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This appeal by the Revenue against the order dated 29.01.2015 passed by the Ld. CIT(A)-2, Kolkata for assessment year 2010-11.
The Ld. DR submits the present appeal was filed with a delay of 17 days and referred to affidavit filed by the concerned AO praying to condone the said delay and argued, the said delay was caused due to administrative Bormah Jan Tea Co. (1936) Ltd. 1 constraints and the delay is not deliberate. Accordingly, he prayed to condone the delay and admit the appeal. The Ld. AR reported no objection in condoning the delay. On perusal of the affidavit and hearing both the parties, we are of the opinion the reasons stated in the affidavit are reasonable and bonafide and it was not deliberate or intentional to file the appeal with delay. Accordingly, we condone the delay of 17 days in filing the appeal.
Ground no. 1 is relating to deletion of disallowance on account of levy of cess on green leaves.
The brief facts relating to the issue are that the assessee is a company and engaged in the business of manufacturing and selling of black tea. The AO held the payment under green leaf cess is non-deductible expenditure from the composite income and disallowed the amount of Rs. 36,40,244/- stating that appellant Revenue has filed SLP against the decision of Hon’ble High Court of Calcutta in the case of AFT Industries Ltd. Aggrieved the assessee filed an appeal before the CIT(A) contending the assessee is entitled to claim deduction in pursuance of the decision of Hon’ble High Court of Calcutta in the case of AFT Industries Ltd supra as the Hon’ble Supreme Court did not grant any stay of operation of decision of Hon’ble High Court of Calcutta in the case of AFT Industries Ltd supra. The CIT-A by following the decision of Hon’ble High Court of Calcutta supra, deleted the addition made by the AO by observing as under:
“3.2. I have examined the assessment order as well as the written submission of the AR of the appellant. Although the Departmental SLP against the decision of the Hon’ble High Court of Kolkata in the case of AFT Industries Ltd, has been admitted in the Hon'ble Supreme Court of India, the Hon’ble Apex Court while admitting the SLP has neither granted any stay nor kept in abeyance the applicability of the decision of the jurisdictional High Court. The legal position therefore is that the decision of Hon’ble Kolkata High Court in the case of AFT Industries Ltd, Bormah Jan Tea Co. (1936) Ltd. 2 continues to be applicable. Therefore, humbly following the decision of jurisdictional High Court of Kolkata, I direct the AO to delete addition of Rs. 36,40,224/- on account of cess on grean leave. Ground no. 1 of the appeal is allowed.”
After hearing the both the parties, we find that, the Honourable Supreme Court dismissed the SLP filed by the appellant revenue and agreed with the interpretation of scope of Rule 8 of Income Tax Rules 1962 rendered by the Hon’ble High Court of Calcutta in the case of AFT Industries Ltd supra. The Learned AR placed copy of such order before us and submitted that the present appeal may be disposed of in pursuance of the decision of Hon’ble Supreme Court and learned DR submitted that the appellant revenue did not succeed in SLP and the decision of Honourable High Court of Calcutta has become final and binding on the appellant revenue in view of the confirmation of the such decision by the Honourable Supreme Court. The relevant portion of which is reproduced herein below:
“The respondent-assessee had paid cess on green leaf to the Government of Assam which was levied under Assam Taxation (On Specified Land) Act, 1990. In its income tax return, it had claimed the same as deduction which has been allowed by the High Court. The relevant discussion in this behalf is as under:- "However, the learned Tribunal had held that the deduction is eligible after computing the income under Rule 8 and the apportionment is to be made only after the income is so computed. Such apportionment cannot be made before the deduction. Rule 8 of the Income Tax: Rules, 1962 requires that the computation is to be made as if by fiction the entire income out of the tea grown and manufactured as income assessable under the Income Tax Act, 1961. In view of Rule 8, the income so computed is to be apportioned 60: 40 of which 40 is assessable to tax under the Act. It does not provide that after apportionment of the 60 % of the income so computed shall again be required to be computed under the Agricultural Income Tax Act. On the other hand, this 60% is exposed and becomes exigible to tax under the Agricultural Income Tax Act. without being required to be assessed under the said Act by reason of the fiction so created. Therefore, the cess paid has rightly been excluded while computing the income under Rule 8 of the tea grown and manufactured." In arriving at the aforesaid conclusion, the High Court has referred to the various judgments of this Court. We are of the opinion that the High Court has rightly interpreted the scope of Rule 8 of the Income Tax Rules 1962. We, thus, find no merit in this appeal which is, accordingly, dismissed. “
Bormah Jan Tea Co. (1936) Ltd. 3
In accordance with the principle as laid by the Hon’ble High Court of Calcutta in the case of AFT Industries which has been further strengthened by dismissal of SLP by the Honble Supreme Court, we hold that the cess levied on the production of green leaf would come under the purview of composite income. Thus, ground no-1 raised by the revenue is, accordingly dismissed.
Ground no. 2 is relating to deletion of addition made on account of Section 80IE (2)(ii) of the Act.
The assessee claimed deduction of Rs. 26,10,851/- u/s 80IE(6) of the Act. The AO sought the details of the claim. The assessee filed a reply vide letter dated 09.01.2013 stating that the assessee obtained certificate dated 12.10.2010 from Chartered Accountant as required u/s 80IE(7) of the Act for the purpose of claiming the aforesaid deduction. The assessee also filed the details of additions made to plant and machinery on Bormahajan Tea Garden and claimed substantial expansions were made in the previous year. The AO found the submission of the assessee not acceptable as the assessee had not considered the value of plant & machinery of water supply system and irrigation which is in farm account as the value of plant and machinery as on 01.04.2009 and hence the addition towards plant and machinery which is less than 25% of the book value of plant and machinery as on the first day of previous year and accordingly, denied claim of assessee and added an amount of Rs. 26,10,851/- to the total income of the assessee.
Aggrieved, the assessee challenged the same before the CIT(A), contending that the opening valuation of two i.e. Water supply system and Bormah Jan Tea Co. (1936) Ltd. 4 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 ITA No. 665/Kol/2015
Bormah Jan Tea Co. (1936) Ltd. 5 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 Bormah Jan Tea Co. (1936) Ltd. 6 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 the result, the appeal of the Revenue is dismissed.
Order pronounced in the open Court on 19-01-2018.