ACIT, Chandigarh V. M/s Punjab Agro Foodgrains Corpn. Ltd., Chandigarh

ITA 1182/CHANDI/2011

• Counselvise Citation: 118221514 RSA 2011
• Duration Of Justice: 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 07-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GURMEET SINGH
• Assessee Lawyers: JAI SHREE SHARMA
• Keywords: Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 1182/CHD/2011 ASSESSMENT YEAR: 2007-08 ACIT, CIRCLE 4(1), V PUNJAB AGRO FOODGRAINS CHANDIGARH. CORPN. LTD., PLOT NO. 2A, SECTOR 28-A,CHANDIGARH. PAN: AADCP-1290P (APPELLANT) (RESPONDENT) APPELLANT BY : S/SHRI GURMEET SINGH & NEERAJ JAIN RESPONDENT BY : SMT. JAISHREE SHARMA DATE OF HEARING : 24.01.2012 DATE OF PRONOUNCEMENT : 8.2.2012 ORDER PER MEHAR SINGH, AM THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T ORDER OF CIT(A) CHANDIGARH PASSED U/S 250(6) OF THE INCOME-TAX ACT,1961 (IN SHORT 'THE ACT') DATED 03.0 9.2011 RELATING TO ASSESSMENT YEAR 2007-08, WHEREBY FOLLOW ING THE ORDER OF THE ITAT, CHANDIGARH IN ITA NO. 614/CHD/20 08 (A.Y. 2005-06), THE APPEAL OF THE ASSESSEE WAS ALLO WED AND ADDITION OF RS.55,12,000/- WAS DELETED. 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLO WING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN TREATING TH E EXPENDITURE ON DEVELOPMENT OF LAND AS OF REVENUE NATURE AND THEREBY DELETING ADDITION OF 2 RS.55,12,000/- MADE BY THE AO BY TREATING THAT EXPENDITURE OF CAPITAL NATURE. 2. IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SE T ASIDE AND THAT OF THE AO MAY BE RESTORED. 3. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUND OF APPEAL BEFORE THE APPEAL IS HEARD OR IS DISPOSED OFF.. 3. IN THE COURSE OF PRESENT APPELLATE PROCEEDINGS B EFORE THE BENCH, LD. 'AR' CONTENDED THAT SINGLE SUBSTANTI VE GROUND OF APPEAL IS COVERED BY THE DECISION OF THE ITAT, CHANDIGARH TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO. 614/CHD/2008 AND ITA NO. 202/CHD/2010 ASSESSMENT YEAR 2006-07. LD. 'DR' WAS FAIR ENOUGH TO STATE THAT THE ISSUE IS COVERED BY T HE DECISION OF THE TRIBUNAL, AS CONTENDED BY LD. 'AR'. THE RELEVANT PART OF THE ORDER OF THE TRIBUNAL IS REPRO DUCED HEREUNDER : 6. WE HAVE PERUSED THE ORDER OF ASSESSMENT, FINDIN GS OF THE CIT(A) AND' THE MATERIAL PLACED ON RECORD. THE FACTS AS EMERGING ARE THAT THE APPELLANT COMPAN Y HAD BEEN LEASED A LAND BY GOVERNMENT OF PUNJAB FOR THE PURPOSE OF CARRYING OUT VARIOUS FARMING ACTI VITIES INCLUDING DEVELOPMENT OF NEW CROPS TO SUPPORT FARME RS OF THE STATE OF PUNJAB. MOREOVER, THE LAND WAS A LSO TO BE USED FOR MULTIPLICATION OF SEEDS TO BE DISTRIBUT ED TO THE VARIOUS FARMERS IN THE CONTRACT FARMING PROGRAMMES. THE LAND GIVEN TO THE APPELLANT WAS UND ER A LEASE DOCUMENT, COPY OF THE FILE NOTING OF THE P UNJAB GOVERNMENT DATED 28.07.2005 HAS BEEN ANNEXED TO TH E ASSESSMENT