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Income Tax Appellate Tribunal, KOLKATA ‘B’ BENCH, KOLKATA
Before: Shri P.M. Jagtap, Vice- & Shri S.S. Viswanethra Ravi
Per Shri P.M. Jagtap, Vice-President: This appeal is preferred by the Revenue against the order of ld. Commissioner of Income Tax (Appeals)-20, Kolkata dated 08.08.2018.
As noted at the outset, there is a delay of 137 days on the part of the Revenue in filing this appeal before the Tribunal. In this regard, an application is moved by the Revenue seeking condonation of the said delay and keeping in view the reasons given therein, we are satisfied that there was a sufficient cause for the delay of 137 days on the part of the Revenue in filing this appeal before the Tribunal. Even the ld. Counsel for the assessee has also not raised any objection in this regard. The said delay is accordingly condoned and this appeal of the Revenue is being disposed of on merit. 1
ITA No. 525/KOL/2019 Assessment Year: 2005-2006 M/s. Andrew Yule & Co. Limited 3. In Ground No. 1, the Revenue has challenged the action of the ld. CIT(Appeals) in allowing the claim of the assessee for deduction of Rs.1,28,04,000/- on account of liquidated damages.
In the Profit & Loss Account filed along with the return of income for the year under consideration, a sum of Rs.1,28,04,000/- was debited by the assessee on account of liquidated damages. It was explained on behalf of the assessee before the Assessing Officer that this amount represented deductions made by the customers on account of late delivery of goods, etc. and since the expenses were incurred in the ordinary course of business, the same were allowable as deduction. In the absence of relevant documentary evidence filed by the assessee to support and substantiate the said explanation, the Assessing Officer disallowed the assessee’s claim for deduction on account of liquidated damages. On appeal, the ld. CIT(Appeals) deleted the said disallowance made by the Assessing Officer by following his appellate orders passed in assessee’s own case for A.Y. 2003-04 and 2004-05, wherein a similar claim of the assessee for liquidated damages was disallowed.
We have heard the arguments of both the sides and also perused the relevant material available on record. As agreed by the ld. Representatives of both the sides, this issue is squarely covered in favour of the assessee by the decision of this Tribunal rendered in assessee’s own case for A.Y. 2008-09 to 2011-12 rendered vide its common order dated 20.03.2019 passed in ITA Nos. 676/KOL/2014 and 1737, 1882 & 1883/KOL/2016. A copy of the said order is also placed on record and perusal of the same shows that a similar issue relating to the assessee’s claim for liquidated damages was allowed by the Tribunal vide paragraph no. 11 of its order, which is extracted below:-
“11. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the AO disallowed the liquidated damages on the ground that the evidence to substantiate the claim of the assessee was not filed before him. The Ld. CIT(A) has noted that on this issue 2
ITA No. 525/KOL/2019 Assessment Year: 2005-2006 M/s. Andrew Yule & Co. Limited the AO has not given proper opportunity to the assessee to produce the details to substantiate the claim. The Ld. CIT(A), therefore, called for the details of the expenses incurred under the head 'liquidated damages' along with the copies of the contract entered into by the assessee. It was brought to the notice of the Ld. CIT(A) that the liquidated damages arose out of the contractual obligation towards the customers in relation to timely execution of the job work and terms and conditions of orders placed by the customers which include enforcement of the liquidated damages clause in the contract. It was brought to the notice of the Ld. CIT(A) that whenever there is a late delivery of goods, the customers suo-motu deduct certain amount at a percentage of consideration as per the terms and conditions of the order/contract agreed upon by both parties at the time of contract. Before the Ld. CIT(A), the list of the liquidated damages incurred by the assessee company was enclosed which is brought to our notice and placed in the paper book at page 5. It was brought to our notice that the late delivery of the goods was due to various reasons like the sudden transport strike, Hartal, natural calamities etc. and since there is a liquidated damages clause in the contract for timely delivery of goods between the parties and for delay caused the other party deduct the amount while making the payment to assessee. The 7 ITA Nos.676/Kol/2014, 1737/Kol/2016, 1882&1883/Kol/2016 Andrew Yule & Co. Ltd., AYs- 2008-09, to 2011-12 Ld. CIT(A) noted after perusal of the relevant contract entered into by the assessee that if there is a delay in delivery of the goods by the assessee, then a percentage of the consideration agreed upon by both the parties at the time of contract would be debited which is shown as liquidated damages. We note that the Ld. CIT(A) has gone through the details of the liquidated damages and noted that the amounts have been deducted from the bills and has taken note that due to the late delivery of goods, the customers have reduced the price. The Ld. CIT(A) has noted from the details submitted that the "liquidated damages" were deducted by the Tamilnadu Electricity Board and Damodar Valley Corporation. The Ld. CIT(A) also took note that the assessee was