2019 (4) TMI 1469 - AT - Income Tax

Nursery expenses allowability - allowable revenue expenditure u/s 37 - HELD THAT - From the details furnished by the assessee in respect to this claim of expenditure, the CIT(A) concluded that the payments made were in the nature of salaries and wages paid regularly to the employees of the assessee and some administrative expenses were incurred to maintain the infrastructure facility of the unit. 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 and the expenses for maintaining nursery are allowable as per the Tribunal s order 2011 (5) TMI 1092 - ITAT KOLKATA 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. Notional Interest addition - HELD THAT - Expenditure has been incurred by the assessee company way back in the year 1992-93 and because of restructuring of the company in the year 1995, the project of Mushroom and Floriculture activities was transferred to the new sister company called M/s. Yule Agro Industries Ltd. in the year 1995-96 so it cannot be called as loan/advance but in effect merely transfer of the assets and liabilities consequent upon restructuring. So, the entire value of the expenditure which has been incurred on the projects way back in the year 1992-93 was subsequently transferred to the M/s. Yule Agro sister company in the year 1995 due to the restructuring cannot be strictly termed as loan/advance and, therefore, question of notional interest as computed by the AO is unsustainable and has been rightly deleted by the CIT(A) which we confirm. This ground of revenue s appeals is dismissed. Liquidated damages claimed - HELD THAT - CIT(A) has relied on the order of the Hon ble Allahabad High Court in the case of Central Trading Agency Vs. CIT 1964 (3) TMI 120 - ALLAHABAD HIGH COURT wherein the Hon ble High Court allowed the expenses incurred for liquidated damages under the head commercial expediency and also the decision of the Hon ble Madras High Court in the case of CIT Vs. Indane Bislers 1972 (9) TMI 28 - MADRAS HIGH COURT . Our attention was drawn to the copies of the contract and other details and we agree with the Ld. CIT(A) that it was an inbuilt condition of the contract that in case of late delivery of goods, percentage of consideration as liquidated damages would be deducted by the customer while making payment. It is noted that the payment was made to the assessee by the parties while it was carrying on its business, and the deduction of payment made by the parties were as per the contractual terms and so, it is an allowable deduction and we confirm the order of the Ld. CIT(A) and dismiss this ground of appeal of the revenue. Expenses incurred by the assessee for maintenance of immature tea bushes (young tea bushes) - HELD THAT - Tribunal s order in assessee s own case wherein the Tribunal has held that the expenses incurred for maintenance in respect of immature tea bushes in the existing garden is to be allowed as revenue expenditure and it was further held that since the expenses were incurred by the assessee company for maintenance and replacement of tea bushes in its existing garden, the same cannot be said to have created an enduring benefit which can be termed capital in nature and as accordingly, the expenses claimed by the assessee company was allowed as revenue expenditure. See TASATI TEA LTD. 2003 (2) TMI 42 - CALCUTTA HIGH COURT - Ground of appeal of revenue is dismissed. Unexplained sundry creditors u/s. 68 - AO has made the addition on the difference found in respect to the sundry creditors u/s. 68 - HELD THAT - The amount credited is not a cash credit in the sense that some monies have been received by the assessee but the credit represents a mere liability payable by the assessee in future. Under accounting principles, a liability can only be brought into account by making a credit entry in the books of account in favour of the person to whom the money is payable. Thus, there is a marked difference between the credit representing a liability payable by the assessee and a credit representing monies received from another person. It is because of this distinction a liability for purchase which has been credited in the account of the supplier cannot be added u/s. 68. More so, when the purchase has been accepted as genuine and a deduction, therefore, has been allowed, therefore, the action of the CIT(A) deleting the addition need not to be interfered for this additional reason also as stated above. The revenue s ground of appeal is, therefore, dismissed. Prior period expenses - HELD THAT - Expenses of such nature which though relates to earlier period had crystalised in the year under consideration either due to change of law with retrospective effect like bonus or till finalization of sales tax case or settlement with trade union with retrospective effect in respect to fee, allowance etc. or receipt of final bill after the cut-off date of the assessment years. The CIT(A) has duly considered the magnitude and the scale of operations of the assessee company and observed that many of the expenses could not be correctly estimated and there could arise exigencies which require calibration/correction and, therefore, taking note of the fact that these expenses are crystallized in this assessment year under consideration, the CIT(A) has given relief which according to us, does not require any interference from our part and we confirm the same. Therefore, this ground of appeal of the revenue for the assessment years under consideration is dismissed. Disallowance u/s 14A applying Rule 8D - HELD THAT - In the interest of justice and fair play, we set aside the order of CIT(A) and remand this matter back to the file of the AO to recompute the disallowance u/s. 14A read with Rule 8D as per law laid by the Tribunal in REI Agro Ltd., 2013 (9) TMI 156 - ITAT KOLKATA and in accordance to law. Therefore, this ground of appeal of revenue is allowed for statistical purposes. Disallowance made under bad debt written off - HELD THAT - CIT(A) after going through the aforesaid facts and the law on the subject has given relief to the assessee. We further note that the assessee has produced copy of the general ledger extracts showing year wise and bill wise details of some high value of debtors, namely Mining Allied Machinery Ltd. ₹ 20,04,507/-, National Hydel Power Corporation Ltd. ₹ 15,19,912/- etc. are out of ₹ 1,13,05,600/- an amount of ₹ 1,09,58,100/- which was a debt lying in the books of the assessee for more than fifteen years pertaining to ESG and electronic Unit which has become non-existent and the balance amount of ₹ 3,47,500/- deducted by SAIL due to dispute in delivery of goods as discussed above. Taking note of the fact that the bad debt written off by assessee had been offered by the assessee to tax in the earlier years as business income, we find no infirmity in the order of the Ld. CIT(A) and decline to interfere in the order of the Ld. CIT(A) and dismiss this ground of appeal of revenue. Addition in respect of sundry receipt of tea division - According to assessee, 60% of sundry receipt is agricultural income cannot be added as business income - HELD THAT - CIT(A) has given a cryptic order without going into the details as to the validity of the claim made by the assessee and since there is no application of mind by the Ld. CIT(A) it would be in the fitness of things that this issue is also referred back to the file of AO, therefore, we set aside the order of Ld. CIT(A) and remand this issue back to the file of AO with a direction to the assessee to produce all documents to substantiate the claim that the sundry receipt which it claimed as to be considered as income under Rule 8. And the AO is directed to adjudicate this issue afresh in the line of the ratios laid in the judicial precedents on this issue and in accordance to law. This ground of appeal of revenue is allowed for statistical purposes.

Summary

Issues Involved:
1. Allowance of nursery expenses.
2. Deletion of notional interest added by the AO.
3. Allowance of liquidated damages.
4. Allowance of expenses for maintenance of immature tea bushes.
5. Deletion of addition on the ground of unexplained sundry creditors.
6. Allowance of prior period expenses.
7. Deletion of disallowance under Section 14A.
8. Allowance of bad debt written off.
9. Deletion of addition of sundry receipt of the tea division.

Detailed Analysis:

1. Allowance of Nursery Expenses:
For AYs 2008-09 and 2009-10, the revenue appealed against the Ld. CIT(A)'s decision to allow nursery expenses claimed by the assessee. The AO disallowed these expenses, deeming them purely agricultural and thus not allowable. The Ld. CIT(A) noted that the expenses were administrative, related to salaries and wages, and were incidental to the business. The expenses were also allowable under Rule 8(2) of the I.T. Rules, 1962. The Tribunal upheld the Ld. CIT(A)'s order, confirming the allowance of the nursery expenses.

2. Deletion of Notional Interest Added by the AO:
For AYs 2008-09 and 2009-10, the AO added notional interest on loans advanced to M/s. Yule Agro, which the assessee had not charged interest on. The Ld. CIT(A) found that the loans represented expenditure on Mushroom and Floriculture activities transferred to M/s. Yule Agro as part of a restructuring, and thus no interest was chargeable. The Tribunal confirmed the deletion of the notional interest, agreeing with the Ld. CIT(A)'s reasoning.

3. Allowance of Liquidated Damages:
For AYs 2008-09 to 2011-12, the AO disallowed liquidated damages claimed by the assessee, citing insufficient evidence. The Ld. CIT(A) found that these damages arose from contractual obligations and were deducted by customers for late delivery of goods. The Tribunal upheld the Ld. CIT(A)'s decision, noting that the damages were incurred as part of the business operations and were allowable expenses.

4. Allowance of Expenses for Maintenance of Immature Tea Bushes:
For AYs 2008-09 to 2011-12, the AO treated expenses for young tea bushes as capital expenditure. The Ld. CIT(A) allowed these expenses as revenue expenditure, referencing the Tribunal's earlier decision in the assessee's favor. The Tribunal confirmed this, noting that the expenses were for maintenance and replacement of tea bushes in existing gardens, thus allowable as revenue expenditure.

5. Deletion of Addition on the Ground of Unexplained Sundry Creditors:
For AY 2009-10, the AO added unexplained sundry creditors to the total income. The Ld. CIT(A) found that most creditors had responded to notices, and discrepancies were due to advances not accounted for. The Tribunal noted that the AO did not consider the overall facts and that the opening balance of creditors should not have been disturbed. The Tribunal upheld the Ld. CIT(A)'s deletion of the addition.

6. Allowance of Prior Period Expenses:
For AYs 2009-10, 2010-11, and 2011-12, the AO disallowed prior period expenses, stating they did not relate to the relevant assessment year. The Ld. CIT(A) found that these expenses had crystallized in the assessment year under consideration and were allowable. The Tribunal confirmed the Ld. CIT(A)'s decision, noting that the expenses were legitimate and had accrued in the relevant year.

7. Deletion of Disallowance Under Section 14A:
For AY 2010-11, the AO disallowed expenses under Section 14A, applying Rule 8D. The Ld. CIT(A) deleted the disallowance without proper adjudication. The Tribunal remanded the issue back to the AO to recompute the disallowance as per the law laid down in REI Agro Ltd., ensuring only investments yielding exempt income are considered.

8. Allowance of Bad Debt Written Off:
For AY 2010-11, the AO disallowed bad debt written off, questioning if it was offered to tax in earlier years. The Ld. CIT(A) found that the debts were old and had been offered to tax previously. The Tribunal upheld the Ld. CIT(A)'s decision, referencing the Supreme Court's ruling in TRF Ltd. that bad debts written off in the accounts are allowable if they were previously taxed.

9. Deletion of Addition of Sundry Receipt of the Tea Division:
For AYs 2010-11 and 2011-12, the AO added sundry receipts of the tea division to the income, arguing they were not related to growing and manufacturing tea. The Ld. CIT(A) deleted the addition without detailed reasoning. The Tribunal remanded the issue back to the AO for fresh adjudication, directing the assessee to provide evidence that the receipts were related to tea manufacturing.

Conclusion:
The Tribunal dismissed the revenue's appeal for AY 2008-09 and partly allowed the appeals for AYs 2009-10, 2010-11, and 2011-12 for statistical purposes, remanding certain issues back to the AO for fresh consideration. The Tribunal confirmed the Ld. CIT(A)'s decisions on several grounds, ensuring compliance with relevant legal precedents and proper accounting practices.