ITAT Allows Deduction for Expenses incurred on Replantation without any Expansion of Plantation Area or Re-plantation in an Abandoned Area [Read Order]

In the case between Assistant Commissioner of Income Tax and M/s Gillanders Arbuthnot & Co Ltd, Kolkata bench of Income Tax Appellate Tribunal (ITAT) recently held that expenses incurred on plants and for replantation without any expansion of plantation area or replantation in an abandoned area cannot be regarded as capital expenditure and the same would be termed as revenue in nature for the purpose of allowing tax deduction.

Assessee Company in the instant case engaged in the business of growing, manufacturing and sale of tea has duly filed its tax audit report along with the return of income for the relevant assessment year and the Assessee claimed the deduction of Rs. 67,12,313 incurred by the Assessee under the head nursery expenses.

While completing the assessment proceedings the Assessing Officer (AO) disallowed the claim of the Assessee by holding that the expenditure incurred was incurred to develop the nursery which is mainly intended to be used for a long-term purpose to provide plants and shady trees for tea gardens. Therefore, the expenditure was capital expenditure, accordingly, he added the same to the returns of the Assessee and the same was brought into tax also.

On appeal, the CIT(A) granted relief to the Assessee by deleting the addition made by the AO. The authority held that the assessee has incurred expenditure for re-plantation in the existing area and plants are grown in the nursery were used for replacement of dead plants within the plantation area in as much as if the plants are raised and maintained in a nursery for being utilized for the purpose of replantation without any expansion of the plantation area or replantation in an abandoned area, then it cannot be said to be a capital expenditure.

Thereafter, the Revenue approached the Tribunal on further appeal against the order passed by the authority.

After analyzing the above narrated facts and circumstances, of the issue the Tribunal bench comprising of Judicial Member N.V.Vasudevan and Accountant member Waseem Ahmed also upheld the order passed by the CIT(A) and held that “expenses were incurred on plants and for replantation without any expansion of plantation area or replantation in an abandoned area, the expenditure in question cannot be regarded as a capital expenditure and it should be treated as revenue expenditure and the Assessee in the present case is eligible to get deduction of the aforesaid amount on account of expenditure incurred on plants and replantation”. While concluding the issue the bench dismissed the appeal filed by the Revenue by holding the fact that there is no merit found on the ground raised by him.