ITO, Ward-3(2), Hyderabad, Hyderabad V. Singh Poultry (P) Ltd., Hyd, Hyderabad

ITA 135/HYD/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6119 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-08-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 10-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SITARAMA RAO
• Assessee Lawyers: B SATYANARAYANA MURTY
• Keywords: Depreciation; Additional depreciation; Cost of acquisition
• Section: 143(3)

Judgement Text

ITA NO 13 5 OF 2016 SINGH POULTRY P LTD HYDERABAD PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN , ACCOUNTANT MEMBER ITA NO.135/HYD/2016 (ASSESSMENT YEAR: 2012-13) INCOME TAX OFFICER WARD 3(2) HYDERABAD VS M/S. SINGH POULTRY (P) LTD HYDERABAD PAN: AAFCS 3348 P FOR REVENUE: SHRI A. SITARAMA RAO, DR FOR ASSESSEE: SHRI B. SATYANARAYANA MURTY O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS REVENUES APPEAL FOR THE A.Y 2012-13 AGAINST THE ORDER OF THE CIT (A), DATED 30.11.2015 DELETING THE ADDITION MADE BY THE AO U/S 40(A)(IA) OF THE ACT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE ACTIVITY OF POULTRY FARMING R UNNING A BUSINESS IN THE NAME AND STYLE OF M/S SINGH POULTRY (P) LTD. IT FILED ITS RETURN OF INCOME FOR THE A.Y 2012-13 ON 28 .09.2012 ADMITTING A TOTAL INCOME OF RS.72,02,386. 3. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE ON DATE OF HEARING : 11.08.2016 DATE OF PRONOUNCEMENT : 19.10.2016 ITA NO 13 5 OF 2016 SINGH POULTRY P LTD HYDERABAD PAGE 2 OF 8 27.02.2015 ASKING THE ASSESSEE TO EXPLAIN AS TO WHY THE DEPRECIATION CLAIM OF RS.1,16,00,000 ON BUILDINGS S HOULD NOT BE DISALLOWED AS THERE WAS NO BUILDING, BUT THERE WERE SHEDS ONLY. THE ASSESSEE WAS ALSO ASKED TO EXPLAIN AS TO WHY TH E CLAIM OF ADDITIONAL DEPRECIATION MENTIONED IN THE DEPRECIATI ON SCHEDULE SHOULD NOT DISALLOWED AND THE ASSESSEE WAS ASKED TO PRODUCE ALL THE BILLS/VOUCHERS WITH REGARD TO THE ADDITIONS TO THE FIXED ASSETS SUCH AS BUILDINGS AND PLANT & MACHINERY. ASSESSEE W AS ALSO ASKED TO FURNISH THE BREAKUP OF THE PLANT AND MACHI NERY, ITEM- WISE FAILING WHICH THE SAME WILL BE TREATED AS BUIL DING AND DEPRECIATION WILL BE ALLOWED AT 10% ONLY. ASSESSEE W AS ALSO ASKED TO GIVE DETAILS OF THE MANUFACTURING SUCH AS QUANTI TATIVE AND QUALITATIVE DETAILS IN VALUE AND ALSO OF ITS ACTIVI TIES OF HATCHING AND POULTRY FARM. AS REGARDS THE TRADE PAYABLES, TH E ASSESSEE WAS ALSO ASKED TO FURNISH THE CONFIRMATIONS AND ALSO CO NFIRMATIONS IN RESPECT OF LOANS FROM RELATED PARTIES. SINCE THERE WAS NO REPLY FROM THE ASSESSEE, ANOTHER SHOW CAUSE NOTICE WAS AL SO ISSUED ON 11.03.2015. IN RESPONSE TO THIS SHOW CAUSE NOTICE, THE ASSESSEE APPEARED THROUGH HIS REPRESENTATIVE ON 13.7.2015 AN D PROMISED TO FURNISH THE BOOKS OF ACCOUNT AND ACCORDINGLY PRO DUCED THE SAME BEFORE THE AO. 4. ON PERUSAL OF THE MATERIAL FURNISHED BY THE ASSE SSEE, THE AO OBSERVED CERTAIN DISCREPANCIES. HE OBSERVED THAT THE ASSESSEE HAS CLAIMED TO HAVE CONTRIBUTED A SUM OF R S.10,17,000 TO M/S. VENCO RESEARCH & BREEDING FARM PRIVATE LIMIT ED (HYDERABAD DIVISION) FOR PURCHASE OF PARENT MALE AN D FEMALE CHICKS FROM THE SAID CONCERN AND THAT THE PARTY HAS RAISED ITA NO 13 5 OF 2016 SINGH POULTRY P LTD HYDERABAD PAGE 3 OF 8 VOUCHERS SEPARATELY FOR ADMINISTRATIVE AND CONTRIBU TION CHARGES. SINCE THE ABOVE AMOUNT IS NEITHER PURCHASE PRICE NO R COMPENSATION, THE AO HELD THAT THE ASSESSEE CANNOT CLAIM THE SAME AS AN ALLOWABLE EXPENDITURE. ACCORDINGLY HE DI SALLOWED A SUM OF RS.10,17,000. 5. SIMILARLY, HE DISALLOWED THE MARKETING EXPENSES OF RS.9,45,000 BEING 30% OF THE TOTAL CLAIM OF RS.31,47 ,307 ON THE GROUND THAT IT IS COMMISSION PAID TO AGENTS AND THE ASSESSEE HAS FAILED TO MAKE THE TDS. AS REGARDS THE COMPUTATION OF LONG TERM CAPITAL GAIN ON SALE OF A LAND, THE AO FOUND THAT T HE INDEXED COST OF ACQUISITION CLAIMED BY THE ASSESSEE IS NOT CORRE CT. ACCORDING TO HIM, THE COST OF LAND DISPOSED WORKS OUT TO RS.1,84 ,404 WHEREAS THE ASSESSEE HAS SHOWN AN AMOUNT OF RS.2,70,000. HE THEREFORE, BROUGHT THE EXCESS OF THE AMOUNT TO TAX. FURTHER, H E ALSO OBSERVED THAT THE ASSESSEE HAS RECEIVED AN AMOUNT O F RS.2,51,00,000 TOWARDS COMPENSATION BY VIRTUE OF THE ARBITRATION ORDER DATED 01.12.2010, BUT THE ASSESSE E HAS SHOWN ONLY AN AMOUNT OF RS.1,16,00,000 AND THE BALANCE AM OUNT OF RS.1,35,00,000 HAS BEEN SHARED BETWEEN TWO INDIVIDU ALS WHO ARE DIRECTORS OF THE COMPANY ON 1.4.2011. SINCE THE FUL L PARTICULARS WERE NOT FILED BY THE ASSESSEE, THE SUM OF RS.1,35, 00,000 IS ALSO ADDED TO THE INCOME OF THE ASSESSEE AND BROUGHT TO TAX. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A), WHO ALLOWED THE SAME AND HENCE THE REVENUE IS IN AP PEAL BEFORE US BY RAISING THE FOLLOWING GROUNDS OF APPEAL: 1 THE LEARNED CIT (A) ERRED ON BOTH LAW AND FACTS OF THE CASE. ITA NO 13 5 OF 2016 SINGH POULTRY P LTD HYDERABAD PAGE 4 OF 8 2 THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 9,45,000/- MADE BY THE INVOKING PROVISIONS OF SECTION 40(A)(IA) OF THE I.T ACT. 3 THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCE OF EXPENDITURE U/S 40(A)(IA) OF THE AC T, HOLDING THAT THE AMOUNTS ARE NOT PAYABLE AS AT THE END OF THE YEAR, IGNORING THAT THE PROVISIONS ARE APPLICABLE IN RESPECT OF PAYMENTS MADE DURING THE YEAR WITHOUT TDS BEING MADE. 4 THE LEARNED CIT(A) ERRED IN RELYING UPON THE DECISION OF HON BLE ITAT, SPECIAL BENCH, VISAKHAPATNAM, IN THE CASE OF MERYLIN SHIPPING & TRANSPORTING NOT CONSIDERING THE CIRCULAR OF CBDT I N NO: 10 /DV /2013 (F.NO: 279 /MISC. /M-61 /20 12ITJ DATED 16/12/2013. 5 THE LEARNED CIT(A) ERRED IN RELYING UPON THE DECISION OF HON'BLE ITAT, SPECIAL BENCH, VISAKHAPATNAM, IN THE CASE OF MERYLIN SHIPPING & TRANSPORTING, NOT CONSIDERING THE FACT THAT SAID DECISION IS PLACED UNDER INTERIM SUSPENSION BY HON'BLE HIGH COURT OF JUDICATURE AT HYDERABAD FOR THE STATE OF TELANGANA AND STATE OF ANDHRA PRADESH. 6 THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF RS.1 ,35,00,000/- 7 THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF RS.1 ,35,00,000/ - WITHOUT GIVING A FINDING THAT SHRI HARBANS SINGH AND MS. TARUNA SINGH ARE PART OWNERS OF THE PROPERTY SOLD. 8 THE LEARNED CIT (A) ERRED IN DELETING THE ADDITION MERELY ON THE BASIS OF PAYMENT OF RS. 65,00,000/- AND OF RS. 70,00,000/- TO SHRI HARBANS SINGH AND MS. TARUNA SINGH RESPECTIVELY. 9 ANY OTHER GROUND(S) THAT MAY BE URGED AT THE TIME OF HEARING ITA NO 13 5 OF 2016 SINGH POULTRY P LTD HYDERABAD PAGE 5 OF 8 6. AS REGARDS GROUNDS 1 TO 5 AGAINST THE DELETION O F ADDITION MADE U/S 40(A)(IA) OF THE ACT BY THE CIT ( A), WE FIND THAT HE HAS GIVEN RELIEF BY FOLLOWING THE DECISION OF TH E SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & T RANSPORT (CITED SUPRA). IT IS THE CASE OF THE ASSESSEE THAT THE ASS ESSEE HAS MADE THE PAYMENTS BY THE END OF THE RELEVANT FINANCIAL Y EAR AND THEREFORE, THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE. THE CIT (A) HAS GIVEN A FINDING THAT THE PAYMENT HA S ALREADY BEEN MADE AND THEREFORE, NOTHING REMAINED PAYABLE AT THE END OF THE RELEVANT FINANCIAL YEAR AND THEREFORE, THE DISALLOW ANCE IS NOT SUSTAINED. IT IS THE CASE OF THE REVENUE THAT THE D ECISION OF THE SPECIAL BENCH IN THE CASE OF MERILYIN SHIPPING & TR ANSPORT HAS BEEN SUSPENDED BY THE HON'BLE HIGH COURT OF JUDICAT URE FOR THE STATE OF TELANGANA & A.P. AND THEREFORE, THE DECISI ON OUGHT NOT TO HAVE BEEN FOLLOWED. HOWEVER, WE FIND THAT THIS DECI SION HAS BEEN UPHELD BY THE HON'BLE ALLAHABAD HIGH COURT IN THE C ASE OF CIT VS.VECTOR SHIPPING SERVICES LTD AND THE HON'BLE SUP REME COURT HAS DISMISSED THE SLP FILED BY THE REVENUE AGAINST THE SAID DECISION IN THE CASE OF VECTOR SHIPPING & SERVICES (P) LTD REPORTED IN (2013) 262 CTR (ALL) 545. FURTHER, THE JURISDICTIONA L HIGH COURT IN THE CASE OF CIT VS. JANAPRIYA ENGINEERS SY NDICATE REPORTED IN (2015) 54 TAXMANN.COM 346 (AP&T) HELD T HAT UNTIL AND UNLESS THE DECISION OF THE SPECIAL BENCH IS UPS ET BY THE HON'BLE HIGH COURT, IT BINDS SMALLER BENCH AND COOR DINATED BENCH OF THE TRIBUNAL. IN VIEW OF THE SAME, WE DO N OT SEE ANY REASON TO INTERFERE WITH THE DECISION OF THE CIT (A ) ON THIS GROUND. ITA NO 13 5 OF 2016 SINGH POULTRY P LTD HYDERABAD PAGE 6 OF 8 7. AS REGARDS GROUNDS NO.6 TO 8, IT IS THE CASE OF THE ASSESSEE THAT THE ASSESSEE HAD ENTERED INTO A DEVEL OPMENT AGREEMENT DATED 24.11.2009 WITH M/S SANDHYA HOTELS (P) LTD (SHPL) (REPRESENTED BY ITS M.D. SHRI S. SRIDHAR RAO ) FOR DEVELOPMENT OF ITS PROPERTY AT OOTAPALLI VILLAGE, S HAMSHABAD, HYDERABAD AND THE DEVELOPER TOOK POSSESSION OF THE LAND AND DEMOLISHED THE STRUCTURES AND POULTRY SHEDS THEREON . HOWEVER, THEREAFTER, DISPUTE AROSE BETWEEN THE OWNERS AND DE VELOPER AND THE DEVELOPMENT AGREEMENT DATED 24.11.2009 WAS CANC ELLED VIDE CANCELLATION DEED DATED 1.4.2011. IT WAS SUBMITTED THAT THE DIRECTORS OF THE ASSESSEE COMPANY, SHRI HARBANS SIN GH AND HIS DAUGHTER MS. TARUNA SINGH, HAD ENTERED INTO SEPARAT E AGREEMENTS WITH SHPL FOR PURCHASE OF OFFICE UNITS I N HUDA TECHNO ENCLAVE, MADHAPUR FOR WHICH THEY HAVE PAID A SUM OF RS.65.00 LAKHS AND RS.70.00 LAKHS RESPECTIVELY. PUR SUANT TO THE CANCELLATION OF THE DEVELOPMENT AGREEMENT, THESE SA LE AGREEMENTS WERE ALSO CANCELLED ON 1.4.2011 AND AS SUCH, MONEY PAID BY THEM WAS TO BE RETURNED BY SHPL. IT IS SUBMITTED THAT TH E ASSESSEE HAD RECEIVED A SUM OF RS.4.51 CRORES AS PART OF THE CON SIDERATION FOR DEVELOPMENT AGREEMENT FROM SHPL AND ON CANCELLATION OF THE DEVELOPMENT AGREEMENT, AN AMOUNT OF RS.2.00 CRORES WAS RETURNED TO SHPL AND THE BALANCE RS.2.51 CRORES WAS AVAILABLE WITH THE ASSESSEE. IT IS SUBMITTED THAT SHPL HAD TO RETURN A SUM OF RS.1.35 CRORES TO THE DIRECTORS AS STATED ABOVE AND THEREFORE, OUT OF THE SUM OF RS.2.15 CRORES PAYABLE TO SHPL, T HE ASSESSEE ADJUSTED THE SUM OF RS.1.35 CRORES TOWARDS THEIR DU ES AND THE BALANCE OF RS.1.16 CRORES WAS RETAINED BY THE ASSES SEE TOWARDS COMPENSATION RECEIVABLE FROM SHPL FOR DEMOLISHING T HE EXISTING ITA NO 13 5 OF 2016 SINGH POULTRY P LTD HYDERABAD PAGE 7 OF 8 STRUCTURES AND THE SAME WAS ALSO REFLECTED IN THE D EPRECIATION SCHEDULE AND THE WDV WAS REDUCED TO THAT EXTENT. AF TER CONSIDERING THESE SUBMISSIONS OF THE ASSESSEE, THE CIT (A) HAS ALLOWED THE ASSESSEES APPEAL AND THE REVENUE IS IN APPEAL BEFORE US. 8. ACCORDING TO THE LEARNED DR, THE SUM OF RS.4.51 CRORES HAS BEEN RECEIVED BY THE ASSESSEE IN FULL AN D FINAL SETTLEMENT OF THEIR CLAIM UNDER THE DEVELOPMENT AGR EEMENT AND THERE IS NO MENTION ABOUT THE INDIVIDUAL DIRECTORS RECEIVING THE SUM OF RS.1.35 CRORES AS PER THE ORDER IN OP NO.211 9 OF 2010 DATED 1.12.2010 PLACED AT PAGE 253 OF THE PAPER BOO K. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND , HAS DRAWN OUR ATTENTION TO PAGE 191 OF THE PAPER BOOK WHICH I S THE MEMORANDUM OF UNDERSTANDING BETWEEN THE ASSESSEE, I TS DIRECTORS AND THE PURCHASERS I.E. SHPL LTD WHEREIN IT IS CLEARLY RECORDED THAT THE DIRECTORS HAVE ENTERED INTO THE A GREEMENTS OF SALE FOR PURCHASE OF PROPERTIES FOR A SUM OF RS.65 LAKHS AND RS.70 LAKHS RESPECTIVELY AND THAT THE DEVELOPER HAS AGREE D TO REFUND THE CONSIDERATION AMOUNT FOR CANCELLATION OF THE AGREEM ENT OF SALE. THEREFORE, ACCORDING TO HIM, THE ASSESSEE HAS ESTAB LISHED THAT THE SUM OF RS.1.35 CRORES DOES NOT BELONG TO THE ASSESS EE, BUT THAT IT BELONGS TO THE INDIVIDUAL DIRECTORS OF THE COMPANY AND TAKING THE SAME INTO CONSIDERATION, THE CIT (A) HAS RIGHTLY AL LOWED THE ASSESSEES APPEAL. 9. HAVING REGARD TO THE RIVAL CONTENTIONS AND ALSO THE MATERIAL ON RECORD, WE ARE SATISFIED THAT THE INDIV IDUAL DIRECTORS ITA NO 13 5 OF 2016 SINGH POULTRY P LTD HYDERABAD PAGE 8 OF 8 ARE THE ACTUAL OWNERS OF RS.1.35 CRORES AND THE SUM OF RS.4.51 CRORES RECEIVED BY THE ASSESSEE INCLUDED THE SUM OF RS.1.35 CRORES BELONGING TO THE INDIVIDUAL DIRECTORS. WE AR E OF THE OPINION THAT THE CIT (A) HAS PROPERLY APPRECIATED THE CONTE NTIONS OF THE ASSESSEE IN ALLOWING THE ASSESSEES APPEAL. THEREFO RE, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CIT (A). REVENUES APPEAL IS ACCORDINGLY DISMISSED. 10. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH OCTOBER, 2016. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 19 TH OCTOBER, 2016. VINODAN/SPS COPY TO: 1 2 3 CIT (A)- 4 CIT - 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER