Futura Bioplants Private Limited, Pune V. Deputy Commissioner of Income-tax, Circle - 1(2), Pune

CO 03/PUN/2020

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7733 (ITAT-PUNE)
• Duration Of Justice: 6 month(s) 25 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 31-08-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 05-02-2020
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AND CROSS OBJECTION
• Assessee Lawyers: EMANATE FROM
• Keywords: Business income; Depreciation; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH, A, PUNE VIRTUAL COURT BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER ITA NO. 1477/PUN/2017 / ASSESSMENT YEAR : 2014-15 DCIT, CIRCLE-1(2), PUNE VS. FUTURA BIOPLANTS PVT. LTD., 2413, EAST STREET, KUMAR CAPITAL, CAMP, PUNE 411 001 PAN : AABCF2544E APPELLANT RESPONDENT C.O. NO. 03/PUN/2020 / ASSESSMENT YEAR : 2014-15 FUTURA BIOPLANTS PVT. LTD., 2413, EAST STREET, KUMAR CAPITAL, CAMP, PUNE 411 001 PAN : AABCF2544E VS. DCIT, CIRCLE-1(2), PUNE CROSS OBJECTOR APPELLANT IN THE APPEAL / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE EMANATE FROM THE ORDER DATED 17-03-2017 PASS ED BY THE CIT(A)-1, PUNE IN RELATION TO THE ASSESSMENT YEAR 2014-15. ASSESSEE BY SHRI RAJAN VORA & SHRI RAJENDRA AGIWAL REVENUE BY MS. KESANG Y. SHERPA DATE OF HEARING 27-08-2020 DATE OF PRONOUNCEMENT 31-08-2020 ITA NO.1477/PUN/2017 & CO NO.03/PUN/2020 FUTURA BIOPLANTS PVT. LTD. 2 2. THE FIRST ISSUE RAISED BY THE REVENUE IN ITS APPEAL IS AGA INST THE LD. CIT(A) HOLDING INCOME OF RS.5,66,86,518/- AS AG RICULTURAL INCOME AS AGAINST THE ASSESSING OFFICER (AO) TREATING THE S AME AS BUSINESS INCOME. 3. SUCCINCTLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF AGRICULTURAL ACTIVITIES OF GROWING A ND SELLING THE FLOWER PLANTS MAINLY FOR EXPORT PURPOSE. A RETURN WAS FILED DECLARING TOTAL INCOME OF RS.62,69,340. DURING THE COU RSE OF THE ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSE SSEE EARNED TOTAL PROFIT OF RS.6.29 CRORE ON TOTAL SALES OF RS.18 .30 CRORE. AFTER MAKING CERTAIN ADJUSTMENTS, INCOME OF RS.5,66,86,5 18 WAS COMPUTED, WHICH WAS CLAIMED AS EXEMPT U/S.10(1) R.W.S. 2 (1A) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT). ON BEING CALLED UPON TO EXPLAIN AS TO WHY THE INCOME OF RS.5.66 CRORE SHOULD NOT BE TREATED AS BUSINESS INCOME, THE ASSESSEE FUR NISHED COPIOUS DETAILS STATING THE OPERATIONS CARRIED OUT BY IT VIZ., PURCHASE OF MOTHER PLANT; PREPARATION OF LAND; PROPAGATION O F LAND; AND CUTTING AND SALE OF PLANTS. THE ASSESSEE EXPLAINED THE ENTIRE PROCEDURE AND LODGED A CLAIM THAT THE INCOME WAS IN THE N ATURE OF AGRICULTURAL INCOME NOT CHARGEABLE TO TAX. THE AO DID NOT A CCEPT THE SAME AND CAME TO HOLD THAT THE INCOME WAS CHARGEABLE TO TAX AS ITA NO.1477/PUN/2017 & CO NO.03/PUN/2020 FUTURA BIOPLANTS PVT. LTD. 3 `BUSINESS INCOME AS THE ACTIVITIES OF PURCHASE OF MOTHER P LANTS AND SALE OF FLOWERS DEVELOPED THEREFROM, CARRIED OUT BY THE ASSESSEE DID NOT AMOUNT TO AGRICULTURAL ACTIVITIES. THE LD. CIT( A), RELYING ON THE ORDER PASSED BY HIS PREDECESSOR FOR A.Y . 