CIT- I Vs J K Paper Limited (Gujarat High Court)
Summary: The Gujarat High Court considered two Revenue appeals concerning M/S J K Paper Limited for Assessment Year 2004-2005. Tax Appeal No.290/2010 arose from the Tribunal’s order restricting the disallowance of agricultural loss, including depreciation, from Rs.78,12,884/- to Rs.9.43 lakh and deleting the larger adjustment of Rs.1,63,85,686/- while computing book profit under Section 115JB. Tax Appeal No.900/2012 concerned deletion of penalty under Section 271(1)(c). The assessee, engaged in manufacture and trading of pulp and board, operated a Social Forestry Division to facilitate continuous availability of bamboo and trees as raw material. The Assessing Officer treated the activities of raising and selling saplings as agricultural operations and, since agricultural income was exempt under Section 10(1), disallowed net expenditure of Rs.73,80,504/- and depreciation of Rs.4,32,380/-, aggregating Rs.78,12,884/-.
The Assessing Officer alternatively invoked Section 14A and also added Rs.1,63,85,686/- in computing book profit under Section 115JB. The CIT(A) substantially accepted the Revenue’s characterization of the Social Forestry activity as agricultural. Before the Tribunal, however, the assessee explained that its operations consisted of materially different components. Under the seed route, seeds were initially grown on land and thereafter transplanted into polybags; under the clonal route, coppice shoots were developed through artificial media and controlled mist chambers without use of soil.
