TaxTMI 
TaxTMI 
2020 (5) TMI 259
X X X X Extracts X X X X
X X X X Extracts X X X X
....263 is illegal and most unjustified, as the same is not based on any valid material or legal evidence whatsoever on records, but the same is merely based on wrong suspicions and baseless presumptions. The impugned order deserves to be quashed. 5. The ld. Pr. CIT has erred in observing that the interest expenses and interest payment had not been properly verified by the ld. AO at the time of original assessment and purpose of the business needs was not examined and order was therefore erroneous and prejudicial. 6. The ld. Pr. CIT has erred in observing that the deduction u/s 80IB(A) had not been properly examined by the ld. AO as there is payment of rent also. The ld. Pr. CIT has erred in observing that the same is only partly acceptable. 7. The ld. Pr. CIT has further erred in making a general observation that the payment of Municipal Taxes and insurance had not been properly examined. 8. The ld. Pr. CIT has further erred in observing that the deduction of 100% income claimed in relation to Branch office income had not been fully examined. 9. The ld. Pr. CIT has further erred in observing that the Ld. AO has not properly examined the inc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion to get maximum benefit of exemption u/s 80IB(11A), We may be permitted to submit that on facts of the case and in view of settled law on the subject, the aforesaid issues not warrant any action u/s 263 of the Act because the assessment order passed by the learned Assessing officer has been made after detailed scrutiny of the books of account, after making enquiries, verification and examination of net interest, godown rent, municipal tax , insurance charges, depreciation, dunnage material expenses claimed and claim of deduction u/s 80IB (11A) for ware house receipts, handling, transportation and weigh bridge receipts and no claim of remuneration to working partners. As such your views that assessment was completed in undue haste and without making inquiries and investigation, so the order passed by the A.O. is erroneous and prejudicial to the interest of revenue is not correct and not justified. It seems that full facts have not been placed before your good self. Kindly permit us to elaborate the same. An order cannot be termed as erroneous unless it is not in accordance with law. If A.O. acting in accordance with law makes certain assessment, the same cannot ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....interest paid Rs. 1,60,01,449.00 to bank i.e. Punjab National Bank, DCBL and ICICI Bank and Unsecured loans and interest received Rs. 84,20,153/- from FDR with Punjab National Bank and DCBL and Interest on advances to parties. The net interest of Rs. 75,81,296/- charged to Profit and Loss as expenditure. In the course of assessment preceding the learned A.O. has accepted the claim of interest (Net) only after satisfaction that interest received is out of FDR with PNB and DCBL made for the purpose of Bank guarantee given to the NCDEX and other authorities. The interest received from advances to parties for short period for proper utilisation of surplus fund of the firm. TDS has been deducted by the parties on interest paid to the assessee firm. Interest paid on Term loan from DCBL, OD limit from Punjab National Bank and ICICI Bank and Unsecured loans from the parties. TDS has been deducted on interest paid to unsecured loans. ii) The A.O. has appraised the claim of interest paid on term loan, O.D. limit and unsecured loans after satisfying himself that these loans are for the purpose of warehousing activities of the assessee business. iii....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rt reveals that this has been filed in respect of your unit at Bikaner situated at 18KM. stone, NH-15, Khara. Now from this report as well as the audit report submitted in form 3CD earlier raises some more queries which are mentioned as under: 1. You are claiming three independent undertakings as according to you initial assessment year of commencement of operation of each of the unit is different but the online submission of the audit report in form 10CCB is only in respect of Ist unit at Khara and no mentioning of other units situated at Boranada( Jodhpur) and Nokha is done therein. It is not understandable that how you have made a consolidated claim of 80IB in your computation of Rs. 2,11,31,163/-. 2. Since it is an established fact that no separate audit report in form 10CCB have been uploaded electronically by the firm in respect of two other units which claimed as your other undertakings doing eligible business just like the unit at khara, Bikaner and entitled for deduction on account of claim u/s 80IB, but the conditions for claiming deduction under section 80IB for these two units have not been fulfilled and please state why not any deduction of claim for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (11A) on its first unit started commencing business at 18th KM Stone, NH-15, Khara form AY 2008-09, being the sixth year of the claim and in respect of other two undertakings situated at Nokha (year of commencement of business AY 2012-13) and Boranada, Jodhpur (year of commencement of business AY2009-10), the firm has claimed 100% of deduction u/s 80IB . On perusal of the details furnished by the A/R as well as on the examination of books of accounts it was found that there is disproportionate claim of expenses under various heads keeping in view the nature and scale of business activities shown by the assessee under the head of Rental and Infrastructural income. Computation of net profit worked out or claiming deduction u/s 80IB reveals that gross receipts in respect of branch Office has been shown under the head of Rental and Infrastructure to the tune of Rs. NIL and Rs. 3,16,61,031/- respectively and in respect of Head office the same is shown at Rs. 16,10,13,701/- (0+16,10,13,701/-) and the gross receipt of Infrastructure come at Rs. 4,70,33,779/- (1,53,72,748+3,16,61,031) and the ratio between Rental income and Infrastructure income comes as 77.44:22.60. However on c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d statement of calculation of Net Profit for deduction u/s 80IB of Head office for the year ended 31st March, 2013 the same statement is kept on assessment record. On perusal of the said statement it may be observed that assessee has claimed deduction u/s 80IB (11A) @25% on H.O. infrastructural receipts only and not on Rental receipts. From the said statement it may be observed that during the financial year 2012-13 assessee has received rental warehouse receipts of Rs. 16,03,99,154.82 against which godown rent paid Rs. 10,15,93,864.61 and total expenses claimed Rs. 14,37,77,947.95 so net profit remains in Rental account Rs. 1,72,35,753.18 on which assessee has not claimed any deduction u/s 80IB(11A). Your view that assessee has wrongly claimed deduction u/s 80IB (11A) on warehouse income which was taken on rent from third parties and further let out these warehouses. Hence assessee has wrongly claimed deduction u/s 80IB (11A) on those warehouses which are not owned by the assessee. Your view that A.O. has not verified and investigate the Godown rent paid at H.O. Rs. 10,15,93,864/- against which assessee has claimed deduction u/s 80IB (11A) is not correct because ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o evidence in assessment record which proved that the A.O. has verified the claim of 100% deduction of ware house receipts of branches. There is no evidence which confirm that the A.O. has verified the dates for purchase of land, conversion of land, construction of warehouse and put to use of warehouse. Hence A.O. have not enquired and verified the facts before allowing the claim of deduction u/s 80IB (11A). The proposed revision on issue of non verification and enquiry to claim 100% deduction by branches on their warehouse receipts is unwarranted and liable to be quashed due to the following reasons:- i) The learned A.O. in his assessment order specifically stated that assess was queried regarding working and justification of the amount of the claim made u/s 80IB by the firm. In the assessment order A.O. held that " This year the assessee firm has claimed 25% of deduction u/s 80IB(11A) on its first unit stared commencing business at 18th KM Stone, NH-15, Khara from AY 2008-09, being the sixth year of the claim and in respect of other two undertakings situated at Nokha (year of commencement of business AY 2012-13) and Boranada, Jodhpur (year of commenceme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xempted income is not only wrongly claimed but wrongly allowed by the A.O. Hence order of A.O. is erroneous and prejudicial to the interest of revenue. The proposed disallowance of claim of deduction under section 80 IB (11A) for income earned under handling and transportation amounting to Rs. 13,43,806/- is unwarranted and unsustainable due to the following reasons:- i. In this connection we would like to state that literal interpretation of words "integrated business of handling, storage and transportation of food grains" will not lead to any absurdity or produce any manifestly unjust result. The Legislative intent is not to encourage transportation or handling of food grains but the Legislative intent is to encourage construction of godowns and warehouses with a view to providing storage of food grains. If we consider the entire combat of the scheme relating to the tax holiday provided by the Legislature, we find that the deductions are available under various provisions when the assessee has contributed something towards the infrastructure development of the country. The same views were expressed in the case of Shankar K. Bhanage, Mumbai Vs Department....
X X X X Extracts X X X X
X X X X Extracts X X X X
....v/s. Dy. Commissioner of Income-tax, Hyderabad (Income Tax Appellate Tribunal - Hyderabad- 28/08/2014) same views were expressed. Moreover assessee firm's profit & loss account shows Rs. 13,43,806/- towards income from handling & transportation for the year under consideration. This is proving that assessee firm involve in "Integrated business of handling, storage and transportation of food grains". iii. Your honour has failed to consider that handling and transportation facility is one of the basic requirement to store the food grain but nowhere mentioned that assessee must have transport vehicle and transportation has to be done by the assessee own trucks. In the case of Gendmal Bhikulal Banthia, Pune V/s ITO, Ward-1(4), Parbhani. (IN THE INCOME TAX APPELLATE TRIBUNAL, PUNE BENCH "A", PUNE on dated-22/03/2013) the main reason for rejecting the claim of the assessee by ITO is that the assessee is not providing facility of transportation of food grains. In this connection authority said "The wordings transportation of food grains does not indicate that transportation has to be done by the assessee own trucks or transport system. The transportation of food....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a way that absurdity and mischief is avoided. In this regard he referred to the decision of Hon'ble Supreme Court in case of KP Varghese Vs. ITO, 131 ITR 597. In fact a particular word and expression has to be given purposive construction and in this regard he referred to the decision of Hon'ble Supreme Court in case of R&B Falcon Pvt. Ltd, 301 ITR 309. He also referred to various other decisions where principles of interpretation of statutes have been given. He referred to the contention of the Ld. Counsel for the assessee with regard to the circular and clarification given by the Ministry of Food Processing wherein various incentive provisions are reproduced. Detail of various benefits in form of duty and tax benefits are disclosed and various sections of processing sectors have been defined and classified on the basis of a data for the purpose of clarity and compilation of data. iv. In case of The DCIT, Circle-4, Ahemdabad V/s. Mahadev Pulses Pvt. Ltd., Kalupur (IN THE INCOME TAX APPELLATE TRIBUNAL AHMADABAD, 24/08/2016) "it was held that the Legislative intent is not to encourage transportation or handling of food grains but the Legislative intent is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bserved that you have claimed depreciation on branches property like Delhi, Indore, Jaipur, Gujarat, Kota, Sriganganagar, Ankola, Sangli, Maharashtra. There are no documents which shows the godowns taken at these places are with or without Plant and Machinery, agreement of lease of such godowns are also not kept on assessment record. In absence of these documents it is proved that A.O. has not verified and investigate these facts before allowing the depreciation. Hence order of A.O. is erroneous and prejudicial to the interest of revenue. In this regard we beg to draw your king attention that on appraisal of Fixed assets schedule marked Schedule 'E' of Balance sheet as at 31.03.2013, it may be observed that Fixed assets situated at branches like Delhi, Indore, Jaipur , Kadi, Kota, Sri Ganganagar, Akola, Sangli includes only office equipments (Like computer, furniture, cooler, fan, air conditioner), vehicle, mobile, weighing scale, lab equipment and fire extinguisher having very nominal value required at ware houses. All these fixed assets are owned by the assessee and wholly used for ware housing business so assessee is entitled to claim depreciation on such asset....
X X X X Extracts X X X X
X X X X Extracts X X X X
....duction under section 80IB (11A) by mandatorily allowing remuneration to working partners is unwarranted and unsustainable due to the following reasons:- i. The act of compulsory allowing the remuneration to working partners is unjustified and unlawful. Section 40(b) of the Income Tax Act, 1961 provides the manner by which remuneration payable to partners shall be calculated and allowed but not expressly mentioned that it is allowed mandatorily in any situation. It is discretionary for the assessee to have made claim of remuneration to working partner. ii. Your honour has not considered the provision of Sec 40(b) which provides that remuneration payable to working partner is allowable where the said remuneration is authorized by and is in accordance with the terms of the partnership deed. Partnership deed clause provides that the partners shall be entitled to increase or reduce or nil the above remuneration and may agree to pay/ not to pay remuneration to working partner or partners as the case may be. iii. Your honour has wrongly considered that provision of section 40(b)(v) of the Income Tax Act, 1961 mandatorily while it is discretionary for the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... other hand, the ld CIT-DR has relied on the order of the Pr.CIT. 5. We have heard the ld. counsels for both the parties and have also considered the material placed on record, order passed by the Revenue Authorities as well as judgements relied upon by the parties. From the record, we notice that main issue in the present controversy is as to whether the order passed by the A.O. can be said to be erroneous or prejudicial to the interest of revenue. In case the order passed U/s 143(3)/148 of the Act, the A.O. is not erroneous then eventuality the power U/s 263 of the Act cannot be exercised. From the facts, we notice that in the reassessment order passed, the issue had been duly examined and on the basis of the examination of the relevant records and the application of law, one of the possible opinion had been drawn by the A.O., which cannot be said to be erroneous so far as prejudicial to the interest of revenue. In this regard, we drawn interest from the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ld. Vs CIT (2000) 243 ITR 83 (SC) wherein the Hon'ble Supreme Court had observed that "Section 263 of the Income Tax Act, 1961, makes it clear that th....