DHOLAI TEA CO.LTD.,KOLKATA vs. DCIT, CIR-4, KOLKATA

In the first ground of appeal, the assessee has pleaded that ld. Assessing Officer has erred in treating the expenditure of Rs.13,58,885/- as capital expenditure incurred for development of the Nursery.

Brief facts of the case are that the assessee has filed its return of income on 28.09.2008 declaring total income of Rs.17,90,894/-. The assessee at the relevant time was engaged in the business of growing and manufacturing of tea. Its case was selected for scrutiny assessment and notices under section 143(2) and 142(1) were issued. A perusal of the record would reveal to the Assessing Officer that it has debited nursery expenditure of Rs.13,58,885/-. The Assessing Officer has disallowed this expenditure by recording a very brief finding which reads as under:- “Nursery Expenses : The assessee is engaged in Growing, Manufacturing and sale of tea. In course of hearing it was noticed that the assessee has claimed nursery expenses of Rs.13,58,885/- and debited this in the P& L Account. Nursery expense is related to the initial budding of tea which gives advantage to the assessee for a number of years. Hence this cannot come under revenue expenditure. Considering that the nature of the expenditure is of capital one and also considering the decision of the Hon'ble Calcutta High Court in Tasati Tea Company case the said expenditure is disallowed. However the assessee may capitalise the. Same. (Addition 88,219/-)”. Appeal to the ld. CIT(Appeals) did not bring any relief to the assessee.

Before us, ld. counsel for the assessee submitted that ld. Assessing Officer failed to appreciate and construe the true proposition laid down by the Hon’ble Calcutta High Court in the case of Tasati Tea Ltd., which has been relied upon by the Assessing Officer. He took us through this judgment, which is reported in 262 ITR page 388. According to the ld. counsel for the assessee, this judgment leads the case of the assessee. He submitted that Hon’ble Court has held that nursery expenditures are to be treated as revenue expenditure. However, on the other hand, ld. D.R. contended that this judgment laid down a proposition that if the plants are raised and maintained in a nursery for being utilized for the purpose of re-plantation without any expansion of the plantation area or re- plantation in an abandoned area, then it could be a revenue expenditure. In other words, it could not be a capital expenditure. But if the nursery is being raised for expansion of the plantation area, then such expenditure is to be capitalized. Thus in view of the above proposition, it has to be ascertained for what purpose this nursery was raised by the assessee, how the plants were used. The impugned orders are silent on this point.

We have duly considered the rival contentions and gone through the record carefully. A perusal of paragraph no. 8 of the judgment relied upon by the ld. counsel for the assessee would exhibit that Hon’ble High Court has propounded that if expenditure is incurred by a Tea Company for raising a nursery wherein plants could be utilized for the purpose of re-plantation without any expansion of the plantation area, then expenditure incurred on such an activity will be a revenue expenditure. But if the nursery is being raised and plants are developed for expansion of the plantation to an additional area, then such expenditure would be treated as a capital expenditure. This aspect has not been looked into by the ld. Assessing Officer while disallowing the claim of the assessee. Therefore, we deem it appropriate to remit this issue to the file of the ld. Assessing Officer. Ld. Assessing Officer shall re-adjudicate this issue specifically considering the proposition laid down in paragraphs no. 8 & 9 of this judgment. This ground of appeal is allowed for statistical purposes.

6. In the next fold of grievance, the assessee has pleaded that ld. CIT(Appeals) has erred in confirming the disallowance to the extent of Rs.65,804/-, which was disallowed by the ld. Assessing Officer with the aid of section 14A of the Income Tax Act.

Brief facts of the case are that the assessee has shown dividend income of Rs.4,75,082/-. It has added back Rs.62,122/- towards expenditure. In other words, it has made a suo motu disallowance of expenditure at Rs.62,122/-. However, ld. Assessing Officer worked out the disallowance at Rs.2,74,035/- with the help of formula provided in Rule 8D.

On appeal, the ld. CIT(Appeals) has reduced this disallowance substantially and the finding of the ld. CIT(Appeals) reads as under:- “I have carefully considered the facts of the case and the submissions of the appellant. Appellant has computed the disallowable amount by applying its 3

The quantum mentioned in the ground of appeal is incorrect. If it is perused in the light of the finding recorded by the ld. CIT(Appeals), the ld. CIT(Appeals) though worked out the total expenditure at Rs.65,804/-, but set off this expenditure with the amount assessee itself has disallowed suo motu and a net addition of Rs.3,682/- has been confirmed. After going through the well reasoned finding of the ld. CIT(Appeals), we do not find any error in it. This ground of appeal is rejected.

In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on March 22nd, 2022.