Commissioner of Income Tax vs Vasu Farms (P) Ltd.

K. Raviraja Pandian, J.—As against the order of the Tribunal dt. 7th March 2005 in ITA No. 1969/Mad/1998, the Revenue has filed this appeal by formulating the following substantial question of law:

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in setting aside the order of the lower authorities and holding that the expenditure of Rs. 14,58,560 relating to pre-layer stage for providing feed and medicines for the chicks is revenue expenditure for the purpose of assessee''s business in poultry-farming is valid?

The relevant assessment year is 1992-93. The assessee is engaged in production and sale of eggs. For the relevant assessment year, the AO completed the assessment u/s 143(3) of the IT Act and disallowed a sum of Rs. 14,58,560 being feed and other expenses to birds'' pre-layer stage. On appeal, the CIT(A) justified the action of the AO in disallowing the expenditure incurred towards feed, medicines, etc. on birds before they reach the stage of laying eggs as capital expenditure. Against that order,the assessee preferred an appeal before the Tribunal. The Tribunal deleted the addition and allowed the assessee''s appeal. The correctness of that order is now put in issue before this Court by formulating the above question of law.

We have heard the learned junior Central Government standing counsel and perused the materials on record, particularly the order of the Tribunal.

The Tribunal gave a reasoning that the chicks are livestocks and they lay eggs due to biological and physical changes in the body and there is no guarantee that all chicks would lay eggs after a particular point of time. The Tribunal further gave a reasoning that a few chicks may not lay eggs at all till their lifetime and as they lay eggs due to biological and physical changes in their body, the facility provided by means of feed and medicines by the assessee might lead to better living condition to the birds and that alone is not sufficient to lay eggs for the chicks. The Tribunal also found that admittedly, the assessee incurred expenditure for the purpose of earning income from the poultry-farming and merely because a part of the expenditure was relatable to the chicks in their pre-layer stage, that cannot be a reason to disallow the claim of the assesses.

On a reading of the entire order of the Tribunal as well as the materials on record, we are of the opinion that the view taken by the Tribunal cannot be faulted with. Even without the medicines, the birds may lay eggs and even if the medicines are administered, some of the birds might not lay eggs. That cannot be the determining factor for characterising the expenditure incurred by the assessee as capital expenditure. From the totality of the circumstances, it can be presumed that the feed and medicines given to the birds would only constitute revenue expenditure. In view of the above discussion, we are of the view that the appeal requires no entertainment.

Accordingly, the tax case (appeal) is dismissed.