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Income Tax Appellate Tribunal, KOLKATA BENCH “C” KOLKATA
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by Revenue is against out of order of Commissioner of Income Tax (Appeals)-XX, Kolkata dated 01.03.2013. Assessment was framed by ITO Ward- 45(2), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 31.12.2008 for assessment year 2006-07.
Shri T.P. Kar, Ld. Authorized Representative appeared on behalf of assessee and Shri Niloy Baran Som, Ld. Departmental Representative appeared on behalf of Revenue.
DCIT Cir-2, Kol. v. M/s W.B.F.D.Crp. Ltd. Page 2
Sole ground raised by Revenue is that Ld. CIT(A) erred in deleting the addition made by Assessing Officer on account of royalty and lease rent paid in respect of South and West division on the basis of fresh evidence submitted at appellate stage, which is against the Rule 46A of the IT Rules, 1962 (hereinafter referred to as ‘the Rule’).
Briefly stated facts are that assessee in the present case is a wholly owned Government company under Govt. of West Bengal and engaged in the business of forest harvesting which includes timber production, honey and other forest related products. Assessee for the purpose of its business has taken the forest land on lease from West Bengal Government. The lands taken on lease are located in North Bengal Kalimpong Forest and South Bengal. As per draft agreement with the Govt. of West Bengal, the assessee was to pay royalty of Rs. 11.80 lacs for harvesting timber upto 10,000 cubic meters and in case of harvesting the timber over and above 10,000 cubic meters then the assessee has to pay royalty @ 12,000/- per cubic meters. For the year under consideration assessee has harvested timber of 20496.463 cubic meters and therefore assessee was liable to pay additional royalty for Rs.12,56,580/- (10496.463 x 12,000/100) which would be the total royalty payment should be at Rs.24,36,580/-(1.18 lakh for 10,000 cubic mt + 12,56,580/- for 10496.463 cubic meters). However, AO during the assessment proceedings observed that assessee has paid royalty to West Bengal Govt. for a sum of Rs.4,59,25,483/- and as per understanding with the West Bengal Govt. assessee was liable to pay only Rs.24,36,580/-, the excess payment of Rs.4,44,88,903/- (45925483 -2496580) was disallowed by AO and added to the total income of assessee. Besides above, as per agreement with the Govt. of West Bengal, assessee was liable to pay lease rent for Rs. 2,55,135/- (7.50 per hectare X total hectare 34018). But the AO during the course of assessment proceedings further observed that assessee has paid lease rent for Rs.15,10,368/- which is excess by Rs.12,55,233/- (1510368 – 255135). Accordingly, AO disallowed the excess lease payment of Rs.12,55,233/- and added to the total income of assessee.
DCIT Cir-2, Kol. v. M/s W.B.F.D.Crp. Ltd. Page 3
Aggrieved, assessee preferred an appeal before Ld. CIT(A) where assessee submitted that besides the lease of North Bengal, Kalimpong Forest Division, the assessee company was having the project of consolidation of Joint Forest Management and enhancement of forest productivity in the South, West Bengal. This South Bengal project is completely different project from North Bengal’s lease land activity of the company. For this South Bengal project the company is liable to pay royalty on account of harvested produce at a certain percentage of income generated out of the project activities every year and this will be variable from year to year as per Govt. committee’s report. Such royalty will stand payable in the financial year following the year of harvest of mature plantation and sale coppice forest. In the financial year 2005-06 relevant to the AY 2006-07 the company has to pay @ 12% of financial output. Accordingly the assessee company has paid royalty in respect of South Bengal project for the financial year 2005-06, an amount of Rs.4,54,15,115/- being the aggregate of Rs.2,70,77,934/- and Rs.1,83,37,181/- in respect of Forest Corporation South (FCS) Division and Forest Corporation West (FCW) Division respectively calculating @ 12% of financial output of respective sale of FCS Division to the tune of Rs.22,56,49,450 and FCW Division to the tune of Rs.15,28,09,840/-. The calculation of royalty payment including lease rent in aggregate for both project to the tune of Rs.4,69,25,483/- to the Govt. of West Bengal is as follows: Head of service FCS Division (Rs) FCW Division (Rs) Sale of mining timber 4392179.00 39543112.00 Sale of poles & posts 39137535.00 34022822.00 Sale of pulpwood 104670451.00 57392723.20 Sale of firewood 70316657.00 27078232.70 Total sales 278654789.00 174179621.90 Less: harvesting cost 53005338.25 21369781.80 Financial output of harvesting 225649450.75 152809840.10 Operation (FOHO) royalty @ 27077934.00 18337181.00 12% of FOHO Total royalty F.C.S Division (calculated as 27077934.00 above) 18337181.00 F.C.W. division: (calculated as DCIT Cir-2, Kol. v. M/s W.B.F.D.Crp. Ltd. Page 4 above) Klimpong division Lease rent on 44,049 hectors of land @ Rs.7.50/- per hec. Minimum royalty 330368.00 1510368.00 1180000.00 Total royalty 46925483.00 After considering the submission of assessee Ld. CIT(A) deleted the addition made by AO by observing as under:- “4.2 I have perused the assessment order and considered the submission of the appellant. The facts of the case is that the Govt. of West Bengal, Department of Forest, extended the period of lease of Kalimpong Forest Division form 02.11.2004 to 01.11.2009 on payment of the outstanding lease rent for a land of 43823.58 hectors. Approval of the extension of lease agreement was given after the expiry of previous extension. This happened only for Kalimpong Forest Division. This system was consistently being followed and which was being allowed by the Assessing Officer in the earlier years as well as in the subsequent years. The appellant argued that the expenditure is covered u/s. 37 of the IT Act as the same is of revenue in nature and incurred wholly and exclusively for the business purpose. The royalty and lease rent amounts were being aid year to year basis. During the year under consideration, total royalty was paid of Rs.4,69,25,483/-. The AO had not gone into the very basis of payment of royalty and lease rent. Further, he kept in mind only lease agreement in respect of North Bengal but ignored the payment of royalty in South Bengal Project. In view of the facts and circumstances of the case, I find merit in the submission of the appellant that the payment of royalty and lease rent is an allowable expenditure, therefore, the appeal on this ground is allowed.”
Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us.
Before us both the parties relied on the orders of Authorities Below as favourable to them. Ld. DR submitted that addition made by AO was deleted by Ld. CIT(A) without taking remand report from the AO as prescribed under Rule 46A of the Rule though he relied on the order of Assessing Officer and left the issue to the discretion of the Bench. On the other hand the ld. AR submitted that all the evidences with regard to the royalty and lease rents were available before the AO at the time of assessment and no fresh evidence has been submitted at appellate stage.
DCIT Cir-2, Kol. v. M/s W.B.F.D.Crp. Ltd. Page 5 6. We have heard the rival contentions and perused the materials available on record. From the aforesaid discussion, we find that AO disallowed certain royalty and lease rent expenses as assessee failed to bring necessary evidence. However, assessee submitted fresh evidence before Ld. CIT(A) and considering the same he deleted the addition made by AO. Now the issue before us for adjudication is as to whether Ld. CIT(A) can admit the fresh evidence at the appellate stage without taking the remand report from AO. From the facts of the case and on perusal of Ld. CIT(A) order we that no remand report was called for on the fresh evidences submitted by assessee at the appellate stage. We find that in terms of Rule 46A that it is necessary for Ld. CIT(A) to take a remand report from the AO while accepting the fresh evidence from the assessee. At this juncture, we find pertinent to reproduce the provision of Rule 46A which reads as under:- “46A(1) – The appellant shall not be entitled to produce before [Deputy Commissioner (appellant) [or, as the case may be, the Commissioner (appellant)], in evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the, [Assessing Officer], except in the following circumstances, namely:
(2) … .. (3) The [Deputy Commissioner (appellant)] [or, as the case may be, the Commissioner (appellants)] shall not take into account any evidence under sub rule (1) unless the [Assessing Officer] has been allowed a reasonable opportunity (a) to examine the evidence or document or to cross-examine the witness, proceeds by the appellant, or (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produce by the appellant From the facts of the case, we find that Ld. DR has not doubted about the genuineness of expense claimed by assessee but the question was that fresh evidence has not been cross-examined by AO. The ld. AR before us drew our attention on page 3 of last Para, third line from the top of AO order where details of the timber harvested for 20,496.463 cubic meters was recorded and accordingly submitted that the facts regarding the issue was placed before AO at the time of assessment. So no fresh evidence was submitted to the ld. CIT(A). However we find from the submission of the assessee before the ld. CIT(A) that the AO failed to verify DCIT Cir-2, Kol. v. M/s W.B.F.D.Crp. Ltd. Page 6 the payment of the royalty in respect of South Bengal Project. The relevant extract is as under : “The Learned Assessing Officer has not gone into basis of payment of Royalty and Lease rent to the Govt. of West Bengal. He has kept in mind only the lease agreement in respect of North Bengal, Kalimpong Forest Division for payment of Royalty and Lease rent. It is not understood how the Learned Assessing Office ignored the payment of Royalty in respect of South Bengal project.”
From the above submission of the assessee, we find that the payment of royalty has not been verified in respect of South Bengal Project and the reason for the same was the non availability of the documents in the manner as desired by the AO. So in the interest of natural justice and fair play, we restore the matter to the file of AO with a direction to consider fresh evidence as submitted by assessee at the appellate stage and adjudicate the matter afresh as per law by way of speaking order. Hence this ground of Revenue’s appeal is allowed for statistical purpose.