TaxTMI 
TaxTMI 
2019 (4) TMI 1469
X X X X Extracts X X X X
X X X X Extracts X X X X
....siness segment of the company includes engineering, electrical and tea. The company's plants are located at different places in West Bengal and also in Chennai. The company's tea gardens are located in West Bengal and Assam. The company follows mercantile system of accounting. Books of account are audited by statutory authority and also by CAG. The AO on perusal of the details vide Note on Accounts (para 7 of Schedule 20) noted that in the tea-division, the assessee company has incurred expenses of Rs. 21.55 lacs for the unit at Telepara. On examination of the details, according to AO, it is seen that there is no income in respect of its unit. According to AO, the expenses incurred for nursery activity is purely agricultural in nature and, therefore, disallowed. On appeal, the Ld. CIT(A) allowed the claim of the assessee. Aggrieved, the revenue is before us. 5. We have heard rival submissions and gone through the facts and circumstances of the case. The AO's reason for disallowing the claim of the assessee is not repeated for the sake of brevity. During the first appellate proceedings, we note that the Ld. CIT(A) has taken note that the assessee used to carry out agro-based activ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r salaries and wages and certain other administrative expenses which in the facts and circumstances discussed above are revenue in nature. Further, it was brought to our notice that the young tea bushes of the Telepara Unit was utilized as a part of uprooting and replacement programme in the existing plantation area and hence, allowable under Rule 8(2) of the I. T. Rules, 1962 (hereinafter referred to as the 'Rules') and the expenses for maintaining nursery are allowable as per the Tribunal's order in ITA No. 2243/Kol/2010 dated 31.05.2011, therefore, we are of the opinion that the Ld. CIT(A)'s order does not require any interference from our part and, therefore, we confirm the order of Ld. CIT(A) and dismiss this ground of appeal of the revenue for AYs 2008-09 and 2009-10. 6. The next ground of appeal of the revenue is against the action of the Ld. CIT(A) in deleting the Notional Interest added by the AO for AYs 2008-09 and 2009-10. Brief facts of the case for AY 2008-09 is that AO noted that the assessee company had advanced loan of Rs. 128.78 lacs to its sister concern M/s. Yule Agro. According to AO, for the AY 2005- 06 interest @ 13% was charged, and when this fact was confr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....A) has taken note that this amount would not bear any interest to be paid by the M/s. Yule Agro. The Ld. CIT(A) has gone through the relevant extracts of the annual accounts of the assessee and that of M/s. Yule Agro and after taking note of point no. 7 in schedule 20 of the annual accounts for the year ended 31.03.2008 has deleted the addition. We note that the loans represented the expenditure of Tea Division of the assessee on account of Mushroom and Floriculture activity from 1992- 93 and subsequently, the said activity was transferred to M/s. Yule Agro Industries Ltd. in 1995-96. It was brought to our notice that an amount of Rs. 128.78 lacs was incurred by the Tea Division on the date of transfer. Further, it was brought to our notice that the M/s. Yule Agro Industries ltd. has gradually started under repaying the advance which stand reduced to Rs. 117.83 lacs as on 31.03.2009. We note that the assessee has not charged any interest in its books of account for the amount in question, so the notional interest charged by the AO cannot be accepted. Moreover, we note that the expenditure has been incurred by the assessee company way back in the year 1992-93 and because of restruct....
X X X X Extracts X X X X
X X X X Extracts X X X X
....substantiate the claim. The Ld. CIT(A), therefore, called for the details of the expenses incurred under the head 'liquidated damages' along with the copies of the contract entered into by the assessee. It was brought to the notice of the Ld. CIT(A) that the liquidated damages arose out of the contractual obligation towards the customers in relation to timely execution of the job work and terms and conditions of orders placed by the customers which include enforcement of the liquidated damages clause in the contract. It was brought to the notice of the Ld. CIT(A) that whenever there is a late delivery of goods, the customers suo-motu deduct certain amount at a percentage of consideration as per the terms and conditions of the order/contract agreed upon by both parties at the time of contract. Before the Ld. CIT(A), the list of the liquidated damages incurred by the assessee company was enclosed which is brought to our notice and placed in the paper book at page 5. It was brought to our notice that the late delivery of the goods was due to various reasons like the sudden transport strike, Hartal, natural calamities etc. and since there is a liquidated damages clause in the contract ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....young tea bushes) for AYs 2008-09 to 2011-12. 13. Facts of AY 2008-09 are taken into consideration. Brief facts of the case are that the AO noted from the computation of income that the assessee has deducted Rs. 31,24,547/- under West Bengal Garden and Rs. 10,24,157/- under the Assam Garden towards management of new tea bushes. During the assessment proceeding, the assessee stated that the cost is related for plantation/nourishment of young tea plants and also allied cost like labour charge/manure etc. According to AO, Rule 8(2) allows the expenses for replanting only. According to AO, there is no provision for allowance of expenses in relation to new tea bushes for the purpose. Therefore, the entire amount was treated as capital expenditure and added back to the total income. Thus, an addition of Rs. 41,48,704/- was made. On appeal, the Ld. CIT(A) allowed the expenditure. Aggrieved, revenue is before us. 14. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the AO has disallowed the expenditure on the ground that Rule 8(2) allows only for replanting and there is no provision for allowance of expenses in relation to young tea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s under: "12. The learned counsel for the assessee stated that the expenses were incurred on maintenance in respect of immature tea bushes and since were incurred in the existing garden, is not that of capital nature. He stated that the other part of the expenses which were not spent on maintenance of immature tea bushes, were surrendered by the assessee company itself as that of capital nature. He argued that the issue is now well settled that the maintenance expenses on account of immature tea bushes in computing the tea business income of the assessee company are allowable expenses and placed reliance on the decisions in 120 Taxman 645 (Cal) and 48 ITR 83 (SC). The learned DR has relied on the orders of the AO and the CIT(Appeals). We have considered the rival submissions. We find that the expenses were incurred for maintenance in respect of immature tea bushes in the existing garden and, therefore, the expenses are of revenue nature. The cases cited by the learned Counsel for the assessee support the case of the assessee. Since the expenses were incurred by the assessee company for maintenance of and replacement of tea bushes in its existing garden only, the same cannot be s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y creditors as on 31.03.2009 of the Electrical Division was enclosed and our attention was drawn to pages 6 to 7 wherein the assessee had enclosed the summarized position for the suppliers as on 31.03.2009 from which it is revealed that the difference is only to the tune of Rs. 21,24,765/- instead of Rs. 2,47,65,498/- as held by the AO. According to the Ld. AR, the AO in his assessment order at para 3 has considered the credit balance of DEKEM of Brenfford and omitted to take into account the credit balance of the same party in switchgear unit. Similarly, in respect of Easum Rayrole Ltd. the AO ignored the advance payment of Rs. 52,86,934/- paid to the supplier by the switchgear unit. The Ld. AR drew our attention to the supplier wise comparison of the differential amount as per page 3 of the assessment order with that of the summarized position of suppliers balance as on 31.03.2009. Facts and figures reflected at pages 6 and 7 of the paper book goes on to show that AO did not take into account the overall facts and circumstances as taken note by the Ld. CIT(A). Further, it was brought to our notice that the amount added back includes the opening balance pertaining to earlier year ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g to AO, from a perusal of the tax audit report of the non-tea division by Annexure - O, the amount of debit of prior period relating to Non tea division is Rs. 44,45,091/- and Rs. 16,95,838/- relating to West Bengal Garden and Rs. 30,42,918/- relating to Assam Garden was reflected, therefore, the AO was of the opinion that these expenditures are not related expenses in the relevant AY 2009-10. So, the entire expenses under prior period expenses was disallowed and added back to the total income. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to allow the same. Aggrieved, the revenue is before us. 20. We have heard rival submissions and gone through the facts and circumstances of the case. The AO has disallowed the expenses on the reason that since these expenses are not related to the relevant assessment year, he disallowed the same. On appeal, the Ld. CIT(A) has gone through the details of the expenses item-wise and has reproduced the details which is given in Form No. 3CD annexure - 9 which reveals that expenditure of Rs. 10,42,572/- was on account of bonus, interest on late deposit of TDS Rs. 11,40,201/-, interest on sales tax Rs. 2,34,898/-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,655/-. The main plea of the assessee is that out of the aforesaid dividend income it received are from its group companies Rs. 71,52,969/- for which no expenses were incurred by the assessee company. The main grievance of the assessee which was contended by them was that the AO completely misunderstood the intention behind the formula laid under Rule 8D(2)(ii) while considering the interest amount which includes the entire interest incurred by the company on account of generation of normal taxable income, therefore, according to assessee, the AO erred in blindly calculating the disallowance u/s. 14A read with Rule 8D of the Rules. We note that the Ld. CIT(A) has not adjudicated this issue at all. He has simply stated that he is following the order of the earlier assessment year 2009-10 but we do not find any adjudication by the Ld. CIT(A) for AY 2009-10. So, be that as it may, the Tribunal has delved upon the issue of disallowance u/s. 14A read with Rule 8D of the Rules in the case of REI Agro Ltd. Vs. DCIT 144 ITD 141 has made it clear that while computing disallowance u/s. 14A read with Rule 8D(2) (ii) and 8D(2)(iii) AO has to take into consideration only investment on the scrip....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unt Rs. 1,09,58,100/- represented debts of more than fifteen years old of ESG and Electronic Unit of the company which was duly offered to tax as income at that time but could not be collected subsequently despite the best effort by the company particularly when such units become inoperative subsequently and that too for quite a long time. It was also brought to the notice of the Ld. CIT(A) that the debt of Rs. 3,47,500/- in respect of Engineering Division was written off represented billed amount of the current year to SAIL which has made specific deduction of 5% of basic price because of certain dispute in delivery of the ordered particular material. The Ld. CIT(A) took note of the fact that the entire debt written off was offered to tax in various earlier years as business income of that year being part of the sale/turnover. We note that the Hon'ble Supreme Court in TRF Ltd. Vs. CIT 323 ITR 397 has clarified the position that bad debt is allowable if the debts had been taken into account in computing the income of the assessee of the previous year or any earlier previous year and that the same has been written off as irrecoverable in the accounts of the assessee. We note that th....