2012 (8) TMI 1130 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of cess on 'green tea leaves'
2. Deletion of addition toward interest on interest-bearing loans and advances
3. Deletion of disallowance of contribution to a non-government organization
4. Claim of depreciation on plant and machinery acquired out of withdrawals from NABARD

Summary:

1. Disallowance of cess on 'green tea leaves':
The first issue raised by the Revenue concerns the disallowance of cess on 'green tea leaves' amounting to Rs. 160.15 lakhs. The Assessing Officer (AO) disallowed this cess in computing the assessee's business income, which was later deleted by the Commissioner of Income-Tax (Appeals) [CIT(A)]. The Revenue argued that the entire amount of cess should be deducted from the 60% of the composite income deemed as agricultural income. The Tribunal noted that the issue is covered by the jurisdictional High Court's decision in CIT v. A.F.T. Industries Ltd. (2004) 270 ITR 167 (Cal), which has been consistently followed, including in the assessee's own case for the previous year. The Tribunal found the Revenue's arguments without merit and upheld the CIT(A)'s decision, stating that the cess is a tax on agricultural production, not income, and should be deducted in computing the composite income.

2. Deletion of addition toward interest on interest-bearing loans and advances:
The second ground contested by the Revenue was the deletion of an addition of Rs. 12,87,900/- towards interest on interest-bearing loans and advances. The CIT(A) deleted this addition based on the Tribunal's order in the assessee's own case for the preceding year. The Tribunal observed that the interest-bearing advances were sticky, and the accrual of income is a matter of fact. The Tribunal restored the matter to the AO to determine the satisfaction of section 43D of the Act, which prescribes the parameters for considering a loan or advance as non-performing, and decide the matter afresh according to law.

3. Deletion of disallowance of contribution to a non-government organization:
The third ground involved the deletion of a disallowance of Rs. 10 lakhs paid by the assessee to a non-government organization for constructing an auditorium. The CIT(A) allowed this deduction based on a similar decision in the assessee's case for A.Y. 2006-07 and the decision in Assam Brook Ltd. v. CIT (2004) 267 ITR 121 (Cal). The Revenue argued that the payment was a donation with no connection to the assessee's business. The Tribunal remitted the matter back to the AO for fresh adjudication, emphasizing that the onus to establish the claim u/s 37(1) of the Act is on the assessee.

4. Claim of depreciation on plant and machinery acquired out of withdrawals from NABARD:
The fourth ground, raised as an additional ground during the hearing, concerned the claim of depreciation on plant and machinery acquired out of withdrawals from NABARD, which was disallowed at Rs. 48,30,249/-. The CIT(A) allowed this claim based on the Tribunal's decision in the assessee's own case for A.Y. 2001-02. The Revenue argued that the actual cost of the assets should be nil as per section 43(1) of the Act. The Tribunal, following its consistent view and the decision in the assessee's own case, confirmed the deletion of the disallowance of the depreciation claim.

Conclusion:
The Tribunal partly allowed the Revenue's appeal for statistical purposes, remitting certain issues back to the AO for fresh adjudication while upholding the CIT(A)'s decisions on other grounds.