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TMI Blog2001 (6) TMI 179X X X X Extracts X X X X X X X X Extracts X X X X ..... CTR (SC) 126 : (1985) 154 ITR 148 (SC). It is a device adopted by the assessee for reduction of tax liability. The rent paid by the assessee cannot be treated as expenditure for the purpose of business. 4. The assessee moved before the first appellate authority and by the impugned order, the CIT(A) held that it is a business expenditure. Hence, he directed to allow deduction. It was further held that the transaction is a genuine transaction and not a colourable device. Hence, the decision of the McDowell's case does not apply. Against the aforesaid finding, the Revenue is in appeal before the Tribunal. 5. Shri D.K. Biswas, the learned Departmental Representative, supported the assessment order and submitted that the first appellate authority was not justified in allowing relief to the assessee. According to the learned Departmental Representative, there are several circumstances which led to the belief that the transaction is not a genuine transaction and the motive behind such transaction is only to reduce tax liability of the assessee. It was further submitted that the assessee sold the assets and again took those machineries on lease but there was no physical transfer of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trade and that too at the cost of depriving the Revenue of its dues. It was in this context that the Hon'ble Supreme Court had held that the excise duty should have been included in the sale-bill since it constituted turnover within the meaning of sales-tax laws and the practice adopted by the assessee in not including the excise duty in the sale-bill as a part of the turnover was without the sanctity of law and a mere colourable device adopted by the assessee to defraud the Revenue by paying less sales-tax. The learned counsel has submitted that apparently the facts in the present case are distinguishable and in the present circumstances, the McDowell's case cannot be applicable. The learned counsel placed reliance on the decision of the Supreme Court in the case of CIT vs. Sun Engineering Works (P) Ltd (1992) 107 CTR (SC) 209 : (1992) 198 ITR 297 (SC) where it has been held that it is not proper to consider 'a word', 'a clause' or 'a sentence' of the judgment of the Supreme Court, divorced from its context, without considering the full exposition of law and the circumstances under which the judgment was rendered. In the McDowell's case, transaction was entered into by an asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he quotation has been filed at p. 39 of the paper book. It is also a fact that the lease rent was actually paid by the assessee and not denied by the AO. The learned counsel has submitted that sale and lease back is now not a new theory for India. Even the public sector undertaking like Indian Airlines Corporation had entered into such transactions in view of the augment of their resources services (sic). Evidence was filed in this regard at pp. 41 and 42 of the paper book. In a recent amendment made to s. 43(1) of the Act, Expln. 4A was inserted by Finance (No. 2) Act of 1966 w.e.f. 1st Oct., 1966. By the aforesaid Explanation it was provided that in the case of sale and lease back of an asset, actual cost of such asset in the hands of purchaser-cum-lessor thereof shall be deemed to be written down value of the same for the purpose of claiming depreciation. Therefore, sale and lease back has been accepted by the legislature and only because the asset was sold and taken back on lease, that cannot be a ground for treating the transaction as a device for tax planning. The learned counsel placed reliance on the decision of the Tribunal in the case of Indian Management Advisors and Lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of McDowell Co. Ltd. was applied. On perusal of the aforesaid decision of the Supreme Court, we find that in that case, the assessee did not include excise duty in the ex-factory prices resulting in collections of less sales-tax. In that context, the Supreme Court said that it was a colourable device adopted by the assessee to defraud the Revenue by paying less sales-tax. The learned counsel placed reliance on various decisions of the Supreme Court, Gujarat High Court and other High Courts to show that a tax planning may be legitimate within the framework of law. Reliance can be placed on the decision of the Supreme Court in the case of Playworld Electronics (P) Ltd. In the present case, the assessee entered into a transaction with the parties to sell and lease back the assets. Lease agreement and sale were brought on record. After sale, the assets were taken delivery by the parties which were acknowledged by them copy of which has been filed at p. 22 of the paper book. Therefore, the contention of the learned Departmental Representative that no delivery was effected is not correct. The sale price of the assets was determined by an independent valuer. Copy of the valuation r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case, we find that the transaction in fact, could not be doubted by the AO but only on the presumption he applied the decision of McDowell's case. In view of the circumstances above, we hold that the first appellate authority was justified in holding that relief under s. 37 is to be allowed in the present circumstances of the case. Accordingly, this ground of appeal is rejected. 