Arvi Farm, Ahmedabad vs Department Of Income Tax

IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, AHMEDABAD BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI RAJPAL YADAV, JUDICIAL MEMBER ITA No. 640/Ahd/2011 िनधा रण वष /Assessment Year: 2007-08 ACIT, Vs M/s. Arvi Farm, Circle-6, Opp. Bhetwada Village, Trasad Ahmedabad Road, Dholka, Ahmedabad PAN : AAMFA 7657 H

अपीलाथ / अपीलाथ / (Appellant) ू यथ यथ / थ / (Respondent)

Revenue by : Shri B.L. Yadav, Sr. DR Assessee(s) by : Shri Mukesh M. Patel, AR सु नवाई क$ तार ख / Date of Hearing : 13/05/2015 घोषणा क$ तार ख / Date of Pronouncement: 15/05/2015

आदे श/O R D E R

PER G.D. AGRAWAL, VICE PRESIDENT:

This is an appeal filed by the Revenue and is directed against the order of the Commissioner of Income-tax(Appeals)-XI, Ahmedabad dated 21.12.2010 pertaining to the Assessment Year 2007-08.

2. The first ground raised by the Revenue in its appeal reads as under:-

The Ld. Commissioner of Income tax (A) has erred in law and on facts in deleting the addition of Rs.3,00,000/- made on account of GP.

3. The facts of the case are that the assessee derives income from poultry farming. For the year under consideration, the assessee disclosed Gross Profit of Rs.4.83 crores on the sales of Rs.6.36 crores, thereby giving GP rate of 75.92%. The Assessing Officer found that in the preceding year the GP was 82.35%. The Assessing Officer also noted that the assessee has not ITA No. 640/Ahd/2011 ACIT vs. Arvi Farm AY: 2007-08 2

maintained the full details with regard to newly born ducks, eggs laid, etc. Considering these defects, he rejected the books of accounts and made the lump-sum addition of Rs.3 lacs to the GP declared by the assessee. The CIT(A) deleted the addition with the following findings:-

"3.2 I have considered the submissions made by the A.R. of the appellant and the observations of the assessing officer in the assessment order. The A.O. observed that the appellant is deriving income from poultry farming; the GP of the current year is 75.92% on sales of Rs.6.36 crores compared to GP of the earlier year of 82.35% in the preceding year on sales of Rs.5.15 crores; and since stock register was not maintained, provisions of Sec. 145 were attracted. AO made lumsum trading addition of Rs.3lakhs.

3.2.1 The contention of the learned A.R. in brief are this is the second year of business; in the earlier year the business was proprietary; current year is the first year of business as a partnership firm; sales increased from Rs.3.15 crores (wrongly mentioned by the A.O. at Rs.5.15 crores) in the earlier year to Rs.6.36 crores in the current year; the sale price of eggs (a perishable commodity) depends on the quality, which is in turn governed by environmental factors; full record of stock of ducks was maintained and furnished t the A.O.; details of yield of eggs from ducks was maintained and furnished to A.O.

3.2.2 I have considered the facts of the issue. A.O.'s observations at para-3 are vague. Appellant has maintained the best possible record of stock, given the nature of business. A.O. has not pointed any defects in the books. Further, there is no basis for estimating the impugned addition. In view of the above, I hold that the rejection of books is not in accordance with law. The lumpsum trading addition is unwarranted. It is deleted. This ground of appeal is allowed. .

3. The Revenue, aggrieved with the order of the CIT(A), is in appeal before us.

4. We have heard both the parties and perused the material placed before us. After considering the facts of the case and the arguments of both the sides, we do not find any infirmity in the order of the CIT(A). The sales of the assessee have increased more than double as compared to last year ITA No. 640/Ahd/2011 ACIT vs. Arvi Farm AY: 2007-08 3

and fall in the GP was slight. Moreover, the GP declared by the assessee in the year under consideration was more than 75%. Net profit declared by the assessee was more than 40%. The assessee has maintained regular books of accounts which are duly audited and no specific defects were found in the said books of accounts. Considering the totality of these facts, in our opinion, the CIT(A) rightly deleted the lump-sum addition of Rs.3 lacs made to the trading account by the Assessing Officer.

5. The Ground No.2 of the Revenue's appeal reads as under:-

2. The Ld. Commissioner of Income tax (A) has erred in law and on facts in deleting the disallowance of Rs.37,74,408/- being depreciation on shed/building.

6. The Assessing Officer disallowed the depreciation on the shed and building on the ground that the assessee is not the owner of the assets. On appeal, the CIT(A) allowed the depreciation with the following findings:-

"4.2. I have considered the submissions made by the A. R. of the appellant and the observations of the assessing officer in the assessment order. A.O's observations on the issue are as follow. Appellant claimed depreciation on factory building of Rs 37,74,408/-; the land on which the said building was constructed is owned, by Cadila Group; and since the ownership is not with the appellant, no depreciation is allowable

4.2.1. The submissions of the learned A.R. are that the land was given on 30 years lease by M/s. Cadila Healthcare Ltd. by lease deed dated 18-06-2003; the lease deed permits the lessee to develop and make Construction on the land; appellant is having dominion over the property and is entitled to depreciation.

4.2.2. I have considered the facts of the case. Appellant has taken the land on lease for 30 years (effective from 18-06-2003). It has not claimed deprecation on land. In accordance with the lease deed, it is entitled to make construction on the land. Accordingly, it constructed factory building, used it for its business and claimed depreciation on the building. On being asked, it furnished letter dated 30-11 -2010 from the lessor, which reads as under:-

ITA No. 640/Ahd/2011 ACIT vs. Arvi Farm AY: 2007-08 4

Zedus Cadila Dedicated to life Healthcare Limited Regd. Office.

'Zydus Tower' Satellite Cross Roads, Ahmedabad 380 015. India.

TO WHOMSOEVER IT MAY CONCERN We Cadila Healthcare Ltd., having registered office at "Zydus Tower"

Satelite Cross road, Aahmedabad-380 015 and having PAN. AAACC6253G hereby states as under:-

1. That a lease deed was for the land Survey No. 1336/2, 1337/3, 1339/1, 1342/8, 2310/4, 2311/3 situated at Moje Dholka, Taluka Dholka within the Registration Sub District Dholka and District Ahmedabad executed by us as Lessor with M/s. Arvi Farm as lessee where Dr. Mukesh Patel was Proprietor. The lease deed is effective from 1st June 2003 onwards for the period of 30 years. ,

2. That thereafter a Memorandum of Understanding to the original lease deed wass entered between Cadila .Healthcare Limited as Lessor and M/s. Arvi Farm as lessee a partnership firm where Dr. Mukesh Patel is partner, due to change in the status of the lessee which is effective from the 1st April, 2006.I

3. That the Construction of building was carried out by: the lessee M/s. Arvi Farm and the cost was also incurred by them.

4. We have to further state that no depreciation has been claimed by Cadila Healthcare Ltd. On the building constructed on above referred leased land in the books of accounts as well as in the income-tax during the A.Y. 2006-07 and thereafter.

Thanking you,

Yours faithfully, For Cadila Health Care Ltd Sd/-

Authorised signatory.

4.2.3. In view of these facts and in the light of the decision in the case of Mysore Minerals Ltd. Vs. CIT (239 ITR 775)(SC) and the other decisions relied on by the learned A.R., disallowance of depreciation on factory building is not in accordance with law. Impugned disallowance is deleted. This ground of appeal is allowed."

ITA No. 640/Ahd/2011 ACIT vs. Arvi Farm AY: 2007-08 5

7. After considering the facts of the case and arguments of both the sides, we do not find any justification to interfere with the order of the CIT(A). The assessee had taken the land on lease for 30 years. Lease deed permitted the assessee to make construction on the land. Accordingly, the assessee constructed factory building, shed, etc., and used it for the purpose of business. The depreciation was claimed on the shed and building. There is no dispute that the assessee is the owner of the shed and building constructed by it. That Explanation-1 to Section 32 reads as under:-

[Explanation 1.--Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee.

8. This Explanation-1 clearly provides that if assessee incurs any capital expenditure on the lease hold property, the depreciation would be allowable on such structure. This Explanation-1 would be squarely applicable to the facts of the assessee's case and in our opinion, CIT(A) rightly allowed the depreciation on the shed and building constructed by the assessee on lease hold land. Accordingly, Ground No.2 of the Revenue's appeal is rejected.

9. In the result, the Revenue's appeal is dismissed.

Order pronounced in the Court on 15th May, 2015 at Ahmedabad.

Sd/- Sd/-

(RAJPAL YADAV) (G.D. AGRAWAL) JUDICIAL MEMBER VICE-PRESIDENT Ahmedabad; Dated 15/05/2015 Biju T., PS ITA No. 640/Ahd/2011 ACIT vs. Arvi Farm AY: 2007-08 6

षत Copy आदे श क$ ूितिल+प अमे+षत/ of the Order forwarded to : 1. अपीलाथ / The Appellant 2. ू यथ / The Respondent. 3. संबंिधत आयकर आयु. / Concerned CIT 4. आयकर आयु.(अपील) / The CIT(A)

5. +वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड फाईल / Guard file.

/ BY ORDER, आदे शानु सार

TRUE COPY

Dy./Asstt.Registrar) उप/सहायक पंजीकार ( उप/ अिधकरण, अहमदाबाद / आयकर अपीलीय अिधकरण, ITAT, Ahmedabad