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Income Tax Appellate Tribunal, “B” BENCH : KOLKATA
Before: Hon’ble Shri S.S. Godara, JM & Shri M.Balaganesh, AM ]
ORDER Per M.Balaganesh, AM
This appeal by the Assessee arises out of the order of the Learned Commissioner of Income Tax(Appeals)-2, Kolkata [in short the ld CIT(A)] in Appeal No. 175/CIT(A)- 2/14-15 dated 06.11.2015 against the order passed by the DCIT, Circle-4, Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 08.03.2013 for the Assessment Year 2010-11.
Ground no. 1 raised by the assessee with regard to disallowance u/s 14A of the Act is withdrawn by the ld. AR for which necessary endorsement has been made in the file. Accordingly, ground no. 1 raised by the assessee is dismissed as withdrawn.
Joonktollee Tea & Industries Ltd. A.Yr. 2010-11 3. The next ground to be decided in this appeal is as to whether the ld. CIT(A) was justified in upholding the disallowance of Rs. 12,28,722/- towards legal and other expenses, in the facts and circumstances of the case.
The brief facts of this issue is that the assessee is a public limited company engaged in cultivation and manufacturing of tea. The assessee owns Joonktollee, Jamirah, Nilmoni and Shree Ganga Tea Estates in Assam. The assessee maintains separate accounts for Jamirah Tea Estate and other Estates which are consolidated with Joonktollee. The income from these tea estates has been specified as income from North Division. In South India, in the States of Karnataka, the assessee owns Goomankhan Tea Estate and Cowcoody Coffee Estate. The income from Karnataka Estate is grouped in south division. Jamirah Tea Estate’s income has been included in North Division but determined separately. The ld. AO in the course of assessment proceedings, from the perusal of the details filed by the assessee observed that the assessee has incurred the following expenses: i) Agricultural Income tax appeal fees paid to Mr. Balakrishnan Rs. 55,000/- ii) Fees paid to M/s V.K. Deora & Co. Solicitors for rendering professional Service in connection with agricultural income tax matters Rs. 1,80,019/- iii) Fees paid to M/s Jhunjhunwala & Co. for rendering various professional services in connection with legal matters Rs. 1,43,000/- iv) Fees paid to M/s R. Kothari & co. for amalgamation Rs. 8,50,703/- Total Rs. 12,28,722/- The ld. AO observed that in respect of fees paid to Mr. Balakrishnan and M/s V.K. Deora & Co. amounting to Rs. 55,000/- and Rs. 1,80,019/-, the same were in respect of agricultural income tax matters which would not be eligible for deduction from the composite income of the assessee. In respect of fees paid to M/s Jhunjhunwala & Co. amounting to Rs. 1,43,000/- for other legal matters, the ld. AO observed that no details 2
Joonktollee Tea & Industries Ltd. A.Yr. 2010-11 were submitted by the assessee. In respect of fees paid to M/s R. Kothari & Co. amounting to Rs. 8,50,703/, the ld. AO observed that the same was paid for amalgamation expenses and is capital in nature. On the aforesaid observations, he disallowed the entire sum of Rs. 12,28,722/- comprising of North Division of Rs. 11,73,722/- and South Division of Rs. 55,000/- in the assessment. This action of the ld. AO was upheld by the ld. CIT(A). Aggrieved the assessee is in appeal before us.
We have heard the rival submissions. We find that the assessee is engaged in the business of manufacturing of tea and that the income (Net Profit) of the assessee should be determined on composite basis and thereafter, apportionment towards agricultural activities at 60% and non-agricultural activities at 40% should be done. For the purpose of determination of this composite income i.e. net profit, all the expenses incurred for the purpose of composite business of the assessee should be allowed as deduction and then 60:40 apportionment should be done towards agricultural and taxable portion thereon. We find this understanding of ours has been endorsed by the Hon’ble Supreme Court in the case of CIT vs. Apeejay Tea Co. Ltd. In Civil Appeal No. 1105 of 2006 with Civil Appeal No. 3168 of 2006 dated 06.08.2015. Respectfully following the aforesaid decision of the Hon’ble Supreme Court, we hold that the disallowance made by the ld. AO in the sum of Rs. 55,000/- (i.e. fees paid to Mr. Balakrishnan); Rs. 1,80,019/- (i.e. fees paid to M/s V.K. Deora & Co.); Rs. 1,43,000/- (i.e. fees paid to M/s Jhunjhunwala & Co.) deserves to be allowed. We also find that the assessee has placed the entire bills raised by Mr. Pawan Kr. Jhunjhunwala of M/s Jhunjhunwala & Co. in the sum of Rs. 1,43,000/- for various services rendered by them to the assessee in connection with various commercial and legal matters of the assessee.
With regard to fees paid in the sum of Rs. 8,50,703/- to M/s R. Kothari & Co. for amalgamation expenses, we find that the assessee has raised additional ground claiming deduction u/s 35DD of the Act. We find that this additional ground raised by the assessee goes to the root of the matter and does not involve investigation of fresh facts. 3
Joonktollee Tea & Industries Ltd. A.Yr. 2010-11 It is not in dispute that the fee paid to M/s R. Kothari & Co is towards amalgamation expenses. Hence, the assessee is entitled for deduction at 1/5th of the same u/s 35DD of the Act. Accordingly, we direct the ld. AO to allow 1/5th of the said expenditure as deduction from the composite income of the assessee and treat the remaining 4/5th as deferred revenue expenditure to be allowed in subsequent years as deduction from composite income. Accordingly, ground no. 2 and additional ground raised by the assessee are disposed off in the manner mentioned above.
The next ground to be decided in this appeal is with regard to rejection of assessee’s claim for deduction u/s 80IC of the Act.
We find that the ld. AR fairly stated that this issue has been set aside to the file of the ld. AO by the Hon’ble Jurisdictional High Court in assessee’s own case for the assessment year 2004-05 and 2005-06 vide order dated 15.06.2015 in of 2011. He also placed on record a copy of the order passed by this Tribunal in its own case for the assessment year 2011-12 in I.T.A. No. 771/Kol/2016 dated 31.01.2018 wherein it was held as under:
“8. We have heard the arguments of both the sides and also perused the relevant material available on record. As submitted by the learned counsel for the assessee, a similar issue involved in assessee's own case relating to the disallowance under section 80IC has been set aside by the Hon'ble Kolkata High Court to the Assessing Officer in A.Y. 2004-05 and 2005-06 vide its order dated 15th June, 2016 passed in ITA 58 of 2011 with the direction to decide the same in accordance with law without being influenced by the observations made in the impugned order by the Tribunal. Respectfully following the said decision of the Hon'ble Jurisdictional High Court in assessee's own case for the earlier years on a similar issue, we set aside the impugned order of the Ld. CIT(A) on this issue and restore the matter to the file of the A.O. for deciding the same afresh as per the same direction as given by the Hon'ble Kolkata High Court for A.Y. 2004-05 and 2005-06. Ground no 2 of the assessee's appeal is accordingly treated as allowed for statistical purpose.”
Joonktollee Tea & Industries Ltd. A.Yr. 2010-11 Respectfully following the said decision, we remand this issue to the file of the ld. AO to decide the same in accordance with law in the manner stated hereinabove. Accordingly ground no. 3 raised by the assessee is allowed for statistical purposes.
Ground nos. 4 and 5 raised by the assessee are general in nature and does not require any specific adjudication.
In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the Court on 01.08.2018