9. Ground No. 16 is regarding addition of Rs. 67,98,402 on account of undervaluation of closing stock. After hearing both the sides, we find that the assessee changed the method of valuation of closing stock to cost or net realisable value whichever is lower. The first appellate authority allowed relief to the assessee following the order passed by the Tribunal in the case of the present assessee. Further, we find that similar issue came up for consideration before us in the case of Numdung Tea Co. (India) Ltd. in ITA Nos. 873/Gau/1991 509/Gau/1992 where we have upheld the finding recorded by the first appellate authority by which relief was allowed. Therefore, following the decisions of the Tribunal on this issue, we uphold the finding recorded by the first appellate authority. 10. Ground Nos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the first appellate authority for reconsideration. In view of the circumstances above, we are not inclined to interfere with the finding of the CIT(A). This ground of appeal is rejected. 15. Next issue i.e., grounds Nos. 24 and 25, is regarding disallowance of Rs. 3,757 under s. 43B of the Act. Having heard both the sides, we find that the first appellate authority allowed relief to the assessee after being satisfied that sales-tax was deposited within the due date as prescribed under s. 43B of the Act. The assessee placed reliance on the decision of the Gauhati High Court in India Carbon Ltd. vs. IAC Anr. (1993) 200 ITR 759 (Guj). Accordingly, we are not inclined to interfere with the finding recorded by the first appellate authority. 16. The last issue is regarding relief under s. 80HHC of the Act. According to the AO, the assessee had claimed deduction under s. 80HHC in the revised return of Rs. 1,27,96,608. While computing the relief it was noticed that the export reserve set up under the second proviso to s. 80HHC(1) of the Act for Rs. 73 lakhs. Accordingly, the AO was of the view that deduction is allowable to that extent. The first appellate authority held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tea estates. Similar practice was followed in other tea estates by growing bamboo thatch, etc. for the purpose of internal use i.e., roofing of labour quarters, supply of firewood to labour, etc. The deduction was claimed by the assessee before the AO as revenue expenditure. However, he disallowed the claim. The CIT(A) by the impugned order restricted the disallowance to Rs. 1,50,000 and the balance was allowed by him. 21. The learned counsel on behalf of the assessee has submitted that the details of such expenditure were filed before the AO and the first appellate authority has wrongly made an estimated disallowance without any reason. The CIT(A) in his order has accepted that the assessee had duly paid wages to the labourers as disclosed by the assessee. However, at the same time estimated disallowance was made of Rs. 1,50,000. The first appellate authority also referred to the certificate and other documentary evidence in this regard. Therefore, according to the learned counsel, the disallowance was not called for. Reliance was placed on the decision of the Supreme Court in the case of CIT vs. Hantapara Tea Ltd. 1973 CTR (SC) 335 : (1973) 89 ITR 258 (SC) and the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction as being income chargeable under different heads of income under the IT Act and in absence of any such demarcation, the deduction cannot be reduced as has been done by the AO. Reference was made in this regard to s. 33AB of the IT Act which replaced s. 32AB for tea companies from asst. yr. 1991-92. In the new section, the deduction is at 20 per cent of profits derived under the head "Profits and gains of business or profession". The deduction under s. 32AB is according to a completely different mode of computation as prescribed in sub-s. (3) thereof. The learned counsel placed reliance in support of the contention on the decision of the Hon'ble Tribunal, Calcutta, in Reckitt Colman (India) Ltd's case (ITA No. 1252/Cal. 94). It was further submitted that it has been a consistent view of the Tribunal, Calcutta that for the purpose of deduction under s. 32AB, non-business income is also to be included in profits of the eligible business. Subsequently, also, the Tribunal, Calcutta Bench, has held in Eastern Spinning Mills Industries Ltd.'s case (ITA No. 2511/Cal/1994) that non-business income is includible in profits of eligible business for computing deduction under s. 32AB. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1979) 118 ITR 261 (SC). On the other hand, the learned Departmental Representative supported the assessment order. 31. After hearing both the sides, we are of the view that for the purpose of allowability of expenditure under s. 37 of the Act, there may not be a direct link between the expenditure incurred and the nature of business being carried on by the assessee. Even if the expenditure is remotely connected with the business or for the benefit of the employees of an assessee, it can be allowed as held by different High Courts. In the case of CIT vs. Delhi Cloth and General Mills Co. Ltd. 1978 CTR (Del) 216 : (1978) 115 ITR 659 (Del), the expenditure incurred for organising football tournament was treated as business expenditure. In the case of Mysore Kirloskar Ltd. vs. CIT (1987) 61 CTR (Kar) 265 : (1987) 166 ITR 836 (Kar) the expenditure incurred for running a school for the purpose of employee's children was treated as business expenditure. Expenditure incurred for providing amenities like water supply was also treated as a business expenditure in the case of CIT vs. Associated Cement Companies Ltd. (1974) 96 ITR 650 (Bom). In view of the circumstances above, we are of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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