M/s. KRP Poultries Pvt. Ltd,( formerly M/s. Pujya Sujatha Agro Farms(p)Ltd. , Visakhapatnam V. The ITO, Visakhapatnam

ITA 272/VIZ/2016

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 4367 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 5 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-04-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 05-05-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Capital expenditure
• Section: 37

Judgement Text

आयकरअपीलीयअधिकरण, धिशाखापटणम पीठ, धिशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM श्री द ु व्वूरु आर एल रेड्डी, न्याधयक सदस्य एिं श्री एस बालाकृ ष्णन, लेखा सदस्य के समक्ष BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकर अपील सं./I.T.A.No.272/Viz/2016 (ननधधारण वर्ा / Assessment Year : 2006-07) M/s KPR Poultries Pvt. Ltd (formerly known as M/s Pujya Sujatha Agro Farms (P) Ltd.) Door No.10-27-16, Kailashmetta Opp.Governor’s Bungalow Waltair Uplands, Visakhaptnam [PAN : AACCP1391A] Vs. Income Tax Officer Ward-4(1) Visakhapatnam (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) अपीलधथी की ओर से/ Appellant by : Shri GVN Hari, AR प्रत्यधथी की ओर से / Respondent by : Shri SPG Mudaliar, DR सुनवधई की तधरीख / Date of Hearing : 16.03.2022 घोर्णध की तधरीख/Date of Pronouncement : 19.04.2022 आदेश /O R D E R Per Shri Duvvuru RL Reddy, Judicial Member : This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals) [CIT(A)]-2, Guntur in ITA No.154/2011-12 dated 23.12.2015 for the Assessment Year (A.Y.) 2006- 07. 2. Brief facts of the case are that the assessee filed its return of income on 28.11.2016, admitting total income of Rs.43,730/- besides 2 I.T.A. No.272/Viz/2016, A.Y.2006-07 M/s K.P.R.Poultries (P) Ltd., Visakhapatnam agricultural income of Rs.2,25,800/-. The source of income as admitted in the return was lease rent on leasing out the poultry farms as business income besides income u/s 41(1) admitted under the head ‘Business Income’. In the first round of litigation, the Assessing Officer (AO) had treated the lease rent under the head ‘other sources’ and determined the total income at Rs.6,40,810/- disallowing the admissible expenses as deduction either u/s 37 or u/s 57(ii) of the Act. On appeal, the Ld. CIT(A) allowed the appeal of the assessee by holding that all the expenses incurred by the assessee are for business purposes and therefore they are allowable expenses u/s. 37 of the Act. Aggrieved by the order of the Ld. CIT (A), the revenue went on appeal before the ITAT. ITAT, Visakhapatnam Bench, vide ITA No. 490/Viz/2009, had partly allowed the Revenue’s appeal by holding that apart from depreciation and insurance expenses allowed by the AO, the other expenses viz., the poultry equipment repairs, salary and wages, staff welfare, repair and maintenance, printing and stationery, miscellaneous expenses, tax presentation fees, audit fees, filing fees and other bank charges are also to be allowed, since the assessee is a private limited company and the minimum expenditures are to be incurred to keep the assessee company alive and accordingly, the Ld. AO was directed to estimate the expenses 3 I.T.A. No.272/Viz/2016, A.Y.2006-07 M/s K.P.R.Poultries (P) Ltd., Visakhapatnam reasonably and decide the issue. Thereafter, the Ld. AO giving effect to the Tribunal’s order passed consequential order on 14.06.2011 and determined the assessee’s total income at Rs.5,74,444/- which includes income from business at Rs.1,42,084/- and income from other sources at Rs.4,32,360/-. Aggrieved by the order of the Ld. AO’s consequential order, the assessee went on appeal before the Ld. CIT (A). On appeal, in the second round of proceedings, the Ld. CIT(A) has partly allowed the assessee’s appeal. On being aggrieved with the decision of the Ld.CIT(A), the assessee preferred appeal before the Tribunal by raising the following grounds of appeal. 1. The learned Commissioner of Income Tax (Appeals) order is erroneous both on facts and law of the case. 2. The learned Commissioner of Income Tax (Appeals) erred in interpreting the order of the Honorable Income Tax Appellate Tribunal and disregarded directors given therein. 3. The order of Commissioner of Income Tax (Appeals) needs to be revised to comply with the direction of the Honorable Income Tax Appellate Tribunal (ITAT) with referred to allowability of the expense. 4. For these and any other grounds may with the Prior permission of the Honor raised before the Honorable Income Tax Appellate Tribunal. However, subsequently, the assessee has filed a petition for admission of revised grounds of appeal which read as follows : 1. The order of the learned Commissioner of Income Tax 4 I.T.A. No.272/Viz/2016, A.Y.2006-07 M/s K.P.R.Poultries (P) Ltd., Visakhapatnam (Appeals) is contrary to the facts and also the law applicable to the facts of the case. 2. The learned Commissioner is not justified in upholding the addition of Rs. 72,000/- made by the assessing officer towards disallowance of management salaries. 3. The learned Commissioner of Income Tax (Appeals) ought to have directed the assessing officer to allow the entire expenditure of Rs.83,558/ towards staff salaries as against only a sum of Rs.7,800 allowed by him. 4. The learned Commissioner of Income Tax (Appeals) is not justified in allowing only the petrol cost of Rs. 10,033/- as against the additions of Rs. 34,871/- & Rs. 94,274/- made by the assessing officer towards disallowance of expenditure incurred towards vehicle repairs and vehicle maintenance respectively. 5. The learned Commissioner of Income Tax (Appeals) is not justified in sustaining the addition of Rs. 2,03,112/- made towards disallowance of poultry equipment repairs. 6. The learned Commissioner of Income Tax (Appeals) is not justified in holding that above poultry expenses are in the nature of current repairs and hence not allowable in the hands of the appellant as lessor. 7. Any other ground that may be urged at the time of appeal hearing. 5. Ground No.1 and 7 are general in nature, which does not require specific adjudication. 6. Ground No.2 is related to disallowance of management salaries of Rs.72,000/-. The Ld.AR submitted that the AO held that management salaries do not qualify for any deduction as it is not essential expenditure 5 I.T.A. No.272/Viz/2016, A.Y.2006-07 M/s K.P.R.Poultries (P) Ltd., Visakhapatnam to keep the company alive. The Ld.CIT(A), relying on the decision of Coordinate Bench of ITAT held that “on perusal of the ITAT order, it shows that this head is not included in the directions of the ITAT to be considered by the AO. Salaries and wages come under different heads and are considered separately”. Accordingly, the Ld.CIT(A) upheld the order passed by the AO. 7. Aggrieved by the order of the Ld.CIT(A), the assessee preferred an appeal before the Tribunal and submitted that the Ld.CIT(A) is not justified in upholding the addition of Rs.72,000/- made by the AO towards disallowance of management salaries and pleaded for allowing the same as management salaries are very much necessary to keep the assessee company alive. 8. On the other hand, the Ld.DR heavily placed reliance on the order of the Ld.CIT(A) and pleaded for upholding the same. 9. We have heard both the parties, perused the material available on record and also the order passed by the Hon’ble ITAT, Visakhapatnam. It is abundantly clear that the ITAT order shows that the head ‘management salaries’ is not included to be considered by the AO, to keep the assessee company alive and very much necessary to be incurred. 6 I.T.A. No.272/Viz/2016, A.Y.2006-07 M/s K.P.R.Poultries (P) Ltd., Visakhapatnam Therefore, ITAT has not remitted the issue back to the file of the AO. Hence, we do not find any infirmity in the order passed by the Ld.CIT(A) and uphold the same. Accordingly, appeal of the assessee on this ground is dismissed. 10. Ground No.3 is related to disallowance of expenditure in respect of staff salaries. The AO disallowed the expenditure related to staff salaries observing that some employees of the assessee company were attending to the obligation to the lessor with regard to the poultry equipment / shed etc and the staff who are regularly attending the duties are paid less @Rs.650/- and @ Rs.700/- per month, but those who had worked occasionally are paid maximum salaries upto Rs.3000/- per month. The assessee company leased out the entire poultry complex and is deriving income from lease and the only interest of the company in the said premises is to look after agricultural activities. There exists no separate office for the company to pay salaries to six employees. Accordingly, the AO disallowed the expenditure u/s 57(iii) of the Act. 11. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A). The Ld.CIT(A) upheld the order passed by the AO and disallowed the expenditure claimed under the head ‘staff salaries’ 7 I.T.A. No.272/Viz/2016, A.Y.2006-07 M/s K.P.R.Poultries (P) Ltd., Visakhapatnam observing that when the entire poultry complex has been leased out, there is no justification to pay salaries to six employees. 12. Aggrieved by the order of the Ld.CIT(A), the assessee preferred an appeal before the Tribunal. The Ld.AR submitted that the assessee is maintaining one bore well and all the major capital expenditure for buildings, equipment is to be borne by the lessor. Staff are engaged for salaries less than Rs.10,000/- per month required to carry out repairs, accounting, watch and ward supervision. The Ld.AR submitted that the AO allowed only a sum of Rs.7,800/- as against the entire expenditure of Rs.83,558/- claimed towards staff salaries and the same was upheld by the Ld.CIT(A) which is unjustified. The Ld.AR pleaded for allowing the same. 13. On the other hand, the Ld.DR relied on the order of the Ld.CIT(A) and requested to uphold the same. 14. We have heard both the parties and perused the material available on record. It is evident that the assessee leased out entire poultry complex. The assessee could not justify as to why an expenditure of around Rs.80,000/- per month is incurred to maintain one bore well at the cost which is less than Rs.50,000/- only. We are of the view that when the entire poultry complex has been leased out, there is no justification to 8 I.T.A. No.272/Viz/2016, A.Y.2006-07 M/s K.P.R.Poultries (P) Ltd., Visakhapatnam pay salaries to six employees. We find no infirmity in the order passed by the Ld.CIT(A) and uphold the same. Accordingly, this ground raised by the assessee is dismissed. 15. Ground No.4 is related to disallowance of expenditure towards vehicle repairs and vehicle maintenance. The assessee agreed before the AO that the expenditure incurred for vehicle repairs and vehicle maintenance amounting to Rs.34,871/- and Rs.94,274/- respectively was related to tractor but not lease income. However, claimed that an amount of Rs.10,000/- was spent for petrol for vehicles used by staff in performance of the duties of the company. The AO observed that the petrol was purchased in quantities of 6 to 12 litres at a time. The AO disallowed the entire expenditure u/s 57(iii) of the Act, observing that if petrol was purchased for staff vehicles it would have been in small quantities for attending to local jobs. 16. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A) and the Ld.CIT(A) upheld the order of the AO with regard to expenditure incurred for vehicle repairs and vehicle maintenance. However, allowed the amount of Rs.10,033/- claimed for 9 I.T.A. No.272/Viz/2016, A.Y.2006-07 M/s K.P.R.Poultries (P) Ltd., Visakhapatnam purchase of petrol for vehicles used by staff as there is possibility of incurring the expenditure. 17. Aggrieved by the order of the Ld.CIT(A), the assessee preferred an appeal before the Tribunal. The Ld.AR submitted that the Ld.CIT(A) is not justified in allowing only the petrol cost of Rs.10,033/- as against the addition of Rs.34,871/- and Rs.94,274/- made by the AO towards disallowance of expenditure incurred towards vehicle repairs and vehicle maintenance respectively and pleaded for setting aside the order of the CIT(A) and allow the expenditure claimed. 18. On the other hand, the Ld.DR objected for the same and pleaded for upholding the order of the Ld.CIT(A). 19. We have heard both the parties and perused the material placed on record. It is known fact and evident that the assessee company has leased out the entire poultry complex. The assessee agreed before the AO that the expenditure amounting to Rs.34,871/- and Rs.94,274/- incurred related to tractor but not lease income. The Ld.CIT(A) has allowed only an amount of Rs.10,033/- spent towards petrol for vehicles used by the staff as there is possibility of incurring this expenditure. We do not find 10 I.T.A. No.272/Viz/2016, A.Y.2006-07 M/s K.P.R.Poultries (P) Ltd., Visakhapatnam any infirmity in the order passed by the Ld.CIT(A) and uphold the same. Accordingly, the ground raised by the assessee is dismissed. 20. Ground No.5 is related to disallowance of poultry equipment repairs. The AO disallowed an amount of Rs.1,88,242/- incurred towards poultry repairs u/s 57(iii) of the Act, observing that the said expenditure was capital expenditure which, as per the lease deed, has to be borne by the lessor i.e. the assessee. When the lease income of the assessee company is treated as income from other sources, then no capital expenditure can be allowed. 21. With regard to poultry maintenance of Rs.14,870/-, the expenditure pertained to maintenance of one bore well used by the lessees as agreed in the lease deed. The AO observed that when the entire poultry is leased out, it is not explained why the lessor (assessee) had agreed to maintain one bore well. The AO further observed as per the information available on record that the assessee company has agricultural activity and it is also maintaining a guest house in the poultry complex premises and the water drawn by the bore wells is shared by the assessee. Accordingly the AO has not considered the expenditure under poultry maintenance for deduction u/s 57(iii) of the Act and disallowed the same. 11 I.T.A. No.272/Viz/2016, A.Y.2006-07 M/s K.P.R.Poultries (P) Ltd., Visakhapatnam 22. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A) and the Ld.CIT(A). The Ld.CIT(A) upheld the order of the AO, observing that as per clause 6 of the lease agreement, the lessee should bear all the repairs, claims etc, arising out of their maintenance in the lease period. Only the major capital expenditure for buildings, equipment shall be borne by the lessor, i.e. the assessee. The Ld.CIT(A) verified different bills produced, which are of the value less than Rs.12,560/- which show that the items of expenditure are in the nature of routine expenditure, which are to be borne by the lessee, but not by the assessee. No bills were produced for one item of the value of Rs.1,20,000/- to prove that this amount is to enhance the capacity of the asset under lease, which is to be borne by the lessee but not the lessor i.e. the assessee. Accordingly disallowed the entire expenditure of Rs.2,03,112/-. 23. Aggrieved by the order of the CIT(A), the assessee preferred an appeal before the Tribunal. The Ld.AR submitted that the Ld.CIT(A) erred in sustaining the addition of Rs.2,03,112/- made towards disallowance of poultry equipment repairs which needs to be deleted. 12 I.T.A. No.272/Viz/2016, A.Y.2006-07 M/s K.P.R.Poultries (P) Ltd., Visakhapatnam 24. On the other hand, the Ld.DR argued that since the expenditure is to be borne by the lessee as per the lease agreement, but not by the lessor, i.e. the assessee, the expenditure needs to be disallowed. 25. We have heard both the parties and perused the material placed on record. We are of the view that since the poultry complex was leased out, as per the lease agreement, the lessee should bear all the repairs, claims etc. arising out of the maintenance during the lease period. The Ld.CIT(A) observed from different bills produced that the items are petty in nature, which are to be borne by the lessee. No evidence was produced for the amount claimed of value of Rs.1,20,000/- before the CIT(A) nor before the Tribunal to enhance the capacity of asset under lease, which was treated as the expenditure to be borne by the lessee, but not the lessor. We do not find any infirmity in the order passed by the Ld.CIT(A) and accordingly, uphold the same. Hence, the ground of the assessee is dismissed. 26. In the result, the appeal filed by the assessee is dismissed. 13 I.T.A. No.272/Viz/2016, A.Y.2006-07 M/s K.P.R.Poultries (P) Ltd., Visakhapatnam Order pronounced in the open court on 19 th April, 2022. Sd/- Sd/- (एस बालाकृ ष्णन) (द ु व्वूरु आर.एल रेड्डी) (S.BALAKRISHNAN) (DUVVURU RL REDDY) लेखा सदस्य/ACCOUNTANT MEMBER न्याधयक सदस्य/JUDICIAL MEMBER Dated : 19.04.2022 L.Rama, SPS आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. ननधधाऩरती/ The Assessee– M/s KPR Poultries Pvt. Ltd, (formerly known as M/s Pujya Sujatha Agro Farms (P) Ltd.), Door No.10-27-16, Kailashmetta, Opp.Governor’s Bungalow, Waltair Uplands, Visakhaptnam 2. रधजस्व/The Revenue – Income Tax Officer, Ward-4(1), Visakhapatnam 3. प्रधान आयकर आयुक्त / The Pr.Commissioner of Income-tax-2, Visakhapatnam 4. The Commissioner of Income Tax (Appeals)-2, Guntur 5. नवभधगीय प्रनतनननध, आयकर अपीलीय अनधकरण, नवशधखधपटणम/ DR,ITAT, Visakhapatnam 6.गधर्ा फ़धईल / Guard file आदेशधनुसधर / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam