The ACIT, Circle-6, Ahmedabad V. M/s. Arvi Farm, Ahmedabad

ITA 640/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89456 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 13-05-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 28-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: MUKESH M PATEL
• Keywords: Rejection of books of accounts; Depreciation; Capital expenditure
• Section: 32; 145

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI RAJPAL YADAV, JUDICIAL MEMBER ITA NO. 640/AHD/2011 / ASSESSMENT YEAR: 2007-08 A CIT, CIRCLE-6, AHMEDABAD VS M/S. ARVI FARM, OPP. BHETWADA VILLAGE, TRASAD ROAD, DHOLKA, AHMEDABAD PAN : AAMFA 7657 H / // / (APPELLANT) / // / (RESPONDENT) REVENUE BY : SHRI B.L. YADAV, SR. DR ASSESSEE(S) BY : SHRI MUKESH M. PATEL, AR !'# $ %& !'# $ %& !'# $ %& !'# $ %& / DATE OF HEARING : 13/05/2015 '( $ %& / // / DATE OF PRONOUNCEMENT: 15/05/2015 )* )* )* )*/ // / O R D E R PER G.D. AGRAWAL, VICE PRESIDENT: THIS IS AN APPEAL FILED BY THE REVENUE AND IS DIREC TED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-XI, AHMEDABAD D ATED 21.12.2010 PERTAINING TO THE ASSESSMENT YEAR 2007-0 8. 2. THE FIRST GROUND RAISED BY THE REVENUE IN ITS AP PEAL READS AS UNDER:- THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.3,00,000/- MADE ON ACCO UNT OF GP. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE DERI VES INCOME FROM POULTRY FARMING. FOR THE YEAR UNDER CONSIDERATION, THE ASS ESSEE DISCLOSED GROSS PROFIT OF RS.4.83 CRORES ON THE SALES OF RS.6.36 CR ORES, THEREBY GIVING GP RATE OF 75.92%. THE ASSESSING OFFICER FOUND THAT IN THE PRECEDING YEAR THE GP WAS 82.35%. THE ASSESSING OFFICER ALSO NOTED THAT THE ASSESSEE HAS NOT ITA NO. 640/AHD/2011 ACIT VS. ARVI FARM AY: 2007-08 2 MAINTAINED THE FULL DETAILS WITH REGARD TO NEWLY BO RN DUCKS, EGGS LAID, ETC. CONSIDERING THESE DEFECTS, HE REJECTED THE BOOKS OF ACCOUNTS AND MADE THE LUMP-SUM ADDITION OF RS.3 LACS TO THE GP DECLARED B Y THE ASSESSEE. THE CIT(A) DELETED THE ADDITION WITH THE FOLLOWING FIND INGS:- 3.2 I HAVE CONSIDERED THE SUBMISSIONS MADE BY T HE A.R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFFICER IN TH E ASSESSMENT ORDER. THE A.O. OBSERVED THAT THE APPELLANT IS DERIVING INCOME FROM POULTRY FARMING; THE GP OF THE CURRENT YEAR IS 75.92% ON SALES OF RS .6.36 CRORES COMPARED TO GP OF THE EARLIER YEAR OF 82.35% IN THE PRECEDING Y EAR ON SALES OF RS.5.15 CRORES; AND SINCE STOCK REGISTER WAS NOT MAINTAINED , PROVISIONS OF SEC. 145 WERE ATTRACTED. AO MADE LUMSUM TRADING ADDITION OF RS.3LAKHS. 