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Income Tax Appellate Tribunal, “D” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM]
IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH : KOLKATA [Before Hon’ble Sri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM] I.T.A No. 682/Kol/2017 Assessment Year : 2012-13 Mcleod Russel India Ltd. -vs.- D. C.I.T., Circle-4 (1), Kolkata Kolkata [PAN : AAACE 6918 J] (Respondent) (Appellant) For the Appellant : Shri D.S.Damle, AR For the Respondent : Shri Goulen Hangshing, CIT(DR) Date of Hearing : 25.07.2017. Date of Pronouncement : 28.07.2017. ORDER Per N.V.Vasudevan, JM
This is an appeal by the Assessee against the order dated 24.03.2017 of C.I.T., Kolkata-2, Kolkata passed u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act ‘) relating to A.Y.2012-13.
The Assessee is a company engaged in the business of growing and manufacturing of tea. For A.Y.2012-13 the assessee filed return of income on 25.11.2012 disclosing total income of Rs.37,83,29,120/-. The assessee was entitled to deduction u/s 80IE of the Act. Under Section 80IE of the Act, where the total income of an assessee includes any profits and gains derived by an undertaking to which Section 80IE of the Act applies from any business referred to in sub-section (2), the assessee shall be allowed deduction of 100% of profits and gains from such business for 10 consecutive assessment years commencing from the initial assessment year. The business referred to sub-section (2) also refers to an undertaking of North-Eastern states which manufactures or produces eligible article or thing or undertakes substantial expansion to manufacture or produce any eligible article or thing. The assessee made the claim for
2 ITA No.682/Kol/2017 M/s. Mcleod Russel India Limited A.Yr.2012-13 deduction u/s 80IE of the Act in respect of various undertakings of the assessee carrying out substantial expansion to manufacture or produce article or a thing. Substantial expansion has been defined in sub-section 80IE(7)(iii) of the Act which means increase in the investment in the plant and machinery by at least 25% of the book value of the plant and machinery as on the first day of the previous year in which the substantial expansion is undertaken.
The assessee had various tea estates in the north eastern states and each tea estate had to be regarded as an “undertaking” for the purpose of claiming deduction u/s 80IE of the Act.
The assessee had claimed deduction u/s 80IE of the Act in respect of carrying out substantial expansion in 28 tea gardens in the previous year relevant to A.Y.2010-11. The AO allowed deduction u/s 80IE of the Act in respect of 24 tea gardens (undertakings) and disallowed in respect of four undertakings. The CIT(A) on appeal by the assessee allowed the deduction in respect of the remaining four undertakings also. The revenue is in appeal against the order of CIT(A) and the issue is pending before the Tribunal for A.Y.2010-11.
In the previous year relevant to A.Y.2011-12, the assessee claimed deduction in respect of 36 tea gardens (undertakings) i.e. 8 tea gardens (undertakings) over and above 28 tea gardens for which deduction was claimed for A.Y.2010-11. The AO disallowed claim for deduction in respect of eight undertakings including four disallowed in A.Y.2010-11.
As far as A.Y.12-13 is concerned, the assessee claimed deduction in respect of 42 tea gardens (undertakings) and the AO disallowed the claim in respect of 11 undertakings including 8 disallowed in A.Y.2011-12. Therefore out of the 6 2
3 ITA No.682/Kol/2017 M/s. Mcleod Russel India Limited A.Yr.2012-13 undertakings for which a new claim for deduction was made in AY 2012-13, deduction was allowed for 3 undertakings and disallowed for the remaining 3 undertakings.
It is worthwhile to mention that so far as deduction u/s 80IE of the Act is concerned the condition for allowing deduction u/s 80IE of the Act has to be decided in the initial assessment year. Therefore as far as A.Y.2012-13 is concerned the claim of the assessee for deduction u/s 80IE of the Act was made only in respect of six tea gardens (undertakings) out of which the AO allowed the claim in respect of three tea gardens (undertakings) and disallowed the claim in respect of three undertaking tea gardens. Therefore as far as A.Y.2012-13 is concerned the subject matter of deduction u/s 80IE of the Act that could be investigated by the AO was only six new undertakings (tea gardens) for which a fresh claim of deduction was made by the assessee. With this background we shall now see as to how CIT proceeded to invoke his powers u/s 263 of the Act.
In the assessment completed u/s 143(3) of the Act order dated 03.03.2015 for A.Y.2012-13, the AO without making a distinction between the undertakings for which deduction was disallowed in A.Y.2010-11 and 2011-12 and after observing that in respect of 11 undertakings, the assessee was not entitled to deduction u/s 80IE of the Act for the reason that substantial expansion had been carried out by the assessee over a period of two or three years and not in one single year which was the requirement for claiming deduction on account of substantial expansion u/s 80IE of the Act. The following were the relevant observations of AO :-
“4. Deduction u/s 80IE : In response to the queries raised from time to time with respect to the deduction U/s 80lE of the Income Tax Act, 1961 the A/R of the assessee filed various submissions and details to claim deduction U/s 80lE for 42 Tea Estates. On a verification of the submission, it was found that the assessee company had undertaken substantial expansion in various tea estates since 1st April, 2007, on the 3
4 ITA No.682/Kol/2017 M/s. Mcleod Russel India Limited A.Yr.2012-13 basis of which it claims deduction under section 80lE in its return of income in respect of the above 42 tea estates. The said claims were made considering each tea estate as separate undertaking for the purpose of deduction under Section 80lE of the Act.
As per the submission, relevant documents filed and produced before me, it is evident that the assessee has completed its substantial expansion spread over 2-3 years period and has reflected such expansion work through certain additions as capital work in progress and simultaneously, it has claimed depreciation on certain additions as and when put to use. As requisitioned, the assessee provided a statement of additions and % age of completion after excluding addition on which depreciation has already been claimed u/s 80IE. Looking into the details, it was found that the assessee is not eligible to claim deduction u/s 80IE for the following eleven tea estates :
Name of the Estate Amount claimed Amount considered for (Rs.) disallowance in current year (Rs.) Paneery 1,04,53,251 1,04,53,251 Mijcajan 1,42,43,980 1,42,43,980 Monabarrie 4,59,07,343 4,59,07,343 Moran 62,35,274 62,35,274 Phillobari 1,37,25,419 1,37,25,419 Rajmai 1,75,59,137 1,75,59,137 Nyagogra 2,56,32,686 2,56,32,686 Dehing 3,86,79,348 3,86,79,348 Dirok 4,90,10,177 4,90,10,177 Bardubi 1,40,90,663 1,40,90,663 Harichurah 80,30,773 80,30,773 Total 24,35,68,051 24,35,68,051
Hence, out of total deduction of Rs.79,53,97,988/- claimed u/s 80IE by the assessee, an amount of Rs.24,35,68,051/- is disallowed u/s 80IE. Penalty proceedings u/s 271(1)(c) is initiated for the above disallowance.”
The CIT in exercise of his powers u/s 263 of the Act was of the view that the action of the AO in allowing deduction u/s 80IE of the Act as done in the order of assessment was erroneous and prejudicial to the interest of the revenue for the following reasons :-
5 ITA No.682/Kol/2017 M/s. Mcleod Russel India Limited A.Yr.2012-13 “3. As per provisions of section 801E, 100% deduction is available to eligible undertaking which has, during the period beginning on the 1" day of April, 2007 and ending before the 1" day of April 2017, Begun or begins, in any of the North Eastern States i) Mfg. of produced any eligible article or thing ii) Undertake substantial expansion to mfg. or produced any eligible articles or thing iii) To carry any eligible business.
Substantial expansion has been defined u/s.80IE(7) as increase in the investment in the plant and machinery by at least.25% of the book value of plant and machinery (before taking description in any year), as on the 1st day of the previous year in which the substantial expansion is undertaken.
In the instant case, you claimed deduction of Rs.24,35,68,051/- In respect of 11 tea estates was disallowed by the A.O. holding them ineligibility for deduction u/s.80IE. The AO stated that you have completed its substantial expansion spread over two to three years period and after looking into the detail of statement of additions to capital work in progress and percentage of completion, this units were ineligible for deduction u/s.80IE.
It is also observed that in 11 more units deduction u/s.80IE was claimed, but substantial expansion was not completed in one year.
Therefore, deduction of Rs. 23,41,59,547/- u/s.80IE as completed above was to be disallowed which was not done. This resulted in underassessment of income of Rs.23,41,59,547/- and consequent under charge of tax of Rs. 7,59,73,065/- (@ 30% + 5% + 3%) including interest.
It may be mentioned here that the AO disallowed the deduction u/s.80IE in the case of another company, M/s. Joysree Tea Industries Ltd., for A.Y. 2012-l3 & 09- 10, assessed in same charge i.e. Circle-4(1) Kolkata on ground that he could not complete the substantial expansion in one year. The said disallowance was confirmed by the CIT(A}-IV, Kolkata in respect of 2009-10 in appeal order dtd 5.12.20l3, in appeal No. 209/CIT(A)-IV/2011-12.”
The CIT issued a show cause notice on 30.11.2016 as mentioned in the earlier paragraph. The assessee vide its reply dated 21.12.2016 highlighted as to how the AO has examined and allowed the claim of deduction to the assessee u/s 80IE of the Act to the extent beneficial to the assessee. The Assessee pointed out that each of the 31 5
6 ITA No.682/Kol/2017 M/s. Mcleod Russel India Limited A.Yr.2012-13 gardens in respect of which deduction u/s 80lE was allowed, had individually complied with requirements of Sec 80lE of the Act. Each of the 31 tea gardens in respect of which deduction was allowed had achieved norms of attaining "substantial expansion" as provided for in Sec 80IE of the Act and that details were full, cogent and sufficient material and evidence to prove that the Assessee had achieved substantial expansion at each of the 31 gardens was filed before the AO. On verification of the material, evidences and audit reports the AO had allowed the deduction u/s 80lE on being satisfied that the prescribed conditions were fulfilled by each of the 31 gardens. The Assessee also argued that proceedings u/s 263 have been initiated upon interpreting provisions of Sec 80IE of the Act as requiring "substantial expansion" of an undertaking contemplated in Sec 80IE should be achieved by an assessee in anyone single financial year and the deduction will not be permissible if substantial expansion of an undertaking spreads over more than one financial year. The Assessee submitted that the language employed by the legislature while enacting Sec 80IE nowhere provided or required that an assessee should achieve substantial expansion of an industrial undertaking in anyone financial year. It was argued that rules of interpretation of statute requires that while interpreting beneficial provisions of the Act an authority should not read into provisions any restrictions or disability which the legislature has not specifically provided for in the statue. The only requirement to be satisfied by the industrial undertaking for claiming the deduction u/s 80lE is that substantial expansion must be attained in given previous year. Once the substantial expansion is achieved by an undertaking in a previous year which ends any time upto 31.03.2017 then profits of such undertaking become eligible for deduction for a period of 10 consecutive financial years; commencing from the year in which the substantial expansion is achieved. The provisions of Sec 80IE as they stand in statue nowhere provide that in order to qualify for deduction u/s 80IE of the Act, the substantial expansion of the undertaking must be achieved in anyone financial year.
7 ITA No.682/Kol/2017 M/s. Mcleod Russel India Limited A.Yr.2012-13 11. The Assessee further submitted that the CIT(A)-2, Kolkata while deciding the Assessee's appeals for the AYs 2010-11 & 2011-12 had specifically dealt with the identical objections of the AO. In the assessment orders for AYs 2010-11 & 2011-12 the AO had disallowed the Assessee's deduction u/s 80IE in respect of some of its tea gardens on the plea that the Assessee did not achieve substantial expansion in one financial year. The CIT(A) after examining the factual matrix governing the substantial expansion" carried out by the Assessee came to conclusion that the Assessee had undertaken substantial expansion in an organized manner, and this was carried out over a period of time which in some cases spread over more than one financial year. The CIT(A) found that consequent on completion of substantial expansion, the Assessee not only increased the gross block of plant & machinery at each tea garden more than 25% but in quantitative terms also each tea garden achieved substantial increase in the tea produced, The CIT(A) accordingly up held the Assessee's claim for deduction u/s 80IE of the Act.
It was argued that Your honour will thus appreciate that on the issue of interpretation of Sec 80IE conceivably more than one legal view is possible viz., the view expressed by the CIT in the show cause notice u/s.263 of the Act based on CIT(A)’s order in the case of M/S.Jayashree Tea Company and the other the one expressed by the CIT(A)-2 Kolkata in Assessee’s case for the AYs 2010-11 & 2011-12. It was argued that u/s 263 of the Act the order of the AO can be considered to be erroneous if the view adopted by the AO is found to be a possible view. However where on any issue two views are possible and the AO has taken one of the possible view then the order of the assessment cannot be considered to be erroneous for the purposes of Sec 263 of the Act. 13. The CIT(A) however was not satisfied with the aforesaid explanation and came to the conclusion that the substantial expansion was not achieved in one year and the following were his observations :-
8 ITA No.682/Kol/2017 M/s. Mcleod Russel India Limited A.Yr.2012-13 “However, regarding deduction of Rs.23,41,59,547/- u/s 80IE, the reply of assessee is not satisfactory. The substantial expansion was not completed in one year and therefore, the assessee was not eligible for deduction in respect of certain units, I, therefore, hold that assessment order of A.O. is erroneous and prejudicial to the interest of revenue in this respect. The assessment is therefore set aside u/s 263 and A.O. is directed to allow deduction u/s 80IE correctly. The impugned order u/s 143(3) 03.03.2015 is accordingly, set aside and assessment should be done as per above directions. “
Aggrieved by the order of CIT the assessee has preferred the present appeal before the Tribunal. The first aspect which was highlighted by the ld. Counsel for the assessee was that the CIT in coming to the conclusion that deduction of Rs.23,41,59,547/- u/s 80IE of the Act ought to have been disallowed but has not specified the undertakings in which the substantial expansion had not been completed by the assessee in the manner required u/s 80IE of the Act. According to him therefore the impugned order u/s 263 of the Act deserves to be quashed. His next submission was that in respect of undertakings for which deduction u/s 80IE of the Act had already been allowed for A.Y.2010-11 and 2011-12 while completing the assessment for A.Y.2012-13, the CIT in exercise of his powers u/s 263 of the Act cannot direct the AO to do what was beyond the scope of the AO’s powers while completing assessment for A..Y.2012-13 because the question whether an undertaking has achieved substantial undertaking or not can be investigated and decided only in the first year in which the claim is made and if the claim is accepted in the first year then the deduction has to be allowed in the following 10 years. The third submission by the ld. Counsel for the assessee was that only in respect of three undertakings out of six undertakings for which the assessee made a fresh claim for deduction u/s 80IE of the Act in A.Y.2012-13, could the AO make an investigation about the eligibility of the claim of the assessee for deduction u/s 80IE of the Act. In respect of these six new undertakings the assessee has duly filed Form No.10CCB giving all the details of plant and machinery which resulted in substantial expansion. He brought to our notice that in paragraph 4 of the order of assessment u/s 143(3) of the Act, in which these facts have been duly recorded by the AO. It was his submission that 8
9 ITA No.682/Kol/2017 M/s. Mcleod Russel India Limited A.Yr.2012-13 in the absence of a clear finding as to which of the undertakings u/s 80IE of the Act order of the AO was erroneous and prejudicial to the interest of the revenue. The CIT was not entitled to invoke the provision u/s 263 of the Act.
For the proposition that it was only in the financial year of substantial expansion that AO could make an investigation of the claims regarding substantial expansion, the ld. Counsel for the assessee placed reliance on the following decisions :- 1. ACIT vs Delhi Press Patra Prakashan 355 ITR 14 (Delhi) 2. Saurashtra Cement & Chemical vs CIT 123 ITR 669 (Guj) 3. CIT vs Karam Chand Thapar & Bros. 216 ITR 548 (Bom)
The last submission of the ld. Counsel for the assessee was that the decision which the AO/CIT(A) rendered on deduction u/s 80IE of the Act in the case of Jayshree Tea Industries Ltd was contrary to the view taken by CIT(A)-IV, Kolkata in assessee’s own case for A.Y.2010-11 and 2011-12 wherein a view was expressed that the substantial expansion can be spread over beyond one financial year. It was submitted by him that the view expressed by the AO/CIT(A) in the case of Jaishree Tea Industries Ltd and that by CIT(A)-IV, Kolkata in assessee’s own case which view are contrary to each other also shows that the issue raised by CIT in the proceedings u/s 263 of the Act was a debatable issue on which two views are possible. The ld. Counsel for the assessee placed reliance on the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs CIT 243 ITR 83 (SC) wherein it was held that where there are two possible views on an issue and the AO has taken one of the possible views, jurisdiction u/s 263 of the Act cannot be invoked. The ld. DR relied on the order of CIT.
We have given a very careful consideration to the rival submissions. It is clear from a perusal of the order of AO dated 03.03.2015 passed u/s 143(3) of the Act that the AO duly took cognizance of the fact that deduction u/s 80IE of the Act was claimed 9
10 ITA No.682/Kol/2017 M/s. Mcleod Russel India Limited A.Yr.2012-13 by the assessee in respect of 42 undertakings (tea estates). He has also taken note of the fact that substantial expansion was spread over the period beyond the financial year. He has however not allowed deduction u/s 80IE of the Act in respect of 11 undertakings (tea estates). As far as A.Y.2012-13 is concerned out of 11 undertakings for which deduction u/s 80IE of the Act was denied only three undertakings were fresh claim made by the assessee for deduction u/s 80IE of the Act in A.Y.2012-13. In respect of the remaining eight undertakings, the claim was already rejected in A.Y.2010-11 and 2011-12. As rightly contended by the ld. Counsel for the assessee the question whether there was substantial expansion or not had to be decided only in the initial year in which substantial expansion is carried out. In respect of 8 undertakings this question of substantial expansion was already decided against the assessee in A.Y. 2010-11 and 2011-12 by the AO. As rightly contended by the ld. Counsel for the assessee, only six undertakings for which a fresh claim for deduction u/s 80IE of the Act can be the subject matter of investigation in A.Y.2012-13. 18. It is also noticed that the CIT in the impugned order has expressed the view that deduction allowed by the AO u/s 80IE of the Act was incorrect but has also spelt out as to which of the 42 undertakings failed to comply with the conditions for achieving substantial expansion required u/s 80IE of the Act. As rightly contended by the ld. Counsel for the assessee, the CIT in the order u/s 263 of the Act has to be spelt out as to how order of the AO was erroneous and we agree with the submissions of the assessee that in the impugned order of CIT it has not been spelt out as to how and which of the undertakings are not eligible for deduction u/s 80IE of the Act. Besides the above, it is also seen that the main basis on which CIT passed the order u/s 263 of the Act was the decision taken by the AO/CIT(A) in the case of Jaishree Tea Industries Ltd in which he concluded that the substantial expansion should have taken place in one year (financial year/previous year). However, we find that there is a contrary view expressed in assessee’s own case by CIT(A) Kol-II in A.Y.2010-11 and 2011-12 which is to the effect that the substantial expansion could take place even beyond a period of one 10
11 ITA No.682/Kol/2017 M/s. Mcleod Russel India Limited A.Yr.2012-13 financial year. It therefore appears that the issue was a debatable issue and two views are possible on an issue. The CIT cannot invoke the jurisdiction u/s 263 of the Act just because he does not agree with the view of the AO unless the view of the AO is shown to be erroneous. We are therefore of the view that in the given facts and circumstances of the case the jurisdiction u/s 263 of the Act was not properly exercised by CIT. The condition precedent for exercising jurisdiction u/s.263 of the Act has not been satisfied. We therefore quash the impugned order u/s 263 of the Act and allow the appeal of the assessee. 19. In the result the appeal of the assessee is allowed. Order pronounced in the Court on 28.07.2017.
Sd/- Sd/- [Waseem Ahmed] [ N.V.Vasudevan ] Accountant Member Judicial Member
Dated : 28.07.2017. [RG PS]
Copy of the order forwarded to:
M/s. Mcleod Russel India Ltd., 4, Mangoe Lane, Surendra Mohan Ghosh Sarani, Kolkata-700001. 2. D.C.I.T., Circle-4(1), Kolkata 3. Pr.C.I.T.-2, Kolkata. 4. CIT(DR), Kolkata Benches, Kolkata.