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IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA ‘C’ BENCH, KOLKATA Before Shri M.Balaganesh, Accountant Member and Shri S.S. Viswanethra Ravi, Judicial Member
I.T.A. No.2006/KOL/ 2013 Assessment Year: 2006-07 I.T.A. No.2007/KOL/ 2013 Assessment Year: 2007-08 I.T.A. No.2008/KOL/ 2013 Assessment Year: 2008-09
D.C.I.T, Cir-4, Kolkata P-7, Chowringhee Square, Kolkata-700 069 Appellant -Vs.- M/s. Tata Tea Ltd, 1, Bishop Lefroy Road, Kolkata-700 020. PAN:ABCT 0602K Respondent
Appearances by: Shri G. Mallikarjuna, CIT, DR, for the Department Shri Saurabh Kedia, AR, for the assessee
Date of hearing : 25-08-2016 Date of pronouncement : 21-10-2016
Shri. S.S.VISWANETHRA RAVI, JM:
These appeals by the Revenue against the separate orders dt: 05-03- 2013 passed by the Commissioner of Income Tax-(Appeals) U/Sec 250 of the Act for the assessment year 2006-07. Since the issues involved in all these appeals are common, therefore, they are heard together and common order is being passed for the sake of convenience. ITA Nos. 2006, 2007 & 2008/Kol/2013 M/s. Tata Tea Limited 1
The appellant Revenue raised following grounds in ITA No. 2006/Kol/2013 A.Y 2006-07
ITA No. 2006/Kol/2013 A.Y 2006-07
That on the facts and circumstances of the case the Ld. CIT (A) has erred in law in deleting the addition of Rs.5001369/- on account of cess on green leaf without considering the fact that expenses on account of cess on green leaf is related to 100% agricultural operation and SLP is pending before the Hon'ble Supreme Court against the decision of Calcutta High Court in the case of AFT Industries Ltd. -vs- CIT (270 ITR 167) in the light of which Ld. CIT (A) decided the issue in favour of the assessee. 2. Whether on the facts and circumstances of the case the Ld. CIT (A) has justified in law in deleting the disallowance of Rs.71.09 lakh/- on account of notional interest on loan advanced to HPL not accounted for though the A.O. has added it back. 3. That on the facts and circumstances of the case the Hon'ble ITAT has erred in law in directing the A.O. to allow the claim of the assessee of Rs.8.09 crore on account of depreciation since the amendment to section 43(6) was introduced in Parliament to show intention of legislature as clearly mentioned in Hon'ble finance Minister's speech in Parliament and accepting the decision will defeat the purpose of legislature.
Ground no.1 is relating to deletion of addition of Rs.50,01,369/- made on account of cess of green leaf. The AO found that the assessee has debited a sum of Rs.367.76 lakhs under the head ‘Cess on green leaf’ and such payment was made to the Government of Assam. The assessee contended that the Hon’ble Jurisdictional High Court in the case of CIT Vs. AFT Industries Ltd (2004) 270 ITR 167 (Cal) has decided that the same was to be fully allowed from the composite income and the same is to be followed in the case of the assessee. The AO following the decision in the case of Jorhat Group Ltd Vs. Agricultural ITO (226 ITR 622) passed by the Hon’ble High Court of Guwahati which held the ‘Cess on green leaf’ is deductible from the agricultural income only and not from the composite income. According to AO the Department has not accepted that decision of the Hon’ble Calcutta High Court in the case of ITA Nos. 2006, 2007 & 2008/Kol/2013 M/s. Tata Tea Limited 2
supra and filed an appeal in Hon’ble Supreme Court. The amount of Rs.367.76 lakhs was added to the total income of the assessee company. a SLP has been admitted in the Supreme Court, nevertheless, the Supreme Court has not stayed the order of the High Court of Kolkata. The CIT-A deleted the addition of Rs.367.76 lakhs pending adjudication of SLP by the Hon’ble Supreme Court.
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
ITA Nos. 2006, 2007 & 2008/Kol/2013 M/s. Tata Tea Limited 3
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. “
WE find that the CIT-A had followed the decision of Hon’ble Jurisdictional High Court in the case of supra which has been further strengthened by dismissal of SLP by revenue. Hence, we do not find any infirmity in the order of CIT-A. Thus, ground no-1 raised is, accordingly dismissed.
Ground no. 2 is relating to deletion of disallowance of Rs.71.09 lakhs on account of notional interest on loan advanced to Haldia Petrochemicals Ltd for short HPL. The AO show caused the assessee to explain as to why the proportionate interest relating to interest-free advance given out of interest bearing loan to HPL amounting to Rs 989.21 Lakhs should not be disallowed. The assessee explained as under:
"The advance was given to HPL during the period when TTL (assessee) was promoter of HPL prior to commencement 0f production facilities along with other joint venture partners. The advance provided to HPL was agreed to be adjusted against the equity contribution and therefore it was agreed that no interest was to be charged on such advance. Subsequently TTL had decided to withdraw from further participation in the project. However. as HPL was not in a position to repay the money advanced, it was agreed that until commencement of commercial production. HPL would not be compelled to make any refund nor would pay any interest on such advances. We would ITA Nos. 2006, 2007 & 2008/Kol/2013
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like to inform you that in the income Tax Law there is no concept of subjecting to tax any notional income. which does not accrue in favour of the assessee. We invite your attention to the decision reported in 46 ITR 144 (SC) in this regard. We would therefore request you not to make any addition on this account.”
The AO basing on the assessments for AY’s 1999-2000 to 2003-2004 wherein, the respondent Revenue rejected the same submissions as made above and added interest to an extent out of Rs.71.09 lakhs out Rs.989.21 lakhs to the income of the assessee.
Before the CIT-A, the Assessee submitted as under:
"1) it is humbly submitted that the appellant had sufficient surplus funds in the years in which such advances were made and such advances were given out of own funds of the appellant. The details of surplus funds as available during the relevant years in which the advances were given were also submitted in the course of assessment The details of such surplus fund have been mentioned in the assessment order. Since the appellant had sufficient surplus funds in the year of advances/ the advance made to Haldia Petrochemicals cannot be said as made out of loan funds and hence no disallowance of interest can be made. Reliance is placed on the following judgments wherein the concurrent view is that where the amount of any interest-free loan is sufficiently covered by the non-interest -bearing funds available with the assessee/ then the question of disallowance of interest on borrowed funds does not arise: • Woolcombers of India Limited - vs. - CIT 134 ITR 219 (Cal) • CIT Vs. 8ritannia Industries Ltd [2006} 280 ITR 525 (Cal) • CIT Vs. ITC Ltd [2008} 299 ITR (AT) 341 (Kolkata) (SB) • CIT Vs. Rockman Cycle Industries Ltd [2009} 176 Taxman 21(P & H) • CIT Vs. Prem Heavy Engineering Works Pvt.Ltd [2006} 285 ITR 554 (All) 2) Without prejudice to the above, it is humbly submitted that the loans as existed in FY 1989-90 to FY 1993-94 being the FYs in which such advances were made were squared up and were no more existing in FY 2005-06 relevant to AY 2006- 07 being the year in which the disallowance has been inflicted by the Assessing Officer. The interest claimed by the appellant during the relevant year was in respect of fresh loans and thus since the loan which could have gone to ITA Nos. 2006, 2007 & 2008/Kol/2013
M/s. Tata Tea Limited 5
fund the interest free advance were not existing, question of disallowance of interest on such loan did not arise at all. This new fact which was not in existent in earlier years was brought to the attention of the Assessing Officer in the course of assessment proceedings. However, the Assessing Officer failed to consider the said fact and inflicted the disallowance merely based on similar disallowance made in earlier years. Copy of the letter dated 22-09-2008 filed in this regard is enclosed as Annexure-2. 3) Without prejudice, it is submitted that the advances made to Haldia Petrochemicals which was outstanding as on the beginning of the year of Rs. 989.21 lakhs was fully repaid during the relevant previous year 2005-06. Hence, no disallowance of interest was called for during the relevant assessment year. 4) Without prejudice to the aforesaid and assuming though not admitting even if the advances are considered as made out of loan funds, no disallowance of interest is called for since the: advances were given out of commercial expediency of business of the appellant. It is submitted that the advance was given as a measure of commercial expediency and arose 0:7 a pure business decision for becoming a promoter of HPL. The said decision was duly approved by the board and the shareholders. However due to delay in project and at the request of West Bengal State Government, the appellant backed out of the project since it was not prepared to invest further funds. Further, since HPL was not in a position to immediately refund the advance amount, the same was converted in to interest free advance till the commencement of commercial production as per the terms of agreement mutually agreed Thus, even for the sake of argument if it is assumed though not admitted that the appellant company had incurred interest expenditure on loan which was utilized to give interest free advance, no disallowance/addition was called for, since the said advance arose purely for a business purpose and was extended for reasons of commercial expediency. It is humbly submitted that granting of interest free advance was a commercial decision taken by the appellant company. Reliance in this regard is placed on the Supreme Court judgment in the case of S.A. Builders -vs. - CIT (2007) 288 ITR 1 (SC) wherein the SC held as under: "In order to decide whether interest on funds borrowed by the assessee to give an interest free loan to a sister concern (e.g. a subsidiary of the assessee) should be allowed as a deduction under section 36(l)(iii) of the Income Tax Act, 1961 one has to enquire whether the loan was given by the assessee as a measure of commercial expediency. The expression 'commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation but yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. " Reliance is also placed on the decision of the Hon'ble Calcutta High Court in the decision of Britannia Industries Limited reported in 280 ITR 525 (Cal).
ITA Nos. 2006, 2007 & 2008/Kol/2013
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In view of the above submission, it is humbly prayed that the addition made by the AO of Rs. 71,09,000/- may please be deleted."
The CIT-A deleted the addition made account of disallowance towards notional interest on his satisfaction that the assessee furnished the complete details of surplus fund available with the assessee for advancing the loan to HPL and such examination the CIT found that the Assessee discharged its onus of explaining the source of funding of the loan. The relevant portion of which is reproduced herein below:
4.3 I am of the opinion that by giving the complete details of surplus fund available the appellant for financing the loan to M/s. HPL, the appellant company had duly discharged its onus of explaining the source of funding of the loan. The onus was then on the A.O. to examine the availability of surplus fund and its deployment towards loan before coming to any conclusion as to whether there existed a direct nexus between the advances given and surplus fund utilization. No such analysis seems to have been done by the A.O. in the assessment order. On the other hand the appellant has cited several judgements that no disallowance of interest on borrowed fund will be made if the Interest free loan is sufficiently covered by the non interest bearing fund available with the appellant. Humbly, following the decision of Jurisdictional High Court in the cases of Woolcombers of India Ltd., vs. CIT 134 ITR 219 and CIT vs. Britannia Industries Ltd., 280 ITR 525, I delete the disallowance of notional interest made by the A.O. for Rs. 71.091akhs.
Before us, At the time of hearing the Ld. AR submitted that this issue has been set aside by this Tribunal in the immediately preceding assessment years 2000-01, 2001-02, 2002-03, 2003-04 and 2005-06. In some of the assessment years the matter is still pending with the AO. In this assessment year also the peculiar facts of this issue are that the old loans has already been re-paid and fresh loans has been granted to M/s. Haldia Petro Chemical Limited. Therefore the AO should give a fresh look while deciding this issue based on the peculiar facts. Ld. DR reported no objection.
ITA Nos. 2006, 2007 & 2008/Kol/2013 M/s. Tata Tea Limited 7
Heard both and perused the material on record. We find that the order dt:14-07-2011 passed by the Coordinate Bench of Kolkata in ITA 1235/Kol/2009 for AY 2005-06 is placed at page 276 of paper book wherein the issue similar to the issue on hand were remanded to the file of AO to decide the issue afresh, the relevant portion of which is reproduced herein below:
Having heard the rival submissions and on careful perusal of the material available on record, keeping in view of the fact that the Tribunal has set aside the matter to the file of the AO in the preceding years we set aside the issue to the file or the AO for the year under consideration also with the direction to decide the issue afresh in the light of the peculiar facts narrated by the Id. Counsel for the assessee after giving due opportunity to the assessee of being heard as per law.
In view of the above, we remand the issue to the file AO to dispose of the same in the facts and circumstances of the case. Accordingly ground no- 2 is allowed for statistical purposes
Ground no-3 is relating to direction to the AO to allow the claim of Rs.8.09 crore on account of additional depreciation by the ITAT. The assessee company claimed depreciation on the WDV of depreciable assets used in its business of growing and manufacturing tea on the basis of the principle laid down by the Hon’ble Calcutta High Court in the case of CIT vs Suman Tea & Plywood Industries Pvt. Ltd in reported in 204 ITR 719. The assessee claimed the deduction through the revised return filed together with the supporting statement of depreciation schedule duly certified in support of its claim. The AO found that similar claim of the assessee for the assessment year 2003-04 to assessment year 2005-06 was not allowed and the above claim of the assessee was rejected and disallowed Rs. 8.09 crores
ITA Nos. 2006, 2007 & 2008/Kol/2013 M/s. Tata Tea Limited 8
and added to the income for A.Y 2006-07. Similar addition was made for A.Ys 2007-08 & 2008-09.
Before the CIT-A the Respondent assessee filed written submissions and relevant to the issue is reproduced as under:
''It is humbly submitted that the claim of depreciation made by the appellant by filing revised return is allowable in view of the decision of the jurisdictional High Court in the case of CIT -vs.- Suman Tea & Plywood India (P) Limited 204 ITR 719 (Cal.) which was binding on the Assessing Officer. The Hon'ble Supreme Court in the case of CfT-vs. - Doom Dooma India Limited (2009) 310 ITR 392 (Se) has confirmed the principles laid down by the jurisdictional HC in the case of CIT -vs.- Suman Tea & Plywood Industries Pvt. Limited (supra) and thereby has affirmed the validity of law as laid down by the jurisdictional HC for the relevant year. The Ld. CIT(Appeals) has allowed similar claim of depreciation made in earlier years by following the jurisdictional HC decision in the case of Suman Tea(Supra) since confirmed by the SC vide consolidated order for appeal no. 84-91/CIT(A)- IV/05-06 passed for AY 1993-94/ AY 1994-95 to AY 1996-9~ 1998-99 to 2001- 02 wherein claim was made by filing 154 petition and Vide order dated 25-08-2005 & 27-11-2006 for A Y 2002-03 & AY 2003-04 respectively wherein claim for depreciation was made in the course of assessment. The issue being already decided in favour of the appellant by the Ld. CIT(Appeals) in earlier years, the claim of the appellant for the relevant assessment year may please be allowed and addition made by the AO may please be deleted. Copy of the Ld.CIT(Appeals) orders is collectively enclosed herewith and marked as Annexure-3. " 5.3. I find that the principles laid down by the Jurisdictional High Court's order in the case of CIT vs. Suman Tea & Plywood India Pvt. Ltd., 204 ITR 719 stands duly confirmed by the order of the Apex Court in the case of CIT vs. Doom Dooma India Ltd., (2009) 310 ITR 392. Further, as stated by the appellant, in the earlier years too, the CIT( A) has confirmed in the case of the appellant, the principals of depreciation as laid down in the case of CIT vs. Suman Tea & Plywood Industries Pvt. Ltd. Therefore, following the order of the jurisdictional High Court, the Supreme Court and the appellate orders of my predecessors to allow the claim of depreciation in appellants own case for earlier years (A.Y. 2002-03 & A.Y. 2003-04) the additional claim of depreciation for Rs. 8.09 crores is allowed.
The CIT-A by relying on the Hon’ble Supreme Court in the case of CIT vs. Doom Dooma India Ltd., (2009) 310 ITR 392 wherein the Hon’ble ITA Nos. 2006, 2007 & 2008/Kol/2013
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Supreme Court confirmed the decision of Hon’ble Jurisdictional High Court of Calcutta in the case of CIT vs. Suman Tea & Plywood India Pvt. Ltd. The CIT- A also found that appellant allowed such depreciation to the Assessee in earlier years and deleted the addition.
