TMI Blog1996 (10) TMI 135X X X X Extracts X X X X X X X X Extracts X X X X ..... he is producing chicks for the purpose of sale. For hatching chick, the assessee does the following : I. (1) Purchase in one day old chick (known as parental flock). (2) Rearing them under the prescribed hygienic conditions for six months. (3) Collecting eggs laid by such parental flock. Thereafter, the eggs lay undergo the following process: II. (1) Eggs are sorted, cleaned and fumigated. (2) Such eggs are placed in refrigerator for three days. (3) Thereafter, the eggs are transferred to incubator, an automatic machine, which keeps the eggs rotating and keeps for 18 days at the temperature of 100 degree F with 86 degree of humidity. (4) After the successful complition of the aforesaid process the eggs are transferred to keep in hatches for three days by maintaining the temperature at 97.5F. (5) Thereafter, the final production emerges as chicks, known as commercial flock intended for sale. The assessee purchased the parental flock @ Rs. 47 each in case of layer chick and at Rs. 40 each in case of broiler chicks. Further, the commercial flock produced in the hatchery is sold @ Rs. 6.20 each of the layer chick, Rs. 4.40 each of the broiler chick and at 0.15 each o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el for the assessee that the parental flocks are purchased as a part of working expenses incurred in the process of earning of profit and, therefore, the purchase of parental flock is a routine revenue expenses of the assessee and relied on the following decisions of the apex Court: (1) Bombay Steamship Navigation Co. (P) Ltd. vs. CIT (1965) 56 ITR 52 (SC); (2) Empire Jute Co. vs. CIT (1980) 17 CTR (SC) 113 : (1980) 124 ITR 1 (SC); (3) CIT vs. Associated Cement Co. Ltd. (1988) 70 CTR (SC) 28 : (1988) 172 ITR 257 (SC); and (4) Alembic Chemicals Works Co. Ltd. vs. CIT (1989) 77 CTR (SC) 1 : (1989) 177 ITR 377 (SC). It was further submitted that in the IT Act, no guidelines have been prescribed for accounting for the value of the parental flock. Therefore, the methods suggested by the Institute of Chartered Accountants of India have to be applied. Accordingly, the second method suggested in the monograph has been followed. 9. Regarding the valuation of hatching eggs in incubator, hatcher and in cold storage, it is submitted that the stock-in-trade is to be valued at cost or market value (as on last day of accounting year) whichever is less. The moment the eggs are placed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h in a largely ordained sphere. The appellant is merely exploiting these living organisms commercially. A bird whose sole value lies in providing fertilised eggs for hatching cannot be equated to an iron ingot. The learned counsel has rightly placed reliance on the Gujarat High Court decision wherein stock-in-trade has been defined as a commodity which is bought and sold. The parental chicks here are bought, then they are commercially exploited and at the end they are practically discarded at nominal value or destroyed. How can this situation be equated with the stock-in-trade which is available at the beginning of the year and at the end of the year, and can be clearly and definitely priced because there is market value index available for that commodity." 12. The learned CIT(A), while finding in favour of the assessee, placed reliance on the Gujarat High Court decision, supra. In this case, the essential characteristics of stock-in-trade, namely, that it must be a commodity in which there is a dealing, i.e., which is bought and sold as distinguished from a commodity with which the business is carried on, namely, from the exploitation of which the income is derived. The distinct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure, the Court has to consider the nature and the ordinary course of business and the objects for which the expenditure is incurred. The question whether a particular expenditure is revenue expenditure incurred for the purpose of the business must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on or conduct of the business that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition to the carrying on of the business, the expenditure may be regarded as revenue expenditure." In all the other three apex Court decisions (1980) 17 CTR (SC) 113 : (1980) 124 ITR 1 (SC), (1988) 70 CTR (SC) 28 (SC) : (1988) 172 ITR 257 (SC) and (1989) 77 CTR (SC) 1 : (1989) 177 ITR 377 (SC) cited supra by the assessee, the ratio laid down in the aforesaid apex Court decision has been approved and followed. The facts of this case show that the expenses incurred by the assessee in procuring the parental flock for the purpose of producing eggs and chick are nothing but a routine revenue expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the accounting method suggested by the Institute of Chartered Accountants of India is defective, do not survive and consequently the procedure followed by the assessee adopting the accounting method is sustainable. 16. The next issue relates to the valuation of hatching eggs in incubator, hatcher and in cold storage. It is an accepted principle of IT Act that the stock-in-trade is to be valued at cost (or market value) as on the last day, whichever is less. The assessee has submitted that when the eggs laid once put into the process will lose its marketability. The reason being that the eggs at that stage are neither fit for human consumption, nor developing into chicks, if they are taken out of the process for any purpose. The assessee had been maintaining the same stand ever since inception of the assessment proceedings. The Revenue is not in a position to controvert this factual position throughout. In fact, these facts were not denied by the Revenue. Further, as we have already held that the method of accounting adopted by the assessee is valid, the application of s. 145 for valuing the hatching eggs is not sustainable. CO No. 11/Jab/1994 17. In the cross-objection, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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