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Income Tax Appellate Tribunal, KOLKATA BENCH ‘C’, KOLKATA
Before: Shri M. Balaganesh, A.M. & Shri S.S.Viswanethra Ravi, J.M.)
ORDER Per Shri S.S.Viswanethra Ravi, J.M. This appeal is filed by the Revenue having aggrieved by the order dated 02.11.2010 passed by the CIT(Appeals)-IV, Kolkata in Appeal No. 45/CIT(A)-IV/05-06 for the assessment year 2002-03 framed under section 143(3) of the I.T.Act.
The effective grounds of appeal
raised by the Revenue are as under: “1. That on the facts and circumstances of the case, Ld. CIT(A) has erred in law in deleting the addition of Rs.35,519/- towards discrepancy on account of stores consumed without appreciating the fact that discrepancy is always discrepancy and there is no such degree for measurement of any discrepancy.
2. That on the facts and circumstances of the case, Ld. CIT(A) has erred in law in deleting the addition of Rs.53,301/- towards discrepancy on account of stock of spares since the A.O. had to add the same for maintaining principle of accounts.
2 M/s. Tirrihannah Co.Ltd. Assessment Year: 2002-03 3. That on the facts and circumstances of the case, Ld. CIT(A) has erred in law in deleting the addition of Rs.2,598/- on account of unexplained expenditure without bringing any specific reason in support of his action.
That on the facts and circumstances of the case, Ld. CIT(A) has erred in law in deleting the addition of Rs.61,55,197/- on account of notional interest relying on the decision of the Hon'ble ITAT in the case of the assessee for A.Y. 2001-02 against which the department already filed appeal u/s.260A before the Hon'ble High Court at Kolkata.
That on the facts and circumstances of the case, Ld. CIT(A) has erred in law in directing the A.O. to allow Rs.42,88,661/- being expenditure incurred on account of young tea maintenance since Ld CIT(A) did not consider the ground on the basis of which the A.O. had disallowed the said alleged expenditure.”
Briefly stated facts of the case are that the assessee is a company engaged in the business of manufacturing and cultivation of tea. A survey was conducted on assessee company on 12.03.2002 and ledger accounts were taken and same were compared with the books of accounts. During the assessment proceedings, the AO found some discrepancies between the stores consumed and stock of spares. It filed its return of income for the assessment year 2002-03 on 30.10.2002. The AO made several additions and disallowance in the income returned by the assessee.
4. In respect of ground no.1 whether the CIT(A) has erred in deleting the addition of Rs.35,319/- towards the discrepancy on account of stores. The case of the assessee company is that during the course of survey operation, it was found that the consumption of total stores was Rs.1,59,63,026/- but when compared to books of accounts, it was Rs.1,59,27,507/-. Thus there is a difference of Rs.35,519/-. The AO states in his assessment order that the assessee company did not 3 M/s. Tirrihannah Co.Ltd. Assessment Year: 2002-03 reconcile the said difference. Thereby, he added the same to the composite income. The submissions of the assessee company before the CIT(A) was that the AO did not afford an opportunity to reconcile before him but without there being an opportunity, a query raised by the AO erroneously added to the composite income the said difference amount. The CIT(A) opined that the discrepancy or difference is only 0.02%, when compared to the total stores of Rs.160 lakhs. Thereby, he observed that the discrepancy is negligible and the addition is not maintainable when the stock is negative. In view of the above, we find the order of the CIT(A) is justified on this ground. Therefore, the order of the ld. CIT(A) on this issue is confirmed and the ground taken by the Revenue is dismissed.
5. With regard to ground no.2, the AO found discrepancy in stock of spares to be Rs.21,45,204/- but in the books of accounts, it was stated to be Rs.20,86,903/-. Thus, there is a difference of Rs.58,301/-. The AO added this amount also with the composite income on the ground that the assessee company has failed to reconcile the same. The submissions of the A.R. before the ld. CIT(A) is that during the assessment proceedings, the AO did not specify or mention or make a query raised and erroneously added the same to the composite income. The finding of the ld. CIT(A) is that the addition in this regard is unwarranted only on the ground that the stock is negative. Therefore, the order of the CIT(A) is quite reasonable on the above issue and we dismiss the ground raised by the Revenue by confirming the order of the ld. CIT(A) on this issue.
With regard to ground no.3, the AO added a sum of Rs.2,598/- to the composite income, the difference being the cash in hand and the cash as per the books under unexplained expenditure. The findings of 4 M/s. Tirrihannah Co.Ltd. Assessment Year: 2002-03 the ld. CIT(A) that section 69C is only applicable where the assessee incurs any expenditure and does not offer any explanation regarding the source of such expenditure. The ld. CIT(A) deleted the said addition on the basis that the AO added the same on suspicion and without adequate evidence. We agree with the findings of the learned CIT(A) that section 69C- unexplained expenditure would be applicable only when an expenditure is incurred for which source of expenditure is not proved by the assessee. Accordingly, we are not inclined to interfere with the findings of Ld. CIT(A) in this regard. Hence, ground no.3 raised by the Revenue is dismissed.
With regard to ground no.4, before the AO the assessee submitted that it advanced loans to parties to an extent of Rs.3,41,95,538/- and there is no possibility on recovery of such amount, basing on a judgment passed by Hon’ble Supreme Court in the case of CIT-vs- Shivprakash Janakraj Co. Pvt. Ltd. reported in 220 ITR 583 wherein it was held that accrual of income has always involved tax liability. Thereby, the AO has taken a notional interest at 18% per annum on the said amount totaling to Rs.61,55,197/-. The ld. CIT(A) allowed the claim relying on an order passed in assessee’s own case in for assessment year 2001-02 by “C” bench of Kolkata ITAT, which is reproduced as under: “5. We have considered the rival submissions and gone through the material available on record. Keeping in view the resolution of the Board given at page -10 of the paper book and the fact that right from 1997-98 the company's P/L account has been showing debit and that debit is increasing every year and the fact that this position was explained to the CIT(A), it establishes that M/s. Rock Copco Ltd., was in financial difficulty. Whether the company has gone into BIFR or not, these facts to show that the company was in financial hardship. Therefore, there was not question of realizing of any interest from that company. So the assessee company has 5 M/s. Tirrihannah Co.Ltd. Assessment Year: 2002-03 also passed a resolution to this extent which clearly establishes that there was no case of adding notional interest in the hands of the assessee. In view of this, we are of the opinion that the A.O. has gone wrong in adding notional interest and the CIT(A) has rightly deleted the same. We order accordingly.”
7.1 During the course of argument, the ld. Counsel for the assessee submitted that the ground no.4 is covered by the order of the ITAT “C” bench of Kolkata in vide order dated 03.08.2005. He drew our attention to the page no.68 of paper book vide para no.5 wherein the same assessee company has gone into BIFR and the company was in deep financial hardship and there was no question of realizing any interest from that company and deleted the notional interest therein for the assessment year 2001-02. Therefore, by respectfully following the decision of the Tribunal above, we dismiss the ground no.4 raised by the Revenue, thereby deleting the addition of Rs.61,55,197/- on account of notional interest.
In respect of ground no.5, the case of the assessee company is that the incurred expenditure of Rs.42,88,661/- was on account of maintenance of young tea plantations. The AO added the same amount treating the expenses incurred towards extention of tea planting but however, not on young tea plants maintenance, basing on the decision reported in 129 Taxman 647. The ld.CIT(A) allowed the said expenditure as revenue expenditure relying on judgment passed by the Hon’ble Supreme Court in the case of Karimtharuvi Tea Estate vs. State of Kerala 48 ITR 83(SC). The submission of the ld. Counsel for the assessee is that the expenditure incurred to maintain young tea plants is of revenue expenditure, thereby the assessee company claimed deduction of the said amount in accordance with the decision reported in [2003] 262 ITR 388 (Cal) in the case of CIT-vs- Tasati Tea Ltd. The ld. Counsel for the assessee drew our attention to the page no.71 of the paper book in para IV, which is extracted below:
“Expenditure on young tea maintenance : During the financial year assessee company has claimed Rs.60,02,965/- as Revenue expenditure on Young Tea Maintenance. On the issue assessee company submitted that :-
As per general accounting principle of the company we are capitalizing the entire expenditure (inciuding maintenance on young teas) and same are being reflected under the head land in Schedule 5 of the printed audited Balance sheet of the company However, the expenditure incurred by the company on maintenance of young tea i.e. maintenance expenditure incurred by the company on new plantation done by the company during 'earlier years are allowable as revenue expenditure as per Income-tax Act, 1961 in view of the judgement of the Supreme Court in the case of Karimtharuvi Tea Estate vs. State of Kerala 48 ITR 83 (SC). Hence in the computation of Income statement such expenditure by way of young tea maintenance has been taken as a revenue expenditure.
Expenses on Maintenance of Young Tea has been held to be Revenue in nature without their being any expansion of the plantation area. The maintenance of an area already under cultivation would be a maintenance of the plantation itself and therefore, is a revenue expenditure. Commissioner of Income Tax vs. Tasati Tea Ltd. - 262 ITR 388."
As per Annual Return submitted Tea Board, for AY.01- 02 & A.Y 00-01 it is seen that there has not been any expansion of the plantation area and therefore on basis of judgements cited above, expenditure on planting tea maintenance is allowed as Revenue Expenditure to the extent claimed by the assessee.
In view of the discussion above and materials placed before us, we are of the opinion that the order of the ld. CIT(A) is justified and 7 M/s. Tirrihannah Co.Ltd. Assessment Year: 2002-03 requires no interference and hence dismiss the ground raised by the Revenue.
In the result, the appeal filed by the Revenue is dismissed. Order Pronounced in the Open Court on 24th November, 2015.