Rule 8D is not automatic. I also find that in the present case the Assessing Officer has not recorded any satisfaction with regard to the provision of secti .....

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e appellant as a result of merger/amalgamation scheme. The A.O. has also not brought on record any diversion of Interest bearing Capital towards investment in shares. Under these circumstances, I am of the opinion that disallowance of ₹ 58,15,187/- by invoking Rule 8D is not legally tenable and should be deleted. Aggrieved, from the order of the Ld.CIT (A), the Revenue is in appeal before us. 4.3 We have gone through the assessment order and noticed the stand taken by the Assessing officer .....

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e AO is that the assessee company must have incurred some expenses for holding investment and for earning purely agriculture income. The AO failed to establish linkage and nexus between the exempt income and the expenditure incurred by the assessee. Such a finding is essential if the AO intends to invoke section 14A read with rule 8D. The ld. AR also stated that the AO has not recorded any satisfaction with regard to provision to section 14A read with rule 8D. Therefore, in view of the decision .....

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al available on record. We noticed merit in the submissions of the ld. AR for the assessee, as the propositions canvassed by him are supported by the decision of the Jurisdictional Tribunal in case of Balarampur Chini Mills Ltd (supra), and the facts narrated by him. As the assessee had sufficient own funds to finance its investment and the AO failed to establish the linkage and the nexus between exempt income and the expenditure incurred by the assessee. Apart from this, the AO has not recorded .....

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finance department is also involved therefore, there should be some expenditure. Therefore, there are certainly some expenses which the company might have incurred to earn the exempt income. Therefore, the disallowance made by the ld. AO under rule 8D (2) (i) ₹ 100,000/- and Under Rule 8D(2)(iii) at ₹ 12,30,089/- is confirmed by us and the addition made under rule 8D(2)(ii) amounting to ₹ 44,85,098/- is deleted. 4.6. In the result, the appeal filed by the Revenue on this issue .....

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But for A.Y.2008-09 the Assessing Officer has discussed this issue in his assessment order, in last para, observing the followings: The assessee s claim for deduction U/s 80-IC of the Act is rejected following the decision of the Income Tax Appellate Tribunal in assessee s case for the assessment years 2004-2005 and 2005-2006 under ITA No.110 & 401/Kol/2010. Aggrieved from the order of the Assessing Officer, the assessee filed an appeal before the Ld.CIT(A) IV, Kolkata. The ld. CIT(A) vide p .....

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he ld. AR for the assessee has submitted that the assessee under consideration is entitled to claim the deduction under section 80IC of the Act, however, the assessee has not raised this issue before the Assessing Officer. He also submitted that purpose of the assessment proceedings is to assess correct income of the assessee as per the Income Tax Act, and therefore the assessee may raise new issue before the appellate authorities.The ld. AR for the assessee also relied on the case laws in the c .....

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aw. The ld. AR for the assessee also relied on the case laws in the case of CIT-vs- Sam Global Securities Ltd. by the Hon ble High Court at Delhi in Income Tax Appeal 214/2013, the relevant para of the said judgment are reproduced below: 7. Reference was also made to an earlier decision of the Supreme Court in Jute Corporation of India Ltd. Vs. CIT, [1991] 187 ITR 688 (SC), wherein it has been held as under:- "An appellate authority has all the powers which the original authority may have i .....

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ssed by the Income Tax Officer. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional grou .....

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