DCIT, Circle-3(3), Hyderabad V. Vibha Agrotech Ltd., Hyderabad

ITA 567/HYD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66183 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 17-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALKA R JAIN
• Assessee Lawyers: V SEKHAR BABU
• Keywords: Business income; Business expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 567/HYD/2012 ASSESSMENT YEAR: 2008-09 DY. COMMISSIONER OF INCOME-TAX, ... APPELLANT CIRCLE 3(3), HYDERABAD VS. M/S VIBHA AGROTECH LTD., RESPONDENT HYDERABAD. (PAN AAACV8157A) APPELLANT BY : SMT. ALKA R. JAIN RESPONDENT BY : SHRI V. SEKHAR BABU DATE OF HEARING : 24/07/2012 DATE OF PRONOUNCEMENT : 31/08/ 2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)-IV, HYDERABAD DATED 31/01/2012 FOR THE ASSESSMENT YEAR 2008-09. 2. GROUND NO.1 IS GENERAL IN NATURE. GROUND NO. 2 I S AS FOLLOWS:- THE CIT(A) HAS ERRED IN DIRECTING TO CONSIDER THE INCOME FROM FOUNDATION SEED AS AGRICULTURAL INCOME AND ALLOW EXEMPTION U/S 10(1) AS INCOME FROM FOUNDATION SEED CONSTITUTED BUSINESS INCOME OF THE ASSESSEE AND NOT AGRICULTURAL INCOME. 3. THE INCOME OF RS. 20,42,60,387/- CLAIMED AS AGRICULTURAL INCOME BY THE ASSESSEE WAS TREATED AS BUSINESS INCOME BY THE AO. ON APPEAL, THE CIT(A) FOLLOWING THE ITA NO. 567 /HYD/12 M/S VIBHA AGROTECH LTD. 2 ORDER OF THE ITAT, HYDERABAD IN ITA NO. 1217/H/04 I N ASSESSEES OWN CASE FOR AY 2001-02, WHICH WAS REPOR TED IN 314 ITR(AT) 231, DIRECTED THE AO TO TREAT THE SAID INCOME OF RS. 20,42,60,387/- AS AGRICULTURAL INCOME AND ALLOW EXEMPTION U/S 10(1) ON THE SAME. 4. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORD AS WELL AS GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE D ECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR AYS 2002- 03, 2004-05 AND 2005-06 IN ITA NOS. 469/H/2008 AND OTHERS VIDE ORDER DATED 18/06/2010. A COPY OF THE S AID ORDER IS AVAILABLE ON RECORD. THE RELEVANT FINDING S OF THE COORDINATE BENCH ARE EXTRACTED BELOW: 4. THE ISSUES RAISED IN THE REVENUE APPEALS HAS BE EN SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL IN AS SESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-02 REPORTED I N 314 ITR (AT) 231 HYDERABAD WHEREIN IT WAS HELD THAT : THE ASSESSEE WAS CARRYING ON AGRICULTURAL OPERATION S AND GROWING BASIC SEEDS ON THE LANDS. IT WAS NOT THE CA SE OF THE REVENUE THAT WITHOUT PERFORMING THE BASIC OPERATION S, THE SUBSEQUENT OPERATIONS HAD BEEN CARRIED ON BY THE AS SESSEE. THE BASIC SEEDS WERE SOLD BY THE ASSESSEE ONLY AS A RESULT OF THE BASIC OPERATIONS THAT HAD BEEN CARRIED ON BY IT AND ON EXPENDING HUMAN SKILL AND LABOUR THEREON AND ONLY A FTER PERFORMING OPERATIONS SUCH AS WEEDING, WATERING, MA NURING, ETC. THE RESULTANT PRODUCT WAS GROWN AND MADE READY FOR SALE IN THE FORM OF BASIC SEEDS. THUS THE BASIC SEEDS SO LD BY THE ASSESSEE WERE THE RESULT OF PRIMARY AS WELL AS SUBS EQUENT OPERATIONS INVOLVING HUGE SKILL AND EFFORTS AND THE INCOME ITA NO. 567 /HYD/12 M/S VIBHA AGROTECH LTD. 3 THERE FROM WAS AGRICULTURAL INCOME AS PROVIDED U/S 2(1A) OF THE ACT TO EXEMPTION U/S 10(1) OF THE ACT. THE ASSE SSING OFFICER WAS TO TREAT THE INCOME FROM BASIC SEEDS AS AGRICULTURAL INCOME AND ALLOW EXEMPTION U/S 10(1) O F THE ACT. 5. IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL, WE A RE INCLINED TO AGREE WITH THE FINDINGS OF THE CIT(A) ON THIS IS SUE AND ACCORDINGLY THE APPEALS OF THE REVENUE ARE DISMISSE D. 6. SINCE THE ISSUE UNDER CONSIDERATION IS IDENTICAL TO THAT OF THE EARLIER YEARS IN ASSESSEES OWN CASE, RESPEC TFULLY FOLLOWING THE SAME, WE UPHOLD THE ORDER OF THE CIT( A) IN DIRECTING THE AO TO TREAT INCOME OF RS. 20,42,60,3 87/- AS AGRICULTURAL INCOME AND ALLOW EXEMPTION U/S 10(1) O N THE SAME. 7. GROUND NO. 3 IS AS FOLLOWS: THE CIT(A) HAS ERRED IN DIRECTING TO ALLOW DEDUCTI ON U/S 35(2AB) IN RESPECT OF THE R&D EXPENDITURE ATTRIBUTABLE TO THE COMMERCIAL DIVISION, IN PROPORT ION TO THE TURNOVER BETWEEN THE AGRICULTURAL DIVISION AND THE COMMERCIAL DIVISION. 8. THE ASSESSEE HAD CLAIMED DEDUCTION TOWARDS CAPIT AL R&D EXPENDITURE NOT DEBITED TO THE P&L A/C AMOUNTIN G TO RS. 1,95,34,875/- AND R&D EXPENDITURE ON REVENUE AC COUNT OF RS. 8,81,14,938/-, INCLUDING WEIGHTED DEDUCTION U/S 35(2AB) AT RS. 2,93,71,646/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS REQUIRED T O EXPLAIN AS TO WHY THE CLAIM SHOULD NOT BE DISALLOWE D, AS THE RESEARCH RELATED TO THE AGRICULTURAL ACTIVITY AND N OT TO THE ASSESSEES BUSINESS. IT WAS ARGUED BY THE ASSESSEE THAT THE RESEARCH PERTAINED AS MUCH TO HYBRID SEEDS AS TO FO UNDATION SEEDS AND THEREFORE IT RELATED TO THE BUSINESS AS W ELL. ON ITA NO. 567 /HYD/12 M/S VIBHA AGROTECH LTD. 4 CONSIDERATION OF THE CONTENTIONS OF THE ASSESSEE, T HE AO OPINED THAT THERE IS NO GENETIC DIFFERENCE BETWEEN A FOUNDATION SEED AND HYBRID SEED. THE AO NOTED THAT THE ONLY DIFFERENCE IN THE NOMENCLATURE COMES FROM THE SCALE OF THE PRODUCTION, AS THE HYBRID SEED IS MERELY A FOUNDATI ON SEED PRODUCTION ON A LARGE SCALE. SHE FELT THAT WHAT THE SCIENTISTS WORK ON IS THE FOUNDATION SEED WHICH SERVES AS A PR OTOTYPE FOR THE HYBRID SEEDS. IF THE PROTOTYPE IS NOT FOUND SATISFACTORY, IT WOULD BE SUBJECTED TO FURTHER RESE ARCH AND ONLY THEN IT WOULD BE RELEASED FOR PRODUCTION OF HY BRID SEEDS. THEREFORE, SHE HELD THAT THE ASSESSEES ARGU MENT THAT RESEARCH IS DONE FOR PRODUCTION OF BOTH FOUNDA TION AND HYBRID SEEDS WAS NOT ACCEPTABLE. THE AO FURTHER FE LT THAT THE ABOVE EXPENSES WERE HIT BY SEC. 14A ALSO, AS TH E ASSESSEE HAD INCURRED THE EXPENSES FOR EARNING AN I NCOME, WHICH WAS CLAIMED AS EXEMPT U/S 10(1), AND, THEREFO RE, SUCH EXPENSES WERE NOT ALLOWABLE. HOWEVER, SINCE TH E ENTIRE INCOME OF ASSESSEE WAS CONSIDERED BY HER AS BUSINES S INCOME, SHE ALLOWED THE EXPENSES CLAIMED U/S 35 AND NO DISALLOWANCE WAS MADE ON THIS ISSUE. 9. ON APPEAL, THE CIT(A), FOLLOWING THE DECISIONS O F ITAT IN EARLIER YEARS IN ASSESSEES OWN CASES, DIRECTED THE AO TO ALLOW EXPENDITURE ATTRIBUTABLE TO THE COMMERCIAL DI VISION IN PROPORTIONATE TO THE TURNOVER BETWEEN THE AGRICULTU RAL DIVISION AND THE COMMERCIAL DIVISION. THE CIT(A) HE LD THAT THE EXPENDITURE ATTRIBUTABLE TO THE AGRICULTURAL DI VISION IN VIEW OF SUCH WORKING, HOWEVER, SHALL STAND DISALLOW ED. 10. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. ITA NO. 567 /HYD/12 M/S VIBHA AGROTECH LTD. 5 11. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD. WE FIND THAT THIS ISSUE IS SQUA RELY COVERED BY THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE IN EARLIER YEARS (SUPRA) WHEREI N THE COORDINATE BENCH HELD AS UNDER:- 9.2. THE NEXT POINT TO BE CONSIDERED IS WHETHER TH E R&D EXPENDITURE IS EXCLUSIVELY ATTRIBUTABLE EITHER TO A GRICULTURE OR COMMERCIAL DIVISION OR ATTRIBUTABLE TO BOTH THE ACTIVITIES/DIVISIONS. IN OUR OPINION, THE ACTIVITIE S CARRIED ON BY THE ASSESSEE COMPANY AS CONSTITUTED DISTINCT BUSINE SS ACTIVITIES OF THE ASSESSEE COMPANY AND THE R&D EXPE NDITURE INCURRED BY THE ASSESSEE ATTRIBUTABLE TO BOTH THE D IVISIONS. IN SUCH CIRCUMSTANCES, THE PRINCIPLE LAID DOWN BY THE HON'BLE SUPREME COURT IN WATERFALL ESTATES LTD. (SUPRA) SHO ULD APPLY TO THIS CASE IN AS MUCH AS THE R&D EXPENDITURE HAS TO BE APPORTIONED BETWEEN AGRICULTURAL AND NON AGRICULTUR AL ACTIVITIES AND THE PORTION ATTRIBUTABLE TO NON AGRI CULTURAL ACTIVITIES ALLOWED, AS DEDUCTION IN COMPUTING THE T AXABLE INCOME. IN THE DECISIONS CITED BY THE LEARNED COUNS EL FOR THE ASSESSEE VIZ., IN MAHARASHTRA SUGAR MILLS LTD. (SUP RA) AND KCP LTD. CASE (SUPRA) THE FACT WERE DIFFERENT. IN THOSE CASES, THE ASSESSEE WAS NOT GROWING SUGAR CANES AS A DISTINCT ACTIVITY AND INDEPENDENT SOURCE OF INCOME. GROWING OF SUGAR CANE AND MANUFACTURE OF SUGAR CONSTITUTED SINGLE AND INDIVIS IBLE BUSINESS. THEREFORE, THOSE DECISIONS ARE NOT APPLIC ABLE TO THE PRESENT CASE. THE DECISION OF THE LEARNED CIT(A) IS IN CONTRAVENTION OF THE PROVISIONS CONTAINED IN SEC.35 (1)(I) AND SECTION 43(4)(I) OF THE IT ACT IN VIEW OF THESE PRO VISIONS THAT THE CIT(A) SHOULD HAVE ALLOWED THE PROPORTIONATE EX PENDITURE AS A DEDUCTION IN COMPUTING THE TAXABLE INCOME. REV ENUE INSISTED NOTHING TO BE DEDUCTED WHEREAS ASSESSEE CO MPANY CANVASSED FOR THE DEDUCTION OF THE WHOLE OF R&D EXP ENDITURE. IN OUR OPINION, THE ASSESSEE COMPANY IS ENTITLED TO DEDUCTION ON ACCOUNT OF R&D EXPENDITURE BUT THE SAME HAS TO B E RESTRICTED IN PROPORTION TO THE TURNOVER BETWEEN TH E AGRICULTURAL DIVISION AND THE COMMERCIAL DIVISION, AND THE ITA NO. 567 /HYD/12 M/S VIBHA AGROTECH LTD. 6 AMOUNT RELATABLE TO COMMERCIAL DIVISION CAN ALONE B E ALLOWED AS BUSINESS EXPENDITURE. IN THE FACTS AND CIRCUMSTA NCES, WE DIRECT THE ASSESSING OFFICER TO ALLOW EXPENDITURE ATTRIBUTABLE TO COMMERCIAL DIVISION IN PROPORTION TO THE TURNOVE R BETWEEN THE AGRICULTURAL DIVISION AND THE COMMERCIAL DIVISI ON. THIS VIEW OF OURS IS FORTIFIED BY THE ORDER OF THE TRIBU NAL IN THE CASE OF ACIT VS. KANCHANGANGA SEEDS CO.(P) LTD. (81 ITD 152 (HYD.) ACCORDINGLY, THIS GROUND IN ASSESSEE IS PARTLY ALLOWED. 12. SINCE THE ISSUE UNDER CONSIDERATION IS MATERIAL LY IDENTICAL TO THE ONE DECIDED BY THE COORDINATE BENC H IN ASSESSEES OWN CASE IN EARLIER YEARS(SUPRA), RESPEC TFULLY FOLLOWING THE SAME WE UPHOLD THE ORDER OF THE CIT(A ) IN DIRECTING THE ASSESSING OFFICER TO ALLOW EXPENDITURE ATTRIBU TABLE TO COMMERCIAL DIVISION IN PROPORTION TO THE TURNOVER B ETWEEN THE AGRICULTURAL DIVISION AND THE COMMERCIAL DIVISION. THUS, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 13. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST, 2012. SD/- SD/- ( CHANDRA POOJARI) (ASHAVIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 31 ST AUGUST, 2012. KV COPY TO:- 1) DCIT, CIRCLE 3(3), HYDERABAD 2) M/S VIBHA AGROTECH LTD., 501, SUBHAN SIRISAMPADA COMPLEX, 6-3-1090/A/1, RAJ BHAVAN ROAD, SOMAJIGUDA, HYDERABAD. 3) THE CIT (A)-IV, HYDERABAD 4) CIT-III, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD.