DCIT CC 47, MUMBAI V. FIVE STARS SHIPPING COMPANY P.LTD, MUMBAI

ITA 4073/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4205 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Appeal Filed On: 04-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJENDRA
• Assessee Lawyers: SUNIL U PATH AK
• Keywords: Business income; Earning of tax free income; Additional evidence; Corroborative evidences
• Section: 143(3); 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ' F ' BENCH, MUMBAI BEFORE SHRI JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN , JUDICIAL MEMBER ITA NO S . 2953 & 2954 /MUM/201 4 (ASSESSMENT YEAR S : 2009 - 10 & 2010 - 11 ) M/S. FIVE STAR SHIPPING CO. P. LTD. VS. DCIT, CENTRAL CIRCLE - 47 UNIT NO. 3, BRADY GLADYS PLAZA SENAPATI BAPAT ROAD, LOWER PAREL MUMBAI 400013 AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 PAN - AAACF0530B APPELLANT RESPONDENT ITA NO S . 4073 & 4074 /MUM/201 4 (ASSESSMENT YEAR S : 2009 - 10 & 2010 - 11 ) DCIT, CENTRAL CIRCLE - 47 VS. M/S. FIVE STAR SHIPPING CO. P. LTD. AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 UNIT NO. 3, BRADY GLADYS PLAZA SENAPATI BAPAT ROAD, LOWER PAREL MUMBAI 400013 PAN - AAACF0530B APPELLANT RESPONDENT ASSESSEE BY: SHRI SUNIL U. PATHAK REVENUE BY: SHRI RAJENDRA DATE OF HEARING: 30 .03 .2016 DATE OF PRONOUNCEMENT: 06 .0 4 .2016 O R D E R PER JASON P. BOAZ, A.M . THESE ARE CROSS APPEALS BY THE ASSESSEE AND REVENUE, DIRECTED AGAINST THE ORDERS OF THE CIT(A) - 38, MUMBAI FOR ASSESSMENT YEARS 2009 - 10 & 2010 - 11 BOTH DATED 26.02.2014. SINCE COMMON GROUNDS HAVE BEEN RAISED FOR BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION, THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. 2 . THE FACTS OF THE CASE, IN BRIEF, ARE AS UNDER: - 2.1 THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF BOTH SHIP MANAGEMENT AS WELL AS IN THE ACTIVITY OF HORSE BREE DING AND OWNING AND MAINTAINING OF RACE HORSES. ITA 2953,2954,4073&4074/MUM /2014 M/S. FIVE STAR SHIPPING CO. P. LTD. 2 FOR A.Y. 2009 - 10, THE ASSESSEE FILED ITS RETURN OF INCOM E ON 30.09.2009 DECLARING TOTAL INCOME OF ` 92,69,922/ - . THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') VIDE ORDER DATED NOVEMBER 2011, WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT ` 9,84,65,850/ - IN VI EW OF THE FOLLOWING ADDITIONS/DISALLOWANCES: - (I ) DISALLOWANCE OF LEASE RENT PAID FOR USE OF LAND FOR AGRICULTURE ` 39,22,064/ - (II) AGRICULTURAL INCOME TREATED AS INCOME FROM OTHER SOURCES ` 9,97,800/ - (III) LOSSES FROM ACTIVITY OF OWNING AND MAINTENANCE OF HORSES NOT BEING ALLOWED TO BE SET OFF WITH THE BUSINESS INCOME UNDER SECTION 74A(3) OF THE ACT. ` 8,52,73,864/ - FOR A.Y. 2010 - 11 , THE ASSESSEE FILED ITS RETURN OF INCOME ON 15.10.2010 DECLARING TOTAL INCOME OF ` 3,54,71,825/ - . THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 30.01.2013 WHEREIN THE INCOME OF THE ASSESSEE WAD DETERMINED AT ` 9,79,44,690/ - IN VIEW OF THE FOLLOWING ADDITIONS/DISALLOWAN CES: - (I ) DISALLOWANCE OF LEASE RENT PAID FOR USE OF LAND FOR AGRICULTURE ` 29,24,265 / - (II) AGRICULTURAL INCOME TREATED AS INCOME FROM OTHER SOURCES ` 11,72,810 / - (III) LOSSES FROM ACTIVITY OF OWNING AND MAINTENANCE OF HORSES NOT BEING ALLOWED TO BE SET OFF WITH THE BUSINESS INCOME UNDER SECTION 74A(3) OF THE ACT. ` 5,83,75,790 / - 2.2 AGGRIEVED BY THE ORDERS OF ASSESSMENT FOR ASSESSMENT YEARS 2009 - 10 & 2010 - 11 DATED NOVEMBER 2011 AND 30.01.2013 RESPECTIVELY, THE ASSESSEE PREFERRED APPEALS BEFORE THE CIT(A) - 38, MUMBAI. THE LEARNED CIT(A) DISPOSED OFF THE APPEALS FOR ASSESSMENT YEARS 2009 - 10 & 2010 - 11 VIDE SEPARATE ORDERS DATED 26.02.2014 ALLOWING THE ASSESSEE PARTIAL RELIEF IN BOTH THE ASSESSMENT YEARS. 3 . AGGRIEVED BY THE IMPUGNED ORDERS OF THE CIT(A) - 38, MUMB AI FOR ASSESSMENT YEARS 2009 - 10 & 2010 - 11 DATED 26.02.2014, BOTH THE ASSESSEE AND REVENUE ARE IN APPEAL BEFORE THE TRIBUNAL RAISING COMMON GROUNDS FOR ITA 2953,2954,4073&4074/MUM /2014 M/S. FIVE STAR SHIPPING CO. P. LTD. 3 BOTH THE ASSESSMENT YEARS. WE WILL FIRST TAKE UP THE CROSS APPEALS FOR BOTH THE ASSESSEE AND REVENUE FOR A.Y. 2009 - 10. ASSESSEES APPEAL IN ITA NO. 2953/MUM/2014 FOR A.Y. 2009 - 10 4.1 IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1] THE LEARNED CIT(A) ERRED IN HOLDING THAT THE LEASE RENT PAID OF RS. 29,24,264/ - WOULD NOT BE ALLOWABLE WHILE COMPUTING THE INCOME OF THE APPELLANT. 2] THE LEARNED CIT(A) FURTHER ERRED IN HOLDING THAT THE LEASE RENT PAID IN EXCESS OF THE AGRICULTURAL INCOME EARNED BY THE APPELLANT COMPANY WOULD BE DISALLOWABLE U/S 14A OF THE ACT. 3] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE LEASE RENT PAID BY THE APPELLANT COMPANY WAS INCURRED WHOLLY AND EXCLUSIVELY FOR ITS STUD FARM BUSINESS AND ACCORDINGLY, THE SAME SHOULD HAVE BEEN ALLOWED WHILE COMPUTING THE INCOME OF THE A PPELLANT. 4] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE LEASE RENT PAID BY THE APPELLANT COMPANY WAS NOT HIT BY THE PROVISIONS OF SECTION 14A AND HENCE, NO AMOUNT WAS DISALLOWABLE U/S 14A. 5] THE LEARNED CIT(A) ERRED IN HOLDING THAT THE APPELLANT COM PANY WAS CARRYING ON TWO SEPARATE ACTIVITIES VIZ, ACTIVITY OF LIVESTOCK BREEDING BUSINESS AND ACTIVITY OF OWNING AND MAINTAINING RACE HORSES' AS DEFINED IN EXPLANATION TO SECTION 74A WITHOUT APPRECIATING THAT THE APPELLANT COMPANY WAS ENGAGED IN THE BUSINE SS OF BREEDING OF THOROUGHBRED HORSES AT THE COMPANY'S STUD FARM ESTABLISHED AT VILLAGE NANOLI DIST. PUNE AND HENCE, THE PROVISIONS OF SECTION 74A WERE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 6] THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT PR OVISIONS OF SECTION 74A WERE APPLICABLE ONLY IN A CASE WHERE THE ASSESSEE HAD INCOME ONLY FROM STAKE MONEY AND NOT FROM ANY OTHER SOURCE AND SINCE IN THE PRESENT CASE, ASSESSEE'S MAIN SOURCE OF INCOME WAS FROM BREEDING OF HORSES, THE PROVISIONS OF SECTION 74A WERE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE AND THUS, THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE COMPANY WAS ALLOWABLE AS A DEDUCTION WHILE COMPUTING THE INCOME OF THE ASSESSEE COMPANY AND THERE WAS NO REASON TO BIFURCATE THE EXPENDITURE BETWEEN BREEDING ACTIVITY AND ACTIVITY OF OWNING AND MAINTAINING RACE HORSES. 