able to provide confirmation of this fact from Tamilnadu Electricity Board; and in respect of Damodar Valley Corporation the assessee was able to produce the copy of the voucher and the copy of the cheque received from the said party which depicted that the liquidated damages have been deducted. For giving relief to the assessee the Ld. CIT(A) has relied on the order of the Hon'ble Allahabad High Court in the case of Central Trading Agency Vs. CIT 56 ITR 561 (All) wherein the Hon'ble High Court allowed the expenses incurred for liquidated damages under the head commercial expediency and also the decision of the Hon'ble Madras High Court in the case of CIT Vs. Indane Bislers 91 ITR 427 (Mad). Our attention was drawn to the copies of the contract and other details and we agree with the Ld. CIT(A) that it was an inbuilt condition of the contract that in case of late delivery of goods, percentage of consideration as liquidated damages would be deducted by the customer while making payment. It is noted that the payment was made to the assessee by the parties while it was carrying on its business, and the deduction of payment made by the parties were as per the contractual terms and so, it is an allowable deduction and we confirm the order of the Ld. CIT(A) and dismiss this ground of appeal of the revenue”.
ITA No. 525/KOL/2019 Assessment Year: 2005-2006 M/s. Andrew Yule & Co. Limited As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to A.Ys. 2008-09 to 2011-12, we respectfully follow the order of the Coordinate Bench of this Tribunal for the said years and uphold the impugned order of the ld. CIT(Appeals) deleting the disallowance made by the Assessing Officer on account of liquidated damages. Ground No. 1 of the Revenue’s appeal is accordingly dismissed.
In Ground No. 2, the Revenue has challenged the action of the ld. CIT(Appeals) in deleting the disallowance of Rs.4,63,49,404/- made by the Assessing Officer on account of prior period expenses.
In the Profit & Loss Account filed along with the return of income, a sum of Rs.4,63,49,404/- was debited by the assessee on account of prior period expenses. According to the Assessing Officer, these expenses related to the earlier years were not allowable for the year under consideration. He accordingly disallowed the same. On appeal, the ld. CIT(Appeals) deleted the said disallowance made by the Assessing Officer by following his appellate order passed in assessee’s own case for A.Y. 2003-04 and 2004-05.
We have heard the arguments of both the sides and also perused the relevant material available on record. As submitted by the ld. Counsel for the assessee, the liabilities on account of Sales Tax, Differential Pension, Fund Contribution etc. relating to earlier years had crystallized in the year under consideration and the same accordingly were claimed as deduction in the year under consideration. He has also submitted that a similar issue was involved in assessee’s own case for A.Ys. 2008-09 to 2011-12 and the same has already been decided by the Tribunal vide its common order dated 20.03.2019 (supra) vide paragraph no. 20, which reads as under:-
ITA No. 525/KOL/2019 Assessment Year: 2005-2006 M/s. Andrew Yule & Co. Limited “20. We have heard rival submissions and gone through the facts and circumstances of the case. The AO has disallowed the expenses on the reason that since these expenses are not related to the relevant assessment year, he disallowed the same. On appeal, the Ld. CIT(A) has gone through the details of the expenses item-wise and has reproduced the details which is given in Form No. 3CD annexure - 9 which reveals that expenditure of Rs.10,42,572/- was on account of bonus, interest on late deposit of TDS Rs.11,40,201/-, interest on sales tax Rs.2,34,898/-, ESI Rs.7,65,351/-, service tax Rs.62,441/-, Gratuity Rs.12,88,395/-, food staff Rs.4,46,542/-, fee Rs.1,07,583/- etc. had accrued only in the AY 2009-10 and not of any earlier assessment year. Therefore, expenses of such nature which though relates to earlier period had crystalised in the year under consideration either due to change of law with retrospective effect like bonus or till finalization of sales tax case or settlement with trade union with retrospective effect in respect to fee, allowance etc. or receipt of final bill after the cut-off date of the assessment years. The Ld. CIT(A) has duly considered the magnitude and the scale of operations of the assessee company and observed that many of the expenses could not be correctly estimated and there could arise exigencies which require calibration/correction and, therefore, taking note of the fact that these expenses are crystallized in this assessment year under consideration, the Ld. CIT(A) has given relief which according to us, does not require any interference from our part and we 13 ITA Nos.676/Kol/2014, 1737/Kol/2016, 1882&1883/Kol/2016 Andrew Yule & Co. Ltd., AYs- 2008- 09, to 2011-12 confirm the same. Therefore, this ground of appeal of the revenue for the assessment years under consideration is dismissed”. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to A.Y. 2008-09 to 2011-12, we respectfully follow the order of the Coordinate Bench of this Tribunal for the said years and uphold the impugned order of the ld. CIT(Appeals) deleting the disallowance made by the Assessing Officer on account of prior period expenses. Ground No. 2 of the Revenue’s appeal is accordingly dismissed.
