Gujarat Green Revolution Co. Ltd., Baroda V. The ACIT.,Circle-1(1), Baroda

ITA 3273/AHD/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67519 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 15-07-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 10-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Keywords: Capital asset; Depreciation; Business expenditure; Additional depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

ITA NO 3270 TO 32 73/AHD/2010 . A.Y. 2004-05 TO 2007- 08 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD (BEFORE SHRI D.K. TYAGI J.M. & SHRI ANIL CHATURVED I, A.M.) I.T. A. NOS. 3270 TO 3273/AHD/2010 (ASSESSMENT YEARS: 2004-05 TO 2007-08) GUJARAT GREEN REVOLUTION CO. LTD. OPP. TRAINING INSTITUTE, PO FERTILIZERNAGAR, DIST. BARODA (APPELLANT) VS. THE ACIT 1(1), AAYAKAR BHAVAN, RACE COURSE, BARODA (RESPONDENT) PAN: AABCG0798F APPELLANT BY : SHRI MILIN MEHTA RESPONDENT BY : SHRI P.L. KUREEL, SR. D.R. ( )/ ORDER DATE OF HEARING : 15-07-20 13 DATE OF PRONOUNCEMENT : 02-08-2013 PER SHRI ANIL CHATURVEDI,A.M. 1. THESE FOUR APPEALS ARE FILED BY THE ASSESSEE AGAINS T THE ORDER OF CIT(A)- I, BARODA FOR A.YS. 2004-05 TO 2007-08. 2. BEFORE US, AT THE OUTSET, THE LEARNED A.R. SUBMITTE D THAT IN ALL THE FOUR APPEALS, THE FACTS AND ISSUE ARE IDENTICAL EXCEPT F OR THE AMOUNT AND THEREFORE ALL THE FOUR APPEALS CAN BE DISPOSED OFF TOGETHER. WE THEREFORE PROCEED TO DISPOSE OF ALL THE APPEALS BY A CONSOLID ATED ORDER. ITA NO 3270 TO 32 73/AHD/2010 . A.Y. 2004-05 TO 2007- 08 2 WE FIRST TAKE UP ITA NO. 3270/AHD/2010 FOR A.Y. 200 4-05. 3. THE FACTS AS CULLED OUT FROM THE ORDER OF LOWER AUT HORITIES ARE AS UNDER. 4. ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF TI SSUE CULTURE ACTIVITIES. IT FILED ITS RETURN OF INCOME FOR A.Y. 2004-05 ON 30.10.2004 DECLARING LOSS OF RS. 62,45,516/-. THE CASE WAS SE LECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 29.09.2006 AND THE TOTAL LOSS WAS DETERMINED AT RS. 48,00,406/-. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASSESS EE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 22.09.2010 G RANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER O F CIT(A) THE ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLO WING EFFECTIVE GROUNDS:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSIN G OFFICER IN DISALLOWING AN AMOUNT OF RS. 1,02,300/- BEING AMORT IZATION OF EXPENSES. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSIN G OFFICER IN DISALLOWING AN AMOUNT OF RS.10,71,565/- CONSIDERING THE SAME AS CAPITAL EXPENDITURE. IT MAY BE MENTIONED THAT THE ABOVE EXPENSES WERE IN CURRED ON PRELIMINARY SURVEY FOR AQUA AND AGRO PROJECT AND NO T FOR NEW BUSINESS. THE SAID PROJECT WAS NOT UNDERTAKEN AND T HEREFORE THE APPELLANT HAD CLAIMED THE SAID EXPENSES IN THE YEAR UNDER CONSIDERATION. WITHOUT PREJUDICE TO THE ABOVE THE LEARNED AO MAY B E DIRECTED TO ALLOW THE SAID EXPENSES IN AY 2001-02. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSIN G OFFICER IN ITA NO 3270 TO 32 73/AHD/2010 . A.Y. 2004-05 TO 2007- 08 3 DISALLOWING AN AMOUNT OF RS. 35,000/- OUT OF LEGAL AND PROFESSIONAL FEES ON THE GROUND THAT THE SAID EXPENSES ARE INCUR RED ON THE AQUA AND AGRO PROJECT AND THEREFORE NOT ALLOWABLE UNDER THE ACT. 4.. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASS ESSING OFFICER IN CLASSIFYING GREEN HOUSE AS 'BUILDING' INSTEAD OF 'P LANT' FOR THE PURPOSE OF DEPRECIATION U/S. 32 OF THE ACT AND ALLO WING DEPRECIATION @ 10% ON GREEN HOUSES INSTEAD OF 25% CLAIMED BY THE APPELLANT AND THEREBY CONFORMING THE ADDITION OF RS. 8,91,018/-. 5. BEFORE US, AT THE OUTSET IT WAS SUBMITTED BY LD. A. R. THAT GROUND NO.1 OF THE PRESENT APPEAL IS IDENTICAL TO GROUND NO. 1 OF ITA NO. 3271 FOR A.Y. 2005-06 AND GROUND 2 OF ITA NO. 3272 FOR A.Y. 2007- 08 AND THE SAME ARE NOT PRESSED DUE TO SMALLNESS OF AMOUNT WE THERE FORE ALL THESE GROUNDS ARE DISMISSED AS NOT PRESSED. GROUND NO. 2 AND 3 ARE INTERCONNECTED AND ARE WITH RESPECT TO EXPENSES INCURRED ON PRELIMINARY SURVEY FOR AQUA AN D AGRO PROJECT. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESS ING OFFICER NOTICED THAT THE ASSESSEE HAD INCURRED EXPENDITURE OF RS. 1 0,71,565/- FOR PRELIMINARY SURVEY AND OTHER RELATED TECHNICAL MATT ERS OF AQUA & AGRO PROJECT. THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLA IM. THE ASSESSEE INTERALIA SUBMITTED THAT MANAGEMENT HAD TAKEN A DEC ISION TO DEFER THE IMPLEMENTATION OF THIS PROJECT AND WAS EXPLORING TH E POSSIBILITY OF UNDERTAKING THE SAME UNDER SEPARATELY CONSTITUTED C OMPANY. SINCE THE IMPLEMENTATION OF THE PROJECT AND THE POSSIBILITY O F UNDERTAKING IT IN UNDER A SEPARATE COMPANY WAS NOT POSSIBLE AND THERE FORE THE ASSESSEE HAD DECIDED TO WRITE OFF THE EXPENDITURE. THE SUBMI SSIONS MADE BY THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE ASSESSING OFFICER AS HE WAS OF THE VIEW THAT THE EXPENSES INCURRED ON THE PROJECT WHICH WAS ABANDONED ITA NO 3270 TO 32 73/AHD/2010 . A.Y. 2004-05 TO 2007- 08 4 WAS OF CAPITAL IN NATURE. HE WAS FURTHER OF THE VI EW THAT THE CAPITAL EXPENDITURE EVEN ON ABANDONED PROJECT REMAINS CAPIT AL EXPENDITURE. HE ACCORDINGLY DISALLOWED THE CLAIM OF THE ASSESSEE. A GGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER B EFORE CIT(A). CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER BY HOLDING AS UNDER:- 5.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE, THE SUBMISSIONS OF THE APPELLANT AND THE ASSESSMENT ORDER. IT IS U NDISPUTED THAT THE EXPENDITURE WAS INCURRED ON PRELIMINARY SURVEY AND OTHER TECHNICAL MATTERS IN CONNECTION WITH A NEW PROJECT. IT IS ALS O AN ADMITTED FACT THAT THE EXPENDITURE WAS FOR A NEW PROJECT NOT SHOWN TO BE DIRECTLY CONNECTION TO THE BUSINESS AFFAIRS OF THE APPELLANT . IN THE CASE OF CIT VS. MANEKLAL INDUSTRIES , 107 ITR 133 (GUJ), IT IS HELD THAT EXPENDITURE INCURRED ON GETTING EXPERT OPINION FOR SETTING UP A FACTORY IS NOT AN ALLOWABLE DEDUCTION. FURTHER IN THE CASE OF TRIVENI ENGINEERING WORKS V CIT 232 ITR, 639 (DEL) IT IS HELD THAT THE AMOUNT S PENT ON PROJECT REPORT IS A CAPITAL EXPENDITURE. THE DECISION IN THE CASE. OF CIT V JYOTI LTD,- 255 ITR 345 (GUJ) CITED BY THE LD, AR IS DISTINGUISHABL E ON FACTS AS IN THAT CASE THE EXPENDITURE ON TECHNICAL REPORT WAS SHOWN TO HAVE BEEN INCURRED FOR EXPANSION OF BUSINESS WHILE IN THE CUR RENT CASE NO SUCH INTENTION IS APPARENT FROM RECORDS. IN THE CASE OF DCIT V ASSAM ASBESTOS 263 ITR 357 (GAU) RELIED UPON BY LD AR THE EXPENDITURE ALSO WAS INCURRED IN LINE WITH THE EXISTING BUSINESS, TH US THE AO WAS JUSTIFIED IN TREATING THE EXPENDITURE OF RS, 10,71,765/- AND RS.35,000/- AS SUNK COST AND A CAPITAL LOSS. GROUNDS NO. 2 & 3 ARE DISM ISSED. 7. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE IS NO W IN APPEAL BEFORE US. 8. BEFORE US, THE LEARNED A.R. SUBMITTED THAT THE EXPE NDITURE WAS INCURRED IN A.Y. 2001-2002 WHICH CONSTITUTED EXPENSES ON TRA VELLING OF RS. 10,59,780/-, ON TELEPHONE RS. 412/- PRINTING AND ST ATIONARY RS. 3136/- AND SURVEY OF RS. 8237/-. THESE EXPENSES WERE INCU RRED FOR THE AQUA ITA NO 3270 TO 32 73/AHD/2010 . A.Y. 2004-05 TO 2007- 08 5 AGRO PROJECT . THE LEARNED A.R. FURTHER SUBMITTED T HAT THE ASSESSEE WAS ALREADY INTO THE BUSINESS OF TISSUE CULTURE ACTIVIT IES AND OPEN FILL ACTIVITIES RELATING TO AGRICULTURE PROJECTS. AQUA AGRO PROJECT WAS CONSIDERED AS PART OF THE EXISTING BUSINESS AS THE PROPOSED LINE OF BUSINESS WAS SAME AS THAT OF EXISTING BUSINESS. T HE PROJECT WAS ABANDONED IN THE YEAR UNDER APPEAL AND THEREFORE, T HE ASSESSEE HAS CLAIMED THE ENTIRE EXPENDITURE IN THE CURRENT YEAR. HE FURTHER SUBMITTED THAT THERE WAS NO ENDURING BENEFIT OR ADDITION IN C OMMERCIAL SENSE AS NOW NEW ASSET HAD COME INTO EXISTENCE AND THEREFORE NO BENEFIT ACCRUED TO THE ASSESSEE. HE FURTHER PLACED RELIANCE ON THE DECISIONS IN THE CASE OF CIT VS. JYOTI ELECTRIC MOTORS LTD. 255 ITR 345 GUJA RAT, CIT VS. PRIYA VILLAGE ROADSHOWS LTD. 228 CTR 271, INDORAMA SYNTHE TICS INDIA LTD. VS. CIT 228 CTR 278 (DELHI) AND DCIT VS. ASSAM ASBE STOS LTD. 263 ITR 357 GUWAHATI. HE THUS URGED THAT THE EXPENSES W RITTEN OFF BE ALLOWED TO THE ASSESSEE. 9. THE LEARNED D.R. ON THE OTHER HAND RELIED ON THE OR DER OF ASSESSING OFFICER AND CIT(A). 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS ENGAG ED IN THE BUSINESS OF TISSUE CULTURE ACTIVITIES AND OPEN FILL ACTIVITIES RELATING TO AGRICULTURE PROJECTS. THE ASSESSEE HAS STATED TO HAVE INCURRED THE EXPENDITURE IN A.Y. 2001-02 TOWARDS PRELIMINARY SURVEY AND OTHER R ELATED TECHNICAL MATTERS FOR AQUA AND AGRO PROJECT. SINCE THE ASSES SEE COULD NOT PROCEED WITH THE AQUA AND AGRO PROJECT, THE ENTIRE EXPENDITURE WAS CLAIMED AS A REVENUE EXPENDITURE. IT IS ALSO A FAC T THAT NO CAPITAL ASSET ITA NO 3270 TO 32 73/AHD/2010 . A.Y. 2004-05 TO 2007- 08 6 COME INTO EXISTENCE. THE ASSESSEE HAS STATED THAT T HE NEW PROPOSED BUSINESS WAS AN EXPANSION OF THE EXISTING BUSINESS. IN THE PRESENT CASE THE ASSESSEE HAS PROPOSED TO SET UP AQUA AGRO PROJE CT WHICH WAS ADMITTEDLY AN EXPANSION OF THE EXISTING PROJECT. TH E PROPOSED NEW PROJECT IS STATED TO HAVE INEXTRICABLE LINKAGE WITH THE EXISTING BUSINESS OF THE ASSESSEE. IT IS ALSO A FACT THAT NO NEW ASSET H AS COME TO BE CREATED BY THE INCURRING OF EXPENSES. BEFORE US, THE REVENUE COULD NOT BRING ANY MATERIAL ON RECORD TO CONTROVERT THE SUBMISSION OF THE ASSESSEE. 