A.C.I.T.,CIRCLE-4(1), KOLKATA, KOLKATA vs. M/S DUNCANS TEA LTD, KOLKATA

M/s Duncans Tea Ltd. A.Yr.2006-07 3. The brief facts of this issue is that the assessee is a company engaged in the business of trading of tea. The return of income for the assessment year 2006-07 was filed on 20.11.2006 declaring total income of Rs. Nil after setting off brought forward loss of earlier years amounting to Rs. 1,74,84,170/-. The assessee however paid tax on book profit of Rs. 96,41,350/-. The assessee later filed revised return on 31.03.2008 declaring total income of Rs. Nil after setting off loss of earlier years at Rs. 1,18,85,806/-. The ld. AO observed that the assessee was engaged in the production and sale of packet tea under different brand names. Different grades of tea for this purpose were purchased from auction and private parties. From the details of marketing and selling expenses filed by the assessee, the ld. AO found that a sum of Rs. 32,50,543/- has been incurred as damaged/loss of packet tea. He observed that the assessee could not produce any details relating to such loss and also could not state whether any amounts were received from the insurance company in respect of such loss. Accordingly, he proceeded to disallow the sum of Rs. 32,50,543/- in the assessment.

3.1. The assessee submitted that it had submitted all the details that were sought by the ld. AO on the questionnaire issued by him. The said details were produced before the ld. CIT(A) together with copy of questionnaire issued by the ld. AO. From the said questionnaire, the assessee proved that details relating to damaged/loss of packet tea were never sought by the ld. AO. Hence the assessee could not submit the details of the same. The assessee submitted that its business model is basically similar to FMCG company where the focus is to reach each and every consumer and compete with similar products in the market. During the previous year relevant to this assessment year, the assessee had sold its teas under the brand names Double Diamond, Sargam Dust, Sargam Leaf, Shakti Dust, Runglee Rungliot No.1 and Super Shakti. Further each of these brands had different pack sizes like 1 kg, 500 grams, 250 grams, 100 grams, Rs. 10, Rs. 5 and Re 1 pack. Teas were sold by the company in almost all the States of India through 22 depots/CFA/CSA. The depots/CFA/CSA cater to network of more 2

M/s Duncans Tea Ltd. A.Yr.2006-07 than 1200 key distributors. Each of these distributors sold the teas to about 200 retailers. It was submitted that packet tea as a commodity has a shorter shelf life. It was submitted that packet tea being FMCG is monitored by Prevention of Food Adulteration authorities of Govt. of India. Hence packets which are damaged or fungus affected are returned by the retailers to the key dealers, who, in turn, claimed reimbursement in respect of packet tea damaged or returned. The teas which are returned by the key dealers are destroyed since these teas cannot be sold in the market. During the previous year the assessee had written off a sum of Rs. 32,50,543/- being loss of packet tea stock. This is a normal practice followed in the tea trade. Credit notes are issued by the assessee company to the key dealers for such damaged tea.

M/s Duncans Tea Ltd. A.Yr.2006-07 Average of 4 0.30% years We find that the ld. CIT(A) had granted relief on the ground that this loss on account of packet tea is incidental to the tea trading business in the normal course of activity. The assessee had also duly explained modus operandi and the circumstances in which such damaged or loss of packet tea happens which has been duly appreciated by the ld. CIT(A). Moreover, we find that the ld. CIT(A) had also placed reliance on the order of his predecessor. In this regard, we find that for the assessment year 2008-09 and 2009- 10 the revenue had come on appeal before this Tribunal. We find in the statement of facts and grounds of appeal raised by the revenue, the revenue had itself accepted the order of the ld. CIT(A). Accordingly, the appeals of the revenue were dismissed by this Tribunal as defective and inasmuch as there was no grievance as such for the revenue. The orders for assessment years 2008-09 and 2009-10 were passed by this Tribunal in for assessment year 2008-09 dated 29.12.2015 and in I.T.A. No. 1245/Kol/2014 for assessment year 2009-10 dated 11.10.2017.

5.1. In view of the aforesaid observations and by respectfully following the decision of this Tribunal for assessee’s own case and in view of the fact that the revenue had accepted the orders of the ld. CIT(A) in the earlier years. We dismiss the ground no. 1 raised by the revenue.

M/s Duncans Tea Ltd. A.Yr.2006-07 Advertisement Expenditure Rs. 13,85,321/- Commission on Sales Rs. 1,28,462/- Primary Freight Rs. 10,14,296/- Warehouse/Collection Charges Rs. 1,62,986/- Rs. 26,91,065/- Accordingly, sum of Rs. 26,91,065/- was disallowed by the ld. AO u/s 40a(ia) of the Act. Similarly, the ld. AO observed from the details of packeting charges that in respect of Rahul Packers, who was the contractor at Chalsa (Jalpaiguri), the amount of packeting charges as per accounts was Rs. 16,34,069/-, whereas TDS has been made only on Rs. 14,32,352/-. The difference amount of Rs. 2,01,717/- was accordingly disallowed u/s 40a(ia) of the act by the ld. AO. Similarly in the case of Camelia Industries, Kanpur, packeting charges as per accounts was Rs. 26,13,985/-, whereas TDS has been made only on 23,82,543/-. The difference of Rs. 2,31,442/- was disallowed u/s 40a(ia) of the Act by the ld. AO. In effect the ld. AO made disallowance on account of packeting charges in the sum of Rs. 4,33,159/- (201717 + 231442) and Rs. 26,91,065/- in respect of above mentioned specific four account heads u/s 40a(ia) of the Act in the assessment. The assessee before the ld. CIT(A) submitted that no details were asked by the ld. AO in this regard. However, it is stated that the assessee had indeed made deduction of tax at source in respect of certain payments, and had not deducted tax at source pursuant to certificate obtained u/s 197(1) of the Act from the Income Tax Department in respect of relevant payees. The details of the same were furnished before the ld. CIT(A). All these details were sought to be remanded to the file of the ld. AO by the ld. CIT(A). The ld. CIT(A) waited for the remand report for a period of 5 years approximately and since no remand report was forthcoming from the AO, he proceeded to dispose off this appeal by appreciating the evidences available on record. The assessee submitted before the ld. CIT(A) as under: In respect of disallowance made from payments to M/s Rahul Packers, the assessee submits that as 5

M/s Duncans Tea Ltd. A.Yr.2006-07 per the books of accounts. total amount payable to the party was Rs.16,04,980/- which was inclusive of a sum of Rs 1,72,778/- being reimbursement of expenses relating to stickering incurred by the contractor. The packeting charges involved was to the extent of Rs.14,32,532/-in respect of which TDS made u/s 194C. In respect of the balance amount. no TDS was made since these amounts were paid separately on account of reimbursement of expenses other than packeting charges. A statement showing the details of the amounts on which TDS was not made, is enclosed. Since there was no requirement to deduct TDS from the said amounts, there was no default on the part of the appellant which called for disallowance of Rs.2.01,717/- u/s 40a(ia). As regards the amount of Rs.2,31,442/- disallowed u/s 40a(ia) on account of Camelia Industries, we have to state that TDS amounting to Rs. 5,180/- was deducted from this amount and the same was deposited on 07.11.2005 vide challan no. 10454. A copy of the ledger account wherein the figures have been reflected is enclosed for your kind perusal. Since TDS has been made from the amount of Rs.2,31,442/-, no amount should be disallowed u/s 40a(ia). It is humbly prayed that the disallowance amounting to Rs.26,91,065/- and Rs.4,33,159/- made in the assessment order u/s 40a(ia), may kindly be deleted based on the details/documents furnished now.

The ld. CIT(A) appreciated the aforesaid contentions of the assessee vis-à-vis the evidences submitted thereon and deleted the disallowance u/s 40a(ia) of the Act. Aggrieved the revenue is in appeal before us.

Order pronounced in the Court on 13.07.2018