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Facts
The revenue appealed against the order of the CIT(A) for AY 2012-13, primarily concerning the disallowance of expenses related to nursery utilization, cess on green leaf, Section 14A, deduction u/s 80IE, and travelling/conveyance expenses. The appeal was filed with a significant delay, which was condoned.
Held
The Tribunal held that the CIT(A) had correctly allowed the appeal on most grounds, including nursery utilization, cess on green leaf, Section 14A, and deduction u/s 80IE. The Tribunal also found merit in the assessee's additional issue regarding travelling and conveyance expenses, directing the AO to delete the disallowance.
Key Issues
Whether the disallowances made by the AO pertaining to nursery utilization, cess on green leaf, Section 14A, deduction u/s 80IE, and travelling and conveyance expenses were justified, and whether the CIT(A) erred in deleting these additions.
Sections Cited
Sec. 14A, Sec. 80IE, Sec. 37(1)
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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri Rajesh Kumar&Shri Pradip Kumar Choubey]
ORDER / आदेश Per Pradip Kumar Choubey, JM: This is the appeal preferred by the revenue against order of Commissioner of Income Tax (Appeal)- NFAC, Delhi (hereinafter referred to as the Ld. CIT(A)] dated 13.01.2023 for AY 2012-13. 2. At the outset, the ld. Counsel for the revenue submitted that the appeal filed by the assessee after a delay of 237 days. For this, a condonation petition has been filed which is as follows:
The Ld. A.R did not raise any objection in condoning the delay. Therefore, the delay is hereby condoned.
Brief facts of the case are that the assessee filed its return of income for the AY 2012-13 by declaring total income of Rs. 1,50,13,390/- after claiming deduction of Rs. 1,92,96,740/- u/s 80IE of the Act. The case was selected for scrutiny and notice u/s 143(2) of the Act was issued. The AO after hearing the representative of the assessee completed the assessment, assessed income of Rs. 3,77,59,050/- by making additions/disallowance under various heads i.e. on nursery utilization, cess on green leaf, application of section 14A of the Act, deduction claimed u/s 80IE of the Act and travelling and conveyance.
Assessment Year: 2012-13 Sublime Agro limited 5. Aggrieved by the said order the assessee preferred an appeal before the Ld. CIT(A) wherein the appeal of the assessee has been partly allowed as the Ld. CIT(A) has allowed the appeal of the assessee on the disallowance of expenditure towards nursery utilization, disallowance of cess of green leaf, disallowance u/s 14A of the act, disallowance of claim of deduction u/s 80IE of the act estimated profit out of green leaf purchase, capital loss incurred on sale of Govt. security and partly allowed the disallowance of expenditure towards travelling and conveyance and disallowance of expenditure towards subscription and donation.
Being aggrieved and dissatisfied the impugned order department/revenue has preferred the present appeal.
The Ld. Counsel appeared on behalf of the department challenges the impugned order on the following grounds:
i) The delay of two hundred thirty seven days in filing appeal before the Hon’ble ITAT against the order of the Ld. CIT(A) due non-availability of assessment record and malfunctioning of copying machine which may kindly condoned. ii) That on the facts and circumstances of the case and in law, the Ld. CIT(A), Kolkata-22 has erred in deleting the addition of the disallowance of Rs. 13,75,904/- expenses for Nursery Utilization. iii) That on the facts and circumstances of the case and in law, the Ld. CIT(A), Kolkata-22 has erred in deleting the addition of the Disallowance of Rs. 19,15,046/- for Cess on Green Leaf. iv) That on the facts and circumstances of the case and in law, the Ld. CIT(A), Kolkata-22, has erred in deleting the addition of the Disallowance of Rs. 51,641/- u/s 14A of the Act. v) That on the facts and circumstances of the case and in law, the Ld. CIT(A), Kolkata-22, has erred in deleting the addition of the Disallowance of Rs. 1,92,96,740/- which was deducted u/s 80IE of the Act. vi) That on the facts and circumstances of the case and in law, the Ld. CIT(A), Kolkata-22, has erred in deleting the addition of the Disallowance of Rs. 18,04,694/- expenses for Travelling & Conveyance.
Assessment Year: 2012-13 Sublime Agro limited vii) That on the facts and circumstances of the case and in law, the Ld. CIT(A), Kolkata-22 has erred in deleting the addition of the Estimated Profit and green leaf purchase of Rs. 4,12,709/-.