11. IN THE CASE OF CIT VS. PRIYA VILLAGE ROADSHOWS LIMI TED (SUPRA) THE HON. HIGH COURT RELYING ON THE DECISION IN THE CASE OF T RIVENI ENGINEERING WORKS LIMITED VS. CIT (1998) 232 ITR 639 (DEL.) AND IN THE CASE OF CIT VS. MODI INDUSTRIES (1993) 200 ITR 341 (DEL.) HAS H ELD AS UNDER:- 10 A HARMONIOUS READING OF THE AFORESAID TWO JUDGM ENTS OF THIS COURT NAMELY TRIVENI ENGINEERING WORK LIMTED (SUPRA) ON T HE ONE HAND AND MODI INDUSTRIES (SUPRA) ON THE OTHER WOULD CLEARLY DEMONSTRATE THAT ONE HAS TO KEEP IN MIND. THE ESSENTIAL PURPOSE FOR WHIC H SUCH AN EXPENDITURE IS INCURRED. IF THE EXPENDITURE IS INCURRED FOR ST ARTING NEW BUSINESS WHICH WAS CARRIED OUT BY THE ASSESSEE EARLIER, THEN SUCH EXPENDITURE IS HELD TO BE OF CAPITAL NATURE. IN THAT EVENT IT WOU LD BE IRRELEVANT AS TO WHETHER PROJECT REALLY MATERIALIZED OR NOT. HOWEVE R, IF THE EXPENDITURE INCURRED IS IN RESPECT TO THE SAME BUSINESS WHICH H AS ALREADY CARRIED ON BY THE ASSESSEE, EVEN IT IS FOR THE EXPANSION OF TH E BUSINESS , NAMELY, TO SUPPORT NEW UNIT WHICH IS SAME AS THE EARLIER BUSIN ESS AND THERE IS UNITY OF CONTROL AND A COMPANY FOUND THEN SUCH EXPENSE IS TO BE TREATED AS A BUSINESS EXPENDITURE. IN SUCH A CASE WHETHER NEW B USINESS/ASSET COMES INTO EXISTENCE OR NOT WOULD NOT BECOME A RELEVANT F ACTOR IF THERE IS NO CREATION OF NEW ASSET THEN THE EXPENDITURE WOULD BE OF REVENUE IN NATURE. HOWEVER, IF THE NEW ASSET COMES INTO EXIST ENCE WHICH IS OF ENDURING BENEFIT THEN SUCH EXPENDITURE WOULD BE OF CAPITAL NATURE. ITA NO 3270 TO 32 73/AHD/2010 . A.Y. 2004-05 TO 2007- 08 7 12. CONSIDERING THE AFORESAID FACTS AND RELYING ON THE AFORESAID DECISION OF THE HIGH COURT, WE ARE OF THE VIEW THAT THE EXPENDI TURE IN THE PRESENT CASE CANNOT BE CONSIDERED TO BE OF CAPITAL NATURE A ND THEREFORE, THE CLAIM OF THE ASSESSEE NEEDS TO BE UPHELD. THUS THIS GROU ND OF THE ASSESSEE IS ALLOWED. GROUND NO. 4 IS WITH RESPECT TO CLASSIFYING GREE NHOUSE AS BUILDING IN STEAD OF PLANT FOR THE PURPOSE OF DEPRECIATION. 13. BEFORE US THE LD. A.R. SUBMITTED THAT THE FACTS IN THE PRESENT GROUND IS SIMILAR TO GROUND NO. 2 FOR A.Y. 2005-06, GROUND NO . 1 FOR A.Y. 2006-07 AND GROUND NO. 1 FOR A.Y. 2007-08 EXCEPT FOR THE AM OUNTS AND THEREFORE ALL CAN BE CONSIDERED TOGETHER. WE THEREFORE PROCE ED WITH THE FACTS OF A.Y. 2004-05. 14. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESS ING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION @ 25% ON GREEN HOUSES. THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM OF HIGHER D EPRECIATION. THE ASSESSEE INTERALIA SUBMITTED THAT THE GREEN HOUSES WERE REQUIRED TO CARRY OUT THE HARDENING PROCESS OF TISSUE CULTURE PLANT U NDER THE CONTROLLED CONDITION TO ENABLE THE PLANT TO HAVE VALUE ADDITIO N IN THE SAME MANNER AS DONE IN THE MANUFACTURING PROCESS. IT WAS FURTH ER SUBMITTED THAT THE GREEN HOUSES WAS NOT A SIMPLE STRUCTURE TO BE CALLE D A BUILDING BUT WAS PART AND PARCEL OF VARIOUS MACHINERY AND THEREFORE THE ASSESSEE HAS RIGHTLY CLAIMED DEPRECIATION AT 25%. ASSESSING OFFI CER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. HE WAS OF THE VIEW THAT THE GREEN HOUSES ARE IN THE NATURE OF FACTORY BUILDING AND ARE PAR T OF THE BUILDING BLOCK AND THEY CANNOT BE CONSIDERED AS PLANT AND MACHINER Y. HE ACCORDINGLY ITA NO 3270 TO 32 73/AHD/2010 . A.Y. 2004-05 TO 2007- 08 8 GRANTED DEPRECIATION AT 10% INSTEAD OF 25% AS CLAIM ED BY THE ASSESSEE. HE THUS WORKED OUT EXCESS CLAIM OF DEPRECIATION OF RS. 8,91,018/- AND ADDED TO THE INCOME. AGGRIEVED BY THE ORDER OF ASSE SSING OFFICER, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE UPHELD THE ORDER OF ASS ESSING OFFICER BY HOLDING AS UNDER: 7.3.1 FROM ABOVE EXPOSITION IT IS APPARENT THAT TH E GREENHOUSES ARE IN THE NATURE OF BUILDING WHICH FEATURES AS WALLS DOOR S, FRAMES GUTTERS, ROOF, ETC,, AS IN NORMAL BUILDING EVEN IF IT IS EXPECTED THAT LIGHT OR HUMIDITY ARE CONTROLLED IN A GREENHOUSE, THE FEATURES ARE ALSO A VAILABLE IN THE SMART BUILDINGS OF TODAY. FURTHER THE APPELLANT HAS NOT B EEN ABLE TO SHOW AS TO WHAT ARE THE SPECIALIZED MACHINERIES USED FOR TERNP ERATURE/LIGHT/HUMIDITY CONTROL. IF THERE ARE SUCH SEPARATE MACHINERIES THEY WOULD BE ELIGIBLE FOR DEPRECIATION AT HIGHER DEPRECIATION BUT THE STRUCTU RE PER SE WOULD BE ELIGIBLE FOR DEPRECIATION AT 10%. THE DECISION CITE D BY THE APPELLANT ARE DISTINGUISHABLE ON FACTS AS IN THE CASE OF VENKATES HWARA FARMS THE HON. ITAT HAS RELIED ON THE REPORT OF THE TECHNICAL EXPE RT TO HOLD THAT THE POTTER FARM ARE IN THE NATURE OF PLANT. SIMILARLY IN THE DECISION I N THE CASE CIT V GOPIKISHAN IT HAS BEEN CLARIFIED THAT ON LY THAT PART OF THE COLD STORAGE BUILDING WHICH IS USED AND UTILIZED AS CHAM BER FOR STORING THE GOODS IN COLD STORAGE THAT WOULD BE TREATED AS PLAN T AND REST OF BUILDING WOULD NOT BE A PLANT. IT IS ALSO RELEVANT TO MENTIO N THAT PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V YAMUNA COLD STORAGE 6 TAXMAN 146 HAS HELD THAT THE COLD STORAGE IS A FACT ORY BUILDING ENTITLED TO 10% DEPRECIATION. ANYHOW IN THE PRESENT CASE THE RE ARE NO SPECIALIZED CHAMBERS BUT THE PLANTS/TISSUES ARE IN A COVERED PR EMISES WITHOUT CHAMBERS. IN MY VIEW THUS GREENHOUSE IS A BUILDING ELIGIBLE FOR 10% DEPRECIATION. GROUND NO.5 IS DISMISSED. 15. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS N OW IN APPEAL BEFORE US. ITA NO 3270 TO 32 73/AHD/2010 . A.Y. 2004-05 TO 2007- 08 9 16. BEFORE US, THE LEARNED A.R. SUBMITTED AND EXPLAINED THE PRODUCTION PROCESS. HE SUBMITTED THAT THE BUDS ARE PURCHASED AS RAW MATERIAL. THESE BUDS ARE CUT AND REDUCED INTO SMALL TISSUES A ND THESE CUT TISSUES ARE KEPT IN CULTURES ( SMALL GLASS BOTTLES CONTAINI NG MIXTURE OF VARIOUS CHEMICALS). THESE CULTURES ARE MAINTAINED IN AIR-C ONDITIONED LABORATORY. THE TISSUES ARE CONSTANTLY UNDER OBSERVATION AND FU RTHER PROCESSED FOR MULTIPLICATION PURPOSE IN THE LABORATORY ITSELF UND ER SPECIAL ENVIRONMENT. AFTER THE TISSUES ATTAINS THE SPECIFIED GROWTH THEY ARE TRANSFERRED TO GREEN HOUSES, FIRST TO PRIMARY GREEN HOUSE AND THEN TO SE CONDARY GREEN HOUSE FOR HARDENING PROCESS. HE FURTHER SUBMITTED THAT G REEN HOUSES ARE DEVELOPED WITH SPECIAL TECHNOLOGY BY TECHNICALLY QU ALIFIED PERSON SO AS TO ADHERE TO THE EXACT REQUIREMENT OF HARDENING PRO CESS. THE HARDENING PROCESS INCREASES THE VALUE OF THE PRODUCT IN SAME WAY AS MANUFACTURING PROCESS IN CASE OF MANUFACTURING COMPANY AND THIS H ARDENING PROCESS IS DONE BY GREEN HOUSES. GREEN HOUSES ARE NOT SIMPLE STRUCTURES FIT TO BE CALLED BUILDING. GREEN HOUSES PERFORM A MANUFACTUR ING PROCESS THAT IS HARDENING WHICH IS AN INTEGRAL PART OF THE MANUFACT URING ACTIVITY OF THE ASSESSEE. IT IS AN APPARATUS WITH WHICH THE PROCESS OF HARDENING IS CARRIED OUT. HE FURTHER SUBMITTED THAT ALL FUNCTIONAL TEST FOR TREATING THE GREEN HOUSES ARE SATISFIED. HE FURTHER PLACED RELIANCE O N THE DECISION IN THE CASE OF CIT VS. KARNATAKA POWER CORPORATION 247 ITR 268 (SC) RAMDEO TILES VS. CIT 227 ITR 463 (MP) NOWRANGROY METALS PV T. LTD. VS. JCIT 262 ITR 231 GUWAHATI & CIT VS. GANGA MENON PALGHAT POLI CLINIC (2003) 259 ITR 661 (KERALA). 17. THE LEARNED D.R. ON THE OTHER HAND RELIED ON THE OR DER OF ASSESSING OFFICER AND CIT(A). ITA NO 3270 TO 32 73/AHD/2010 . A.Y. 2004-05 TO 2007- 08 10 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS ENGAG ED IN THE BUSINESS OF TISSUE CULTURE ACTIVITIES. BEFORE US, IT HAS BEEN STATED THAT THE GREEN HOUSE ARE NOT USED AS SHELTER BUT GREEN HOUSE PERFO RMS A MANUFACTURING PROCESS (HARDENING) AND IT IS AN INTEGRAL PART OF T HE MANUFACTURING PROCESS. IT HAS BEEN FURTHER STATED THAT AFTER THE TISSUES OF THE PLANTS ATTAINS SPECIFIED GROWTH IN THE LABORATORY FIRST TH EY ARE SHIFTED TO PRIMARY GREEN HOUSE AND THEN TO SECONDARY GREEN HOUSE FOR H ARDENING PROCESS. IT IS FURTHER STATED THAT THE GREEN HOUSES ARE DEVELOP ED WITH SPECIAL TECHNOLOGY BY TECHNICALLY QUALIFIED PERSON SO AS TO ADHERE TO THE EXACT REQUIREMENT OF HARDENING PROCESS. ONLY AFTER THE HA RDENING PROCESS IS COMPLETE, THE HARDENED AND DEVELOPED PLANTS ARE PUT IN THE MARKET FOR SALE. IT IS FURTHER STATED THAT THE HARDENING PROC ESS INCREASES THE VALUE OF PRODUCT IN THE SAME WAY AS MANUFACTURING PROCESS AN D THIS HARDENING PROCESS IS DONE BY GREEN HOUSES. CIT(A) IN HIS ORDE R AT PARA 7.3 HAS EXPLAINED THE GREEN HOUSE AS UNDER:- 7,3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE, THE SUBMISSIONS OF THE APPELLANT AND THE ASSESSMENT ORDER. AS PER INTE RNET SITE HTTP://EN.WIKLPEDIA.ORG/WIKI/GREENHOUSE ; A GREENHOUSE IS A STRUCTURE WITH A DIFFERENT TYPES OF COVERING MATERIALS, LIKE GLASS OR PLASTIC ROOF AND FREQUENTLY GLASS OR PLASTIC WALLS; IT HEATS UP BECAUSE INCOMING VISIBLE SOLAR RADIATION FROM THE S UN IS ABSORBED BY PLANTS, SOIL, AND OTHER THINGS INSIDE THE BUILDING. GLASS IS TRANSPARENT TO THIS RADIATION, THE WARMED STRUCTURES AND PLANTS IN SIDE THE GREENHOUSE RE-RADIATE THIS ENERGY IN THE INFRA-RED, TO WHICH G LASS IS PARTLY OPAQUE, AND THAT ENERGY IS TRAPPED INSIDE THE GLASSHOUSE, A LTHOUGH THERE IS SOME HEAT LOSS DUE TO CONDUCTION, THERE IS A NET INCREAS E IN ENERGY (AND THEREFORE TEMPERATURE) INSIDE THE GREENHOUSE. AIR W ARMED BY THE HEAT ITA NO 3270 TO 32 73/AHD/2010 . A.Y. 2004-05 TO 2007- 08 11 FROM HOT INTERIOR SURFACES IS RETAINED IN THE BUILD ING BY THE ROOF AND WALL. THESE STRUCTURES RANGE IN SIZE FROM SMALL SHEDS TO VERY LARGE BUILDINGS. 19. VARIOUS HIGH COURTS HAVE HELD THAT FUNCTIONAL TEST HAVE TO BE APPLIED TO DETERMINE AS TO WHETHER THE BUILDING IS A PLANT OR IS A BUILDING SIMPLICITER. 