DCIT, Bangalore V. M/s Sami Labs Limited, Bangalore

ITA 24/BANG/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63728 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 09-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SARAVANAN
• Keywords: Business income; Business expenditure; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 143(3); 260A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. NO.24/BANG/2012 (ASSESSMENT YEAR : 2005-06) DY. COMMISSIONER OF INCOME TAX, CIRCLE 12(3), BANGALORE. . APPELLANT. VS. M/S. SAMI LABS LIMITED, 19/1 & 19/2, I MAIN, II PHASE, PEENYA INDUSTRIAL ESTATE, BANGALORE-99 .. RESPONDENT. PAN AADCS 2549E APPELLANT BY : SHRI B. SARAVANAN. RESPONDENT BY : NONE. DATE OF HEARING : 20.9.2012. DATE OF PRONOUNCEMENT : 28.09.2012. O R D E R PER SHRI JASON P. BOAZ : THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDE R OF COMMISSIONER OF INCOME TAX (APPEALS)-III, BANGALORE DT.10.10.2011 FOR ASSESSME NT YEAR 2005-06. 2. THE FACTS OF THE CASE, IN BRIEF, ARE AS UNDER : 2.1 THE ASSESSEE COMPANY (HEREIN AFTER REFERRED TO AS THE COMPANY), IN THE BUSINESS OF MANUFACTURE AND EXPORT OF STANDARDIZED HERBAL EXTR ACTS, FINE CHEMICALS, COSMECEUTICALS, PHYTONUTRIENTS AND PROBIOTICS, FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2005-06 DECLARING NIL INCOME AFTER CLAIMING DEDUCTION UNDER SECTION 1 0B OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS 'THE ACT'). THE CASE WAS TAKE N UP FOR SCRUTINY AND THE ASSESSMENT WAS 2 ITA NO.24/BANG/12 COMPLETED BY AN ORDER UNDER SECTION 143(3) OF THE A CT DT.31.10.2008 DETERMINING THE INCOME OF THE ASSESSEE AT RS.6,66,85,875. 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT DT.31.10.2 008, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE LEARNED CIT(A) DISPOSED THE APPEAL BY AN ORDER DT.10.10.2011 ALLOWING THE ASSESSEE PARTIAL RELIEF. 3. REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE O RDER OF THE LEARNED CIT(A) DT.10.10.2011. IN THE GROUNDS OF APPEAL RAISED IT HAS BEEN CONTEND ED AS UNDER : 1. THE ORDER OF THE LEARNED CIT (APPEALS) IN SO FAR AS IT RELATES TO THE FOLLOWING GROUNDS IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. THE CIT (APPEALS) ERRED IN ALLOWING CULTIVATIO N EXPENSES OF RS. 86.67 LAKHS TO BE SET OFF AGAINST OTHER BUSINESS INCOMES ON THE GROUN D THAT THEY WERE INCURRED DUE TO COMMERCIAL EXPEDIENCY RELYING ON THE JURISDICTIONAL ORDER OF ITAT IN ASSESSEES CASE FOR ASSESSMENT YEAR 2004-05 WHILE THIS ORDER OF ITA T HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND APPEAL UNDER SECTION 260A IS PEN DING BEFORE THE HON'BLE HIGH COURT. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED A T THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT (APPEALS) IN SO FAR AS I T RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE ASSESSING OFFICER MAY B E RESTORED. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 4. THE GROUNDS RAISED AT S.NOS.1, 3 AND 4 ARE GENERAL IN NATURE AND THEREFORE NO ADJUDICATION IS CALLED FOR THEREON. 5.1 THE GROUNDS RAISED AT S.NO.2 , CHALLENGES THE ORDER OF LEARNED CIT(APPEALS) ON ACCOUNT OF DELETION OF DISALLOWANCE OF CULTIVATION EXPENSES OF RS.86.87 LAKHS FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ITA NO.41 7/BANG/2010 DT.25.2.2011. THIS IS THE ONLY ISSUE OF DISPUTE IN THIS APPEAL. AT THE OUTSET, TH E LEARNED DEPARTMENTAL REPRESENTATIVE REITERATED THE SUBMISSIONS IN THE GROUNDS OF APPEAL , THAT THOUGH THE ISSUE IS COVERED BY THE 3 ITA NO.24/BANG/12 DECISION OF THIS TRIBUNAL IN THE ASSESSEES OWN CAS E FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2004-05, THE DEPARTMENT HAD NOT ACCEPTED THE D ECISION AND WAS IN APPEAL AGAINST THE SAID ORDER BEFORE THE HON'BLE HIGH COURT OF KARNATAKA. 5.2 WE HAVE HEARD LEARNED DEPARTMENTAL REPRESENTATI VE AND CAREFULLY PERUSED THE MATERIAL ON RECORD IN RESPECT OF THE ISSUE OF DISALLOWANCE OF CULTIVATION EXPENSES OF RS.86.67 LAKHS IN THE RELEVANT PERIOD. THE DISPUTE IS WHETHER THE EXPEND ITURE IS TO BE CONSIDERED AS CAPITAL IN NATURE OR REVENUE EXPENDITURE AS CLAIMED BY THE ASSESSEE. THE HON'BLE HIGH COURT OF KARNATAKA IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 HAS ADJUDICATED THIS ISSUE IN FAVOUR OF THE ASSESSEE, THEREBY AFFIRMING THE FINDING OF THE CO-O RDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 (SU PRA). THE OPERATIVE PORTION OF THE DECISION OF THE HON'BLE HIGH COURT FROM PARAS 5 TO 10 AT PAGE 7 TO 12 THEREOF ARE EXTRACTED HEREUNDER : 5. THE QUESTION FOR CONSIDERATION IS, WHETHER IT IS TO BE CONSIDERED AS CAPITAL EXPENDITURE OR REVENUE EXPENDITURE. THE TRIBUNAL R ELIED ON CIRCULAR NO.6/2007 ISSUED BY THE BOARD, WHEREIN IT HAS BEEN CLARIFIED AS UNDER : 2. THESE EXPENSES ARE INCURRED BY THE SUGAR MILLS FOR ENSURING AN ADEQUATE AND SUSTAINED SUPPLY OF FRESHLY CUT SUGARCANE THAT IS A N ESSENTIAL INPUT FOR THE CONTINUOUS RUNNING OF SUCH MILLS. THESE EXPENSES ARE, THEREFO RE, INCURRED FOR A COMMERCIAL EXPEDIENCY AND ARE PRIMA FACIE WHOLLY AND EXCLUSIVE LY FOR THE PURPOSE OF BUSINESS. SUCH EXPENSES ARE, THEREFORE, ALLOWABLE. . 6. IN FACT, THE APEX COURT HAD AN OCCASION TO CONS IDER THIS QUESTION IN THE CASE OF CIT, MYSORE VS. MYSORE SUGAR CO. LTD. REPORTED IN 1 962 ITR VOL. XLVI PAGE 649. THE QUESTION WHICH WAS POSED FOR CONSIDERATION WAS, FOR WHAT WAS THE MONEY LAID OUT ? WAS IT TO ACQUIRE AN ASSET OF AN ENDURING NATURE FOR THE BENEFIT OF THE BUSINESS OR WAS IT AN OUTGOING IN THE DOING OF THE BUSINESS? I F MONEY BE LOST IN THE FIRST CIRCUMSTANCE, IT IS A LOSS OF CAPITAL, BUT IF LOST IN THE SECOND CIRCUMSTANCE, IT IS A REVENUE LOSS. IN THE FIRST, IT BEARS THE CHARACTER OF AN INVESTMENT, BUT IN THE SECOND, TO USE A COMMONLY UNDERSTOOD PHRASE, IT BEA RS THE CHARACTER OF CURRENT EXPENDITURE. 4 ITA NO.24/BANG/12 7. AFTER REFERRING TO THREE ENGLISH JUDGMENTS, IT WAS HELD TO BE A USE OF MONEY IN THE COURSE OF THE COMPANYS BUSINESS AND NOT AN IN VESTMENT OF CAPITAL AT ALL. THE CASES REFERRED TO THEREIN ILLUSTRATE THE DISTINCTIO N BETWEEN EXPENDITURE BY WAY OF INVESTMENT AND EXPENDITURE IN THE COURSE OF BUSINES S, WHICH HAS BEEN DESCRIBED AS CURRENT EXPENDITURE. THE FIRST MAY TRULY BE REGARD ED AS ON THE CAPITAL SIDE BUT NOT THE SECOND. THE AMOUNT WAS AN ADVANCE AGAINST PRIC E OF ONE CROP. THE OPPIGEDARS WERE TO GET THE ASSISTANCE NOT AS AN INVESTMENT BY THE ASSESSEE COMPANY IN ITS AGRICULTURE, BUT ONLY AS AN ADVANCE PAYMENT OF PRI CE. THE AMOUNT, SO FAR AS THE ASSESSEE COMPANY WAS CONCERNED, REPRESENTED THE CUR RENT EXPENDITURE TOWARDS THE PURCHASE OF SUGARCANE AND IT MAKES NO DIFFERENCE TH AT THE SUGARCANE THUS PURCHASED WAS GROWN BY THE OPPIGEDARS WITH THE SEEDLINGS, FER TILIZERS AND MONEY TAKEN ON ACCOUNT FROM THE ASSESSEE COMPANY. IN SO FAR AS TH E ASSESSEE COMPANY WAS CONCERNED, IT WAS DOING NO MORE THAN MAKING A FORWA RD ARRANGEMENT FOR THE NEXT YEARS CROP AND PAYING AN AMOUNT IN ADVANCE OUT OF THE PRICE, SO THAT THE GROWING OF THE CROP MAY NOT SUFFER DUE TO WANT OF FUNDS IN THE HANDS OF THE GROWERS. THERE WAS HARDLY ANY ELEMENT OF INVESTMENT WHICH CONTEMPLATES MORE THAN PAYMENT OF ADVANCE PRICE. THE RESULTING LOSS TO THE ASSESSEE COMPANY WAS JUST AS MUCH A LOSS ON THE REVENUE SIDE AS WOULD HAVE BEEN, IF IT HAD PAID FOR THE READY CROP WHICH WAS NOT DELIVERED. 8. THEREFORE, THE LAW ON THE POINT IS CLEARLY SETT LED. IF THE MONEY SPENT BY THE ASSESSEE IS BY WAY OF INVESTMENT, THEN THE ASSESSEE IS NOT ENTITLED TO DEDUCT THE SAME AS EXPENDITURE. IT WOULD BE IN THE NATURE OF CAPITAL EXPENDITURE, WHICH IS NOT DEDUCTIBLE. HOWEVER, IF THE MONEY SPENT IS NOT FOR ACQUIRING ASSET OF ENDURING NATURE FOR THE BENEFIT OF THE BUSINESS BUT WHICH IS ONLY A N OUTGOING IN THE DOING OF THE BUSINESS, THEN IT WOULD BE EXPENDITURE IN THE COURS E OF THIS BUSINESS. 9. IF THE ASSESSEE HAS SPENT MONEY BY WAY OF FIN ANCIAL ACCOMMODATION TO THE FARMERS OR EXPENSES INCURRED IN SUPPLYING SEEDLING, FERTILIZERS AND FOR OTHER CULTIVATION EXPENSES, THEN IT WOULD BE IN THE NATUR E OF REVENUE EXPENDITURE. IT IS INCURRED BY THE ASSESSEE FOR A COMMERCIAL EXPEDIENC Y. IT WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE ASS ESSEE WOULD BE ENTITLED FOR ALLOWANCE OF THE SAID CULTIVATION EXPENSES AS REVEN UE EXPENDITURE. 10. IN THE INSTANT CASE, MATERIAL ON RECORD DIS CLOSE, THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE AND EXPORT OF STANDARDIZED HERBAL EX TRACTS AS WELL AS IN THE MANUFACTURE OF FINE CHEMICALS. IN ORDER TO CARRY O N THEIR BUSINESS, THEY WERE IN NEED OF HERBAL COLEUS PLANTS, THEY THOUGHT OF ROPIN G THE FARMERS FOR GROWING SAID HERBAL PLANT. THEY PROVIDED SEEDLINGS, FERTILIZER AND FINANCIAL ASSISTANCE TO THE FARMERS WITH AN AGREEMENT TO DEDUCT THE EXPENSES OU T OF THE COST OF THE PLANT SOLD BY THE FARMERS. BUT, EVEN THE FARMERS COULD NOT GR OW THE SAID HERBAL PLANT. CONSEQUENTLY, THEY SUSTAINED LOSS AND IN TURN THE A SSESSEE SUSTAINED LOSS. THE SAID CULTIVATION EXPENSES WERE RS. 9064 LAKHS. THEREFOR E, THE ASSESSEE CLAIMED THE SAID AMOUNT AS REVENUE EXPENDITURE AS THE SAID EXPENDITU RE WAS INCURRED TO FACILITATE ITS BUSINESS AND DUE COMMERCIAL EXPEDIENCY. AS SUCH TH E LOSSES ARE PRIMARILY 5 ITA NO.24/BANG/12 ATTRIBUTABLE TO THE BUSINESS WHICH THE ASSESSEE IS CARRYING ON AND THE SAID EXPENSES ARE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSIN ESS. THE SAID CULTIVATION EXPENSES INCURRED BY THE ASSESSEE IS IN THE NATURE OF REVENU E EXPENDITURE IN THE COURSE OF BUSINESS AND THE ASSESSEE IS ENTITLED TO DEDUCTION OF THE SAME AS BUSINESS EXPENDITURE. THEREFORE, THE TRIBUNAL IS JUSTIFIED IN UPHOLDING SUCH CLAIM AND GRANTING RELIEF TO THE ASSESSEE. WE, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN ITA NO.207/2011 DT.21.2.2012 IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 ALLOW THE ASSESSEES CLAIM OF CULTIVATION EXPENSES AMOUNTING TO RS.86.67 LAKHS, INCURRED IN THE PERIOD RELEVANT TO ASSESSMENT YEAR 2005-06, AS BUSINESS E XPENDITURE. 12. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.092012. SD/- SD/- (GEORGE GEORGE K) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMB ER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, - A BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDE R SR. PRIVATE SECRETARY, ITAT, BANGALORE