MANIPUR TEA CO. PRIVATE LIMITED,KOLKATA vs. A.C.I.T., CIRCLE-4, KOLKATA, KOLKATA

The issue involved in Ground No. 1 relates to the disallowance of Rs. 30,000/- made by the A.O. and confirmed by the Ld. CIT(A) on account of pollution control fees paid by the assessee for a period of three years treating the same as capital expenditure.

The assessee in the present case is a company which is engaged in the business of cultivation and manufacture of tea. The return of income for the year under consideration was filed by it on 30.10.2002

Assessment Year: 2002-03 Manipur Tea Co. Pvt. Ltd. declaring a loss of Rs. 7,70,024/-. In the profit and loss account filed along with the said return, a sum of Rs. 30,000/- was debited by the assessee on account of expenditure incurred for getting pollution control certificate. Since the said certificate was valid for three years, the A.O. held that the expenditure incurred by the assessee for the same was capital expenditure having enduring benefit. He, therefore, disallowed the said expenditure. On appeal, the Ld. CIT(A) confirmed the said disallowance.

I have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that even though the expenditure of Rs. 30,000/- in question incurred by the assessee for getting pollution control certificate for three years had an enduring benefit, the same by its very nature was revenue. I, therefore, find merit in the arguments of the learned counsel for the assessee that the said expenditure having been incurred in the revenue field and not in the capital, is allowable as deduction. The disallowance made by the A.O. and confirmed by the Ld. CIT(A) on this issue is accordingly deleted and Ground No. 1 of the assessee’s appeal is allowed.

The issue involved in Ground No. 2 relates to the addition of Rs. 48,848/- made by the A.O. and confirmed by the Ld. CIT(A) on account of disallowance and share transaction expenses.

The share transaction expenses of Rs. 48,848/- were claimed by the assessee as deduction on the ground that the same had been incurred in the business of investment that was carried on by it.

I have heard the arguments of both the sides and also perused the relevant material available on record. The limited contention raised by the learned counsel for the assessee on this issue is that the claim of the assessee for deduction on account of share transaction expenses is deserved to be considered by the A.O. under the head capital gains and the A.O. may accordingly be directed to consider the same on merit. I accordingly direct the A.O. to consider the claim of the assessee for deduction on account of share transaction expenses alternatively under the head capital gain on merit. Ground No. 2 of the assessee’s appeal is accordingly treated as allowed.

The issue raised in Ground No. 3 relates to the addition of Rs. 6,85,314/- made by the A.O. and confirmed by the Ld. CIT(A) on account of non-payment of provident fund dues.

During the course of assessment proceedings, it was noticed by the A.O. that the assessee has collected a total amount of Rs. 9,03,378/- on account of provident fund but the same was deposited only to the extent of Rs. 2,18,064/-. Since the balance amount of Rs. 6,85,314/- was not paid by the assessee on account of provident fund

I have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As submitted by the learned counsel for the assessee, the conclusion drawn by the authorities below regarding non-payment of provident fund dues is totally wrong in as much as the amounts of provident fund advances given, provident fund realised and amounts settled have not been taken into consideration by them while coming to the conclusion that the amount of Rs. 685314/- was outstanding on account of provident fund. He has contended that the entire provident fund collected during the year under consideration upto February, 2002 was fully paid by the assessee and only the provident fund collected during the March was outstanding as on 31.03.2002 which was also paid in time on 08.04.2002. He has contended that this factual position can be verified by the A.O. from the documentary evidence available with the assessee-company and matter may be sent back to the A.O. for such verification. I find merit in this contention of the learned counsel for the assessee and since the learned DR has not raised any objection in this regard, I restore this issue to the file of the A.O. for deciding the same afresh after verifying the claim of the assessee that there was no outstanding amount payable on account of provident fund. Ground No. 3 is accordingly treated as allowed for statistical purposes.

The issue raised in Ground No. 4 relates to the addition of Rs. 1494668/- made by the A.O. and confirmed by the Ld. CIT(A) on account of disallowance of cultivation expenses.

The claim of the assessee for deduction on account of cultivation expenses amounting to Rs. 14,94,668/- was examined by the A.O. On such examination, he found that the said expenses were incurred by the assessee on account of deepening drains, levelling soil in plantation, soil cutting etc. Since there was no documentary evidence filed by the assessee to establish that the said expenses were incurred for existing plantation and not for extension plantation, the A.O. treated the same as capital in nature. Accordingly, the claim of the assessee for deduction on account of cultivation expenses was disallowed by him. On appeal, the Ld. CIT(A) confirmed the said disallowance.

I have the arguments of both the sides and also perused the relevant material available on record. The learned counsel for the assessee has contended that the assessee-company had filed the copy of annual return submitted to the Tea Board during the course of assessment proceedings vide letter dated 03.08.2004. He has contended that the said documentary evidence filed by the assessee was sufficient to show that there had been no extension of plantation during the year under consideration and the entire expenditure was incurred by the assessee for the existing plantation. The learned DR, on the other hand, has contended that this matter requires verification by the A.O. keeping in view that there is a specific observation recorded by the A.O. in the assessment order that no such documentary evidence was produced by the assessee to show that the expenditure in question on cultivation was incurred for the existing plantation and not for any extension. I find merit in this contention of Assessment Year: 2002-03 Manipur Tea Co. Pvt. Ltd. the learned DR. This issue is accordingly restored to the file of the A.O. for deciding the same afresh after verifying the documentary evidence claimed to be filed by the assessee in the form of annual return submitted to the Tea Board. Ground No. 4 is accordingly treated as allowed for statistical purposes.

In Ground No. 5, the assessee has challenged the action of the authorities below in not treating 40% of its interest income as income from the business of cultivation and manufacture of tea under Rule 8 of Income Tax Rules, 1963.

In the profit & loss account filed along with the return, a sum of Rs. 68,157/- was credited by the assessee on account of interest receipt. The said income however was treated by the assessee as directly related to the business of cultivation and manufacture of tea and the same only to the extent of 40% was offered to tax as per Rule 8 of Income Tax Rules 1963. According to the A.O., the said Rule 8 was applicable only to that income which a result of integrated activity of cultivation and manufacture of tea and since the interest income did not fall in that category, he brought to tax the entire income received by the assessee in account of interest. On appeal, the Ld. CIT(A) upheld the action of the A.O. on this issue.

I have heard the arguments of both the sides and also perused the relevant material available on record. Although the learned counsel for the assessee has made an attempt to contend some of the deposits on which the interest income in question had been earned by the assessee were made for the purpose of business, I find merit in Assessment Year: 2002-03 Manipur Tea Co. Pvt. Ltd. the contention of the learned DR that interest income received by the assessee on deposits cannot be held to be eligible for the benefit of Rule 8 as the same was not the result of integrated activity of cultivation and manufacture of tea carried on by the assessee- company. I, therefore, find no merit in Ground No. 5 raised by the assessee in this appeal and dismiss the same.

The issue involved in Ground No. 6 relates to the disallowance of Rs. 1,59,845/- made by the A.O. and confirmed by the Ld. CIT(A) under section 14A of the Income Tax Act, 1961.

During the year under consideration, the assessee-company had earned a dividend income of Rs. 7,09,093/- which was claimed to be exempt under section 10(33) of the Act. No disallowance on account of expenditure incurred in relation to the earning of the said income however was offered by the assessee as required by section 14A of the Act. Although it was contended on behalf of the assessee before the A.O. that no expenditure was incurred by it for earning the dividend income, the A.O. did not accept the same for the elaborate reasons given in the assessment order. He also pointed out certain specific indirect expenses incurred by the assessee which were partly attributed to the activity of earning of dividend income. Accordingly, proportionate disallowance on account of said expenses worked out at Rs. 1,59,845/- was made by the A.O. under section 14A. On appeal, the Ld. CIT(A) confirmed the said disallowance.

I have the arguments of both the sides and also perused the relevant material available on record. As submitted by the learned

In the result, the appeal of the assessee is partly allowed. Order Pronounced in the Open Court on 6th April, 2018.