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IN THE INCOME TAX APPELLATE TRIBUNAL, ‘A’ BENCH, KOLKATA Before : Shri J. Sudhakar Reddy, Accountant Member and Shri S.S. Viswanethra Ravi, Judicial Member & 1359/Kol/2014 A.Ys : 2008-09 & 2009-10 D.C.I.T., Cir-4, Kolkata, Aaykar Bhawan, P-7, Chowringhee Square, Kolkata-700 069. Appellant -Vs- M/s. Amalgamated Plantations Pvt. Ltd. 1, Bishop Lefroy Road, Kolkata-700020, PAN: AAGCA 6995B. Respondent
C.O Nos. 95 & 96/Kol/2014 [arising out of ITA No’s. 1358 & 1359/Kol/2014 A.Ys: 2008-09 & 2009-10] M/s. Amalgamated Plantations Pvt. Ltd. Appellant/Cross Objector -Vs- D.C.I.T., Cir-4(2), Kolkata. Department/ Respondent
Appearances by: Shri Sallong Yaden, Addl.CIT, ld. Sr.DR S/Shri Kaushik Mukherjee & Shashank Kasat, ld.ARs Date of hearing : 23-08-2017 Date of pronouncement : 25-10-2017 & CO Nos. 95,96/K/14 M/s. Amalgamated Plantations P.Ltd 1 Shri. S.S.VISWANETHRA RAVI, JM:
These two appeals by the Revenue and corresponding cross objection are directed against the separate orders both dated 12/03/2014 passed by the Commissioner of Income Tax(Appeals)-IV, Kolkata for the assessment years 2008-09 and 2009-10.
We shall take up the appeal in for A.Y 2008-09 by the revenue.
The appellant Revenue has raised following grounds:-
i). That on the facts and in circumstances of the case, the ld. CIT(A) has erred in deleting the disallowance made on account of cess on green leaf ignoring the fact that a SLP has been filed by the Dept, challenging the order of the Hon’ble Kolkata High Court that inspired the decisions quoted upon by the Ld. CIT(A) while deliberating the issue in appellant’s favour. ii). That on the facts and circumstances of the case and also in law in ignoring the fact that the said consultancy fees were paid to seek expertise in starting a alternate crop in the tea garden which the appellant intends to crry on for a number of years. Hence, the fees thus paid gives a benefit of enduring nature over a number of years and thus cannot be termed as a capital expense. iii) That the appellant craves for leave to add, delete or modify any of the grounds of appeal before or at the time of hearing.
4. Ground no.1 relates to deletion of disallowance made on account of green leaf.
Brief facts of the case are that the assessee is a company and involved in the business of manufacturing of Tea and filed return of & CO Nos. 95,96/K/14
M/s. Amalgamated Plantations P.Ltd 2 income on 30-09-08 showing ‘nil’ income. Notices u/s. 143(2) and 142(1) were issued and, in response to the said notices, the assessee appeared.
The contention of the Assessee is that it has tea gardens in Assam and the production of the green leaf is purely an agricultural activity and as such, the cess levied on the production of the green leaf does not come under the purview of composite income and claimed deduction before applying Rule 8 of Income tax Rules 1962. According to AO the Revenue challenged the order of the Hon'ble Calcutta High Court in the case of AFT Industries before the Hon'ble Supreme Court and the Hon’ble Supreme Court admitted said SLP and in view of pendency of the matter, the AO treated the cess is non deductible expenditure from the composite income of the assesse and added an amount of Rs. 3,67,07,442/- to the total income of assessee.
Before the CIT-A the assessee relied on the orders of the Calcutta High Court in the case of AFT Industries Ltd reported in ( 2004) 270 ITR 167(Cal) and the Gauhati High Court in the case of Jorehaut Group Limited Vs. ACIT reported in 289 ITR 422 (Gua). After considering submissions of the assessee and case laws relied on by the assessee, the CIT-A held as under:-
4.2 I have examined the Assessment Order as well as the contention of the appellant. It is fact that the matter has now been comprehensively adjudicated by the Hon’ble Jurisdictional High Court of Kolkata in the case of CIT – vs.- AFT industries Ltd (2004) 270 ITR 167 and the issue stands decided in favour of the appellant. Although against this judgement, a SLP has been admitted in the Supreme Court, nevertheless, the Supreme Court has not stayed the order of the High Court of Kolkata. Pendiing adjudication of the Supreme Court, the decision of the Jurisdictional High Court in the case of AFT & CO Nos. 95,96/K/14 M/s. Amalgamated Plantations P.Ltd 3
Industries Ltd, will hold. Addition of Rs. 3,67,07,442/- made on this account is deleted. “
We find that, as matter stood thus, 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 Honourable High Court of Calcutta. 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 Honourable Supreme Court and learned DR submits 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. “
& CO Nos. 95,96/K/14
M/s. Amalgamated Plantations P.Ltd 4
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 Hon’ble Supreme Court, we hold that the income so computed is to be apportioned 60: 40 of which 40 is assessable to tax under the Act. Thus, ground no-1 raised by revenue is, accordingly dismissed.
Ground no. 2 is relating to deletion of addition made as disallowance of Rs. 47,18,760/- towards consultancy fees paid to M/s. Globally Managed Services (GMS).
The AO asked the details in respect of the consultancy fee. The assessee vide its letter dt: 15-12-2010 & 21-12-2010 stated that the Assam Government had granted approval of utilization of 5% of grant area of each tea estate for land utilization for the use of any agricultural activity other than tea. In this regard, the assessee availed the services of M/s. Globally Managed Services [M/s.GMS] for assisting in raising such alternative crops by providing expertise, knowhow and process of identification of suitable agricultural crop for trials, assess potential for scalability and also identifying marketing channel options. The AO found the submissions of the assessee not acceptable and proposed disallowance. However, the assessee contended that the said disallowance should be made on composite business income by application of Rule 8 IT Rules inspite of which the AO disallowed an amount of Rs.47,18,760/- and added the same to the total income of the assessee. ,1359/K/14 & CO Nos. 95,96/K/14 M/s. Amalgamated Plantations P.Ltd 5
Aggrieved, the assessee challenged the same before the CIT-A. Before him the assessee contended that the said consultancy was taken by the assessee on a going concern basis which involved continuous study and experimentation with varied types of alternate crops. The said expenses were incurred during the normal course of the carrying on the alternate crop raising business activity and should be treated as revenue expenditure. The assessee also contended that the consultancy fees involved cost towards validation and experimentation process. The assessee submitted that it did not receive any enduring benefit out of such consultancy as many of the alternative crops, which were identified as feasible by the consultant has subsequently been found to be not viable and terminated and the assessee incurred continued losses on account of raising of such alternative crops in the subsequent years.
Considering the submissions the CIT-A held that alternate cop farming has been done by the assessee as part of and in the course of tea plantation business within existing area of plantation land and with the existing labour deployed for tea plantation business with common management and fund. He deleted the impugned addition/disallowance by stating as under:-
10.3 I have considered the assessment order as well as the submission of the appellant. It is seen that the A.O. disallowed this expenditure by holding that the same is capital in nature on the contention that benefit of the services provided by GMS will be endured by the appellant over many years. The appellant has submitted that out of the total amount of Rs. 47,18,760/-, Rs. 6,74,160/- has been incurred on account of advice for future business development and the consultancy being subject to acceptability/non acceptability by the management, no enduring benefit has been received out of such consultancy expenses. As regard the balance amount of Rs. 40,44,600/-, the appellant has submitted that the running business which was acquired by the appellant from Tata Tea Limited included ITA Nos.1358,1359/K/14
& CO Nos. 95,96/K/14
M/s. Amalgamated Plantations P.Ltd 6 activities of growing and manufacturing of tea and raising of alternate crops which is inherent in tea industry and runs side by side with the main business. In order to further develop and carry on with the alternate crop business activities acquired from Tata Tea Limited, the appellant engaged GMS. The fees paid to GMS are in respect of various validation and experimental process done in respect of alternate crops. It was also submitted that the appellant has incurred losses on various alternate crops and has discontinued development of the same, thus no enduring benefit accrued to the appellant from the services provided by GMS.
The appellant vide additional submission has placed reliance on various judicial pronouncements and has submitted that the alternate crop business formed part of its existing line of business and was intrinsically linked to the tea business o the appellant having common management and fund. The said consultancy was thus not in respect of any new line of business and hence cannot be considered as capital in nature. The appellant has further submitted that even if it is considered as new line of business since the business was carried on with common management and fund, the expenditure in account of consultancy cannot be disallowed as capital expenditure.
10.4 It has thus been submitted relying on various judicial pronouncements that the said expenditure was made in the normal course of carrying on the alternate crop business and hence should be allowed as a deduction under section 37(1).
It is a common affair for business enterprises to take advices from subject experts on various issues required in efficient running of business. Such consultancy expenses are normally allowed as revenue expenditure unless it can be proved that the expenses were not incurred for business purposes or resulted in setting up new line of business providing enduring benefit. It is observed that the A.D. has not disputed the incurrence of expenses for business purpose.
As regard the question as to whether the said consultancy has provided any enduring benefit to the appellant, it is observed that the appellant had obtained consultancy of Rs. 40,44,600/- to expand the alternate crop business acquired on a going concern basis from Tata Tea Limited. It is common in tea plantation business to identify and raise suitable alternate crops from time to time to accommodate the off seasons in the cyclic business of tea growing. The Assam Government had granted approval of utilization of 5% of the grant area of each tea estate for land utilization for use of any agricultural activity other than tea. Thus it is observed that the alternate crop farming has been done by the appellant as part of and in the course of tea plantation business within existing area of plantation land and with the existing labours deployed for tea plantation business with common management and fund. The said business is intrinsically linked to appellant's plantation business and hence does not strictly constitute a new line of business. Further, the enduring test has also otherwise not been satisfied in the instant case since various alternate crops which were actually implemented based on advice, were not found to be commercially feasible and were scrapped within short span of time. Similarly, the appellant has incurred Rs. 6,74,160/- on account of advice identifying avenues for future business development as part of managing regular day to day business which does not seem to provide any enduring benefit. The appellant's reliance on various judicial pronouncements in support of allowability of consultancy expenses as revenue expenditure merits consideration. Hence, addition on this account of Rs. 47,18,760/- is deleted.”
Heard rival submissions and perused the material on record. We find that the ld.AR reiterated the submissions as made before the AO as well as the CIT-A. The CIT-A found that the expenditure incurred by the & CO Nos. 95,96/K/14
M/s. Amalgamated Plantations P.Ltd 7 assessee during normal course of business of tea plantation and the alternative crop farming resulted into the losses and the assessee terminated raising of such alternate crop in subsequent years and as such the expenditure incurred did not give a long lasting benefit to the assessee. We find there is continuity of business with common management and fund. We further find that the expenses in paying the consultancy fees is not for the new line of business and it was incurred for raising alternate crop under the permission of Assam Government to utilize the same land which is under tea plantation. Therefore, in our opinion, the assessee is entitled to claim such expenditure as revenue expenditure. In view of above, we find no infirmity in the impugned order of the CIT-A in deleting the same and uphold the same. Ground no.2 raised by the revenue is dismissed.
The appeal in for A.Y 2008-09 of the Revenue is dismissed.
Now, we shall take up the appeal in A.Y 2009-10 by the revenue.
The appellant Revenue has raised following grounds:-
i). That on the facts and in circumstances of the case, the ld. CIT(A) has erred in deleting the disallowance made on account of cess on green leaf ignoring the fact that a SLP has been filed by the Dept, challenging the order of the Hon’ble Kolkata High Court that inspired the decisions quoted upon by the Ld. CIT(A) while deliberating the issue in appellant’s favour. ii). That on the facts and circumstances of the case and also in law in ignoring the fact that the said consultancy fees were paid to seek expertise in starting a alternate crop in the tea garden which the appellant intends to crry on for a number of years. Hence, the fees thus paid gives a benefit of enduring nature over a number of years and thus cannot be termed as a capital expense. ITA Nos.1358,1359/K/14
& CO Nos. 95,96/K/14
M/s. Amalgamated Plantations P.Ltd 8 iii) That the appellant craves for leave to add, delete or modify any of the grounds of appeal before or at the time of hearing.
18. Ground no.1 relates to deletion of disallowance made on account of green leaf.
19. This ground no-1 is similar to that of ground no.1 raised in for the A.Y 2008-09 of the revenue, which we have already discussed and disposed of the same in paras herein above vide para’s 4 to 9 of this order. Following the same, this ground no-1 of the revenue is liable to be dismissed and accordingly, it is dismiised.
20. Ground no. 2 is relating to deletion of addition made as disallowance of Rs. 27,13,834/- towards consultancy fees paid to M/s. Globally Managed Services (GMS).
21. This ground no-2 is similar to that of ground no.2 raised in for the A.Y 2008-09 of the revenue, which we have already discussed and disposed of the same paras herein above vide para’s 11 to 14 of this order. Following the same, this ground no-2 of the revenue is liable to be dismissed and accordingly, it is dismised.
The appeal in for the A.Y 2009-10 of the Revenue is dismissed. ,1359/K/14 & CO Nos. 95,96/K/14 M/s. Amalgamated Plantations P.Ltd 9
Now coming to CO No’s. 95 & 96/Kol/2014 arising out of ITA No’s 1358 & 1359/Kol/2014 for the A.Ys 2008-09 & 2009-10 by the assesse.
It is noticed that the cross objections were filed with a delay of 10 days, but, however, we find no petition filed seeking to condone the said delay. Taking into consideration submissions and the contention of the assesse raised in respect of consultancy fee paid to GMS for raising alternate crop before the AO and CIT-A that the disallowance should be made applicable before applying of Rule 8 of the IT Rules. We find, inspite of making specific ground before the CIT-A and no finding was rendered on the said issue, but, However, has given relief to the assessee on main disallowance involving the deduction towards consultancy fee, for which, we have already discussed and disposed of the same concurring with the view of the CIT-A. In view of the same, both the Cross Objections of the assessee are dismissed.
In the result, both the appeals of revenue in ITA No’s. 1358 & 1359/Kol/2014 for the A.Ys 2008-09 & 2009-10 and that of CO’s in No’s. 95 & 96/Kol/2014 for the A.Ys 2008-09 & 2099-10 of assessee are dismissed.
Order pronounced in the open Court on 25-10-2017.