ADDL. CIT, SPECIAL RANGE- 3, NEW DELHI V. DAAWAT FOODS LTD., NEW DELHI

ITA 6616/DEL/2019

AI Insights

The case involves M/s. Daawat Foods Ltd, which appealed against the order of the Commissioner of Income Tax (Appeals)-34, New Delhi, concerning the assessment year 2015-16. The primary issues were the allowance of deduction under Section 80IB(11A) and the disallowance of expenses under Section 14A read with Rule 8D related to exempt income. The Tribunal referenced previous rulings in similar cases, particularly noting that the activities of handling, storage, and transportation of food grains by the assessee qualified for the deduction under Section 80IB(11A). Additionally, it was determined that the share of profit from a partnership firm, being already taxed at the firm level, should not attract further disallowance under Section 14A.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 470204 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Other Referred Cases: Dilip Kumar vs. Commissioner of Customs (Import), Commissioner of Customs (Import) vs. Dilip Kumar and Company & Ors, LT Foods Ltd. vs. Addl CIT, Sudhir Kapadia vs. ITO, Hamid A Moochhala vs. ACIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR DHANESTA
• Assessee Lawyers: ROHIT JAIN
• Keywords: Principle of natural justice; Earning of tax free income; Rule 8D
• Section: 143(3); 10; 14A