In Ground No. 3, the Revenue has challenged the action of the ld. CIT(Appeals) in deleting the disallowance of Rs.5,93,03,435/- made by the Assessing Officer on account of Cold Weather Expenses.
We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. It is observed that the disallowance made by the Assessing Officer on account of cold weather expenses was deleted by the ld. CIT(Appeals) vide his impugned 5
ITA No. 525/KOL/2019 Assessment Year: 2005-2006 M/s. Andrew Yule & Co. Limited order by following his appellate orders passed in assessee’s own case for A.Y. 2002-03 to 2004-05, wherein a similar issue was decided in favour of the assessee. At the time of hearing before the Tribunal, the ld. Representatives of both the sides have submitted that the appellate orders of the ld. CIT(Appeals) giving relief to the assessee on a similar issue were challenged by the Revenue in the appeals filed before the ld. CIT(Appeals) and while disposing the said appeals, the Tribunal has restored this issue to the file of the Assessing Officer for deciding the same afresh with certain directions. They have urged that a similar issue involved in the year under consideration, therefore, may also be sent back to the Assessing Officer for deciding the same afresh. The impugned order of the ld. CIT(Appeals) on this issue is accordingly set aside and the matter is restored to the file of the Assessing Officer for deciding the same afresh as per the same direction as given by the Tribunal for A.Ys. 2002-03, 2003-04 and 2004-05. Ground No. 3 of the Revenue’s appeal is accordingly treated as allowed for statistical purposes.
In Ground No. 4, the Revenue has challenged the action of the ld. CIT(Appeals) in deleting the disallowance of Rs.51,67,374/- made by the Assessing Officer on account of expenses incurred on maintenance of young tea bushes.
The deduction claimed by the assessee on account of expenses incurred on maintenance of young tea bushes was disallowed by the Assessing Officer on the ground that the said expenses were capital in nature. The ld. CIT(Appeals) deleted the said disallowance by following his appellate orders passed in assessee’s own case for A.Y. 2002-03 to 2004-05, wherein a similar issue was decided in favour of the assessee.
We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As agreed by the ld. Representatives of both the sides, this issue is squarely covered in
ITA No. 525/KOL/2019 Assessment Year: 2005-2006 M/s. Andrew Yule & Co. Limited favour of the assessee by the order of this Tribunal dated 20.03.2019 passed in assessee’s own case for A.Y. 2008-09 to 2011-12, wherein a similar issue was decided by the Tribunal vide paragraph nos. 14 & 15 of its order as under:-
“14. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the AO has disallowed the expenditure on the ground that Rule 8(2) allows only for replanting and there is no provision for allowance of expenses in relation to young tea bushes, therefore, he has treated the entire expenditure as capital expenditure and added back the same with the total income. On appeal, it was brought to the notice of the Ld. CIT(A) that the entire expenditure relates to maintenance of young tea bushes for the purpose of re-plantation only in area already under plantation and it is clearly allowable expenses under Rule 8(2) of the Rules. It was brought to the notice of the Ld. CIT(A) that the company has been claiming the expenditure consistently and this issue cropped up in AY 1998-99 in the case of assessee's own case in ITA No. 2030/Kol/1996, the Tribunal by order dated 30.08.2004 has decided the case in favour of the assessee. The Ld. CIT(A) took note of the Tribunal's order in assessee's own case wherein the Tribunal has held that the expenses incurred for maintenance in respect of immature tea bushes in the existing garden is to be allowed as revenue expenditure and it was further held that since the expenses were incurred by the assessee company for maintenance and replacement of tea bushes in its existing garden, the same cannot be said to have created an enduring benefit which can be termed capital in nature and as accordingly, the expenses claimed by the assessee company was allowed as revenue expenditure. We note that the Ld. CIT(A) while giving relief to the 9 ITA Nos.676/Kol/2014, 1737/Kol/2016, 1882&1883/Kol/2016 Andrew Yule & Co. Ltd., AYs- 2008-09, to 2011-12 assessee has relied on the Hon'ble Calcutta High Court decision in the case of Tasati Tea Ltd. Vs. CIT (2003) 262 ITR 388 (Cal) wherein the Hon'ble High court has held as under: "As we understand from the expression used in Rule 8(2), it applies only in respect of replacement of useless or dead plants in an area, which is already under cultivation and not abandoned earlier. It cannot be stretched to a stage prior to the replacement of the useless or dead bushes. The maintenance of Nursery for the purpose of raising bushes to be utilized for replantation of dead or useless bushes within the plantation area does not come under Rule 8(2). It is the replantation of dead or useless bushes within the plantation area that comes within the scope and ambit of rule 8(2). This cannot be extended to a stage prior to actual replacement or replantation." 15. We note that this issue has been dealt with by the Tribunal in assessee's own case for AY 1990-91 in ITA No. 2030/Kol/1996 vide order dated 03.08.2004, wherein vide para 12 the Tribunal held as under:
ITA No. 525/KOL/2019 Assessment Year: 2005-2006 M/s. Andrew Yule & Co. Limited "12. The learned counsel for the assessee stated that the expenses were incurred on maintenance in respect of immature tea bushes and since were incurred in the existing garden, is not that of capital nature. He stated that the other part of the expenses which were not spent on maintenance of immature tea bushes, were surrendered by the assessee company itself as that of capital nature. He argued that the issue is now well settled that the maintenance expenses on account of immature tea bushes in computing the tea business income of the assessee company are allowable expenses and placed reliance on the decisions in 120 Taxman 645 (Cal) and 48 ITR 83 (SC). The learned DR has relied on the orders of the AO and the CIT(Appeals). We have considered the rival submissions. We find that the expenses were incurred for maintenance in respect of immature tea bushes in the existing garden and, therefore, the expenses are of revenue nature. The cases cited by the learned Counsel for the assessee support the case of the assessee. Since the expenses were incurred by the assessee company for maintenance of and replacement of tea bushes in its existing garden only, the same cannot be said to be that of an enduring benefit of capital nature and accordingly we hold that the expenses claimed by the assessee company are allowable as revenue expenditure. Accordingly, the issue is decided in favour of the assessee and the ground of appeal no. 7 is allowed." Respectfully following the decision of the Tribunal of this issue, cited supra, and since there is no change in facts or law we confirm the order of the Ld. CIT(A) and hence, this ground of appeal of revenue is dismissed”. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to that of A.Y. 2008-09 to 2011-12, we respectfully follow the order of the Coordinate Bench of this Tribunal for the said years and uphold the impugned order of the ld. CIT(Appeals) deleting the disallowance made by the Assessing Officer on account of expenses incurred on maintenance of young tea bushes. Ground No. 4 of the Revenue’s appeal is accordingly dismissed.
Ground No. 5 relates to the issue of deletion by the ld. CIT(Appeals) of the disallowance of Rs.1,30,55,158/- made by the Assessing Officer on account of provision of Gratuity.
The provision of Gratuity made by the assessee on the basis of acturial valuation was disallowed by the Assessing Officer by invoking the
ITA No. 525/KOL/2019 Assessment Year: 2005-2006 M/s. Andrew Yule & Co. Limited provision of section 43B on the ground that the same was not paid. On appeal, the ld. CIT(Appeals) deleted the said disallowance made by the Assessing Officer by following his appellate order in assessee’s own case for A.Y. 2004-05, wherein a similar issue was decided in favour of the assessee.
