THE DCIT, Guntur V. Venkatarama Poultries Ltd., Guntur

ITA 410/VIZ/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8882 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 16-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K SETHI
• Keywords: Depreciation; Revenue expenditure
• Section: 143(3); 142(1); 147

Judgement Text

ITA NO.410/VIZAG/2014 M/S. VENKATARAMA POULTRIES LTD., GUNTUR 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.410/VIZAG/2014 ( / ASSESSMENT YEAR: 2005-06) DCIT, CIRCLE - 2(1), GUNTUR VS. M/S. VENKATARAMA POULTRIES LTD., GUNTUR [PAN: AA ACV7767L ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI M.K. SETHI, DR / RESPONDENT BY : SHRI G.V.N. HARI, AR / DATE OF HEARING : 01.05.2017 / DATE OF PRONOUNCEMENT : 08.06.2017 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST ORDER OF THE CIT(A), GUNTUR DATED 31.3.2014 AND IT PERTAINS TO T HE ASSESSMENT YEAR 2005-06. ITA NO.410/VIZAG/2014 M/S. VENKATARAMA POULTRIES LTD., GUNTUR 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY ENGAGED IN THE BUSINESS OF POULTRY FARM FILED ITS R ETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06, ADMITTING TOTAL INCOME OF ` 33,14,260/-. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT W AS COMPLETED U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CAL LED AS 'THE ACT'), ACCEPTING THE RETURNED INCOME OF ` 33,14,260/-. SUBSEQUENTLY, THE CASE HAS BEEN RE-OPENED U/S 147 OF THE ACT, FOR THE REAS ON THAT INCOME CHARGEABLE TO TAX HAD BEEN ESCAPED ASSESSMENT WITHI N THE MEANING OF SECTION 147 OF THE ACT ON ACCOUNT OF EXCESS CLAIM O F DEPRECIATION OF ` 70,35,446/-, INTEREST ON LOANS AMOUNTING TO ` 41,12,832/-, LONG TERM CAPITAL GAIN OF ` 56,11,095/- AND SHORT TERM CAPITAL GAIN OF ` 4,50,397/-. THE CASE HAS BEEN SELECTED FOR SCRUTINY AND ACCORDI NGLY, NOTICE U/S 143(2) & 142(1) OF THE ACT WERE ISSUED. IN RESPONS E TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FURNISHED RELEVANT DETAILS. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. ISSUED A SHOW CAUSE NOTICE AND ASKED THE ASSESSEE TO FURNISH THE DETAILS OF SHEDS CONSTRUCTED, CAGES AND AUTOMOTIVES, DETAILS O F AGRICULTURAL LOAN AVAILED, DETAILS OF LONG TERM CAPITAL GAINS AND SHO RT TERM CAPITAL GAINS. IN RESPONSE TO NOTICE, THE ASSESSEE HAS FILED RELEV ANT DETAILS OF ITA NO.410/VIZAG/2014 M/S. VENKATARAMA POULTRIES LTD., GUNTUR 3 CONSTRUCTION OF SHEDS, CAGES AND AUTOMOTIVES AND AL SO FILED DETAILS OF AGRICULTURAL LOAN AVAILED ALONG WITH SANCTION LETTE RS. THE ASSESSEE ALSO FILED DETAILS OF PURCHASES AND SALES OF SHARES TO J USTIFY LONG TERM CAPITAL GAINS AND SHORT TERM CAPITAL GAINS DECLARED IN THE RETURN OF INCOME. THE A.O. AFTER CONSIDERING THE DETAILS FILED BY THE ASS ESSEE, ACCEPTED CLAIM OF LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GA IN COMPUTED BY THE ASSESSEE. THE A.O. ALSO ACCEPTED AGRICULTURAL LOAN AVAILED BY THE ASSESSEE AND INTEREST DEBITED TO PROFIT & LOSS ACCO UNT. HOWEVER, IN RESPECT OF DEPRECIATION ON SHEDS CONSTRUCTED, CAGES AND AUTOMOTIVES RE- WORKED DEPRECIATION CLAIMED BY THE ASSESSEE BY HOLD ING THAT THE ASSESSEE HAS FAILED TO PROVIDE NECESSARY DETAILS OF COMPLETION OF CONSTRUCTION OF SHEDS AND PUT TO USE THEM ON OR BEF ORE 30 TH SEPTEMBER. THEREFORE, RE-COMPUTED DEPRECIATION ON TOTAL SHED C ONSTRUCTION, CAGES AND AUTOMOTIVES AND ALLOWED 50% OF NORMAL DEPRECIAT ION ON THE GROUND THAT THE ASSESSEE HAS COMPLETED CONSTRUCTION OF SHE DS AND PUT TO USE THEM FOR LESS THAN 180 DAYS. SIMILARLY, IN RESPECT OF INTEREST DEBITED TO PROFIT & LOSS ACCOUNT TOWARDS TERM LOAN, DISALLOWED AN AMOUNT OF ` 52,31,854/- AND ADDED BACK TO THE TOTAL INCOME ON T HE GROUND THAT THE ASSESSEE HAS FAILED TO PRODUCE ANY DOCUMENTARY EVID ENCE TO PROVE THE COMPLETION OF CONSTRUCTION OF SHEDS AND PUT THEM FO R USE. ITA NO.410/VIZAG/2014 M/S. VENKATARAMA POULTRIES LTD., GUNTUR 4 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE HAS REITERATED THE SUBMISSIONS MADE BEFORE THE A.O. TH E ASSESSEE FURTHER SUBMITTED THAT IN RESPECT OF CONSTRUCTION OF SHEDS, IT IS A CONTINUOUS PROCESS AND THESE SHEDS ARE CONSTRUCTED ONE AFTER A NOTHER, AS PER THE REQUIREMENT BASED ON THE NUMBER OF BIRDS TO BE HOUS ED. DURING THE YEAR, IT HAD CONSTRUCTED 9 SHEDS, OUT OF WHICH 3 SH EDS HAVE BEEN COMPLETED BEFORE SEPTEMBER AND THE REMAINING 6 SHED S HAVE BEEN COMPLETED AFTER SEPTEMBER AND ACCORDINGLY, COMPUTED DEPRECIATION AS PER THE PROVISIONS OF LAW. IN SUPPORT OF ITS ARGUM ENTS, FURNISHED NECESSARY DETAILS OF CONSTRUCTION AND ALSO PRODUCED DETAILS OF EGGS AND CHICKS TO PROVE THE COMPLETION OF CONSTRUCTION OF S HEDS BEFORE SEPTEMBER AND AFTER SEPTEMBER. SIMILARLY, IN RESPE CT OF INTEREST ON LOAN, THE ASSESSEE HAS FILED LOAN SANCTION LETTERS AND ALSO LEDGER EXTRACTS OF TERM LOANS TO PROVE THE PAYMENT OF INTEREST. 5. THE CIT(A) AFTER CONSIDERING RELEVANT SUBMISSION S OF THE ASSESSEE AND ALSO TAKEN INTO ACCOUNT THE DETAILS FILED BY TH E ASSESSEE LIKE CONSTRUCTION DETAILS AND BANK TERM LOAN DETAILS OBS ERVED THAT THE ASSESSEE HAS RIGHTLY COMPUTED FULL DEPRECIATION ON SHEDS, CAGES AND AUTOMOTIVES CONSTRUCTED AND PUT TO USE ON OR BEFORE SEPTEMBER AND ITA NO.410/VIZAG/2014 M/S. VENKATARAMA POULTRIES LTD., GUNTUR 5 HALF OF THE NORMAL DEPRECIATION ON SHEDS, CAGES AND AUTOMOTIVES, CONSTRUCTED AND PUT TO USE AFTER SEPTEMBER. IN SO FAR AS INTEREST DEBITED TO PROFIT & LOSS ACCOUNT, CIT(A) OBSERVED T HAT THE ASSESSEE HAS FILED NECESSARY DETAILS TO PROVE THE COMPLETION OF CONSTRUCTION OF SHEDS, CAGES AND AUTOMOTIVES AND ALSO CORRECTLY COMPUTED D EPRECIATION TO BE CAPITALIZED AND DEPRECIATION TO BE DEBITED TO PROFI T & LOSS ACCOUNT AS REVENUE EXPENDITURE. ACCORDINGLY, OUT OF TOTAL INT EREST EXPENDITURE OF ` 52,31,854/-, DIRECTED THE A.O. TO DISALLOW AN AMOUN T OF ` 6,96,299/- AND THE BALANCE AMOUNT IS DELETED. AGGRIEVED BY THE CI T(A) ORDER, THE REVENUE IS IN APPEAL BEFORE US. 6. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF EXCESS DEPRECIATION CLAIMED BY THE ASSESSEE. TH E A.O. RE-WORKED DEPRECIATION CLAIMED BY THE ASSESSEE ON SHEDS, CAGE S AND AUTOMOTIVES ON THE GROUND THAT THE ASSESSEE HAS FAILED TO FILE NECESSARY EVIDENCES TO PROVE COMPLETION OF CONSTRUCTION OF 3 SHEDS AND ALS O CAGES AND AUTOMOTIVES INSTALLED ON THE SAID 3 SHEDS. IT IS T HE CONTENTION OF THE ASSESSEE THAT CONSTRUCTION OF SHED IS A CONTINUOUS PROCESS AND THESE SHEDS ARE CONSTRUCTED ONE AFTER ANOTHER, AS PER THE REQUIREMENT BASED ON THE NUMBER OF BIRDS TO BE HOUSED. THE ASSESSEE FURTHER CONTENDED THAT DURING THE YEAR IT HAS CONSTRUCTED 9 SHEDS, OU T OF WHICH 3 SHEDS ITA NO.410/VIZAG/2014 M/S. VENKATARAMA POULTRIES LTD., GUNTUR 6 HAVE BEEN CONSTRUCTED AND PUT TO USE BEFORE SEPTEMB ER AND 6 SHEDS HAVE BEEN CONSTRUCTED AND PUT TO USE AFTER SEPTEMBE R AND ACCORDINGLY, CLAIMED DEPRECIATION ALLOWANCE AS PER THE PROVISION S OF LAW. 7. THE ASSESSEE HAS FILED NECESSARY DETAILS OF CONS TRUCTION OF SHEDS AND ALSO INSTALLATION OF CAGES AND AUTOMOTIVES TO P ROVE THE COMPUTATION OF DEPRECIATION. THE ASSESSEE HAS FILED PURCHASE D ETAILS OF ASSETS AND ALSO PRODUCED DETAILS OF EGGS AND CHICKS TO PROVE T HAT THE CONSTRUCTION OF SHEDS IS A CONTINUOUS PROCESS. THE CIT(A) AFTER CONSIDERING RELEVANT DETAILS FILED BY THE ASSESSEE DELETED ADDITIONS MAD E BY THE A.O. TOWARDS EXCESS CLAIM OF DEPRECIATION. THE RELEVANT PORTION OF THE CIT(A) ORDER IS EXTRACTED BELOW: I HAVE PERUSED THE SUBMISSIONS MADE BY THE APPELLAN T AS WELL AS THE EVIDENCE SUBMITTED, INCLUDING ACCOUNT STATEMENT S OF THE TERM LOAN ACCOUNTS. THE EVIDENCE CLEARLY SHOWS THAT THE FIRS T DISBURSAL OF ` 3 CRORES TOOK PLACE BY 14 TH SEPTEMBER, 2004 WHILE THE SECOND DISBURSAL HAD TAK EN PLACE BY 9 TH MARCH, 2005. MOREOVER, THE PRODUCTION OF EGGS HAD SHOWN A QUANTUM JUMP FROM APRIL, 2004 ONWARDS INDICATING TH EREBY THAT NEW BIRDS HAD BEEN HOUSED IN THE POULTRY FARM, WHICH WOULD IN DICATE THAT THE SHEDS WERE BEING COMPLETED ON ONGOING BASIS FROM APRIL ON WARDS. IN VIEW OF THE SAME, THE CLAIM OF THE APPELLANT IS FOUND TO BE IN ORDER. IT IS SEEN THAT IN RESPECT OF SHEDS, THE APPELLANT HAS CLAIMED DEPRECIATION @ 10% ON THE OPENING W.D.V. AND CONSTRUCTION PRIOR TO SEP TEMBER, 2004 AND @ 5% ON SHEDS COMPLETED BETWEEN 30.9.2004 AND 31.3.20 05. IN RESPECT OF CAGES AND AUTOMOTIVES, THE APPELLANT HAS SIMILARLY CLAIMED DEPRECIATION @ 25% ON OPENING W.D.V. AND CAGES COMPLETED PRIOR TO 30.9.2004. ON CAGES COMPLETED AFTER 30.9.2004, DEPRECIATION AT HA LF THE NORMAL VALUE I.E., 12.5% HAS BEEN CLAIMED. VERIFICATION OF THE SAME CLEARLY SHOWS THAT THE DEPRECIATION HAS BEEN CORRECTLY COMPUTED AND AS DISCUSSED ABOVE, THE APPELLANTS CLAIM REGARDING COMPLETION OF 3 SHEDS A ND CAGES PRIOR TO 30.9.2004 AND 6 SHEDS BETWEEN 30.9.2004 AND 31.3.20 05 HAS BEEN FOUND ITA NO.410/VIZAG/2014 M/S. VENKATARAMA POULTRIES LTD., GUNTUR 7 TO BE IN ORDER. HENCE, THE CLAIM OF DEPRECIATION I S CORRECT AND THE DISALLOWANCE MADE IS DELETED. APPEAL ON GROUNDS NO .1 TO 3 IS ALLOWED. 8. THE FACTS REMAIN UNCHANGED. THE REVENUE HAS FAI LED TO BRING ON RECORD ANY EVIDENCE TO PROVE THE FINDING OF FACTS R ECORDED BY THE CIT(A) IS INCORRECT. ON THE OTHER HAND, THE ASSESSEE HAS FILED NECESSARY DETAILS TO SUPPORT THE FINDINGS OF THE CIT(A) IN THE FORM O F PURCHASE BILLS OF ASSETS AND ALSO FURNISHED PRODUCTION DETAILS, WHICH STRENGTHENS THE CLAIM OF THE ASSESSEE THAT 3 SHEDS HAVE BEEN COMPLE TED BEFORE SEPTEMBER. THEREFORE, WE ARE OF THE CONSIDERED VIE W THAT THE ASSESSEE HAS RIGHTLY COMPUTED DEPRECIATION ON SHEDS, CAGES A ND AUTOMOTIVES IN ACCORDANCE WITH LAW. THE CIT(A) AFTER CONSIDERING RELEVANT DETAILS HAS RIGHTLY DELETED ADDITIONS MADE BY THE A.O. WE DO NO T FIND ANY ERROR IN THE ORDER OF THE CIT(A). HENCE, WE ARE INCLINED TO UPHOLD THE CIT(A) ORDER AND DISMISS GROUND RAISED BY THE REVENUE. 9. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N IS DISALLOWANCE OF INTEREST DEBITED TO PROFIT & LOSS ACCOUNT. THE A.O. DISALLOWED INTEREST PAID ON TERM LOAN OF ` 52,31,854/- FOR THE REASON THAT THE ASSESSEE HAS FAILED TO PRODUCE ANY DOCUMENTARY EVIDENCE TO PROVE COMPLETION OF CONSTRUCTION OF SHEDS AND CAGES AND PUT TO USE. IT IS THE CLAIM OF THE ASSESSEE THAT CONSTRUCTION OF SHEDS, CAGES AND AUTO MOTIVES IS A CONTINUOUS PROCESS AND THE CONSTRUCTION HAS BEEN CO MPLETED ONE AFTER ITA NO.410/VIZAG/2014 M/S. VENKATARAMA POULTRIES LTD., GUNTUR 8 ANOTHER, AS PER THE REQUIREMENT BASED ON THE NUMBER OF BIRDS TO BE HOUSED. THE ASSESSEE HAS FILED NECESSARY DETAILS T O PROVE THE COMPLETION OF CONSTRUCTION BEFORE SEPTEMBER. THE C IT(A) AFTER CONSIDERING RELEVANT DETAILS FILED BY THE ASSESSEE HAS DELETED ADDITIONS MADE BY THE A.O. TOWARDS INTEREST DEBITED TO PROFIT & LOSS ACCOUNT. THE RELEVANT PORTION OF THE CIT(A) ORDER IS EXTRACTED B ELOW: I HAVE PERUSED THE SUBMISSIONS MADE AS WELL AS THE BANK ACCOUNT STATEMENTS SUBMITTED BY THE APPELLANT. THE TOTAL I NTEREST HAS BEEN CORRECTLY COMPUTED AT ` 52,31,854/-. FURTHER, THE APPELLANT HIMSELF HAS COMPUTED THE AMOUNT OF INTEREST, WHICH SHOULD HAVE BEEN CAPITALIZED, BEING INTEREST ON PRECONSTRUCTION PERIOD AMOUNTING TO ` 6,96,299/-. THUS, THE ADDITION OF ` 52,31,854/- IS RESTRICTED TO ` 6,96,299/- AND THE BALANCE AMOUNT IS DELETED. APPEAL ON GROUND NO.4 IS PARTLY ALLOWED. 10. THE FACTS REMAIN UNCHANGED. THE REVENUE FAILS TO BRING ON RECORD ANY EVIDENCES TO PROVE THE FINDINGS OF THE FACTS RE CORDED BY THE CIT(A) ARE INCORRECT. THEREFORE, WE UPHOLD THE CIT(A) ORD ER AND DISMISS GROUND RAISED BY THE REVENUE. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 8 TH JUN17. SD/- SD/- ( . ) ( . ) (G. MANJUNATHA) (V. DURGA RAO) /ACCOUNTANT MEMBER /JUDICIAL MEMBER ! /VISAKHAPATNAM: % /DATED : 8.6.2017 VG/SPS ITA NO.410/VIZAG/2014 M/S. VENKATARAMA POULTRIES LTD., GUNTUR 9 '! (! /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE DCIT, CIRCLE-2(1), GUNTUR 2. / THE RESPONDENT M/S. VENKATARAMA POULTRIES LTD. , GUNTUR 3. ) / THE CIT, GUNTUR 4. ) ( ) / THE CIT(A), GUNTUR 5. ! , , , , ! / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // /0 , (SR.PRIVATE SECRETARY) , , ! / ITAT, VISAKHAPATNAM