TaxTMI 
TaxTMI 
2020 (10) TMI 88
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.... have filed the return of income on 14/11/2007 declaring an income of Rs. 23, 52, 760/- under the normal provisions of the Income Tax Act, 1961 ("the Act") after availing deduction of Rs. 1, 32, 500/- under section 80 G of the Act and Rs. 25, 66, 86, 795/- under section 80IB of the Act, and, however, declared book profit under section 115 JB of the Act at Rs. 24, 84, 93, 930/-. 3. Subsequently, there was search & survey at different business/ residential premises of the assessee and group cases under section 132(4) of the Act/133A of the Act on 10/02/2009, pursuant to which notice under section 153A of the Act was issued to the assessee on 7/10/2009 and the assessee, in response to the said notice, filed the return of income on 22/01/2010, declaring a total income of Rs. 39, 83, 900/- after availing deduction under section 80 G of the Act amounting to Rs. 2, 65, 000/-and Rs. 25,66,86, 795/-under section 80IB of the Act. After scrutiny, by order dated 19/08/2011, the assessment was complete under section 153A of the Act at Rs. 29, 98, 97, 528/- after denying the claim of the assessee for deduction under section 80IB(11A) of the Act and making the following additions: - S.No ....
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....ake of convenience, we shall deal with Grounds number1 to 3 together because they touch upon the eligibility of the assessee to claim deduction under section 80IB(11A) of the Act, though on two counts. 6. According to the assessee, the assessee commenced the integrated business of processing, transporting, storage, handling and sale of food grains in Bahalgarh, Sonepat, Haryana in the previous year relevant to the assessment year 2003-04 by creating significant infrastructure for storage, handling and transportation of paddy/rice and had deployed the most advanced imported equipment with a view to ensure least possible losses in post-harvest processing of food grains and to enhance the efficiency in the grain management system. Assessee claimed deduction under section 80IB(11A) of the Act, stating that the handling, storage and transportation of paddy/rice constitute the major components of their integrated business, and that all conditions specified in such section stood fulfilled. 7. Ld. Assessing Officer, however, basing on the findings/observations of the special auditor, rejected the claim of the assessee for deduction under section 80IB(11A) of the Act and held that the....
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....storage and transportation, but on the other hand, the income of the assessee company is from manufacturing of rice from paddy only which is not eligible business in terms of 80IB(1) for claiming deduction u/s 80IB(11A). 11. Justifying the observations of the ld. Assessing Officer as to the manufacture activity of the assessee, Ld. DR argued that the assessee is basically manufacturing rice from paddy, other activities like purchase, storage, milling and transportation being connected to milling and production of rice; that the assessee has been doing this business of rice manufacturing over the years and nothing has changed subsequently; that if the plea of the assessee that it is eligible for deduction u/s 80IB(11A) against manufacturing of rice is accepted it will tantamount to accepting the claim of the assessee that manufacturing of rice is eligible business for deduction u/s 80IB(11A) which was never the intention of the legislature; that there is a separate provision of deduction u/s 80IB for manufacturing concerns and section 80IB(11A) is not the provision meant for such manufacturing activity; that in fact, deduction u/s 80IB(11A) is for certain service activities and n....
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....tted that the deduction u/s 80IB (11A)is admissible in a case of an undertaking deriving profit from the integrated business of handling, storage and transportation of food grains; that as regards storage and transportation activity, there is no dispute; that the main issue in the instant case is as to what is 'handling' in terms of Section 80IB(11A). According to him, processing/manufacturing of paddy into rice doesn't come under 'handling of food grains', and that on this score the business of the assessee doesn't fall under the eligible business of 'integrated business of handling, storage and transportation of food grains'. 14. Ld. DR referred to the National Policy on Handling, storage and transportation of Food grains notified in the Gazette of India dated 15th July 2000 and submitted that to give effect to the commitment of fiscal initiative, provisions of section 80IB(11A) were introduced by the Finance Act, 2001 and initially benefit was given to the 'integrated business of handling, storage and transportation of food grains', which later on was extended to the business of processing, preservation and packaging of fruits and vegetables by Finance Act, 2004 w.e.f. 1.4.20....
