Rajendra L. Agarwal, Pune V. Income-tax Officer,

ITA 1881/PUN/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7452 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 31-08-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 16-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUKESH JHA
• Assessee Lawyers: HARI KRISHAN
• Keywords: Reopening of assessment; Business income; Corroborative evidences; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.1881/PUN/2014 [ [ / ASSESSMENT YEAR : 2010-11 SHRI RAJENDRA L. AGARWAL, C/O. KHANDELWAL JAIN & ASSOCIATES, 1 ST FLOOR, ALANKAR CINEMA BUILDING, NEAR RAILWAY STATION, PUNE 411 001. PAN NO.AAPPA6210P. . / APPELLANT V/S INCOME TAX OFFICER, WARD 4(6), PUNE. . / RESPONDENT / APPELLANT BY : SHRI HARI KRISHAN / RESPONDENT BY : SHRI MUKESH JHA, JCIT / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY THE ASSESSEE IS EMANATING OUT OF THE ORDER OF COMMISSIONER OF INCOME TAX (A) III PUNE DT.12.05.2014 FOR THE ASSESSMENT YEAR 2010-11. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER :- ASSESSEE IS AN INDIVIDUAL STATED TO BE ENGAGED IN THE FIELD OF ROAD CONSTRUCTION, CIVIL CONSTRUCTION, PROMOTER AND DEVELOPER OF / DATE OF HEARING : 31.08.2017 / DATE OF PRONOUNCEMENT: 20.09.2017 2 REAL ESTATE PROPERTIES. ASSESSEE FILED HIS RETURN OF INCOME FOR A.Y. 2010-11 ON 15.10.2010 DECLARING TOTAL TAXABLE INCOME OF RS. NIL. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT VIDE ORDER DT.28.02.2013 AND THE TOTAL INCOME WAS DETERMINED AT RS.94,22,110/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A) WHO VIDE ORDER DT.12.05.2014 (IN APPEAL NO.PN/CIT(A)-II/ITO WD-4(B), PUNE/205/2013-14) GRANTED SUBSTANTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS : 1. ON THE FACTS & CIRCUMSTANCES PREVAILING IN THE CASE & AS PER PROVISIONS OF LAW, IT BE HELD THAT THE DISALLOWANCE OF RS. 23,03,506/- BEING EXCESS OF EXPENDITURE OVER RELATING TO HORSE BREEDING BUSINESS MADE BY THE AO & CONFIRMED BY THE 1 ST APPELLATE AUTHORITY BY WRONGLY HOLDING THE SAME AS ACTIVITY COVERED BY THE MISCHIEF OF PROVISIONS OF SEC. 74A OF THE ACT IS UNWARRANTED & UNJUSTIFIED. IT BE HELD THAT THE LOSS SO INCURRED IS NOT ATTRACTED BY THE MISCHIEF OF THE PROVISIONS OF SEC.74A OF THE ACT & THE DISALLOWANCE OF RS.23,03,506/- BE DIRECTED TO BE DELETED. JUST & PROPER RELIEF BE GRANTED TO THE APPELLANT. 2. ON THE FACTS & CIRCUMSTANCES PREVAILING IN THE CASE & AS PER PROVISIONS OF LAW, IT BE HELD THAT THE DISALLOWANCE OF A SUM OF RS.2,83,125/- CLAIMED BY THE APPELLANT AS EXPENDITURE ON TRAVEL, MADE BY THE AO & CONFIRMED BY THE 1 ST APPELLATE AUTHORITY IS UNJUSTIFIED AND UNWARRANTED AND THE SAME BE DIRECTED TO BE DELETED. JUST AND PROPER RELIEF BE GRANTED TO THE APPELLANT. 3. ON THE FACTS & CIRCUMSTANCES PREVAILING IN THE CASE & AS PER PROVISIONS OF LAW, IT BE HELD THAT THE DISALLOWANCE OF A SUM OF RS.11,643/- CLAIMED BY THE APPELLANT AS EXPENDITURE ON TELEPHONE RENTAL, MADE BY THE AO & CONFIRMED BY THE 1 ST APPELLATE AUTHORITY IS UNJUSTIFIED AND UNWARRANTED AND THE SAME BE DIRECTED TO BE DELETED. JUST AND PROPER RELIEF BE GRANTED TO THE APPELLANT. 4. THE APPELLANT PRAYS TO BE ALLOWED TO ADD, AMEND, DELETE, MODIFY & RECTIFY ANY GROUNDS OF APPEAL AT THE TIME OF HEARING. 3 3. FIRST GROUND IS WITH RESPECT TO HOLDING THE ACTIVITY OF THE ASSESSEE TO BE COVERED BY PROVISIONS OF SEC.74A OF THE ACT. 3.1 ON PERUSING THE DETAILS OF INCOME AND EXPENDITURE ACCOUNT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAD CREDITED AS WELL AS DEBITED INCOME AND EXPENSES RELATING TO THE ACTIVITY OF OWNING AND MAINTAINING THE RACE HORSES AND HAD SHOWN NET LOSS OF RS.23,03,506/- AND IT WAS SET OFF AGAINST THE REGULAR INCOME. AO WAS OF THE VIEW THAT AS PER PROVISIONS OF SEC.74A, LOSSES INCURRED BY THE OWNER OF RACE HORSE IN THE ACTIVITY OF MAINTAINING THE RACE HORSES CAN BE SET OFF ONLY AGAINST THE INCOME IF ANY FROM THE ACTIVITY OF OWNING AND MAINTAINING RACE HORSES IN THE SAME ASSESSMENT YEAR. ANY UNABSORBED LOSSES CAN BE CARRY FORWARDED TO SUBSEQUENT YEARS AND SET OFF ONLY AGAINST THE INCOME IF ANY FROM THE ACTIVITY OF OWNING AND MAINTAINING RACE HORSES ONLY. THE ASSESSEE WAS THEREFORE ASKED TO SHOW CAUSE AS TO WHY THE LOSSES BE NOT DISALLOWED. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO AS HE WAS OF THE VIEW THAT THE ASSESSEE WAS IN THE BUSINESS OF BREEDING OF HORSES AND THAT THE PROVISIONS OF SEC.74A WERE APPLICABLE. HE ALSO NOTED THAT FOR A.Y. 2002-03, 2003-04, 2005-06 AND 2007-08, THE DEPARTMENTS STAND WAS UPHELD BY LD.CIT(A). HE THEREFORE DENIED THE SET OFF OF LOSS OF RS.23,03,506/- AGAINST THE OTHER INCOME. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO UPHELD THE ORDER OF AO BY HOLDING AS UNDER : 4 3.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS ALSO SEEN THAT SIMILAR ISSUE AROSE FOR A.YRS. 2005-06 & 2007- 08 AND WHILE ADJUDICATING THE SAME THE UNDERSIGNED HAD FOLLOWED THE DECISION AND ELABORATE DISCUSSION MADE BY THE THEN CIT(APPEALS) FOR A.Y. 2003-04 VIDE APPELLATE NO. PN/CIT(A)-II/ACIT CIR-4,PUNE/909/08-09 DATED 17.05.2010. THE LEGAL ISSUE INVOLVED HAS ALSO BEEN DISCUSSED IN PARAS. 3.1 AND 3.3 OF THE APPELLATE ORDER FOR A.Y. 2003-04, RELATED TO THE VALIDITY OF REOPENING OF ASSESSMENT. AFTER DETAIL ANALYSIS AND REASONING IN THE ORDER FOR A.Y. 2003-04, IT WAS HELD THAT 4.2 .THE NET LOSS MENTIONED ABOVE WAS CORRECTLY TREATED AS LOSS INCURRED FROM OWNING AND MAINTENANCE OF RACE HORSES WHICH CANNOT BE SET OFF AGAINST INCOME FROM ANY OTHER SOURCE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 74A(3) ; AND THE INSTEAD WILL HAVE TO BE CARRIED FORWARD TO THE NEXT YEAR. THIS WAS RELYING ON THE DECISION OF ITAT MUMBAI SMC BENCH IN THE CASE OF DAGA CONTAINERS PVT. LTD. VS. ITO (2006) 6 SOT 666 (MUM), WHICH WAS HELD TO BE SQUARELY APPLICABLE IN THE APPELLANTS CASE. DURING THE COURSE OF APPELLATE PROCEEDINGS FOR THE CURRENT YEAR, THE APPELLANT HAS RELIED UPON THE SAME SUBMISSIONS AS FOR THE A.Y. 2003-04 AND ALSO GIVEN DURING ASSESSMENT PROCEEDINGS. THEREFORE, THE REASONS DISCUSSED IN RESPECT OF THE SAME ISSUE IN A.Y. 2003-04 IN THE APPELLANTS CASE, THE APPELLANTS CONTENTION IS NOT FOUND TO BE TENABLE IN LAW AND A.OS ORDER IS ACCORDINGLY UPHELD SINCE THE FACTUAL MATRIX AND THE LEGAL POSITION OF THE ISSUE INVOLVED IS SAME AS FOR THE EARLIER YEARS, FOLLOWING THE DECISION TAKEN BY MY PREDECESSOR FOR A.Y. 2003-04 THE DISALLOWANCE MADE BY THE A.O IS UPHELD. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 4. BEFORE US, AT THE OUTSET, LD.A.R. SUBMITTED THAT IDENTICAL ISSUE AROSE IN ASSESSEES OWN CASE IN A.Y. 2003-04 AND 2006-07 BEFORE THE CO-ORDINATE BENCH OF THE TRIBUNAL. THE CO-ORDINATE BENCH OF THE TRIBUNAL VIDE ORDER DT.29.01.2016 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. HE THEREFORE SUBMITTED THAT SINCE THERE ARE NO CHANGE IN FACTS, THE CLAIM OF SET OFF OF LOSS BE ALLOWED. 5 LD.D.R. ON THE OTHER HAND, SUPPORTED THE ORDER OF LOWER AUTHORITIES. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO INVOKING THE PROVISIONS OF SEC.74A OF THE ACT. IT IS ASSESSEES SUBMISSION THAT HE IS IN THE BUSINESS OF BREEDING OF HORSES AND NOT RUNNING IN HORSE RACES AND THEREFORE PROVISIONS OF SEC.74A OF THE ACT ARE NOT APPLICABLE. WE FIND THAT IDENTICAL ISSUE AROSE IN ASSESSEES OWN CASE IN A.Y. 2003-04. THE CO-ORDINATE BENCH OF THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER : 11. IN THE SECOND GROUND OF APPEAL THE ASSESSEE HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN DISALLOWING THE EXPENDITURE OF RS.55,74,410/- BEING EXCESS OVER INCOME FROM HORSE BREEDING BUSINESS. ACCORDING TO THE REVENUE, HORSE BREEDING ACTIVITY OF THE ASSESSEE FALLS WITHIN THE MISCHIEF OF PROVISIONS OF SECTION 74A OF THE ACT. THE CONTENTION OF THE ASSESSEE IS THAT THE HORSE BREEDING ACTIVITY IS DISTINCT AND DIFFERENT FROM MAINTAINING HORSE FOR RACE. THUS, THE INCOME ARISING FROM BREEDING OF HORSE CANNOT BE EQUATED WITH INCOME FROM WINNING FROM HORSE RACES. BEFORE WE PROCEED TO DECIDE THIS ISSUE IT WOULD BE RELEVANT TO REFER TO THE PROVISIONS OF SECTION 74A(3) OF THE ACT. XXX 12. A BARE PERUSAL OF THE PROVISIONS OF SUB-SECTION (3) OF SECTION 74A WOULD SHOW THAT IT DEALS WITH THE LOSSES INCURRED BY THE ASSESSEE IN THE ACTIVITY OF OWNING AND MAINTAINING OF RACE HORSES. THERE IS NO REFERENCE TO THE ACTIVITY OF BREEDING OF HORSE IN THE SUB- SECTION. OWNING AND MAINTAINING HORSES FOR RUNNING THEM IN RACE IS ABSOLUTELY DIFFERENT AND DISTINCT ACTIVITY FROM BREEDING OF HORSES. THE ACTIVITY OF BREEDING HORSE REFERS TO PROPAGATING HORSES ON THE BASIS OF THEIR LINEAGE AND PERFORMANCE, FOR RUNNING THEM IN RACE. IN THE BUSINESS OF BREEDING OF HORSES THE MARES AND STALLIONS ARE PROCURED BASED ON BLOOD LINES AND PERFORMANCE TO BREED INTO A NEW BORN GOOD SPECIMENS. THEREAFTER, THESE HORSES ARE SOLD EITHER PRIVATELY OR BY AUCTION TO THE PEOPLE WHO OWN AND MAINTAIN HORSES FOR RUNNING IN HORSE RACES. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF FIVE STAR SHIPPING CO. PVT. LTD. VS. DY. COMMISSIONER OF INCOME TAX (SUPRA) HAS DEALT WITH THE SIMILAR ISSUE. THE RELEVANT EXTRACT OF THE ORDER OF TRIBUNAL IS REPRODUCES HERE-IN-BELOW: 6 20. THE GRIEVANCE OF THE ASSESSEE AND REVENUE RELATES TO THE DISALLOWANCE OF LOSSES FROM ACTIVITY OF OWNING AND MAINTAINING RACE HORSES AMOUNTING TO RS. 3,08,56,448/-, WE FOUND THAT LIVESTOCK BREEDING INDUSTRY WHEREIN THE ASSESSEE HAS INCURRED EXPENDITURE AND ALSO EARNED REVENUE. THE ASSESSEE IS MAINTAINING A STUD FARM. ITS BUSINESS IS THAT OF BREEDING AND ONLY 15% OF ITS HORSES TAKE PART IN THE RACING ACTIVITY. OVER ALL, IT INCURRED A LOSS OF RS. 3,08,56,448/-. IT HAS SET OFF OF THIS LOSS AGAINST THE INCOME FROM SHIPPING BUSINESS AS PER THE P&L ACCOUNT. THE A.O. HELD THAT BREEDING AND RACING ACTIVITIES CONSTITUTE ONE ACTIVITY U/S 74A THE LOSS FROM THE ACTIVITY OF OWNING AND MAINTAINING RACE HORSES CANNOT BE SET OFF AGAINST ANY OTHER INCOME AND IT CAN BE CARRIED FORWARD AND SET OFF ONLY AGAINST THE INCOME FROM THE ACTIVITY OF OWNING AND MAINTAINING THE RACE HORSES IN THE FUTURE YEARS. ACCORDINGLY, THE A.O. DISALLOWED THE SET OFF OF LOSS FROM THE STUD FARM AGAINST THE PROFITS FROM THE SHIP MANAGEMENT ACTIVITY. THE CIT(A) OBSERVED THAT 15% OF THE ASSESSEE'S HORSES TAKE PART IN RACING. THE BREEDING AND RACING ACTIVITIES ARE SEPARATE. THE MAJOR ACTIVITY IS THAT OF BREEDING. THE ASSESSEE HAS ON AN AVERAGE AROUND 300 HORSES AND ONLY 40 HORSES RUN IN THE RACES. HE DID NOT ACCEPT THE ASSESSEE'S CONTENTION THAT ENTIRE LOSS IS FROM BREEDING ACTIVITY AS RACING ACTIVITY IS ONLY INCIDENTAL TO THE BREEDING ACTIVITY. IT WAS ALSO OBSERVED THAT ASSESSEE SUBMITTED A COLUMNER PROFIT AND LOSS ACCOUNT OF THE RACE HORSES OWNING AND MAINTENANCE ACTIVITY AND BREEDING HORSES OWNING AND MAINTENANCE ACTIVITY FOR THE YEAR ENDED 31ST MARCH 2007. THIS BIFURCATION WAS DONE ON THE BASIS OF SEPARATE COST CODE AND LEDGER ACCOUNTS MAINTAINED IN THE BOOKS OF ACCOUNTS TO RECORD THE RECEIPTS AND EXPENDITURE IN RESPECT OF RACE HORSES AND BREEDING HORSES. IN THE REMAND REPORT, THE A.O. HAS AGREED THAT THE BIFURCATION IS IN CONSONANCE WITH THE P & L ACCOUNT. ACCORDINGLY, THE CIT(A) HAS HELD THAT THE LOSS OF RS. L,18,63,894/- IS FROM RACING ACTIVITY AND HE DID NOT ALLOW THE SET OFF OF THIS LOSS AGAINST THE BUSINESS INCOME FROM SHIP MANAGEMENT ACTIVITY. WHILE HE HELD THAT THE LOSS OF RS. L,89,92,554/- IS FROM BREEDING ACTIVITY AND HE ALLOWED THE SET OFF OF THIS LOSS AGAINST THE INCOME. THE REVENUES GROUND IS THAT THE ENTIRE LOSS SHOULD BE DISALLOWED FOR SET OFF AS IT IS FROM THE RACING ACTIVITY WHILE THE ASSESSEE'S APPEAL IS ON THE ISSUE THAT THE ENTIRE LOSS SHOULD BE ALLOWED FOR SET OFF. THE ASSESSEE HAS ALSO SHOWN THE BIFURCATION OF ITS RECEIPTS FROM STUD FARM AND IT IS TO BE NOTED THAT OUT OF THE TOTAL RECEIPTS OF RS.4,75,70,112/- FROM THIS ACTIVITY, STAKES WON IN THE RACES ARE AMOUNTING TO RS. 69,51,746/- ONLY AND HENCE, THIS INDICATES THAT RACING INCOME IS JUST 15% OF TOTAL INCOME AND BREEDING IS THE MAIN ACTIVITY. THE ASSESSEE HAS GIVEN ITS OBJECT IN THE MEMORANDUM OF ASSOCIATION WHICH IS THE BREEDING ACTIVITY. AS PER TURF CLUB REGULATIONS RACING AND BREEDING ARE TWO BRANCHES AND ADMINISTRATION OF THESE BRANCHES COME FROM SEPARATE BODIES. THUS, A.O. WAS NOT JUSTIFIED IN HOLDING THAT THE ENTIRE ACTIVITY IS OF MAINTAINING HORSES FOR RUNNING IN RACES. THE CIT(A) HAS CORRECTLY APPRECIATED THAT THE LOSS FROM RACING ACTIVITY SHOULD BE BIFURCATED FROM THE BREEDING ACTIVITY AND THAT LOSS SHOULD ONLY BE DISALLOWED FOR SET OFF AGAINST BUSINESS INCOME. ACCORDINGLY, ON THE BASIS OF FACTS AND FIGURES, HE HAS 7 CORRECTLY HELD THE LOSS OF RS.1,18,63,894/- PERTAINS TO RACING ACTIVITY AND THE SAME IS TO BE DISALLOWED FOR SET OFF WHILE THE BALANCE LOSS OF RS.1,89,92,554/- IS FROM BREEDING ACTIVITY AND IT IS ALLOWED TO BE SET OFF AGAINST THE INCOME FROM SHIP MANAGEMENT BUSINESS AS SECTION 74A CANNOT BE APPLIED TO THE LOSS FROM BREEDING BUSINESS. THE LD. CIT(A) HAS RECORDED A CATEGORICAL FINDING TO THE EFFECT THAT THE COMPANY HAD ON AN AVERAGE 300 HORSES OWNED BY IT AT THE FARM AND HORSES OF THE CLIENTS AT THE FARMS OUT OF WHICH ONLY 15% PARTICIPATED IN THE RACES, THEREFORE, THE LOSS INCURRED TO THE ACTIVITIES ATTRIBUTABLE TO RACE HORSES CANNOT BE ALLOWED TO BE SET OF AGAINST OTHER INCOME IN VIEW OF PROVISIONS OF SECTION 74A OF THE ACT. THE DETAILS FILED BY THE ASSESSEE WAS SENT BY THE LD. CIT(A) TO THE A.O. FOR REMAND REPORT. THE A.O. HAS VERIFIED THE INCOME AND EXPENDITURE OF COMPOSITE LIVESTOCK BUSINESS AS WELL AS RACING ACTIVITY WITH BOOKS OF ACCOUNT AND FOUND THE SAME IN CONSONANCE WITH THE BOOKS OF ACCOUNT SUBMITTED BY THE ASSESSEE COMPANY. AFTER CONSIDERING THE REMAND REPORT AND CORROBORATIVE EVIDENCES, THE LD. CIT(A) RECORDED A CATEGORICAL FINDING TO THE EFFECT THAT IT CONSTITUTES ONLY AROUND 15% OF THE GROSS RECEIPT, THEREFORE, ONLY LOSS INCURRED THEREON IS LIABLE TO BE DISALLOWED U/S 74A TO BE SET OFF AGAINST OTHER INCOME. SECTION 74A IS NOT APPLICABLE FOR THE ACTIVITY OF BREEDING OF HORSES SINCE THESE HORSES ARE MAINTAINED FOR BREEDING AND SELLING AND NOT FOR RUNNING HORSE RACES. THE ACTIVITY OF BREEDING OF HORSES IS SIMILAR TO THAT OF POULTRY OR PIGGERIES ETC. WHERE THE ANIMALS ARE BRED FOR THE PURPOSE OF SELLING. SECTION 74A IS NOT APPLICABLE FOR SUCH BREEDING ACTIVITY. THE LD. CIT(A) ALSO FOUND THAT DURING THE REMAND PROCEEDINGS, THE A.O. REPORTED THAT INCOME AND EXPENDITURE PERTAINING TO BREEDING ACTIVITY AND RACING ACTIVITY WERE FOUND TO BE CAPTURED UNDER TWO DIFFERENT ACCOUNTING CODES IN RESPECT OF BOTH THE ASSESSMENT YEARS. THE LD. CIT (A) ALSO FOUND THAT AN AMOUNT OF RS. 1.94 CRORES IS RECOVERED ON ACCOUNT OF LIVERY EXPENSES FROM OTHER HORSE OWNERS, WHO HAVE UTILIZED THE STABLES AND OTHER SERVICES OF THE STUD FARM OF THE ASSESSEE. AFTER CONSIDERING THE REMAND REPORT AND CORROBORATIVE EVIDENCES FILED BEFORE HIM, THE LD. CIT(A) REACHED TO THE CONCLUSION THAT ONLY THE BUSINESS LOSS IN RESPECT OF HORSE BREEDING ACTIVITY AMOUNTING TO RS. 1,89,92,554/- WAS LIABLE TO BE SET OFF AGAINST BUSINESS INCOME WHEREAS LOSS OF RS. 1,18,63,894/- IS FROM HORSE RACING ACTIVITY NOT ELIGIBLE FOR SET OFF AGAINST BUSINESS INCOME IN VIEW OF PROVISIONS OF SECTION 74A OF THE ACT. THE FINDINGS RECORDED BY THE LD. CIT(A) ARE AS PER MATERIAL ON RECORD, THUS WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDINGS OF LD. CIT(A) AND ACCORDINGLY WE CONFIRM THE SAME. SINCE, THE ISSUE RAISED IN THE PRESENT APPEAL IS SIMILAR TO THE ISSUE ADJUDICATED BY THE CO-ORDINATE BENCH, WE ALLOW THIS SECOND GROUND OF APPEAL OF THE ASSESSEE IN SAME TERMS. HERE WE WOULD LIKE TO MAKE IT CLEAR THAT IF THE ASSESSEE IS HAVING ANY INCOME FROM RUNNING HORSES IN RACES, EVEN IF IT IS INCIDENTAL TO BREEDING OF HORSES, THE SAME SHALL NOT CONSTITUTE INCOME FROM BREEDING BUSINESS AND SHALL BE TAXABLE ACCORDING TO THE RELEVANT PROVISIONS OF THE ACT. 8 13. WE FIND THAT THE ASSESSEE HAS GIVEN THE DETAILS OF EXPENDITURE ON THE MAINTENANCE OF HORSES BEFORE THE ASSESSING OFFICER AT THE TIME OF ASSESSMENT. THE LD. DR HAS NOT CONTROVERTED THIS FACT. THE ASSESSEE HAS ALSO EXPLAINED IN DETAIL THE NATURE OF BUSINESS ACTIVITY CARRIED ON BY HIM IN RESPECT OF HORSE BREEDING, BEFORE THE AUTHORITIES BELOW. THE ASSESSEE IS BREEDING RACE HORSES FOR SALE TO THE PERSONS WHO OWN AND MAINTAIN HORSES FOR RACING. THE ASSESSEE PROCURES BROODMARES AND STALLIONS FOR BREEDING AND NOT RUNNING THEM IN RACE. THUS, BREEDING OF HORSES IS A SEPARATE AND DISTINCT BUSINESS ACTIVITY AND IS NOT AKIN TO OWNING AND MAINTAIN HORSES FOR RACING. THUS, IN VIEW OF THE FACTS OF THE CASE WE ARE OF THE CONSIDERED OPINION THAT THE LOSSES INCURRED BY THE ASSESSEE IN THE BUSINESS OF BREEDING OF HORSES ARE BUSINESS LOSS THAT CAN BE SET OFF AGAINST THE PROFITS OF THE BUSINESS ACTIVITY. THE ACTIVITY OF HORSE BREEDING DOES NOT ATTRACT THE PROVISIONS OF SECTION 74A OF THE ACT. IN VIEW OF OUR ABOVE FINDINGS THE GROUND NO. 3 RAISED IN THE APPEAL OF THE ASSESSEE IS ALLOWED. 6. BEFORE US, REVENUE HAS NOT PLACED ANY MATERIAL ON RECORD TO DEMONSTRATE THAT THE AFORESAID ORDER OF THE TRIBUNAL HAS BEEN SET ASIDE OR STAYED BY HIGHER JUDICIAL AUTHORITIES NOR HAS POINTED OUT ANY DISTINGUISHING FEATURE IN THE FACTS OF THE YEAR UNDER CONSIDERATION AND THAT OF EARLIER YEARS. WE THEREFORE RESPECTFULLY FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL AND FOR SIMILAR REASONS, HOLD THAT THE PROVISIONS OF SEC.74A OF THE ACT ARE NOT APPLICABLE TO THE ASSESSEE AND THEREFORE THE ASSESSEE IS ELIGIBLE FOR SET OFF OF LOSSES. THUS, THE GROUND OF THE ASSESSEE IS ALLOWED. 7. GROUND NOS.2 AND 3 BEING INTER-CONNECTED ARE CONSIDERED TOGETHER. 7.1 AO NOTICED THAT ASSESSEE HAS CLAIMED RS.2,83,125/- ON ACCOUNT OF INTERNATIONAL TOUR AND TRAVEL. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS ON THE NATURE OF TOURS AND THE REQUIREMENTS. AO NOTED THAT ASSESSEE DID NOT SUBMIT ANY DETAILS OR ANY BUSINESS REQUIREMENT FOR ANY INTERNATIONAL TOUR. HE ACCORDINGLY DISALLOWED 9 THE CLAIM OF EXPENSES OF 2,83,125/-. AO ALSO NOTICED THAT ASSESSEE HAS CLAIMED EXPENSES OF RS.11,643/- ON ACCOUNT OF TELEPHONE EXPENSES INSTALLED AT RESIDENCE. AO WAS OF THE VIEW THAT THE PERSONAL ELEMENT IN THE EXPENSES CANNOT BE RULED OUT AND IN THE ABSENCE OF ANY DETAILS SUBMITTED BY ASSESSEE REGARDING BUSINESS CALLS, HE DISALLOWED THE AMOUNT OF RS.11,643/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A) WHO UPHELD THE ORDER OF AO BY HOLDING AS UNDER : 5.1 DURING THE APPELLATE PROCEEDING THE LD. COUNSEL OF THE APPELLANT SUBMITTED THAT THE EXPENDITURE ON TRAVEL FOR BUSINESS PURPOSE WAS INCURRED IN INDIA AND WAS WRONGLY GROUPED UNDER THE HEAD INTERNATIONAL TRAVEL & TOUR. IT IS FURTHER STATED THAT THE APPELLANT RESIDES IN DUBAI AND FOR THE PURPOSE OF ATTENDING BUSINESS IS REQUIRED TO VISIT INDIA, ONCE OR TWICE IN A MONTH AND THE EXPENDITURE INCURRED ON ACCOUNT OF AIR FARE & INCIDENTAL EXPENSES ONLY WERE CLAIMED AS ALLOWABLE EXPENDITURE, THEREFORE, THE DISALLOWANCE IS UNJUSTIFIED. 5.2 I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND PERUSED MATERIAL ON RECORD. IT IS NOTICED THAT DURING THE ASSESSMENT PROCEEDINGS THE APPELLANT HAD NOT SUBMITTED THE REQUIREMENT FOR UNDERTAKING INTERNATIONAL TOURS, THOUGH IT WAS STATED THAT THE EXPENSES HAD BEEN INCURRED IN THE ORDINARY COURSE OF BUSINESS. THE APPELLANT IS STATED TO BE RESIDING IN DUBAI AND FOR THE PURPOSE OF ATTENDING TO BUSINESS IS REQUIRED TO VISIT INDIA AND THE SAID EXPENDITURE INCURRED ON ACCOUNT OF AIR FARE HAS BEEN CLAIMED AND THUS THE SAID EXPENDITURE HAS BEEN INCURRED FOR TRAVELLING PURPOSE TO INDIA AND THE SAME HAS WRONGLY BEEN GROUPED AND SHOWN UNDER THE HEAD 'INTERNATIONAL TRAVEL & TOUR'. THE APPELLANT HAS FURNISHED A COPY OF THE DETAILS WHICH HAD ALSO BEEN SUBMITTED BEFORE THE ASSESSING OFFICER, HOWEVER, THE SAID DETAILS DO NOT SPECIFY THE PERSON TRAVELLING AND THE DETAILS THEREOF HAD NEITHER BEEN SUBMITTED BEFORE THE ASSESSING OFFICER NOR DURING THE APPELLATE PROCEEDINGS TO JUSTIFY THE CLAIM. THE SAID EXPENDITURE, THEREFORE, HAS NOT BEEN SUBJECTED TO ANY VERIFICATION -IN THE ABSENCE AND NON-FURNISHING OF THE DETAILS BY THE APPELLANT AND, THEREFORE, THE CLAIM MADE BY THE APPELLANT IS FOUND TO BE NOT TENABLE. 5.3 IN VIEW OF THE ABOVE FACTS, GROUND OF APPEAL NO. 3 RAISED BY THE APPELLANT IS DISMISSED. 6. IN GROUND OF APPEAL NO. 4 RAISED THE APPELLANT HAS CONTESTED THE DISALLOWANCE OF RS. 11,643/- BEING EXPENDITURE INCURRED ON TELEPHONE INSTALLED AT HOME AND USED FOR BUSINESS PURPOSE. THE A.R. OF THE APPELLANT DURING THE ASSESSMENT PROCEEDINGS BEFORE THE ASSESSING OFFICER STATED THAT THERE WAS NO PERSONAL ELEMENT INVOLVED IN THIS EXPENSE AND WAS INCURRED IN ORDINARY COURSE OF 10 BUSINESS. THE ASSESSING OFFICER DECLINED TO ACCEPT THE EXPLANATION SINCE NO DETAILS IN THIS REGARD WERE SUBMITTED SUCH AS BUSINESS CALLS/ANY OTHER CALL DETAILS, THEREFORE, DREW THE CONCLUSION THAT IT INVOLVED PERSONAL ELEMENT AND ADDED THE SAME TO THE INCOME DECLARED. 