Contrary to that the Ld. A.R supports the impugned order thereby submitting that the Ld. CIT(A) has not only discussed the facts of the case of the assessee, rather relied on the judgment and thereafter passed the order in favour of the assessee. The ld. Counsel for the assessee by filing a petition under Rule 27 of the Appellate Tirbunal Rules, 1963 submitted that in deciding the ground no. 6 i.e. disallowance of expenditure towards travelling and conveyance. The Ld. CIT(A) did not adjudicate this issue rather upheld the disallowance on lumpsum basis to the expenditure of Rs. 50,000/- in place of Rs. 18,04,694/- as held by the AO. The Ld. Counsel submits that the Ld. CIT(A) has accepted the claim of the assessee in its finding but surprisingly enough he held in its order that the lumpsum disallowance to the expenditure of Rs. 50,000/- is warranted i.e. erroneous and liable to the set aside. The Ld. Counsel has submitted that the assessee incurred an amount of Rs. 23,70,982/- in relation to the travelling and conveyance expenses for promotion of the business activities. The said amount has been incurred wholly and exclusively for the purpose of business hence, deductible u/s 37(1) of the Act. The prayer of the ld. Counsel for the assessee is that his application under Rule 27 shall be treated to be an additional issue raised by the assessee in disposing of the appeal of revenue.
The Ld. D.R did not raise any objection if the issue is to be adjudicate by the tribunal.
Upon hearing the submission of the counsel of the respective parties, we first of all took up the issue raised by the assessee i.e. Disallowance of expense towards travelling and conveyance. In this context, first of all we have perused the order of Ld. CIT(A) and find that the Ld. CIT(A) after considering the submission of the AR and going over the supporting documents filed in this regard has held thus:
9.2 I have considered the submission of the AR of the appellant and I have gone through all the supporting documents filed in this regard. On verifying the same, it is established that travelling Assessment Year: 2012-13 Sublime Agro limited expenses have been incurred during the year for the whole time director mainly for marketing and meeting with buyers/ prospective buyers of tea within India as well as overseas countries. There was sale of goods during the year in the state of Gujarat, Maharashtra, Uttar Pradesh etc. The appellant further submitted that Doomni Teas are regarded as one of the best quality Assam Teas and bought by merchant exporters and export houses in Auction as well as private treaty. For the purposes of marketing Doomni Teas, the whole time director has to visit overseas from time to time. The details of goods sent on consignment during the relevant period to various parties within India, teas bought by Merchant Exporters through private treaty and exports made by the company during F.Y. 2011-12 were provided. Hence such travelling expenses were incurred wholly and exclusively for the purposes of business. 9.3 Further the appellant submission that the inclusion of Rs. 3,91,689/- which has been credited back towards surrender of foreign currency (on 17/08/2011 - Rs.1,26,205 and 31/10/2011 Rs.2,65,484) in the overall travelling expenses and needs to be deleted is fully justified. In view of this, the arguments and judicial precedents relied upon by the appellant, I am of the view that AO’s observations are misplaced and lump-sum disallowance to the extent of Rs. 50,000/- is warranted.”
On perusal of the observation of the Ld. CIT(A) on this issue it appears to us that the Ld. CIT(A) has admitted that the travelling expenses were incurred wholly and exclusively for the purpose of business and further held that the AO’s observation are misplaced but at the same time he made an observation that lumpsum disallowance to the expenditure of Rs. 50,000/- is warranted. Now looking to the facts of the case of the assessee, it appears to us that during the course of assessment proceedings, the assessee submitted the details of travelling and conveyance by filing copy of ledger for travelling and conveyance expenses. The details have been submitted by the assessee before the AO regarding the expenses are essential to depict herein below:
We have also gone through Section 37 of the Act which reads thus:
“Any expenditure (note being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession”. On perusal of the above provision, it is clear that, in order to qualify for deduction under section 37 of the Act, the expenditure should satisfy the following conditions: Expenditure should not fall within the ambit of between Section 30 to 36 of the Act Expenditure should be incurred or expended wholly and exclusively for the purposes of the business or profession. Expenditure should not be of personal nature Expenditure should not be of capital nature.”
Assessment Year: 2012-13 Sublime Agro limited 12. It is pertinent to mention herein that in the instant case the assessee submits that it has incurred foreign travelling expenditure towards travelling of its directors / employees to foreign countries to explore business activity. The ld. Counsel has placed reliance on the decision of Hon’ble Supreme Court in the case of CIT vs. Delhi Safe Deposit Co. Ltd. [1982] 133 ITR 756 (SC) and the decision of Hon’ble Gujrat High Court in the case of CIT vs. Shahibag Entrepreneurs Pvt. Ltd. [1995] 215 ITR 810 (Guj). The Hon’ble Apex Court has held thus:
“the true test of an expenditure laid out wholly and exclusively for the purposes of trade or business is that it is incurred by the assessee as incidental to his trade for the purpose of keeping the trade going and of making it pay and not in any other capacity than a trader. In CIT, Kerala vs. Malayalam Plantation Ltd., Subba Rao, J (as he then was) summarized the legal position at SCR page 705 thus: The aforesaid discussion leads to the following result: The expression “for the purpose of the business” is wider in scope then the expression “for the purpose of earning profits”. Its range is wide it may take in not only the day to day running of a business but also the rationalization of its administration and modernization of its machinery: it may include measure for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile titles, it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business it may comprehend many other acts incidental to the carrying on of a business it may comprehend many other acts incidental to the carrying on of a bsuienss. However wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for carrying on of the business and the business shall incur it in his capacity as a person carrying on the business.”
The present case reveals that the AO has made disallowance for 100% of amount for travelling and conveyance expenses of Rs. 18,04,694/- in the assessment order though the assessee claimed as deduction u/s 37(1) of the Act while arriving at the mixed income of the respective garden / head office out of which taxable income of 40% of the mixed income was derived as per Rule 8 of the Rules., 1962 and accordingly, the assessee has claimed deduction for 40% of amount for travelling and conveyance expenses in the computation of income as income tax is paid on 40% of the mixed income.
Going over the facts of the case, documentary evidence placed by the assessee and order of Ld. CIT(A), we are in this view that the claim of the assessee is bona fide and genuine one, hence ,we allow this issue in favour of the assessee directing the AO Assessment Year: 2012-13 Sublime Agro limited to delete the additional disallowance made in relation to travelling and conveyance expenses. Accordingly, the additional issue raised by the assessee by filing an application under Rule 27 of the Tribunal Rules are hereby allowed.
Now coming to the department’s appeal, we find that the Ld. CIT(A) in allowing the appeal of the assessee has discussed the facts of the case and judicila pronincement passed. We are taking grounds one by one.
(i) Disallowance of expenditure towards nursery utilization:
In this context, we have gone through the order of Ld. CIT(A) and find that the claim of the assessee against this issue for AY 2011-12 has already been accepted by the revenue and no addition was made previously. In the present case, the amount of nursery utilization expenses was not spent towards raising or maintenance of nursery but in fact it was spent towards replacement of useless or dead plants by re-planting the bush within the plantation area. Hence it covered within the ambit of Rule 8(2) of the Rules. The Ld. CIT(A) has given relief to the assessee by giving justifiable reason. Hence did not require for any interference.
(ii) Disallowance of cess on green leaf from composite income:
The AO in its order held that cess on green leaf would be deducted only to the extent of 60% related to the agricultural income portion of the total income of a tea manufactures after applying Rule 8 of the Rules. We have gone through the order of Ld. CIT(A) and find that the Ld. CIT(A) has passed the order in favour of the assessee by placing reliance of the order passed by the Hon’ble Calcutta High Court in the case of CIT vs. AFT Industries Ltd. reported in [2004] 270 ITR 167 (Cal) and further placed reliance on the order passed by the ITAT in the assessee’s own case for the AY 2005-06 and 2006-07. The Ld. CIT(A) has passed the order in favour of the assessee against this issue. The relevant portion is extracted as under:
“Also, the appellant submits that a similar issue was raised by the Ld. AO in the assessment proceedings of the appellant for AYs 2005-06 and 2006-07 and the Hon’ble CIT(A) held the issue in favour of the appellant and deleted the disallowance made by the Ld. AO on this account. Subsequently, on an appeal by the Revenue before the Hon’ble ITAT, the Hon’ble Assessment Year: 2012-13 Sublime Agro limited ITAT dismissed the appeal relying on the decision in the case of AFT Industries Ltd. (supra). Accordingly, it could be concluded that the Appellant’s claim was accepted by the Revenue Authorities. Further, since the Ld. AO is bound by the order of the Hon’ble CIT(A) and the Hon’ble ITAT (being higher authorities), the Ld. AO is not justified by disallowing the cess of green leaves to the extent of 40%.” Going over the order of Ld. CIT(A), we do not find any merit in the contentions of the Ld. D.R to interfere in the order of Ld. CIT(A) in this issue.
