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Income Tax Appellate Tribunal, “C” BENCH, KOLKATA
Before: SHRI RAJPAL YADAV, HON’BLE & SHRI GIRISH AGRAWAL, HON’BLE
PER SHRI RAJPAL YADAV, VICE PRESIDENT :
The present appeal is directed at the instance of the assessee against the order of the Learned Commissioner of Income Tax (Appeals) - Siliguri, (hereinafter the “ld. CIT(A)”) dt. 19/09/2019, passed u/s 250 of the Income Tax Act, 1961 (“the Act’), for Assessment Year 2013-14. 2. Before taking cognizance of the grounds of appeal taken by the assessee in seriatim, we deem it proper to take note of the brief background. The assessee is a company engaged in tea plantation and manufacturing of tea. It has filed its return of income on 28/09/2013 declaring total income of Rs.96,04,272/-. The case of the assessee was selected for scrutiny assessment and a notice u/s 143(2) and 142(1) of the Act was issued and served upon the assessee. The ld. Assessing Officer has passed assessment order u/s 143(3) of the Act on 18/03/2016. The Assessing Officer has made certain Assessment Year: 2013-14 A.C. Paul Agricultural Co. Pvt. Ltd. 2 disallowances which have been confirmed by the ld. CIT(A) and, therefore, the assessee has agitated them before this Tribunal.
Now, we take note of the grounds of appeal raised by the assessee, which read as under:- “1. For that on the facts of the case, the order passed by the Ld. C.I.T.(A) is completely arbitrary, unjustified and illegal.
For that on the facts of the case, the Ld. C.I.T. (A) was wrong in dittoing the order of the A.O. and confirming the disallowance amounting to Rs.25,000/- as subscription/donation for day to day business activities to be carried on peacefully which is allowable u/s. 37 of the I.T. Act, as such his finding is completely arbitrary, unjustified and illegal.
For that on the facts of the case, the Ld. C.I.T.(A) was wrong in dittoing the order of the A.O. and confirming the addition amounting to Rs.95,660/- treating the same as undisclosed purchase which is completely arbitrary, unjustified and illegal.
For that on the facts of the case, the Ld. C.I.T. (A) was wrong in dittoing the order of the A.O. and confirming the disallowance u/s. 40(a)(ia) of the Income Tax Act amounting to Rs.618,325/- which is completely arbitrary, unjustified and illegal.
For that on the facts of the case, the Ld. C.I.T.(A) was wrong in confirming the disallowance u/s. 40(a)(ia) of the I.T. Act amounting to Rs.618,325/- as the assessee company was not liable to deduct TDS on payment made on account Fine of labour charges, therefore, the said disallowance u/s. 40(a)(ia) is completely arbitrary, unjustified and illegal.
For that on the facts of the case, the Ld. C.I.T.(A) was wrong in holding that the assessee was covered by Section 194C of the Income Tax Act, therefore, the disallowance made u/s. 40a(ia) amounting to Rs.618,325/- by the Ld. CIT(A) is completely arbitrary, unjustified and illegal.
For that on the facts of the case, the Ld. C.I.T.(A) was wrong in not considering the facts that the entire addition made by the A.O. amounting to Rs.759,815/- as business income without apportioning the same into agriculture income and business income as per Provision of Rule 8, thus his finding is completely arbitrary, unjustified and illegal.
For that the charging interest are mechanically wrong and illegal. Assessment Year: 2013-14 A.C. Paul Agricultural Co. Pvt. Ltd. 3
For that the appellant reserves the right to adduce any further ground or grounds, if necessary, at or before the hearing of the appeal.”
The order of the ld. CIT(A) is very brief wherein the ld. CIT(A) has taken note of the submissions of the assessee. We deem it proper to take note of the submissions of the assessee as well as the findings of the ld. CIT(A) on all these issues, which read as under:- “3. During the course of appeal proceedings, the appellant has submitted the following written submission is as under:- Ground No. 1 The appellant company is a tea grower and manufacturer and has to deploy a large numbers of laborers. The appellant company had paid a donation of Rs. 25,000/- to labour union during the year out of business exigency to avoid probable disputes over bonus issue. As the donation had been paid to carry on business activities of the appellant company smoothly and to protect probable loss due to labour strike, the same was an allowable business expenditure w/s 37 of the IT Act, 1961. In CIT vs. Katkbomman Transport 1921TR (Mad) 168, in Addl. CIT vs. Rajasthan Spinning & Weaving Mills Ltd. 186 CTR (Raj.) 117 and in Sudipta Sarkar vs. DCIT (2006) 103 TTJ (Kolkata Tribunal) (Special Bench) 297, it has been held that donation paid out of business exigency is an allowable business expenditure. Your honour is requested to delete the addition of Rs. 25,000/- for the sake of justice. Ground No. 2 The appellant had purchased fuels & lubricants from one Shyam Highway Services and duly debited the bills received from them in its books of A/c from time to time. Shyam Highway services had raised three bills for Rs. 27,649.60, dated 20.04.2012, for Rs. 37,685.20 dated 30.07.2012 and for Rs. 30,324/- dated 14.09.2012 against the appellant but did not deliver any of the aforesaid bills to the appellant. The appellant was totally unaware about the bills. It was only on 10.09.2013, in next financial year, the bills were handed over to the appellant by Shyam Highway Services stating that the bills were misplaced from their end and were not delivered to the appellant. The fact had been confirmed by them vide their letter 18.05.2016. A copy of the said letter is enclosed herewith for your kind consideration. Assessment Year: 2013-14 A.C. Paul Agricultural Co. Pvt. Ltd. 4 However, on receipts of the bills on 10.09.2013, the appellant had duly entered those bills in its books of A/c for F.Y. 2013-14 and paid the same by A/c payee cheque bearing No. 013127 dated 21.09.2013, drawn on Bank of India. As there was no lapse on the part of the appellant, the Ld. AO should not have treated the purchase of Rs. 95,658.80 as undisclosed purchase of the appellant for Asst. Year 2013-14 which had been duly considered by the appellant in its books for the Asst. Year 2014-15. The appellant would like to cite the decision of Hon'ble Calcutta High Court in the case of Modern Malleables Ltd. vs. CIT (2011)57 DTR (Cal) 39, wherein the Hon'ble High Court has held that if the mistake regarding purchase entry is rectified in subsequent year in the books of account, no adverse interference should be drawn against the assessee and deduction should be allowed.
In view of the above facts & circumstances, the addition made by the Ld. AO may please be deleted for the sake of justice. Ground No. 3: Not Pressed. Ground No. 4 The appellant company is a tea grower and manufacturer of Tea. As per Rule 8 of the IT Rules 1962, only 40% of its income is liable to be taxed under Income Tax and balance 60% of income has to be treated as agricultural income. In Mcleod Russel India(P) Ltd. vs. CIT (2013)260 CTR 337 (Gauhati HC)// 90 DTR 425, The assessee had earned incomes from sale of license granted under customs & Central Excise duty draw back & sale of scrapes. The assessee had also received insurance claim on A/C of loss caused to the business of tea, finished plantation etc., due to flood and heavy rains. All the incomes & receipts had been treated as composite incomes of the appellant and the Hon'ble High Court had held that only 40% of those incomes/receipts were liable to income tax. Remaining 60% was agricultural income. Same view has been expressed by the Hon'ble Supreme Court in the case of UOI vs. Tata Tea Co. Ltd. (2017) 398 ITR 260(SC).
Hence the Ld. AO had erred in treating the entire addition of Rs. 7,59,815/- as the income chargeable to income tax instead of considering only 40% of the same. When the addition is made, that becomes the income of the assessee. As the entire additions were resulted to composite income your honour is requested to restrict only the additions to the extent of 40% only after due relief to the appellant as contended above. Your appellant would like to cite the decision of Nagpur bench of ITAT in the case of Asst. CIT vs. Buldana Urban Co-Opt. Credit Society Ltd., whose entire income is allowable to be deducted u/s 80P, reported in (2013)85 DTR Assessment Year: 2013-14 A.C. Paul Agricultural Co. Pvt. Ltd. 5 (Nag)410, that when addition is made w/s 68, that has to be treated as profits and gains arising from the business and therefore, deduction w/s 80P(2)(a)(i) is allowable.
Decision :- I have perused the written submission, grounds of appeal, statement of facts and assessment order made by the appellant. My observation and findings on different grounds of appeal are as under:-
The first addition is against administrative expenses of Rs. 3,320/-.
The second addition is against discrepancy of Rs.95,660/- on account of non- reconciliation " in the course of cross-verification of one the Creditor named M/s Shyam Highway Service u/s 133(6) of the IT Act, a discrepancy of Rs. 95660/- was selected in the books of the assessee and the same is reproduced hereunder: Closing balance as per ledger of the assessee: 2,09,440/- Closing balance as per party's confirmation:3,05,100/- Difference : 95,660/-
Accordingly addition of Rs. 95,660/- on account of undisclosed purchase is hereby confirmed.
The third addition of Rs. 6,27,625/- on account of repairing roads and other maintenance. The appellant has paid Rs. 3,08,365/- to Mithu Das and Rs. 3,09,960/- to Bikash Singha without making TDS.
The AO has justified as there is no proper explanation by the appellant both in assessment and appeal proceedings. The addition is hereby confirmed.
In the result, appeal of the assessee is dismissed.”
With the assistance of the ld. Representatives, we have gone through the record carefully.
As far as the first disallowance of Rs.25,000/- is concerned, it has been pointed out that this expenditure was incurred on the donations to different labour unions on festivals to create a conducive atmosphere and harmonious atmosphere in the tea gardens. The assessee cited two decisions in support of this contention in the written submission extracted supra. In Assessment Year: 2013-14 A.C. Paul Agricultural Co. Pvt. Ltd. 6 our opinion, it is an allowable expenditure u/s 37 of the Act because donations on different festivals to labour unions is for the purpose of maintaining a harmonious relationship with the management. Therefore, the ld. CIT(A) has erred in confirming this disallowance without making any discussion in the finding extracted supra. Accordingly, we allow this ground of the assessee and delete this addition.
The next amount in dispute is Rs.95,660/-. It is pertinent to observe that the assessee had been purchasing fuel and lubrication from Shyam Highway Service. By mistake three bills of earlier years were not submitted by the supplier and they were submitted during this accounting year. The assessee has recorded these bills in the books and, therefore, made the payments. The ld. First Appellate Authority failed to appreciate that the expenditure has been crystallised during this year when a bill was raised by the supplier, though, supplies have been made in the earlier years but all these facts could have been verified and then cross-verified by the suppliers. In such a situation, the expenditure ought not to have been disallowed. The assessee has rightly relied upon the judgment of the Hon’ble Calcutta High
As far as Ground Nos. 5 to 7 are concerned, in this case the assessee has not disputed the disallowance of the amounts on merit. It is disputing that being a tea company its income has to be assessed by taking cognizance of Rule 8 of the Income Tax Rules, 1962. Thus, 60% of the income has to be treated as agricultural income because concerned State Government would levy tax under the Agricultural Income-tax Act. For the purpose of income- Assessment Year: 2013-14 A.C. Paul Agricultural Co. Pvt. Ltd. 7 tax, 40% has to be taken in account for determining the demand payable to the assessee. We accordingly, allow this ground of appeal of the assessee on strength of the judgment of the Hon’ble Guwahati High Court as well as Hon’ble Supreme Court, relied upon by the assessee in the written submissions. The ld. Assessing Officer is directed to only include 40% of these amounts in the taxable income of the assessee. Rest has to be excluded from levy of tax. With the above observations, appeal of the assessee is allowed.
In the result, appeal of the assessee is allowed.
Order pronounced in the Court on 8th February, 2023 at Kolkata. (GIRISH AGRAWAL) VICE-PRESIDENT Kolkata, Dated 08/02/2023 *SC SrPs
आदेश क" "ितिलिप अ"ेिषत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant
""यथ" / The Respondent 3. संबंिधत आयकर आयु" / Concerned Pr. CIT 4. आयकर आयु" अपील ( ) / The CIT(A)- 5. िवभागीय "ितिनिध ,आयकर अपीलीय अिधकरण, कोलकाता/DR,ITAT, Kolkata, 6. गाड" फाईल /Guard file.
आदेशानुसार/ BY ORDER,