6.1 I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND PERUSED MATERIAL ON RECORD. THE ONLY ISSUE RAISED IS WITH RESPECT TO THE DISALLOWANCE OF RS.11,643/- BEING EXPENDITURE INCURRED ON TELEPHONE INSTALLED AT THE RESIDENCE AND STATED TO HAVE BEEN USED FOR THE PURPOSE OF BUSINESS. THE ASSESSING OFFICER HAS DISALLOWED THE AFORESAID EXPENDITURE ON THE GROUND THAT NO DETAILS HAD BEEN SUBMITTED WITH RESPECT TO THE EXPENDITURE INCURRED AND CLAIMED TO BE FOR THE PURPOSE OF BUSINESS. THE APPELLANT HAS SUBMITTED A COPY OF THE LEDGER ACCOUNT WHICH WAS ALSO SUBMITTED BEFORE THE ASSESSING OFFICER. THE APPELLANT HAS STATED THAT HE RESIDES AT DUBAI AND , THEREFORE, THE CLAIM OF EXPENDITURE ON TELEPHONE INSTALLED AT RESIDENCE IN INDIA DO NOT APPEAR TO BE JUSTIFIED AND THE APPELLANT HAD ALSO NOT FURNISHED ANY DETAILS BEFORE THE ASSESSING OFFICER SO AS TO SUBSTANTIATE ITS CLAIM. THE APPELLANT HAS ALSO NOT FURNISHED ANY COGENT AND ACCEPTABLE EXPLANATION TO JUSTIFY ITS CLAIM. 6.2 IN VIEW OF THE ABOVE FACTS, GROUND OF APPEAL NO. 4 RAISED BY THE APPELLANT IS DISMISSED. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 8. BEFORE US, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD.CIT(A). LD.D.R. ON THE OTHER HAND, SUPPORTED THE ORDER OF LOWER AUTHORITIES AND SUBMITTED THAT THE ASSESSEE HAS NOT FURNISHED ANY DETAILS BEFORE ANY AUTHORITY NOR HAS FURNISHED ANY DETAILS EVEN BEFORE THE TRIBUNAL. IN SUCH SITUATION, THE AO HAS RIGHTLY DISALLOWED THE EXPENSES. HE THUS SUPPORTED THE ORDER OF AO. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO DISALLOWANCE OF TOUR AND TRAVEL EXPENSES AND TELEPHONE EXPENSES. WE FIND THAT AO WHILE DISALLOWING THE EXPENSES HAS NOTED THAT NO DETAILS OF EXPENSES WERE SUBMITTED BY THE ASSESSEE. 11 LD.CIT(A) HAS ALSO NOTED THAT NO DETAILS WERE FURNISHED EVEN BEFORE HIM DURING THE APPELLATE PROCEEDINGS. BEFORE US, ALSO NO DETAILS HAVE BEEN FURNISHED BY THE ASSESSEE. FOR THE PURPOSE OF CLAIMING DEDUCTION OF U/S 37, THE CONDITIONS MENTIONED IN THE PROVISION HAVE TO BE SATISFIED BY THE ASSESSEE. THE CONDITIONS ARE FIRSTLY THAT THE EXPENDITURE MUST BE REVENUE EXPENDITURE AND NOT IN THE NATURE OF CAPITAL EXPENDITURE, SECONDLY, IT MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE, THIRDLY, IT MUST NOT BE OF THE NATURE DESCRIBED IN SEC.30 TO 36, FOURTHLY EXPENDITURE SHOULD NOT BE PERSONAL EXPENDITURE OF THE ASSESSEE, FIFTHLY THE EXPENDITURE SHOULD HAVE BEEN INCURRED IN THE PREVIOUS YEAR AND FINALLY THE EXPENDITURE SHOULD NOT HAVE BEEN INCURRED FOR THE PURPOSE WHICH IS AN OFFENCE OR IS PROHIBITED BY LAW. IN THE PRESENT CASE, ASSESSEE HAS NOT PRODUCED ANY MATERIAL EITHER BEFORE THE LOWER AUTHORITIES OR BEFORE US TO DEMONSTRATE THE FULFILLMENT OF REQUIRED CONDITIONS FOR CLAIMING THE EXPENSES. IN SUCH A SITUATION, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD.CIT(A) AND THUS THE GROUND OF ASSESSEE IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 20 TH DAY OF SEPTEMBER, 2017. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 20 TH SEPTEMBER, 2017. YAMINI 12 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5. 6. CIT(A)-III, PUNE. CIT-III, PUNE. , , / DR, ITAT, A PUNE; [ / GUARD FILE. / BY ORDER , // / TRUE COPY / / // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE.