Tribunal upholds CIT(A)'s decision on deduction restriction under section 35AD, allowing proportionate deduction for specified business.

The Tribunal dismissed the Department's appeal, upholding the CIT(A)'s decision to restrict the disallowance of deduction u/s 35AD to the specific godown not used for specified business. The Tribunal applied precedents where proportionate deductions were allowed when only a part of the project met the conditions, leading to the conclusion that since four out of five godowns were leased for agricultural produce storage, the deduction could not be fully denied under section 35AD(7B).

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Issues involved:
The appeal filed by the Department against the order of the ld. Commissioner of Income Tax (Appeals)-4, Ahmedabad, in proceeding u/s. 250 vide order dated 05/08/2019 passed for the assessment year 2015-16.

Issue 1 - Disallowance of deduction u/s 35AD:
The assessee claimed deduction u/s. 35AD of Rs. 12,84,85,530/- for warehousing of agricultural products. The Assessing Officer disallowed the entire claim, stating that one godown was not used for specified business. The ld. CIT(A) partly allowed the appeal, restricting the disallowance to the specific godown. The Department appealed against this relief.

Details for Issue 1:
The Assessing Officer observed that Banas Dairy used the godown for storing skimmed milk powder, not an agricultural produce. The ld. CIT(A) rejected the argument that skimmed milk is an agricultural produce. However, he agreed that only one godown was not used for specified business, hence disallowance should be restricted to that godown. The CIT(A) directed the AO to grant proportionate relief as per section 35AD(7B) for the other godowns used for specified business.

Separate Judgement by Judge Siddhartha Nautiyal:
In the case of Akash Nidhi Builders and Developers, it was held that proportionate deduction should be allowed when only a part of the project meets the conditions. The High Court dismissed the appeal, affirming the Tribunal's decision. In the case of ITO vs. Saket Corporation, the Gujarat High Court allowed deduction even though building use permission was granted for only part of the housing project. Applying these precedents, the Tribunal held that since four out of five godowns were leased for agricultural produce storage, the deduction could not be fully denied under section 35AD(7B).

Conclusion:
The Tribunal dismissed the Department's appeal, upholding the CIT(A)'s decision to restrict the disallowance of deduction u/s 35AD to the specific godown not used for specified business.

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