M/s Kanyaka Parameswari Cold Storage Pvt. Ltd., Guntur V. The ITO, Ward-1(1), Guntur

ITA 474/VIZ/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50256 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 19-04-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 20-09-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH

Judgement Text

ITA NOS 290 AND 474 OF 2010 KANYAKA PARAMESWARI CO LD STORAGE (P) LTD., VISAKHAPATNAM PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NOS. 290 & 474/VIZAG/2010 ASSESSMENT YEARS: 2006-07 & 2007-08 KANYAKA PARAMESWARI COLD STORAGE PVT. LTD., VISAKHAPATNAM VS. ITO WARD-1(1) GUNTUR (APPELLANT) PAN NO: AACCK 4473 A (RESPONDENT) APPELLANT BY: SHRI G.V.N. HARI, CA RESPONDENT BY: SHRI D.S. SUNDER SINGH, SR.DR ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THESE TWO APPEALS ARE DIRECTED AGAINST THE RESP ECTIVE ORDERS PASSED BY LD CIT(A), GUNTUR AND THEY RELATE TO THE ASSESSM ENT YEARS 2006-07 AND 2007-08. SINCE IDENTICAL ISSUE IS URGED IN THESE T WO APPEALS, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO MMON ORDER. 2. THE SOLITARY ISSUE URGED IN THESE TWO APPEAL S IS WHETHER THE LD CIT(A) IS JUSTIFIED IN ALLOWING THE DEDUCTION U/S 80IB(11) OF THE ACT ONLY PARTIALLY AND NOT FULLY. 3. THE FACTS RELATING TO THE ISSUE ARE STATED I N BRIEF. THE ASSESSEE IS IN THE BUSINESS OF OPERATION OF COLD STORAGE PLANT FOR STORING AGRICULTURAL PRODUCE. IT CLAIMED DEDUCTION U/S 80IB(11) OF THE A CT IN THESE TWO YEARS. THE SAID DEDUCTION IS AVAILABLE FOR AN INDUSTRIAL U NDERTAKING DERIVING PROFIT FROM THE BUSINESS OF SETTING UP AND OPERATING A CO LD CHAIN FACILITY FOR AGRICULTURAL PRODUCE. THE ASSESSING OFFICER TOOK T HE VIEW THAT THE ASSESSEE IS NOT ELIGIBLE FOR THE ABOVE SAID DEDUCTION SINCE THE ASSESSEE IS OPERATING ONLY A COLD STORAGE PLANT AND NOT A COLD CHAIN FACI LITY. ACCORDINGLY HE DENIED DEDUCTION U/S 80IB(11) OF THE ACT TO THE ASSE SSEE. IN THE APPEAL PREFERRED BY THE ASSESSEE, THE LD CIT(A), BY PLACIN G RELIANCE ON THE ITA NOS 290 AND 474 OF 2010 KANYAKA PARAMESWARI CO LD STORAGE (P) LTD., VISAKHAPATNAM PAGE 2 OF 6 DECISION OF AGRA BENCH OF TRIBUNAL IN THE CASE OF I TO VS. AMBICA SHEETHGRAHA PVT. LTD. (314 ITR (AT) 123), HELD THAT THE TERM COLD CHAIN FACILITY INCLUDES THE COLD STORAGE FACILITY ALSO. ACCORDINGLY THE LD CIT(A) HELD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/ S 80IB(11) OF THE ACT. HOWEVER, SHE DID NOT ALLOW DEDUCTION FULLY FOR THE REASONS DISCUSSED IN THE SUCCEEDING PARAGRAPH. 