ITAT allows depreciation on molasses tanks

Sasamusa sugar works Pvt. Ltd. Vs DCIT (ITAT Kolkata)

In respect of ground relating to claim of depreciation on molasses tanks for which the ld. CIT(a) had directed the AO to allow the depreciation after verification that the new plant & machinery were indeed put to use by the assessee. Assessee has come before the Tribunal seeking clarity on the direction given by the ld. CIT(A) to the AO. Ld. Counsel of the assessee submitted that the claim for depreciation on molasses tanks was made before the ld. AO which was not considered in proper perspective. He pointed out that detailed explanation was again submitted before the ld. CIT(A) on the claim of depreciation on molasses tanks which is reproduced as under:

Ld. Counsel placed reliance on the decision of Co-ordinate Bench of ITAT, Kolkata in the case of Vishnu Sugar Mills Ltd. (supra) wherein depreciation on molasses tanks was allowed to the assessee. In the light of these submissions and claim of the assessee, we further direct the AO to allow the claim of the assessee on depreciation on molasses tanks by making the correct computation in respect of new assets and the correct written down value (WDV) of the molasses tanks, considering the submissions placed on record. The assessee is already directed to furnish all the details and documentary evidences in support of its claim for due verification by the ld. AO to assist him in arriving at the correct amount of depreciation allowable on the molasses tanks. Accordingly, this ground of the assessee is allowed for statistical purposes. Thus cross-objection of the assessee is partly allowed.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

This cross-objection by the assessee is arising out of the appeal filed by the revenue in ITA No. 2312/Kol/2016 against the order of ld. CIT(A)-4, Kolkata in ITA No. 325/CIT(A)-4/Circle-10(2)/Kol/15-16 dated 20.10.2016 which in turn was against the assessment order passed by DCIT, Circle – 10(2), Kolkata u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the ‘Act’) dated 17.03.2015.

2. It is worth noting that the appeal filed by the revenue in ITA No. 2312/Kol/2016 was disposed of by the Co-ordinate Bench of ITAT, Kolkata vide order dated 15.10.2019 on the ground of low tax effect in terms of CBDT Circular No. 17/2019 dated 08.08.2019. Cross-objection filed by the assessee against the appeal by the Revenue was adjourned which has come up for hearing before the Bench. We note that Cross-objection is an independent appeal under Rule 22 of the Income-tax (Appellate Tribunal) Rules, 1963 (ITAT Rules) which is reproduced as under –

22. A memorandum of cross-objections filed under sub-section (4) of section 253 shall be registered and numbered as an appeal and all the rules, so far as may be, shall apply to such appeal. [emphasis supplied by us by underline]

2.1. The Cross-objection involves substantial relief which is not meant only to support order of ld. CIT(A) about the relief allowed. The Cross-objection has been admitted as an appeal which warrants its due adjudication. The grounds of cross-objection filed by the assessee were directed to be submitted in concise form which is placed on record vide letter dated 19.08.2019. Accordingly, the revised and concise grounds of cross-objection to be adjudicated upon are reproduced as under:

A. Grounds to support order of CIT(A):

1. Learned CT (A) has rightly deleted addition in respect of liabilities for business expenses amounting to Rs.69,54,123/- , the order of Ld. CIT(A) may be confirmed on this issue. (original ground no.A.1)

B. Grounds to seek further relief:

1) For that Ld. CIT(A) has passed order denying relief claimed, without full and proper consideration of facts and circumstances, details, written submissions and binding precedence relied on by the assessee further Ld. CIT(A) did not apply rule to apply view in favour of assessee. (original ground B.1)

2) For that Ld. CIT(A) was wrong in dismissing ground no. 4 and 5 before him and confirming wrong invocation of section 115JB although:

a. There is no computation of gross total income (GTI), deductions from GTI, total income and tax payable hence preconditions for invoking S.115JB are not full filled, and

b. The assessee is not a dividend paying company hence S.115JB is not applicable.

Therefore S. 115JB is not at all applicable, Ld. AO may be directed not to invoke S.115JB. (Original ground no. B. 2 and 3).

3) Without prejudice to ground no 1 and 2, Ld. CIT(A) erred in confirming addition of Rs. 46,60,000/-, being statutory contribution to Molasses Reserve, in book profit, under section 115JB. The adjustment so made in book profit by AO may be deleted. (original ground no.B.4)

4) For that Ld. CIT(A) was wrong in not at all considering the following additional ground filed before him:

“For that learned AO may be directed to allow a deduction of Rs.60,30,936/ (Rupees Sixty lac thirty thousand nine hundred thirty six only) being 1/3 of value of stock of molasses credited in P & L account for PYE 31/03/2012, from income of AY 2012­13.”

Therefore, Ld. AO may be directed to allow deduction of Rs.60,30,936/- in computation of normal income and book profit (this is without prejudice to Ground B.2 and B.3) as the amount is not in nature of profit of assessee but diverted at source and also is allowable as expenditure. (Original grounds no. 5 and 6).

5) For that CIT(A) was wrong in confirming disallowance of Rs.34,000/- being petty contributions to local institutions and people, totaling Rs.33,400 (R/O to 34000 in P &L a/c). The disallowance may be deleted. (original ground no. 7)

6) For that Ld. CIT(A) has restored to the Ld. A0, issue relating to depreciation allowance vide ground no. 7 & 8, before him, but there is lack of clarity, Ld. A.O has not considered restored issues while giving effect to the order of Ld. CIT(A). Therefore, Ld. A.O may be directed to allow relief by way of depreciation allowable, correctly on (A) new assets and (b) on correct WDV of molasses tanks, as claimed before lower authorities.

7) For that appellant seeks kind permission of the Hon’ble Tribunal, to raise new contentions and new grounds of appeal, if required, in interest of justice.

3. Before us, Shri D.K. Kothari, AR represented the assessee and Smt. Ranu Biswas, ACIT represented the Revenue.

4. Brief facts of the case are that assessee is a limited company and is in the business of manufacturing of sugar. It has its registered office at Kolkata and factory at Sasa Musa, Dist. Gopalganj, Bihar. Assessee filed its return of income on 30.09.2014 reporting total income as ‘nil’. Statutory notices were issued which were complied by the assessee. In the course of assessment proceedings, ld. AO asked the assessee to furnish working of book profit under the provisions of section 115JB of the Act, to which assessee submitted that it is not liable to pay tax on book profit and the provisions of section 115JB of the Act are not applicable in its case. Ld. AO determined the business income at Rs. 20,12,960/- after making certain additions and disallowances. Assessee had reported a loss of Rs. 49,75,164/- and claimed it as carry forward to be set off in subsequent years. While completing the assessment, the ld. AO did not set off past losses and held that tax computed on total income on book profit u/s 115JB is higher than the tax computed under the normal provisions and, therefore, the assessee is required to pay tax on the book profit u/s 115JB of the Act.

5. Aggrieved, assessee went into appeal before the ld. CIT(A).

6. In the appellate proceedings before the ld. CIT(A), assessee submitted that when there is no computation of gross total income (GTI), claim of deductions, total income and tax payable, the provisions of section 115JB of the Act are not applicable. It was also submitted that while computing the normal business income of the assessee, ld. AO did not set off past losses. It was further submitted without prejudice that when the past losses are set off, there will be business loss which will have to be kept apart and carried forward. In such a situation it was submitted that there will be no computation of GTI, no allowance of any deduction under Chapter VIA, no computation of total income and the tax payable on the total income will not arise, and, therefore, the computation provisions will not be applicable. It was also contended that the present issue on applicability of section 115JB in the case of the assessee had already attained finality by the order of Co­ordinate Bench of ITAT, Kolkata in assessee’s own case for assessment year 2003-04 in ITA No. 2014/Kol/2007, dated 28.09.2007. The assessee also relied on the decision of Co-ordinate Bench of ITAT, Kolkata in the case of CIT vs Vishnu Sugar Mills Ltd. which was affirmed by Hon’ble Jurisdictional High Court of Calcutta in ITA No. 359 of 2006 dated 20.11.2006. However, the ld. CIT(A) did not find favour with the submissions made by the assessee and dismissed the ground raised on this issue. In respect of claim of depreciation on molasses tank, the ld. CIT(A) directed the AO to allow depreciation after verifying that the new plant & machinery were indeed put to use by the assessee which otherwise was disallowed by the ld. AO. On the issue of disallowance made by the ld. AO of Rs. 34,000/- incurred towards charity and donation, the ld. CIT(a) confirmed the addition made by the AO and dismissed the ground.

