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2024 (6) TMI 1217
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....erest paid of Rs. 13,34,104/- on loan taken from Hyderabad Mutual Benefit Society (HMBS) in the course of business for the purpose of business. 2. Your appellant submits that it is member of HMBS, has not claimed the interest on principals of mutuality nor it is the case of your appellant that interest has to be allowed as per the principals of mutuality applicable to the Co-operative Societies Registration Act. Your appellant submits that interest paid to HMBS is claimed as business expenditure as the loan is taken for the purpose of business. The addition may be deleted. 3. Your appellant submits that it is not the case of the Assessing Officer or the CIT(A) that the loan from HMBS is not taken for the purpose of business, the case is that HMBS is claiming its income as exempt on the principals of mutuality has nothing to do with allowability of interest paid in the hands of your appellant." 2.1. The grounds raised by the assessee in ITA No.1288/Hyd/2017 for A.Y. 2013-14 reads as under : "1. Your Appellant submits that the CIT(A) erred in law and facts of the case in disallowing the interest paid of Rs. 21,34,193/- on loan taken from Hyderabad Mutual....
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.... by the Revenue in ITA No. 1265/Hyd/2017 for A.Y. 2013-14 reads as under : "1.The ld.CIT(A) erred on both facts and law of the case. 2. The ld.CIT(A) erred in not upholding the action of the Assessing Officer in treating Capital Gains of Rs. 11,71,48,821/- offered by the assessee as income from business. 3. The ld.CIT(A) failed to appreciate that the income has arisen in the course of business and to be treated as business income." 2.3 As the grounds filed by assessee for A.Y. 2012-13 are already covered in the grounds filed by assessee for A.Y. 2013-14, we are reproducing the facts in ITA 1288/Hyd/2017 for A.Y. 2013- 14 for the sake of brevity. 3. The brief facts of the case are that assessee filed its return of income for A.Y. 2013-14 through e-filing on 31.03.2015 disclosing net taxable income of Rs. 1,71,81,860/-. Subsequently, the case has been selected for scrutiny through CASS. Accordingly, the case was taken up for scrutiny and notice u/s 143(2) of the Act was issued on 31.08.2015. The assessee furnished information as called for along with books of accounts. The Assessing Officer had examined the information furnished and found that though ....
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....nd consideration - We have submitted the books of accounts, materials, statement of accounts. The interest paid on the loan at Rs. 13,34,000/- debited to Profit and Loss Account as the loan for entirely used to meet the working capital requirements and was used for business purpose during the previous year." As per the principles of mutuality applicable to the Co-operative Societies Registration Act, the interest paid by the members of the society on the loans taken from the society is not deductible. This fact is also confirmed by the Chartered Accountant of the assessee in his letter dt. 24.09.2014 addressed to the Hon'ble Secretary Hyderabad Mutual Benefit Society (HMBS). Therefore, the interest amount of Rs. 13,34,104/- claimed towards interest on HMBS loan is disallowed and added to the total income." 7 Ground nos. 3 and 4 (CIT Order) Disallowance of Rs. 13,34,000/- towards interest paid to Hyderabad Mutual Benefit Society (HMBS): 7.1 During the assessment proceedings, the Assessing Officer noticed that the assessee claimed interest payment of Rs. 13,34,000/- to Hyderabad Mutual Benefit Society (HMBS). The Assessing Officer contende....
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..... I uphold the addition made by the Assessing Officer." 6.1 Before us, the ld.AR has submitted as under : * The assessee firm has utilized the loan amount taken from HMBS for the purpose business. * Both the lower authorities have erred in mentioning that the loan amount did not appear in the balance-sheet of the assessee. * The lower authorities have failed to appreciate that Sections 36 and 37 provides that when the loan utilized for the business purposes, the assessee is entitled to deduction. * It is the case of the assessee before us that the assessee has utilized the loan exclusively for the purpose of business and this fact has not been disputed by the lower authorities. 6.2. The ld.AR also contended that as the loan amount appearing on liability side of the Balance-Sheet and therefore the expenditure incurred by the assessee was allowable expenditure in the hands of the assessee. 6.3. In support of his case, the ld.AR for the assessee filed written arguments. The relevant portion of written argument with respect to this ground reads as under : "Grounds 1, 2 and 3: Interest paid to Hyderabad Mutual Benefit Societ....
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....nt record of AY 2012-13. It is not possible that the Balance Sheet for AY 2013-14 was available during the proceedings before them, and the AO in para 1 and the CIT(A) in para 6.3 of the orders categorically gave a finding that " the loan taken from HMBS is not reflected in the Balance Sheet either under unsecured loans or sundry creditors'. Therefore, it is humbly submitted that the Balance Sheet seen by the AO and the CIT(A) were different from the Balance Sheet being referred to by the A.R of the assessee in the Paper Book now. In addition to this, reliance is placed on the observations of the CIT(A) in para 6.3 of her order in support of the argument of the department that the interest claimed by the assessee is not allowable as expenditure. The ground of the appeal in appeals for AY 2012-13 an 2013-14 may be dismissed." 7.2 It was further submitted that documents at pages 40 to 66 were not filed before Assessing Officer/ ld.CIT(A). Further, no application was filed for admission of those documents. 8. In rebuttal, ld.AR has submitted that the amount was paid by the assessee through one of its partners and for that purposes, he has drawn our attention to the statement of ....
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....f his bank statement and give finding. 10. In view of the above dissection, we remit the matter to the file of ld.CIT(A) with a direction to the assessee to move appropriate application for admission of additional evidence before ld.CIT(A) in respect of documents now filed before us. The ld.CIT(A) may consider the application in accordance with law. In the light of the above, we deem it proper to remand back the matter to the file of ld.CIT(A) with the following directions : 1) That the assessee shall file the balance-sheet of the F.Y. 2011-12 before the ld.CIT(A). 2) The ld.CIT(A) shall call for the remand report from the Assessing Officer, with a direction to find out whether the loan, after taking it from HMBS, were utilized by the assessee for its own business purposes. 3) The assessee shall produce the registered partnership deed of M/s. Super Diary Farms showing the existence of the common partner with M/s. Super Diary Farms and M/s. G.B. Bakers. 4) The ld.CIT(A) shall call for the report from HMBS with respect to the fact that whether the loan interest payment was made by the assessee through banking channels or not. 5) As it i....
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....ven on merits, Expenditure pertaining to feeds and maintenance has to be treated as revenue expenditure and cannot be capitalized since the said feeds and maintenance are for the daily upkeep of the livestock, which is akin to fuel charges for running of a machinery and maintenance of the machinery for smooth running of the machine. Similarly, purchase of a car may be treated as a Fixed Asset but the fuel charges for running the car would be treated as revenue expenditure. In view of the same, it is submitted that feeds and maintenance of the livestock can, by no stretch of imagination, be considered as capital expenditure. Cost of purchase of livestock: Further, the cost of purchase of livestock debited to P&L account has been added back to the net profit determined as per books for the purpose of computing the taxable income as per provisions of Income-tax Act, which is evident from the Computation of income(Pg. 8 of PB). Hence, there is a double disallowance of the same amount, thereby violating Article 265 and Article 20(2) of Constitution of India and the principles of natural justice." 12.2. Per contra, the ld.DR has submitted that there was no enhancemen....
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....ecision in the case of Sri Krishna Dairy & Agricultural Farm Vs. CIT reported in 169 ITR 291 (Andhra Pradesh High Court) In support of his case, ld.AR filed the written submissions and the relevant portion of the submissions for grounds 6 to 8 of assessee's appeal and ground nos.2 and 3 of Revenue's appeal as under : "Ground nos. 6 to 8. "Benefit of Indexation for computing Long Term Capital Gain: Once an item is treated as a Capital Asset and liable for capital gains, while computing the said capital gains, rules of indexation as per section 48, Explanation clause (iii) would apply. Section provides for 'asset', which is a capital asset as defined u/s 2(14) of the Income-tax Act. Section 2(14) does not distinguish between living and non-living things. Hence, the provisions of law pertaining to indexation must apply uniformly even to livestock when the said livestock are treated as fixed assets and are held for more than 3 years." 13.2. Assessee has filed the written submissions and the relevant portion of the same reads as under "Sale of livestock treated as Fixed Assets give rise to Capital Gain and cannot be treated as Business Inco....
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....ibutable to the production of milk. The whole intention of the assessee is to produce milk and sell it and not to produce offsprings and sell them. In view of the aforesaid, we are inclined to agree with the view taken in the case of Sri Krishna Dairy and Agricultural Farm v. CIT.(Para 19) In view of the aforesaid premises we are disposed to think that the Tribunal is right in holding that the sale of calves by the assessee cannot be regarded as capital gain since the cost of acquisition is not ascertainable." (Para 20) 14. Per contra, ld.DR has submitted that livestock cannot be treated as capital asset and it was excluded from the definition of 'plant' by section 43(3) of the Act and that livestock of the assessee has to be treated as part of 'stock in trade' of the assessee. The ld.DR relied on the decisions of Hon'ble Madras High Court in the case of L.G. Balakrishnan Vs. CIT reported in 129 taxmann.com 854 and ACIT Vs. S. Pathy (HUF) reported in 100 ITD 53. The ld.DR further submitted that accounting entries do not override the legal effect of any transaction and further contended that legality of any transaction needs to be established independently. In this regard, the ld....
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....e decision of the A.P High Court in the case of Sri Krishna Diary and Agricultural Farm Vs. CIT (1987) (35 Taxman 151) (A.P), the CIT(A) allowed the ground of exemption of self breeding live stock. However, as the details of self bred livestock are not available before her, she directed the A.O to verify the number of young calves born and allow the claim. Ld. A.R added decision of Madhya Pradesh High Court in the case of DCIT vs Suniti Singh (2008) 299 ITR 183 (MP) to the arguments in the submissions. Departments' arguments 5 In this connection, it is submitted that livestock cannot be treated as capital asset as it is excluded from the definition of 'plant' by the section 43(3) of the I.T Act. Livestock of the assessee has to be treated as a part of 'stock in trade' of the assessee, more so when the assessee has purchased 500 buffaloes during the year and sold all the buffaloes purchased at a higher rate making huge profits for the year. Reliance is placed on the following decisions: 1) L.G. Balakrishnan Vs. CIT ( 129 Taxman 854) (Mad) 2) ACIT Vs. S. Pathy (HUF) [100 ITD 53 ] (Chennai). Hon'ble High Court of Madras in L.G. Balakrishnan....
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....educing the relevant cost of purchase of the buffalos sold during the year. Indexation of cost of purchase does not arise, as the income is taxable under the head income from business on sale of stock in trade. 9 Stock details of buffaloes, calves and bulls for F.Y. 2012-13 has been filed by the AR on page 12 of paper book and also been quoted by the CIT(A) on page 8 and 9 of her order. Fluctuation of cost of buffaloes, incorrectness or improper maintenance of stock register, absence of proof of payment through banking channels for purchase of buffaloes and non- matching of average costs in the calculations presented by the assessee have been highlighted by the CIT(A) in para graphs 9.2 and 9.6.3 of her order, concluding that the gain of Rs. 8,63,58,527/- on sale of in home- bred livestock/ calves is not justified. 10 Observation of the CIT(A) is correct regarding the stock register maintained by the assessee. Sale receipts of livestock credited to the P&L account of AY 2013-14 is Rs. 14,29,31,592/-. Out of these receipts, the assessee claimed Rs. 8,63,58,527/- as exempt income on sale of self- bred calves born in the shed of the assessee during the course of busi....
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....re available in closing stock valued @ Rs. 4,79,370/- , therefore average cost of bull in closing stock in Rs. 11,984/-. d) Calves also have a stock value assigned by the assessee. Twenty young calves appearing in opening stock and the same remain in the closing stock, the average cost of young calf is Rs. 16,408/-. e) Average cost of buffalo, young calf and bull as per the stock register is as under: Opening Stock Purchase Sale Closing Stock Milking buffaloes 35,407/- 62,211/- 37,743/- 90,739/- Young Calf 16,408/- 0 -- 16,408/- Bulls 23,968/- 0 -- 11,408/- f) Based on these details the value realised by the assessee by sale of 1600 livestock can be work out as under: g) Category sold Average value in stock register Sale receipts Sale rate Milking Buffaloes sold From old op. stock 192 35,407 2,03,43,065 105953 Purchased & sold 500 62,211 3,62,90,000 72,580 Income claimed Exempt Young Calves From stock or new born 413 16,408/- 67,76,504/- Bulls From stock or new born 495 11,408/-....
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....could be regarded as cost of acquisition of colt and filly. Drawing similarity, the expenditure incurred on feed, medicines and maintenance can be partly attributed to the cost of acquisition of the calves and young bulls and part of the expenditure for production of milk. 17 The A.R relied on the decision of Smt. Suniti Singh 299 ITR 183 (Madhya Pradesh). In that case referred by the A.R., main income of the assessee was from milk and sale of calves was very small. In the instant case, perusal of the P & L a/c for the year F.Y. 2012-13 shows that the sale receipts of milk were only Rs. 6,03,75,281/- and sale receipts of live stock was Rs. 14,29,91,592/-. Further, the assessee sold 192 buffaloes which were purchased in earlier years and sold all the 500 buffaloes purchased during the year, indicating the sale of buffaloes was the main business of the assessee during the year. Therefore, it is submitted that the decision of Smt. Suniti Singh (supra) cannot be applied to the facts of the present case." 15. We have heard the rival contentions and perused the material available on record. The Assessing Officer while deciding the issue has held that livestock is not a capita....
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.... plant. Section 43 provides the definition of certain terms relevant to determine the income from profit and gain of business / profession. Once the livestock has been excluded from the definition of 'plant', there is no question of considering the same for the purposes of considering it to be 'block of asset'. The logical conclusion of excluding the livestock from the definition of the 'plant' would be that the livestock is required to be treated as stock-in-trade. 18. The argument of the learned counsel for the assessee taken in the written submission is that the livestock is a capital asset and therefore, as per section 48, Explanation clause (3) shall apply. He had also relied upon the definition of 'capital asset' given in section 2(14) of the Act. In our view, the argument of the assessee is of no use as the Act had specifically excluded the livestock from the definition of the 'plant' and is therefore, required to be treated as stock-in-trade. Further, the law is fairly settled when the general provisions shall not be applicable in case the subject matter is covered by the specific provision. In the present case, the specific provision namely section 43(3) excludes the 'l....
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....nt case. As mentioned hereinabove, the normal business principles as applicable for the purpose of determining the profit and loss of the business are required to be applied even for the purposes of computing the profit on sale of newly born buffalo calves and thereafter, the income earned used to be taxed as 'business income'. 22. Having held that livestock is not a capital asset and is only a stock-in-trade, the logical fallout of the above conclusion is that the income of the assessee is required to be determined by applying the principle as applicable for determining the profit and loss of the business and is to be taxed as business income. Further Assessee is not entitled to indexation on the cost of purchase of the livestock, as there is no provision for grant of indexation of the livestock, being not a capital asset. Therefore, we reverse the finding of the ld.CIT(A) whereby he had wrongly held that livestock is a capital asset, and the income of the assessee is to be determined on the basis of treating the livestock as capital asset and not as stock in trade. 23. In view of the above said discussion, we allow the ground No. 2 and 3 of the revenue appeal and the ground....