ORDER, WHOSE RELEVANT PORTION I S EXTRACTED 3 HEREUNDER : THE LAND SITUATED AT LUDHOWAL FARM LUDHIANA BELONGING LO PUNJAB LAND DEVELOPMENT RECLAMATION CORPORATION USED TO THE FERTILE LAND FEW YEARS AGO . AT THAT TIME PUNJAB AGRICULTURAL UNIVERSITY USED TO GET ITS SEED MULTIPLICATION PROGRAMME IMPLEMENTED IN 250 ACRES OF LAND AND SOME OF 'THE LAND WAS BEING USED BY PLDRC FOR SOME TIME. SINCE LAST FEW YEARS ADJOINING FARMERS STARTED ENCROACHING UPON THE LAND FROM- MAY SIDES. PUNJAB AGRO FOODGRAINS CORPORATION LIMITED STARTED CONTRACT FRAMING IN 2002-03 AND THE CASE WA S' SENT TO THE GOVERNMENT FOR ALLOTTING THIS LAND ON L ONG- TERM LEASE BASIS/RENT BASIS TO PAFC FOR ITS CONTRAC T- FRAMING PROGRAMME. HOWEVER WAITING FORMAL ORDERS PUNJAB AGRO FOODINGS CORPORATION LIMITED STARTED IT S SEED MULTIPLICATION PROGRAMME ON THIS LAND. .. . IN THE CASE, ALTHOUGH THE CURRENT COST OF LEASING THE LAND OF THIS FARM WAS REPORTED TO BE AROUND RS. SOO O/-- PER ACRE PER ANNUM, THE PRICE WAS REDUCED TO RS. 2000/- PER IACRE PER ANNUM FOR REASONS THAT : (I) THE LESSEE HAS TO INVEST HEAVILY IN THE PROJECT; (II) THE PROJECT ITS ELF INVOLVES RESEARCH INTO NEW TECHNOLOGIES, THE DEVELOPMENT OF FRESH VARIETIES PLUS ALL THE VARIOUS ELEMENTS CONDUCIVE TO SYSTEMATIC PROCUREMENT AND MARKETING OF AGRICULTURA L PRODUCE AND IS, THEREFORE, IN THE PUBLIC INTEREST; A ND (IH) THE LAND IS LYING MORE OR LESS FALLOW AND IS NOT BEING PUT TO ANY ALTERNATIVE USE. THESE SAME REASONS APPLY TO TH E UTILIZATION OF LAND BY PAIC AND PAFC AS WELL. THERE FORE, .THEY MAY ALSO TAKE THE LAND ON LEASEHOLD BASIS ON THE SA ME TERMS AND CONDITIONS. 4 7. A BARE PERUSAL OF THE ABOVE NOTINGS OF THE P UNJAB GOVERNMENT WOULD SHOW THAT, THE LAND LEASED TO THE APPELLANT WAS NOT A BARREN LAND THOUGH IT IS SAID T O BE LYING FOLLOW AND NOT BEING BUT TO ALTERNATIVE USE. THE ENTIRE 'CASE OF THE CIT(A) IS BASED ON THE ASPECT THAT THE ASSESSEE HAS CONVERTED A BARREN LAND INTO A FERTILE LAND AND THUS IN RESULTS IN BENEFIT OF ENDURING NATURE IN CAP ITAL FILED. THERE IS NOTHING ON RECORD TO SUGGEST THAT THE LAND WAS BARR EN, HENCE THE ORDER OF THE CIT(A) IS UNSUSTAINABLE. THE LAND NOT BEING PUT TO ALTERNATIVE USE MAY REQUIRE A SPECIAL E FFORT ON THE PART OF ASSESSEC INITIALLY BUT ALL SUCH ACTIVI TIES ARE TO BE VIEWED HAVING BEEN CARRIED OUT IN THE COURSE OF FARMING ACTIVITY. DURING THE YEAR UNDE R CONSIDERATION, THE TOTAL LAND CULTIVATED BY THE APPELLANT OUT OF THE LAND LEASED WAS TO THE EX TENT OF 94 ACRES IN KHARIF SEASON AND -499 ACRE S IN RABI SEASON. THE APPELLANT INCURRED AN AGGREGATE EXPENDITURE OF RS.38,17,738/- ON DEVELOPMENT OF LAND IN THE YEAR UNDER CONSIDERATION AND EARNED A GROSS RECEIPT OF RS.4,86,750/-. THE AO HELD THAT OUT OF THE ABOVE EXPENDITURE OF RS.38.17 LACS, ONLY A SUM OF RS.4.43 LACS INCURRED