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2017 (2) TMI 516 - ITAT KOLKATA

2017 (2) TMI 516 - ITAT KOLKATA - TMI - Reopening of assessment - Determination of income chargeable to tax from and out of the Composite Income - whether miscellaneous income would form part of the composite income for the purpose of section 33AB of the Act was fully investigated by the AO while concluding the assessment proceedings u/s 143(3)? - Held that:- Admittedly prior to the initiation of re-assessment proceedings u/s 147 of the Act an order of assessment for the relevant assessment year .....

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ome for the relevant assessment year. Since this condition has not been satisfied in the present case, the CIT(A) was fully justified in concluding that re- assessment proceedings were not validly initiated. - Since the initiation of re- assessment proceedings have been held to be invalid and therefore the reassessment order is liable to annulled, we do not wish to deal with other grounds with regard to the re-assessment proceedings having been initiated on a change of opinion and the argum .....

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JCIT, Sr.DR For the Respondent : Shri D. S. Damle, FCA ORDER Per N. V. Vasudevan, JM This is an appeal by the Revenue against the order dated 09.09.2013 of CIT(A)-XII, Kolkata relating to A.Y.1999-2000. 2. The Assessee is a company engaged in the business of growing and manufacture and sale of tea. Under the Income Tax Act, 1961 (Act), Agricultural Income is not chargeable to tax. Agricultural income has been defined in Sec.2(1A) of the Act. For incomes which are partially agricultural income a .....

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processes to render produce marketable) are carried out by an Assessee. The income derived from sale of such produce i.e., from sale of such manufactured produce is considered partially agricultural income and partially business income. For example a grower of tea in his tea gardens carries out the process of manufacturing tea powder from tea leaves grown in his garden. In such case the income from sale of tea powder will be partly agricultural income and partly non-agricultural income chargeab .....

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of income chargeable to tax from and out of the Composite Income. Rule 7, 7A, 7B and 8 of the Rules deal with such computation. Rule 8(1) of the Rules is relevant for the present case and it deals with determination of income from manufacture and sale of tea and it reads thus: Rule-8. (1) Income derived from the sale of tea grown and manufactured by the seller in India shall be computed as if it were income derived from business, and forty per cent of such income shall be deemed to be income lia .....

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efore the expiry of six months from the end of the previous year or before the due date of furnishing the return of his income, whichever is earlier,- (a) deposited with the National Bank any amount or amounts in an account (hereafter in this section referred to as the special account) maintained by the assessee with that Bank in accordance with, and for the purposes specified in, a scheme (hereafter in this section referred to as the scheme) approved in this behalf by the Tea Board or the Coffe .....

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duction (such deduction being allowed before the loss, if any, brought forward from earlier years is set off under section 72) of- (a) a sum equal to the amount or the aggregate of the amounts so deposited ; or (b) a sum equal to forty per cent of the profits of such business (computed under the head "Profits and gains of business or profession" before making any deduction under this section), whichever is less : 4. In the course of the said assessment proceedings the assessee had furn .....

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amounting to ₹ 108.07 lacs. 20% of such income was considered to be part of the qualifying amount for the claim of deduction u/s 33A.B of the Act. In para 13 of the assessment order dated 27.03.2002 the AO recorded the following finding. 13. Calculation of deduction under Section 33AB : The deduction under Sec 33AB is allowable only on the composite income earned by growing and manufacturing of tea. Hence, for the purpose of calculation of admissible deduction all the income not incidental .....

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e deducted in computation) (1) Income from Investments (Rs.2,35,79,000/ dividend income of ₹ 1, 11 ,89,966) (2) Profit on sale of investment: ₹ 63,15,000 - (3) Miscellaneous income: ₹ 97,39,000- (4) Liability no longer required to be written back ₹ 10,68,000/- 2,95,11,034 28,56,64,816 20% of above 5,71,32,963 Amount deposited with NABARD (as per certificate) 5,80,00,000 Admissible deduction: 5,71,32,963 6. It can be seen from the aforesaid discussion of the AO in the orde .....

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part of the composite income derived from growing and manufacture of tea. On that ground he excluded these and some other receipts while working out the qualifying profits from which deduction u/s 33AB was allowed. These facts go to show that the assessee had not only made full disclosure of its income credited under the head Misc. income and liabilities no longer required written back but the AO himself had also applied his mind with regard to the nature of income credited by the assessee. 7. .....

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ility no longer required, written back amounting to ₹ 10.68 lakhs as apparent from Schedule-12 of the P&L a/c. Subsequently, in the computation the assessee had not offered the Misc. income @ 100% for taxation. The assessee had subjected only 40% of the aforesaid Misc. income of ₹ 108.07Iakhs for Income tax. Obviously, the rule- 8 regarding apportionment of income applies only to the income from tea growing and manufacturing, the entire amount of ₹ 108.07 lakhs was required .....

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f ₹ 97.39 Lakhs and liability no longer required and hence written back of ₹ 108.07 lakhs. According to the AO these items of income ought not to have been considered as part of the composite income when Rule 8(1) of the Rules was applied in the assessment concluded u/s.143(3) of the Act and therefore there was escapement of income. 9. The details of these two items of income are as follows: Details of miscellaneous incomes Rs. Received from Insurance Company A/c Flood Claim 10,84,38 .....

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e Land Revenue 3,32,480.00 Mahanhkali Tea Estate Land Revenue 4,00,329.00 [B] 10,67,442.00 Miscellaneous Income [A + B] 1,08,06,226.00 10. The Assessee explained before the AO in the reassessment proceedings that all the aforesaid income were inextricably connected with the business of growing and manufacturing of tea and therefore had to be regarded as part of the composite income for the purpose of applying Rule 8 (1) of the Rules. The nature of the expenses were explained by the Assessee thus .....

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facturing of tea. A) As to the receipts of insurance claim it will be evident from the Annexure 'A' that realization was made against fire claim, loss of crops and fencing due to the onslaught of elephants in the gardens. Similar losses occurred due to storms and hails, and also due to flash-flood which some time occurs in the garden area. These losses are revenue in nature, which were duly debited in the accounts of the Assessee in the earlier year. Against these losses, the Assessee lo .....

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coveries from insurance claim is part of the composite income of growing and manufacturing is being entitled to be apportioned in the ratio of 40 : 60 as provided under rule-8 of the Income Tax Rules, 1962. B) Regarding receipts of income from guest house at ₹ 34, 88, 000/-, we are to submit that this is the amount of realization of actual expenditure incurred by the assessee for maintenance and repairing of the assets of the guest house. These realizations were made from the persons and g .....

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ssociated companies. C) As regards the sale scrap and ole gunny bags at ₹ 9,04,998/- we are to submit that in the tea gardens there are regular sale of unusable goods which are procured from time to time for running of the business for growing and manufacturing of tea. Expenses incurred for procurement of such items are included in the purchases account of the gardens and regularly debited in the profit & loss account. The sales of such unusable left-outs are also part of the activitie .....

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en given in annexure- 'A as referred to earlier. From the details you may please find that the amount written back relates to account of land-revenue in respect of different tea gardens. Payments of land-revenue relating to the gardens as mentioned in annexure- 'A ' was debited in the profit and loss account in the earlier years. The actual amount of demand raised by the Land-Revenue Officer were less than the expenses debited in the earlier years hence been written back. Payments of .....

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from growing and manufacturing of tea. 11. The AO was however observed in the order of assessment u/s.147 of the Act that the Assessee was asked to produce ledger a/cs and supporting documents but the Assessee produced only ledger a/cs. According to the AO the assessee has not conclusively proved that the aforesaid items of incomes relate to income from growing and manufacturing of tea. Therefore, he concluded that the Misc. income of Rs.I08.07 lacs is not incidental to income from tea growing a .....

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8/- Add: Profit attributable to sale of tea manufactured out of green leave purchased ₹ 52,13,889/- Add: Income from business (as discussed above) ₹ 1,08,70,000/- Total Business income Rs.10, 15,85, 187/- Add : Income from other source as per computationin the order u/s.143(3) ₹ 5,17,02,569/- Gross Total income Rs.15,32,87,756/- 12. Aggrieved by the order of the AO the assessee preferred an appeal before CIT(A). The assessee objected to the legality and validity of re-assessmen .....

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c 147 of the Act, reopening of assessment after 4 years from the end of the relevant AY in a case where assessment has already been completed u/s.143(3) of the Act was permissible if and only if the income had escaped assessment as a result of assessee s failure to disclose truly and fully all material facts necessary for assessment. It was contended that in the recorded reasons, there is no suggestion, even remotely, that at the time of completion of the original assessment, there was any failu .....

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id order was passed after detailed examination of the Assessee's books of account; details, documents and the explanations as requisitioned by the Assessing Officer in the course of assessment proceedings. In the return filed for the AY 1999-00 the Assessee had claimed deduction u/s 33AB of the Act. It was also submitted that in arriving at the deduction permissible u/s 33AB of the Act, the Assessee had taken into account income by way of Misc. income and Liabilities no longer required writt .....

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on the same set of facts which existed when the original assessment proceedings were concluded and without any fresh material coming to his possession. In other words it was submitted that the reassessment proceedings have been initiated by the Assessing Officer, upon change of opinion that 100% of the Misc. income was liable to be excluded from the Composite income. It was contended that reopening on such change of opinion was legally unjustified because such reopening did not satisfy the cond .....

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roceedings had been initiated after a period of four years from the end of the relevant assessment year and since the assessment u/s 143(3) of the Act had already been made initiation of re-assessment proceedings u/s 147 of the Act should satisfy the requirements of the proviso to section 147 namely there should be a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment of that year. The CIT(A) held that the assessee had duly disclosed all ma .....

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The CIT(A) also held that there was no service of notice u/s 143(2) of the Act on the assessee in the re-assessment proceedings after the assessee had filed the return of income in response to the notice u/s 147 of the Act. The CIT(A) held that non service of notice u/s 143(2) of the Act before completion of re-assessment proceedings u/s 147 of the Act was not a procedural irregularity and mandatory requirement for validity of order of re-assessment. In coming to the above conclusion the CIT(A) .....

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e income from growing and manufacturing of tea. 16. Aggrieved by the order of CIT(A) the revenue has filed the present appeal before the Tribunal. The revenue has filed the revised grounds of appeal before the Tribunal and the same reads as follows :- (i) That on the facts and in the circumstances of the case and as per law Id. CIT(A) erred in giving the judgement that the re-assessment proceeding u/s 147 is invalid because no notice u/s 143(2) was issued before completion of assessment u/s 147/ .....

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he income derived from the assessee business of growing and manufacturing of tea for the purpose of computation of composite income for application of Rule 8. (iv) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in observing that the sale of scrap of ₹ 9,04,998/- is part of the income derived from the assessee business of growing and manufacturing of tea for the purpose of computation of composite income for application of Rule 8. (v) That on the facts and in the c .....

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manufacturing of tea for the purpose of computation of composite income for application of Rule 8. (vii) That the appellant craves leave to add, alter/or amend any of the grounds of appeal during the course of hearing. 17. We have heard the submissions of the ld. Counsel for the assessee and the ld. DR. The ld. DR relied on the order of AO while the ld. Counsel for the assessee brought to our notice that even in the revised grounds of appeal the revenue has not challenged the order of CIT(A) whe .....

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he composite income for the purpose of section 33AB of the Act was fully investigated by the AO while concluding the assessment proceedings u/s 143(3) of the Act. Therefore the AO was fully conscious of miscellaneous income of ₹ 97.39 lakhs as well as the fact with regard to the income arising on account of written back of liabilities u/s 41(1) of the Act. The basis of claiming that a particular income is part of the composite income under Rule 8(1) as well as section 33AB of the Act are s .....

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