We have heard the arguments of both the sides and also perused the relevant material available on record. The ld. Counsel for the assessee, at the outset, has pointed out that the order of the ld. CIT(Appeals) giving relief to the assessee on the similar issue for A.Y. 2004-05 has been accepted by the Department as there was no appeal filed by the Department to the Tribunal against the said order. He has also relied on the provision of clause (b) of sub-section (7) of section 40A of the Income Tax Act, 1961, whereby any provision for the purpose of payment by way of contribution towards an approved gratuity fund is allowable as deduction. As further submitted by him, section 43B thus is not applicable here and as specifically provided in Explanation below section 40A(7)- once deduction is allowed on account of any provision made for the purpose of payment by way of contribution towards an approved gratuity fund, no deduction can be claimed by the assessee again on payment basis. Keeping in view this submission made by the ld. Counsel for the assessee which has remained un-rebutted or uncontroverted by the ld. D.R., we find no infirmity in the impugned order of the ld. CIT(Appeals) in allowing the claim of the assessee for deduction on account of provision of Gratuity and upholding the same, we dismiss Ground No. 5 of the Revenue’s appeal.
Ground No. 6 relates to the issue of deletion of disallowance of Rs.62,50,000/- made by the Assessing Officer on account of fees to ROC for recapitalisation of depleted net worth.
ITA No. 525/KOL/2019 Assessment Year: 2005-2006 M/s. Andrew Yule & Co. Limited
Fees of Rs. 62,050/- paid to ROC for recapitalisation of depleted net worth was claimed to be deductable expenditure by the assessee. According to the AO, any expenditure for enhancement of share capital after commencement of business was in the nature of capital expenditure. He accordingly disallowed the claim of the assessee for deduction on account of fees paid to ROC. On appeal, the Ld. CIT(A) deleted the said disallowance made by the AO on the ground that the assessee was a seek company referred to BIFR and the expenditure incurred to re-capitalise its net worth was revenue in nature.
We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. The Ld. DR has relied on the decision of Hon’ble Supreme Court in the case of Pubjab State Industrial Development Corporation Ltd. vs CIT 225 ITR 792 in support of the revenue’s case on this issue. As rightly contended by the learned counsel for the assessee, the said decision however is distinguishable on facts in as much as, the expenditure incurred by the assessee company in the said case for fees paid to ROC for enhancement of capital was not only made once and for all but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade. In the present case, capitalisation however was made by the assessee company for meeting urgent payments like employees’ dues on account of PF etc. and the intention was not to enlarge capital for higher productive capacity by acquisition of any fixed assets. A perusal of the relevant balance sheet of the assessee company also shows that there was no change in the issued and subscribed capital during the year under consideration and the increase of authorised capital did not lead to increase of issued capital or acquisition of fixed assets. Keeping in view all these facts of the present case as well as the decision of Hon’ble Karnataka High Court in the case of Hindustan Machine Tools Ltd. vs CIT 175 ITR 220, we find no infirmity in the impugned order of the Ld. CIT(A) allowing the deduction claimed by the assessee on account of fees paid to ROC for capitalisation of depleted net worth by treating the same as revenue expenditure. The same is therefore upheld on this issue dismissing ground no. 6 of the revenue’s appeal.
ITA No. 525/KOL/2019 Assessment Year: 2005-2006 M/s. Andrew Yule & Co. Limited 20. Before parting, it is noted that the order is being pronounced after ninety (90) days of hearing. However, taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. For coming to such a conclusion, we rely upon the decision of the Co-ordinate Bench of the Mumbai Tribunal in the case of DCIT vs. JSW Limited in ITA No. 6264/Mum/2018 & 6103/Mum/2018, Assessment Year 2013-14, order dt. 14th May, 2020.
In the result, the appeal of the revenue is treated as partly allowed for statistical purpose. Order pronounced in the open Court on May 22, 2020.
Sd/- Sd/- (S.S. Viswanethra Ravi) (P.M. Jagtap) Judicial Member Vice-President) Kolkata, the 22nd day of May, 2020 Copies to : (1) Deputy Commissioner of Income Tax, Circle-4(1), Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, 8th Floor, Kolkata-700069
(2) M/s. Andrew Yule & Co. Limited, 8, Dr. Rajendra Prasad Sarani, Kolkata-700001 (3) Commissioner of Income Tax (Appeals)-20, Kolkata; (4) Commissioner of Income Tax- , Kolkata (5) The Departmental Representative (6) Guard File By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.