IS REVENUE EXPENDITURE AND THE BALANCE IS CAPITAL EXPENDITURE . IN THE OPINION OF THE AO, SUM OF RS. 2.43 LACS IS CONSIDERED REASONABLE OUT OF LABOUR EXPENSES AND TRACTOR H IRING CHARGES OF RS. 17.16 LACS AND RS. 9.72 LACS RESPECTIVELY FOR FARMING ACTIVITIES DONE DURING T HE YEAR AS THE SAME IS COMMENSURATE FOR GETTING RECEIPTS OF RS. 4.86 LACS. FURTHER, ADDITIONAL RS.2 LACS WAS ALLOWED TO COVER VARIOUS EXPENDITURE RELATING TO STAFF PAYMENT AND 5 ACTIVITIES OF THE ASSESSEE COMPANY. THE ABOVE APPR OACH ADOPTED TO DISALLOW THE EXPENDITURE IS APPARENTLY WITHOUT ANY BASIS AND, THEREF ORE, IN VIEW OF THE JUDGMENT OF THE APEX COURT IN THE CASE OF MAHARAJA B.P. SINGH DEO VS. .SLATE OF ORISSA REPORTED IN 76 1TR 690, THE SAME IS UNSUSTAIN ABLE. 8. EVEN OTHERWISE, IT IS WELL-ESTABLISHED PRINCIPLE OF LAW THAT THE QUESTION OF EXPENDITURE BE ING OF CAPITAL NATURE OR REVENUE NATURE WILL DEPEND ON TH E FACTS AND CIRCUMSTANCES OF EACH CASE. NO STRICT NORMS CAN BE SETTLED TO DECIDE THE' ISSUE IN A PARTICULAR CASE. THE SAME IS TO BE DE CIDED IN THE PECULIARITIES AND CIRCUMSTANCES OF EACH CASE AND ON APPLICATION OF BROAD PRINCIPLES PRONOUNCED BY THE HIGHER COURTS FROM TIME TO TIME. THE GENER AL PRINCIPLES, WHICH EMERGE FROM THE TWO LANDMARKS JUDGEMENTS OF HON'BLE APEX COURT \'S ALEMBIC CHEMICAL WORKS CO, LTD. V C1T 177 1TR 377 (SC) AND IN EMPIRE JUTE CO. LTD. V C1T 124 1TR 1 (SC) C AN BE ENUMERATED AS UNDER:- (A) THERE MAY BE CASES WHERE EXPENDITURE, EVEN IF INCURRED FOR OBTAINING AN ADVANTAGE OF ENDURING BENEFIT, MAY, NEVERTHELESS, BE ON REVENUE ACCOUNT AND THE TEST OF ENDURING BENEFIT MAY BREAK DOWN. (B) IT IS NOT EVERY ADVANTAGE OF ENDURING NATURE ACQUIRED BY AN ASSESSEE THAT BRINGS THE CASE WITHIN THE PRINCIPLE LAID DOWN IN THE ENDURING BENEFIT TEST. (C) IF THE ADVANTAGE CONSISTS OF MERELY IN FACILITATING THE ASSESSEE'S TRADING OPERATIONS OR 6 ENABLING THE MANAGEMENT OR CONDUCT OF ASSESSEE'S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT , EVEN THOUGH THE ADVANTAGE MAY ENDUR E FOR AN INDEFINITE PERIOD. (D) THE TEST OF- ENDURING BENEFIT IS NOT CONCLUSIVE - TEST AND CANNOT BE APPLIED BLINDLY AND MECHANICALLY WITHOUT REGARD TO PARTICULAR FACTS AND CIRCUMSTANCES OF' A GIVEN CASE. (E) OUTGOINGS ON ACCOUNT OF CAPITAL OR REVENUE DEPEND ON PRACTICAL AND BUSINESS POINT OF VIEW RATHER THAN UPON JURISTIC CLASSIFICATION OF THE LEGAL RIGHTS, IF ANY, ' SECURED, 'EMPLOYE D OR EXHAUSTED IN THE PROCESS AND THE QUESTION MUST BE VIEWED IN THE LARGER CONTEXT OF BUSINESS NECESSITY OR EXPEDIENCY. (F) IN THE INFINITE VARIETY OF SITUA TIONAL DIVERSITIES IN WHICH THE CONCEPT' OF WHAT IS CAPITAL EXPENDITURE AND WHAT -IS REVENUE ARISES, IT IS WELL HIGH IMPOSSIB LE' TO FORMULATE ANY GENERAL RULE, EVEN IN (HI GENERALITY OF CASES, SUFFICIENTLY ACCURATE A ND REASONABLY COMPREHENSIVE, TO DRAW ANY CLEA R LINE OF DEMARCATION. HOWEVER, SOME BROAD A ND GENERAL TESTS -HAVE BEEN, SUGGESTED FROM TIME TO TIME TO ASCERTAIN ON WHICH SIDE OF THE L INE OF OUTLAY IN AM/ PARTICULAR CASE MIGHT REASONABLY BE HELD TO FALL. THESE TESTS ARE EFFICACIOUS AND SERVE, AS USEFUL SERVANTS; BU T AS MASTERS THEY TEND TO BE OVER EXACTING. (G) THE IDEA OF 'ONCE FOR ALL' PAYMENT AND 'ENDURING BENEFIT' ARE NOT TO BE TREATED AS SOMETHING AKIN TO STATUTORY CONDITIONS, NO 1 ' ARE THE 7 NOTIONS OF 'CAPITAL' OR 'REVENUE' ; JUDICIAL FETISH. WHAT IS CAPITAL EXPENDITURE AND WHAT IS REVE NUE EXPENDITURE ARE NOT ETERNAL VERITIES BUT MUST NEED BE FLEXIBLE SO AS TO RESPOND TO THE CHANGING ECONOMIC REALITIES OF BUSINESS. THE EXPRESSION 'ASSET OR ADVANTAGE OF AN ENDURING NATURE' IS EVOLVED TO EMPHASISE THE ELEMENT OF A SUFFICIENT DEGREE OF DURABILITY APPROPRIATE TO THE CONTEXT. (H) THERE IS ALSO NO SINGLE DEFINITIVE CRITERION WHICH, BY ITSELF, IS DETERMINATIVE WHETHER A PARTICULAR OUTLA Y IS CAPITAL OR REVENUE. THE 'ONCE FOR A L L' PAYMENT TEST IS ALSO INCONCLU3IVE. WHAT IS RELEVANT IS THE PURPOSE OF THE OUTLAY AND ITS INTENDED OBJECT AND EFFECT, CONSIDERED IN A COMMONSENSE WAY HAVING REGARD TO THE BUSINESS REALITIES. IN A GIVEN CASE, THE TEST OF 'ENDURING BENEFIT' MIGHT BREAK DOWN. 9. APPLYING THE ABOVE PRINCIPLES TO THE DETAILS OF THE EXPENDITURE INCURRED, WE FIND THAT, NONE OF THEM IN ANY MANNER CAN BE HELD TO BE CAPITAL EXPENDITURE. MERE FACT THAT, BENEFIT FROM INCURRING SUCH EXPENDITURE SHALL BE AVAILABLE TO THE APPELLANT IN SUCCEEDING ASSESSMENT YEAR, CANNOT BE AN GROUND TO HOLD THAT SUCH EXPENDITURE IS CAPITAL EXPENDITURE. THE DETAILS OF THE EXPENDITURE WOULD SHOW THAT THEY ARE TRACTOR, HIRING CHARGES; JEEP VEHICLE EXPENDITURE; STAFF WELFARE; HSD; PREPARATIO N AND RENEWAL OF SEEDS; AND ELECTRICITY CHARGES. IN OUR CONSIDERED OPINION, NONE OF THE EXPENDITURE IS OF A NATURE OF PROVIDING AN ADVANTAGE IN THE CAPITA L FIELD AN/D HENCE, IT CANNOT BE HELD THAT THEY ARE CAPITAL EXPENDITURE. 10. MOREOVER, IN THIS CASE WE HAVE ALSO P ERUSED THE MAIN OBJECTS OF THE ASSESSEE APPELLANT COMPANY AS EMERGING FROM THE MEMORANDUM- OF ASSOCIATION. A PERUSAL OF THE A FORE SAID REVEALS THAT THE APPELLA NT COMPANY HAS BEEN SET UP BY THE PUNJAB GOVERNMENT TO UNDERTAKE WORK OF LAND DEVELOPMENT, SEED 8 MULTIPLICATION, PROCESSING AND ITS DISTRIBUTION AND SALE. FURTHER, THE APPELLANT IS EMPOWERED TO UNDERTAKE, ASSIST AND PROMOTE OPERATIONS PERTAINING TO AGRICULTURE, HORTICULTURE, FISHERIES, POULTRY, PIGGERY, SHEEP, AND DAIRY AND OTHER RELATE D ACTIVITIES. THE- APPELLANT COMPANY IS ALSO 'EMPOWERED TO PROCESS, SALE, PURCHASE, IMPORT, EXPORT ETC. AND OTHERWISE DEAL IN ALL KINDS OF PROD UCE -OF AGRICULTURE, HORTICULTURE ETC. IN SUM AND SUBSTANCE, T H E MAIN OBJECTIVES OF NIC APPELLANT COMPANY ARE TO UNDERTAKE, ASSIST AND AL S O CARRY OUT OPERATIONS PERTAINING TO AGRICULTURE. NOTABLY, THE OBJECTIVES OF THE APPELLANT ALSO RELATE TO SEED MULTIPLICATION AND DIVERSIFICATION OF CROP PATTERN IN THE STATE TO GO TOWARDS HIGH VALUE AND LESS WATER INTENS IVE CROPS. EVIDENTLY, THE PUNJAB GOVERNMENT HAS PROVIDED THE LAND IN QUESTION TO THE APPELLANT ON . LEA- SE TO CARRY OUT SEED MULTIPLICATION PROGRAM. IN FACT , THE ANNUAL REPORT AND ACCOUNTS OF THE APPELLANT COMPANY PERTAINING TO THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION CONTAINS A PROCLAMATION OF THE PROGRESS IN THE DIVERSIF ICATION THROUGH CONTRACT FARMING CARRIED OUT. IT ILLUSTRATES THE NEW CROPS PROMOTED AND ALSO THE INCREASE IN THE ACREAGE OF THE CROP SO GROWN. BY REFERRING TO THE AFORESAID, W E ARE ONLY TRYING TO POINT OUT THAT THE OBJECTIVE OF THE ASSESSEE IN PUTTING TO USE THE -LAND IN QUESTIO N WAS FOR THE FURTHERANCE OF ITS OBJECTS O F BUSINESS. THE IMPUGNED EXPENDITURE HAS BEEN INCURRED TOWARDS FURTHERANCE OF THE BUSINESS OBJECTIVES. CLEARLY, THE MONIES RECOVERED BY SELLING THE PR ODUCE RAISED ON THE LAND IN QUESTION HAS BEEN ACCOUNTED FOR BY THE APPELLANT IN ITS REVENUE ACCOUNT. THE MERE FACT THAT IN THE INITIAL YEAR THE EXP ENSES HAVE OUTWEIGHED THE RECEIPTS CANNOT BE THE DETERMINING FACTOR TO HOLD THAT A PERCENTAGE O R EXPENSES ARE OF CAPITAL NATURE. IN FACT, WE HAVE 9 ALSO EXAMINED THE EXPENSES INCURRED BY THE ASSESSEE FOR THE NEXT ASSESSMENT YEAR I .E. 2006- 07(PERTAINING TO YEAR ENDING 31.3.2006), WHICH HAVE BEEN ENCLOSED AS AN ANNEXURE TO THE ASSESSMENT, ORDER. HERE AGAIN, WE NOTICE THAT THE EXPENSES ARE, BY AND LARGE, OF SIMILAR NATURE AS OF THOSE INCURRE D DURING THE YEAR /UNDER CONSIDERATION. OSTENSIBLY, T HE INCOME BY WAY OF PRODUCE IN THE NEXT YEAR STANDS ON A MUCH HIGHER FOOTING, IT IS QUITE UNDERS TANDABLE, FOR THE AGRICULTURE OPERATIONS INVOLVE A CE RTAIN GESTATION PERIOD FOR INCOMES TO ACCRUE IN THE HANDS OF AN ASSESSEE, BUT PRESENCE OF THE GESTATION PERIOD IS NO ' GROUND TO TREAT A PORTION OF THE EXPENSE AS CAPITAL IN NATURE, FROM THE AFORESAID IT IS EVIDENT THAT T H E EXPENSES UNDERTAKEN BY THE ASSESSEE ARE EXPENSES FOR CARRYING OUT NORMAL FARMING ACTIVITIES AND NO ADHOC BASIS CAN BE ADOPTED TO SEGREGATE THE EXPENDITURE BETWEEN CAPITAL NATURE AND REVENUE. 11. IN LIGHT OF THE ABOVE REASONS STATED, IT IS HELD THAT EXPENDITURE SO INCURRED IS REVENUE EXPENDITURE AND THEREFORE, DISALLOWANCE, SO MADE IS DELETED. 4. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL , WE DISMISS THE APPEAL OF THE REVENUE. 5. ORDER PRONOUNCED IN THE OPEN COURT ON 8.2.2012. SD/- SD/- (H.L.KARWA) (MEH AR SINGH) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 8 TH FEB.,2012. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT,DR ASSISTANT REGISTRAR, ITAT CHANDIGARH