20. IN THE CASE OF CIT VS. VICTORY AQUA FARMS LTD. (200 4) 271 ITR 530 (KER) THE ISSUE BEFORE THE HON. HIGH COURT WAS THAT THE ASSESSEE WAS A COMPANY DOING BUSINESS IN AQUA CULTURE. PRAWNS ARE GROWN IN SPECIALLY DESIGNED PONDS. ACCORDING TO THE ASSESSEE, PRAWN P ONDS WERE TOOLS TO THE BUSINESS OF THE ASSESSEE AND HENCE THE SAME CON STITUTE PLANT ELIGIBLE FOR DEPRECIATION AT THE RATES APPLICABLE T O PLANT AND MACHINERY. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE A SSESSEE. HON. HIGH COURT AFTER RELYING ON THE DECISION IN THE CASE OF CIT VS. ANAND THEATRE (2000) 244 ITR 192, CIT VS. KARNATAKA POWER CORP. ( 2001) 247 ITR 268 (SC) NOTED AS UNDER:- THE QUESTION THAT ARISES IS WHETHER THE POND IS A P LANT. IN CIT V. ANAND THEATRES [2000] 244 ITR 192, THE SUPREME COURT HELD AS FOLLOWS (HEADNOTE) : SECTION 32 PROVIDES DIFFERENT RATES OF DEPRECIATI ON FOR BUILDING, MACHINERY, PLANT OR FURNITURE, SHIPS, BUILDINGS USE D FOR HOTELS, AERO- PLANES AND OTHER ITEMS MENTIONED THEREIN. THE WORD 'PLANT' IS GIVEN AN INCLUSIVE MEANING UNDER SECTION 43(3) WHICH NOWHERE INCLUDES BUILDINGS. THE RULES PRESCRIBING THE RATES OF DEPRECIATION SPE CIFICALLY PROVIDE FOR GRANT OF DEPRECIATION ON BUILDINGS, FURNITURE AND F ITTINGS, MACHINERY AND PLANT AND SHIPS. MACHINERY AND PLANT INCLUDE CINEMA TOGRAPH FILMS PAGE NO: 0532 ITA NO 3270 TO 32 73/AHD/2010 . A.Y. 2004-05 TO 2007- 08 12 AND OTHER FILMS AND OTHER ITEMS AND 'BUILDING' IS F URTHER GIVEN A MEANING TO INCLUDE ROADS, BRIDGES, CULVERTS, WELLS AND TUBE WELLS. FORA BUILDING USED AS A HOTEL, THERE IS A SPECIFIC PROVISION IN S ECTION 32(1 )(V) FOR GRANTING ADDITIONAL DEPRECIATION ALLOWANCE AT SPECI FIED RATES DEPENDING UPON FULFILLMENT OF THE CONDITIONS MENTIONED THEREI N. IN THE CONTEXT OF THE LEGISLATIVE SCHEME UNDER SECTION 32, EVEN THOUGH TH E WORD 'PLANT' MAY INCLUDE BUILDING OR STRUCTURE IN CERTAIN SET OF CIR CUMSTANCES AS PER THE DICTIONARY MEANING, TO SAY THAT A BUILDING USED FOR RUNNING THE BUSINESS OF HOTEL OR A CINEMA WOULD BE 'PLANT' UNDER THE ACT WOULD BE INCONSISTENT WITH THE PROVISIONS OF SECTION 32 AND THE LEGISLATI VE INTENT.' THE SUPREME COURT FURTHER HELD AS FOLLOWS (HEADNOTE ) : THERE IS WELL-ESTABLISHED DISTINCTION, IN GENERAL TERMS, BETWEEN THE PREMISES IN WHICH THE BUSINESS IS CARRIED ON AND TH E PLANT WITH WHICH THE BUSINESS IS CARRIED ON. THE PREMISES ARE NOT PLANT. IT IS PROPER TO CON- SIDER THE FUNCTION OF THE ITEM IN DISPUTE. IF IT FU NCTIONS AS PART OF THE PREMISES IT IS NOT PLANT. THE FACT THAT THE BUILDIN G IN WHICH A BUSINESS IS CARRIED ON IS, BY ITS CONSTRUCTION PARTICULARLY WEL L-SUITED TO THE BUSINESS, OR INDEED WAS SPECIALLY BUILT FOR THAT BUSINESS, DO ES NOT MAKE IT PLANT. ITS SUITABILITY IS SIMPLY THE REASON WHY THE BUSINESS I S CARRIED ON THERE. BUT IT REMAINS THE PLACE IN WHICH THE BUSINESS IS CARRIED ON AND IS NOT SOME- THING WITH WHICH THE BUSINESS IS CARRIED ON, EXCEPT IN SOME RARE CASES WHERE IT PLAYS AN ESSENTIAL PART IN THE OPERATIONS WHICH TAKE PLACE. HOTEL PREMISES ARE NOT CONSIDERED TO BE AN APPARATUS OR T OOL FOR RUNNING THE HOTEL BUSINESS BUT ARE MERELY A SHELTER OR HOME OR SETTING IN WHICH BUSI- NESS IS CARRIED ON. THE SAME WOULD BE THE POSITION WITH REGARD TO A THEATRE IN WHICH CINEMA BUSINESS IS CARRIED ON. THE REFORE, EVEN THE FUNC- TIONAL TEST IS NOT SATISFIED. IN ANOTHER DECISION REPORTED IN CIT V. KARNATAKA PO WER CORPORATION [2001] 247 ITR 268, THE SUPREME COURT HELD AS FOLLO WS (HEADNOTE) : 'THE QUESTION WHETHER A BUILDING CAN BE TREATED AS PLANT, BASICALLY, IS A QUESTION OF FACT AND WHERE IT IS FOUND AS A FACT TH AT A BUILDING HAS BEEN SO PLANNED AND CONSTRUCTED AS TO SERVE AN ASSESSEE'S S PECIAL TECHNICAL REQUIREMENTS, IT WILL QUALIFY TO BE TREATED AS A PL ANT FOR THE PURPOSES OF INVESTMENT ALLOWANCE. HELD ACCORDINGLY, THAT THERE WAS A FINDING BY THE FACT-FINDING AUTHORITY THAT THE ASSESSEE'S GENERATI NG STATION BUILDING WAS SO CONSTRUCTED AS TO BE AN INTEGRAL PART OF ITS GEN ERATING SYSTEM. IT WAS 'PLANT' ENTITLED TO INVESTMENT ALLOWANCE.' ITA NO 3270 TO 32 73/AHD/2010 . A.Y. 2004-05 TO 2007- 08 13 IN CIT V. VICTORY ACQA FARM LTD. [2004] 271 ITR 528 , A DIVISION BENCH OF THIS COURT HELD THAT POND CANNOT BE TREATED AS P LANT AND IS NOT ELIGIBLE FOR DEPRECIATION AT THE RATE APPLICABLE TO PLANT AN D MACHINERY. THIS WAS STATED FOLLOWING THE DECISION IN CIT V. ANAND THEAT RES [2000] 244 ITR 192 (SC). PAGE NO: 0533 IN ORDER TO KEEP THE WATER AT THE REQUIRED LEVEL FO R THE PURPOSE OF BREEDING SHRIMPS OR PRAWNS THE POND IS A MUST. THE BREEDING OF FISH CANNOT BE CARRIED ON WITHIN THE PONDS. AS REFERRED TO BY THE TRIBUNAL, WATER PLAYS THE ROLE OF A MACHINE JUST LIKE A TIMBE R MERCHANT. IF THE TIMBER MERCHANT REQUIRES A SAWING MACHINE TO CUT AN D SHAPE THE LOG SUCH SAWING MACHINE CONSTITUTES A PLANT FOR HIM. WA TER IN THE CASE OF THE ASSESSEE PLAYS SAME ROLE. WATER HAS TO BE STORED WI THIN THE PONDS. THEREFORE, THE PONDS ALSO CONSTITUTE PART OF THE MA CHINERY IN THE BUSINESS OF THE ASSESSEE. LEARNED COUNSEL FOR THE REVENUE SU BMITTED THAT IT WAS ONLY A NATURAL POND. IT IS NOT CORRECT. ACCORDING T O US, THE DECISION IN CIT V. VICTORY ACQA FARM LTD. [2004] 271 ITR 528 (K ER) WAS PRESUMED TO BE COVERED AS PER THE DECISION OF THE SUPREME CO URT IN CIT V. ANAND THEATRES [2000] 244 ITR 192. ACCORDING TO US, IN TH E FACTS AND CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS RIGHT I N HOLDING THAT THE POND IS A PLANT AND HENCE, ENTITLED TO STATUTORY DE PRECIATION. THE APPEAL IS DISMISSED. 21. SEEN IN THE LIGHT OF THE FUNCTIONAL TEST LAID DOWN BY DECISION OF HIGH COURT CITED ABOVE, WE ARE OF THE VIEW THAT IN THE P ECULIAR FACTS OF THE PRESENT CASE THE GREEN HOUSE IS AN ESSENTIAL PAR T FOR A COMPANY ENGAGED IN THE BUSINESS OF TISSUE CULTURE. IT CANN OT BE CONSIDERED AS A SIMPLE BUILDING BUT HAS TO BE CONSIDERED AS A PLA NT. IN VIEW OF THE AFORESAID FACTS, WE ARE OF THE VIEW THAT THE ASSESS EE WAS RIGHT IN CONSIDERING THE GREEN HOUSE AS PART OF PLANT AND MACHINERY AND ITA NO 3270 TO 32 73/AHD/2010 . A.Y. 2004-05 TO 2007- 08 14 CLAIMING DEPRECIATION OF 25%. THUS THIS GROUND OF THE ASSESSEE IS ALLOWED FOR ALL THE YEARS IN WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 22. IN THE RESULT ALL THE APPEALS OF ASSESSEE ARE PARTL Y ALLOWED ORDER PRONOUNCED IN OPEN COURT ON 02 -08 - 2013. SD/- SD/- (D.K. TYAGI) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AH MEDABAD