2017 (10) TMI 1262 - AT - Income Tax

Tribunal upholds CIT-A's decision on cess & consultancy fees disallowance for assessment years 2008-09 and 2009-10.

D.C.I.T., Cir-4, Kolkata Versus M/s. Amalgamated Plantations Pvt. Ltd.

The Tribunal upheld the CIT-A's decision to delete the disallowances related to cess on green leaf and consultancy fees. The Tribunal dismissed the ... Disallowance made on account of cess on green leaf - whether cess levied on the production of the green leaf does not come under the purview of composite income? - Held that:- In accordance with the principle as laid by the Hon’ble High Court of Calcutta in the case of AFT Industries [2004 (7) TMI 81 - CALCUTTA High Court] which has been further strengthened by dismissal of SLP by the Hon’ble Supreme Court, we hold that the income so computed is to be apportioned 60: 40 of which 40 is assessable to tax under the Act. Thus, ground no-1 raised by revenue is, accordingly dismissed. Disallowance towards consultancy fees paid to M/s. Globally Managed Services (GMS) - Held that:- CIT-A found that the expenditure incurred by the assessee during normal course of business of tea plantation and the alternative crop farming resulted into the losses and the assessee terminated raising of such alternate crop in subsequent years and as such the expenditure incurred did not give a long lasting benefit to the assessee. We find there is continuity of business with common management and fund. We further find that the expenses in paying the consultancy fees is not for the new line of business and it was incurred for raising alternate crop under the permission of Assam Government to utilize the same land which is under tea plantation. Therefore, in our opinion, the assessee is entitled to claim such expenditure as revenue expenditure. In view of above, we find no infirmity in the impugned order of the CIT-A in deleting the same Issues Involved:1. Deletion of disallowance made on account of cess on green leaf.2. Deletion of addition made as disallowance of consultancy fees paid to M/s. Globally Managed Services (GMS).Detailed Analysis:Issue 1: Deletion of Disallowance Made on Account of Cess on Green LeafFacts and Contentions:- The assessee, involved in the business of manufacturing tea, claimed a deduction for cess on green leaf, asserting it as an agricultural activity.- The Assessing Officer (AO) disallowed the deduction, citing a pending Special Leave Petition (SLP) in the Supreme Court challenging the Calcutta High Court's decision in AFT Industries Ltd, which had allowed such deductions.CIT-A's Decision:- The CIT-A relied on the Calcutta High Court's decision in AFT Industries Ltd, which had adjudicated the matter in favor of the assessee.- Notwithstanding the pending SLP, the CIT-A noted that the Supreme Court had not stayed the High Court's order, thus the High Court's decision remained binding.Tribunal's Analysis and Conclusion:- The Tribunal noted that the Supreme Court had dismissed the SLP, thereby upholding the High Court's interpretation of Rule 8 of the Income Tax Rules, 1962.- The Tribunal concluded that the income computed should be apportioned 60:40, with 40% being assessable under the Income Tax Act.- Consequently, the Tribunal dismissed the Revenue's ground, affirming the CIT-A's deletion of the addition of Rs. 3,67,07,442/-.Issue 2: Deletion of Addition Made as Disallowance of Consultancy Fees Paid to M/s. Globally Managed Services (GMS)Facts and Contentions:- The assessee engaged GMS for consultancy services related to raising alternate crops on tea estate land, as permitted by the Assam Government.- The AO disallowed the consultancy fees of Rs. 47,18,760/-, treating it as a capital expense, arguing that it provided an enduring benefit.CIT-A's Decision:- The CIT-A observed that the alternate crop farming was part of the tea plantation business and utilized the same land and labor.- The CIT-A noted that the consultancy did not provide enduring benefits as many identified crops were found non-viable and discontinued.- The CIT-A held that the consultancy fees were revenue in nature and allowed the deduction.Tribunal's Analysis and Conclusion:- The Tribunal agreed with the CIT-A, emphasizing that the consultancy fees were incurred in the normal course of business and did not result in a new line of business.- The Tribunal found that the expenses did not provide long-lasting benefits and were linked to the existing tea plantation business.- The Tribunal upheld the CIT-A's order, dismissing the Revenue's ground.Conclusion:- The Tribunal dismissed both appeals by the Revenue for the assessment years 2008-09 and 2009-10, affirming the CIT-A's deletions of disallowances related to cess on green leaf and consultancy fees.- The Tribunal also dismissed the cross objections filed by the assessee due to procedural delays and the substantive relief already granted by the CIT-A.Order Pronouncement:- The order was pronounced in the open Court on 25-10-2017.