3.2.1 THE CONTENTION OF THE LEARNED A.R. IN BRIEF A RE THIS IS THE SECOND YEAR OF BUSINESS; IN THE EARLIER YEAR THE BUSINESS WAS P ROPRIETARY; CURRENT YEAR IS THE FIRST YEAR OF BUSINESS AS A PARTNERSHIP FIRM; S ALES INCREASED FROM RS.3.15 CRORES (WRONGLY MENTIONED BY THE A.O. AT RS.5.15 CR ORES) IN THE EARLIER YEAR TO RS.6.36 CRORES IN THE CURRENT YEAR; THE SALE PRI CE OF EGGS (A PERISHABLE COMMODITY) DEPENDS ON THE QUALITY, WHICH IS IN TURN GOVERNED BY ENVIRONMENTAL FACTORS; FULL RECORD OF STOCK OF DUCK S WAS MAINTAINED AND FURNISHED T THE A.O.; DETAILS OF YIELD OF EGGS FROM DUCKS WAS MAINTAINED AND FURNISHED TO A.O. 3.2.2 I HAVE CONSIDERED THE FACTS OF THE ISSUE. A. O.S OBSERVATIONS AT PARA-3 ARE VAGUE. APPELLANT HAS MAINTAINED THE BEST POSSIB LE RECORD OF STOCK, GIVEN THE NATURE OF BUSINESS. A.O. HAS NOT POINTED ANY DE FECTS IN THE BOOKS. FURTHER, THERE IS NO BASIS FOR ESTIMATING THE IMPUG NED ADDITION. IN VIEW OF THE ABOVE, I HOLD THAT THE REJECTION OF BOOKS IS NO T IN ACCORDANCE WITH LAW. THE LUMPSUM TRADING ADDITION IS UNWARRANTED. IT IS DELE TED. THIS GROUND OF APPEAL IS ALLOWED. . 3. THE REVENUE, AGGRIEVED WITH THE ORDER OF THE CIT (A), IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. AFTER CONSIDERING THE FACTS OF THE CASE AND THE ARGUMENTS OF BOTH THE SIDES, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE CIT(A). THE SALES OF THE ASSESSEE HAVE INCREASED MORE THAN DOUBLE AS COMPARED TO LAST YEAR ITA NO. 640/AHD/2011 ACIT VS. ARVI FARM AY: 2007-08 3 AND FALL IN THE GP WAS SLIGHT. MOREOVER, THE GP DEC LARED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION WAS MORE THAN 75%. NET PROFIT DECLARED BY THE ASSESSEE WAS MORE THAN 40%. THE ASSESSEE HAS MAINT AINED REGULAR BOOKS OF ACCOUNTS WHICH ARE DULY AUDITED AND NO SPECIFIC DEF ECTS WERE FOUND IN THE SAID BOOKS OF ACCOUNTS. CONSIDERING THE TOTALITY OF THESE FACTS, IN OUR OPINION, THE CIT(A) RIGHTLY DELETED THE LUMP-SUM AD DITION OF RS.3 LACS MADE TO THE TRADING ACCOUNT BY THE ASSESSING OFFICE R. 5. THE GROUND NO.2 OF THE REVENUES APPEAL READS AS UNDER:- 2. THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.37,74,408/- BEING D EPRECIATION ON SHED/BUILDING. 6. THE ASSESSING OFFICER DISALLOWED THE DEPRECIATIO N ON THE SHED AND BUILDING ON THE GROUND THAT THE ASSESSEE IS NOT THE OWNER OF THE ASSETS. ON APPEAL, THE CIT(A) ALLOWED THE DEPRECIATION WITH TH E FOLLOWING FINDINGS:- 4.2. I HAVE CONSIDERED THE SUBMISSIONS MADE BY TH E A. R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFFICER IN TH E ASSESSMENT ORDER. A.O'S OBSERVATIONS ON THE ISSUE ARE AS FOLLOW. APPELLANT CLAIMED DEPRECIATION ON FACTORY BUILDING OF RS 37,74,408/-; THE LAND ON WHI CH THE SAID BUILDING WAS CONSTRUCTED IS OWNED, BY CADILA GROUP; AND SINCE TH E OWNERSHIP IS NOT WITH THE APPELLANT, NO DEPRECIATION IS ALLOWABLE 4.2.1. THE SUBMISSIONS OF THE LEARNED A.R. ARE THAT THE LAND WAS GIVEN ON 30 YEARS LEASE BY M/S. CADILA HEALTHCARE LTD. BY LEASE DEED DATED 18-06-2003; THE LEASE DEED PERMITS THE LESSEE TO DEVELOP AND MA KE CONSTRUCTION ON THE LAND; APPELLANT IS HAVING DOMINION OVER THE PROPERT Y AND IS ENTITLED TO DEPRECIATION. 4.2.2. I HAVE CONSIDERED THE FACTS OF THE CASE. APP ELLANT HAS TAKEN THE LAND ON LEASE FOR 30 YEARS (EFFECTIVE FROM 18-06-2003). IT HAS NOT CLAIMED DEPRECATION ON LAND. IN ACCORDANCE WITH THE LEASE DEED, IT IS E NTITLED TO MAKE CONSTRUCTION ON THE LAND. ACCORDINGLY, IT CONSTRUCTED FACTORY BU ILDING, USED IT FOR ITS BUSINESS AND CLAIMED DEPRECIATION ON THE BUILDING. ON BEING ASKED, IT FURNISHED LETTER DATED 30-11 -2010 FROM THE LESSOR, WHICH READS AS UNDER:- ITA NO. 640/AHD/2011 ACIT VS. ARVI FARM AY: 2007-08 4 Z E D U S CADILA DEDICATED TO LIFE HEALTHCARE LIMITED REGD. OFFICE. 'ZYDUS TOWER SATELLITE CROSS ROADS, AHMEDABAD 380 015. INDIA. TO WHOMSOEVER IT MAY CONCERN WE CADILA HEALTHCARE LTD., HAVING REGISTERED OFFICE AT 'ZYDUS TOWER' SATELITE CROSS ROAD, AAHMEDABAD-380 015 AND HAVING PAN. AAACC6253G HEREBY STATES AS UNDER:- 1. THAT A LEASE DEED WAS FOR THE LAND SURVEY NO. 1336/2, 1337/3, 1339/1, 1342/8, 2310/4, 2311/3 SITUATED AT MOJE DHOLKA, TAL UKA DHOLKA WITHIN THE REGISTRATION SUB DISTRICT DHOLKA AND DISTRICT A HMEDABAD EXECUTED BY US AS LESSOR WITH M/S. ARVI FARM AS LESSEE WHERE DR. MUKESH PATEL WAS PROPRIETOR. THE LEASE DEED IS EFFECTIVE FROM 1S T JUNE 2003 ONWARDS FOR THE PERIOD OF 30 YEARS. , 2. THAT THEREAFTER A MEMORANDUM OF UNDERSTANDING TO THE ORIGINAL LEASE DEED WASS ENTERED BETWEEN CADILA .HEALTHCARE LIMITE D AS LESSOR AND M/S. ARVI FARM AS LESSEE A PARTNERSHIP FIRM WHERE D R. MUKESH PATEL IS PARTNER, DUE TO CHANGE IN THE STATUS OF THE LESSEE WHICH IS EFFECTIVE FROM THE 1ST APRIL, 2006.I 3. THAT THE CONSTRUCTION OF BUILDING WAS CARRIED O UT BY: THE LESSEE M/S. ARVI FARM AND THE COST WAS ALSO INCURRED BY THEM. 4. WE HAVE TO FURTHER STATE THAT NO DEPRECIATION HAS BEEN CLAIMED BY CADILA HEALTHCARE LTD. ON THE BUILDING CONSTRUCTED ON ABOV E REFERRED LEASED LAND IN THE BOOKS OF ACCOUNTS AS WELL AS IN THE IN COME-TAX DURING THE A.Y. 2006-07 AND THEREAFTER. THANKING YOU, YOURS FAITHFULLY, FOR CADILA HEALTH CARE LTD SD/- AUTHORISED SIGNATORY. 