Parental flock not stock-in-trade; expenses as revenue. ICAI methods sustainable.

VN. DUBEY. Versus DEPUTY COMMISSIONER OF INCOME TAX.

VN. DUBEY. Versus DEPUTY COMMISSIONER OF INCOME TAX. - TTJ 059, 638, Issues Involved:
1. Is the parental flock purchased and reared by the assessee stock-in-tradeRs.
2. Whether the expenses incurred for procuring parental flock are revenue expenditureRs.
3. Whether the application of the accounting methods suggested by the Institute of Chartered Accountants of India in the case of the assessee is sustainableRs.
4. Whether the application of section 145 of the IT Act is sustainable for estimating the value of hatching eggs in incubator, hatcher, and cold storageRs.

Issue-wise Detailed Analysis:

1. Is the parental flock purchased and reared by the assessee stock-in-tradeRs.

The CIT(A) analyzed the facts and concluded that the parental stock of birds does not constitute stock-in-trade as understood in normal trade parlance. The parental flock is used for producing eggs, which are then processed into chicks for sale. The parental flock is instrumental in producing the final product (chicks) but is not itself sold. The CIT(A) relied on the Gujarat High Court decision in H. Mohd. & Co. vs. CIT, which defines stock-in-trade as a commodity bought and sold. The parental flock is not bought for sale but for producing eggs and chicks, thus cannot be considered stock-in-trade. The Tribunal agreed with this reasoning, stating that the parental flock is not stock-in-trade and the Supreme Court decisions cited by the Revenue are not applicable.

2. Whether the expenses incurred for procuring parental flock are revenue expenditureRs.

The assessee argued that expenses for procuring the parental flock are routine revenue expenses incurred in the profit-earning process. The Tribunal referenced several Supreme Court decisions, including Bombay Steam Navigation Co. vs. CIT, which held that expenditures closely related to business operations and profit-earning processes are revenue expenditures. The Tribunal concluded that the expenses for procuring the parental flock are revenue in nature, as they are integral to the assessee's business of producing and selling chicks.

3. Whether the application of the accounting methods suggested by the Institute of Chartered Accountants of India in the case of the assessee is sustainableRs.

The assessee followed the accounting methods suggested by the Institute of Chartered Accountants of India, as no other guidelines were available for valuing the parental flock. The CIT(A) accepted this method, and the Tribunal found no fault in it. The AO initially accepted the method but later deemed it defective. The Tribunal disagreed with the AO, stating that the parental flock is not stock-in-trade and the expenses are revenue in nature. Thus, the accounting method used by the assessee is sustainable.

4. Whether the application of section 145 of the IT Act is sustainable for estimating the value of hatching eggs in incubator, hatcher, and cold storageRs.

The Tribunal noted that stock-in-trade should be valued at cost or market value, whichever is less, as of the last day of the accounting year. The assessee argued that once eggs are in the processing stage, they lose marketability and should be valued at nil. The Tribunal found that the Revenue could not counter this factual position and agreed with the assessee. As the accounting method adopted by the assessee is valid, the application of section 145 for valuing hatching eggs is not sustainable.

Cross-Objection by the Assessee:

The assessee raised several grounds in their cross-objection, but only ground No. 6, related to car depreciation, was considered. The CIT(A) granted relief on this issue, and the Tribunal found no infirmity in this decision. The cross-objection was dismissed.

Appeal ITA No. 357/Jab/1991:

This appeal, related to an order under section 263 of the IT Act, was deemed infructuous as the issues were already decided in ITA No. 10/Jab/1994. Hence, the appeal was dismissed.

Conclusion:

The appeals filed by the assessee and the Revenue and the cross-objection filed by the assessee were all dismissed.