(iii) Disallowance u/s 14A of the Act:
It is pertinent to mention herein that during the assessment year under consideration the assessee earned dividend income of Rs. 6,21,651/- consisting of Rs. 1,64,075/- from Indian companies which was exempt from tax u/s 10(34) and Rs. 4,57,576/- from units of mutual funds under liquid fund scheme. Investment in non- current investment was made prior to FY 2011-12 and no fresh investment was made during the year. It is important to mention herein that the matter pertaining to disallowance u/s 14A of the Act has been decided in favour of the assessee during AY 2010-11 as well as AY 2011-12 by the Ld. CIT(A). The Ld. CIT(A) in allowing this issue in favour of the assessee has held thus:
Suo Moto Disallowance In this regard, it is pertinent to note that the Appellant suo-moto disallowed an amount of Rs. 9,200 under section 14A of the Act as actual expenditure incurred in relation to earning of said exempted income. In view of above, if the Ld. AO was not satisfied with the claim of the Appellant in relation to disallowance under section 14A of the Act, then as per provisions of section 14A(2) of the Act, a notice should have been issued to the Appellant to provide basis of computation and an opportunity provided to place on record all the back-ups before proceeding to make additional disallowance in the assessment order. Accordingly, the act of the Ld. AO was grossly in violation of principles of natural justice. Entire exempt income has been earned by the Appellant on the investments made out of own funds: It is pertinent to note that the entire exempt income in the form of dividends, which do not form part of the total income, has been earned by Appellant on the investments made out of own funds. Further, the investments are made in mutual funds based on predetermined investment criteria. Therefore, no overhead expenditure is also relatable to the said income in this year. The aggregate of the Company’s own funds / ‘Shareholders’ funds’ [comprising of share capital and reserves and surplus] amounted to Rs. 43.19 crores, whereas the aggregate investments amounted to Rs. 1.89 crores only. Therefore, it may be concluded that all the investments have been made out of own funds of the Company and therefore, no which exempt Assessment Year: 2012-13 Sublime Agro limited income has been earned. A copy of the Audited Accounts of the assessee for the subject AY is attached herewith as Annexure 8. In this connection, the Company wishes to place reliance on the judicial pronouncement of the Hon’ble Kolkata High Courtin case of CIT vs. Britannia Industries Ltd [280 ITR 525 (Cal)]. In the facts of this case, the assessee advanced interest-free loan to a firm owned by relatives of a director. On the other hand, the assessee had also availed loan on which it paid interest at the rate of 12% per annum. The Assessing Officer (‘AO’) disallowed the interest paid by the assessee on the loan, on the basis that the borrowed funds were utilized for advancing interest free loan to the related concern. The assessee, inter alia, contended that it had adequate own funds to advance loan to the related concern. The Hon’ble High Court held as follows: “......the entire expenditure was made from mixed account; therefore, there would be presumption that the amount was made out of the own fund of the assessee and not from the borrowed capital; that there were sufficient funds and that the advances were made from the mixed account.” The Ld. CIT(A) has also discussed the judicial pronouncement in its order which is needless to discuss and reiterate the same . The Ld. CIT(A) has observed thus:
“7.2 I have perused the action of the AO in making a disallowance of Rs. 51,641/-under section 14A of the Act. The said disallowance has been made by the AO notwithstanding the fact that the appellant has suo motto made a certain disallowance. It appears that the AO has mechanically applied Rule 8D alongwith section 14A while making the disallowance. It is also apparent that the AO has not recorded any positive dissatisfaction in the matter, before involving section 14A. In view of appellant’s submission that there was no brought forward loans and fresh investment made during the year, and that the interest payment were on the working capital only, the disallowances made by the AO appear to be unsustainable. 7.3 With that view of the matter, I find that the disallowance made suo motto by the appellant were adequate to cover the matters relating to section 14A. In view of the ratio of various judgments both of the jurisdictional High Court as well as of other high courts and ITAT Benches and the past history of this ground of appeal in the assessees own case, where this ground of appeal was deleted, and considering the ld. AR/ appellant’s submission that there was no fresh investment during the year and interest payments were only on working capital loan utilized exclusively for the business, this addition of Rs. 51,641/- made under section 14A of the Act cannot be sustained, and is order to be deleted.” Keeping in view of our discussion we find no infirmity in the order of Ld. CIT(A) on this issue.
(iv) The next issue disallowance claimed u/s 80IE of the Act.
