DCIT, CC-XXV, KOLKATA, KOLKATA vs. M/S WARREN TEA LTD., KOLKATA

The above four appeals are directed by the Revenue against the respective orders passed by the ld. Commissioner of Income Tax (Appeals)-XXV, Kolkata in case of one assessee for the different assessment years i.e. AYs.2003-04, 2004-05, 2005-06 & 2006-07, respectively.

Since common grounds are involved in all the appeals of the revenue, therefore, for the sake of convenience, we proceed to dispose off all the appeals by this consolidated order. 3. Brief facts of the case are that the assessee involved in the business of growing, manufacturing and trading of tea and travels services. In the assessment years 2003-04, 2004-05, 2005-06 & 2006-07, the assessee filed returns of income declaring total income of Rs.40,94,950/-, Rs.8,43,75,420/-, 3,33,13,452/- and Rs.3,02,12,856/-, respectively. While processing the returns, the AO, however, refused to allow the deductions claimed by the assessee u/s.33AB(7) of the Act and added back such amounts to the income of the assessee. In respect of assessment year 2003-04, the assessee claimed damage to the tea in the transport to a tune of Rs.20,307 kgs. and reduced to its closing stock by such an extent. The AO compared the same with the damage claimed in the earlier years and added back a sum of Rs.2 lakhs on estimate being disallowance of claim on this account. Aggrieved by the addition of the amounts in respect of assessment years 2003-04 to 2006-07, the assessee carried the matters in appeal before the ld. CIT(A). Ld. CIT(A) while disposing off these appeals by separate orders, agreed with the contention of assessee and deleted the additions made by the AO, on account of Section 33AB(7) in respect of assessment years and the addition of Rs.2 lakhs in respect of damage to tea for the assessment year 2003-04. Challenging the said orders of ld. CIT(A), the revenue carried the matter in these appeals on the following grounds :-

It is the argument of ld. DR that u/s.33AB whenever any amount that was realized in previous year by the national bank, was not utilized either in whole or in part in the previous year, such unexpend amount shall be deemed to be the profit and gains of business and accordingly shall be chargeable to income tax as the income of the previous year and while following this mandate of this provision of law the AO disallowed the deduction claimed by the assessee. Inasmuch as, in the returns of income for the assessment years 2003-04 to 2006-07 the assessee claimed the expenses incurred in the financial years 2001-02 to 2004-05, respectively, which happened to be the preceding previous years. On this account, ld. DR justifies the action of ld. AO. He further submitted that in respect of assessment year 2003-04, the assessee did not submit any material before the AO to support and almost hundred percent increased in the damage occurred in that financial year when compared to the relevant previous financial year as such instead of disallowing the total amount the AO has taken a view on estimate basis that addition of amount of Rs.2 lakhs would meet the purpose. On these grounds, ld. DR prayed to allow all the appeals and restore the orders of AO.

Per Contra, it is the argument of ld. AR that on earlier occasions also the AO disallowed the deductions claimed u/s.33AB(7) on the ground that the withdrawn amount was not spent in the previous year but in the preceding previous year, and on the appeals preferred by the assessee the ITAT answered the issues in favour of the assessee holding that the spending and withdrawal of the amount was a continuous process and a particular payment cannot be identified with designated disallowance.

Ground No.1 in all the appeals :-

The assessee withdrew an equal amount from the NABARD in the next financial year i.e. 2002-03 to 2005-06 and reimbursed such amounts towards the expenditure incurred in the assessment year. The assessee claimed this withdrawn amount as deduction u/s.33AB(7). Having observed that the expenditure took place in the preceding previous year and the withdrawal took place in the previous year, the AO held that this deduction cannot be allowed, inasmuch as the utilization of funds had not taken place either in whole or in part in the year in which the withdrawal took place. On this premise, the AO disallowed the claim of deduction and added back such amount to the total income of the assessee.

A perusal of the assessment orders clearly established that the AO does not dispute the genuineness of the expenditure incurred by the assessee in the preceding years or the utilization of the amounts withdrawn from the NABARD in the previous year for reimbursement of such expenditure incurred in the preceding previous years. The entire dispute revolves round the question as to whether the expenditure was taken place in the year of withdrawal or the reimbursement of the expended amount is valid to claim the deduction u/s.33AB(7) of the Act.

In his order itself, the AO recorded that it was brought to notice that the ITAT Kolkata Bench had already held in assessee’s own case for the earlier assessment years, however, the AO further recorded that the revenue has not accepted the decision of ITAT and preferred an appeal u/s.260A of the Act. As such, in view of the matter being not at settled, to protect the interest of revenue the AO proceeded to add the amount. Ld. CIT(A) also referred to the orders dated 21.04.2004 passed in and order dated 30.09.2005 passed in ITA No.863&864/Kol/2005 & other connected appeals. Copies of orders are produced before us vide page nos.25 to 46 of the paper book. The relevant findings of the ITAT are necessary to be extracted for proper understanding for the approach of ITAT on this aspect. Vide para No.9 in the order dated 21.04.2004 passed in ITA No.1773/Kol/1997, it was held as under :-

We also find that the above provision was inserted with the intention to facilitate mobilization of internal resources of Indian Tea Industry for the purpose of investments in new areas, fresh planting, replanting etc. We are also of the opinion that provisions should be interpreted liberally which derives support from the Judgement of the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. reported in 196 ITR 188 (SC). Accordingly, in our considered opinion, the contention of the Id. Counsel for the assessee that such utilization of money amounting to Rs.4,12,01,500/- though utilized in the preceding year qualify as assets purchased by the assessee against withdrawal made by it from NABARD is a valid one. The above proposition also derives support from the decision of the coordinate Bench of the ITAT in the case of Scotish Assam India Ltd., Kolkata vs ACIT vide order dated 28.7.2004 in for assessment year 2001-02.

Considering the totality of the facts of the case we set aside the order of the CIT(A) and direct the revenue to allow the claim of the appellant towards deduction U/S 33AB(7) of the amount withdrawn from NABARD.

It is argued by ld. AR before us that in order to get the withdrawals of the amount from the NABARD, the assessee has to submit all the relevant papers supporting the claim that withdrawal and is only after a careful scrutiny of the details the NABARD would release the funds. It suggests that for getting withdrawal of the funds from the NABARD, the assessee has to incur the expenditure and submit the details and documents. This aspect was adverted to by the ITAT vide order dated 30.09.2005 in ITA No.863&864/Kol/2005. Therefore, the circumstances made it clear that the NABARD allows the withdrawal of funds for reimbursement of the expenditure already made and that is the reason why it was held that such utilization of the withdrawal amounts for the purpose of reimbursement will qualify the claim for deduction thereof in the relevant previous year in which the reimbursement took place. Though it is submitted by ld. DR that the orders of ITAT in and in ITA Nos.863&864/Kol/2005 were carried in appeal u/s.260A of the Act, no fact disturbing such reasoning or decision therein is brought to our notice. In these circumstances, we find every force in the reasoning of the ld. CIT(A) and also the argument of ld. AR to sustain the finding of the ld. CIT(A). We, therefore, do not find any reason to interfere with the finding of the ld. CIT(A) in respect of eligibility of the assessee to claim deduction u/s.33AB(7) of the Act. This grounds in all these appeals is accordingly dismissed.

Ground No. in (AY : 2003-04) is as under :- “ 2. In the facts and circumstances of the case of the CIT(A) has erred in deleting disallowance made by the A.O in the respect of 'loss on damaged tea' without properly appreciating the rationale behind such disallowance as stated in the assessment order.”

On this aspect the ld. CIT(A) observed that in tea industry the extent of damage does not depend upon the quantification of turnover but on some other factors surrounding the process of transit. Ld. CIT(A) held that it is not possible to correlate the damage quantity of tea and profits because the assessee will be receiving the insurance claim. It is argued by ld. AR that when the assessee makes insurance claim the Insurance Company will be scrutinize all the factors going in deep claim made by the assessee and as a matter of fact, the AO has not considered this fact at all. While considering all these aspects ld. CIT(A) found that adding a sum of Rs.2 lakhs is purely based on guess and there is no evidence either to support the estimate of the AO also.

On a careful consideration of the reasoning given by the AO and ld. CIT(A) we find that the ld. CIT(A) is right in holding that the damage in transit is nothing to do with the increase or decrease in the turnover and at the same time, it may not have any impact on the profit earning of the assessee. Ld. AO proceeded on suspicion and it is settled principle of law that suspicion, however, grave, it cannot take the place of real evidence of proof. In these circumstances, we find that the approach of ld. CIT(A) is quite reasonable in holding the addition of Rs.2 lakh made by the AO on presumption basis.

Viewing from many angles, we find that the finding recorded in the impugned orders was unassailable and they do not suffer any illegality or irregularity. We therefore, inclined to uphold them and consequently proceed to dismiss all the grounds pleaded by the revenue, as a result of which, all these for appeals stands dismissed.

In the result, all appeals of revenue are dismissed.