Before us, At the time of hearing the Ld. AR submitted that the present issue is covered by the decision of Hon’ble Jurisdictional High Court of Calcutta in the case of CIT vs. Suman Tea & Plywood India Pvt. Ltd reported in 204 ITR 719 and which was confirmed by the the Hon’ble Supreme Court in the case of CIT vs. Doom Dooma India Ltd., (2009) 310 ITR 392 and Coordinate Bench allowed such depreciation for assessment years 1997-98. The Ld. DR conceded to the fact of submissions as made by the Ld.AR.
Heard both and perused the material on record. We find that the order dt:14-07-2011 passed by the Coordinate Bench of Kolkata in ITA 366 & 367/Kol/2011 for A.Y 2007-08 dated 4-1-2012, wherein the issue similar to the issue on hand was adjudicated. The relevant portion of which is reproduced herein below:
“20. We have given our careful consideration to the rival submissions made before us and have perused the orders of authorities below. The assessee had advanced its claim on the ground that since assessee’s income was to be computed as per Rule 8 of the Income-tax Rules and 40% of the income was to be treated as income from business or profession, therefore, depreciation only to the extent of 40% was to be treated as actually allowed and to the extent the income was treated as agricultural income by virtue of the same being exempt, depreciation could not be deemed to have being actually allowed to the assessee for earning the agricultural income. As regards the interpretation of the phrase ‘actually allowed’ , the assessee had relied on the decision of the Hon’ble Kolkata High Court in the case of CIT Vs. Suman Tea & Plywood Industries Pvt. Ltd (204 ITR 719), wherein it has been held that the term ‘actually allowed’, cannot be stressed to mean notionally allowed or ITA Nos. 2006, 2007 & 2008/Kol/2013 M/s. Tata Tea Limited 10
merely allowable on notional basis. Therefore, depreciation could not be treated as notionally allowed against agricultural income. Explanation 7 to Section 43(6) reads as under:- “Explanation 7:- For the purpose of this clause, where the income of an assessee is derived, in part from agriculture and in part from business chargeable to income-tax under the head “profits and gain of business or profession”, from computing the written down value of assets acquired before the previous year, the total amount of depreciation shall be computed as if the entire income is derived from the business of the ITA Nos. 366 & 367/Kol/2011 assessee under the head “profits and gain of business or profession” and the depreciation so computed shall be deemed to be the depreciation actually allowed under this Act”. This Explanation has been inserted by Finance ( No.2) Act w.e.f 2009. It creates a deeming fiction affecting substantive computation provision determining actual tax liability. Therefore, ld. CIT(Appeals) has rightly treated it to be prospective. We, accordingly, uphold the order of ld. CIT(Appeals) and reject this ground of appeal taken by the revenue. “
In view of the above, we do not find any infirmity in the order of CIT- A. Accordingly, grounds raised by revenue are dismissed for all the years in this regard.
In the result, the appeals in ITA No. 2006/Kol/2013 A.Y 2006-07 is partly allowed for statistical purposes and in ITA No. 2007 /Kol/2013 for AY. 2007-08 and ITA 2008/Kol/2013 for AY 2008-09 of the revenue are dismissed.
Order pronounced in the open Court on 21st October, 2016.
Sd/- Sd/- M.Balaganesh S.S. Viswanethra Ravi Accountant Member Judicial Member Dt: 21-10-2016
ITA Nos. 2006, 2007 & 2008/Kol/2013 M/s. Tata Tea Limited 11
Copies to : **PP/SPS (1) Appellant/Department: (2) Assessee/Respondent: (3)Commissioner of Income-tax (Appeals) (4) Commissioner of Income Tax, Kolkata (5) The Departmental Representative (6) Guard File By order Assistant Registrar, Income Tax Appellate Tribunal Kolkata
ITA Nos. 2006, 2007 & 2008/Kol/2013 M/s. Tata Tea Limited 12