7. Aggrieved, the assessee is in appeal before the Tribunal.

8. We note that ld. counsel has submitted paper books in three volumes which are placed on record. A synopsis for each of the ground taken in the cross-objection is also placed in the paper book at page no. 194 to 196. Considering the said synopsis, we deal with each of the ground in the cross-objection as under:

8.1. Ground No. 1 is general in nature and, therefore, is not adjudicated upon. On ground no. B.2.a, in respect of non-applicability of provisions of section 115JB of the Act, ld. counsel reiterated the submissions made before the authorities below which are not reproduced for the sake of brevity. Ld. Counsel however placed reliance on the recent judgment of Co-ordinate Bench of ITAT, Kolkata in the case of The United Provinces Sugar Co. Ltd. vs ITO in ITA No. 1956/Kol/2018 for A.Y. 2013-14 dated 01.04.2021 which has dealt on the identical issue. Ld. Counsel laid emphasis on the contention that the authorities below ought to have followed the binding precedents, rule of consistency and applied view in favour of the assessee to allow the claim and not to deny the relief by ignoring the binding precedents. He also submitted that there are no contrary judgments which require application of section 115JB on the fact pattern which exists in the case of the assessee. He further submitted that ld. DR also has not filed any such judgment to counter the claim of the assessee.

9. On confrontation of these submissions made by the ld. Counsel of the assessee to the ld. Sr. DR, nothing contrary was put forth. From the submissions made by the ld. Counsel and perusing the judicial precedents, we note that pre-conditions to invoke for application of section 115JB of the Act are that there should be computation of GTI, allowance of deductions under Chapter VIA, computation of total income and tax payable thereon. We also note that rules for computation of total income and the charging provision u/s 115JB are integral provisions and if the computation is not made as per the computation provisions, the charging section also cannot be applied. The computation of total income and tax and the explanation furnished by the assessee is placed on record in paper book at page no. 31. Computation of income is reproduced as under:

9.1 From the above computation, we note that there is no computation of GIT since there is loss of Rs. 49,75,164/- towards unabsorbed depreciation which is kept apart for carry forward. Therefore, there is no deduction which has been claimed to arrive at total income which is reported at Nil. From the perusal of order of Co­ordinate Bench of ITAT, Kolkata in assessee’s own case for A.Y. 2003-04 (supra), we note that the issue is squarely covered by the said decision. The said decision is reproduced as under which is placed at page no. 116 to 117 of the paper book:

“The assessee has filed this appeal against the order of the Ld. CIT(A) dated 27.12.2006 for the assessment year 2003-04 on the following grounds:

1. For that Ld. CIT(A) was wrong in dismissing the appeal of the assessee by not following the binding judgment of the Calcutta High Court in the case of Vishnu Sugar Mills Ltd. approving order of ITAT, in which it has been held that when there is no Gross Total income, total income and any tax is not payable, s. 115JB will not be applicable. Furthermore, the Ld. CIT(A) dismissed ground simply stating that facts are different without pointing out any difference and ignoring the fact that as per return and assessment order there is no gross total income, total income and no tax is payable on normally computed income.

2. For that ld. Assessing Officer may be directed not to apply section 115JB since there is no gross total income, no total income and no tax payable and therefore, preconditions to apply section 115JB are not satisfied and in view of the judgment of the Calcutta Tribunal in case of Vishnu Sugar Mills Ltd. which has been approved by the Calcutta High Court section 115JB is not applicable in assessee’s case for the year under consideration (copy of relevant portion for orders is enclosed with appeal memo)

3. For that Ld. CIT(A) also erred in not directing the AO to exclude capital receipts from book profit as per binding judgments of Calcutta ITAT in case of Balrampur Chini Mills Ltd. and Pratappur Sugar Ind. Ltd. Against which the appeals of revenue have also been dismissed by the Calcutta High Court.

4. For that ld. AO may be directed to exclude the amount of capital receipt (credited in the profit & loss account) in view of judgments of Calcutta ITAT in case of Balrampur Chini Mills Ltd. and Pratappur Sugar Ind. Ltd.”

2. Facts of the case are that the business of the assessee company was production and sale of sugar and its by-product molasses. The assessee filed its return showing nil income on I.12.2003. The return was processed u/s 143(1) on 20.4.2004. The case was selected for scrutiny. Notices u/s. 143(2) and 142(1) alongwith a questionnairc were issued. The Assessing Officer observed in this case that the assessee while computing book profit had reduced capital receipt on account of expansion of sugar mill under sugar incentive scheme, 1993 of Rs.10,60,588/-. The Assessing Officer did not accept the ass essee’s contention in respect of reducing the capital receipt following the judgment of the Hon’ble Supreme Court in the case of Apollo Tyres Ltd. -Vs- CIT 255 ITR 273, Therefore, he completed the assessment determining income u/s. 115JB. Aggrieved by the order of the Assessing Officer the assessee preferred appeal before the Ld. CIT(A). The Ld. CIT(A) in First appeal, confirmed the action of the Assessing Officer.

3. At the time of hearing the Ld. Counsel for the assessee submitted that the issue involved in this case is covered by the order of the Hon’ble Calcutta High Court in the case of CIT Vs- Vishnu Sugar Mills Ltd. dated 20.11.2006 in IT A No. 359 of 2006 and he, therefore, did not press the alternate pica taken by him by ground nos. 3 and 4.

4. The Ld. Departmental Representative did not controvert this submission of the Ld. Authorized Representative of the assessee.

5. We have heard both the parties, perused the material available on record and judgment of the Hon’ble Calcutta High Court. We find that since there is no gross total income, no total income and -no tax payable and therefore, preconditions to apply Section115JB were hot satisfied and in view of the judgment of the Calcutta Tribunal in case of Vishnu Sugar Mills Ltd. which has been approved by the Hon’ble Calcutta High Court, section 115JB is not applicable in assessee’s case for the year under consideration so, respectfully following the aforesaid judgment of the Hon’ble Calcutta’ High Court, we do not find any merit in upholding the action of the Assessing Officer by the Ld. CIT(A) in applying section 115JB to compute the book profit. Accordingly, the appeal of the assessee is allowed.-“

9.2. Further we note that identical issue was dealt by the Co-ordinate Bench of ITAT, Kolkata in the case of Vishnu Sugar Mills Ltd. vs DCIT in ITA No. 873/Cal/1996 dated 31.08.2001 placed in the paper book at page no. 70 to 73 which was affirmed by Hon’ble Jurisdictional High Court of Calcutta in ITA 359 of 2006, dated 20.11.2006. The relevant extract from the order of Hon’ble Jurisdictional High Court of Calcutta is reproduced as under:

“We have perused the order passed by the Tribunal. It appears that the Tribunal has extensively dealt with the matter. We do not find that any substantial question of law is involved which is required to be decided by this Court. We, therefore, do not find any reason to admit the application. Hence, this application is dismissed.”

9.3. We also note that the Co-ordinate Bench of ITAT, Kolkata in a recent decision in the case of The United Provinces Sugar Co. Ltd. (supra) vide order dated 01.04.2021 has dealt with the identical issue by holding that “the issue whether book profits can be computed u/s 115JB of the Act, when the GTI and total income of the assessee are Nil and no taxes payable, is adjudicated in favour of the assessee, respectfully following the decision of Hon’ble Jurisdictional High Court on this issue.”

9.4. Considering the facts on record and respectfully following the binding judicial precedents including that in the assessee’s own case all of which referred above, we hold that provisions of section 115JB of the are not applicable in the case of the assessee when the GTI and total income of the assessee are Nil and no taxes payable. Accordingly, the ground of appeal of the assessee is allowed.

10. Coming to ground no. B.2.b where the assessee has claimed that it is not a dividend paying company and, therefore, for this reason also section 115JB is not applicable, ld. Counsel of the assessee placed reliance on the decision of Co-ordinate Bench of ITAT, Kolkata in the case of Neeraj Vanijya Pvt. Ltd. vs ITO in ITA No. 1504/Kol/2008 for A.Y. 2005-06, dated 31.10.2008. We find that the contention of the assessee is covered by the said decision and respectfully following the same, we allow this ground in favour of the assessee.

11. Ground no. B.3 relates to addition made in respect of contribution to molasses reserve while arriving at book profit u/s 115JB. Since we have already dealt with the issue relating to applicability of section 115JB in the case of assessee whereby we have held that it is not applicable, this ground become infructuous and accordingly is disposed off as infructuous.

12. For ground no. B.4, assessee has submitted it as not pressed. Accordingly, this ground is disposed off as not pressed by the assessee.

13. In respect of ground no. B.5 for addition of Rs.34,000/-, assessee claimed that these expenses includes small contributions to local people and institution on request of employees and business associates which are allowable as business expenses u/s 37(1) of the Act. Ld. Counsel submitted that inadvertently these were accounted under the head ‘charity and donation’ in the books of account which cannot be the basis for their disallowance. He also submitted that similar expenses have been allowed in the preceding years. Further, details of these expenses is placed on record at page 43 of the paper book which is reproduced as under –

13.1 From the details above furnished by the assessee, we note that the expenses are towards the community and social welfare activities which have taken place in the vicinity of work area of the assessee but the ld. AO is of the view that this expenditure is not related to the business and disallowed this claim. Section 37 of the Act contemplates that any expenditure not being expenditure of the nature described in sections 32 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly and exclusively for the purpose of the business or profession shall be allowed in computing the income chargeable under the Head “Profits & Gains of Business or Profession”. To our mind, ld. AO failed to appreciate the nature of business of the assessee and the surrounding social environment where it has been carrying out its business. From the details tabulated above, giving particulars for each of the payments totaling to Rs.34,000/-, we do not find any merit in the basis adopted by the authorities below to disallow the claim of the assessee. We, accordingly, delete the addition and allow the ground of cross-objection.

14. In respect of ground no. B.6 relating to claim of depreciation on molasses tanks for which the ld. CIT(a) had directed the AO to allow the depreciation after verification that the new plant & machinery were indeed put to use by the assessee. Assessee has come before the Tribunal seeking clarity on the direction given by the ld. CIT(A) to the AO. Ld. Counsel of the assessee submitted that the claim for depreciation on molasses tanks was made before the ld. AO which was not considered in proper perspective. He pointed out that detailed explanation was again submitted before the ld. CIT(A) on the claim of depreciation on molasses tanks which is reproduced as under:

“Depreciation on Molasses Tanks:

Storage Reserve is under separate law, and it has nothing to do with cost of Molasses Tank. However, in view of past assessments we have reduced depreciation on Molasses Tanks from our depreciation claim. Please allow depreciation on correct WDV after considering only the amount of depreciation actually allowed in earlier years, if any. There has not been any release from molasses storage tank fund by the concerned authorities. As depreciation has not been claimed / allowed the actual cost may be carried forwarded as W.D.V. for allowing depreciation in future. Molasses storage tank reserve amount is diverted at source by way of overriding title as held by the Supreme Court. Therefore, depreciation on molasses tanks is allowable because entire cost has been met by us. We claimed and AO allowed depreciation till assessment year 1988-89 and thereafter depreciation was not claimed and allowed, although, details were furnished in depreciation chart every year and amount allowable on molasses tank disallowed by reducing total depreciation allowable. Therefore, written down value c/f from assessment year 1988-89 and cost of additions for molasses tanks added thereafter is WDV eligible for depreciation allowance. The information is as follows:

14.1 Ld. Counsel placed reliance on the decision of Co-ordinate Bench of ITAT, Kolkata in the case of Vishnu Sugar Mills Ltd. (supra) wherein depreciation on molasses tanks was allowed to the assessee. In the light of these submissions and claim of the assessee, we further direct the AO to allow the claim of the assessee on depreciation on molasses tanks by making the correct computation in respect of new assets and the correct written down value (WDV) of the molasses tanks, considering the submissions placed on record. The assessee is already directed to furnish all the details and documentary evidences in support of its claim for due verification by the ld. AO to assist him in arriving at the correct amount of depreciation allowable on the molasses tanks. Accordingly, this ground of the assessee is allowed for statistical purposes. Thus cross-objection of the assessee is partly allowed.

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