Long View Tea Co. Ltd., Kolkata vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH: KOLKATA [Before Shri Mahavir Singh, JM & Shri B. P. Jain, AM]

I.T.A No.18/Kol/2010 Assessment Year: 2001-02 M/s Long View Tea Co. Ltd. vs. A.C.I.T. Circle-6, Kolkata (PAN: AAACL 5564F) (Appellant) (Respondent)

Date of hearing: 09.04.2015 Date of pronouncement: 13.05.2015

For the Appellant: Shri S. Jhajharia FCA and Shri S.Sen, FCA For the Respondent: Shri P.K. Chakraborty, JCIT

ORDER Per Shri Mahavir Singh, JM:

This appeal by assessee is arising out of order of CIT(A)-VI, Kolkata in Appeal No. 133/CIT(A)-VI/06-07/Cir.-6/Kol dated 13.11.2009. Assessment was framed by ACIT, Circle-6, Kolkata u/s. 147/143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Year 2001-02 vide his order dated 29.12.2006.

2. The sole issue in this appeal of assessee is against the order of CIT(A) confirming the action of the Assessing Officer in disallowing the amortised miscellaneous expenses of Rs.76,81,390/- written off in the books of account in (@ 1/10 th of Rs.7,68,13,902/- being the net realizable value of the advance made against capital goods) as per specific direction of Hon'ble jurisdictional High Court vide order dated 16-10-2001. For this, assessee has raised following concise ground:-

"2. For that in view of the facts and circumstances of the case the Assessing Officer was wholly wrong and unjustified in disallowing the amortised miscellaneous expenses of Rs.76,81,390/-, written off in the books of a/c @ 1/10th of Rs.7,68,13,902/- (being the net realizable value of the advance made against capital goods) as per the specific and binding direction in the Hon'ble Calcutta High Court's order dt.16.10.2001 (order effective from 01.04.2000), by totally ignoring the Court's order and wrongly & unlawfully treating it as capital expenditure.

The Ld. CIT(A) was also equally wrong and unjustified in not considering the Courts binding order and instead wrongfully restricting the disallowance to Rs.30,72,556/- only (being 40% of Rs.76,81,390/-) as per Rule 8 instead of allowing the full relief. Actions of the AO and the Ld. CIT(A) were wholly unreasonable, uncalled for and bad in law.

3. For that in view of the facts and circumstances of the case the Assessing Officer was wholly wrong and unjustified in disallowing the amortised miscellaneous expense of Rs.3,08,876/-, written off in the books of a/c @ 1/5th of Rs.15,44,380/- (being the value of 2 ITA No.18/K/2010 M/s Long View Tea Co. Ltd. AY 2001-02

goodwill on amalgamation) as per the specific and binding direction in the Hon'ble Calcutta High Court's said order dt. 16.10.2001 by totally ignoring the Court's order and wrongly & unlawfully treating it as capital expenditures/loss.

The Ld. CIT(A) was also equally wrong and unjustified in not considering the Court's binding order and instead wrongfully restricting the disallowance to Rs.1,23,470/- only (being 40% of Rs.3,08,876/-) as per Rule 8 instead of allowing the full relief. Actions of the AO and the Ld. CIT(A) were wholly unreasonable, uncalled for and bad in law.

4. For that in view of the facts and circumstances of the case the Assessing Officer was wholly wrong and unjustified in disallowing the aforesaid miscellaneous expenses of (i) Rs.76,81,390/- and (ii) Rs.3,08,876/-, totally ignoring the Hon'ble Calcutta High Court's aforesaid order dt. 216.10.2001 approving the scheme of amalgamation of two companies with the transferee/amalgamated assessee company with specific and binding direction given to the assessee to write off the said expenses in 10 equal installments as miscellaneous expense. Action of the AO in disallowing the expenses and that of the Ld. CIT(A) in allowing partial relief were wholly unreasonable, uncalled for and bad in law."

3. Assessee also raised the issue of reopening but at the time of hearing Ld. counsel for the assessee under instruction of the assessee stated that he is not pressing the issue of reopening, hence same is dismissed as withdrawn.

4. Coming to the merits of the case. Brief facts of the case are that the assessee company for the relevant AY 2001-02 filed its return of income on 22.10.2001. The AO noticed during the course of assessment proceedings from P&L Account that the assessee has claimed miscellaneous expenses by claiming amortization of two expenses i.e. (i) 1/10th of advance and 1/5th of goodwill on amalgamation. The assessee explained that the scheme of amalgamation was approved by Hon'ble Calcutta High Court vide order dated 16.10.2001 in the Co. Petition No. 368 of 2001and CA No.221 of 2001. By virtue of this amalgamation scheme as approved by Hon'ble' High Court, Himadri Plantation Ltd. and Bihariji Fibres and Tea Industries Pvt. Ltd. got amalgamated with the assessee company w.e.f. 01.04.2000. The assessee claimed the said writing off in installments under the order of Hon'ble High Court and written off 1/10 th of expenses credited under the head miscellaneous expenses out of the total expenses of Rs.7,68,13,902/-. The AO noted that as per court's order all assets and liabilities of transferor companies got transferred into the book value except advance made by these parties. According to him, the advance got transferred at net realizable value and differential of book value of the advance and accordingly, realizable value was credited to the transferee account as miscellaneous expenses. According to AO, these misc.

3 ITA No.18/K/2010 M/s Long View Tea Co. Ltd. AY 2001-02

expenses is a capital item and to be disallowed. For this he recorded the following findings:

"The item credited in the balance sheet as 'miscellaneous expenditure' is a capital item, thus, amortization to this capital expenditure does not cover sec. 36(2) of as loss u/s. 28. It is not covered u/.s. 35D, neither can the assessee claim depreciation u/s. 32(1)(ii) treating it an intangible asset, as it does not have any interest value out of which income can be generated in future. Therefore, the sum of Rs.76,81,390/- is disallowed as revenue expenditure and to be reduced from total loss of non agricultural business of the assessee."

Similarly, in respect to the claim of goodwill, the assessee claimed that the transferor company issued preference shares worth Rs.21,27,400 in view of the amalgamation scheme. The net value of the assets, liabilities and miscellaneous expenditure, taken over by the transferee company, fell short by a sum of Rs.15,44,200/-. The assessee treated the differential amount as goodwill and clubbed it under the Balance Sheet item as Misc. Expenditure and amortized @ 1/5th. The assessee contended that this was an intangible asset. The AO not accepted the explanation of the assessee and made a disallowance to the amortized goodwill at Rs.3,08,876/-. Aggrieved on both the counts assessee preferred appeal before CIT(A), who also confirmed the action of the AO. Aggrieved, now assessee is in second appeal before the Tribunal.

5. We have heard rival contentions and gone through facts and circumstances of the case. At the outset, Ld. counsel for the assessee stated that this issue is squarely covered by the decision of Hon'ble Calcutta High Court in assessee's own case for AY 2002-03, where similar additions as deleted by the Tribunal was confirmed by Hon'ble' High Court, although in the proceedings u/s. 263 of the Act on merits. Ld. counsel for the assessee referred to the decision of Hon'ble' Calcutta High court in ITA No.25 of 2008 G.A No. 79 of 2008 for the AY 2002-03 vide order dated 21st February, 2008, wherein it is held as under:

"Heard learned Counsel for the appellant. Perused the order passed by the Tribunal. It appears to us that the Tribunal dealt with the matter extensively and specifically stated as follows:

"We have carefully considered the arguments of both the sides and perused the material placed before us. We find that the CIT has invoked jurisdiction on the premises that the AO had not made proper enquiries as to the sum of Rs.76,81,390/- of advance written off and Rs.3,08,876/- of goodwill arising on amalgamation being written off as miscellaneous expenditure is not allowable and as such the action of the AO rendered the assessment order bad in law and prejudicial to the interest of revenue. The fact of such advance written off 4 ITA No.18/K/2010 M/s Long View Tea Co. Ltd. AY 2001-02

and goodwill written off was duly disclosed by the assessee in the audited accounts and the AO after considering such material on record has taken one of the possible views. The allegation of the CIT was that the AO has not made a proper enquiry. In our considered opinion, the matter has no relevance since such claim was made by the assessee as per the order of the Hon'ble High Court and this fact was duly disclosed in the audited accounts and the AO after considering such material and after making the necessary enquiries passed the assessment order. The course adopted by the AO is certainly permissible in the law. Moreover, issue of advance written off and goodwill written off are definitely issues of which two views are possible. It has been held by the Hon'ble Supreme Court that if two views are possible on an issue and the AO had considered one of the views although the same may not have been elaborated in such order, the Ld. CIT would not be justified in setting aside the AO's order u/s.263 of the Income-tax Act. In this connection, the following observation of the Hon'ble Apex Court in the case of Malabar Industrial Co Ltd vs. CIT [243 ITR (SC)] is very relevant:-

"The phrase 'prejudicial to the interests of the Revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of the AO, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the Income-Tax Officer is unsustainable in law.'

In view of the above, we respectfully following the decision of the Hon'ble Apex Court in the case of Malabar Industrial Co Ltd (Supra) hold that the CIT was not justified in setting aside the assessment order dated 08.03.2005 passed u/s. 143(3) of the Act. We, therefore, quash the order passed by the CIT u/s/ 263 and restore the assessment order dated 08.03.2005."

In view of that we do not find that substantial question of law is involved in this matter. In our opinion the learned Tribunal has correctly came to the conclusion. Hence this application being ITA No. 25 of 2008 is dismissed."

We find that the issue is squarely covered as the same has been allowed in AY 2002-03 by the Tribunal and confirmed by Hon'ble High Court of Calcutta. Hence, this appeal of the assessee is allowed on both the issues.

6. In the result, appeal of assessee is partly allowed.

7. Order is pronounced in the open court on 13-05-2015.

Sd/- Sd/- (B. P. Jain) (Mahavir Singh) Accountant Member Judicial Member

Dated : 13th May, 2015 5 ITA No.18/K/2010 M/s Long View Tea Co. Ltd. AY 2001-02

*Dkp/P.S

Copy of the order forwarded to:

1. APPELLANT -M/s Long View Tea Co. Ltd., C/o. M/s Salarpuria Jajodia & Co. 7, C.R. Avenue, Kolkata-17.

2 Respondent - ACIT Circle-6, Kolkata Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700 072

3. The CIT(A), Kolkata

4. CIT Kolkata

5. DR, Kolkata Benches, Kolkata /True Copy, By order,

Asstt. Registrar.