7] WITHOUT PREJUDICE TO THE ABOVE GROUNDS, ASSUMING WITHOUT ADMITTING THAT THE ACTIVITY OF 'OWNING AND MAINTAINING RACE HORSES' WAS A SEPARATE ACTIVITY CARRIED OUT BY THE ASSESSEE COMPANY, THE LEARNED CIT(A) ERRED IN DIRECTING THE LEARNED ASSESSING OFFICER TO VERIFY THE NATURE OF EXPENDITURE OF RS.2,35,73,128/ - INCURRED ON STUD FARM STAFF SALARIES & WAGES, SPONSORSHIP EXPENSES, LEGAL AND PROFESSIONAL FEES AND IDENTIFY THE EXPENSES RELATING TO HORSE ITA 2953,2954,4073&4074/MUM /2014 M/S. FIVE STAR SHIPPING CO. P. LTD. 4 BREEDING ACTIVITY AND THE ACTIVITY OF OWNING AND MAINTAINING R ACE HORSES AND ACCORDINGLY ALLOW SET OFF OF EXPENSES RELATING TO THE HORSE BREEDING ACTIVITY AGAINST THE OTHER BUSINESS INCOME AND CARRY FORWARD THE EXPENSES RELATING TO THE ACTIVITY OF OWNING AND MAINTAINING RACE HORSES. HE ERRED IN NOT APPRECIATING THAT AS PER THE WORKING FILED BY THE APPELLANT COMPANY DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS WELL AS BEFORE THE LEARNED CIT(A) RS.2,07,45,318/ - OUT OF THE AFORESAID RS.2,35,73,128/ - WAS ALLOCABLE TO THE HORSE BREEDING ACTIVITY AND THE BALANCE RS.28,27, 810/ - WAS ALLOCABLE TO THE ACTIVITY OF OWNING AND MAINTAINING RACE HORSES. 7.1] HE ERRED IN NOT APPRECIATING THAT MOST OF THE ABOVE EXPENSES (I.E. RS.2,07,45,318/ - OUT OF RS.2,35,73,128/ - ) WERE INCURRED FOR THE BREEDING BUSINESS OF THE ASSESSEE COMPAN Y AND THAT THE APPELLANT COMPANY HAD FURNISHED THE BIFURCATION TO THE LEARNED ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS AS WELL AS DURING THE REMAND REPORT PROCEEDINGS AND TO THE LEARNED CIT(A) DURING THE APPEAL PROCEEDINGS AND HENCE, THE SAME WE RE NOT REQUIRED TO BE ALLOCATED TO THE ACTIVITY OF 'OWNING AND MAINTAINING RACE HORSES'. 7.2] HE ERRED IN NOT APPRECIATING THAT THE DIRECTORS REMUNERATION OF RS.21,78,000/ - WOULD HAVE BEEN INCURRED BY THE ASSESSEE COMPANY IRRESPECTIVE OF THE FACT THAT IT WAS CARRYING ON THE ACTIVITY OF 'OWNING AND MAINTAINING RACE HORSES' AND THEREFORE, THERE WAS NO REASON TO APPORTION RS.4,17,373/ - (BEING PART OF THE DIRECTORS' REMUNERATION OF RS 21,78,000/ - ) BETWEEN THE ACTIVITY OF 'OWNING AND MAINTAINING RACE HORSES' AN D LIVESTOCK BREEDING BUSINESS CARRIED OUT BY THE ASSESSEE. 8] THE APPELLANT COMPANY CRAVES LEAVE TO ADD, TO ALTER, AMEND, MODIFY AND/ OR DELETE ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL. REVENUES APPEAL IN ITA NO. 4073 /MUM/2014 FOR A.Y. 2009 - 10 4.2 IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN HOLDING INCOME OF RS.9,97,800/ - AS AGRICULTURAL INCOME, IGNORING THE FACT THAT AS PER 7/12 EXTRACT, ONLY SPECIAL GRASS WAS GROWN, WHICH DID NOT REQUIRE ANY AGRICULTURAL OPERATION. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN DIRECTING THE AO TO SET OFF THE BUSINESS LOSS ARRIVED AT IN RESPECT OF HORSE BREEDING ACTIV ITIES AMOUNTING TO RS.5,51,64,798/ - AGAINST THE OTHER BUSINESS INCOME WITHOUT APPRECIATING THE FACT THAT THE ACTIVITIES OF HORSE BREEDING AND HORSE RACING IN THE INSTANT CASE WERE MIXED/INTERCONNECTED, BEING OF SAME NATURE AND THE INCOME FROM THE TWO ACTIV ITIES WERE NOT SEPARATELY INDICATED IN THE RETURN OF INCOME. ITA 2953,2954,4073&4074/MUM /2014 M/S. FIVE STAR SHIPPING CO. P. LTD. 5 5 . AT THE OUTSET THE LEARNED A.R. FOR THE ASSESSEE SUBMITTED THAT THE GROUNDS RAISED AT S. NOS. 7 TO 7.2 (SUPRA) BY THE ASSESSEE ARE NOT BEING PRESSED IN THIS APPEAL. IN VIEW OF GROUNDS AT S.NOS. 7 TO 7.2 NOT BEING PRESSED, THEY ARE RENDERED INFRUCTUOUS AND ARE ACCORDINGLY DISMISSED. 6 . GROUND NO. 8 OF THE ASSESSEE S APPEAL IS GENERAL IN NATURE AND THEREFORE NO ADJUDICATION IS CALLED FOR THEREON. 7 . GROUNDS AT S.NOS. 1 TO 4 ( ASSESSEES APPEAL) - DISALLOWANCE OF LEASE RENT PAID - ` 29,24,264/ - & GROUND NO. 1 (REVENUES APPEAL) - AGRICULTURAL INCOME - ` 9,97,800 / - 7.1 THE LEARNED A.R. FOR THE ASSESSEE WAS HEARD IN SUPPORT OF THE GROUNDS RAISED (SUPRA) THAT THE LEARNED CIT(A) HAD ERRED IN HOLDING THAT THE LEASE RENT PAID AMOUNTING TO ` 2 9,24,264/ - FOR USE OF AGRICULTURAL LAND IS NOT ALLOWABLE WHILE COMPUTING THE INCOME OF THE ASSESSEE , FAILING TO APPRECIATE THAT THE LEASE RENT PAID WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE ASSESSEES STUD FARM BUSINESS AND HENCE SHOULD HAVE BEEN ALLOWED. IT IS ALSO CONTENDED THAT THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE LEASE RENT PAID WAS NOT HIT BY THE PROVISIONS OF SECTION 14A OF THE ACT AND THAT NO DISALLOWANCE THEREUNDER WAS CALLED FOR. THE LEARNED A.R. FOR THE ASSESSEE, HOWEVER, FAI RLY CONCEDED THAT THE ISSUE RAISED IN GROUNDS 1 TO 4 (SUPRA) HAS BEEN CONSIDERED AND HELD AGAINST THE ASSESSEE BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR A.Y. 2007 - 08 IN ITA NOS. 2151 & 2152, 2766 & 2767/MUM/201 2 DATED 11.06.2015 FOR ASSESSMENT YEARS 2007 - 08 AND 2008 - 09. 7.2 THE LEARNED D.R. FOR REVENUE WAS ALSO HEARD IN SUPPORT OF THE GROUND RAISED ASSAILING THE ORDER OF THE LEARNED CIT(A) IN HOLDING AGRICULTURAL INCOME AT ` 9,97,800/ - IGNORING THE 7/12 EXTRACT THAT ONLY GRASS GREW THEREON WHICH REQUIRED NO AGRICULTURAL OPERATION. 7.3 WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE JUDICIAL DECISION OF THE COORDINATE BENCH CITED (SUPRA). THE FACTS OF THE MATTER AS EMANATE FROM THE RECORD ARE THAT IN THE COURS E OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER (AO) EXAMINED THE DECLARED AGRICULTURAL INCOME OF ` 8,01,175/ - EARNED FROM THE LAND TAKEN ON LEASE FROM THREE DIRECTORS OF THE ASSESSEE ITA 2953,2954,4073&4074/MUM /2014 M/S. FIVE STAR SHIPPING CO. P. LTD. 6 COMPANY TO WHOM LEASE RENT AMOUNTING TO ` 2 9 ,24,264/ - WAS PAID. THE AO S TATED THAT THE 7/12 EXTRACTS OF THE REVENUE RECORDS PERTAINING TO AGRICULTURAL OPERATIONS DID NOT GIVE ANY DETAILS OF AGRICULTURAL ACTIVITIES CARRIED OUT ON THE LANDS TAKEN ON LEASE AND THAT THE DETAILS OF AGRICULTURAL INCOME AND EXPENDITURE WERE ALSO NOT FURNISHED. IN THAT VIEW OF THE MATTER, THE AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE WHEREIN IT IS STATED THAT 7/12 EXTRACTS DID NOT INDICATE THAT ANY AGRICULTURAL ACTIVITY WERE CARRIED ON AND THAT THE YIELD OF GRASS DISCLOSED IN THE 7/12 RECORDS IS ATTR IBUTABLE TO NATURAL ACTIVITY. IT WAS ALSO STATED THAT SINCE THE DETAILS OF AGRICULTURAL INCOME AND EXPENDITURE ALONG WITH THE VOUCHERS WERE NOT FURNISHED TO SUBSTANTIATE THE CLAIM OF AGRICULTURAL INCOME, THE INCOME STATED TO HAVE BEEN EARNED FROM AGRICULTU RAL INCOME AMOUNTING TO ` 9,97,800/ - WAS PROPOSED TO BE DISALLOWED AND THE SAME WAS PROPOSED TO BE TREATED AS INCOME FROM OTHER SOURCES. FURTHER, THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE LEASE RENTS OF 29,24,264/ - PAID TO THE DIRECTORS OF THE COMP ANY TOWARDS THE LANDS TAKEN ON LEASE SHOULD NOT BE DISALLOWED. IN RESPONSE TO THE SHOW CAUSE NOTICE THE ASSESSEE COMPANY SUBMITTED THAT THE ASSESSEE COMPANY OWNS A LARGE EXTENT OF LAND AND HAS ALWAYS USED THE LANDS TO RAISE AGRICULTURAL PRODUCTS, WHICH ARE SUITABLE FOR CONSUMPTION BY THE HORSES AND BY THE STAFF. ANY SURPLUSES WERE SOLD TO PERSONS IN THE NEARBY LOCALITIES NOT WITH AN INTENTION OF EARNING INCOME BUT TO AVOID WASTAGE OF PERISHABLE GOODS. DURING THE YEAR UNDER CONSIDERATION, THE COMPANY TOOK AG RICULTURAL LAND ON LEASE FROM THE DIRECTORS AND PAID LEASE RENTALS AS PER THE LEASE DEEDS. IT IS FURTHER STATED THAT PADDOCK GRASS, OATS, GRAMS AND VEGETABLES ETC. WERE GROWN BY USING UNSKILLED PERSONNEL AND CASUAL WORKERS. IT WAS FURTHER STATED THAT THE D ETAILS OF AGRICULTURAL PRODUCE, WHICH WAS SOLD IN THE MARKET WERE ALSO BEING FURNISHED. IT WAS CONTENDED THAT IT WAS INCORRECT TO STATE THAT THE DETAILS CALLED FOR WERE NOT FILED. 7.4 THE A.O DID NOT AGREE WITH THE CONTENTIONS OF THE ASSESSEE FOR THE REA SON THAT THE AGRICULTURAL OPERATIONS CARRIED ON IS NOT SUPPORTED BY ANY EVIDENCE AND SINCE 7/12 EXTRACT BEING A GOVERNMENT DOCUMENT WHICH DID NOT REFLECT ANY AGRICULTURAL CROPS GROWN ON THE AGRICULTURAL LANDS. THE A.O. HAS TAKEN A VIEW IN THE ASSESSMENT THAT S INCE THE GRASS GROWS NATURALLY, IT ITA 2953,2954,4073&4074/MUM /2014 M/S. FIVE STAR SHIPPING CO. P. LTD. 7 IS NOT AN AGRICULTURAL PRODUCE, ACCORDING TO THE AO, THE CLAIM OF THE ASSESSEE THAT CERTAIN GRAMS, VEGETABLES ETC. PRODUCED ARE NOT SUPPORTED BY ANY EVIDENCE IN THE FORM OF 7/12 EXTRACTS. THE AO TOOK THE VIEW THAT THERE W AS NO AGRICULTURAL ACTIVITY CARRIED ON THE LANDS TAKEN ON LEASE AND, THEREFORE, THE INCOME CLAIMED TO HAVE BEEN EARNED FROM AGRICULTURAL ACTIVITIES HAS TO BE TREATED AS INCOME UNDER 'OTHER SOURCES'. FURTHER, IT WAS HELD THAT THE EXPENDITURE INCURRED TOWARD S THE LEASE RENT PAID TO THE DIRECTORS AS DISALLOWABLE. AO HAS ALSO TAKEN AN ALTERNATIVE STAND TO THE EFFECT THAT SINCE THE LEASE RENT PAID TO THE DIRECTORS PERTAINS TO EARNING INCOME, WHICH IS EXEMPTED FROM TAXATION, THE EXPENDITURE IN RELATION TO EARNING SUCH INCOME CANNOT BE ALLOWED IN VIEW OF THE PROVISI ONS OF S ECTION 14A OF THE ACT. THEREFORE, AO HAS NOT ONLY DISALLOWED THE ENTIRE EXPENDITURE CLAIMED TOWARDS AGRICULTURAL OPERATIONS AMOUNTING TO ` 29,24,264/ - BUT HAS ALSO BROUGHT TO TAX AN AMOUNT OF ` 9,97,800/ - UNDER THE HEAD OTHER SOURCES. 7.5 BEFORE THE LEARNED CIT(A), THE ASSESSEE FILED WRITTEN SUBMISSION ALONG WITH EVIDENCES PERTAINING TO THE AGRICULTURAL ACTIVITIES. THE LEARNED CIT(A) , AFTER CONSIDERING THE ASSESSEES SUBMISSION AND FOR THE REASONS STATED IN HIS PREDECESSORS ORDERS IN THE ASSESSEES CASE FOR ASSESSMENT YEARS 2007 - 08 AND 2008 - 09, HELD THAT THE EXPENDITURE INCURRED FOR EARNING AGRICULTURAL INCOME HAS TO BE SET OFF AGAINST THE INCOME FROM AGRICULTURAL OPERATIONS. CONSEQUENTLY, THE EXPENDITURE AMOUNTING TO ` 29,24,264/ - WAS SET OFF AGAINST THE INCOME OF 9,97,800/ - AND THE RESULTANT LOSS FROM AGRICULTURAL OPERATIONS AMOUNTING TO ` 19,26,464/ - WAS TREATED AS THE NET DISALLOWANCE UNDER SECTION 14A OF THE ACT. THE PRECISE OBSERVATION OF THE LEARNED CIT(A) AT PARA 7 OF HIS ORDER IS UNDER: - 7. THE FACTS OF THIS GROUND OF APPEAL ARE IDENTICAL AS IN THE APPEALS FOR THE A.YRS. 2007 - 08 AND 2008 - 09. THEREFORE, FOR THE REASONS STATED IN THE APPEAL ORDERS FOR THE A. Y RS. 2007 - 08 AND 2008 - 09 (APPEAL NO.CIT(A) - 38/IT - 388/2009 - 10 AND APPEAL NO.CIT(A) - 38/IT - 316/2010 - 11 DATED 23.01.2012, THE INCOME RETURNED BY THE APPELLANT IS TREATED AS AGRICULTURAL INCOME. THE OTHER CONNECTED ISSUE IS THE ALLOWABILITY OF LEASE RENTS PAID T O THE DIRECTORS OF THE APPELLANT COMPANY FOR LEASING THE LANDS TO THE APPELLANT. IN TERMS OF SECTION 14A OF THE ACT, EXPENDITURE INCURRED IN RELATION TO EARNING ANY EXEMPTED INCOME IS LIABLE TO BE DISALLOWED. IN THIS CASE, EARNING OF AGRICULTURAL INCOME IN VOLVED EXPENDITURE OF LEASE RENTS AMOUNTING TO RS.29,24,264/ - AND THE SAME IS RIGHTLY DISALLOWED. THEREFORE, THE SAID DISALLOWANCE IS ITA 2953,2954,4073&4074/MUM /2014 M/S. FIVE STAR SHIPPING CO. P. LTD. 8 UPHELD IN TERMS OF SECTION 14A OF THE ACT. THE EXPENDITURE INCURRED FOR EARNING AGRICULTURAL INCOME HAS TO BE SET OFF AGAI NST THE INCOME FROM AGRICULTURAL OPERATIONS. CONSEQUENTLY, THE EXPENDITURE AMOUNTING TO RS.29,24,264/ - HAS TO BE SET OFF AGAINST THE INCOME OF RS.9,97,800/ - AND THE RESULTANT LOSS FROM AGRICULTURAL OPERATIONS AMOUNTING TO RS.19,26,464/ - HAS TO BE TREATED A S THE NET DISALLOWANCE U/S. 14A OF THE ACT. 7.6 IT IS A GAINST THE ABOVE ORDER OF THE LEARNED CIT(A), BOTH THE ASSESSEE AND REVENUE ARE IN FURTHER APPEAL BEFORE US. 7.7.1 WE HAVE HEARD THE RIVAL CONTENTIONS OF THE ASSESSEE AND THE REVENUE AND HAVE PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NOS. 2151, 2152, 2766 & 2767/MUM/2012 DATED 11.06.2015. WE FIND THAT THE ISSUES BEFORE US IN RESPECT OF THE GROUNDS AT S.NOS. 1 TO 4 RAISED BY THE ASSESSEE AND GROUND NO. 1RAISED BY THE REVENUE HAVE BEEN CONSIDERED AND ADJUDICATED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NOS. 2151, 2152, 2766 & 2767/MUM/2012 DATED 11.06.2015 FOR ASSESSMENT YEARS 2007 - 08 AND 2008 - 09; WHEREIN AT PARAS 8 TO 10 THEREOF THE COORDINATE BENCH HAD HELD AS UNDER: - 8. RIVAL CONTENTIONS HAVE BEEN CONSIDERED AND RECORD PERUSED. WE FOUND THAT DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LEARNED CIT(A) FOUND THAT THE ASSESSEE HAS NOT GIVEN DUE OPPORTUNITY TO PRODUCE THE EVIDENCE, INSOFAR AS THE A.O. HAD GIVEN NOTICE F OR PRODUCING THE EVIDENCE ONLY AT THE FAG END OF THE ASSESSMENT PROCEEDINGS I.E. 10 TO 15 DAYS TIME. UNDER THESE CIRCUMSTANCES, THE LEARNED CIT(A) ADMITTED THE ADDITIONAL EVIDENCE FILED BEFORE HIM AND SENT THE SAME TO THE A.O. FOR HIS REMAND REPORT. FROM T HE RECORD WE FOUND THAT THE ASSESSEE HAS A BUSINESS OF MAINTAINING A STUD FARM AT NANOLI NEAR TALEGAON, PUNE. IT HAS ITS OWN LAND AND IT HAS ALSO TAKEN ABOUT 133 ACRES OF LAND ON RENT FROM DHUNJIBHOY FAMILY. THE ASSESSEE USES THE LAND FOR STUD FARM AND ALS O FOR AGRICULTURAL OPERATIONS. IT HAS ABOUT 4 LAKHS TREES OF GAUVA, JAMBHUN, MANGO, COCONUT, ETC. ETC. ON THE LAND AND IT ALSO GROWS PADDOCK (DHOOP) GRASS FOR THE HORSES, RICE, VEGETABLES ON THIS LAND. IT SELLS SOME AGRICULTURAL PRODUCE LIKE VEGETABLES AND FRUITS IN THE MARKET WHILE PART OF THIS PRODUCE IS UTILISED BY THE ASSESSEE FOR ITS EMPLOYEES ON THE FARM. IT HAS EARNED RECEIPT OFRS.801,175/ - FROM SALE OF SUCH AGRICULTURAL PRODUCE AND WHICH THE A.O. TREATED AS NON AGRICULTURAL INCOME. AFTER CONSIDERING THE REMAND REPORT, THE LEARNED CIT(A) HAS RECORDED A CATEGORICAL FINDING TO THE EFFECT THAT THE ASSESSEE HAD CARRIED ON AGRICULTURAL OPERATIONS AND EARNED INCOME OF RS. 8,01,175/ - . THE GRASS IS PADDOCK GRASS (DHOOP GRASS) WHICH IS SPECIALLY PLANTED AS IT IS A FEED FOR THE HORSES. IT DOES NOT HAVE SPONTANEOUS GROWTH AND HENCE, IT ITA 2953,2954,4073&4074/MUM /2014 M/S. FIVE STAR SHIPPING CO. P. LTD. 9 IS AN AGRICULTURAL ACTIVITY. IN THE FOLLOWING CASES, IT HAS BEEN HELD THAT IF THE GRASS IS PLANTED, IT IS AN AGRICULTURAL ACTIVITY. A) ITO VS. KANCHANLAL MANCHA RAM (1988) 32 TTJ (AHD.)(TM) 38 B) ACIT VS. PZ ESTATES (P) LTD. (2005) 2 SOT 563 (DEL). THE LEARNED CIT(A) AFTER CONSIDERING THE CORROBORATIVE EVIDENCE FILED ON RECORD, OBSERVED THAT THE ASSESSEE HAD SOLD FRENCH BEANS, CABBAGE, CAULIFLOWERS, CARROT, CUCUMBER, LADIES FING ER, MANGO DURING THE RELEVANT PREVIOUS YEAR WHICH CONSTITUTED THE AGRICULTURAL INCOME WHICH WAS CREDITED TO THE P&L ACCOUNT UNDER THE HEAD OTHER INCOME. THE LEARNED CIT(A) ALSO RECORDED A FINDING TO THE EFFECT THAT 7/12 EXTRACTS REFLECTED THAT MANGO TREE S, COCONUT TREES, GUAVA, JAMUN, RICE, CASHEW NUT ETC. ARE BEING GROWN. THE FINDING RECORDED BY THE LEARNED CIT(A) HAS NOT BEEN CONTROVERTED BY THE LEARNED D.R. BY BRINGING ANY POSITIVE MATERIAL ON RECORD, WE, THEREFORE, FIND NO REASON TO INTERFERE WITH THE FINDINGS RECORDED BY THE LEARNED CIT(A) HOLDING THAT THE ASSESSEE HAD EARNED AGRICULTURAL INCOME OF RS. 8,01,175/ - . WITH REGARD TO LEASE RENT EXPENDITURE OF RS. 26,59,140/ - INCURRED BY THE ASSESSEE, THE LEARNED CIT(A) HAS DISALLOWED THE SAME ON THE PLEA T HAT THE EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME. WE ALSO FIND THAT THE LEASE RENT WAS PAID TO THE DIRECTORS OF THE ASSESSEE COMPANY FOR LEASING THE LANDS TO THE ASSESSEE WHICH DESERVES TO BE DISALLOWED U/S 14A OF THE ACT TO THE EXTEND ATTRIBUTAB LE TO EARNING OF EXEMPT INCOME. 9. THE REVENUE HAS ALSO TAKEN A GROUND WITH REGARD TO ADDITIONAL EVIDENCE ACCEPTED BY THE LEARNED CIT(A) WITHOUT GIVING OPPORTUNITY TO THE A.O. IN THIS REGARD, WE FOUND THAT THE A.O. HAS NOT GIVEN SUFFICIENT OPPORTUNITY TO THE ASSESSEE, INSOFAR AS THE DOCUMENTS WERE ASKED AT THE FAG END OF THE ASSESSMENT PROCEEDINGS, THEREFORE, THE ASSESSEE COULD NOT FURNISH THE SAME BEFORE THE A.O. THESE DOCUMENTS WERE FILED BEFORE THE LEARNED CIT(A) WHO HAS SENT ALL THESE DOCUMENTS TO THE A.O. FOR HIS REMAND REPORT. THE A.O. HAS EXAMINED ALL THESE DOCUMENTS AND SENDS HIS REMAND REPORT. ACCORDINGLY, THERE IS NO VIOLATION OF RULE 46A INSOFAR AS THE A.O. HAS BEEN GIVEN DUE OPPORTUNITY BY THE LEARNED CIT(A) BY EXAMINING THE DOCUMENTS AND GIVE H IS REPORT. AFTER CONSIDERING THE REMAND REPORT SENT BY THE A.O., THE LEARNED CIT(A) HAS DECIDED THE ISSUE. THUS THERE IS NO CONTRAVENTION OF RULE 46A, WE, THEREFORE, DO NOT FIND ANY MERIT IN THE GROUND TAKEN BY THE REVENUE. 10. IN VIEW OF THE ABOVE, WE DI SMISS THE GROUNDS TAKEN BY THE REVENUE WITH RESPECT TO THE AGRICULTURAL INCOME AND UPHOLD THE DISALLOWANCE OF EXPENDITURE INCURRED IN THE FORM OF LEASE RENTALS FOR EARNING EXEMPT INCOME U/S 14A OF THE ACT. 7.7.2 RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NOS. 2151, 2152, 2766 & 2767/MUM/2012 DATED 11.06.2015 FOR ASSESSMENT YEARS 2007 - 08 AND 2008 - 09, WE DISMISS GROUND NO. RAISED BY REVENUE WITH REGARD TO THE FINDING THAT THE ASSESSEE HAD EARNED AGRICULTURAL INCOME OF ` 9,97,800/ - AND ITA 2953,2954,4073&4074/MUM /2014 M/S. FIVE STAR SHIPPING CO. P. LTD. 10 ALSO DISMISS GROUND NOS. 1 TO 4 RAISED BY THE ASSESSEE BY UPHOLDING THE DISALLOWANCE OF EXPENDITURE INCURRED IN THE FORM OF LEASE RENTALS OF ` 29,24,264/ - FOR EARNING EXEMPT INCOME UNDER SECTION 14A OF THE ACT. 8 . GROUND NOS. 5 & 7 (ASSESSEES APPEAL) & GROUND NO. 2 (REVENUES APPEAL) 8.1 IN THESE GROUNDS AT S.NOS. 5 & 6 THE ASSESSEE CONTENDS THAT THE LEARNED CIT(A) ERRED IN HOLDING THAT THE ASSESSEE COMPANY WAS CARRYING ON TWO SEPARATE ACTIVITIES, VIZ., (I) THE ACT IVITY OF LIVESTOCK BREEDING BUSINESS AND (II) THE ACTIVITY OF OWNING AND MAINTAINING RACE HORSES AS DEFINED IN THE EXPLANATION TO SECTION 74A OF THE ACT, WITHOUT APPRECIATING THAT THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF BREEDING OF THOROUGHBRED HORSES AT THE COMPANYS STUD FARM AT NANOLI VILLAGE, PUNE DIS TRICT AND THEREFORE THE PROVISIONS OF SECTION 74A WERE NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. IN VIEW OF THE ABOVE CONTENTION, IT IS SUBMITTED THAT THE ENTIRE EXPENDITURE INCURRED B Y THE ASSESSEE IN THE CASE ON HAND WAS ALLOWABLE AS A DEDUCTION WHILE COMPUTING THE INCOME OF THE ASSESSEE COMPANY AND THEREFORE THERE WAS NO REASON OR REQUIREMENT TO BIFURCATE THE EXPENDITURE BETWEEN BREEDING ACTIVITY AND THE ACTIVITY OF OWNING AND MAINTA INING RACING HORSES. THE LEARNED A.R. FOR THE ASSESSEE WAS HEARD IN SUPPORT OF THE GROUNDS RAISED ON THIS ISSUE BUT, FAIRLY CONCEDED THAT THIS ISSUES IN BOTH THE ASSESSEES APPEAL AND REVENUES APPEAL FOR THE YEAR UNDER CONSIDERATION HAS BEEN CONSIDERED AN D DECIDED AGAINST THE ASSESSEE AND REVENUE RESPECTIVELY BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN ITA NO. 21151, 2152, 2766 & 2767/MUM/2012 DATED 11.06.2015. 8.2 THE LEARNED D.R. WAS HEARD IN THE MATTER IN RESPECT OF GROUNDS RAISED BY THE ASSESSEE. HE WAS ALSO HEARD IN RESPECT OF GROUNDS NO. 2 TAKEN BY REVENUE WHEREIN IT WAS CONTENDED THAT THE LEARNED CIT(A) ERRED IN DIRECTING THE AO TO SET OFF BUSINESS LOSSES OF ` 5,51,64,798/ - INCURRED IN RESPECT OF HORSE BREEDING ACTIVITIES WITHOUT APPRE CIATING THAT THE ACTIVITIES OF HORSE BREEDING AND HORSE RACING IN THE CASE ON HAND WERE INTERCONNECTED AND THE INCOME FROM THE TWO ACTIVITIES WERE NOT SEPARATELY INDICATED IN THE RETURN OF INCOME. ITA 2953,2954,4073&4074/MUM /2014 M/S. FIVE STAR SHIPPING CO. P. LTD. 11 8.3.1 THE FACTS OF THE MATTER ON THE ISSUE RAISED BEFORE US BY BOTH THE ASSESSEE AND THE REVENUE ARE AS FOLLOWS: - IN THE ORDER ASSESSMENT, AFTER EXAMINING THE ACTIVITIES UNDER TAKEN BY THE ASSESSEE, THE A O HAS ALSO DISALLOWED LOSSES FROM ACTIVITY OF HORSE BREEDING AND OWNING AND MAINTAINING RACE HORSES AMOUNTING TO ` 6,32,44,117 / - . IN THIS REGARD THE A O HAS EXAMINED THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE. IT WAS OBSERVED THAT THE ASSESSEE HAS BEEN CARRYING ON THE BUSINESS OF (I) SHIP MANAGEMENT AND (II) OWNING AND MAINTAINING HORSE BREEDING FARM CUM - RACE HORSES. IT IS STATED BY THE A.O, IN THE ASSESS MENT ORDER, THAT THE TOTAL RECEIPTS FROM THE ACTIVITIES OF OWNING AND MAINTAINING HORSE BREEDING FARM CUM RACE HORSES WERE SHOWN AT ` 4,11,90,283/ - AND THE EXPENDITURE INCURRED ON THE SAID ACTIVITY WAS SHOWN AT ` 10,44,34,400/ - AND THEREBY A NET LOSS OF ` 6,3 2,44,117/ - WAS DISCLOSED . THE AO ALSO HAS POINTED OUT THAT SOME OF THE EXPENDITURE, EVEN THOUGH DIRECTLY ATTRIBUTABLE TO THE SAID ACTIVITY OF OWNING AND MAINTAINING THE RACE HORSES WAS CLAIMED SEPARATELY UNDER VARIOUS HEADS THEREBY UNDERSTATING THE EXPENDI TURE. THE AGGREGATE OF THE EXPENDITURE WAS ARRIVED AT ` 2,35,73,128 / - . ACCORDINGLY, IN THE SHOW CAUSE NOTICE, THE TOTAL EXPENDITURE WAS ARRIVED AT ` 8,68,17,295 / - ( 6,32,44,117 + 2,35,73,128 ). IN THE SAID SHOW CAUSE NOTICE, THE A O PROPOSED TO DISALLOW THE SET - OFF OF THE ABOVE EXPENDITURE OF ` 8,68,17,245 / - AGAINST THE BUSINESS INCOME I.E., THE INCOME EARNED FROM SHIP MANAGEMENT FEE AND PROPOSED TO ALLOW CARRY FORWARD OF THE SAID EXPENDITURE, IN TERMS OF SUBSECTION (3) OF SECTION 74A OF THE ACT. 8.3.2 IN RESPON SE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED A DETAILED REPLY AND THE SAME IS FULLY REPRODUCED IN PARA 5.4 OF THE ASSESSMENT ORDER. THE SALIENT FEATURES OF THE REPLY OF THE ASSESSEE ARE THAT THE ASSESSEE IS INVOLVED IN THE ACTIVITY OF LIVESTOCK BREE DING AND THE SAID ACTIVITY IS NOT HIT BY SECTION 74A(3) OF THE ACT; THE SAID PROVISIONS ARE APPLICABLE ONLY TO A CASE OF AN ASSESSEE WHO IS THE OWNER OF HORSES MAINTAINED FOR RUNNING IN HORSE RACES; THERE WAS NO IOTA OF MATERIAL EVIDENCE WHICH CAN LEAD TO THE INFERENCE THAT THE ASSESSEE WAS MAINTAINING HORSES FOR PARTICIPATING IN RACES. THE ASSESSEE HAS ALSO EXPLAINED THE NATURE OF THE BUSINESS. IT IS SUBMITTED THAT IN THE YEAR 1994, THE APPELLANT ENTERED ITA 2953,2954,4073&4074/MUM /2014 M/S. FIVE STAR SHIPPING CO. P. LTD. 12 INTO THE BUSINESS OF LIVESTOCK BREEDING CONSTITUTING THOROUGHBRED HORSES AT THE COMPANY'S FARM ESTABLISHED AT VILLAGE NANOLI DISTRICT, PUNE. FOR THE PURPOSE OF THIS BUSINESS, THE COMPANY HAS CONSTRUCTED STABLES AND OTHER NECESSARY STRUCTURES AT THE COMPANY'S FARM, IT IS EXPLAINED THAT THE HORSE BREEDING IS REPRODUCTION IN HORSES WHICH IS A HUMAN - DIRECTED PROCESS INVOLVING SELECTIVE BREEDING OF ANIMALS AND AIDED BY PLANNED MATING FOR ACHIEVING THE DESIRED CHARACTERISTICS IN THE PROGENY. THE HORSE BREEDING ACTIVITY INVOLVED HORSE BREEDING / REPRODUCTION