2023 (6) TMI 227 - HC - Income Tax

Method of apportionment of common expenditure - AO s computation of income from agricultural activity and income from trading activity was modified - Tribunal justification in holding that common expenditure for own production and sale of 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 - HELD THAT - According to the Tribunal, view taken by CIT(A) was a reasonable one and cannot be termed as perverse. More so, in view of the seasonal nature of the business carried out by the assessee and the short shelf life of the seeds, Tribunal has held that it is imperative for the assessee to take into account the quantity of unsold seeds at the end of the year and the need to re-validate their further utility and to take them into stock for the next season. Therefore, it cannot be said that the provision for sales returns is unascertained or unreasonable. Affirming the findings written by CIT(A), Tribunal dismissed the appeal of the revenue.No error or infirmity in the view taken by the Tribunal. No substantial question of law.

Summary

Issues involved:
The issue involved in this case is whether common expenditure for own production and sale of 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.

Judgment Details:

Assessment Year 2013-14:
The appellant, an assessee under the Income Tax Act, is engaged in seed production, research, marketing of field and vegetable crops, and wind power generation. The assessing officer noted that common expenditures between own production and trading of seeds were divided based on the Cost of Goods Sold (CoGS). However, the assessing officer held that this division was not acceptable as the business operations for own production of seeds are different from trading in seeds. The assessing officer re-computed the expenditure claimed by the assessee in the ratio of turnover of traded goods and sale of own production. The Commissioner of Income Tax (Appeals) disagreed with the assessing officer and directed to accept the appellant's method of apportionment of common expenditure. The revenue filed an appeal before the Tribunal challenging the CIT(A)'s order.

Tribunal's Decision:
The Tribunal observed that any methodology, whether based on CoGS or turnover, would have limitations. The Tribunal upheld the CIT(A)'s decision, considering the seasonal nature of the business and the short shelf life of seeds. The Tribunal found that it is imperative for the assessee to take into account the quantity of unsold seeds at the end of the year and re-validate their further utility for the next season. Therefore, the provision for sales returns was deemed reasonable. The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s findings.

Conclusion:
The Tribunal's decision was considered reasonable and not perverse, given the nature of the business. The revenue's proposed question was not deemed a substantial question of law. Hence, the appeal was dismissed with no order as to costs.

This summary provides a detailed overview of the issues involved in the legal judgment, the assessment year details, the Tribunal's decision, and the conclusion of the case.