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....t activity listed in the section is of 'handling, which shall answer the description narrated by him above, and since the assessee in this case is processing paddy into rice only after storage of food grains in silos, such activity of processing of paddy into rice is not eligible activity in terms of section 80IB(11A). Placing reliance on the decision of Hon'ble Supreme Court in case of CGT v. NS GettiChettiar, [1971] 82 ITR 599, Sole Trustee, LokaShikshana Trust v. CIT, [1975] 101 ITR 234 (SC), and Smt. TarulataShyam v. CIT, [1977] 108 ITR 345 (SC) he submitted that the definitions in other Acts or technical meaning of a word or expression in the statute may be relevant but not sacrosanct, and the Courts should not hesitate to depart the meaning if the text and settings in which the word or expression is used demands so. On this premise he submits that when Sec 80IB(11A) is read along with Memorandum of explaining the provisions in the backdrop of National Policy on Handling, storage and transportation of Food grains, it would emerge that the word "handling" in its ordinary sense and in the context of food grains would cover the above activities defined as 'handling' by him. ....
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....rage and transportation of paddy/rice, in order to ensure least possible losses in the post-harvest processing of food grains and to enhance the efficiency in the grain management system, in furtherance of the larger objective of the agro economy of the Country, by obtaining best prices to the farmers for their produce; to minimize the losses of food grains in the course of handling, storage and transportation; and for creation of modern infrastructure to support agro economy; and that since the process of handling/processing, storage and transportation of paddy/rice is part and parcel of the integrated business of the assessee company, deduction under section 80IB(11A) of the Act was claimed by the assessee on fulfillment of all conditions specified therein which was, of course, denied on two grounds, firstly that there is no handling activity as contemplated in the 'integrated business of handling, storage and transportation of food grains', but only manufacture of rice from paddy, the other ground being that the machinery used by the assessee constitutes more than 20% of the old machinery. 19. Adverting to the manufacturing activity, contended by the Ld. DR, it is submitted t....
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....ring to section 80IB(11A) of the Act, he submitted that it provides deduction in respect of profits derived from undertakings engaged in the integrated business of handling, storage and transportation of food grains. 21. In this regard, it is argued that section 80IB(11A) of the Act provides deduction in respect of profits derived from undertakings engaged in the integrated business of handling, storage and transportation of food grains on a cumulative basis and this beneficial provisions of section 80IB(11A) of the Act was introduced in order to encourage transportation, handling and storage of food grains, with the primary intention of minimizing losses which occur during post-harvesting of food grain. Reliance in this regard is placed on the decision of the Mumbai Bench of the Tribunal in the case of ITO vs. Shankar K. Bhanage: 25 taxmann.com 310, where while adverting to the terms "integrated business of handling, storage and transportation of food grains" used in section 80IB(11A) of the Act it was held that the main purpose of bringing this provision is construction of godowns specifically for stocking food grains for greater efficiency in the grain management system and m....
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....olved in the grain management system from collecting the paddy from the fields/mandi till bringing the food grain to its consumable and marketable form which shall include the steps required to minimize post harvest food grain losse shall have to be undertaken by the assessee, which also includes the process of de-husking/milling of paddy/rice/wheat to bring it to its consumable form also falls within the ambit of the term 'integrated business' as used in the said section. Then the Ld. AR referred to the various stages involved in the grain management system and also in the prevention of post-harvest losses visà-vis the activities of the assessee and submitted that all the conditions stipulated in the section i.e. all the three activities of (i) handling, (ii) storing and (iii) transportation have been undertaken on an integrated basis, and by picking up the intermediary activity of milling in isolation from the integrated process, it is not open for the Revenue to say that it is only a manufacture of rice from paddy to disallow the deduction under section 80IB(11A) of the Act. According to him such anactivity of the assessee is only intermediary in the activities in the nat....
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....ppellant and whether all statutory preconditions are satisfied in the first year in which the appellant claims such a term deduction. In such cases, without disturbing the assessment for the initial year, it is not open to the Revenue to make disallowance of such deduction in the subsequent year(s), unless there is a material change in the fundamental facts. 26. On the aspect of allegation as to the use of old machinery or plant in the new business in excess of 20%, argument of the learned AR is twofold. Firstly, he argues that the learned Assessing Officer failed to demonstrate or establish on facts as to how the assessee violated the conditions of the provisions under explanation-2 to section 80IB (2) of the Act. According to the assessee there was no transfer of any previously used machinery to the new business and the entire machinery at Bahalgarh unit was used for the integrated activity of handling, storage and transportation of food grains with effect from October 2002, and therefore, the assessee does not suffer any disqualification mentioned in explanation two of section 80IB (2) of the Act. The 2nd argument advanced by the learned DR is that the provisions of section 8....
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.... to ensure least possible losses in post-harvest processing of food grains and to enhance the efficiency in the grain management system, and, therefore, the assessee claimed deduction under section 80IB(11A) of the Act, stating that the handling, storage and transportation of paddy/rice constitute the major components of their integrated business, and that all conditions specified in such section stood fulfilled; whereas the main contention of the assessing officer in disallowing deduction claimed by the assessee under section 80IB(11A) of the Act, is that the process of milling of paddy for manufacturing of rice and sale & purchase thereof, is beyond the scope of section 80IB(11A) of the Act merely because some part of the assessee's business coincides with a part of the provisions of the said section, deduction cannot be allowed. 28. Before adverting to the specific contentions raised by the parties in respect of deduction claimed under section 80IB(11A) of the Act, we deem it just and necessary to refer to section 80IB(11A) of the Act and to look into the scheme promoted by the Government of India under TFC 14/99-Volume III, dated 4th July, 2000, which resulted in promulgatio....
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....icy are: (i) to reduce storage and transit losses at farm level where about 70% of the total food grain production is retained and consumed and also to encourage the farmers to adopt scientific storage methods. (ii) to modernize the system of handling, storage and transportation of the food grains procured by the Food Corporation of India (FCI). (iii) to harness efforts and resources of public and private sectors, both domestic and foreign to build and operate infrastructure for introduction of bulk handling storage and transportation of food grains in the country." 31. In his speech the Finance Minister, while introducing section 80-IB(11A) on the statute vide Finance Bill, 2001, observed that,- "The storage of food grains and their transportation are our major concern. Sir, I propose to provide a tax holiday for five years and 30% deduction of profits for the next five years to the enterprises engaged in the integrated business of handling, transportation and storage of food grains." 32. Further, the Memorandum explaining provisions of the Finance Bill, 2001, has a bearing on gathering the legislative intent behind insertion of s....
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....ave no hesitation to hold that the beneficial provisions of section 80IB(11A) of the Act was introduced to encourage the development of infrastructure facilities in the private sector in the direction of integrated transaction of transportation, handling and storage aiming at the enhanced food security by way of acquiring greater efficiency in the grain management system and minimizing the post-harvest food grain losses. There is a purpose of providing incentive to the private operators to create and enhance the infrastructural facilities in handling, storage and transportation in respect of food grains is stretching the financial food security through acquiring greater efficiency in the grain management system and minimize the postharvest food grain losses. 35. As a matter of fact, after referring to the provisions under section 80IB(11A) of the Act, the speech of the Finance Minister, CBD to circular number 14 of 2001 and also the discussion made in the Sampat Iyengar's law of income tax 10th edition, learned Assessing Officer observed that the purpose behind the enactment of section 80IB(11A) of the Act was enhanced food security, because a large quantity of food grains was r....
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.... prevention of post-harvest losses, are elaborated in the recommendations of the Agricultural Marketing Information Network, in order to prevent post-harvest losses of paddy/rice and are,- "To minimise post-harvest losses, the following measures should be followed. - Timely harvest at optimum moisture percentage (20 percent to 22 percent). - Use of proper method of harvesting. - Avoid excessive drying, fast drying and rewetting of grains, which causes more broken rice. - Immediate drying the wet grain after harvest, preferably within 24 hours to avoid heat accumulation. - Ensure uniform drying to avoid hot and wet spots and mechanical damage due to handling. - Avoid the losses in threshing and winnowing by better mechanical methods. - Follow sanitation during drying, milling and after milling to avoid contamination of grains and protect from insects, rodents and birds. - Use proper technique of processing i.e. cleaning, parboiling and milling. - Adopt the grading practices to get more profit and to avoid the economic losses. - Use efficient and good packaging for storage, as well as i....
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....ed out by the assessee are part of the agricultural operations and both the rice and ask continue to remain food grain and continue to remain agricultural products. 41. Orders of the authorities below made reference to and extracted the legal opinion given by Shri PorusFerrack Kaka. The activities of the assessee with reference to which the legal opinion was given clearly establishes /corroborate the said fact only.According to assessee, they are conducting all the necessary activities from collection of the Paddy from the fields/mandi till they are made ready for human consumption by placing them in the markets, and more particularly, avoiding the losses in threshing and winnowing by better mechanical methods, following sanitation during drying, milling and after milling to avoid contamination of grains and protect from insects, rodents and birds, using proper technique of processing i.e. cleaning, parboiling and milling, adopting the grading practices to get more profit and to avoid the economic losses, and using efficient and good packaging for storage, as well as in transportation, by investing more than Rs. 30 crores for setting up of the eligible unit and for this purpose ....
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....or setting up of the eligible unit and for this purpose advanced machinery with improved technology would coincide with the provision. 43. Main plank of argument of the Ld. DR is that the assessee is engaged in manufacture of rice and it cannot be termed as handling. As argued by the learned DR, according to the learned Assessing Officer, "handling" in the context of food grains in the context of section 80IB(11A) of the Act would encompass within its ambit, processes and activities relating to creation of facilities for cleaning and removing of foreign material from the food grain so as to prevent damage from such material, facilities for drying of food grains to prevent loss during storage due to excessive moisture, pre storage bulk grain dumping and drying facilities, creation of facilities for mechanized sampling, weighing and detection of live infectants, mechanized receiving and handling by storing in Silos equipped with facilities of aeration and fumigation, loading and unloading facilities and traffic management and dumping pits, chain conveyors, elevators and faculties for mechanized shipment so as to integrate storage with quick transportation. 44. While there is no....
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....on of food grains. If those activities do not answer the description of handling, we wonder what would be handling. The word has to be understood in its contextual sense and merely because the learned assessing officer does not agree with the assessee to include the milling of the paddy is covered by "handling", it does not take away the other activities from the meaning of handling, so long as such activities keep nexus with the objective for which the benefit is intended. Whether or not the de-husking of paddy would form part of the handling, we shall deal with it a little later. In our opinion, the activities carried out by the assessee certainly form part of the expression "handling.". 46. As stated earlier, what could be gathered from the impugned assessment order and the arguments of the learned DR is that the Revenue doesnot dispute the nature of the activities of the assessee, except the process of dehusking the paddy, and their main dispute is that dehusking is a separate manufacturing activity and does not form part of "handling", and therefore, such activity cannot be made to fit in the expression "handling". Reliance of Revenue on the case reported in Lakshmi Energy ....
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.... and dumping pits, chain conveyors, elevators and faculties for mechanized shipment so as to integrate storage with quick transportation. 47. In that case also, reference was made to the scheme promoted by the Government of India under TFC 14/99-Volume III, dated 4th July, 2000, which resulted in promulgation of the National Policy on Handling Storage and Transportation of Food grains, speech of the Finance Minister while introducing section 80-IB(11A) on the statute vide Finance Bill, 2001, Memorandum explaining provisions of the Finance Bill, 2001, and the Circular No. 14/2001 dated 09.11.2001 issued by the Central Board of Direct Taxes, explaining the intent and purpose of introducing provisions of section 80IB(11A) of the Act in support of the rival contentionsof the parties. Having considered all these things in extenso, the Tribunal reached a conclusion that carrying out milling of paddy to rice will not take out the case of the assessee from the purview of 80IB(11A) of the Act, and all the activities carried out by the assessee by creating infrastructure for handling, storage and transportation would entitle them to be covered by 80IB(11A) of the Act. On the aspect of pro....
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....sessee has purchased more than 150 trucks during the implementation of mega project. It was also pointed out that new land was purchased during Financial years 2006-07, 2007-08 and 2008-09 and fresh addition were also made and majority of the expansion was carried out in building of stores. Even the addition to machinery was mainly on account of machinery installed in the stores for keeping the climate under control, creating of drying facilities and fumigation facilities etc. Even the Ld. D.R. for the Revenue has clearly stated that the word "handling" in its original sense and in the context of food grains would encompass within its ambit, processes and activities relating to Creation of facilities for cleaning and removing of foreign material from the food grain so as to prevent damage from such material, Facilities for drying of food grains to prevent loss during storage due to excessive moisture, Pre storage bulk grain dumping and drying facilities, Creation of facilities for mechanized sampling, weighing and detection of live infectants, Mechanized receiving and handling by storing in Silos equipped with facilities of aeration and fumigation, Loading and unloading facilities ....
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.... grains' the deduction would have been provided 'for the business of modern warehouses' which has not been done. This clearly shows that perhaps the facilities which have been created by the assessee were the kind of facilities which were made eligible for the deduction under Sec 80IB(11A). xxx xxx xxx xxx xxx xxx 44. .......a question would arise whether the assessee is required to carry out only activity of handling, storage and transportation of food grains for claiming deduction u/s 80IB(11A). In our opinion, the answer has to be "no" because in the commercial word an entrepreneur would engage in any business only when the same is commercially profitable. Therefore in case of integrated business of handling, storage and transportation of food grains may not itself be very profitable and if the same is combined with the activity of processing of paddy into rice by spending smaller amount of money for milling mills then such entrepreneur would definitely extend the activity and get into the composite business of handling, storage and transportation and processing of the rice. Let us imagine the situation where the businessman is eng....
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....e independently engaged in the business of handling, storage and transportation of the food grains...... " xxx xxx xxx xxx xxx xxx Thus it is clear that it is not necessary to carry out a particular activity independently for which the deduction is eligible. Even if such activity is part of overall activity even then the deduction is allowable but of course such deduction is to be allowed on a proportionate basis. Similar view was taken by Mumbai Bench of the Tribunal in case of Samraj Seafoods (P.) Ltd v. ITO ITA No. 2875/Mum/2005. In the case before us the Assessing officer has observed that the assessee has not received any independent income from handling, storage and transportation of the food grains. We have already discussed this aspect earlier and further in view of the decision in case of Sanchita Marine Products (P) Ltd. (supra) and Samraj Seafoods (P.) Ltd.'s case (supra). it is clear that it is not necessary for a businessman to receive income from each of the activity separately in case of a composite business. This can be further understood from a simple example of a car manufacturer. Let us say for example a deduction is available for m....
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....that falls for our consideration is the alternative prayer of the Ld. DR that the activity of processing the paddy to rice and subsequent packing and marketing is a distinct from the "integrated business of storage, handling and transportation of food grains" and therefore, the expenses relatable to such a distinct and separate activity cannot be allowed under section 80IB(11A) of the Act. He, therefore, submits that for the purpose of working out the deduction in respect of the specific activities of "handling, storage and transportation from the total expenditure for the business which includes the non-specific activities like milling of paddy, packing and marketing, the matter has to go back to the learned Assessing Officer. 51. On this aspect, argument of the learned AR is that milling is not a distinct process from handling of food grains because by milling nothing more is done than de-husking the paddy to increase the longevity of the grains and it is part of the efficient grain management covered by the expression "handling". He placed reliance on the decision of the Hon'ble Apex Court in the case of CIT VS.Cynamide India Ltd 273 ITR 585 ((SC) wherein the Hon'ble Apex Cou....
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....by the breaking of the grains etc. By dehusking the paddy and converting it into rice, no new article is brought into existence which is qualitatively different from the inputs, but is the simple process of de-husking the paddy to obtain the rice. This conversion meets the objective of minimizing the post-harvest losses which would lead to the greater efficiency of the food grain management system and consequently to the enhanced food security. In Commissioner of Customs(Import) vs. Dilip Kumar and Company &Othrs CA No. 3327 of 2007 (SC), the Hon'ble Supreme Court held that while interpreting the taxing statutes, the applicability of the section has to be seen in strict sense, and once the section is found to be applicable, then it has to be constructed liberally. Since undoubtedly the provisions of section 80IB(11A) of the Act are applicable to the activities of the assessee like clearing, steaming, soaking, drying, polishing and grinding it can also be not denied that de-husking the paddy would significantly enhance the life of the food grain, thereby reduces the loss of food grain and contributes to the preservation of food grains. In such an event , we are unable to understand ....
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....7 according to which and other material that was produced before the SEBI as well as other statutory authorities, the information furnished thereunder was authentic and relevant. It is also brought to our notice that in the prospectus the assessee stated that prior to 1st April, 2001 the undertaking had only set up polish of sand finishing planned to undertake job work of the processing done at Kakroi unit at Sonipat, which according to the assessee was only intermediary process, and such fact was acknowledged by the Revenue audit while carrying out audit in the case of the assessee for the AY 2004-05 and 2005-06 and such observation was communicated by the Revenue audit to the Department, vide audit memo dated 17th March, 2009 wherein additional fact about the commencement of business at Bahalgarh unit by the assessee was brought to light mentioning that the Director's report also pointed to the audited balance sheet of the assessee for the year ended on 31/3/2001, revealing that the production in Bahalgarh unit for which direction under section 80IB of the Act was claimed, commencing December, 2000. 56. Learned Assessing Officer, however, did not refer to any of these contenti....
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....scertain the instances of old plant and machinery being used at Bahalgarh, the learned Assessing Officer presumed that plant and machinery for Bahalgarh unit was used prior to 1/4/2001 and was transferred to Bahalgarh unit subsequently. Such unfounded observations of the learned Assessing Officer cannot be one of the bases to deny the deduction under section 80IB(11A) of the Act. 59. Further, the alternative plea taken by the assessee also merits consideration. We have carefully gone through the provisions of section 80IB of the Act. Subsection(1)of section 80IB of the Act says that where the gross total income of an assessee includes any profits and gains derived from any business referred to in subsection is 3 to 11, 11A and 11 B and if such business happens to be the eligible business, there shall be allowed a deduction from such profits and gains at such percentage as a specified in that subsection. Subsections (2), (3), (4), (5) and (11) deal with the cases of industrial undertakings; whereas subsection (6)deals with business of a ship, (7) deals with the business of Hotel, (7A) deals with the business of any multiplex theatre, (8) and (8A) deal with carrying on scientif....
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....akings other than subsections (3) to (5) are given in such subsections alone, and for such purpose there does not appear to be any need to look into subsection (2), and for that matter any other subsection. 61. Further, while referring to definition of "industrial undertaking." under various statutes, Hon'ble jurisdictional High Court, in the case of Ansal Housing & Construction Ltd VS. CIT 320 ITR 420 (Delhi), observed that such establishments or undertakings as are carrying on some manufacturing activity or factories, are treated as "industrial undertakings", thereby making a distinction between an "undertaking" and "industrial undertaking". Contention of the assessee based on the CBDT circular number 1/2009, dated 27/3/2009, providing explanatory notes to the provisions of Finance Act, 2008 also merits consideration in this context. In that circular, it was stated that, after the commencement of business, the deduction was being allowed under section 35D only to an industrial undertaking or unit, but in order to provide a level playing field to the service sector, the section was amended to provide the benefit of amortization to all the assessee, is after the commencement of ....
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....e Revenue's appeal deals with the addition made by the learned Assessing Officer under section 69 of the Act. During the course of assessment, learned Assessing Officer noticed that the special auditor has pointed out unaccounted receipts and payments taxable in the hands of the assessee, as unaccounted income on the basis of seized documents and a sum of Rs. 1,63,39,670/- was worked as taxable in the hands of the assessee for the period under consideration. The working of these transactions was given in the special audit report showing the balancing figure of cash transaction during the year pertaining to the assessee as are reflected, which shows that the assessee was having cash receivable of Rs. 1,63,39,670 /- as on 31.3.2007 which where not to be found in the books of the assessee. 65. When asked to explain the taxability of the above cash entries found in the seized documents and not recorded in the book as of account, the assessee, while drawing the attention of the learned Assessing Officer to letter dated 28.12.2010 filed in the case of assessment of Shri Vijay Arora offering for taxation a sum of Rs. 3,77,72,500/- submitted that income arising from seized material f....
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....n the observations of the learned DRP in assessee's own case for the AY 2008-09 and 2009-10. Ld. CIT(A) on consideration of the contentions of the assessee and also the observations of the learned DRP before the assessment year 2008-09 and 2009-10 held that the entries on the basis of which the addition was made were taken from the seized material, peak of such cash entries was offered to tax as undisclosed income by promoters of the company, namely, Shri Vijay Kumar Arora, Shri Ashvin Kumar aurora, Shri Surendra Kumar aurora and Shri Ashok aurora were assessed by the assessing officer for such undisclosed income. Ld. CIT(A) further referred to and followed the directions of the learned DRP in assessee's own case for the assessment year 2008-09 and 2009-10 by order dated 4/9/2012 not to make any addition on such issue. 68. It is submitted on behalf of the assessee that the entries in the seized papers which formed the basis for the learned Assessing Officer to make the impugned addition, were relating to the trading business of the above said four promoters/Directors of the assessee company, such persons have already surrendered an amount of Rs. 3, 72, 55, 6, 11/- in their retur....
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....is not in dispute that, except the suspicion of the special auditor, and for that matter that of the learned Assessing Officer, the amounts surrendered by the individuals were covered by the entries of the seized documents. When once the amount covered by the entries of the seized documents was surrendered by the individuals in their individual returns of income, bringing the same amount to tax in the hands of the company does not arise and it amounts to double taxation. Further, this issue has been considered by the learned DRP for the assessment years 2008-09 and 2009-10 wherein learned DRP in unequivocal terms, observed that while taking into consideration the trading accounts as well as the peak arrived at on the basis of the entries of the seized documents, assessing officer accepted the surrender of the income on the basis of the seized documents in the hands of the individuals, in the interest of Revenue, there is no justification for making again as an addition in the hands of the company. 72. Unless and until the Revenue disputes the contention, with reference to any documents, that the amount declared by the individuals is in respect of their some other undisclosed ....
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....lowing paragraphs. 75. Grounds 10 to 13 of the Assessee's appeal relate to the cash payments to various concerns in violation of provisions of section 40A(3) of the Act. Basing on the comments made by the Special Auditor in the Special Audit Report, AO found that cash payments aggregating to Rs. 40,00,647/- were made in contravention of provisions of section 40A(3) of the Act and consequently, disallowed expenditure aggregating to Rs. 8,00,129 being 20% of Rs. 40,00,647. On appeal, the CIT(A) deleted disallowance to the extent of Rs. 2,15,985 being 20% of cash payments of Rs. 10,79,924 made on holidays and Sundays. The CIT(A), however, confirmed disallowance to the extent of Rs. 5,84,144 under section 40A(3) of the Act and it is challenged in these grounds. 76. In respect of freight payments of Rs. 23,86,883/- made to transporters and truck operator, contention of the assessee is that such amount was paid to transporters/truck drivers, and even otherwise, exempted under sub rule (k) of rule 6DD, which provides that no disallowance under sub section (3) of section 40 of the Act shall be made where a payment or aggregate of payments made to a person in a day, otherwise than by ....
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.... payments and the payees are identifiable and the assessee has sufficiently explained the circumstances under which the payments have been made to the truck drivers in cash, but the Assessing Officer made disallowance by taking a pedantic view of the cash transaction, no disallowances u/s. 40A(3) is warranted. 78. In respect of the disallowance of Rs. 1,06,768/-, made on account of cash payments aggregating to Rs. 5,33,840/- made towards repairs, business promotion and imprest account, ld. AR submitted that the payments were made on account of business expediency; whereas in respect of cash deposit of Rs. 22,000/- made in the account of Daawat Foods Ltd., it was argued that the same does not tantamount to contravention of provisions of section 40A(3) of the Act in so far as deposit of cash has been made into the bank account of Daawat Foods Ltd. directly and the same cannot, in any way, be construed as cash payment. 79. Per contra, learned DR submitted that the authorities below followed the law and Rules and it is not possible for the Revenue authorities to add any new entries to Rule 6DD (k) of the Rules. He submitted that if the contention of the assessee is accepted, the ....
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.... Rs. 5,84,144 82. At the outset, we would like to state that insofar as the disallowance under section 40A(3) of the Act is concerned, identify of the payees or the genuineness of payment are irrelevant considerations, because it is only after crossing the threshold of such genuineness of the expenditure, the question of payment in terms of section 40A(3) of the Act will arise. Assessee is harping on the escape clause under Rule 6DD(k) which says that where a payment or aggregate of payments made by a person to his agent who is required to make payment in cash for goods or services on behalf of such person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as prescribed under rule 6ABBA, no disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under subsection (3A) of section 40A of the Act. 83. According to the assessee, the truck driver acts as an agent of the assessee. By no stretch of imagination can we say that the truck driver who op....
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.... provisions of section 172 of the Act was applicable; that no disallowance in case of payment for Railway freight; that in case of short deduction of tax at source, disallowance to be made under section 40(a)(ia) of the Act only in respect of portion of payment on which TDS has not been deducted; that if payment to one specific party (covered under provisions of section 194C) in the given assessment year exceeds Rs. 50,000 and no tax has been deducted then, disallowance to be made under section 40(a)(ia) of the Act; that if payment is made to non-resident and TDS provisions are not applicable, no disallowance to be made under section 40(a)(ia) of the Act; and that if expenditure is not claimed in Profit & Loss account and the payment made directly or indirectly relates to such expenditure, no disallowance to be made under section 40(a)(ia) of the Act. Pursuant to these observations of the Ld. CIT(A), assessing officer deleted the addition to the extent of Rs. 1, 53, 76, 284/-on account of non-deduction of TDS and Rs. 6, 54, 8, 62/- on account of shorter deduction of TDS, against which Revenue does not prefer any appeal. 87. Though the Ld. AR submitted that none of the payments r....
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.... difficult to understand that the amended provisions under section 40(a)(ia) of the Act would address the hardships that would be resulting subsequent to the amendment, leaving apart the hardship that had caused earlier, thereto. With this view of the matter. The considered opinion that the amended provision under section 40(a)(ia) of the Act has to be understood as creative in nature and introduce you to reduce the new hardship caused to the assessee on the disallowance of the entire amount of expenditure both prior and subsequent to such amendment. What follows naturally in view of the decision of the Hon'ble Apex Court in the case of CIT VS. Gold Coin Health Food (P) Ltd, (supra) the presumption goes in favour of the retrospective operation of this curative or declaratory amendment. 89. Insofar as the disallowance relating to the shorter deduction of tax at source, is concerned, the issue is a squarely covered by the decision of the Hon'ble Calcutta High Court in the case of CIT VS.SK Tekriwal 361 ITR 432 (Cal.HC) and following the same, we hold that no disallowance is permissible in cases where there has been a shortfall in deduction of tax as the same is not covered by the ....
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..../promoters of the assessee company. Ground number 16 is allowed. Accordingly. 94. Ground number 17 of the assessee's appeal related to the disallowance to the tune of Rs. 18, 18, 915/-under section 14A of the Act read with Rule 8D of the Rules 14A of the Act read with Rule 8D of the Rules, which was received towards the share of profit in partnership firm, namely, M/s Raghunath Agro industries, Amritsar and also the dividend income from mutual funds. Challenge of this addition by the assessee is on 3 counts, namely, the assessing officer has not recorded the satisfaction for denying the claim made by the assessee as to the expenditure incurred for earning the exempt income; share in profit from the partnership form cannot be considered for the purposes of disallowance under 14A of the Act read with Rule 8D of the Rules, and lastly that such investment was made out of the own funds of the assessee without utilizing any borrowed funds and therefore, there cannot be in interest expense for earning the exempt income. Ld. DR relied on the orders of the authorities below. 95. We have gone through the record, in the light of the submissions made on either side. It could be seen from....