Judgement Text

"Page | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “B”: NEW DELHI BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER ITA No. 6616/Del/2019 (Assessment Year: 2015-16) Addl CIT, Special Range-3, New Delhi Vs. M/s. Daawat Foods Ltd, Unit No. 134, First Floor, Rectange-1, Saket District Centre, Saket, New Delhi- 110017 (Appellant) (Respondent) PAN:AACCD3698N Assessee by : Shri Rohit Jain, Adv Shri Tavish Verma, Adv Revenue by: Shri Rajesh Kumar Dhanesta, Sr. (DR) Date of Hearing 14/01/2025 Date of pronouncement 22/01/2025 O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in ITA No. 6616/Del/2019 for AY 2015-16, arise out of the order of the Commissioner of Income Tax (Appeals)-34, New Delhi [hereinafter referred to as „ld. CIT(A)‟, in short] in Appeal No. 291/17-18 dated 30.05.2019 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 29.12.2017 by the Assessing Officer, Addl CIT, Special Range-3, New Delhi (hereinafter referred to as „ld. AO‟). 2. Ground No. 1 raised by the revenue is challenging the action of the ld CIT(A) in allowing deduction u/s 80IB(11A) of the Act. ITA No. 6616/Del/2019 M/s. Daawat Foods Ltd Page | 2 3. We have heard the rival submissions and perused the material available on record. At the outset, we find that this a recurring issue from AY 2009-10 onwards and this Tribunal upto 2014-15 had already granted relief to the assessee by granting deduction u/s 80IB(11A) of the Act. Hence, it is continuing claim made by the assessee. The ld AO records the fact that this issue has been decided in favour of the assessee by the ld CIT(A) in earlier year i.e. 2009-10. Since, the revenue had preferred an appeal before this Tribunal, in order to keep the issue alive, the ld AO continued to make disallowance u/s 80IB(11A) of the Act. The ld CIT(A) by placing reliance on the order passed by his predecessor in assessee‟s own case for AY 2009-10 granted relief to the assessee. Against this relief granted by the ld CIT(A) for AY 2009-10, the revenue had preferred an appeal before this Tribunal which was disposed of by this Tribunal in ITA No. 4042 and 4159/Del/2013 dated 07.06.2021 wherein, it was held as under:- “24. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the Section 801B (11A) of the Act mandates that the undertaking of the assessee should be engaged in an integrated business' and the assessee has demonstrated before us that the combining or co-ordinating of the three elements ie. handling, storage and transportation of food grains is harmonious interrelated as whole activity and thus eligible for deduction under Section 801B(11A) of the Act. The decision in case of Dilip Kumar (Supra) held that exemption notification should be interpreted strictly, the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue. In the present assessee's case, the assessee has demonstrated that the assessee fulfilled the parameters of the exemptions. Besides this, in case of Group company of assessee i.e. LT Foods Ltd. for A.Y. 2007-08 in ITA No. 4046/Del/2013, the Tribunal on identical facts allowed deduction claimed under Section 801B (11A) of the Act. The Tribunal held as under: 53. As we have stated above, we will have to test the expression \"handling\", occurring in section 80IB(11A) of the Act on the ITA No. 6616/Del/2019 M/s. Daawat Foods Ltd Page | 3 touchstone of the object sought to be achieved through such incentive, namely, achieving the enhanced food security by way of greater efficiency in the grain management system by minimizing the post-harvest food grain losses. It is an undeniable fact that traditionally pounding was the way in which the paddy was converted to the form of rice by separating the husk and brawn. It is also common knowledge that in that process there used to be quantitative and qualitative losses, caused by the breaking of the grains etc. By de-husking 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 & Ors. 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 801B(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 how this particular process does not fit in the expression \"handling\". For these reasons, we are of the considered opinion that the de- husking of the paddy to convert it into rice is also an integral part of reducing the post-harvest food grain loss. We, accordingly find that the assessee cannot be denied the deduction under section 801B(11A) of the Act either in respect of the activities conducted by the assessee to meet the demand of the section, namely, deriving income from the integrated business of handling, storage and transportation of food grains or for non- compliance with the conditions depleted under Section 801B(2) of the Act. We do not find anything illegality are regularity either in the reasoning or the conclusions reached by the Ld. CIT(A) on this aspect, and while confirming the same find the grounds number 1 to 3 of Revenue's appeal devoid of merits and reliable to be dismissed.\" Thus, the CIT(A) has rightly allowed the claim of deduction under Section 801B(11A) of the Act. It is pertinent to note that all the conditions which have been stipulated in the statute have been fulfilled i.e. all the three activities of handling, storing and transportation have been ITA No. 6616/Del/2019 M/s. Daawat Foods Ltd Page | 4 undertaken on an integrated basis by the assessee. Thus, Ground No. 3 to 5 of Revenue's appeal are dismissed. 25. In result, the appeal of the assessee is partly allowed and the appeal for the Revenue is dismissed.” 4. Facts prevailing for AY 2009-10 are exactly identical to the facts prevailing in the year under consideration and as stated earlier, the claim made by the assessee during the year is the continuing claim. Hence, respectfully following the said decision of this Tribunal in assessee‟s own case, the ground No. 1 raised by the revenue is dismissed. 5. Ground No. 2 raised by the revenue is challenging the deletion of disallowance of expenses u/s 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. 6. We have heard the rival submissions and perused the material available on record. During the year under consideration, the assessee had derived exempt income of Rs. 44,98,062/- representing share of profit from partnership firm. We find that this Tribunal in assessee‟s own case in ITA No. 5345 to 5348/Del/2018 for AYs 2011-12 to 2014-15 respectively dated 22.10.2021 had categorically held that the share of profit from partnership firm, though exempt in the hands of the assessee, cannot be considered for the purpose of disallowance of expenses u/s 14A of the Act as it is only distribution of income by the firm to its partners and firm had already paid the taxes thereon. The relevant operative portion of said order is reproduced as under:- “Disallowance U/S 14A: 9. The assessee, during the previous year relevant to the year under assessment amounting to consideration, received income Rs.2,03,13,535/- as share of its profit in partnership firm namely M/s. Ragunath Agro Industries, Amritsar. The said income was claimed as exempt under section 10 of the Act in the return of income. ITA No. 6616/Del/2019 M/s. Daawat Foods Ltd Page | 5 10. In the impugned assessment order, the assessing officer made disallowance of Rs.36,87,907/- u/s 14A of the Act read with Rule 8D of the Income Tax Rule, 1962 ('the Rules') as under: - Disallowance of direct expenditure – Nil - Disallowance of interest expenditure - Rs.31,73,824 - Disallowance of administrative expense (by considering total investments) - Rs.5,14,083/- Findings of CIT(A) 11. It was submitted that similar disallowance made u/s 14A of the Act in the case of M/s LT Foods Ltd, a group company, in respect of share of profit received from a partnership firm was deleted in toto by the Tribunal in ITA No. 4164/Del/2013 vide order dated 30.09.2020 by holding as under: \"95. We have gone through the record, in the light of the submissions made on either side. It could be seen from the assessment order, vide paragraph number 11, there were made the report of the special auditor as the basis for the disallowance, special auditor worked out the total disallowance under section 14A of the Act read with Rule 8D of the Rules at rupees, 41, 80, 208/-, but in view of the provisions of section 14A of the Act, he restricted the disallowance to the exempt Income and determined the same at Rs. 18, 18,915/. Nowhere in the order, the Assessing Officer had considered the accounts of the assessee as to what could have been the expenditure, that has to be allocated for earning the exempt income. 96. Even otherwise, we find strength in the ornament of the Ld. AR that in order to avoid the double taxation once in the hands of the firm and secondly in the hands of the partner, the share in the profits of the partnership form is not taxable in the hands of the partner as has been held by the Mumbai bench of the Tribunal in the case of Sudhir Kapadia VS. ITO in ITA No. 7888 of 2013, which was followed in the case of Hamid A Moochhala VS. ACIT in ITA No. 2218/Mum/2010. 97. Further, there is no denial of the fact that as on 31/3/2006 and 31/3/2007, the capital and free reserves of the assessee were Rs. 60, 92, 50, 784/- and Rs. 1,19,99,27,510/- respectively as against the investment in the partnership form on 31/3/2006 and 31/3/2007 stood at Rs.3,49,55,937/-and 3,67,57,562/- only and therefore, it cannot be said that any borrowed funds could have been utilised to make such investment incurring any interest expenditure. ITA No. 6616/Del/2019 M/s. Daawat Foods Ltd Page | 6 98. Viewing from any angle, we did not find any ground to sustain addition made under 14A of the Act read with Rule 8D of the Rules. Such an addition is, therefore, is directed to be deleted. Ground number 17 is accordingly allowed.\" 12. In view of the aforesaid, it was submitted that there was no warrant to make disallowance u/s 14A of the Act in the case of the assessee. 13. it was also submitted that the Co-ordinate Bench of Tribunal in assessee's own case for the assessment year 2009- 10 in ITA No. 4042/Del/2013 restricted the disallowance u/s 14A by directing the assessing officer to consider only those Investments from which exempt income was earned during the year as against total investments appearing in the balance sheet. It may however be pertinent to note that the aforesaid decision rendered by the co-ordinate Bench in the case of LT Foods was not at all considered by the Tribunal. The relevant finding of the Tribunal is extracted hereunder: 11. We have heard both the parties and perused all the relevant material available on record. In the present case, the satisfaction is recorded while invoking Rule BD of the Income Tax Rules, 1962. But the Assessing Officer considered exempt Income earned as share in profit from partnership firm for the purpose of disallowance under Section 14A of the Act. The investments was made out of own funds and not borrowed funds and therefore, the assessee has not made any disallowance out of interest expenditure. The Ld. AR's contentions that under Rule BD (2)(iii), what is disallowable is an amount equal to V2 percentage of the average valu e of investment, the income from which does not or shall not form part of the total income, is right. Therefore, as per the chart given by the Ld. AR, at the time of hearing, we direct the Assessing Officer to verify the same and thereafter restrict the disallowance to Rs. 23,264/- only if the contentions of the assessee are found correct, otherwise proceed according to the provisions of Income Tax Act and Rules. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground No. 8 and 9 are partly allowed for statistical purpose.\" 14. On going through the record, we hold that the assessee is not liable for any disallowance on interest as no interest bearing funds have been utilized for the purpose of making investment. Since, the share of profit from the partnership is mere distribution of income which is already been taxed, hence the provisions u/s 14A are not attracted in such case. Further, we also affirm the principle of no disallowance is called for where there is no exempt income earned. The AO is directed to re- compute the disallowance, keeping in view the guidelines mentioned above.” ITA No. 6616/Del/2019 M/s. Daawat Foods Ltd Page | 7 7. Respectively following the same, ground No. 2 raised by the revenue is dismissed. 8. Ground No. 3 raised by the revenue is general in nature and does not require any specific adjudication. 9. In the result, the appeal of the revenue is dismissed. Order pronounced in the open court on 22/01/2025. -Sd/- -Sd/- (YOGESH KUMAR U.S.) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 22/01/2025 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi ITA No. 6616/Del/2019 M/s. Daawat Foods Ltd Page | 8 1. Date of dictation of Tribunal Order....... 14.01.2025 2. Date on which the typed draft Tribunal Order is placed before the Dictation Member.. 15.01.2025 3. Date on which the typed draft Tribunal Order is placed before the other Member... 4 Date on which the approved draft Tribunal Order comes to the Sr. P.S./P.S. 5. Date on which the fair Tribunal Order is placed before the Dictating Member for pronouncement... 6. Date on which the signed order comes back to the Sr. P.S./P.S.... 7. Date on which the final Tribunal Order is uploaded by the Sr. P.S./P.S. on official website... 8. Date on which the file goes to the Bench Clerk alongwith Tribunal Order.... 9. Date of killing off the disposed of files on the judiSIS portal of ITAT by the Bench Clerks 10. Date on (Judicial) which the file goes to the Supervisor 11. The date on which the file goes to the Assistant Registrar for endorsement of the order.. 12. Date of Despatch of the Order. "