TaxTMI 
TaxTMI 
2007 (3) TMI 414
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....overed by the appeals filed by the assessee or the Assessing Officer. The cross objection filed by the assessee is, therefore, dismissed as infructuous. We now take up the cross appeals. 3. We will first take up the appeal filed by the assessee. 4. In the first ground of appeal, following grievances have been raised: 1. Hon'ble Commissioner of Income-tax (Appeals) has erred in law in sustaining the denial of deduction under section 80-IB by : i. drawing an incorrect inference that only letting out the cold storage for hire, to others, for storage of their goods, amounted to 'operating cold storage' under section 80-IB; ii.holding that as per the appellant company having maintained the cold storage plant only for the purpose of storing its own goods, it did not derive any income from operation of cold storage; iii.holding that the ratio of decisions in the cases of CIT v. George Marjo Exports (P.) Ltd. [2001] 250 ITR 4461 (Mad.) and CIT v. Asian Marine Products (P.) Ltd. [1999] 239 ITR 349 (Mad.) as inapplicable, as both of these decisions were on the point of deduction under section 80J and not 80-IB. 5. We must first set out the facts so as relevant to the first ground of a....
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.... backdrop that the Assessing Officer rejected the assessee's claim for deduction under section 80-IB. Aggrieved by the stand so taken by the Assessing Officer, assessee carried the matter in appeal before the CIT(A) but without any success. Learned CIT(A) relied upon the Hon'ble Supreme Court's decision in the case of CIT v. Relish Foods [1999] 237 ITR 591 to hold that the activities undertaken by the assessee are not in the nature of manufacturing activities. As for the assessee's claim regarding entitlement to deduction under section 80-IB on the ground that the assessee was earning income from cold storage, the CIT(A) rejected this claim as well, and observed that the assessee-company "is not deriving any income due to operation of cold storage plant" and that "that the cold storage plant is maintained only for the purpose of storing its own goods so that perishable commodity is not damaged". The CIT(A) further held that "the deduction under section 80-IB in the case of operation of cold storage plant could be allowed only when assessee derives the income from the operations of the cold storage plant". The stand of the Assessing Officer was thus upheld, and in fact fortified, by....
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....ing, cleaning and glazing the same. In the next step, the material so produced is froze, packed, labelled and kept in storage till it is shipped out. Can that be said to be the business of operating a cold storage plant ? We do not think all the other steps in business are simply incidental to the business of operating a cold storage plant. No doubt, cold storage of the material plays a vital role because not after the material in processed, but also in between the processing of the material, the cold storage plant is used, yet the entire business is not simply the business of operating a cold storage. There are important processes involved in producing the frozen sea food. We are alive to the fact that in the case of CIT v. Sterling Foods (Goa) [1995] 213 ITR 851, Hon'ble Bombay High Court has held that subjecting the prawns etc. to processing for the purposes of exports, they do not lose the original character, and that no new commodity or article emerges as a result of such processing. It does not, however, mean that the input and output is the same, and there is nothing more than cold storage of the material. The material may retain its original identity, but the processing doe....
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....t showing stage by stage movement and process. Our findings in the present case are based on the material produced before us as regards the various stages of processing involved and the involvement of cold storage facilities therein. This cannot, therefore, be taken as an authority for the proposition that the same ratio of profits can be said to be derived from operation of cold storage plant in all cases. 11. Ground No. 1 of the assessee is thus partly allowed in the terms indicated above. 12. In ground No. 2, the assessee has raised the following grievance before us : "The Hon'ble Commissioner of Income-tax (Appeals) erred in not deleting the disallowance of purchases made from M/s. God Gift Marine Products, only on the ground that no confirmation had been received from the supplier, even when all the primary evidence regarding the purchases made, including the particulars of exports of those goods and the complete quantitative reconciliation of goods for the year had been produced during the assessment as well as appellate proceedings." 13. The relevant material facts are like this. In the course of assessment proceedings, the Assessing Officer noticed that the assessee had....
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....ly". Yet, the CIT(A) confirmed the disallowance only on the ground that the assessee was not able to produce transaction confirmation from GMP. The assessee is aggrieved and is in appeal before us against CIT(A)'s confirming the impugned disallowance. 14. We have heard the rival contentions, perused the material on record, and duly considered factual matrix of the case as also the applicable legal position. 15. It is really difficult to reconcile between CIT(A)'s agreeing with the assessee about the fact that the vendors are generally small fisherman of limited means, who are highly mobile depending on the availability of work, and yet, at the same time, his holding that the disallowance is to be confirmed because the assessee could not produce the confirmation from the vendor. Non-filing of a transaction confirmation, by itself, cannot be reason enough for making or sustaining disallowance. All the things are to be considered in totality. The CIT(A) is himself on record to have accepted the quantitative reconciliation as also the fact that unless the purchases alleged to be bogus was made, it would not have possible to ensure that quantitative statements tally. The CIT(A) has al....
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....erms of financing by the lenders. On these facts, the CIT(A) came to the conclusion that the assessee has placed bank deposits, in the course of and for the purposes of business expediency, and not as a mode of investment. The interest income was thus found to have direct nexus with the business. The CIT(A) thus held that interest income was business income. The Assessing Officer is aggrieved of the relief so given by the CIT(A) and is in appeal before us. 21. Having heard the rival contentions and having perused the material on record, we are not inclined to interfere in the matter. It is amply clear that the deposits on which interest is earned were placed for bona fide business reasons. It is not a case of parking of surplus or idle funds as evident from the fact that the assessee has huge borrowings and the cost of these borrowings is, beyond dispute, far more than the earning from interest. The nexus is also demonstrated in this case. In view of these discussions, and bearing in mind entirety of the case, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter. The order of the CIT(A) is approved on this issue. 22. Ground No. 1 of the appea....
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....the grade of the product. These prices are also severly affected by demand and supply, as also by season. One cannot have a standard price in such a situation. It is also important to bear in mind that prices at which one concern has supplied will only be relevant for comparison of supplies by other persons only if supplies were made on the same day and the supplies are of the same grade. There is no mention that the grades of fish supplied by all the vendors, including the sister concerns, is the same. That is not possible also. We have also taken note of the fact that as per details filed by the assessee, which have been reproduced in the order of the CIT(A), there have been several instances in which the supplies by the sister concerns are at lower prices. Therefore, the kind of oversimplification that has been resorted to is indeed unsustainable in law and on facts. In this view of the matter, and for the reasons set out by the CIT(A) with which we are in considered agreement, we hold that the Assessing Officer was indeed unjustified in making the impugned disallowance. The CIT(A) rightly deleted the disallowance. We confirm and approve the action of the CIT(A) and decline to i....