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TMI Blog2017 (2) TMI 449X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of the functions performed, risks assumed and hence should not be combined for the purpose of comparison. The auction business of the assessee is comparable with auction purchases with third parties. Price charged by the assessee on the international transactions computed on the basis of segmental results of Auction and Private Business is at Arm’s Length and no adjustment need to be made thereon. In view of the above conclusion, the other contentions put forth on behalf of the assessee do not require any consideration. Disallowance of expenditure incurred on payment of cess on green leaf from composite income - Held that:- Hon’ble Calcutta High Court in the case of CIT vs A.F.T. Industries Ltd reported in (2004 (7) TMI 81 - CALCUTTA High Court) wherein it was held that the same was to be fully allowed from the composite income. Claim of depreciation - Held that:- For purpose of computing the WDV of depreciable assets used in tea business, only 40% instead of 100% of depreciation allowable at the prescribed rate should be deducted. - I.T.A No. 511/Kol/2010, I.T.A No.2105/Kol/2010 - - - Dated:- 3-2-2017 - Shri N. V. Vasudevan, JM And Shri M. Balaganesh, AM F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee also stated that the amount was advanced out of its surplus fund over the period FY 1989-90 to 1993-94 as detailed below:- F. Year Amount advanced Opening Share capital Reserve Amount added to Reserve during the year Total share capital Reserve Rs./Lakhs 1989-90 3.96 9588.18 3123.51 12711.69 1990-91 422.07 12711.69 3564.96 16276.65 1991-92 410.33 16276.65 3358.70 19635.35 1992-93 265.62 19635.35 3188.67 22824.02 1993-94 87.23 22824.02 3063.34 25887.42 1189.21 Accordingly, it was pleaded that no addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sponse to this, the ld DR fairly agreed for the same. 2.4. We have heard the rival submissions. We find that the issue under dispute is covered by the earlier order of this tribunal in assessee s own case as stated supra wherein this tribunal had remanded the issue back to the file of the ld AO to decide this issue afresh in accordance with law. Respectfully following the said decision, we deem it fit and appropriate to set aside this issue to the file of the ld AO and decide the same afresh in accordance with law. Accordingly, the Grounds 1(a) to 1 (c ) raised by the assessee are allowed for statistical purposes. 3. The next issue to be decided in this appeal is as to whether the ld CITA is justified in upholding the disallowance of ₹ 5,50,000/- u/s 40A(9) of the Act on account of expenditure incurred towards employees recreation club in the facts and circumstances of the case. 3.1. The brief facts of this issue is that the ld AO observed that the assessee had paid a sum of ₹ 5,50,000/- to its Employees Recreation Club. The ld AO sought to disallow the same in the assessment for which show cause notice was issued to the assessee. In response to the show cause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustries Ltd (Supra) has deleted the addition by observing as under: The Commissioner (Appeals) had deleted the said addition by following the Tribunal s order in the case of DCIT vs APE Belliss India Ltd (IT Appeal Nos. 527 to 531 (Cal) of 1989) . The Tribunal observed that section 40A(9) is not applicable because this section stands for any funds, institutions, where the assessee made the subscription for the purpose of welfare of the employees. That means that there should be a complete identity between the donor and the done. Here staff recreation club and the staff club were a part and parcel of the organization itself and they were given money by way of subsidy, an age old practice . In various Government departments also subsidies are given as a matter of course for carrying on welfare activities. So finally the Tribunal upheld the order of the Commissioner (Appeals) who had deleted the said addition. By respectfully following the earlier order of the Tribunal there was no infirmity with the order of the Commissioner (Appeals) who had rightly deleted the said additions pertaining to the staff welfare. In this view of the matter and in the absence of any distingui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase Ld CIT(A) should have held that the deductions u/s 80HHC must have been computed based on individual product basis as claimed by the appellant. 4.2. The ld AR fairly agreed that this issue is covered against assessee by the decision of the Hon ble Apex Court relied upon by the ld AO supra. 4.3. We have heard the rival submissions. We find that as agreed by the ld AR that this issue is covered against the assessee by the decision of the Hon ble Apex Court in the case of IPCA Laboratory Ltd vs DCIT supra and accordingly dismiss the Grounds 3(a) and 3 (b) raised by the assessee. 5. The last issue to be decided in this appeal is as to whether the ld CITA is justified in upholding the adjustment made by the ld TPO / ld AO to the Arm s Length Price in the facts and circumstances of the case. 5.1. The brief facts of this issue is that the ld AO observed that the assessee had entered into certain international transactions with its Associated Enterprises (AE) and therefore the case was referred to ld TPO for determination of Arm s Length Price. The assessee is a multinational non-alcoholic beverages company and it is claimed to be the world s second largest manufacturer a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (c) The offer list is returned back by the AEs with an approval for the teas and the price negotiated with the AE. (d) The assessee has a price range within which it has to sell to the AE. (e) The assessee would put into application its procuring skills and weightage in commands the market to procure the teas at the lowest cost and sell at the price negotiated. 5.2.1. The assessee explained that in the above sequence of transactions it had performed the functions of a trader. In the course of acting in capacity of a trader, it had discharged functions in relation to it and also bears the risk in relation to it. This is proven by the fact that the price risk in relation to the sale to its AEs and as well as the price risk in relation to the cost of purchase from the third party lies with the assessee. 5.2.2. Whereas, in the Private Business , it is only in the nature of a facilitator entering into forward contracts as stipulated by the assessee, whether it is the sale or the purchase of tea. The assessee enters into a forward sale contract with its AE once there is a back to back forward contract with a third party, decided by the AE for supplying the tea at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO. Aggrieved, the assessee is in appeal before us on the following grounds:- 4a. That on the facts and in the circumstances of the case, the CIT(A) erred in confirming disallowance u/s 92 of the Act. 4b. That on the facts and circumstances of the case, the CIT(A) had erred in not considering the 5% tolerance benefit as allowed under the proviso to section 92C(2) of the Act. 5.4. We have heard the rival submissions and perused the materials available on record. We find that the assessee is a widely held domestic company engaged in the business of inter alia blending and packaging tea for sale in the domestic and export markets and in manufacturing and exporting instant tea. The assessee undertook international transactions with its AE which were duly listed in Form 3CEB report filed along with the return of income. During the course of ld TPO proceedings, the assessee was asked to submit the segregation of transactions showing segmental results of the margin on transactions with AE and margin on transactions with Non AE which were duly submitted by the assessee. The assessee was show caused as to why the margin for auction purchases with Non AE should also not be use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed functions in relation to auction business and also bears the risk in relation to it. The price risk in relation to the sale to its AE and as well as the price risk in relation to the cost of purchase from the third party lies with the assessee. Thus the assessee had performed the functions only of a trader as could be evident from the sequence of transactions enumerated supra. We find that in this Auction Business, a price range of tea is negotiated with the AE instead of a single price. The assessee then explores the auction market and put into application its procuring skills so as to obtain teas at a cost which it can sell within the price range negotiated and make profits thereon. The assessee enters into forward contract while selling teas but enters into spot contract while purchasing, hence , bearing price risk for the cost of purchase. 5.4.3. We are in agreement with the arguments advanced by the ld AR that the private business of the assessee is only in the nature of a facilitator wherein the assessee enters into a forward sale contract with its AE once there is back to back forward contract with a third party, decided by the AE for supplying the tea at a future date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue is delayed by 43 days and condonation petition has been filed by the revenue. After perusing the condonation petition and the concession given by the Ld. AR, we condone the delay and admit the appeal for hearing. 7. The first issue to be decided in this appeal is as to whether the ld CITA is justified in deleting the disallowance of expenditure incurred in the sum of ₹ 3,69,88,000/- on payment of cess on green leaf from composite income in the facts and circumstances of the case. 7.1. The brief facts of this issue is that the ld AO observed that the assessee had debited a sum of ₹ 369.88 lakhs under the head Cess on green leaf which were paid to Governments of Assam and West Bengal. The ld AO placed reliance on the decision of the Hon ble Gauhati High Court in the case of Jorhat Group Ltd vs Agricultural ITO reported in 226 ITR 622 (Gau) wherein it was held that the cess on green leaf is deductible from the agricultural income only and not from the composite income. The assessee placed reliance on the decision of the Hon ble Calcutta High Court in the case of CIT vs A.F.T. Industries Ltd reported in (2004) 270 ITR 167 (Cal) wherein it was held that the same w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. The ld CITA granted relief to the assessee by following the order of his predecessor. Aggrieved, the revenue is in appeal before us on the following ground :- 2. That on the facts and circumstances of the case, Ld. CIT(A), Kolkata has erred in law in allowing the depreciation as claimed by the assessee as per revised computation. 8.2. The ld DR fairly agreed that the issue under dispute is covered in favour of the assessee by the decision of the Hon ble Calcutta High Court supra. In response to this, the ld AR stated the view taken by the Hon ble Calcutta High Court had been approved by the Hon ble Apex Court in the case of CIT vs Doom Dooma India Ltd reported in (2009) 310 ITR 392 (SC). 8.3. We have heard the rival submissions. We find that the impugned issue under dispute is settled by the decisions of the Hon ble Calcutta High Court and Hon ble Supreme Court wherein it was held that for the purpose of computing the WDV of depreciable assets used in tea business, only 40% instead of 100% of depreciation allowable at the prescribed rate should be deducted. Respectfully following the same, we hold that the order of the ld CITA does not require any int ..... 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