Income Tax Appellate Tribunal - Hyderabad
India Poultry (P) Ltd. vs Joint Commissioner Of Income Tax ... on 28 October, 2005
Equivalent citations: [2007]104ITD299(HYD), (2006)105TTJ(HYD)312
ORDER
N.D. Raghavan, Vice President
1. This is an appeal filed by the assessee challenging the order dated 23.2.2000 of the CIT(A)-III, Hyderabad, as erroneous.
2. Facts of the case are briefly THESE: The Assessing Officer disallowed the live-stock written off at Rs. 1,49,64,815 for the reasons discussed in the assessment order. On appeal, such disallowance was confirmed by the CIT(A). Hence, the instant second appeal by the assessee before us.
3. The learned representative for the assessee submitted THAT: The Appellate Commissioner erred in not considering the submissions made vide letter dated 23rd February, 2000 and submissions made before the Assessing Officer vide letter dated 25th November, 1998. He has erred in not considering the amendments of Section 43(3) while upholding the disallowance. He has therefore erred in upholding the disallowance of livestock written off. It is wrong for him to have upheld the decision of the Assessing Officer that parent and grand parent birds which have been treated all along as capital assets cannot be taken as current assets and written off during the year. Thus, he has erred in confirming the decision of the Assessing Officer that loss arising out of destruction of parent and grand parent birds as capital expenditure. The CIT(A) has erred in confirming the Assessing Officer's decision on the ground that the purchase of parent and grand parent birds relate to the earlier assessment year and that the claim of the assessee to allow the same in this assessment year is not justified as the assessee has been following mercantile system of accounting.
4. The learned Representative for the Revenue, on the other hand, countered, to say in brief, by defending the order impugned, besides submitting THAT: The assessee has not claimed that the asset was used for business purposes before both the authorities below and has also not claimed under Section 36(1)(vi). The claim having been made for the first time, it may be remitted to the Assessing Officer to ascertain whether it was used for business purposes. Thus, the assessee's submission that there was no evidence that the asset was not used for business purposes and further that deduction was not rejected on that basis, was refuted by the Department Reliance is placed on the decision of the Allahabad High, Court in Ganeshilal Bhattawala In re 6 ITR 489-All.
5.1 Rival submissions heard and relevant orders read, including the case-laws relied supra, apart from the papers in the, paper-book, referred to before us. After doing so, we are of the considered opinion that the stand of the assessee has substantial force than the defence of the Revenue for the reasons following-
5.2 The stand of the assessee is that the birds, i.e. livestock and grand parent stock, were used for assessee's. business purposes. Copy of the assessee's annual accounts are also furnished in the assessee's paper-book, wherein the P&L Account shows sales that took place during the year at over Rs. 73-lakhs, while in the preceding year the same was at Rs. 118-lakhs. The explanation of the assessee is that these sales could have come about only by the use of the birds which were destroyed, and therefore, the assessee indeed carried on business during the year and used all the birds for its business purpose. The assessee's contention that this fact has not been disputed by the Assessing Officer at all, has not been controverted by the Department before us. That apart, the Depreciation Schedule, furnished in the paper-book, also reveals the livestock and grandparent stock as opening balance under Gross Block; and deductions on their destruction. The assessee had all along claimed deduction of the loss arising on account of death of the birds. According to the assessee mere non-mention of Section 36(1)(vi) would not make its claim any weaker. It was highlighted by the assessee that the only reason for the addition made by the Assessing Officer was purely on legal grounds and not on facts, which he never doubted, but admitted. Therefore, the contention of the assessee is that there is no case for another enquiry into any matter by the Assessing Officer. The birds became permanently useless and were destroyed by the assessee, as it could not have sold them. According to the assessee, Section 36(1)(vi) allows the claim for both these reasons, and it does not require any particular method of death for the claim to be allowed, and that the death may be on any account, including one inflicted by the assessee. It was emphasised by the assessee that even if the birds were to be treated as stock in trade, they would have appeared as opening stock in the P&L Account and on write off would have been allowed, and that chicken are also animals, as per the decision of the Delhi High Court in the case of CWT v. Brig. Kapil Mohan 252 ITR 193-Del.
5.3 The argument of the Revenue is that Section 36(1)(vi) employs the words animals, and it is in respect of animals only and not birds or chicken, the latter two not falling under the word 'animals' the relief cannot be allowed. This argument falls to the ground in view of the decision of the Delhi High Court in the case of Brig. Kapil Mohan, cited supra, and relied upon by the assessee, wherein Hon'ble Delhi High Court has held as below-
Broiler chickens are "animals" falling within Section 2(2)(i)(c) of the Wealth-tax Act, 1957. and are not to be included in "assets" for the purposes of wealth-tax. Even in common parlance birds are treaterd as "animals" and the definitions of the expression "animal" in the dictionaries are not at variance with the common parlance meaning aITRibutable to the expression. Animals in law include any animate being, which is not human, endowed with the power of voluntary motion.
5.4 In the case of Ganeshilal Bhattawala In re, cited supra and relied upon by the Revenue, Hon'ble Allahabad High Court has held that allowance could not be given inasmuch as the animals were not sold on account of their having become permanently useless! but because the business has been closed down, and inasmuch as the words 'for the purposes of business' in the said clause refers to the business in respect to which the return has been called for and submitted. In the instant case, it is not that the business has been closed by the assessee company, but the birds have died, having been destroyed as they became permanently useless.
5.5 Now coming to another aspect of the argument of the Revenue is that the concerned provisions of Section 36(1), viz. Clause (vi) employed the words 'have died' whereas in the instant case even assuming that the birds are animals, according to the Department,. they have not died, but they have been destroyed, i.e. killed, and hence, the assessee cannot invoke the said provision for getting relief. Though, we do appreciate the niceties that are attempted to be brought out by the Department to support its case arguing as aforesaid instantly while on legs, it should not be forgotten to see the words i.e., 'or become permanently useless for such purposes', that follow the words 'have died' in the very same provision. Therefore, if the argument of the Revenue that the birds or chicken have only been destroyed, i.e. given artificial death and not died, i.e. natural death, the subsequent words 'or become. permanently useless for such purposes' employed by the said provision comes to the rescue of the assessee. No body would destroy or kill any bird or chicken, unless it has become permanently useless 'for such purposes'.
5.6 A.C. Sampath lyengar's Teatise on Law of Income-tax, 9th Edition, Vol.2 at pages 2374 and 2375 also throws light, being commentary dealing with Section 36(1)(vi), as below-
In the case of Venkatasubba Reddiar (KS) v. CIT 125 ITR 750-Mad., wherein the plea of the assessee was that the horses had to be withdrawn from the races since the certificates granted to them had been revoked by the Race Club Authorities, and that they have become permanently useless for the purposes of racing business, it was held that the horses had indeed become permanently useless for the purposes of the assessee's business and accordingly loss incurred by the assessee was held to be allowable under Clause (vi) of Section 36(1).
5.7 In regard to the argument of the Revenue that the matter may be remitted to the Assessing Officer so as to verify whether there was use of them for business purposes, we find, assessee has field a copy of Balance Sheet in its paper-book, evidencing such usage in the accounting year, apart from the fact that it would be of no avail to remit the matter to the Assessing Officer at this distant point of time, when the matter relates back to assessment year 1996-97.' The said treatise on Law of Income Tax by A.C. Sampath lyengar at page 2375 emphasises that the use in assessee's business must be in the accounting year, and state that for the purpose of relief under Section 376(1)(vi) animals must have been used during the accounting year for the purposes of business or profession, when alone the relief is permissible. Indeed this strengthens the assessee's claim and weakens the defence of the Department.
5.8 Thus, on the totality of facts and the entirety of the circumstances of the instant case over the issue in question as well as in the light of the provisions of law and case-law cited supra besides the discussions made hereinabove, we deem. it fit and proper to grant relief to the assessee, as prayed for, by setting aside the order impugned before us on this issue.
6. Though a ground has been raised in this appeal contending that the CIT (A) has also erred in sustaining the disallowance of PF and ESI delayed payments beyond one month, no arguments has been advanced at the time of hearing. Hence, this ground is rejected as not pressed for.
7. In the result, appeal of the assessee is allowed in part.