The Commissioner Of Income Tax-Ii, Chandigarh v. M/S Punjab Agro Food Grains Corporation Ltd., Chandigarh

ITA No. 68 of 2013 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 68 of 2013 (O&M) Date of Decision: 28.1.2016 The Commissioner of Income Tax-II, Chandigarh ....Appellant. Versus M/s Punjab Agro Food Grains Corporation Ltd., Chandigarh ...Respondent. CORAM:-HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MRS. JUSTICE RAJ RAHUL GARG. PRESENT: Ms. Urvashi Dhugga, Advocate for the appellant. None for the respondent. AJAY KUMAR MITTAL, J. 1.This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 (in short “the Act”) against theorder dated 30.10.2012 (Annexure A-3) passed by the Income TaxAppellate Tribunal, Chandigarh Bench “B”, Chandigarh (hereinafterreferred to as “the Tribunal”) in ITA No. 800/Chd/2012, for theassessment year 2009-10, claiming the following substantial question oflaw:- Whether on the facts and in the circumstances of thecase and in law, the Hon'ble ITAT was justified inupholding the decision of Ld. CIT(A) in deleting anaddition of ` 81,90,000/- made by the AssessingOfficer by treating the Land Development Expenditureas Capital in nature? 2.Briefly stated, the facts necessary for adjudication of theinstant appeal as narrated therein may be noticed. The assessee-Corporation has been set up by the Punjab Government to carry on thebusiness of land development, contract farming, procurement offoodgrains, marketing and export etc. The assessee filed the originalreturn on 29.9.2009 for the assessment year 2009-10 declaring theincome at ` 98,00,000/- which was revised on 01.3.2011 at an income of` 70,80,854/-. The said return was processed under Section 143(1) ofthe Act and subsequently notice under Section 143(2) of the Act wasissued on 26.8.2010. Notice under Section 142(1) of the Act along withquestionnaire was also issued to the assessee. The Assessing Officervide order dated 22.11.2012 (Annexure A-1) framed the assessment atan income of ` 1,52,70,854/- by making additions of ` 81,90,000/-. Thesaid amount was disallowed considering the same as capital expensesincurred for the purposes of development of the land. Feeling aggrieved,the assessee filed an appeal before the Commissioner of Income Tax(Appeals) [for brevity “the CIT(A)”]. The CIT(A) vide order dated18.5.2012 (Annexure A-2) allowed the appeal and deleted the addition of` 81,90,000/- made by the Assessing Officer by following the order dated16.11.2009 passed by his predecessor in the case of assessee itself forthe assessment year 2006-07. Against the order, Annexure A-2, therevenue filed an appeal before the Tribunal who vide order dated30.10.2012 (Annexure A-3) upheld the order of the CIT(A) anddismissed the appeal following its own orders dated 9.7.2010 passed inITA No. 202/Chd/2010 in the case of the assessee for the assessmentyear 2006-07 and dated 30.11.2011 in ITA No. 754/Chd/2011 for theassessment year 2008-09. Hence, the present appeal by the revenue. ITA No. 68 of 2013 3.We have heard learned counsel for the revenue. 4.The primary issue that arises for consideration in this appealis whether the expenditure incurred by the assessee for reclaiming anddevelopment of land was capital expenditure or revenue expenditure. 5.It was not disputed by the learned counsel for the revenuethat the similar issue in the case of the assessee for the assessmentyear 2005-06 had come up for consideration before this Court in ITA No.163 of 2009 (Commissioner of Income Tax-II, Chandigarh v. M/sPunjab Agro Foodgrains Corporation) decided on 18.9.2014, whereinunder similar circumstances, the deduction was held to be admissibleunder Section 37 of the Act being revenue in nature. The relevant partthereof reads thus:- ITA No. 68 of 2013 3.We have heard learned counsel for the revenue. 4.The primary issue that arises for consideration in this appealis whether the expenditure incurred by the assessee for reclaiming anddevelopment of land was capital expenditure or revenue expenditure. 5.It was not disputed by the learned counsel for the revenuethat the similar issue in the case of the assessee for the assessmentyear 2005-06 had come up for consideration before this Court in ITA No.163 of 2009 (Commissioner of Income Tax-II, Chandigarh v. M/sPunjab Agro Foodgrains Corporation) decided on 18.9.2014, whereinunder similar circumstances, the deduction was held to be admissibleunder Section 37 of the Act being revenue in nature. The relevant partthereof reads thus:- “10. An expenditure would qualify for deductionunder section 37 of the Act if it is incurred wholly andexclusively for the purpose of the business. It shouldbe revenue in nature as distinguished from capitalexpenditure. There is no standard formula providingfor determination of an expenditure to be capital orrevenue. Every case is to be adjudicated on its ownfacts and the expenditure is to be looked fromcommercial point of view. The Supreme Court inAbdul Kayoom (KTMKM) vs. CIT (1962) 44 ITR 689(SC) noticed that there can be no rule of thumb fordetermining as to whether a particular expenditure iscapital or revenue and that each case has to bedecided on its own facts and circumstances. Themajority view was expressed as under:- “None of the tests is either exhaustive oruniversal. Each case depends on its own facts,and a close similarity between one case andanother is not enough, because even a singlesignificant detail may alter the entire aspect. Indeciding such cases, one should avoid thetemptation to decide cases (as said byCordozo) by matching the colour of one caseagainst the colour of another. To decide,therefore, on which side of the line a case falls,its broad resemblance to another case is not atall decisive. What is decisive is the nature of thebusiness, the nature of the expenditure, thenature of the right acquired and their relationinter se and this is the only key to resolve theissue in the light of the general principles, whichare followed in such cases.” 11 to 13XXXXXX 14. Examining the factual matrix in the presentappeals, the Tribunal after examining the file noting ofthe Punjab Government dated 28.7.2005 which hadbeen annexed to the assessment order recorded aclear finding that the land was lying fallow and wasnot barren though it was not being put to alternativeuse. The Tribunal on appreciation of evidence onrecord had come to the conclusion as under:- “7. A bare perusal of the above notings of the Punjab Government would show that the landleased to the appellant was not a barren landthough it is said to be lying fallow and not beingput to alternative use. The entire case of theCIT(A) is based on the aspect that theassessee has converted a barren land into afertile land and thus it results in benefit ofenduring nature in capital field. There is nothingon record to suggest that the land was barren,hence the order of the CIT(A) is unsustainable.The land not being put to alternative use mayrequire a special effort on the part of assesseeinitially but all such activities are to be viewedhaving been carried out in the course of farmingactivity. During the year under consideration,the total land cultivated by the appellant out ofthe land leased was to the extent of 94 acres inKharif season and 499 acres in rabi season.” 15. Further, the expenditure which was incurred bythe assessee and claimed to be revenue were tractorhiring charges; jeep vehicle expenditure; staff welfare;HSD; preparation and renewal of seeds and electricitycharges. The expenses incurred were for thefurtherance of the business objectives. The Tribunalon examination of the entire matter, keeping in viewthe main objects of the assessee, the activities of theassessee, the nature of expenses incurred and also ITA No. 68 of 2013 the legal principles noticed hereinbefore, hadconcluded that the expenditure was revenue innature.” 6.The Tribunal had relied upon the said orders passed for theearlier years including the assessment year 2005-06 which has beenupheld by this Court. 7.In view of the above, the substantial question of law isanswered against the revenue. Consequently, the appeal being devoidof merit, is hereby dismissed. (AJAY KUMAR MITTAL)JUDGE January 28, 2016gbs (RAJ RAHUL GARG)JUDGE