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2013 (4) TMI 315 - AT - Income TaxCess on green leaf - CIT(A) deletion of addition - Held that - This issue is covered by the decision of the AFT Industries Ltd. -vs- CIT 2004 (7) TMI 81 - CALCUTTA HIGH COURT wherein held that entire amount paid as cess on green leaf seems to be eligible for deduction - in favour of the assessee. Depreciation claim disallowed - AO refused to allow the assessee s claim on the ground that the entire depreciation at the relevant rate was allowed in computing the business income to which Rule 8 was applied - CIT(A) allowed the claim - Held that - The case of the assessee in this ground is duly covered by the decision of CIT-vs- Doom Dooma India Ltd. 2009 (2) TMI 9 - SUPREME COURT wherein meaning of expression depreciation actually allowed in S. 43(6)(b) is that limited to depreciation actually taken into account i.e. debited by the ITO against the incomings of the business in computing the taxable income - for computing depreciation in cases falling u/r 8 of ITR, the income which is brought to tax as business income is only 40 % of the composite income & consequently proportionate depreciation should be taken into account because that is the depreciation actually allowed - in favour of the assessee. Software development expenses - revenue v/s capital - Held that - The assessee has incurred the expenses on the upgradation of the computer hardware and the software. The expenditure has not been incurred for starting new hardware or software. The upgradation of the computer will not make the expenditure to be capital in nature. The CIT(A), following the decision of Amway India Enterprises -vs- DCIT (2008 (2) TMI 454 - ITAT DELHI-C) deleted the addition made by the AO. The decisions relied on by the D.R. are not applicable in the case of the assessee - in favour of the assessee. Provision for diminution in the value of the investment and provision for contingency written back for ascertaining the book profit under section 115JB - CIT(A) deleted the addition - Held that - The case of the assessee is duly covered by Explanation 1(i) of section 115JB of the Income Tax Act. The CIT(A), after appreciating the documents, has given the clear-cut finding that both the provisions written off by the assessee were not allowed as deduction where determination in the book profit for the assessment year 2001-02 and in the hands of George Williamson (Assam) Ltd. over determining book profit for the assessment years 1999-2000 to 2005-06, no contrary evidence was brought to knowledge which may compel to take a view different from the CIT(A). In view of the Explanation 1(i) of section 115JB, no interference is called for in the order of the CIT(A) - in favour of assessee. Interest receipt - CIT(A) deleted the addition 40% of which was added by the AO as part of assessee s income of growing and manufacturing of tea, while determining the profit under section 115JB - Held that - It is apparent that the Hon ble High Court in Eveready Industries India Ltd. 2009 (12) TMI 226 - CALCUTTA HIGH COURT has held that interest income of the assessee, by investing the surplus funds, is the business income and not income from the other sources. It nowhere took the view that the interest income earned by the assessee by investing surplus funds is to be regarded to be the income derived from the sale of tea grown and manufactured by the seller in India. But to note the Hon ble Supreme Court in the case of Pandian Chemicals Ltd. (2003 (4) TMI 3 - SUPREME COURT) has categorically held that the interest income earned on the deposits made cannot be regarded to be the income derived from the industrial undertaking. Thu the case of the assessee is duly covered by the decision of the Hon ble Supreme Court as we are bound to follow the decision of the Hon ble Supreme Court as the decision of the Hon ble Supreme Court is binding on all the judicial bodies, even the Jurisdictional High Court. Accordingly set aside the order of the CIT(A) and restore the order of the AO on this issue - in favour of revenue.
Issues Involved:
1. Deletion of addition on account of cess on green leaf. 2. Claim of depreciation by the assessee. 3. Treatment of software development expenses as revenue expenditure. 4. Deduction of provision for diminution in the value of investment and provision for contingency written back under section 115JB. 5. Treatment of interest receipt as part of assessee's income of growing and manufacturing of tea under section 115JB. Issue-wise Detailed Analysis: 1. Deletion of Addition on Account of Cess on Green Leaf: The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 8,61,32,000 on account of cess on green leaf, arguing it relates to 100% agricultural operation. The Tribunal noted that this issue is covered by the decision of the Calcutta High Court in the case of AFT Industries Ltd. vs. CIT (270 ITR 167), which is binding. Consequently, the Tribunal dismissed this ground, upholding the CIT(A)'s deletion of the addition. 2. Claim of Depreciation by the Assessee: The AO disallowed part of the depreciation claimed by the assessee, referencing an amendment to section 43(6) introduced by the Finance Act 2009. The CIT(A) allowed the claim, stating the amendment was not clarificatory and applied only from AY 2010-11. The Tribunal found the case covered by the Supreme Court decision in CIT vs. Doom Dooma India Ltd. (310 ITR 392) and upheld the CIT(A)'s order, dismissing this ground of the Revenue. 3. Treatment of Software Development Expenses as Revenue Expenditure: The AO treated Rs. 20,00,000 incurred on software development as capital expenditure. The CIT(A) reversed this, citing that the expenditure improved operational efficiency without acquiring a capital asset or enduring benefit. The Tribunal agreed, referencing the Special Bench decision in Amway India Enterprises vs. DCIT (111 ITD 112), which was upheld by the Delhi High Court. The Tribunal dismissed this ground, affirming the CIT(A)'s treatment of the expenses as revenue in nature. 4. Deduction of Provision for Diminution in the Value of Investment and Provision for Contingency Written Back under Section 115JB: The AO rejected the deduction of Rs. 3,82,45,000 and Rs. 1,35,78,000 for provisions written back. The CIT(A) allowed the deduction, noting these provisions were not allowed as deductions in earlier years when created. The Tribunal upheld the CIT(A)'s decision, finding it consistent with Explanation 1(i) of section 115JB, and dismissed this ground. 5. Treatment of Interest Receipt as Part of Assessee's Income of Growing and Manufacturing of Tea under Section 115JB: The AO included the entire interest receipt of Rs. 1,59,90,313 as part of book profit under section 115JB, not considering it agricultural income. The CIT(A) directed the AO to consider only 40% of such interest as taxable. The Tribunal, however, found that interest earned on surplus funds does not directly derive from the sale of tea grown and manufactured, referencing Supreme Court decisions in Liberty India vs. CIT (317 ITR 218) and Pandian Chemicals Ltd. vs. CIT (262 ITR 278). The Tribunal set aside the CIT(A)'s order and restored the AO's treatment, allowing this ground of the Revenue. Conclusion: The appeal filed by the Revenue was partly allowed, with the Tribunal upholding the CIT(A)'s decisions on grounds 1 to 4 and reversing the CIT(A)'s decision on ground 5.
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