The Ld. CIT(A) has allowed this issue in favour of the assessee by giving analysis to the judicial pronouncement and the facts of the case. It is further pertinent to mention herein that the matter pertinent to deduction u/s 80IE of the Act has already been decided in favour of the assessee in the initial assessment year i.e. AY 2010-11 as Assessment Year: 2012-13 Sublime Agro limited well as subsequent AY 2011-12 by the Ld. CIT(A). We find during the course of assessment proceedings the AO required the assessee to furnish details in respect of which deduction u/s 80IE of the Act was claimed and the assessee filed replies before the AO substantiating the aforementioned facts that the investment to the books values of plant and machinery of Doomni Tea Estate during the FY ended on 31.03.2010 relevant to AY 2010-11 were 37.38% i.e. more than the requisite 25% of the existing book values of plant and machinery on 1st April, 2009 and all conditions of substantial expansion were complied. The assessee demonstrates the addition made to plant and machinery during the subject assessment year as follows:
With regard to Withering Trough (Item No. 1 in the above given table) amounting to Rs 4,369,623, the Appellant submits that the Company placed an order with M/s Bideshi Engineering Consultancy (‘M/s Bideshi’) on 22 December 2009 for constructing four twin troughs. The said work of withering trough was completed by M/s Bideshi during the first fortnight of March 2010 and the withering troughs were ready to use during the subject FY. A copy of the confirmation obtained from M/s Bideshi on the said completion is attached herewith as Annexure 11. With regard to Axial Flow Fans (Item No. 2 in the above given table) amounting to Rs. 387,600, the Appellant submits that the asset was dispatched by the seller from Kolkata on 25 February 2010 which is evident from the copy of the tax invoice attached herewith as Annexure 12. Further, the normal time for transportation of such assets from Kolkata to Assam takes around 4 to 5 days only. Further, the Appellant wishes to submit that the said Axial flow fans are an integral part of the withering trough and accordingly, the contract for installing the same was given to M/s Bideshi who worked on the construction of the withering troughs. A copy of the completion certificate received from M/s Bideshi in this regard is also attached herewith as Annexure 13. With regard to the DG set (Item No. 3 of the above given table) amounting to Rs. 1,777,234, the Appellant wishes to submit that the said DG set was commissioned by the vendors on 31 March 2010. A copy of the installation check-up report and commissioning report is attached herewith as Annexure 14. With regard to pass coal heater (Item No. 4 of the above given table) amounting to Rs. 1,402,576, the Appellant submits that the same was commissioned on 30 March 2010 by the vendor. A copy of the confirmation provided by the vendor is attached herewith as Annexure 15. With regard to CTC machinery (Item No. 5 of the above table) amounting to Rs. 993,198, the Appellant wishes to submit that the same was received in the garden on 27 March 2010 and installed on 30 March 2010. A copy of the confirmation provided by the vendor in this regard is attached herewith as Annexure 16.” The Ld. CIT(A) in its order has held thus:
Assessment Year: 2012-13 Sublime Agro limited “8.2 I have duly considered the submission of the appellant and evidences on record in the forms of Annexure- 6 to 11 towards purchases and installation of new machineries in question as well as remand report of the AO in A.Y. 2010-11. The appellant company filed all required details and evidences for purchases and installation of new machineries in its Doomni Tea Estate, Assam. The AO has not disputed the purchases of new machineries, not even disputed installation of the said machineries in the tea garden. However, the AO doubted that those machineries might not have been put to use in the relevant financial year and he formed his doubt only the finding of assessment order for A.Y. 2010-11. Apart from doubts, the AO has not brought any material evidence on record that those machineries were not used in the relevant financial year. It is well settled law that additions cannot be made on doubt, surmises and conjectures; same has to be established bringing material facts on records with supporting evidences. 8.3 The applicant company has filed necessary evidence in support of its claim that the machineries in question were purchased before 31st March, 2012. Thus, those machineries were ready in all respect for operation in that financial year itself. Therefore, if the AO doubts that those machines were not actually put to use within the financial year, onus is on him to bring in material evidence on record to establish his doubts. The AO failed to do so even after getting opportunity in the remand proceedings in A.Y. 2010-11. Further, in view of the past history of this ground of appeal in the assessees own case, where this ground of appeal was deleted, the disallowance made by the AO is not maintainable. He is directed to allow deduction u/s 80-IE of the Act. The ground of appeal is therefore allowed.”
17. Keeping in view of our discussion as well as the order of Ld. CIT(A), we do not find any merit of the revenue’s appeal. Accordingly, the appeal of the revenue is hereby dismissed.
In the result, the appeal filed by the revenue is dismissed.
Order is pronounced in the open court on 10th February, 2025
Sd/- Sd/- (Rajesh Kumar/राजेश कुमार) (Pradip Kumar Choubey /�द�प कुमार चौबे) Accountant Member/लेखा सद�य Judicial Member/�या�यक सद�य Dated: 10th February, 2025 SM, Sr. PS Copy of the order forwarded to: 1. Appellant- DCIT, Circle-4(1), Kolkata 2. Respondent – M/s Sublime Agro Limited, Room No. 201-203, 7/1, Lord Sinha Road, Kolkata-700071 3. Ld. CIT(A)-NFAC, Delhi 4. Ld. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail)