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Income Tax Appellate Tribunal, KOLKATA BENCH “A” KOLKATA
Before: Shri N.V.Vasudevan & Shri Waseem Ahmed
आदेश /O R D E R PER Waseem Ahmed, Accountant Member:-
This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-IV, Kolkata dated 15.01.2014. Assessment was framed by DCIT, Circle-4 Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 13.01.2006 for assessment year 2003-04. Shri Anand Kr. Singh, Ld. Departmental Representative represented on behalf of Revenue and Mrs. Nilima Joshi, Ld. Authorized Representative appeared on behalf of assessee.
The first issue raised by the Revenue in this appeal is that ld. CIT(A) erred in deleting the addition made by the AO for Rs. 25,63,853/- on account of cess on green leaf expenditure claimed by the assessee.
ITA No.844/Kol/2014 A.Y. 2003-04 ITO Wd-4(4) Kol. Vs. M/s Rungamattee Tea & Industries Ltd. Page 2 3. The assessee during the year has claimed cess expenses on the production of green leaf made in the gardens as per the provision of Assam Government. The assessee claimed deduction of such cess expenses before apportioning the composite income as per rule 8 of Income Tax Rules. The assessee also relied on the judgment of Hon’ble jurisdictional High Court in the case of Commissioner of Income Tax vs. A.F.T Industries Ltd. (2004) , 270 ITR 167 (Cal). However, the AO disallowed the claim of the assessee by observing that against the order of Hon’ble jurisdictional High Court in the case of A.F.T Industries Ltd. (supra), the Revenue has filed an SLP before the Hon’ble Supreme Court which has been admitted. Since the matter is pending before the Hon’ble Supreme Court, therefore, the AO treated the cess as non- deductible expenditure from the composite income and disallowed the same and added to the total income of the assessee.
Aggrieved, assessee preferred an appeal before ld. CIT(A), who has deleted the addition made by the AO by observing as under :- “3.2 I have examined this issue. This mater has been duly considered by the ITAT, Kolkata, in the case of M/s Apeejay Tea Ltd. pronounced on 5.9.2011. The ITAT Kolkata while dismissing the appeal of the Revenue held as below:- ‘The fact that the SLP is pending before the Hon'ble Supreme Court against the decision of the Hon'ble Calcutta High Court in respect of AFT Indust5ries Ltd. vs CIT (270 ITR 167) will not have any effect since the Hon'ble Apex Court has neither set aside the orders of the Calcutta High Court nor granted any stay. In the result the appeal of the revenue is dismissed.’ The Hon'ble ITAT, Kolkata, confirmed the above view at a later date in an order passed on 11.05.2012 in the case of M/s Assambrook Ltd. at ITA No.2049/Kol/2010 for AY 2006-07. Humbly following the decision of the jurisdictional Tribunal, I delete the addition of Rs.25,63,853/- on account of Cess on Green Leaf made by the AO. the AO is directed accordingly. Ground (A) of the appeal is allowed.”
The Revenue, being aggrieved, is in appeal before us on the following ground:- “
1. The Ld. CIT(A) erred in law as well as on facts in holding that Cess on green leaf is an allowable expenditure, ignoring the fact that it is directly attributable to core agriculture activities which is taxable under state A.Y. 2003
04. ITO Wd-4(4) Kol. Vs. M/s Rungamattee Tea & Industries Ltd. Page 3 agriculture income tax, beyond the purview of Central Income tax and on the same issue SLP is pending in the case of AFT Industries.”
5. Ld. DR vehemently supported the order of AO whereas Ld. AR relied on the order of ld. CIT(A).
We have heard rival contentions of both the parties and perused the materials available on record. The issue in the instant case relates to disallowance of cess expenditure claimed by the assessee. The Hon’ble jurisdictional High Court has decided the issue in favour of the assessee in the case of Commissioner of Income Tax vs. A.F.T Industries Ltd. (2004) , 270 ITR 167 (Cal) but against the same order the Revenue has filed SLP in the Hon’ble Apex Court which has been admitted for final adjudication. In view of this, the AO has disallowed the expenditure claimed by the assessee under the head “cess” on green leaf. However, on perusal of record, we find that in identical facts and circumstances, Hon’ble Supreme Court in the case of Commissioner of Income Tax Vs. M/s Apeejay Tea & Co. Ltd. Civil Appeal No.1105 of 2006, order dated 6th August, 2015 has decided the issue in favour of the assessee. The relevant extract of the order is reproduced below:- O R D E R 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 be fare 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 eligible 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. A.Y. 2003-04 ITO Wd-4(4) Kol. Vs. M/s Rungamattee Tea & Industries Ltd. Page 4 Therefore, the cess paid has rightly been excluded while computing the income under Rule 8 of the tea grown and manufactured. In arriving of 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.”
Respectfully following the above decision of Hon’ble Supreme Court, we do not find any merit in this ground of appeal raised by the Revenue and we dismiss the same.
7. Second issue raised by Revenue in this appeal is that Ld. CIT(A) erred in allowing the deduction of ₹1,21,206/- out of the withdrawal from the account maintained with NABARD which is against the provision of Sec. 33AB(4) of the Act. The assessee has withdrawn a sum of ₹1,21,206/- for the purchase of 8. office equipment from the account maintained with NABARD in the year under consideration. The Assessing Officer observed that the amount can be withdrawn from the NABARD account under the specified circumstances as mentioned u/s 33AB(4) of the Act. The instant withdrawal from the NABARD account is not in accordance with the provision of Sec. 33AAB(4) of the Act and therefore the same was disallowed by AO and added to the total income of assessee. 9. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that the amount was withdrawn in accordance with the Tea Development Account Scheme, 1990 vide para-9 clause-(k) which reads as under:- “9. Withdrawal and utilization of the amounts deposited – A depositor shall be entitled to withdraw the amount deposited or such part thereof as may be appropriate and such withdrawals shall be used for any of the following purposes set out which, however, shall be subject to review from time to time.
(k) On purchase of computers and ancillary or related equipment.”
A.Y. 2003-04 ITO Wd-4(4) Kol. Vs. M/s Rungamattee Tea & Industries Ltd. Page 5 The assessee also submitted the details of ancillary equipment which are given here in below:- (i) Stabilizer … … Rs. 1,400/- (ii) Steel table with chair Rs. 7,800/- (iii) Computer chair Rs. 10,710/- (iv) Air conditioner with stabilizer Rs. 83,390/- (v) Refrigerator Rs. 12,500/- (vi) Ceiling fans Rs. 5,406/- Rs.1,21,206/- The Ld. CIT(A) after considering the submissions of assessee deleted the addition made by AO in part by observing as under:- “4.3 In the assessment order the AO has not given any reasoning for disallowance of Rs.1,21,206/- except that the addition is being made on agreed basis. I am of the view that assessment has to be made as per law and not as per an agreement between the AO and the assessee. Hence, I will approach the issue and examine it as per law. Firstly, under the Tea Development Account Scheme, 1990 of NABARD it is perfectly legal to make withdrawal under the said scheme for purchase of computer and ancillary or related equipments [Para-9, clause (k)]. Hence, the action of the appellant to make withdrawals for this purpose is as per law. The AR of the appellant has given a break up of expenses totaling Rs.1,21,206/- which includes items like stabilizer, computer chair, refrigerator and ceiling fan. After perusing these details given by the AR of the appellant, I am in agreement with the views of the AR of the appellant that except for purchase of refrigerator all their item can be categorised as “computer and ancillaries or related equipments” . Therefore, out of the disallowance of Rs.1,21,206/- made by the AO, disallowance of only Rs.12,500/- is sustained. This ground of appeal is partly allowed.”
The Revenue, being aggrieved, is in appeal before us on the following ground:- “2. The Ld. CIT(A) erred in law as well as on facts in holding that purchase of computer and its ancillaries for Rs.1,21,206/- out of withdrawal from credit available with NABARD accounts scheme was allowable, ignoring the fact that s per provisos of section 33AB(4) purchase of computer is not allowable from the withdrawal from credit available with NABARD scheme as plant & Machinery.”
10. Before us Ld. DR heavily relied on the order of AO whereas Ld. AR reiterated same submissions as made before Ld. CIT(A) and he also relied on the order of Ld. CIT(A). A.Y. 2003-04 ITO Wd-4(4) Kol. Vs. M/s Rungamattee Tea & Industries Ltd. Page 6 11. We have heard rival contentions of both the parties and perused the materials available on record. The issue in the instant case relates to purchase of office equipments out of money withdrawn from the account maintained with NABARD. As per the AO the amount can be withdrawn from the NABARD account in the circumstances as specified u/s 33AB(4) of the Act which are enumerate below:- “[Tea development account [,coffee development account and rubber development account]. 33AB. (1). … … .. (2). … … … (3). … … … [(4). Notwithstanding anything contained in sub-section (33), where any amount standing to the credit of the assessee in the special account or in the Deposit Account is released during any previous year by the National Bank or withdrawn by the assessee from the Deposit Account, and such amount is utilized for the purchase of- (a) any machinery or plant to be installed in any office premises or residential accommodation, including any accommodation in the nature of a guest house; (b) any office appliances (not being computers); (c) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any one previous year; (d) any new machinery or plant to be installed in an industrial undertaking for the purposes of business of construction, manufacture or production of any article or thing specified in the listed in the Eleventh Schedule. the whole of such amount so utilized shall be deemed to be the profits and gains of business of that previous year and shall accordingly be chargeable to income tax as the income of that previous year.]”
According to the Assessing Officer, the instant withdrawal of money from the account maintained with NABARD does not fall under the circumstances provided u/s 33AB(4) of the Act, thus, the disallowance was made by AO. However, the Ld. CIT(A) deleted the addition made by AO by observing that the amount was withdrawn in accordance within the meaning of approved scheme under the Act. Therefore, in such disallowance was not warranted. In the light of above discussion, the issue before us arises for our adjudication so as to whether the impugned withdrawal was within the meaning of the A.Y. 2003-04 ITO Wd-4(4) Kol. Vs. M/s Rungamattee Tea & Industries Ltd. Page 7 provision of Section 33AB of the Act. As per the provisions of Section 33AB of the Act a deduction is allowable from the income if assessee deposits the amount with the National Bank in accordance with the Scheme approved by the Tea Board or Coffee Board or Rubber Board. The amount so deposited under the scheme will be eligible for deduction from the income of the assessee subject to the amount of conditions as specified under the provision of Sec. 33AB of the Act. The amount so deposited can be withdrawn under the circumstances as specified under the sub-section (3) of 33AB of the Act which reads as under:- “(3). Any amount standing to the credit of the assessee in [the special account or the [***] Deposit Account shall not be allowed to be withdrawn except for the purposes specified in the scheme or, as the case may be, in the deposit scheme] or in the circumstances specified below:- (a) Closure of business; (b) Death of an assessee; (c) Partition of a Hindu undivided family; (d) Dissolution of a firm; (e) Liquidation of a company From the provisions of section 33AB(3) of the Act, we find that the assessee is entitled to utilize the amount withdrawn from the account maintained in NABARD for the purposes as specified in the scheme. And in the instant case the assessee has utilized the fund as per the scheme. It is also important to note that the provisions of section 33AB(4) of the Act also provides the assessee to utilize the money for purchase of the computers. Thus we do not find any reason to interfere in the order of ld. CIT(A) Therefore, there is no merit in this ground of appeal raised by the Revenue, hence, we dismiss the same.
12. Next issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by the AO for ₹9,48,088/- on account of depreciation on the plant & machinery purchased from the amount withdrawn from the account maintained with NABARD.
13. The assessee in the year under consideration has withdrawn a sum of ₹65,17,738/- from the NABARD account and purchased plant and machinery. A.Y. 2003-04 ITO Wd-4(4) Kol. Vs. M/s Rungamattee Tea & Industries Ltd. Page 8 The assessee on such plant and machinery claimed depreciation of ₹9,48,088/- only. During the course of assessment proceedings, AO observed that as per the provision of Sec. 33AB(6) of the Act the amount of depreciation is not allowable expenditure. Accordingly, AO disallowed the depreciation amount of ₹9,48,088/- and added to the total income of assessee. 14 Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that as per the provision of Sec. 33AB(6) of the Act the deduction of expenditure incurred out of amount withdrawn from the NABARD account is not allowable. But, there is no denial for the deduction of depreciation as the same is an allowance and it is not expenditure. The Ld. CIT(A) after considering the submission of assessee deleted the addition made by the AO by observing as under:- “5.2 I have considered the written submission of the AR of the appellant. I find that the AO has held that the claim of depreciation will not be allowable u/s. 33AB(6) whereas the AR of the appellant has argued that depreciation is not an expenditure and it is only a notional allowance which is not based on actual expenditure. The AR of the appellant has placed reliance on the Supreme Court decision in the case of Garden Silk Weaving Factory vs. CIT (1993) 189 ITR 512 which pertains to claim of depreciation u/s 32 of the IT Act, 1961. The said judgment holds depreciation to be of the nature of notional allowance and not an item of actual expenditure. However, section 33AB(6) states that if certain amount is standing to the credit of the assessee in a special deposit account and withdrawals from this account is made by the assessee for any expenditure under the Scheme, then, such expenditure shall not be allowed in computing the income chargeable under the head “Profits and gains of Business or Profession.” However, in light of the judgement of Hon'ble Supreme Court 189 ITR 512, depreciation is held to be not an actual expenditure but only a notional allowance. I am, therefore, of the view that the action of the AO to equate expenditure to depreciation cannot be upheld. Ground (C) is allowed.”
The Revenue, being aggrieved, is in appeal before us on the following ground:- “3. The Ld. CIT(A) erred in law in holding that depreciation on plant & machinery purchased out of NABARD scheme was allowable, ignoring the fact that depreciation on Plant & Machinery acquired from withdrawal from NABARD scheme was not allowable as per provisions of section 33AB(4).”