9911796707
TMI Blog2024 (6) TMI 1217X X X X Extracts X X X X X X X X Extracts X X X X ..... bad 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 Benefit Society (HMBS) in the course of business for the purpose of business. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 assessee claimed interest payment of Rs. 21,34,193/- to Hyderabad Mutual Benefit Society (HMBS) but the assessee has not shown the same in its Balance-Sheet either under unsec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed 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 contended that as per the mutuality applicable to 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 was also confirmed by the Chartered Accountan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Society - Rs. 21,34,193/- The loan taken from HMBS by the appellant has been utilized for the purpose of business, which has not been disputed by the AO/CIT(A). Both the authorities erred in mentioning that the loan amount did not appear in the balance sheet. Further, the authorities have failed to appreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dry 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 bank account of M/s. G.B. Bakers. 9. We have heard the rival submissions and perused the material on record. In the present case, we have asked the ld.AR for the assessee whether the assessee has filed the balance-sheet in the assessment year 2012-13 before us wherein the loan amount has been shown to have been received from Hyde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdance 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 is the case of the assessee before us that one of his partners, who is associated with M/s.G.B. Bakers had paid the loan interest amount to the HMBS, therefore, in that view of the matter, ld.CIT(A) shall verify from the record of HMBS whether the said amount was paid by the said person in cash or from the banking channel or not and further the ld.CIT(A) shall find out wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 enhancement by the ld.CIT(A) and therefore, the argument of the learned counsel for the assessee is without any merit. In this regard, ld.DR has filed the written submissions. The relevant portion of the written submissions are to the following effect : Capitalisation and enhancement 18 The A.R argued that capitalization of fodder cost of 1.82 crores and purchase cost of buffaloes of 2.58 crores is not correct, particularly without giving notice of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 Income: It is humbly submitted that the Appellant is only in the business of selling dairy products and not in the business of buying and selling of livestock. This is evident from the following: 1. Live Stock(Buffalos) - Rs. 2,05,88,778/- shown under Fixed Assets in Balance sheet for A.Y.2013-14 - (Pg. 9 of PB) 2. Live Stock(Buffalos) - Rs. 1,63,46,483/- shown under Fixed Assets in Balance sheet for A.Y.20 10-11 - (Pg. 28 of PB) 3. Live Stock(Buffalos) - Rs. 2,43,21,483/- shown under Fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.DR relied on the decision of Hon'ble Supreme Court in the case of India Discount Co. Limited reported in 75 ITR 191 and the decision in the case of Kedarnath Jute Mfg. Co. Ltd., reported in 82 ITR 363. In support of its case, the ld.DR has filed a detailed rejoinder / written submissions, which is to the following effect : "2 Assessee's A.R. in his written submissions argued that the firm (M/s. Super Diary Farm) is engaged in dairy business, selling milk and milk products. It purchases and sells buffalos for maintaining/increasing the milk supply. The buffalos, calves and bulls ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 (supra) held that having regard to the amendment of definition of word 'plant' in section 43(3) w.e.f. 1-4-1962 by the Finance Act, 1995, the 'livestock' cannot be regarded as 'capital assests' and therefore, they required to be valued as part of stock in trade of the assessee. Though, the Hon'ble High Court was dealing with the poultry, which is maintained for eggs and chicks, the livestock in section 43(3) of the Act applies to other livestock like buffaloes, horses, goats, camels etc.. Dealing with horses, Hon'ble ITAT Chennai Bench, held that activity of maintenance of horses in a systematic and organised manner over a period of time, though f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 business. It has to be noted that the assessee has not given any working of Rs. 8,63,58,527/- as to how the same was arrived from the sale of self generated livestock during the year. 11 As per the stock details on page 12 of Paper Book, it is clear that 1600 livestock was sold during the year, which included 692 Buffaloes, 413 young calves and 495 bulls. Observations on the stock register are as under. (i) Average cost of buffalo in opening stock is Rs. 35,407/- (1,45,17,233 /410). Assessee itself gave a value to the buffaloes in the opening stock, therefore, as per the assessee itself, milking buffaloes in opening stock are not self-bred. (ii) Generally male-buffalo (bull) have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed & 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/- 1,18,64,160/- 13 As can be seen from the observations, 192 buffaloes were sold from opening stock (old) which have a value and all the 500 milking buffaloes purchased were also sold during the year, it can be said that all the receipts on sale of 692 buffaloes relate to other than 'self bred' live stock. The sale receipts (Rs. 3,62,90,000 + Rs. 2,03,43,065) total up to Rs. 5,66,33065/-. The average sale price is Rs. 81,840/-. It is seen that the assessee purchased a milking buffalo at Rs. 62,211/- and sold at Rs. 81,840/-. Therefore, the assessee's main business for the year is buying and selling the livestock. 14 Coming to young calves and bulls sold during the year, mal buffaloes/ bulls do not have any value or very low rate in the market, as can be seen from the purchase 20 bulls at '0' cost by the assessee during the year and Rs. 11,984/- per bull shown in the closing stock. Therefore, even after taking the value of Rs. 11,984/-, the probable sale receipts on sale of bulls works ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al contentions and perused the material available on record. The Assessing Officer while deciding the issue has held that livestock is not a capital asset. Further, it was held by the Assessing Officer that the long term capital gain on sale of self breeded livestock is not covered by the provision of section 10 of the Act and therefore, the assessee is not entitled to claim any exemption of this in the income of the assessee. The Assessing Officer further held that the assessee is not entitled to indexation cost on the livestock. Therefore, Assessing Officer has held that the profit arising on sale of livestock is to be assessed as business income under profit on sale of assets. The ld.CIT(A) had decided that the livestock is a capital asset and had further, held in fact that the assessee is not animal breeder and therefore, the income from selling / breeding of buffaloes cannot be said be the main business of the assessee. 16. The core issue which is required to be adjudicated is whether the livestock is a capital asset or not. In this regard, the submission of the ld.AR are based on the decision rendered by the jurisdictional High Court in the case of Sri Krishna Dairy an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the specific provision. In the present case, the specific provision namely section 43(3) excludes the 'livestock' from the definition of 'plant', therefore, this specific provision shall override the general provision as mentioned in Section 2(14) of the Act. Moreover, as mentioned hereinabove, the terms defined under section 43 are required to be understood for the purposes of computing the profit and gain of business or profession. In view of the above, the submission of the assessee that the assessee is entitled to indexation on the livestock is without any basis. 19. The reliance of the assessee on the decisions of Sri Krishna Dairy and Agricultural Farm (supra) and also on the decision of Hon'ble Madhya Pradesh High Court in the case of Suniti Singh (supra) are of no use to the assessee as much water has flown after passing of the judgments by amending Section 43(3) of the Act by the Finance Act, 1995 whereby the livestock has been taken out from the definition of 'plant'. Therefore, the judgments for A.Y. 1976-77 and 1991-92 relied upon by assessee are not applicable to the facts of the present appeal as the assessment year for the year under consideration is 2013-14. 20. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above said discussion, we allow the ground No. 2 and 3 of the revenue appeal and the ground no. 6 to 8 of the assessee's appeal for A.Y. 2013-14 are dismissed. Ground no.5(a) of assessee's appeal for A.Y. 2013-14 24. With respect to ground no.5(1) assessee has submitted that it has an amount of Rs. 2,58,41,771/- being purchase of livestock charged to Profit and Loss Account and that the same was added back in computation of total income. 25. In this regard, the ld.AR had drawn our attention to page 8 of the computation of income and has submitted that since it has already been added back in the computation of income, therefore, it should not be charged to the profit and loss account. 26. The ld.DR has submitted that this issue is required to be verified by the Assessing Officer. 27. We have heard the rival contentions of the parties and perused the material available on record. Since the contention of the assessee is that the income has already been taken into account while computing the income of the assessee in the computation, therefore, it cannot be charged again in the profit and loss account, on the face of it, is required to be accepted. However, in view of the findi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