2011-12, ALLOWED THE CLAIM OF THE ASSESSEE. THE REVENUE HAS APPRO ACHED THE TRIBUNAL AGAINST SUCH A POINT OF VIEW. 4. WE HAVE HEARD BOTH THE SIDES THROUGH VIRTUAL COURT AND G ONE THROUGH THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THA T AN IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNA L IN ASSESSEES OWN CASE FOR THE A.Y. 2011-12. A COPY OF THE ORDER PASSED BY THE TRIBUNAL HAS BEEN PLACED AT PAGE 1 ONWAR DS OF THE PAPER BOOK. THE TRIBUNAL HAS CONSIDERED THE NATURE OF A CTIVITY CARRIED OUT BY THE ASSESSEE AND AFTER TAKING INTO ACCOUNT EXPLANATION 3 TO SECTION 2 (1A), INSERTED BY THE FINANCE ACT, 2 009, HAS HELD THAT THE INCOME DERIVED BY THE ASSESSEE FROM SUC H ACTIVITY AS AGRICULTURE INASMUCH AS THE EXPLANATION 3 STATES THAT INCOM E DERIVED FROM SAPLINGS OR SEEDLINGS GROWN IN A NURSERY SHA LL BE DEEMED TO BE AGRICULTURAL INCOME. THE TRIBUNAL FURTHER RE LIED ON CBDT CIRCULAR NO.01/2009 DATED 27-03-2009 EXPLAINING THE RATIONALE OF EXPLANATION 3. IT IS SEEN THAT SIMILAR ISSUE ONCE A GAIN CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEE S OWN ITA NO.1477/PUN/2017 & CO NO.03/PUN/2020 FUTURA BIOPLANTS PVT. LTD. 4 CASE FOR A.Y. 2013-14. A COPY OF SUCH ORDER HAS ALSO BEEN PLACED ON RECORD IN WHICH THE EARLIER VIEW HAS BEEN REITERATED. TH E LD. DR FAIRLY CONCEDED THAT THE FACTS AND CIRCUMSTANCES OF THE INSTAN T CASE ARE MUTATIS MUTANDIS SIMILAR TO THOSE OF THE EARLIER YEARS. SINCE THE ISSUE UNDER CONSIDERATION IS FULLY COVERED BY THE ORDERS PA SSED BY THE TRIBUNAL FOR THE PRECEDING YEARS, RESPECTFULLY FOLLOWING THE PRECEDENT, WE COUNTENANCE THE VIEW TAKEN BY THE LD. CIT(A) . THIS ISSUE IS, THEREFORE, DECIDED IN FAVOUR OF THE ASSESSEE. 5. THE ONLY OTHER ISSUE WHICH SURVIVES IN THE APPEAL OF THE REVENUE IS AGAINST ALLOWING THE CLAIM OF DEPRECIATION. THE FA CTS ANENT TO THIS ISSUE ARE THAT THE ASSESSEE CLAIMED DEPRECIATION OF RS.1,64,49,002/- AS PER THE COMPANIES ACT AND AS PER THE INCOME- TAX ACT AT RS.1,41,61,226/-. SINCE THE AO TREATED THE SO-C LAIMED AGRICULTURAL INCOME AS BUSINESS INCOME, HE, THEREFORE, DIS ALLOWED DIFFERENTIAL DEPRECIATION (RS.1,64,49,002/- MINUS RS.1,41,6 1,226/-) AMOUNTING TO RS.22,87,776/- AND ADDED THE SAME TO THE TO TAL INCOME. THE LD. CIT(A) VACATED THE VIEW POINT OF THE AO. 6. HAVING HEARD BOTH THE SIDES AND GONE THROUGH THE RELEVA NT MATERIAL ON RECORD, IT IS FOUND THAT THE PRIMARY GROUND ON WHICH THE AO MADE DISALLOWANCE OF DEPRECIATION IS THAT OF CANVASSIN G THE ITA NO.1477/PUN/2017 & CO NO.03/PUN/2020 FUTURA BIOPLANTS PVT. LTD. 5 VIEW ABOUT THE INCOME OF RS.5.66 CRORE AS BUSINESS INCOME AS AGAINST AGRICULTURAL INCOME CLAIMED BY THE ASSESSEE. SINCE WE HAVE APPROVED THE OPINION OF THE LD. CIT(A), REVERSING THE VIEW OF THE AO ON THIS ISSUE, THE REASON FOR DISALLOWANCE OF DEPREC IATION TO THE ABOVE EXTENT, CEASES TO EXIST. SINCE THE ENTIRE INCOME F ROM OPERATIONS HAS BEEN HELD BY US AS AGRICULTURAL INCOME, THE F ORTIORI IS THAT THE FULL AMOUNT OF DEPRECIATION AT RS.1.64 CRORE SHOULD GET REDUCED FROM THE COMPUTATION OF AGRICULTURAL INCOME AND CONSEQUENTLY VALUE OF ASSETS FOR CARRYING FORWARD WRITTEN D OWN VALUE TO THE SUBSEQUENT YEARS. BE THAT AS IT MAY, THERE CAN BE NO ADDITION ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION FOR THE Y EAR UNDER CONSIDERATION. 