THE PRINCIPAL COMMISSIONER OF INCOME TAX, VADODARA 4 vs. THE PANCHMAHAL DIST CO-OPERATIVE MILK PRODUCTS (SIS. PRODUCERS) UNION LTD

Facts

The assessee is The Panchmahal Dist Co-operative Milk Products (Sis. Producers) Union Ltd. The revenue is The Principal Commissioner of Income Tax, Vadodara. The assessment year in question is 2012-13. The appeal is filed by the Revenue against an order passed by the Income Tax Appellate Tribunal (ITAT), Ahmedabad, in ITA No.168/Ahd/2017. The ITAT had confirmed the deletion of a disallowance of Rs.3,95,49,392/- made by the Assessing Officer towards Animal Breeding Expenses, which the AO had treated as capital expenditure. The High Court is hearing a Tax Appeal under Section 260-A of the Income Tax Act, 1961.

Held

The High Court held that the substantial question of law raised in the appeal was no longer res integra, referring to its own prior decision in Principal Commissioner of Income Tax 2, Vadodara vs. Gujarat Cop, Op. Milk Marketing Federation Ltd. [Tax Appeal No.1266 of 2018]. In that case, the Court observed that neither the CIT(A) nor the Tribunal had adequately addressed the nature of the expenditure as capital. However, the Court examined the details of the programme and activities undertaken, which were aimed at fertility improvement amongst milk animals. These activities included village awareness camps, animal tagging and registration, fertility camps, mass deworming, mineral mixture distribution, mass vaccination, and provision of balanced cattle feed. The Court found these expenditures to be general in nature, aimed at improving practices for better fertility, and thus for the purpose of business, not co-relatable to specific tangible returns. The Revenue's Special Leave Petition against that decision was dismissed by the Supreme Court. Therefore, the present appeal was dismissed.

Key Issues

1. Whether, on the facts and in the circumstances of the case, the learned ITAT has erred in law and on facts in confirming the deletion of disallowance of Animal Breeding Expenses of Rs.3,95,49,392/- made by the assessing officer as capital expenditure? (Question of law and mixed fact and law, concerning the nature of expenditure under the Income Tax Act, 1961). Assessee's contentions: Not recorded in the judgment. Revenue's contentions: The Assessing Officer treated the Animal Breeding Expenses of Rs.3,95,49,392/- as capital expenditure and made a disallowance. The ITAT confirmed the deletion of this disallowance. The Revenue argues that the ITAT erred in confirming this deletion.