TaxTMI 
TaxTMI 
2017 (11) TMI 1971
X X X X Extracts X X X X
X X X X Extracts X X X X
....irst we take up the revenue appeal for the Assessment Year 2008-2009 and the C.O.'s filed by the assessee. The grounds raised by the revenue are as follows:- "1. "Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in allowing depreciation at a higher rate to the 'withering through' claimed by the assessee when the same does not find place in the restrictive definition in Depreciation Table appended to the I.T. Rules. 2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in ignoring Hon'ble Madras High Court's decision on similar matter of restrictive definition in the case of CIT Vs. Adar Tea Products Co. reported in 178 Taxman 126 where the asset considered was only fluid bed drier. 3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in allowing depreciation on goodwill which had merely been quantified on the revaluation and hence there had been no genuineness of such a valuation of an intangible asset. 4. Whether on the facts and in the circumstances of the case, the Ld CIT(A) erred in allowing Assessee's contention that MAT was applicable o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... consumption and also carbon emission. It claimed that the principle laid down for depreciation rate applicable in the case of FBD Dryer, as held by ITAT Kolkata in case of Warrant Tea Ltd., is equally applicable to such "Enclosed Withering Trough Machines". He furnished certain data and claimed those as evidences of power saving by installation of this device. As an alternative claim, the assessee claimed that the entire cost of conversion of open withering trough system be allowed as revenue expenditure as it was, earlier powered by TD Oil, and this was converted to "Enclosed Withering Trough Machines" which is now powered by coal. This was to achieve more efficiency and product acceptability. Hence it was claimed that the expenditure incurred by way of fabrication cost was simply to carry on business more efficiently and effectively and, therefore, the entire expenditure should be allowed as revenue expenditure. Reliance was placed on the judgement of the Hon'ble Calcutta High Court in case of The General Fibre Dealers P. Ltd., in which expenses for conversion of coal fired heater to oil fired heater was allowed as revenue expenditure. The AO did not consider this alternative cl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s saved energy. We would be dealing with the figures brought out in the detailed charts later submitted by the assessee. He submitted that these machines fall in the new Appendix to Income Tax Rules, under item No. (8)(ix), under the head: Energy Saving Devices A. Specialised boilers and furnaces : falls within two categories:- (a) Flameless Furnaces and continuous pusher type furnaces (b) Fluidized bed type heat treatment furnaces 5.5.2. He relied on the decision of the Hon'ble Calcutta High Court in the case of Commissioner of Income Tax, WB-IV, KOLKATA versus MCLEOD RUSSEL (INDIA) LTD (supra), & on the decision of the 'C' Bench of the Kolkata Tribunal in the case of Warren Tea Ltd., and submitted that 100 per cent depreciation was held to be allowable on vibratory fluid bed dryer though they were not specifically listed in the Depreciation Table. He relied on the decision of the Hon'ble Madras High Court in the case of Commissioner of Income Tax versus Adar Tea Products Company [2009] 314 ITR 38 (Mad), and submitted that the same cannot be applied as the judgement of the Hon'ble Jurisdictional High Court binds the ITAT Bench at Kolkata on this issue. 5....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the orders of the authorities below as well as case-law cited, we will as follows:- 6.1. The ld. CIT(A), explained in his order, the necessity and process of withering, in the business of the manufacturing tea. The ld. Counsel for the assessee explained the same. This does not help in us, coming to a conclusion, as to whether "Enclosed Withering Trough Machines" is an "energy-saving device" or a "pollution control equipment", as claimed by the assessee. This assessee claims that he has designed this machine, fabricated the same on-site and installed the same. Except for these self-serving statements of the assessee, there is no evidence, whatsoever that this "Withering Trough Machines", when enclosed by fabricating a cover becomes an energy-saving device or a pollution controlling equipment. The Bench had granted sufficient time to the assessee to produce materials from independent sources like Tea Research Institute, Universities or any other organisation or professors etc., in support of its claim that enclosing the withering trough machines, would result in energy-saving. Only the process of withering is explained in all these materials furnished by the assessee and there i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....deg;C. In these conditions, if the fuel is injected directly into the furnace, at given levels of turbulence and velocity, and bypassing the mixer with combustion air, this generate an oxidation reaction which does not occur in the visible range, but still produces thermal energy. The function of withering equipment cannot be by any stretch of imagination, compared with that of a flameless furnace. Similar is the functionality of the fluidised bed type dryer. Fluidized bed type heat treatment furnaces: A method for rapid heat treatment, quenching and aging of an article includes placing the article in a fluidized bed and conveying the article through the bed. Heat treatment, quenching and aging of the part can be done in less than two hours using this method. The method also includes removing fluidizing media from the article as the article is removed from the fluidized bed. An elevator is used to remove the article from the fluidized bed. The elevator may include a conveyor for moving the article into another fluidized bed. The article can then be placed into the second fluidized bed and conveyed through that bed. Each fluidized bed is controlled so that a specific heat t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her rate of depreciation is not allowed on an asset, it does not lead to a conclusion that the expenditure incurred for acquiring an asset is revenue expenditure. This is an untenable claim. In the result, we uphold the findings of the Assessing Officer on this issue and reverse the order of the ld. CIT(A). In the result, this ground of the revenue is allowed and the ground of C.O. is dismissed. 7. Ground No. 3, is on the issue of allowability of depreciation on good-will. 7.1. The facts relating to this issue are as follows:- The assessee purchased "Dullabhcherra Teas Estate" through a deed dt. 01/01/2006 and sale deed was registered on 06/05/2006. It made a claim for allowance of depreciation on the ground that it had acquired intangible assets through this conveyance deed. This claim was not made by the assessee in the return of income. The claim was made before the ld. CIT(A). No "intangible asset" in the form of goodwill or other such rights sold by Dullabhcherra Tea Estate or purchased by the assessee company as per this conveyance deed. The assessee company reallocated the purchase consideration between different assets it had acquired through this sale and arrived ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0/1/2006, though the conveyance deed was registered on 06/05/2006, as the business has been purchased as a core concern w.e.f 01/01/2006 and as possession of all movable properties was taken over by the assessee on 15/03/2006. Hence the assessee was entitled to claim depreciation from 01/01/2006 d) the Directors have very reasonably ascertained the cost of intangible assets at Rs. 325 Lakhs by comparing the issue with a similarly placed tea estate in Assam, namely, Suntok Tea Estate of Hirajulie Tea Co. Ltd. with the Tea Estate of the assessee i.e. Dullabcherra Tea Estate. e) Reliance is placed on the decisions of the Hon'ble Supreme Court on the issue as to whether depreciation is allowable on goodwill and other intangible assets. f) the actual cost of these intangible assets is Rs. 325 lakhs and depreciation at the rate of 25% of the same as allowable. 7.3. Aggrieved the Revenue is in appeal before us. 7.4. The ld. Counsel for the assessee, took this Bench through the various submissions made before the lower authorities as well as judgements of various Courts and argued that the value of intangible assets have been rightly arrived at by the manag....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the seller sold any "intangible asset" in this case. The assessee's claim that its request to the seller to make such an allocation was rejected by the seller. The vendors were very clear that no intangible property of their is being sold to the company. What was sold intangible property. Under the circumstances the claim made by the assessee that it incurred the cost to purchase intangible asset is factually incorrect and false. This is a wrong and unjustified claim. It is an indirect way of claiming depreciation on land and plantation which is patently wrong and misleading. 7.6. Hence, the claim of the depreciation on such intangible asset is devoid of merit. Thus, the Ground No. 3 of the revenue is allowed and the corresponding ground of cross-objection of the assessee supporting the order of the ld. CIT(A) i.e., Ground No. 5 is dismissed. 7.7 Ground No. 4 of the Revenue is on the legal issue as to whether Section 115JB of the Act is applicable only when there is no positive total income for the assessee. 7.7.1 The assessee relies on the judgement of the Jurisdiction Tribunal in the case of Sasamus Sugar Works Ltd. vs. DCIT, ITA No. 1024/Kol/2007, order dt. 28/09/2007. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ading of this section 115 JB, we are of the considered opinion that the same is attracted whenever the book profit "as calculated under this Section" is in excess of the income computed under the regular provisions of the Act. There is no requirement that the normal profit computed under the act should be a positive figure and that should be payable on the same, in order to attract the special provisions under section 115 JB of the Act. No such requirement is mentioned in this Section. In fact such introspection would defeat the very objection of introduction of this Section. Thus, we uphold the contention of the revenue and allow this ground of the revenue and dismiss the corresponding Ground No. 6 of the Cross-objection raised by the assessee. 7.9 In the result this appeal of the revenue is allowed and the C.O. of the assessee is dismissed. ITA No. 1750/Kol/2016 & C.O. No. 65/Kol/2016, Assessment Year 2009-10 8. Ground No. 1 and 2 of the revenue appeal and Ground No. 2, 3 & 4 of the cross objection by the assessee are on the issue of rate of depreciation allowable on "Enclosed Withering Trough Machines". 8.1. We have adjudicated this issue in paragraph number 6 of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essing officer should have granted the deduction under section 80 IE equal to 100 percent of the profits of Dullabcherra Tea Estate, as the fact that the assessee is eligible for deduction under section 80 IE is not in dispute. How the ld. CIT(A) has come to a conclusion that the fact of the assessee being eligible for claim of deduction u/s 80-IE of the Act and that this fact is not in dispute is not known. There are no basic facts record and no authority has examined the facts and have come to a conclusion that the statutory requirements for claim of deduction u/s 80-IE have been complied by the assessee. 8.4. In our view, this finding is perverse. The assessing officer nor the ld. CIT(A), have examined the basic facts or have come to the conclusion that the assessee is eligible for deduction under section 80 IE equal to 100 per cent of the profits for the Dullabcherra Tea Estate. Without doing such an exercise the ld. CIT(A), has directed grant of this deduction. This is bad in law. 8.4.1. Hence, this Ground of the Revenue is allowed and the corresponding ground of the cross-objection is dismissed. 8.5. Ground No. 6, of the Revenue and Ground No. 7 of the Cross-Objectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cquisition of Dullabcherra Tea Estate. The assessee claimed that such receipt is a capital receipt. The ld. CIT(A), had held that this is interest subsidy and hence a capital receipt. 9.3.1. In our view, this finding of the ld. CIT(A), is not correct. The interest subsidy in question pertains to a period prior to the acquisition of Dullabcherra Tea Estate by the assessee. The ld. Counsel for the assessee submits that, if the claim for refund of this amount of interest subsidy received is made by the former owners of Dullabcherra Tea Estate, then this amount needs to be returned, as it was not factored in computing the purchase price of the estate. In our view, this receipt had accrued during the year and the assessee got the right to receive the interest in this year only, as it is a successor of Dullabcherra Tea Estate. The nature of receipt is not interest subsidy in the hands of the assessee. There is no claim from the vendors of 'Dullabcherra Teas Estate' till date on the assessee for return of this amount to them. Hence the receipt is in the revenue field and it has accrued and arisen during the year. Thus this ground of the revenue is allowed. 9.4. Coming to Ground No. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... This claim has not been examined by any authority.The assessing officer has not examined this issue in any of the earlier years. The deduction in the 3rd year has been allowed as if the entire facts have been considered in the earlier years. When no authority has verified the fact as to whether the assessee has complied with the statutory conditions laid down u/s 80IE of the Act, in any of the years, we cannot understand as to how the Assessing Officer decided to allow the claim for the first time in the 3rd year. The Honourable Delhi High Court in the case of CIT VERSUS M/S JANSAMPARK ADVERTISING AND MARKETING (P) LTD. in ITA 525/2014, Judgement dt. 11th March, 2015, at para 42, held as follows:- "42. The AO here may have failed to discharge his obligation to conduct a proper inquiry to take the matter to logical conclusion. But CIT (Appeals), having noticed want of proper inquiry, could not have closed the chapter simply by allowing the appeal and deleting the additions made. It was also the obligation of the first appellate authority, as indeed of ITAT, to have ensured that effective inquiry was carried out, particularly in the face of the allegations of the Reve....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... cross-objection raised by the assessee. 11. Ground No. 2 of the Revenue and Ground No. 5 of the Cross-objection of the assessee on the issue of claim of depreciation, on intangible assets. 11.1. Consistent with the view taken by us while adjudicating this for the Assessment Year 2008-09, we allow this ground of the Revenue and dismiss the cross-objection of the assessee on this ground. 12. Ground No. 3 of Revenue and Ground No. 7 of the Cross-objection by the assessee is on the issue of 'initial depreciation'. 12.1. Consistent with the view taken by us for the Assessment Year 2010-11, while adjudicating the very same issue, we dismiss the ground of the revenue as well as the ground of cross-objection of the assessee. 13. Ground No. 4 of the Revenue and Cross-objection No. 7 of the assessee are on the allowability of deduction under section 80 IE of the Act. 13.1. Consistent with the view taken by us for the Assessment Year 2010-11, while adjudicating the very same issue, we set aside this issue to the file of the Assessing Officer, for fresh adjudication, in accordance with law. 14. Ground No. 5 of the Revenue and Ground No. 8 of the Cross-objection of the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Rs. 1433/- made by assessee and further Rs. 63131/- disallowed by AO. 6. For that learned CIT(A) was wrong in dismissing ground no. 5-7 and 11 before him holding that " the grounds as raised by the appellant are not arises from the impugned order". 7. For that learned AO may be directed to allow depreciation on correct WDV of block of intangible assets as allowed by the CIT(A) in earlier years. 8. For that learned AO may be directed to allow balance of incentive u/s 32.1. iia , in respect of AY 2012-13 and also some of earlier years, wherein 10% deduction was allowed instead of 20% due to less than 180 days after putting to use, 20% incentive in the first year is mandatory for the reason that one time incentive @20% of cost, is to be allowed as language used is "shall be allowed". 9. Alternately, in case incentive is restricted to 10% for the reason that any eligible plant and machinery was used for less than 180 days, then, AO may be directed to allow balance 10% in subsequent year wherein 180 days are completed. 10. For that learned AO may be directed to allow correctly depreciation on correct WDV of plant and machinery for which de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessing officer has not recorded his satisfaction as to why the contention of the assessee that it had not incurred any expenses for earning of dividend income is wrong. Unless the AO, records his satisfaction that the claim made by the assessee is not correct, Rule 8D of the Income Tax Rules, 1962, cannot be invoked as held by the Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT (2010) 194 TAXMAN 203 (Bom) and Pr. CIT vs. Reliance Capital Asset Management Ltd. judgement dt. 19/09/2017. In the case of CIT v.Winsome Textile Industries Ltd. [2009] 319 ITR 204 (PH), it has been held that the disallowance made u/s 14A, cannot exceed the dividend earned. Keeping in this position of law, we uphold the contention of the assessee and delete this addition made under section 14 A, to the extent of Rs. 63131/-. DMAT charges of Rs. 1433/-, is disallowed by the Assessing Officer twice. Hence the disallowance is deleted as it was a double disallowance. 16. Ground No. 6 to 12, are remanded to the file of the ld. CIT(A), with a direction to adjudicate the same on merits, for the reason that, the ld. First Appellate Authority was wrong in holding that thes....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ugh Tea leaves are kept in closed space on fluidized bed of hot air blowing underneath, and from sideways and upper side. Heat is preserved for longer duration & spread all over. In enclosed space heated air is more effectively used due to delayed cooling as hot air keep on moving inside the bed & cover entire bed. Greater heat loss or wastage of heat in Lesser heat loss or wastage as chamber is closed. open space. iskysoft More power is required to achieve and Less power is required to achieve and maintain desired maintain desired level of temperature of level of temperature of air in closed troughs. air in open troughs. More space is required in case of open withering trough. So more space is to be fed with heated air. Wind blowing in nearby area causes loss of heat and more consumption of energy. It can be compared with a tawa(in Hindi), Chatu (in Bengali). As Roti or fulka is cooked on open flat pan kept over heat. Less space is required in closed withering troughs, there are layered withering trough fluidized trays. So less space is required to be fed with heated air. There is no wind blowing in n....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 246,824 225,420 242,124 177,976 Value in Rs. 2,309,999 2,011,641 1,852,914 1,602,932 1,550,055 1,415,638 1,520,539 1,117,689 Cost per Kg. 1.26 0.96 0.97 0.79 0.92 0.81 0.82 0.70 Unit consumed/Kg 0.19 9.15 9.15 0.13 0.15 0.13 0.11 Rate/Units based on 2006-07 avg. 7.09 6.28 6.28 6.28 6.28 6.28 6.28 6.28 b) Coal used for Withering Qty in Kg. Value in Rs. Cost per Kg. Rate/Units c) Firewood used for Withering Qty in Kg. Value in Rs. 08,389 0.04 44,404 12,930 174,952 81,962 0.10 0.04 3.94 6.34 218,964 105,093 765,753 367,561 413,735 227,057 474,935 198,593 125,090 0.06 0.18 0.12 341,953 0.21 0.45 0.48 0.48 0.55 0.72 Cost per Kg. Unit consumed/Kg Rate/Units d) T.D. oil used for Withering Qty in Kg 28,700 Value in Rs. 745,561 Cost per Kg. Rate/Units 041 25.98 Total Exp. for withering 3,055,560 51,300 1,359,475 0.65 26.50 3,371,116 1,000 26,500 0.01 26.50 2,052,896 1,970,494 1,748,648 1,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....039 246,824 1,817,417 225,420 1,708,244 242,124 2,232,746 177,976 1,792,229 Cost per Kg. Unit consumed/Kg. 1.26 0,18 0.97 0.85 1.08 0.918 1.21 1.12 0.15 0.15 0.13 0.15 0.13 0.13 0.11 Rate/Units 7.09 6.28 6.27 6.74 7.36 7.58 9.22 b) Coal used for Withering Qty in Kg. Value in Rs. Cost per Kg. 44,404 12,930 68,389 0.04 174,952 81,962 0.10 0.04 Rate/Units e) Firewood used for Withering 3.94 634 Qty in Kg. Value in Rs. Cost per Kg. Unit consumed/Kg. Rate/Units 218,964 105.093 0.06 765,753 367,561 0.18 413,735 198.593 227,057 125,090 0.12 d) T. Dailed for Withering Qty in Kg. Value in Rs. 28,700 745,561 $1,300 1,359,475 Cost per Kg. 0.41 0.65 Rate/Units Total Exp. for withering 3,055,560 26.50 3,371,116 27,80 2,050,179 2,088,601 Production (in Kg.) Withering cost/Kg. Rs. 3) Remarks: 1,839,938 1.66 Cost/Kg. for 2,093,202 1.61 1,908,965 1.07 2,018,188 1.03 2,016,010 1,680,061 1.20 2,008,285 ....