4.2.3. IN VIEW OF THESE FACTS AND IN THE LIGHT O F THE DECISION IN THE CASE OF MYSORE MINERALS LTD. VS. CIT (239 ITR 775)(SC) AND THE OTHER DECISIONS RELIED ON BY THE LEARNED A.R., DISALLOWANCE OF DEPR ECIATION ON FACTORY BUILDING IS NOT IN ACCORDANCE WITH LAW. IMPUGNED DI SALLOWANCE IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. ITA NO. 640/AHD/2011 ACIT VS. ARVI FARM AY: 2007-08 5 7. AFTER CONSIDERING THE FACTS OF THE CASE AND ARGU MENTS OF BOTH THE SIDES, WE DO NOT FIND ANY JUSTIFICATION TO INTERFER E WITH THE ORDER OF THE CIT(A). THE ASSESSEE HAD TAKEN THE LAND ON LEASE F OR 30 YEARS. LEASE DEED PERMITTED THE ASSESSEE TO MAKE CONSTRUCTION ON THE LAND. ACCORDINGLY, THE ASSESSEE CONSTRUCTED FACTORY BUILDING, SHED, ETC., AND USED IT FOR THE PURPOSE OF BUSINESS. THE DEPRECIATION WAS CLAIMED ON THE SH ED AND BUILDING. THERE IS NO DISPUTE THAT THE ASSESSEE IS THE OWNER OF THE SHED AND BUILDING CONSTRUCTED BY IT. THAT EXPLANATION-1 TO SECTION 32 READS AS UNDER:- [EXPLANATION 1.WHERE THE BUSINESS OR PROFESSION O F THE ASSESSEE IS CARRIED ON IN A BUILDING NOT OWNED BY HIM BUT IN RESPECT OF WHICH THE ASSESSEE HOLDS A LEASE OR OTHER RIGHT OF OCCUPANCY AND ANY CAPITAL EXPENDITURE IS INCURRED BY THE ASSESSEE FOR THE PURPOSES OF THE BUSINESS OR PR OFESSION ON THE CONSTRUCTION OF ANY STRUCTURE OR DOING OF ANY WORK IN OR IN RELA TION TO, AND BY WAY OF RENOVATION OR EXTENSION OF, OR IMPROVEMENT TO, THE BUILDING, THEN, THE PROVISIONS OF THIS CLAUSE SHALL APPLY AS IF THE SAI D STRUCTURE OR WORK IS A BUILDING OWNED BY THE ASSESSEE. 8. THIS EXPLANATION-1 CLEARLY PROVIDES THAT IF ASSE SSEE INCURS ANY CAPITAL EXPENDITURE ON THE LEASE HOLD PROPERTY, THE DEPRECI ATION WOULD BE ALLOWABLE ON SUCH STRUCTURE. THIS EXPLANATION-1 WO ULD BE SQUARELY APPLICABLE TO THE FACTS OF THE ASSESSEES CASE AND IN OUR OPINION, CIT(A) RIGHTLY ALLOWED THE DEPRECIATION ON THE SHED AND BU ILDING CONSTRUCTED BY THE ASSESSEE ON LEASE HOLD LAND. ACCORDINGLY, GROUN D NO.2 OF THE REVENUES APPEAL IS REJECTED. 9. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . ORDER PRONOUNCED IN THE COURT ON 15 TH MAY, 2015 AT AHMEDABAD. SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER (G.D. AGRAWAL) VICE-PRESIDENT AHMEDABAD; DATED 15/05/2015 BIJU T., PS ITA NO. 640/AHD/2011 ACIT VS. ARVI FARM AY: 2007-08 6 )* $ %+ ,)+% )* $ %+ ,)+% )* $ %+ ,)+% )* $ %+ ,)+%/ COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. !-- % '. / CONCERNED CIT 4. '. ( ) / THE CIT(A) 5. +12 % , , / DR, ITAT, AHMEDABAD 6. 2 3# / GUARD FILE . )*'! )*'! )*'! )*'! / BY ORDER, TRUE COPY 4 44 4/ // /! -5 ! -5 ! -5 ! -5 ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD