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Income Tax Appellate Tribunal, “D” BENCH: KOLKATA
Before: Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
ORDER Per Shri A.T.Varkey, JM This is an appeal filed by the revenue against the order of Ld. CIT(A)-2, Kolkata dated 17.12.2015 for AY 2010-11.
The first ground of appeal of revenue is against the action of the Ld. CIT(A) in allowing the disallowance of Rs.2.42 cr. made by the AO. Brief facts of the issue are that the assessee is engaged in the business of cultivation, manufacturing and sale of tea. The assessee in the course of its business advanced from time to time certain sums of money to Dooteriah and Kalej Valley Tea Estates Pvt. Ltd. (hereinafter referred to as DTKV) for purchasing manufactured tea produced by its garden situated in Darjeeling. The assessee purchases the tea for blending. The outstanding advances given to DTKV as on 31.03.2004 stood at Rs.2.42 cr. The assessee brought to the notice of the AO that these were trade advances in the course of the business. It was brought to the notice of the authorities below that DTKV was one of the group companies and 95.47% of its paid up equity shares was held by the erstwhile shareholders were purchased by Toubro Infotech Industries Ltd. (hereinafter referred to as “Toubro Infotech”) in the year 2004 by an agreement dated 2 Stewart Holl (India) Ltd., AYs- 2010-11 06.12.2013. It was brought to the notice of the authorities below that DTKV suffered losses every year due to high cost of production and un-remunerative price realization and the accumulated loss stood at Rs.20,04,72,874/- as on 31.03.2003 whereas it has paid up capital as on the said date was Rs.17,49,900/- and it had no revenue reserves and its liability exceeded the current assets as on 31.03.2003 by Rs.11,43,70,504/-. The assessee considering the aforesaid facts decided to treat the said advance given to DTKV as doubtful for recovery and made a provision thereof in its books of account for the previous year ended on 31.03.2004. The assessee during the hearing before the AO produced evidence of advance payment made to DTKV. The details of payments with cheque nos., name of the banks and also computerized general ledger for the previous year ended on 31.03.2003 and 31.03.2004 containing the accounts of DTKV were produced. The AO noted that the DTKV had a balance of Rs.6,09,42,000/- as “advance received against the sale of tea” in its accounts in the previous year ending on 31.03.2003. However, the AO noted that in the Balance Sheet of DTKV as on 31.03.2004 did not reflect any such outstanding advance and, therefore, the AO concluded that there was no advance outstanding in the books of DTKV on sale of tea as on 31.03.2004. The assessee submitted before the AO that since DTKV treated the said amount as liabilities no longer required in the books of account of the year ended 31.03.2004 it did not reflect any outstanding advance. The said plea of the assessee was not acceptable to the AO and he did not allow the claim of the assessee that it has written of Rs.2.42 cr. as irrecoverable advance and claimed it as a trading/business loss. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to allow the claim of the assessee. Aggrieved, the revenue is before us.
We have heard rival submissions and gone through the facts and circumstances of the case. The facts stated above are not repeated here for the sake of brevity. The assessee, who is in the business of tea had advanced an amount of Rs.2.42 cr. to procure tea from DTKV, which was a sister concern of the assessee. This advance accumulated as on 31.03.2004 at Rs.2.42 cr. By an agreement dated 06.12.2013 DTKV has been acquired by another group Toubro Infotech Industries Ltd. The assessee had produced evidence to show that an amount of Rs.2.42 cr. was given as trade advance to the DTKV to procure tea from 3 Stewart Holl (India) Ltd., AYs- 2010-11 it. The assessee also produced the assessment order of AY 2004-05 to show that the said amount i.e. Rs.2.42 cr was reflected as provision for bad and doubtful advance which was disallowed and added to the composite income of the assessee. We note that by adducing evidence of giving advance to DTKV the genuineness of the trade advance cannot be doubted. The expression ‘expenditure’ used in sec. 37 of the Act includes the amount which is really a loss as held by the Hon’ble Apex Court in CIT Vs. Woodward Governor India Pvt. Ltd. 312 ITR 254 (SC). From the aforesaid facts it is clear that the amount of Rs.2.42 cr. which has been advanced to DTKV has not been recovered by the assessee and therefore, the non recovery of advance is a business loss and such loss is an expenditure covered u/s. 37 of the Act. We note that the Ld. CIT(A) has taken note of the fact that the AO of DTKV and the assessee are the same and, therefore, in case if the AO had any doubt as to whether the assessee got back the amount in question, it could have been easily verified by him. Since the AO has not made any adverse finding in this respect and there is no evidence to support that DTKV has returned the advance given to it by assessee in any manner, the loss of Rs.2.42 cr. is an allowable expenditure and has been rightly allowed by the Ld. CIT(A) and we do not find any reason to interfere with the order of the Ld. CIT(A), which is hereby confirmed. This ground of appeal
of revenue is dismissed.
4. Ground no. 2 relates to the action of Ld. CIT(A) in deleting the disallowance of Rs.7,77,113/- which was spent by the assessee on account of river protection work. Brief facts of the case are that the assessee has four gardens viz., Dejoo Tea Estate, Harmutty Tea Estate, Sessa Tea Estate an Borpatra Tea Estate which were situated on the banks of Ranga Nadi, Dikrong nadi, Sessa nadi and Dilli nadi respectively. Because of heavy rain in Arunachal Pradesh and the release of water from the dams causes heavy flood which rushes into banks of tea estate and destroy tea plants which happens due to the land slide caused by heavy rains. In order to protect its assets and prevent loss of tea gardens and to reduce the velocity of the water, placed river spurs and replace the spurs which gets damaged due to heavy flood. The assessee produced the evidence in respect to the claim of expenditure for sand bags, boulders etc and for the four estates has claimed a total amount of Rs.7,77,113/- 4 Stewart Holl (India) Ltd., AYs- 2010-11 which was denied by the AO on the reason that the said expenditure is of capital nature. On appeal, the Ld. CIT(A) was pleased to delete the same. Aggrieved, the revenue is before us.
We have heard rival submissions and gone through the facts and circumstances of the case. For the sake of brevity we are not repeating the facts again. We note that assessee has incurred an expenditure of Rs.7,77,113/- for protecting its tea gardens from heavy floods of river water due to rainy season or when the shutter of dams are opened. The expenditure made is for the purpose of protecting the business of the assessee and is an allowable expenditure. The expenditure for fresh sand bags and boulders to replace the damaged spurs cannot be said to have enduring benefit to the assessee. These are temporary measures taken which gets damaged with passage of time and needs replacement at the time of flood. The said expenditure cannot be held to be of capital nature and the Ld. CIT(A) has rightly allowed it as revenue expenditure which action we concur. Therefore, this ground of revenue’s appeal is dismissed.
In the result, appeal of the revenue is dismissed. Order is pronounced in the open court on 15.02.2018 Sd/- Sd/- (Dr. A. L. Saini) (Aby. T. Varkey) Accountant Member Judicial Member Dated :15th February, 2018 Jd.(Sr.P.S.) Copy of the order forwarded to:
1. 1. Appellant – DCIT, Circle-4(2), Kolkata. 2 Respondent – Stewart Holl (India) Ltd., Camelia House, 14, Gurusaday Road, Kolkata-700 019.
3. The CIT(A) Kolkata.