Itta/31/2023 Of Primcipal Commissioner Of Income Tax-4 v. M/S. Prabhat Agri Biotech Limited

IN THE HIGH COURT FOR THE STATE OF TELANGANAAT HYDERABAO MONDAY ,THE TWENTIETH DAY OF MARCHTWO THOUSAND AND TWENTY THREE PRESENT THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN AND THE HON'BLE SRI JUSTICE N.TUKARAMJI INCOME TAX TRIBUNAL APPEAL NO: 31 0F 2023 Appeal Under Section 260 A of the lncome Tax Act , 1961 against the orderof the lncome Tax Appellate Tribunal, Hyderabad [,,8,' ]Bench , Hyderabad inl.T.A.No. 293 I Hl 2019 daled 29-06-2022 for A.Y. 2013-14 preferred againsr theorder of the Commissioner of lncome Tax ( Appeals) 4, Hyderabad in Appeal No.10017 I 2016 -171 ACIT , Cir-16 (1) / CtT (A) -4t{ydl.tS-19 dated 21-12-2019preferred against the order of the Asst. Commissioner of lncome Tax , Circle 16(l), Hyderabad dated 3t-03-2016 in pAN / GtR No. AABCpSSo.tc Between: Pflncipal Commissioner of lncome Tax-4, Hyderabad APPELLANT ANO M/S. PRABHAT AGRI BIOTECH LIMITED, 8-2-277t45, Road No 2. UBr Cotony,Banjara Hills, Hyderabad 500 034Banjara Hills, Hyderabad 500 034 .RESPONDENT counsel for the Appellant: sRl. J.vPRASADlsc FOR TNCOME TAx) Counsel for the Respondent: NONE APPEARED The Court Delivered the following: Judgment THE HON'BLE THE C AND THE {ON'BLE SRI JUSTICE [N. ][TUKAR.,IIIJI] I.T.T.A.No.3l of 2023 JUDGMENT: [t\,.tt ]t ti. [t ][t)k,ttt'( ][ttu'i ][.Justtcp ][LtJieL ][Bhua(n)] Heirrcl \4r. .J.V.Prasad, learned Standing [()ounsel,]Incomc Trr-x f)'partmcnt for the appellant. ). Rr' errrre hzrs lilecl this appeal urLder liection 260Ao[ the [nconrt' Irx Act.. l()6 I [(briefly ]referrecl to [hereir ][after ][as]'the Act') agrri rs,t t hc orcle'r dated 29.06.2022 [ptts ]sec by [thc]lncornt ['l-r1.. ]A Ppellrrtt' Tr-iirunal, Hyderzibad Ilench ['B]Hyclr:rab:rl [qlrr ]re[1r r-elcr rt'cl to hereinafter as 'the Tt'ibrrnal') [in]ITA No.2(t.l/ll d/:101() lor thc assessment year 2Cl3-14 3 l lr, aPpczLI lrirs been preferreC pr)F,osrng thefollou'ir-rg rs sL l):it:[ntiirl qr-testton of lau, \\Ihc hrrr on thc lzrcts and in the circutnslan lesol tlr'' < a: e. l'ril'lunirl rr as justified ln holdi np1 ti-ratCOm ti lol( KI)cnclitLrrc lbr os n productiolt and sal( o[ seeds and trading in [other ][seeds ][can ][be ][apportioned] between both on the [basis ][of ][Cost ][of ][Goods ][Sold](CoGS) as against the turnover [of each ][for ][arriving ][at]profits? Respondent is an [assessee ][under the Act ][havit-lg] 4Respondent the status of a [comPanY.] 5. As already already [[pointed ]]under consideration [is ][2013- ][14.] As already already [[pointed ]]out [above, ][the ][assessment ]-\'ear Assessee is engaged in [the ][business ][of ][sced] 6. production, research, marketing [of field ][and ][vegetable crops]and s'ind [power ][generation. ][Assessee ][is ][deriving incomc ][from]ou'n production of [seeds ][as well as from ][trading ][in ][sccds']Assessee is claiming [deduction ][under ][Section ][10(1) ][of ][tl-re Act]for the income arising [out ][of own production ][ol ][seeds ][bcttrg]an agricultural [income.] officer [noted ][that ][assessee ][had]Assessing 7. sub mittedasingle Profit and [Loss Account ][lor ][both ][the]businesses. On request [made ][by ][the ][assessing ][olficer'] 4Respondent the status of a [comPanY.] 5. As already already [[pointed ]]under consideration [is ][2013- ][14.] As already already [[pointed ]]out [above, ][the ][assessment ]-\'ear Assessee is engaged in [the ][business ][of ][sced] 6. production, research, marketing [of field ][and ][vegetable crops]and s'ind [power ][generation. ][Assessee ][is ][deriving incomc ][from]ou'n production of [seeds ][as well as from ][trading ][in ][sccds']Assessee is claiming [deduction ][under ][Section ][10(1) ][of ][tl-re Act]for the income arising [out ][of own production ][ol ][seeds ][bcttrg]an agricultural [income.] officer [noted ][that ][assessee ][had]Assessing 7. sub mittedasingle Profit and [Loss Account ][lor ][both ][the]businesses. On request [made ][by ][the ][assessing ][olficer'] assesisec Lra, I submittecl biltrrcated Profit ar d Loss Accountfor tl-rc tu c L usinesses. Ho\\'('\'cr, assessinq c,fil,:er noted thatcomrnorr er<p lnditures betu,ccn o\vn produ( tion rr d l.rading ofseeds $,er(r c ivided bascd on tltc Cost ol [(ioods ]liokl (CoGS)Accordingl'i, income frorn :rgricrrltural activit.r !,'as errrived atRs.40,2'1,04, [j39.00 ]an(l irlcomc lrom triLding :rctrvitywasarrived .rt .:1,. 8,35,06,c)5().00. llou,ever, assessing of icer heldthat clivision of cxpcncliturc b:rsccl on cost of gooCs sold wasnot acceprta blc becalrse lrrrsiness ope.ratio rs lor ownproduction t f sr:eds arc r:r'rtir-r,h' diflerent 1io:n tradingrnseeds. E:pt nditr:rcs :rrr: rnostlv dcpendent on turnover ofagriculturai >usiness iLrrrl norr lrgrrcultural bus n:ss but noton the cc,st ,rf goocls solrl. After pointing tut certainanomalies rn the irbovc 1>rrtcerlure, assessinE officerre comprrtr'cl thc crpetrclitr.rrc cltrirncd b!' tlre ass(iss(le in theratio of ILlrn( \,(]r of tracicrl [gootls ]anrl sale of ou n productionl.eI 0.i'3')i, , rncl 8!1.27'1i,. It r,r'as thcrcafter thztt t ctal incomeof the ersscss L,(. \\'as cornplltccl on the basrs cl' tl e aforesaidturnovcr rirt o. Whilt, tiLxitl;lt' income u,zrs assr:ssed at II Rs.8,87, 17,57O.OO, agricultural lncome was computed [at]Rs.32,O5,38,505.00. 8. Being aggrieved by the above, assessee [preferred] appeal before the Commissioner of [Income ]Tax [(Appeals) ][4,]Hyderabad i.e., (briefly referred to hereinafter [as 'CIT(A)'). ][By]the appellate order dated 2l.l2.2ola, [CIT(A) disagreed ][with]the vies's expressed b1' the assessing officer. [He opined that]the method adopted by the assessee is [acceptable ][for ][the]reason s:follou'ing '(itlt rs to l)c urdcrstood that the activity of selling [hybrid]st ccls rs :r urmposite activity. The sale of hybrid [seeds]tornpriscs o[ sccds produced on own and [sceds]1rur-chast:cl [from ][outside. ][All ][the ][activities ][of ][sales]promotion, adrnit.tistration, etc. are incurred [jointly ][for]lroth tlrc scgments. Hencc, it is necessary that [a]rcason:rblc basis should be adopted to [apportion ][the]c\pcnscs bets'cett the two scgments. [For ][all ][the ][earlier]\cars. tlrc appcllant company adopted [the ][basis ][of]Cost ol- [(loods ]Sold as a reasonable [method ][of]irpl)ort ion mcr1t. which was accepted by [the]Dcpirrl rn( rtt ttt lhc earlicr [years.]st ccls rs :r urmposite activity. The sale of hybrid [seeds]tornpriscs o[ sccds produced on own and [sceds]1rur-chast:cl [from ][outside. ][All ][the ][activities ][of ][sales]promotion, adrnit.tistration, etc. are incurred [jointly ][for]lroth tlrc scgments. Hencc, it is necessary that [a]rcason:rblc basis should be adopted to [apportion ][the]c\pcnscs bets'cett the two scgments. [For ][all ][the ][earlier]\cars. tlrc appcllant company adopted [the ][basis ][of]Cost ol- [(loods ]Sold as a reasonable [method ][of]irpl)ort ion mcr1t. which was accepted by [the]Dcpirrl rn( rtt ttt lhc earlicr [years.] As thc:rppcllant lollows ccrtain uniform [procedurcs o[]allouing [(liscounts ]to customers. The [expenditure ][on]pcrsonrrcl consists of salaries and other [bcnefits ][tcr] (ii) i)I {(U & NTRJI T'.'.-.1 . Nr ..31 of 2023 As thc:rppcllant lollows ccrtain uniform [procedurcs o[]allouing [(liscounts ]to customers. The [expenditure ][on]pcrsonrrcl consists of salaries and other [bcnefits ][tcr] (ii) i)I {(U & NTRJI T'.'.-.1 . Nr ..31 of 2023 P [orluction ][ttncl salt s ][manpo\\'e ][r. ][Sritll-Ir,''rLe ][fll ][s ][t( ][salcs]p'rsonncl is prctlorninlrrrt in th(: tot;rl [,cr:i()rIlle cost.T rc [(:ost ]of [qoorls ]sol(l lel)rcscrts LlLt: <'< st o[p orlur,-tr<;n as acllrLstccl to lllc ol)c rinq :ur 1 c losings ock rtf sc'erts Ir.r otlrt,'r rvrlrrls it r-eUct ts he [(]lirntity ]ofs, ies at [(osl ]l)rr( r' ,.\s irgiunst sellrrtll 1:ri,:c 'vhichc( nsists of a nr:trgut on the cost. lre rr:c the:c: pr:nrlitrtre iilloc attrl b('1\\( [( ]n agrit' rllttraI rrrtcl nonal ,ri,rullrlral bast'rl ,rn [('(,st ]ol [go(,(ls ][.i()l(i ]rr'llcctsl1t )pl-ol)rlitt(t iiII()r'Irtt,rtt 0l_c ontrrton cosIi ['elv ]rnt tllo(ir)loq\ oi cslinratiorr sr Te [-s ]fromhr nitation. Strc:lr lrrnrtatrorrs [( ]irrtsnllj r.itri.rtic,Lrs I anyar c smoothcn('(l [()n ][( ]ollslst( rrL appLrt'r tio-'t ol- samepr inciple." (iii) 9. Ir iieiv of the alro,.'e, CIT(A) clirlct,:rl tlre ;rssessingofficer to arc( ept tlre appellrrnt's rnctllocl o zippor lio rmerrt ofcommon€ KpenditLlrc \.hcr-ea{-tcr a::sessinrl officer'scomputatic,n of income frorn agricrrltLlretl irL--tivit.rr :rn11 income from tradin.g ,rctivity \\':..s rno(lilied 10. A: striling thc :rlirrcs:ricl ordcr ol tne [( ]llT(A) dated2) .12.2O18, [-evenLIC ]f ilccl irppeal bt'lore tlrc ['I'rirrunal ]u,hichwas heard al rng rt'itl'r[ \\'( )othcr .rppeals lilccl bv rhc revenueon the szlm cssu(' [)ertalninq to tr\o otiler zr:jsessrr]111 \'ears. I, tiIi I i \ 1 1. At the outset, Tribunal observed that any of themethodolog,, be it either on the basis of cost of goods sold oron the turnover of different activities would suffer certainlimitatior-rs. Each method will have its own variance of theestimate. [t u'as tl-rcreafter Tribunal held as follows: " I l. Wc h:rr.c perused the impugned order. It is a fact thatthc asscsscc strpplics sccds to its distributors located in thestillcs of [rt:rirla. An<lhr-a Pradesh and Karnataka and after thcscason rs r:or.n1;k'tc the sales distributors identify the stock ofscccls o[ rariorrs rarictics which are not sold by the end ofRuby scason of pliurtation. As a matter of fact Ld. CIT(A) notedthat tlrc drstrbutors how to return the unsold stock after thecnrl oI tlrc scnson artd if such receipts are to be solds rr l;sc<1 rrt' r r t lv t lrcr ncecl approl;riate preservation and chemical[r('irtrn('nt t() sr.rstitin rts utilit)'; and that the stock of seeds issrrlrscrllrcrrtlv rt-t:t'n ctl in April, May, June and July; that attll(' trrrrc of rcccrpt o[ tltc stock the sceds are taken [into ][stock]rvitlr ill)[)r ()l)rrirlc :rdJustmcnt to the customers/salesrlistrilrlrLors orr t sl irnclir.r g balance ald such a [practice ]is [part ]oftlrt' saicl business iurd is driven more by the seasonal nature [of]tlrr' lrusrrrcss antl i{so on account o[ short shelf life [of ][the]st ctls. In tllc cuculllstanccs Ld. CIT(A) satisfied that,rrrirsmrrch as irll tlrc sa[cs rcturns are subsequently taken intostotk in tlrc lrooks of thc assessee, the provision for salcsr('tLrrn cilnllot bc trcatcd zrs an asset and iiability. t2.We clo not linct anvthing pcn crsity in the findings ofllrc LdCIT(A). In Vicu of thc scasonal nature of the business ,I anrl alsohc short shclf lrlc of the seccls, i[ is irrtl;t'rr,1 [r. ]e or thciTSSCSSCCIo tzrke lnto .rccouDt the quantitv rI Ltrsc,l,l s ats atthc ertdrl the year rrnd thc need to rerali:l:rtc tl< ir ltrrthcrutilrtJ'ar'l to tak('them into stock in the n,'xt se,rs,)n. In thecircum strnces it cannot be said that the p,ror isi,r' Io, salcsretu nl s li unascertained or trnre asonablc. Wrth -lr s r icu oIthe rn:rtl-:r rve allou, the contcntions oI hc [;r: s, ]sscc anclupholc trc findings of the Lcl. CIT(A). Ac, or,lin3h I'l A No./2019 29a lHyclis also ciismissecl 13. I rthe result, all t l.ri. appc:rls of LIrc I.r [r ]cnrre :rrerlisrni sscr t2.We clo not linct anvthing pcn crsity in the findings ofllrc LdCIT(A). In Vicu of thc scasonal nature of the business ,I anrl alsohc short shclf lrlc of the seccls, i[ is irrtl;t'rr,1 [r. ]e or thciTSSCSSCCIo tzrke lnto .rccouDt the quantitv rI Ltrsc,l,l s ats atthc ertdrl the year rrnd thc need to rerali:l:rtc tl< ir ltrrthcrutilrtJ'ar'l to tak('them into stock in the n,'xt se,rs,)n. In thecircum strnces it cannot be said that the p,ror isi,r' Io, salcsretu nl s li unascertained or trnre asonablc. Wrth -lr s r icu oIthe rn:rtl-:r rve allou, the contcntions oI hc [;r: s, ]sscc anclupholc trc findings of the Lcl. CIT(A). Ac, or,lin3h I'l A No./2019 29a lHyclis also ciismissecl 13. I rthe result, all t l.ri. appc:rls of LIrc I.r [r ]cnrre :rrerlisrni sscr 12. ['l ]hus from the above it is sce;r that itccording tothe Tribuna, view' taken bv CIT(A) \\':ts :1 L-ei sontrltl,r one andcannot b(: e,'med as per\rerse. More so. irr Yir $' ol thescilsonal na ure of tht: business carricd i Ll[ l). he assesseeand the sho t shelf liler ol thc seed s. Tnl)Lrnal ltil:i h,:lcl tl'rat itis imperatir e for the asscssee to tal(e urto 1c( olutt theqLtantitv of r rnsold seeds at the encl of thr \car i n(l the tleedto re validat I thcir ft-lrther Lttilit\' ?tltci to [zrke Ltr,: n rnto stockfor the next sezrson. Tltereforc, ir cannc,t )c s ricl that theprovision lbr sales returns is r-rnasccrtaine d rr u1l'easonablcAliirming th I lindings rr rittcn bv CIT(A), Iribrrrrrrl rlismissedthe zLppcal o the re ven Lre II 13. On due consideration, we do not find any error or infirmity in the view taken by the Tribunal. The questionproposed by the revenue in our opinion cannot be termed tobe a question of law, much less a substantial question of law. L4. In the circumstances, we are not inclined toentertain the appeal 15. Appeal is accordingl,y dismissed. However, thereshall be no order as to costs 16. As a sequel, miscellaneous applications pending, ifany, in this Appeal, shall stand closcd. Sd/. B,S.CHIRANJEEVIJOINTREGISTRAR //TRUE COPY// SECTION OFFICER To To2. L The Commissroner ot Income The lncome Tax Appeflate Trih_r,nal. rax 1 ffiearst Hyderatad..B" +, z; nooi, Bench -- ":ai. . Hyderabadgfo"k,. lncome4. 3. , one The Asst. Commissioner [Tax ][Towers, A ]cc to SRt. J.v.pRASAq(sc [Guards. Hyderabad ]of tncome Tax Foi tilaoMt , C,rcf OOa. e [- ]f iixi'a[Jo""t. O f f l, Hyderabad1oeuc12. L The Commissroner ot Income The lncome Tax Appeflate Trih_r,nal. rax 1 ffiearst Hyderatad..B" +, z; nooi, Bench -- ":ai. . Hyderabadgfo"k,. lncome4. 3. , one The Asst. Commissioner [Tax ][Towers, A ]cc to SRt. J.v.pRASAq(sc [Guards. Hyderabad ]of tncome Tax Foi tilaoMt , C,rcf OOa. e [- ]f iixi'a[Jo""t. O f f l, Hyderabad1oeuc1 5. Two CD Copies KUL k DL I HIGH COTJF TDATED:20/( 312023i4:,-:,.--':./ . 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