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TMI Blog2019 (2) TMI 1617X X X X Extracts X X X X X X X X Extracts X X X X ..... round 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 und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial year, the criteria laid down in Section 80IE(7) for claiming the deduction was not satisfied and since the substantial expansion was conducted in more than one financial year, it could not be held that the condition of Section 80IE(7)(i) (iii) were satisfied in FY 2009-10 relevant to AY 2010-11. Accordingly the AO denied the deduction u/s 80IE in respect of four tea gardens, namely Moran, Paneery, Mona bari and Mijicajan. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A) who allowed the assessee s claim for deduction u/s 80IE by holding as follows: 9.6 From the empirical data provided by the assessee, I find that the technical ' teams at tea gardens had devised systematic plan for expansion of production capacities at each of the 4 tea gardens. Based on the work studies carried out at the factories the bottlenecks were identified by the Technical teams. After analyzing the production process the technical teams identified the bottlenecks then recommended additions to be made in different Sections so as to remove the sectional imbalance and increase the overall production finished tea. The technical team also esti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive of achieving overall increase in the production. On the facts as are available it cannot therefore be said that the additions made between AYs 2008-09 to 2010-11 at four gardens did not form integral part of the program for expanding the existing undertakings. From the facts materials on record, it appeared that the assessee had indeed devised and thereafter executed a systematic expansion of its production capacities by adding and installing plant machineries aggregate value of which exceeded 25% of the actual cost of the plant machinery which was existing at the time when the expansion program commenced in AY 2008-09. 9.7. In the impugned order the AO placed much reliance on the fact that the assessee had claimed depreciation on some of the items of plant machineries installed and put to use in AYs 2008-09 and 2009-10. In the circumstances if the machineries were actually used by the appellant in the prior years, then it meant that even without the expansion of the undertaking these machineries were capable of being used and therefore for deciding whether the criteria as laid down in section 80IE was fulfilled, cost of such plant machineries could not be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ohibit the assessee from capitalizing the cost of plant machinery forming part of the substantial expansion in its books from time to time and claim depreciation if the conditions of section 32 are fulfilled section 80IE also does not require the assessee from making the expanded undertaking operational only in one go. There is no prohibition in section 80IE of the Act if the expanded undertaking becomes operational I phases and depreciation thereon is claimed accordingly. In my opinion the interpretation of section 80IE as made by the AO is not correct since he has imposed his own restrictive conditions which are not so prescribed by the Legislature. The AO has interpreted Section 80IE in a manner by which the assessee's are precluded from capitalizing the cost of expansion in a phased manner. AO has also imposed prohibition from making the expansion program operational in phases. 9.9 I find merit in the submissions of the AR that Section B0lE is a beneficial provision of the LT. Act. lt is enacted by the Legislature to provide boost to the economic and industrial growth of the North Eastern part of India which is known to be economically backward. The intention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons specified in section 80IE of the Act were fulfilled by the assessee. On the contrary I find that the AO has read into section 80IE such conditions which were not expressly enacted by the Legislature and therefore the AO was not justified in rejecting the claim u/s 80IE. Against the order of the Ld. CIT(A), the Revenue is in appeal before us. 3. We have heard the rival submissions of both the parties. The Ld. DR appearing on behalf of the Revenue strongly relied on the order of the AO and vehemently argued that in order to claim deduction u/s 80IE it was necessary for the assessee to demonstrate that the substantial expansion had been carried out only in one financial year. Referring to clauses (i) (iii) of Section 80IE(7) the Ld. DR submitted that for the purpose of ascertaining whether the substantial expansion has been carried out, the comparison should necessarily be made between the gross block of plant machinery at the completion of substantial expansion and the gross block of plant machinery on the opening date of the relevant previous year in which substantial expansion is complete. Since in the assessee s case this crucial test was not met, the Ld. DR a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee Industries Ltd Vs Jt. CIT (supra), we reject Ground No. 1 of the Revenue. 6. Ground No. 2 raised by the Revenue is against the Ld. CIT(A) s order directing the AO to consider interest income under the head Business without appreciating the fact that interest income earned by the assessee from FDs and financial institutions had no nexus with the assessee s business of growing manufacturing tea. At the outset the Ld. AR of the assessee pointed out that this very issue was adjudicated in assessee s favour by the jurisdictional Hon ble Calcutta High Court in assessee s own case in its judgment rendered in ITAT No. 92 of 2013 dated 19.06.2018 for the AY 2007-08. The Ld. AR submitted that in AY 2007-08 also the assessee had earned interest from FDs and financial institutions which was assessed by the AO under the head Other Sources and benefit of Rule 8 was denied to the assessee. On appeal the Ld. CIT(A) upheld the assessee s contention by observing as follows: 14. I have carefully considered the submissions of the A/R and have perused the decision of the Jurisdictional High Court in the case of Eveready Industries (I) Ltd for the A.Y. 1991-92 1992-93. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be part of the composite business of growing and manufacture of tea thereby assessed only 40% of such income under central income tax assessment. The C I T in his order u/s 263 directed to AO to assess gross interest received as fully chargeable to tax under Central Income Tax. The Order of the CIT u/s 263 was upheld by the Tribunal. On further appeal, the Calcutta High Court however held that the interest income was rightly treated by the AO to be part of assessee's business of growing and manufacture of tea subject to Rule - 8 and therefore only 40% of interest income could be brought to Central Income Tax. 15. The decision of the Calcutta High Court squarely answers the question raised in Ground No. 6 of the present appeal. In appellant's case also after netting of interest received against interest paid there is net expenditure of ₹ 41,79,88,000/- which could only be considered to be expenditure incurred in connection with assessee's business of growing and manufacture of tea. The AO could not treat interest paid and interest received of different footings. I therefore direct AO to consider interest receipt of ₹ 1,59,90,313/- as part of asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.08.2018 in ITA No. 789 of 2004, the Hon ble Calcutta High Court dismissed the appeal of the Revenue inter alia including the question raised above. The Ld. DR was unable to controvert the submissions of the Ld. AR as also the findings of the Ld. CIT(A) which are in consonance with the view taken by the Hon ble Calcutta High Court in assessee s own case for AY 2007-08. Respectfully following the judgement of the Hon ble Calcutta High Court rendered in assessee s own case, we therefore see no reason to take any contrary view. Accordingly Ground No. 2 raised by the Revenue is rejected. 10. In the result, the appeal of the Revenue in ITA No. 116/Kol/2016 is dismissed. 11. Now we proceed to deal with the Revenue s appeal in ITA No. 117/Kol/2016 for AY 2011-12. Ground No. 1 of the appeal relates to the 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. After considering the rival submissions, it is observed that the issue involved in this ground is identical to Ground No.1 of department appeal in A.Y. 2010-11. In the AY 2010-11, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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