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Income Tax Appellate Tribunal, “D” BENCH : KOLKATA
Before: Shri Waseem Ahmed, AM & Shri S.S.Viswanethra Ravi, JM
Date of Hearing : 19-03-2018 Date of Pronouncement : 04-05-2018 ORDER Shri S.S.Viswanethra Ravi, JM
This appeal by the Revenue is against the order dt. 07-12-2016 of the CIT-A, 2, Kolkata for the A.Y 2012-13.
The only issue is to be decided as to whether the CIT-A is justified in holding that the assessee is entitled to claim deduction u/s. 80IE of the Act in the facts and circumstances of the case.
During the course of assessment proceedings for the A.Y under consideration the AO held that the assessee is not entitled to seek benefit u/s.80IE of the Act taking into consideration the assessment order for A.Y 2010-11 being initial Assessment Year, wherein it was held no substantial expansion has been taken as per section 80IE of the Act and denied the claim of deduction u/s. 80IE of the Act.
The CIT-A following the earlier order of his predecessor in assessee’s own case passed for the A.Y 2010-11 allowed the claim of deduction by stating as under :-
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. The appellant has been carrying on the business of growing and manufacturing of tea at its gardens situated in the State of Assam and was entitled to deduction u/s 80-IE(1) @100% of its profits from Tea business. The appellant undertook substantial expansion for manufacturing Tea during the Financial Year 2009-10(relevant for the Assessment Year 2010-11). The AO in Assessment Year 2010-11 had not been allowed after holding that substantial expansion as per section 80-IE(7)(iii) during the Financial Year 2009-10 (Assessment Year 2010- 11) had allegedly not been undertaken but the (IT (Appeals)-2, Kolkata vide his Appellate Order dated 29/01/2015 held that the appellant should be treated as eligible for deduction u/s 80-IE and he directed the Assessing Officer to consider that the appellant had duly complied with the requirements of the substantial expansion as specified in section 80- IE(2)(iii)/(7)(ii) and therefore the appellant should be allowed deduction u/s 80-IE. Keeping in view of above and by following the predecessor's order, the AO is directed to delete the addition and this ground of appeal is allowed.”
Before us the ld. DR relied on the order of the AO. On the other hand, the ld. AR submits that the order dt. 29-01-2015 passed by the CIT(A)-2, Kolkata was challenged by the revenue before this Tribunal and the Tribunal upheld the order of the CIT-A in holding that the assessee is entitled to claim deduction u/s. 80IE of the Act, copy of the same is on record and referred to paras 9,10 & 11 of the said order and argued that the issue in hand is covered in favor of assessee by the order dt. 19-11- 2018 in assessee’s own case for the A.Y 2010-11 in and submits the assessee is also entitled to claim deduction u/s. 80IE of the Act for the subsequent A.Ys and prayed to dismiss the grounds of appeal raised by the revenue.
Heard both the parties and perused the record. We find that the A.Y 2010-11 is held to be initial assessment year and the Co-ordinate Bench of this Tribunal held that the assessee is entitled to get deduction at 100% u/s. 80IE of the Act. Relevant portion of the order dt. 19-01-2018 in assessee’s own case for the A.Y 2010-11 is reproduced herein below:-
“9. Aggrieved, the assessee challenged the same before the CIT(A), contending that the opening valuation of two i.e. Water supply system and irrigation system should not be taken into account for the purpose of testing the compliance of the conditions in Clause (ii) of Section 80IE(2) read with Clause (iii) of Section 80IE(7) of the Act. The assessee also contended substantial expansions should be considered after taking into account only those machineries which are actually being utilized by the assessee for the purpose of its manufacturing business and not otherwise. The CIT(A) considering the submissions of assessee, sought remand report from the AO to find out whether the value of plant and machinery should include the value of fixed asset pertaining to farm and irrigation or whether plant and machinery should be relatable only to those process of manufacturing. The AO in its remand report stated that the irrigation and water supply system is the prime requirement for growing tea as no plant can grow without water and proper irrigation and also irrigation and water supply system also forms plant and machinery. The CIT(A) considering the submissions as well as remand report of the AO deleted the addition made by the AO by observing as under:
"9.6. The deduction u/s. 80lE is in relation to produce or manufacture a thing or article. In the case of the appellant there were two stages, the first being the growing of the Green Tea Leaves for which the machineries shown under the head "Farm Account" were relevant and the second stage was the manufacturing of Tea from the Grown Green Tea Leaves where the machineries other than those shown under the head "Farm Account" had been utilized. The AR's submission, that if one assessee manufactures Tea from Green Tea Leaves purchased from the market and another assessee manufactures Tea from its own Green Tea Leaves, both the assessees are eligible for deduction u s. T In re a Ion to the profit arising from the manufacturing process, lends support to t e appellant's claim that growing and manufacturing are two different independent processes. Further the provisions of Rule 8 of Income Tax Rules, 1962 providing the bifurcation of incomes arising from growing and manufacturing Tea for the purpose of State Taxation and Central Income-tax, point towards the concept of separate processes of growing and manufacturing. Hence, the machineries relevant for these two independent processes, viz. growing and manufacturing, should be considered separately as regards their utilization. Further, as explained by the AR that out of two different processes - Production i. e. growing and Manufacturing, the appellant claimed deduction only in relation to the manufacturing process, it appears that for the purpose of Section 80lE, only the machineries relevant for the manufacturing process, should be considered as relevant. 9n the basis of this understanding, the appellant's claim for not taking into account the machineries viz., Water Supply System Rs. 97,777) and Irrigation (Rs. 14,35,49 shown under "Farm Account", appears to be justifiable. Accordingly,' I am inclined to accept the appellant's claim that to determine as to whether there had occurred substantial expansion, as required u/s. 80lE(2)(ii)/(7)(ii), the above mentioned two machineries viz., Water Supply System (Rs. 97,777) and Irrigation (Rs. 14,35,499), should not be considered and consequently, the appellant should be treated as eligible for deduction u/s. 80lE. Hence, the Assessing Officer is directed to consider that the appellant had duly complied with the requirement of substantial expansion as specified in Section 80lE (2)(ii)/(7)(ii) and therefore the appellant should be allowed deduction of Rs. 26,10,851 u/s. 80lE. Ground No. 8 of the appeal, in view of the discussion at Para 9.4, 9.5 & 9.6 is allowed."
Before us, the Ld. DR submits that the water supply system and irrigation system is the prime requirement without there being any such system the assessee cannot grow tea in its gardens. The said irrigation and water supply system also forms part of plant and machinery. The value of said systems should be considered for the purpose valuations of the machineries utilized for manufacturing of tea. The Ld. DR supported the view taken by the AO and prayed to allow the ground raised in this regard. The Ld. AR submits that there are two processes in tea business i.e one is growing and other one is manufacturing. The assessee claimed deduction only in relation to manufacturing processes and only machineries relevant for the manufacturing processes should be considered for the purpose of opening book value. The Ld. AR supported the order of CIT(A).
Heard the rival submissions and perused the material available on record. It is observed that the assessee has two processes in tea business i.e. growing of tea and manufacturing of tea. The assessee grows tea in its own gardens and manufactures tea from such produce. The case of the assessee is that this deduction is available in case a assessee manufacturing of tea and hence only plant and machinery of manufacturing is to be considered. Whether the opening valuations of plant and machineries of water supply system and irrigation system as shown under farm account is to be considered the part and parcel of the value of plant and machinery as on 01.04.2009 for calculating the percentage of addition to plant and machinery for claiming deduction u/s 80IE or not is the issue before us. We find that the water supply system and irrigation system admittedly are not part of tea manufacturing processes. Therefore, the said opening valuation of said machineries should not be considered for the purpose of claiming deduction u/s 80IE of the Act. Therefore, we find no infirmity in the order of CIT(A) and thus, the ground raised by the Revenue in this regard is dismissed.”
In view of above, we uphold the order of the CIT-A and it is justified. The grounds raised by the revenue are dismissed.
In the result, the appeal of revenue-ITA No. 365/K/2017 for the A.Y 2012-13 is dismissed.
Order pronounced in the open Court on 04-05-2018