KANCO ENTERPRISES LIMITED,KOLKATA vs. ACIT, CIRCLE - 4(1), KOLKATA, KOLKATA

The captioned appeal filed by the assessee, pertaining to assessment year 2009-10, is directed against the order passed by ld. Commissioner of Income Tax (Appeals)- 2, Kolkata in appeal no. 55/CIT(A)-2/14-15, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 ( in short ‘Act’) dated 23.12.2017.

The grounds of appeal raised by the assessee are as follows:

That on the facts and in the circumstances of the case, ld. CIT(A) is wrong in confirming disallowance of Rs. 29,677/- towards reimbursement of Club expenses without speaking order on various judicial decisions relied upon. 4. That the appellant craves leave to add, alter, adduce or amend any ground or grounds on or before the date of hearing of the appeal. 3. Ground no. 1 raised by the assessee relates to disallowance made by the Assessing Officer on account foreign exchange of Rs.1,80,79,541/-.

Brief facts qua the issue are that the difference in foreign exchange fluctuation of Rs. 1,06,30,350/-(tea) ; 74,49,191/- (textile) were debited by the assessee in Profit& Loss Account which was due to hedging and forward transaction as admitted by the assessee. The Assessing Officer was of the view that it is not due to normal business activity of the assessee and has to be treated as speculation transaction. Hence, Rs. 1,80,79,541/- [1,06,30,350 + 74,49,191] was disallowed from business expenses to be considered separately as speculative loss.

Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the addition.

Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.

The ld. Counsel for the assessee has submitted before us that neither the Assessing Officer nor the ld. CIT(A) has examined the true nature of foreign exchange fluctuations; therefore, this issue may be remitted back to the file of Assessing Officer for fresh examination. The ld. DR for the revenue did not have any objection if the matter is remitted back to the file of Assessing Officer for fresh examination.

We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case

Ground no. 2 raised by the assessee relates to compensation received for acquisition of part of the tea garden as not exempt u/s 10 and considered Rs. 52,58,906/- as long term capital gain added to the income of the assessee.

Brief facts qua the issue as per assessment order is as follows: The assessee has claimed compensation received from Government of Assam for use by ONGC under compulsory acquisition of land being agricultural income u/s 10(1) of the I.T. Act. However, section 10 refers to the income which do not form part of total income with sub section (1) relates to income being agricultural income. Hence compensation for land acquisition is not ‘agricultural income’ which is defined as income from production and sale realisation of agricultural produce. Thus, the assessee’s contention that compensation received on land acquisition is covered under exempt income u/s 10(1) is misplaced. Since land is held over many years the compensation for land acquisition which comes under compulsory sale of land falls under Long Term Capital Gains. The value of land sold as appearing from the details of the land and Plantation head as per schedule of assets forming part of balance sheet is Rs. 105111/- and the total compensation received is Rs. 53,64,017/-. Thus the Long Term Capital Gains comes to 53,64,017-1,05,111 =52,58,906/-.

Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the addition made by the Assessing Officer observing the following: “I have considered the submissions of the authorized representative of the appellant as well as the assessment order framed in the light of the materials available on record before the assessing officer during the assessment proceedings. I agree with the view as taken by the AO. In view of above, the order of the AO is upheld. This ground of appeal is dismissed.”

The ld. Counsel for the assessee has relied on the submissions made before the lower authorities.On the other hand, ld. DR has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity.

We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials available on record. We note that this ground has been preferred against addition of Rs. 52,58,906/-as long term capital gain. The assessee submitted the following written submission before the ld. CIT(A), which is reproduced below: i) Land measuring 12B-3K-03LS in the drill site No. NZAB situated at village Satsai Grant under Nazira Mouza belonging to the appellant company was acquired by ONGC in the year 2006. During the year under consideration a sum of Rs.53,64,017/- was received through Land Acquisition Section as compensation in two lots. Copy of letter dt 26.11.2008 while forwarding cheque of Rs.11.63.067/- for one lot is submitted herewith for your perusal and record as specimen copy. ii) The above compensation money was claimed as exempt since the land in question was not a capital asset within the meaning of Section 2(14) of I.T. Act, 1961. The said section excludes agricultural land from the definition of capital asset which is outside the municipal area or a cantonment board, etc or outside the area of 8 K.M. of such municipality cantonment board etc. as notified in the official gazette. There cannot be any dispute that land in question which was acquired by ONGC was part of land wherein Tea Plantation is carried on, There cannot be any controversy since the Ld. A.O. while computing income from tea business has applied Rule 8 of I.T. Rules 1961. Therefore the character of land as agricultural is beyond doubt. iii) Moreover, it is clear from the letter of Land Acquisition office dt 26.11.2008 that the land acquired compulsorily was situated at village Satsoi Grant under Nazira Mouza, Assam. The official gazette has not notified the land falling in such remote village as capital asset for the purpose of section 2(14) of the Act. iv) Without prejudice to the above, it is submitted that method of computation of long term capital gain is incorrect. The determination ofLTCG without considering the index cost is not permitted under the law.

We have heard both the parties. We note that ld. CIT(A) did not examine the submissions and the documents/ evidences involved in the assessee’s submission. The ld. CIT(A) has just confirmed the order of Assessing Officer and did not 5 Kanco Enterprises Ltd. comment on the submissions and documents involved in these submissions of the assessee, as noted above, which is against the principle of natural justice. Therefore, we set aside the order of ld. CIT(A) and remit this issue back to the file of Assessing Officer. We direct the Assessing Officer to consider the submissions and documents / evidences submitted by the assessee and pass a speaking order in accordance to law. For statistical purposes, ground no. 2 raised by the assessee is allowed.

At the time of hearing, the ld. Counsel for the assessee informs the Bench that assessee does not want to press ground no. 3. Therefore, we dismiss ground no. 3 raised by the assessee as not pressed.

In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the Court on 26.02.2020