7. THE FIRST FOUR GROUNDS TAKEN BY THE ASSESSEE IN ITS CRO SS OBJECTION ARE ONLY AGAINST THE OBSERVATIONS MADE BY THE AO IN TREATING INCOME FROM OPERATIONS AS BUSINESS INCOME AS AGAINS T AGRICULTURAL INCOME. IN VIEW OF OUR DECISION IN UPHOLDING THE IMPUGNED ORDER TREATING THE INCOME FROM BUSINESS OPERATIONS AS AGRICULTURAL INCOME, SUCH GROUNDS HAVE BEEN RENDERED ACA DEMIC IN NATURE. ITA NO.1477/PUN/2017 & CO NO.03/PUN/2020 FUTURA BIOPLANTS PVT. LTD. 6 8. THE ONLY OTHER ISSUE RAISED BY THE ASSESSEE IS AGAINST TH E CLAIM OF FOREIGN EXCHANGE GAIN HELD TO BE TAXABLE. 9. THE FACTUAL MATRIX OF THIS GROUND IS THAT THE ASSESSEE C REDITED A SUM OF RS.54,84,571/- TO ITS PROFIT AND LOSS ACCOUNT AS FOREIGN EXCHANGE FLUCTUATION GAIN. THE AO HELD SUCH GAIN TO BE IN THE NATURE OF BUSINESS INCOME. THE LD. CIT(A) RELIED ON THE O RDER PASSED BY HIS PREDECESSOR FOR THE A.Y. 2011-12 AND CA ME TO HOLD THAT THE FLUCTUATION GAIN OF RS.54,84,571/- WAS CHARGEABLE TO TAX. 10. HAVING HEARD BOTH THE SIDES AND GONE THROUGH THE RELEV ANT MATERIAL ON RECORD, IT IS SEEN THAT THE ASSESSEE FILED CROSS OBJECTION BEFORE THE TRIBUNAL FOR THE A.Y. 2011-12 AS WELL. THE TRIBUNAL MADE THE BIFURCATION OF FOREIGN EXCHANGE FLUCTUATION GAIN INTO FOUR PARTS, NAMELY, RELATING TO CAPITAL EXPENDITURE; REVENUE CREDITORS, REVENUE DEBTORS; AND REVALUATION AT THE YEAR-END (UNREALISED GAIN). IT HELD THAT THE FOREIGN EXCHANGE FLUCTUATION GAIN IN RELATION TO THE CAPITAL EXPENDITURE; REVENUE CREDITORS; AND REVALUATION AT THE YEAR-END WAS CHARGEABLE TO TAX. ONLY FOR EIGN EXCHANGE FLUCTUATION GAIN FROM REVENUE DEBTORS WAS HELD TO B E IN THE NATURE OF AGRICULTURAL INCOME AND HENCE, NOT TAXABLE. T HE LD. AR HAS PLACED ON RECORD SIMILAR DETAILS FOR THE YEAR UNDER ITA NO.1477/PUN/2017 & CO NO.03/PUN/2020 FUTURA BIOPLANTS PVT. LTD. 7 CONSIDERATION AT PAGE 160 OF THE PAPER BOOK. SINCE SUCH CLASSIFICATION OF THE FOREIGN EXCHANGE FLUCTUATION GAIN UNDER FO UR CATEGORIES BY THE ASSESSEE, AS PLACED ON RECORD AT PAGE 160 OF THE PAPER BOOK, HAVE BEEN EXAMINED NEITHER BY THE AO NOR BY THE CIT(A), WE SET-ASIDE THE IMPUGNED ORDER AND DIRECT THE A O TO CONSIDER TAXABILITY OF FOREIGN EXCHANGE FLUCTUATION GAIN FROM THESE FOUR ITEMS IN ACCORDANCE WITH THE VIEW CANVASSED BY THE TRIBUNAL IN ASSESSEES OWN FOR THE A.Y. 2011-12 AS DISCU SSED ABOVE. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED AN D THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST, 2020. SD/- SD /- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER V ICE PRESIDENT PUNE; DATED : 31 ST AUGUST, 2020 SATISH ITA NO.1477/PUN/2017 & CO NO.03/PUN/2020 FUTURA BIOPLANTS PVT. LTD. 8 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(APPEAL)-1 ,PUNE 4. 5. 6. THE PR. CIT-1, PUNE THE DR, ITAT, PUNE; / GUARD FILE A BENCH, PUNE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 27-08-2020 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 27-08-2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *