The Deputy Commissioner of Income Tax, Circle-3(1), Visakhapatnam V. Prathyusha Global Trade Private Limited, Visakhapatnam

ITA 638/VIZ/2019

AI Insights

The case involves the Deputy Commissioner of Income Tax, Circle-3(1), Visakhapatnam as the appellant and M/s Prathyusha Global Trade Pvt. Ltd. as the respondent. The dispute centered on the assessment year 2011-12, where the revenue challenged the CIT(A)'s decision that favored the assessee regarding depreciation claims and disallowed electricity charges. The Tribunal examined the legal standings on depreciation rates applicable to ponds used in aquaculture, and the legitimacy of electricity charges claimed by the assessee. The Tribunal upheld the AO's decision, referencing the Supreme Court's precedent that ponds in aquaculture are to be treated as 'plant' and machinery, thus eligible for depreciation at 15%, not 100% as claimed by the assessee.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135928 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2023
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 27-02-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 18-11-2019
• Other Referred Cases: Commissioner of Income Tax Vs. Victory Aqua Farm Ltd. (271 ITR 0530 (Ker))
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Set aside
• Section: 142(1); 14A; 143(2)

Judgement Text

आयकरअपीलीयअधिकरण, धिशाखापटणम पीठ, धिशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM श्री द ु व्वूरु आर एल रेड्डी, न्याधयक सदस्य एिं श्री एस बालाकृ ष्णन, लेखा सदस्य के समक्ष BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकर अपील सं./I.T.A.No.638/Viz/2019 (निर्धारण वर्ा / Assessment Year : 2011-12) Dy.Commissioner of Income Tax Circle-3(1) Visakhapatnam Vs. M/s Prathyusha Global Trade Pvt. Ltd. Prathyusha House, 25-40-12, Near Lakshmi Talkies Visakhapatnam [PAN : AAECP0800C] (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) Cross Objection No.61/Viz/2021 (Arising out of I.T.A.No.638/Viz/2019) (निर्धारण वर्ा / Assessment Year : 2011-12) M/s Prathyusha Global Trade Pvt. Ltd. Prathyusha House, 25-40-12, Near Lakshmi Talkies Visakhapatnam [PAN : AAECP0800C] Vs. Dy.Commissioner of Income Tax Circle-3(1) Visakhapatnam (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) राजस्व की ओर से / Revenue by : Shri O.N.Hari Prasada Rao, DR निर्ााररती की ओर से/ Assessee by : None सुिवधई की तधरीख / Date of Hearing : 28.02.2023 घोर्णध की तधरीख/Date of Pronouncement : 08.03.2023 आदेश /O R D E R Per Shri Duvvuru RL Reddy, Judicial Member : This appeal is filed by the revenue against the order of Commissioner of Income Tax (Appeals) [CIT(A)]-1, Visakhapatnam 2 I.T.A. No.638/Viz/2019 & CO No.61/Viz/2021, A.Y.2011-12 Prathyusha Global Trade Pvt Ltd.,Visakhapatnam vide ITA No.534/2014-15/DCT,C-3(1), Vsp/2017-18 dated 03.09.2019 for the Assessment Year (A.Y.) 2011-12 and the cross objections are filed by the assessee in support of the order of the Ld.CIT(A). 2. Brief facts of the case are that the assessee is a company, engaged in growing and selling of prawns, filed it’s return of income for the A.Y.2011-12 on 29.03.2011 in electronic format, declaring total income of Rs.68,34,020/-. The return of income was processed by CPC. Later, the case was selected for scrutiny under CASS for examination of the claim of additional depreciation. The ACIT, Cicle-4(1), Visakhapatnam had issued notice u/s 143(2) and 142(1) of the Income Tax Act, 1961 (in short ‘Act’). Later, the case was assigned to Addl.Commissioner of Income Tax, Range- 4, Visakhapatnam. In response to the notice issued u/s 143(2), the authorized representative of the assessee submitted the requisite information and books of accounts called for. The same was examined and the assessment was completed. The Assessing Officer (AO) after verification of the depreciation schedule annexed to the balance sheet for the year ended 31.03.2011 observed that the assessee has claimed Rs.3,38,73,997/- as depreciation @100% on ponds. The assessee company is doing business in aquaculture. Prawns are grown in specially designed ponds which are tools to the business of the assessee, hence 3 I.T.A. No.638/Viz/2019 & CO No.61/Viz/2021, A.Y.2011-12 Prathyusha Global Trade Pvt Ltd.,Visakhapatnam constitute ‘plant’ eligible for depreciation at the rates applicable to the plant and machinery. In order to keep the water at the required level for the purpose of breeding shrimps or prawns, the pond is a must. Therefore, the ponds also constitute part of the machinery in the business of the assessee. The AO relied on the decision of Hon’ble Supreme Court in the case of Commissioner of Income Tax Vs. Victory Aqua Farm Ltd. (271 ITR 0530 (Ker), wherein, it was held that the pond is a ‘plant’, hence, entitled to statutory depreciation. Hence, the AO allowed depreciation @15% and disallowed an amount of Rs.2,87,92,897/- . The Ld.AO also made disallowance for an amount of Rs.1,25,000/- u/s 14A r.w.r. 8D(1)(b). The assessee has received an amount of Rs.12.59 lakhs as dividend during the year. Therefore, the AO made the disallowance u/s 14A r.w.r.8D @0.5% against the investment of Rs.2.5 crores. The AO also made disallowance of Rs.3,52,753/- in respect of electricity charges paid against the directors of the assessee company which is not related to the business of the assessee. 3. On being aggrieved, the assessee preferred appeal before the CIT(A) and the Ld.CIT(A) has allowed the appeal of the assessee after consideration of the submissions made by the assessee. 4 I.T.A. No.638/Viz/2019 & CO No.61/Viz/2021, A.Y.2011-12 Prathyusha Global Trade Pvt Ltd.,Visakhapatnam 4. On being aggrieved, the revenue preferred appeal before the Tribunal and raised the following grounds : 1. The order of the Ld.CIT(A)-1, Visakhapatnam is erroneous both on facts and in law. 2. The Ld.CIT(A) has erred in directing the AO to allow electricity charges incurred for aqua ponds, when the assessee has not furnished any substantial proof for the expenditure incurred for business purpose. 3. The Ld.CIT(A) erred in not upholding the stand taken by the AO, i.e. restricting the claim of depreciation on the ponds @15% which is in consonance with the decision of the Hon’ble Supreme Court in the case of CIT Vs. Victory A qua Farms Ltd. (2015) 379/355 (SC). 4. The Ld.CIT(A) has erred in allowing the alternative plea of the assessee that expenditure of Rs.3,38,73,997/- incurred to be treated as revenue expenditure, more particularly when the assessee is claiming the same as capital expenditure and claiming depreciation on ponds over different Asst.Years including the present Asst.Year. 5. The Ld.CIT(A) has erred in not considering the assessee’s own submissions vide para-8 of page-4 of letter dated 11.03.2014 and para 5 of page-2 of the letter dated 25.02.2014 and claiming ponds as capital assets vide depreciation statement submitted vide submission dated 29.01.2014 that the Aqua PANs/Reservoirs (ponds) are of the nature of Plant & Machinery. 6. The Ld.CIT(A) has erred in directing the AO to delete the addition made u/s 14A of the Act, when the CBDT in its circular No.5/2014 dated 11.02.2014 has clarified that Rule 8D r.w.s. 14A of the IT Act provides disallowance of expenditure even where taxpayer in a particular year has not earned any exempt income. 7. The appellant craves leave to add or delete or amend or substitute any ground of appeal before and / or at the time of hearing of appeal. For these and other grounds that may be urged at the time of appeal hearing, it is prayed that the addition made by the AO to be restored. 5 I.T.A. No.638/Viz/2019 & CO No.61/Viz/2021, A.Y.2011-12 Prathyusha Global Trade Pvt Ltd.,Visakhapatnam Inspite of receipt of notices, neither the assessee nor his representative was present before the Tribunal to establish it’s claim. Therefore, we proceeded to hear the Ld.DR and dispose off the appeal on merits. 5. Ground No.1 and 7 are general in nature which does not require specific adjudication. 6. Ground No.2 is related to disallowance of electricity charges. So far as the issue with regard to disallowance of electricity charges is concerned, it was the contention of the Ld.DR that the AO made the disallowance of electricity charges amounting to Rs.3,52,753/-, since the electricity charges are not related to the business of the assessee. The electricity bills produced by the assessee are not in the name of the firm, therefore, he made the disallowance. However, the Ld.CIT(A) allowed the electricity charges as expenditure of the assessee firm, saying that it is a technical mistake. The Ld.DR further contended that once the electricity bill clearly establishes the name of the individual director of the firm, the expenditure is not relatable to the assessee company. The assessee has also not furnished any substantial proof for the expenditure incurred for business purpose. 6 I.T.A. No.638/Viz/2019 & CO No.61/Viz/2021, A.Y.2011-12 Prathyusha Global Trade Pvt Ltd.,Visakhapatnam Therefore, he pleaded to set aside the order of the Ld.CIT(A) and allow the appeal of the revenue. 7. We have heard the Ld.DR, perused the relevant records and submissions furnished by the assessee. The AO disallowed the electricity charges as the assessee had paid electricity charges of Rs.3,52,753/- standing against the directors of the assessee company which is not related to the business of the assessee, but the Ld.CIT(A) allowed the electricity charges, stating that due to technical mistake. The electricity bills clearly establish the name of the directors of the assessee company, inspite of the name of the assessee company. Therefore, the AO has rightly disallowed the electricity expenditure. The assessee has not given any reason to establish that the assessee company shares this expenditure. Hence, we set aside the order passed by the Ld.CIT(A) and allow the appeal of the revenue on this ground. 8. Ground No.3 to 5 are related to restricting the claim of depreciation on the ponds @15% and treating the expenditure on ponds as revenue expenditure. It was the submission of the Ld.DR that the Ld.AO has relied on the decision of Hon’ble Supreme Court in the case of CIT Vs. Victory Aqua Farms Ltd supra, treated the aqua farms as ‘plant’ and allowed 7 I.T.A. No.638/Viz/2019 & CO No.61/Viz/2021, A.Y.2011-12 Prathyusha Global Trade Pvt Ltd.,Visakhapatnam depreciation @15% which is mentioned under Depreciation Schedule under the heading ‘Machinery and Plant’. The Ld.DR further argued that the Ld.CIT(A) has erred in treating the expenditure of Rs.3,38,73,997/- incurred to be treated as revenue expenditure when the assessee claimed the same as capital expenditure and claiming depreciation on ponds over different assessment years including the impugned assessment year. The Ld.CIT(A) without considering the decision of the Hon’ble Supreme Court, simply mentioned that no res judicata is applicable in income tax and the expenditure incurred by the assessee is revenue in nature. Therefore, he pleaded to set aside the order passed by the Ld.CIT(A). 9. We have heard the Ld.DR. As seen from the assessment order, the Ld.AO relied on the decision of Hon’ble Kerala High Court in the case of Commissioner of Income Tax Vs. Victory Aqua Farm Ltd. (271 ITR 0530(Ker), wherein it was held that aqua farms should be treated as ‘plant’ and accordingly he has allowed depreciation under Depreciation Schedule ‘Plant and Machinery’ @15%. Hon’ble Supreme Court upheld the decision of Hon’ble Kerala High Court. For the sake of clarity, we extract relevant part of the order of the Hon’ble Supreme Court as under : “6. We find that the judgement dated 14.10.2014 rightly rests this case on ‘functional test’ and since the ponds were specially designed for rearing / breeding of the prawns, they have to be treated as tools of the business of 8 I.T.A. No.638/Viz/2019 & CO No.61/Viz/2021, A.Y.2011-12 Prathyusha Global Trade Pvt Ltd.,Visakhapatnam the assessee and the depreciation was admissible on these ponds. We, thus, decide the question in favour of the assessee and as a consequent, appeals of the Revenue are dismissed and that of the assessee are allowed. “ In the instant case, the prawn ponds are tools to the business of the assessee and hence constitute ‘plant’ . There are specialized machinery for pumping the water, oxygen etc. and various processes for cleaning and treatment of water in the ponds. As such water plays the role of a machine, ponds also constitute part of the machinery and hence, eligible for depreciation at the rates applicable to the plant and machinery. The AO has rightly allowed depreciation under Depreciation Schedule ‘Plant and Machinery’ @15%. Hence, we do not find any infirmity in the order passed by the Ld.AO and uphold the order passed by the Ld.AO. Therefore, we set aside the order passed by the Ld.CIT(A) in allowing depreciation @100%. Ground No.3 of the revenue is allowed. 10. Ground No.6 relates to disallowance made u/s 14A r.w.r.8D (1)(b). It was the submission of the Ld.DR that the assessee has received Rs.12.5 lakhs as dividend income, out of his investments of Rs.2.50 crores. Therefore, the AO disallowed 0.5% of 2.5 crores which comes to Rs.1,25,000/-. The Ld.CIT(A) deleted the addition made by the AO, saying that the assessee has not received any dividend income during the year under consideration. But in the appeal order itself, the Ld.CIT(A) has 9 I.T.A. No.638/Viz/2019 & CO No.61/Viz/2021, A.Y.2011-12 Prathyusha Global Trade Pvt Ltd.,Visakhapatnam categorically mentioned that the assessee has received an amount of Rs.12.59 lakhs as dividend during the year. Therefore, the findings of the CIT(A) are incorrect and liable to be set aside. 11. We have heard the Ld.DR and perused the material available on record. It is an admitted fact that the assessee had received Rs.12.5 lakhs as against his investment of Rs.2.5 crores. Therefore, the AO has invoked the provisions of section 14A r.w.r.8D (1)(b) by disallowing 0.5% as expenditure. But the Ld.CIT(A) mentioned that there is no dividend income, however, in his order itself, the Ld.CIT(A) mentioned that the assessee has received Rs.12.5 lakhs as divided income, but he deleted the addition, saying that the assessee has not received dividend income, which is factually incorrect. Therefore, we set aside the order passed by the Ld.CIT(A) and allow the appeal of the revenue on this ground. 12. The assessee filed cross objections in support of the order of the Ld.CIT(A) with the delay of 610 days. But, the assessee has not filed any petition for condonation of delay, hence, the cross objections filed by the assessee are dismissed in-limine. 13. In the result, appeal of the revenue is allowed and the cross objections filed by the assessee are dismissed. 10 I.T.A. No.638/Viz/2019 & CO No.61/Viz/2021, A.Y.2011-12 Prathyusha Global Trade Pvt Ltd.,Visakhapatnam Order pronounced in the open court on 8 th March, 2023. Sd/- Sd/- (एस बालाकृ ष्णन) (द ु व्वूरु आर.एल रेड्डी) (S.BALAKRISHNAN) (DUVVURU RL REDDY) लेखा सदस्य/ACCOUNTANT MEMBER न्याधयक सदस्य/JUDICIAL MEMBER Dated : 08.03.2023 L.Rama, SPS आदेश की प्रनतनिनि अग्रेनषत/Copy of the order forwarded to:- 1. रधजस्व/The Revenue –The Dy.Commissioner of Income Tax, Circle-3(1), Visakhapatnam 2. निर्धाऩरती/ The Assessee– M/s Prathyusha Global Trade Pvt. Ltd., Prathyusha House, 25-40-12, Near Lakshmi Talkies, Visakhapatnam 3. The Principal Commissioner of Income-Tax-1, Visakhapatnam 4. नवभधगीय प्रनतनिनर्, आयकर अपीलीय अनर्करण, नवशधखधपटणम / DR,ITAT, Visakhapatnam 5..गधर्ा फ़धईल / Guard file आदेशधिुसधर / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam