Tribunal allows appeal on CAP storage deduction, rejects need for permanent structure

The Tribunal partially allowed the appeal by overturning the disallowance of deduction under section 80P for income from CAP storage. The Tribunal found that CAP storage qualified as a warehouse for the deduction purpose, rejecting the argument that a permanent structure was necessary. The issue of protective disallowance related to depreciation became moot after full depreciation disallowance was deleted. Therefore, the Tribunal's decision rendered the protective disallowance issue irrelevant.

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Issues Involved:
1. Disallowance of deduction under section 80P for income derived from CAP storage.
2. Protective disallowance of deduction under section 80P on account of depreciation.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 80P for Income Derived from CAP Storage:

The primary issue was whether the income derived from CAP (Cover and Plinth) storage qualifies for deduction under section 80P of the Income-tax Act, 1961. The assessee claimed a deduction of Rs. 5,02,23,957/- for income derived from CAP storage, which was disallowed by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)].

The AO argued that section 80P(2)(e) allows deductions for income derived from letting godowns or warehouses, and since CAP storage does not involve a permanent structure, it does not qualify as a godown or warehouse. The CIT(A) upheld this view, relying on the decisions in CIT Vs. Ahmedabad Maskati Cloth Dealers Co-operative Warehouses Society Ltd. and Surat Vankar Sahakari Sangh Ltd. Vs. CIT.

The assessee contended that the terms "godown" and "warehouse" are not defined in the Income-tax Act, 1961, and referred to definitions in other laws, such as The Warehousing (Development and Regulation) Act, 2007, and The Madhya Pradesh Agricultural Warehouse Act, 1947. These laws define a warehouse as any premises used for storing goods, including protected places or enclosures, which would include CAP storage.

The assessee further argued that CAP storage is a legally approved storage method, constructed and operated under controlled conditions as per statutory directives. The Tribunal agreed with the assessee's interpretation, noting that section 80P does not specify that a permanent structure is required. They concluded that CAP storage qualifies as a warehouse for the purposes of section 80P and allowed the deduction.

2. Protective Disallowance of Deduction under Section 80P on Account of Depreciation:

The second issue involved the protective disallowance of Rs. 1,18,52,613/- out of the deduction under section 80P, which was related to the depreciation disallowance. Initially, the AO had disallowed the full depreciation claim of Rs. 1,60,23,529/- and made a protective disallowance of Rs. 1,63,23,529/- from the allowed portion of the deduction under section 80P.

The CIT(A) deleted the full depreciation disallowance but upheld the protective disallowance to the extent of Rs. 1,18,52,613/- related to godown or building depreciation. The Tribunal observed that since the depreciation disallowance had been fully deleted and the disallowance under section 80P had been allowed, the issue of protective disallowance did not survive. Therefore, this ground became infructuous and did not require further adjudication.

Conclusion:

The Tribunal allowed the appeal partly, deleting the disallowance of deduction under section 80P for income derived from CAP storage and rendering the issue of protective disallowance on account of depreciation infructuous. The order was pronounced on 17.02.2022.

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