2000 (2) TMI 231 - AT - Income Tax

Summary

Issues Involved:
1. Justification of the method of accounting followed by the assessees.
2. Applicability of provisions of section 36(1)(vi).
3. Disallowance of deduction under section 80-I.
4. Ex parte decision by CIT(A) in IT Appeal No. 1203/Pune of 1997.
5. Sustaining ad hoc disallowance of telephone and vehicle expenses in IT Appeal No. 398/Pune of 1998.
6. Additional grounds regarding earlier year expenses and entertainment expenses in ITAs No. 398/PN/98 and 853/PN/98.

Issue-wise Detailed Analysis:

1. Justification of the Method of Accounting Followed by the Assessees:
The primary dispute was whether the method of accounting used by the assessees, treating birds as stock-in-trade, was justified. The assessees, engaged in poultry farming, treated Grand Parent/Parent birds as part of "Stock in trade" and valued them at depleted cost. The Assessing Officer rejected this method and treated the birds as fixed assets. The Tribunal noted that the assessees consistently followed an accepted method of accounting since the assessment year 1991-92, which was also in line with the BCA Society publication on livestock accounting in the poultry industry. The Tribunal held that the authorities were not justified in disturbing the method of accounting regularly followed by the assessees and accepted by the Assessing Officer in previous years. It emphasized that the method of accounting adopted by the taxpayer consistently and regularly cannot be discarded by the Departmental authorities.

2. Applicability of Provisions of Section 36(1)(vi):
The Tribunal addressed the applicability of section 36(1)(vi), which pertains to the deduction for animals used as capital assets. Since the Tribunal upheld that the birds were stock-in-trade and not capital assets, it concluded that the provisions of section 36(1)(vi) were not applicable to these cases.

3. Disallowance of Deduction under Section 80-I:
Both sides agreed that the issue of deduction under section 80-I was covered against the assessees by the judgment of the Hon'ble Supreme Court in the case of CIT v. Venkateswara Hatcheries (P.) Ltd. The Tribunal, respecting the Supreme Court's judgment, declined to interfere and dismissed this ground in all the appeals.

4. Ex Parte Decision by CIT(A) in IT Appeal No. 1203/Pune of 1997:
The appeal was decided ex parte by the CIT(A), and the first ground raised by the assessee was that the order should be set aside and the case should be heard afresh. However, this ground was not pressed by the learned counsel at the time of hearing and was accordingly dismissed.

5. Sustaining Ad Hoc Disallowance of Telephone and Vehicle Expenses in IT Appeal No. 398/Pune of 1998:
The Tribunal found no justification for the disallowances, noting that the expenses were incurred wholly and exclusively for business purposes. It referenced decisions from other Tribunal benches, concluding that no disallowance can be made in the case of a public limited company. The disallowances of Rs. 15,000 and Rs. 25,000 were deleted.

6. Additional Grounds Regarding Earlier Year Expenses and Entertainment Expenses in ITAs No. 398/PN/98 and 853/PN/98:
For earlier year expenses, the Tribunal noted that no such ground was raised before the CIT(A), and thus it was not admitted. Regarding entertainment expenses, the Tribunal directed the Assessing Officer to recompute the disallowance based on the main ground's findings and provide consequential relief to the assessee.

Conclusion:
The appeals were allowed in part, with significant emphasis on the consistency and validity of the accounting methods followed by the assessees. The Tribunal upheld that the birds should be treated as stock-in-trade, rejected the applicability of section 36(1)(vi), and provided directions for recomputing disallowances related to entertainment expenses.