IN INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER I.T.A. No.1935/Mds/2016 & C.O. No.116/Mds/2016 (in ITA No.1935/Mds/2016) Assessment year : 2012-2013 Assistant Commissioner Vs. S.P. Mani and Mohan Dairy, of Income Tax, 84, Jeevanantham Street, Circle -1, Kollampalayam, Erode 638 001. Erode 638 002. [PAN AAKFS 5133J] ( Appellant) ( Respondent/ Cross Objector) Appellant by : Shri. Supriya Pal, IRS, JCIT. Respondent by : Shri. N.C. Ravikrishnan, Adv Date of Hearing : 21-09-2016 Date of Pronouncement : 28-09-2016 O R D E R PER SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER: These are appeal of Revenue and Co-objection by assessee, both directed against order dated 28.03.2016 of Commissioner of Income-tax (Appeals)-3, Coimbatore. Revenue in its :- 2 -: ITA No.1935/Mds/2016 appeal has taken altogether six grounds of which Ground Nos. 1 & 6 are general in nature needing no specific adjudication. 2. Vide its ground No.2, grievance raised by Revenue is that ld. Commissioner of Income Tax (Appeals) deleted addition of 9,50,000/- considered by ld. Assessing Officer has capital outgo towards construction of building. 3. Facts apropos are that assessee, running milk dairy had filed return of income for impugned assessment year disclosing income of 3,13,38,420/- and agricultural income of 4,02,170/-. During course of assessment proceedings, ld. Assessing Officer noted that assessee has constructed new canteen building. cost of such building was shown by assessee as 4,95,181/- in its books. ld. Assessing Officer required assessee to explain how new building could be constructed with sum as little as 4,95,181/-. ld. Assessing Officer noted that assessee had purchased cement for 4,06,077/- which was included by it under head building maintenance claimed as revenue expenditure. Total building maintenance expenditure claimed by assessee came to 18,19,310/-. Explanation of assessee was that there was no new building but only canteen staff room renovation. As per assessee such expenditure was for staff welfare. However, ld. Assessing Officer was not impressed. According to him, assessee did not file details required :- 3 -: ITA No.1935/Mds/2016 by him, like area of new construction. He held that sum of 10,00,000/- out of building maintenance claimed would have been incurred for construction of canteen building and disallowed 10,00,000/-. However, he allowed depreciation of 5% on such cost demarcated out of maintenance expenditure. effective disallowance came to 9,50,000/-. 4. Aggrieved, assessee moved appeal before Commissioner of Income Tax (Appeals). Contention of assessee was that no new building was constructed. According to it, old building was remodified and expenditure on such modification rightfully claimed under head building maintenance. Further, as per assessee building maintenance claimed by it included certain equipment as well. ld. Commissioner of Income Tax (Appeals) after considering above submissions held as under:- 6.2. Assessing Officer has treated repairs and maintenance to building as capital in nature. In assessment order itself, it is stated that assessee has not filed details of area constructed. In fact, there is no construction but only repairs and modification of canteen and other areas. No additional area is constructed. This is clearly revenue in nature and addition is not sustainable. :- 4 -: ITA No.1935/Mds/2016 5. Now before us, ld. Departmental Representative strongly assailing orders of ld. Commissioner of Income Tax (Appeals), submitted that relief was given to assessee without any evidence produced by it. Assessee, as per ld. Authorised Representative had not shown how such huge amount of building maintenance expenditure was justified. Submission was that ld. Commissioner of Income Tax (Appeals) deleted disallowance without appreciating facts. 6. Per contra, ld. Authorised Representative submitted that there was no new building constructed during relevant assessment year. As per ld. Authorised Representative it was figment of imagination of ld. Assessing Officer. As per ld. Authorised Representative, ld. Commissioner of Income Tax (Appeals) was justified in deleting disallowance. 7. We have considered rival contentions and perused orders of authorities below. claim of assessee is that there was no new canteen building constructed but only renovation of existing building. However, as per ld. Assessing Officer assessee had constructed new canteen building. Before ld. Commissioner of Income Tax (Appeals) assessee had stated that building maintenance expenditure of 18,19,310/- claimed by it included equipment. In our opinion, matter requires fresh look by ld. Assessing Officer. :- 5 -: ITA No.1935/Mds/2016 ld. Assessing Officer has to verify whether there was new construction, and whether building maintenance expenditure included cost of any equipment which was to be capitalized. We, therefore setaside question of disallowance of claim of building maintenance expenses back to file of ld. Assessing Officer for consideration afresh in accordance with law. 8. Ground No.2 of Revenue stand allowed for statistical purpose. 9. Vide ground No.3, grievance raised by Revenue is that ld. Commissioner of Income Tax (Appeals) deleted addition made on account of short term capital gains for transfer of land. 10. Facts apropos are that assessee, which was partnership firm during relevant previous year had transferred following lands to new formed company. Date Particulars of land Amount 18.01.2012 Land Avalpoondurai (RS No.1785/2B, 220900.00 1786/9D) 0.48.5 Hec 18.01.2012 Land Avalpoondurai (RS No.1770/1) 316200.00 0.69.61 Hec 18.01.2012 Land Avalpoondurai (RS No.1770/1) 256400.00 0.53 Hec 18.01.2012 Land Avalpoondurai (RS No.1785/2A, 225500.00 1786/9C) 0.49.5 Hec 18.01.2012 Land Avalpoondurai (RS No.1770/2) 431600.00 0.95 Hec 18.01.2012 Land Avalpoondurai (RS No.1785/2C, 2D, 617000.00 4B, 9A, 9B)-1.35.58 Hec 18.01.2012 Land Avalpoondurai (RS No.1785/1, 385000.00 1786/7, 1786/10) 0.84.67 Hec :- 6 -: ITA No.1935/Mds/2016 18.01.2012 Land Avalpoondurai (RS No.1785/3) 288000.00 0.40.47 Hec 18.01.2012 Land Avalpoondurai (RS No.1785/3) 288000.00 0.40.47 Hec-2 18.01.2012 Land Avalpoondurai (RS No.1785/2C, 131200.00 2D, 4A, 4B, 9A, 9B-1.51 Hec 18.01.2012 Land Avalpoondurai (RS No.1785/1, 929753.00 1786/7, 1786/10) 2.54.0 Hec 18.01.2012 S.P.Loganathan Current A/c. 18.01.2012 R. Mohanasundram Current A/c. 4089553.00 ld. Assessing Officer required assessee to explain why such transfer should not be considered as sale and why profits/capital gains should not be assessed in hands of assessee, considering market value/fair market value of such land. In reply, assessee stated that transferred land was agricultural in nature and transfers were effected at guideline value fixed by Government. As per assessee, transfer was result of succession of assessee by company and by virtue of clause (xiii) of Sec. 47 of Income Tax Act, 1961 (herein after referred to as Act ), transaction was not exigible to capital gains. However, ld. Assessing Officer was not impressed by above reply. According to him, assessee was not doing any agricultural activities. ld. Assessing Officer was of opinion that mere admission of agricultural income would not prove agricultural operations. As per ld. Assessing Officer partners of assessee firm had planned to expand business and land was purchased and accounted by firm with this intention. Further, as per ld. Assessing Officer, major part of land was purchased in July, 2009 and :- 7 -: ITA No.1935/Mds/2016 September, 2009 and portion was purchased in July, 2011. Assessee firm had not done any agricultural activities in said land. Thus, ld. Assessing Officer came to conclusion that primary intention to purchase land was for construction by company. As per ld. Assessing Officer assessee firm had transferred land to new company at book value squaring up capital/current accounts of partners. He held that difference between purchase cost of land and its guideline value had to be considered as Short Term Capital Gains, considering it as sale of land from firm to company; After deducting purchase cost of 40,89,553/- from guideline value of 52,77,500/- Short Term Capital Gain of 11,87,947/- was worked out and added to assessee. 11. Aggrieved, assessee moved appeal before ld. Commissioner of Income Tax (Appeals). Assessee reiterated contentions raised before ld. Assessing Officer. As per assessee, it had sufficient evidence to prove agricultural operations. Further, as per assessee performance of agricultural activities was not prerequisite for transfer of agricultural land. Ld. Commissioner of Income Tax (Appeals) after considering submissions of assessee came to conclusion that land transferred was situated at Avalpoondurai beyond 8kms of outer limits of Erode Municipality. :- 8 -: ITA No.1935/Mds/2016 Hence according to him, it could not be considered as capital asset. He deleted addition made for Short Term Capital Gains. 12. Now before us, ld. Departmental Representative strongly assailing orders of ld. Commissioner of Income Tax (Appeals) submitted that nothing was available on record to show how conclusion that land was beyond 8 kms from outer limits of Erode Municaplity was reached. As per ld. Departmental Representative, assessee had not shown any agricultural operational expenditure in its books. land was purchased within two years from date of transfer to company. As per ld. Departmental Representative, ld. Commissioner of Income Tax (Appeals) had went by mere submissions of assessee and given relief. 13. Per Contra, ld. Authorised Representative strongly supporting order of ld. Commissioner of Income Tax (Appeals) submitted that relief was given after considering facts of case. 14 We have considered rival contentions and perused orders of authorities below. assessment order does not even have whisper regarding distance of land sold from outer boundary of Erode Municipality. All along, contention of assessee was that land transferred was agricultural and transfer fell as :- 9 -: ITA No.1935/Mds/2016 such within clause (xiii) of Sec. 47 of Act. We find that claim of assessee before Assessing Officer, which was not accepted by ld. Assessing Officer and reasons given by ld. Commissioner of Income Tax (Appeals) for deleting addition of Short Term Capital Gains were not related to each other. We are therefore, of opinion that issue requires fresh look by ld. Assessing Officer. We setaside order of lower authorities on issue regarding addition of Short Term Capital Gains back to file of ld. Assessing Officer for consideration afresh in accordance with law. Needless to say, assessee is free to raise any plea in support of its contention that there was no capital gains and can also produce records to substantiate its case. 15 In result, ground no.3 of Revenue is allowed for statistical purpose. 16. Vide ground no.4, grievance of Revenue is that disallowance of 50% made by ld. Assessing Officer for expenditure incurred on purchase of plastic tray and milk cans was deleted by ld. Commissioner of Income Tax (Appeals). 17. Facts apropos are that assessee had purchased milk can and milk crate for 19,49,125/- and 17,25,155/- respectively aggregating to 36,74,280/- during relevant previous year. ld. :- 10 -: ITA No.1935/Mds/2016 Assessing Officer was of opinion that these were capital acquisition and could not be allowed as Revenue expenditure. Though assessee relied on decision of Visakhapatnam Bench of Tribunal in case of ACIT vs. M/s. Tirumala Milk Products Pvt. Ltd (ITA No.282/Vizag/2011, dated 12.04.2011) which considered question whether expenditure incurred on milk can and milk crate by Diary firm was allowable, ld. Assessing Officer, disallowed claim taking view that Tribunal had not given speaking order. 18. Aggrieved, assessee moved in appeal before ld. Commissioner of Income Tax (Appeals). Argument of assessee before ld. Commissioner of Income Tax (Appeals) was that it was in business of running milk diary and purchasing milk can and milk crates was in ordinary course of such business. As per assessee, it received no enduring benefit through such acquisition since life of crates and cans were only four to six months. ld. Commissioner of Income Tax (Appeals) was appreciative of these contentions. According to him, such expenditure could not be treated as capital in nature. 19. Now before us, ld. Departmental Representative strongly assailing orders of ld. Commissioner of Income Tax (Appeals) submitted that acquisition of can and crates were capital in nature. :- 11 -: ITA No.1935/Mds/2016 20. Per contra, ld. Authorised Representative are again relied on decision of Vizag Bench in case of M/s. Tirumala Milk Products Pvt. Ltd (supra) and submitted that ld. Assessing Officer fell in error in not abiding by said decision. 21. We have considered rival contentions and perused orders of authorities below. issue whether expenditure for milk can and milk crates acquired by assessee in business of diary farm, was revenue or capital in nature had come up before Visakhapatnam Bench of Tribunal in case of M/s. Tirumala Milk Products Pvt. Ltd (supra). In our opinion, ld. Assessing Officer fell in error in not following decision of higher judicial body. ld. Commissioner of Income Tax (Appeals) was justified in deleting disallowance. No interfere is required. Ground No. 4 raised by Revenue stand dismissed. 22. Cross objection filed by assessee are mainly in support of order of Commissioner of Income Tax (Appeals). However, in Cross objection, assessee has taken ground that ld. Commissioner of Income Tax (Appeals) in Miscellaneous Petition filed by assessee sustained addition made by ld. Assessing Officer, by disallowing claim of agricultural income. :- 12 -: ITA No.1935/Mds/2016 23. We find that above ground in Cross objection is against order of ld. Commissioner of Income Tax (Appeals), in Miscellaneous Petition filed by assessee. Issue does not arise from order assailed by Revenue in this appeal which is dated 28.03.2016. Hence in our opinion such Cross objection has been incorrectly raised by assessee. 24. In result, Cross objection filed by assessee is dismissed. 25. To summarize, appeal of Revenue is partly allowed for statistical purpose and Cross objection filed by assessee is dismissed. Sd/- Sd/- (G. PAVAN KUMAR) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER Chennai Dated: 28th September, 2016 KV Copy to: 1. Appellant 3. CIT(A) 5. DR 2. Respondent 4. CIT 6. GF Assistant Commissioner of Income Tax, Circle -1, Erode v. S.P. Mani and Mohan Dairy