IN THE HORSES BY SELECTIVE BREEDING, EMPLOYMENT OF SKILLED WORKERS, MANAGEMENT OF STABLES, ENGAGING SUPERVISORS AND MANAGERS TO RUN THE STUD FARM OPERATIONS. ETC. FURTHER MODEM BREEDING MANAGEMENT & TECHNOLOGIES INCREASE THE RATE OF CONCEPTION, A HEALTHY PREGNAN CY AND SUCCESSFUL FOALING. IT WAS FURTHER SUBMITTED THAT THE BUSINESS MAINLY INVOLVED THE SALE OF TWO YEAR OLD HORSES WHICH ARE BRED AT THE FARM; THE COMPANY OWNED BROODMARES (A FEMALE HORSE USED FOR BREEDING), WHICH ARE COVERED BY STALLIONS; STALLIONS AND BROODMARES NEVER PARTICIPATE IN RACES, BUT THEY ONLY PARTICIPATE IN BREEDING ACTIVITIES. APPELLANT HAS FURTHER EXPLAINED THE NATURE OF THE INDUSTRY AND EMPHASIZED THAT IT IS A SPECIALIZED INDUSTRY WHICH HAS TO BE UNDERSTOOD AS SUCH. ONCE A FOAL IS BORNE, IT IS MAINTAINED AT THE FARM FOR TWO YEARS AND IS SOLD BY A PRIVATE SALE OR THROUGH AUCTIONS CONDUCTED BY THE TURF CLUB AUTHORITIES; THE HORSE BREEDING BUSINESS REQUIRES SERVICES OF EXPERT PATERNITY DOCTORS, EXPERT TRAINERS AT THE BREEDING FARM; AT THE FAR M THE BROODMARES BELONGING TO OTHER OWNERS ARE ALSO MAINTAINED FOR WHICH THE ASSESSEE CHARGES A FIXED MONTHLY AMOUNT, WHICH IS A BUSINESS INCOME OF THE FARM. 8.3.3 THE ASSESSEE HAS TAKEN A STAND THAT HORSE BREEDING IS AN INDUSTRY NOT ONLY IN INDIA BUT VAR IOUS PARTS OF THE WORLD WHICH INVOLVES RAISING, MARKETING AND MANAGEMENT OF VALUABLE LIVESTOCK. HORSE BREEDING INVOLVES MULTIFARIOUS ACTIVITIES; ONE SUCH ACTIVITY IS TO IDENTIFY STALLIONS AND MARES AND SOURCE THE SAME FOR IMPORT; THE FORMALITIES OF IMPORT INVOLVES COORDINATION AT VARIOUS LEVELS SUCH AS OBTAINING A LICENCE FOR IMPORT IN ACCORDANCE WITH THE PROCEDURES LAID DOWN BY THE DIRECTOR GENERAL OF FOREIGN TRADE, BASED ON THE RECOMMENDATIONS OF THE SPONSORING AUTHORITY NAMELY DIRECTOR ANIMAL HUSBANDRY A ND VETERINARY SERVICES OF STATE GOVERNMENT. IT ITA 2953,2954,4073&4074/MUM /2014 M/S. FIVE STAR SHIPPING CO. P. LTD. 13 WAS ALSO S UBMITTED THAT THE APPELLANT'S FARM WAS FIRST INDIA'S ISO CERTIFIED FARM. IT IS FURTHER SUBMITTED THAT THE OBJECTIVE OF IDENTIFICATION OF HIGH QUALITY HORSES CAN ONLY BE ACHIEVED IF SELECTED HORSES AR E PUT TO REAL GROUND TEST BY WAY OF RACES. ACCORDINGLY, SOME OF THE TWO YEAR OLDS ARE SELECTED AND RETAINED FOR RUNNING THEM IN RACES AND THOSE WHO PERFORM ARE UTILIZED IN BREEDING BUSINESS BECAUSE ITS PROGENY FETCHES A GOOD PRICE. FOR THIS PURPOSE, THE HO RSES ARE TRAINED AT THE FARM AND PRODUCTS HAVE TO BE SHOWCASED TO THE POTENTIAL PURCHASERS. FOR THIS REASON, A FEW HORSES ARE ENTERED INTO THE RACES SO AS TO EARN GOOD REPUTATION AS A BREEDER AND TO ENSURE BETTER PRICE FOR THE PROGENIES PRODUCED IN THE STU D FARM OF THE ASSESSEE. IT IS FURTHER STATED THAT THE BREEDERS DO NOT PARTICIPATE IN THE HORSE RACES BUT THEIR HORSES RUN WHEN THERE IS A PROSPECTIVE BUYER WHO WANTS TO SEE THE POTENTIAL OF THE HORSE BEFORE BUYING. THEREFORE, IT IS NECESSARY TO PARTICIPATE IN VARIOUS RACES CONDUCTED BY THE TURF CLUBS AT VARIOUS RACING CENTRES AND EXPENSES ARE INCURRED ON ENTRY FEE, REGISTRATION ETC. WHICH NECESSARILY HAVE TO BE INCURRED THROUGH TURF CLUBS. IT IS ALSO STATED BY THE ASSESSEE IN THE REPLY THAT THE STAKE MONEY WON BY THE HORSES ALSO CONSTITUTES AN INCOME OF THIS BUSINESS. THUS, THE BUSINESS IS ONLY OF HORSE BREEDING AND PLACING SOME OF THE HORSES OCCASIONALLY FOR RACES IS INCIDENTAL TO THE CORE BUSINESS. IT IS FURTHER STATED THAT THE HORSES PUT TO RACING CONSTIT UTED A SMALL PERCENTAGE AS COMPARED TO THE TOTAL NUMBER OF HORSES SOLD; OUT OF APPROXIMATELY 300 HORSES, ABOUT 15% OF THE HORSES PARTICIPATED IN THE RACES; THERE ARE STALLIONS AND BROODMARES WHICH ONLY PARTICIPATE IN BREEDING ACTIVITIES AND DO NOT PARTICIP ATE IN RACES. IT WAS FURTHER SUBMITTED THAT MUCH MORE DETAILS COULD BE FURNISHED; HOWEVER, ONLY A CONCISE PARTICULARS WERE MADE A VAILABLE AND IN THE EVENT THE A O IS NOT SATISFIED; IT WAS REQUESTED THAT TECHNICAL PERSONS WOULD MAKE FURTHER SUBMISSIONS AND S UBMIT FURTHER EVIDENCES TO EXPLAIN THE HORSE BREEDING ACTIVITY 8.3.4 IN THE IMPUGNED ORDER, THE LEARNED CIT(A) PARTLY ALLOWED THE ASSESSEES CLAIM AFTER OBSERVING AS UNDER AT PARAS 8.8 TO 8.13 : - 8.8 THE FACTS OF THE CASE, THE STAND TAKEN BY THE A.O IN T HE ASSESSMENT ORDER AND THE CONTENTIONS OF THE APPELLANT DURING THE ASSESSMENT PROCEEDINGS AS WELL AS DURING THE APPEAL PROCEEDINGS HAVE BEEN ITA 2953,2954,4073&4074/MUM /2014 M/S. FIVE STAR SHIPPING CO. P. LTD. 14 CAREFULLY CONSIDERED. 'FURTHER, THE CONTENTIONS OF THE A.O RAISED IN THE REMAND REPORT AND THE WRITTEN SUBMISSIONS OF THE APPELLANT WHEREIN THE STAND OF THE A.O HAS BEEN CONTESTED ARE CAREFULLY EXAMINED. THE A.O HAS EXAMINED THE ACCOUNTING INFORMATION SUBMITTED BY THE APPELLANT DURING THE REMAND PROCEEDINGS AND HAS STATED THAT THE BIFURCATION IN TERMS OF HORSE BREEDIN G ACTIVITY AND RACING ACTIVITY IS IN CONSONANCE WITH THE PROFIT & LOSS ACCOUNT SUBMITTED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER. HOWEVER, IT IS STATED BY THE A.O IN THE REMAND REPORT THAT THE ASSESSEE HAS NOT PROVIDED THE RACING' AND BREEDING' BUSINE SS INCOMES SEPARATELY IN THE RETURN OF INCOME OR DURING THE SCRUTINY PROCEEDINGS. HOWEVER, THE APPELLANT SUBMITTED THAT SUCH DETAILS WERE FURNISHED TO THE A,O. ON 09.11.2011 AND FILED A COPY IN THE PAPER BOOK SUBMITTED DURING APPELLATE PROCEEDINGS. FURTHER , THE ASSESSING OFFICER'S COMMENT THAT SUCH BIFURCATION DETAILS WERE NOT AVAILABLE AT THE TIME OF SEARCH IS NOT VERY RELEVANT AS POINTED OUT BY THE APPELLANT SINCE THE SEARCH WAS CONDUCTED IN THE YEAR 2001 AND THE ASSESSMENT YEAR UNDER CONSIDERATION IS 200 9 - 10. 8.9 IN THE ASSESSMENT ORDER, THE A.O HAS NOT CONSIDERED THE CONTENTIONS OF THE ASSESSEE SO AS TO DETERMINE BREAKUP OF THE INCOMES AND EXPENDITURE PERTAINING TO BREEDING ACTIVITIES AND RACING ACTIVITIES AS TWO DISTINCT ACTIVITIES. INSTEAD A.O HAS TRE ATED BOTH THE ACTIVITIES AS FALLING UNDER SECTION 74A(3) OF THE ACT WHICH DEALS WITH ONLY THE LOSSES ARISING ON ACCOUNT OF OWNING & MAINTAINING RACE HORSES. AS VERIFIED AND REPORTED BY THE A.0 IN THE REMAND REPORT, THE INCOMES & EXPENDITURE PERTAINING TO B REEDING ACTIVITY AND RACING ACTIVITY WERE FOUND TO BE CAPTURED UNDER TWO DIFFERENT ACCOUNTING CODES. THEREFORE, AS FAR AS THE FACTUAL MATRIX IS CONCERNED, THE APPELLANT HAS ONLY BROUGHT TO THE NOTICE OF THE A.0 THE ACCOUNTING DATA PERTAINING TO THE INCOME & EXPENDITURE OF BREEDING ACTIVITY AND RACING ACTIVITY, WHICH WAS VERIFIABLE FROM THE BOOKS OF ACCOUNT. 8.10 FURTHER, ON A CAREFUL EXAMINATION OF THE FACTUAL MATRIX AND ACCOUNTING INFORMATION, IT IS APPARENT THAT THE APPELLANT HAS BEEN CARRYING ON THE BUSINESS OF A STUD FARM WHICH WAS COMMENCED SEVERAL YEARS AGO. THERE ARE CERTAIN DISTINCT STREAMS OF INCOME WHICH ARE ATTRIBUTABLE TO ONLY HORSE BREEDING ACTIVITIES/STUD FARM. THEY ARE TRAINING FEES, COVERING FEES, LIVERY EXPENSES, SALE OF LIVESTOCK ETC. THESE STREAMS OF INCOME CANNOT BE CONSIDERED AS INCOME DERIVED FROM OWNING & MAINTAINING THE RACE HORSES. FOR INSTANCE, AN AMOUNT OF RS.1,55,55,573/ - 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 APPELLANT. SIMILARLY, AN AMOUNT OF RS.40,75,000/ - HAS BEEN EARNED FROM COV ERING FEES. APPELLANT HAS SUBMITTED THAT THE NATURE OF THE RECEIPT AND THE QUANTUM OF THE RECEIPT WERE REFLECTED IN THE BOOKS OF ACCOUNT AND IDENTIFIABLE WITH DISTINCT ACCOUNTING CODES. SIMILARLY OTHER RECEIPTS ATTRIBUTABLE TO THE HORSE BREEDING ACTIVITIES OF THE STUD FARM AND THE RECEIPTS ATTRIBUTABLE TO THE RACING ACTIVITIES SUCH AS STAKE MONEY ARE DISTINCT IN NATURE AND THE SAME WERE IDENTIFIABLE IN THE BOOKS OF ACCOUNT UNDER DIFFERENT ACCOUNTING CODES. AS STATED BY THE A.O IN THE REMAND REPORT, THE INCO ME & EXPENDITURE BREAKUP PROVIDED SPECIFICALLY ITA 2953,2954,4073&4074/MUM /2014 M/S. FIVE STAR SHIPPING CO. P. LTD. 15 FOR STUD FARM ARID RACING WAS VERIFIED VIS - A - VIS THE BOOKS OF ACCOUNT DURING THE REMAND PROCEEDINGS. AS STATED IN THE REMAND REPORT, THE BREAKUP SUBMITTED BY THE APPELLANT FOR THE STUD FARM AND RACING INCOME I S IN CONSONANCE WITH THE BOOKS OF ACCOUNT SUBMITTED BEFORE THE A.O. THEREFORE, THE BIFURCATION AS SUBMITTED BY THE APPELLANT WAS VERIFIABLE WITH REFERENCE TO THE BOOKS OF ACCOUNT MAINTAINED AND THE SAME HAS BEEN CARRIED OUT BY THE A.0 DURING THE REMAND PRO CEEDINGS. 8.11 ON A CAREFUL EXAMINATION OF THE CONTENTIONS OF THE A.O IN THE ASSESSMENT ORDER, IT IS SEEN THAT A.O HAS NOT CONSIDERED THE HORSE BREEDING ACTIVITY AS A DISTINCT BUSINESS ACTIVITY FROM HORSE RACING ACTIVITY. INSTEAD, THE A.O HAS TREATED THESE TWO DISTINCT ACTIVITIES AS A SINGLE ACTIVITY OF OWNING & MAINTAINING THE RACE HORSES AND ACCORDINGLY THE LOSS AS COMPUTED BY THE A.O IN THE ASSESSMENT ORDER IS ALLOWED TO BE CARRIED FORWARD U/S. 74A(3) OF THE ACT. THE FACTUAL INFORMATION AND THE ACCOUNTIN G DATA DO NOT SUPPORT THE CONCLUSIONS AS ARRIVED AT IN THE ASSESSMENT ORDER. FOR INSTANCE, THE APPELLANT HAS ALSO HIGHLIGHTED THE FACT THAT ONLY A SMALL PERCENTAGE OF THE TOTAL NUMBER OF HORSES HAVE PARTICIPATED IN THE RACES. IT IS ALSO EMPHASIZED THAT HOR SES SUCH AS STALLIONS AND BROODMARES ARE COMPLETELY DEDICATED TO THE HORSE BREEDING ACTIVITY IN THE STUD FARM AND ARE NOT ENGAGED IN RACING ACTIVITIES. SIMILARLY THE EXPENSES PERTAINING TO THE BREEDING AND COVERING CANNOT BE ATTRIBUTED TO THE RACING SEGMEN T. ATTENTION HAS BEEN DRAWN TO THE PROVISIONS OF SUB - SECTION (3) OF SECTION 74A OF THE ACT SO AS TO EMPHASIZE THAT LOSS HAS TO BE COMPUTED UNDER THESE PROVISIONS BY TAKING INTO ACCOUNT THE INCOME BY WAY OF STAKE MONEY AND THE AMOUNT BY WHICH SUCH INCOME FA LLS SHORT OF THE AMOUNT OF EXPENDITURE WHICH IS LAID OUT BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAINTAINING RACE HORSES. 8.12 ON A CAREFUL EXAMINATION OF THE ABOVE CONTENTIONS OF THE APPELLANT, IT IS SEEN THAT THE STAND TAKEN BY THE A.O IN THE ASSESSMENT ORDER IS ERRONEOUS. ON THE OTHER HAND, THE MAIN GROUNDS OF APPEAL OF THE APPELLANT THAT THE ENTIRE ACTIVITY HAS TO BE TREATED AS HORSE BREEDING ACTIVITY AND RACING ACTIVITY BEING ONLY INCIDENTAL TO THE MAIN ACTIVITY OF HORSE BREEDING ACT IVITY, THE SAME OUGHT TO BE CONSIDERED AS A PART OF THE BUSINESS ACTIVITY OF MAINTAINING A HORSE BREEDING FARM IS ALSO NOT FULLY JUSTIFIED. AS OBSERVED IN THE FOREGOING PARAGRAPHS, HORSE BREEDING ACTIVITY AND RACING ACTIVITY ARE TWO DISTINCT ACTIVITIES, WH ICH ARE DISTINGUISHABLE ON THE BASIS OF THE FACTUAL INFORMATION AND ACCOUNTING DATA. IN THIS CONTEXT, IT IS PERTINENT TO REFER TO THE GROUNDS OF APPEAL FILED FOR A.Y.2007 - 08 AS WELL AS THE GROUNDS OF APPEAL FOR A.Y.2008 - 09. SINCE IDENTICAL ISSUES AROSE IN THE APPEAL FOR THE A.Y.2009 - 10, THE ANALYSIS AND CONCLUSIONS AS ARRIVED AT IN THE APPELLATE ORDERS FOR THE A.YRS.2007 - 08 AND 2008 - 09 BY THE PREDECESSOR CIT(A) VIDE ORDER NO.CIT(A) - 38/IT - 388/2009 - 10 FOR THE A.Y.2007 - 08 AND ORDER NO.CIT(A) - 38/316/ 2010 - 11 F OR THE A.Y.2008 - 09 DATED 23.01.2012, MUTATIS MUTANDI, ARE APPLICABLE TO THIS APPELLATE ORDER AS WELL. 8.13 THE ISSUE OF HORSE BREEDING ACTIVITY AS A DISTINCT BUSINESS ACTIVITY IS CONSIDERED IN THE LIGHT OF DECISION OF HON'BLE MADRAS HIGH COURT IN THE ITA 2953,2954,4073&4074/MUM /2014 M/S. FIVE STAR SHIPPING CO. P. LTD. 16 CASE OF MRS. KAMALA MUTHIA VS. CIT (259 ITR 184) (MADRAS). AS HELD, CARRYING ON AN ACTIVITY IN AN ORGANIZED MANNER NOT ONLY IN THE YEAR IN QUESTION BUT ALSO IN THE PRIOR YEARS AND ALSO IN THE SUBSEQUENT YEARS WITH A PROFIT MOTIVE IS A COMMERCIAL ACTIVITY. ANY SUCH COMMERCIALLY ORGANISED ACTIVITY CARRIED ON BY AN ASSESSEE, WITH A PROFIT MOTIVE, HAS TO BE VIEWED AS A BUSINESS ACTIVITY. IN THE CASE OF THE APPELLANT, THE HORSE BREEDING ACTIVITY IS NOTHING BUT A BUSINESS ACTIVITY. THEREFORE, THE PROFITS OR LOSSE S ARISING FROM SUCH AN ACTIVITY HAVE TO BE TREATED AS BUSINESS PROFITS OR LOSSES AND THE SAME HAVE TO BE COMPUTED UNDER THE HEAD BUSINESS. ON THE OTHER HAND, THE LOSS AS COMPUTED BY THE APPELLANT IN TERMS OF THE RACING SEGMENT, AND VERIFIED BY THE A.O DURI NG THE REMAND PROCEEDINGS, HAS TO BE CARRIED FORWARD U/S.74A(3) OF THE ACT. THE STAND TAKEN BY THE A.O IN THE ASSESSMENT ORDER IS NOT LEGALLY TENABLE SINCE IT IS NOT INTENDED AS PER THE SCHEME OF COMPUTATION OF INCOME UNDER INCOME TAX ACT TO SET OFF BUSINE SS LOSS, ARISING ON ACCOUNT OF HORSE BREEDING ACTIVITY, AGAINST THE PROFITS EARNED IN THE SEGMENT OF OWNING & MAINTAINING RACE HORSES - IN AN EVENT THERE IS A LOSS IN THE HORSE BREEDING ACTIVITY AND THERE IS A PROFIT IN THE SEGMENT OF OWNING & MAINTAINING RACE HORSES. THEREFORE, A.O IS HEREBY DIRECTED TO ALLOW THE SET OFF OF ONLY THE BUSINESS LOSS ARRIVED AT IN RESPECT OF HORSE BREEDING ACTIVITY AMOUNTING TO RS.5,51,64,798/ - AGAINST THE OTHER BUSINESS INCOME AND CARRY FORWARD THE LOSS ARRIVED AT IN THE RACI NG SEGMENT AMOUNTING TO RS.65,35,938/ - IN TERMS OF SECTION 74A(3) OF THE ACT. IN RESPECT OF THE ADDITIONAL EXPENSES OF RS.2,35,73,128/ - (PLEASE SEE PARAGRAPH 8.1 ABOVE), THE A.0 IS DIRECTED TO VERIFY THE NATURE OF THE EXPENDITURE AND IDENTIFY THE EXPENSES RELATING TO HORSE BREEDING ACTIVITY AND THE ACTIVITY OF OWNING AND MAINTAINING RACE HORSES AND ACCORDINGLY ALLOW THE SET OFF OF EXPENSES RELATING TO THE HORSE BREEDING ACTIVITY AGAINST THE OTHER BUSINESS INCOME AND CARRY FORWARD THE EXPENSES RELATING T O THE ACTIVITY OF OWNING AND MAINTAINING OF RACE HORSES U/S. 74A (3) OF THE ACT. 8.3.5 IT IS A GAINST THE ABOVE ORDER OF LEARNED CIT(A) THAT BOTH ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US . 8.4.1 WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 IN ITA NO. 2151, 2152, 2766 AND 2767/MUM/2012 DATED 11.06.2015. WE FIND THAT THE ISSUE BEFORE US IN RESPECT OF GROUNDS AT S.NOS. 5 & 6 RAISED BY THE ASSESSEE AND GROUND NO. 2 RAISED BY REVENUE HAVE BEEN CONSIDERED AND ADJUDICATED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007 - 08 AND 2008 - 09 DATED 11.06.2015 (SUPRA), WHEREIN AT PARA 20 THEREOF THE COORDINATE BENCH HAS HELD AS UNDER: - ITA 2953,2954,4073&4074/MUM /2014 M/S. FIVE STAR SHIPPING CO. P. LTD. 17 20. THE GRIEVANCE OF THE ASSESSEE AND REVENUE RELATES TO THE DISALLOWANCE OF LOSSES FROM ACTIVITY OF OWNING AND MAINTAINING RACE HORSES AMOUNTIN G 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 R ACING 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, T HE 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 BA SIS 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 RA CING AND BREEDING ARE TWO 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 FRO M 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 CORRECTLY HELD THE LOSS OF RS.1,18,63,894/ - PERTAINS TO RA CING ACTIVITY AND THE SAME IS TO BE DISALLOWED FOR SET OFF ITA 2953,2954,4073&4074/MUM /2014 M/S. FIVE STAR SHIPPING CO. P. LTD. 18 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 FR OM 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, T HE 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 REP ORT 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 INCO ME. 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 TH E 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 UTILI ZED 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 ACTIVIT Y 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. 8.4.2 RESPECTFULLY, FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 IN ITA NO. 2151, 2152, 2766 AND 2767/MUM/2012 DATED 11.06.2015 WE FIND NO REASON TO INTERFERE WITH OR DEVIATE FROM THE FINDINGS OF THE CIT(A) ON THESE ISSUES. CONSEQUENTLY, GROUNDS AT S.NO S. 5 & 6 RAISED BY THE ASSESSEE AND GROUND NO. 2 RAISED BY THE REVENUE ARE DISMISSED. 9 . IN THE RESULT, THE APPEALS OF BOTH THE ASSESSEE AND REVENUE FOR A.Y. 2009 - 10 ARE DISMISSED. ITA 2953,2954,4073&4074/MUM /2014 M/S. FIVE STAR SHIPPING CO. P. LTD. 19 ITA NO. 2954/MUM/2014 (ASSESSEES APPEAL FOR A.Y. 2010 - 11) & ITA NO. 4074/MUM/ 2014 (REVENUES APPEAL FOR A.Y. 2010 - 11 10 . AS THE GROUNDS RAISED BY BOTH THE ASSESSEE AND REVENUE FOR A.Y. 2010 - 11 ARE SIMILAR TO THE GROUNDS RAISED BY THEM IN A.Y. 2009 - 10, FOR THE REASONS GIVEN AND FINDINGS RENDERED THEREIN, WE UPHOLD THE ACTION TAKEN BY T HE LEARNED CIT(A) IN THE IMPUGNED ORDER FOR A.Y. 2010 - 11. CONSEQUENTLY THE GROUNDS RAISED AT S.NOS. 1 TO 6 BY THE ASSESSEE AND S.NOS. 1 & 2 BY REVENUE ARE DISMISSED. AS GROUND NOS. 7 TO 7.2 OF THE ASSESSEES APPEAL HAVE NOT BEEN PRESSED BY THE ASSESSEE, TH EY ARE RENDERED INFRUCTUOUS AND ARE ACCORDINGLY DISMISSED. 11 . IN THE RESULT, THE APPEALS OF BOTH THE ASSESSEE AND REVENUE FOR A.Y. 2010 - 11 ARE DISMISSED. 12 . TO SUM UP, THE CROSS APPEALS OF BOTH THE ASSESSEE AND REVENUE FOR ASSESSMENT YEARS 2009 - 10 AND 2010 - 11 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH APRIL , 2016 . S D / - SD/ - ( SANDEEP GOSAIN ) ( JASON P. BOAZ ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 6 TH APRIL , 2016 COPY TO: 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE CIT(A) - 38, MUMBAI 4 . THE CIT , CENTRAL - IV, MUMBAI 5 . THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.