2019 (2) TMI 1617 - AT - Income Tax

Disallowance of deduction u/s 80IE claimed in respect of profits derived by four tea gardens on the premise that the expansion program in respect of these four tea gardens took place over a period of more than one financial year - AO had disallowed the assessee s claim for deduction u/s 80IE in respect of tea garden on the ground that increase in the investment in the plant machinery by more than 25% of the book value was carried out in more than one financial year - HELD THAT - This Tribunal after examining the provisions of Section 80IE recorded a categorical finding that nowhere the said Section mandated that the substantial expansion once commenced should be completed within the same financial year. The coordinate Bench of this Tribunal therefore did not find merit in the Revenue s objection that for claiming deduction u/s 80IE it was necessary for the assessee to achieve the substantial expansion within one financial year. Respectfully following the aforesaid decision in the case of Jayshree Industries Ltd Vs Jt. CIT 2018 (4) TMI 1511 - ITAT KOLKATA , we reject Ground No. 1 of the Revenue. Interest income under the head Business - interest income earned by the assessee from FDs and financial institutions had no nexus with the assessee s business of growing manufacturing tea - HELD THAT - As decided in assessee's own case since assessee paid interest on loans and also derived interest on deposits, the interest received had to be netted off against interest payment and only the net interest expenditure could be considered in computing the composite income of growing manufacture of tea. Disallowance of deduction claimed u/s 80IE in respect of eight tea gardens on the premise that substantial expansion in respect of these gardens was carried out over more than one year - HELD THAT - In the AY 2010-11, the AO had disallowed the deduction claimed in respect of four tea gardens, namely Moran, Paneery, Mona bari and Mijicajan. In the AY 2011-12, besides disallowing the claim in respect of the foregoing four tea gardens, the AO disallowed the claim made in respect of tea gardens at Phillobari, Rajmai, Nyagogra Dehing which had completed the expansion in the relevant previous year and the deduction was first claimed in the year under consideration. The reasons for making the disallowance in the year under consideration are same as discussed in the assessment order for AY 2010-11. CIT(A) was also passed on identical lines on which the relief was allowed in the appellate order for AY 2010-11. Therefore, following our conclusions drawn in A.Y. 2010-11, we dismiss this Ground raised by the Revenue and uphold the order of Ld. CIT(A).

Summary

Issues Involved:
1. Disallowance of deduction under Section 80IE for substantial expansion of tea gardens.
2. Classification of interest income under the head 'Business' and applicability of Rule 8.

Detailed Analysis:

Issue 1: Disallowance of Deduction under Section 80IE for Substantial Expansion of Tea Gardens

Assessment Year 2010-11:

The Revenue appealed against the Ld. CIT(A)'s order allowing deduction under Section 80IE for the substantial expansion of four tea gardens (Moran, Paneery, Monabarie, and Mijicajan). The AO's contention was that the expansion program spanned multiple financial years, which did not satisfy the criteria under Section 80IE(7). The Ld. CIT(A) refuted this, stating:

- The technical teams devised systematic plans for expansion, identifying bottlenecks and recommending additions to increase production.
- The expansion was carried out in phases due to financial constraints, with investments exceeding 25% of the cost of existing machinery.
- Section 80IE does not mandate that the expansion must be completed within a single financial year.

The Tribunal upheld the Ld. CIT(A)'s decision, noting that the substantial expansion did indeed exceed 25% of the plant and machinery's book value as on the first day of the financial year in which the expansion began. The Tribunal referenced a similar case, Jayshree Industries Ltd Vs Jt. CIT, where it was held that Section 80IE does not require the expansion to be completed within one financial year.

Assessment Year 2011-12:

The issue was identical to AY 2010-11, with the AO disallowing deductions for eight tea gardens, including the four from the previous year and four additional ones (Phillobari, Rajmai, Nyagogra, and Dehing). The Ld. CIT(A) allowed the deductions, and the Tribunal, following its decision for AY 2010-11, upheld the Ld. CIT(A)'s order.

Issue 2: Classification of Interest Income under the Head 'Business' and Applicability of Rule 8

Assessment Year 2010-11:

The Revenue contested the Ld. CIT(A)'s decision to classify interest income from FDs and financial institutions under 'Business' and apply Rule 8. The Ld. CIT(A) had relied on the jurisdictional High Court's decision in the assessee's own case for AY 2007-08, which held that interest income should be netted off against interest expenses, and only the net interest should be considered for the composite business of growing and manufacturing tea.

The Tribunal upheld the Ld. CIT(A)'s order, referencing the High Court's decision and a similar Tribunal decision in Eveready Industries India Ltd. The High Court had dismissed the Revenue's appeal, affirming that interest income netted against interest expenses should be considered under Rule 8.

Assessment Year 2011-12:

The issue was identical to AY 2010-11. The Tribunal, following its decision for AY 2010-11, upheld the Ld. CIT(A)'s order to classify interest income under 'Business' and apply Rule 8.

Conclusion:
The appeals by the Revenue for both AY 2010-11 and AY 2011-12 were dismissed. The Tribunal upheld the Ld. CIT(A)'s orders allowing deductions under Section 80IE for substantial expansion of tea gardens and classifying interest income under 'Business' with the benefit of Rule 8.