3.1 THE ASSESSEE WAS HAVING TWO CHAMBERS WITHIN ITS CAMPUS. THE OPERATION OF FIRST CHAMBER WAS COMMENCED BEFORE 1.4 .2004 AND THE OPERATION OF THE SECOND CHAMBER WAS COMMENCED AFTER THAT DATE. DURING THE COURSE OF APPELLATE PROCEEDING, THE LD CIT(A) C ALLED FOR A REMAND REPORT FROM THE ASSESSING OFFICER, WHO, IN HIS REMA ND REPORT, POINTED OUT THAT THE INCOME FROM THE SECOND CHAMBER IS NOT ELIG IBLE FOR DEDUCTION U/S 80IB(11), SINCE IT BEGAN ITS OPERATIONS AFTER 1.4.2 004, BEING THE DATE PRESCRIBED UNDER THAT SECTION. IT MAY BE NOTED THAT THE DEDUCTION U/S 80IB(11) IS AVAILABLE ONLY IF THE INDUSTRIAL UNDERT AKING BEGINS TO OPERATE THE COLD CHAIN FACILITY ON OR AFTER 1 ST DAY OF APRIL, 1999 BUT BEFORE THE 1 ST DAY OF APRIL, 2004. THE LD CIT(A) CONCURRED WITH THE VIEW S OF THE ASSESSING OFFICER IN THAT REGARD AND ACCORDINGLY HELD THAT TH E ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IB(11) ONLY IN RESPECT OF INCOME PER TAINING TO ONE CHAMBER WHICH COMMENCED OPERATION BEFORE THE PRESCR IBED DATE. SINCE THE ASSESSEE COULD NOT IDENTIFY THE INCOME OF EACH CHAMBER SEPARATELY, THE LD CIT(A), ALLOCATED THE NET INCOME IN THE RATIO OF THE CAPACITY OF BOTH PLANTS, I.E. IN THE RATIO OF 46% : 54%. ACCORDINGL Y THE LD CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW DEDUCTION TO THE EXT ENT OF 46% OF THE INCOME, I.E. THE INCOME DERIVED FROM THE CHAMBER WH ICH COMMENCED THE OPERATION BEFORE THE PRESCRIBED DATE. AGGRIEVED, T HE ASSESSEE IS IN APPEAL BEFORE US WITH THE PLEA THAT THE DEDUCTION SHOULD B E ALLOWED FOR ITS ENTIRE INCOME. 4. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS C ONSTRUCTED BOTH THE CHAMBERS WITHIN ITS CAMPUS. THE PERMISSION FOR SUC H CONSTRUCTION WAS OBTAINED FROM THE CONCERNED AUTHORITIES BY WAY OF A SINGLE PLAN. BOTH THE CHAMBERS ARE SERVICED BY A SINGLE ELECTRICITY CONNE CTION. THE ASSESSEE IS ITA NOS 290 AND 474 OF 2010 KANYAKA PARAMESWARI CO LD STORAGE (P) LTD., VISAKHAPATNAM PAGE 3 OF 6 MAINTAINING COMMON SET OF BOOKS OF ACCOUNTS FOR BOT H THE CHAMBERS AND THE EMPLOYEES AND OTHER FACILITIES ARE ALSO COMMON. THIS IS EVIDENCED BY THE FACT THAT THE LD CIT(A) HAS ALLOCATED THE INCOM E BETWEEN TWO CHAMBERS ON THE BASIS OF CAPACITY OF BOTH THE CHAM BERS. THE FIRST CHAMBER HAS COMMENCED ITS OPERATIONS BEFORE THE PRE SCRIBED DATE AND THUS THE CONDITION PRESCRIBED IN SEC. 80(IB)(11) IN THAT REGARD, I.E. THE INDUSTRIAL UNDERTAKING SHOULD COMMENCE ITS OPERATIO NS BEFORE THE PRESCRIBED DATE GETS FULFILLED. THE CONSTRUCTION O F THE SECOND CHAMBER, WHICH FORMS PART OF THE INTEGRATED COLD STORAGE FAC ILITY PROVIDED BY THE ASSESSEE, WAS OVER BY ABOUT 90% BEFORE THE PRESCRIB ED DATE AND IN ANY CASE, THE SAME IS CONSTRUCTED ONLY FOR THE PURPOSE OF OPERATIONAL CONVENIENCE. HENCE THE SAME FORMS PART OF THE INDUS TRIAL UNDERTAKING AND SHOULD NOT BE VIEWED AS A SEPARATE UNIT. ACCORDING LY HE CONTENDED THAT THE INCOME THERE FROM SHOULD ALSO BE ELIGIBLE FOR T HE ABOVE SAID DEDUCTION. 5. ON THE OTHER HAND, THE LD D.R SUBMITTED THAT THE ASSESSEE HAS COMMENCED OPERATION OF THE SECOND CHAMBER ONLY AFTE R 31-03-2004, I.E. BEYOND THE DATE PRESCRIBED U/S 80IB(11) OF THE ACT. HENCE THE LD CIT(A) WAS RIGHT IN HOLDING THAT THE ASSESSEE IS NOT ELIGI BLE FOR DEDUCTION FOR THE SECOND CHAMBER. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT TH E DEDUCTION U/S 80IB(11) IS AVAILABLE ONLY IF THE INDUSTRIAL UNDERTAKING BEG INS OPERATION OF THE COLD CHAIN FACILITY ON AFTER 01-04-1999 BUT BEFORE 01-04 -2004. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE PROVISIONS OF SEC . 80IB(11) OF THE ACT. NOT WITHSTANDING ANY THING CONTAINED IN CLAUSE (II I) OF SUB- SECTION (2) AND SUB-SECTIONS (3), (4) AND (5), THE AMOUNT OF DEDUCTION IN A CASE OF INDUSTRIAL UNDERTAKING DERIV ING PROFIT FROM THE BUSINESS OF SETTING UP AND OPERATING A COL D CHAIN FACILITY FOR AGRICULTURAL PRODUCE, SHALL BE HUNDRED PER CENT OF THE PROFITS AND GAINS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING FOR FIVE ASSESSMENT YEARS BEGINNING WITH THE INITI AL ASSESSMENT YEAR AND THEREAFTER, TWENTY FIVE PER CEN T (OR THIRTY PERCENT WHERE THE ASSESSEE IS A COMPANY) OF THE PROFITS AND GAINS DERIVED FROM THE OPERATION OF SUCH FACILI TY IN A ITA NOS 290 AND 474 OF 2010 KANYAKA PARAMESWARI CO LD STORAGE (P) LTD., VISAKHAPATNAM PAGE 4 OF 6 MANNER THAT THE TOTAL PERIOD OF DEDUCTION DOES NOT EXCEED TEN CONSECUTIVE ASSESSMENT YEARS (OR TWELVE CONSECU TIVE ASSESSMENT YEARS WHERE THE ASSESSEE IS A CO-OPERATI VE SOCIETY) AND SUBJECT TO FULFILLMENT OF THE CONDITIO N THAT IT BEGINS TO OPERATE SUCH FACILITY ON OR AFTER THE 1 ST DAY OF APRIL, 1999 BUT BEFORE 1 ST DAY OF APRIL, 2004. IN THE INSTANT CASE, THE ASSESSEE HAS CONSTRUCTED TW O CHAMBERS, OUT OF WHICH ONE CHAMBER COMMENCED ITS OPERATIONS BEFORE T HE PRESCRIBED DATE AND THE OTHER CHAMBER COMMENCED ITS OPERATIONS AFTE R THE PRESCRIBED DATE. ON CAREFUL READING OF THE PROVISIONS OF SEC. 80IB(11), IT IS SEEN THAT THE SAID DEDUCTION IS UNDERTAKING SPECIFIC AND NO T ASSESSEE SPECIFIC. NOW THE QUESTION THAT ARISES IS WHETHER THE TWO CHA MBERS MENTIONED ABOVE FORMS PART OF A SINGLE UNDERTAKING OR THEY FORM INTO TWO SEPARATE INDUSTRIAL UNDERTAKING. IT IS CLEAR THAT IF THEY CA N BE TAKEN AS TWO SEPARATE UNDERTAKINGS, THEN THE ASSESSEE IS NOT ELIGIBLE FOR THE IMPUGNED DEDUCTION FOR THE INCOME DERIVED FROM THE SECOND CHAMBER SINC E IT HAS COMMENCED ITS OPERATIONS AFTER THE PRESCRIBED DATE. OTHERWIS E, THE ASSESSEE WOULD BE ELIGIBLE FOR DEDUCTION FOR THE INCOME DERIVED FROM BOTH THE CHAMBERS. 7. THE WORD UNDERTAKING IS NOT DEFINED UNDER INCO ME TAX ACT. THE HONBLE MADRAS HIGH COURT HAD AN OCCASION TO DEAL W ITH THE MEANING OF THE SAID TERM IN THE CONTEXT OF SEC. 80J OF THE ACT IN THE CASE OF CIT VS. PREMIER COTTON MILLS (240 ITR 434) WHERE IN IT WAS HELD: THE REQUIREMENTS OF THE SECTION ARE MET IF THE ASS ESSEE IS ABLE TO DEMONSTRATE THAT THE ASSESSEE HAS ESTABLISH ED AN INDUSTRIAL UNDERTAKING.. THE WORD UNDERTAKING IS NOT TO BE EQUATED WITH THE LEGAL ENTITY WHICH MAY OWN UNDERTAKING. A SINGLE LEGAL ENTITY MAY OWN AND OPE RATE MORE THAN ONE INDUSTRIAL UNDERTAKING AND THE FACT O F COMMON OWNERSHIP DOES NOT RENDER UNDERTAKINGS WHICH ARE OTHERWISE CAPABLE OF BEING SEPARATE INTO A COMM ON UNDERTAKING. WHAT IS RELEVANCE IS THE EXISTENCE OF ALL THE FACILITIES INCLUDING FACTORY BUILDINGS, PLA NT, MACHINERY GODOWNS AND TINGS WHICH ARE INCIDENTAL TO THE CARRYING ON OF MANUFACTURE OR PRODUCTION, AL L OF WHICH TAKEN TOGETHER ARE CAPABLE OF BEING REGARDED AS AN INDUSTRIAL UNDERTAKING. ITA NOS 290 AND 474 OF 2010 KANYAKA PARAMESWARI CO LD STORAGE (P) LTD., VISAKHAPATNAM PAGE 5 OF 6 THE HONBLE SUPREME COURT, IN THE CASE OF TEXTILE M ACHINERY CORPORATION LTD. VS. CIT (1977) (107 ITR 195) ALSO DISCUSSED AB OUT THE MEANING OF THE TERM UNDERTAKING IN THE CONTEXT OF SEC.15C OF 192 2 ACT. IN THAT CASE THE HONBLE APEX COURT HAS OBSERVED AS UNDER: IT IS CLEAR THAT THE PRINCIPAL BUSINESS OF THE ASS ESSEE IS HEAVY ENGINEERING IN THE COURSE OF WHICH IT MANUFAC TURES BOILERS, WAGONS ETC. IF AN INDUSTRIAL UNDERTAKING P RODUCES CERTAIN MACHINES OR PARTS WHICH ARE, BY THEMSELVES, IDENTIFIABLE UNITS BEING MARKETABLE COMMODITIES AND THE UNDERTAKING CAN EXIST EVEN AFTER THE CESSATION OF T HE PRINCIPAL BUSINESS OF THE ASSESSEE, IT CANNOT BE AN YTHING BUT A NEW AND SEPARATE INDUSTRIAL UNDERTAKING TO QUALIF Y FOR APPROPRIATE EXEMPTION UNDER SECTION 15C. THE PRINC IPAL BUSINESS OF THE ASSESSEE CAN BE CARRIED ON EVEN IF THE SAID TWO ADDITIONAL UNDERTAKINGS CEASE TO FUNCTION. AGA IN, THE CONVERSE IS ALSO TRUE. THE FACT THAT THE ARTICLES PRODUCED BY THE TWO UNDERTAKINGS ARE USED BY THE BOILER DIVISIO N OF THE ASSESSEE WILL NOT WEIGH AGAINST HOLDING THAT THESE ARE NEW AND SEPARATE UNDERTAKINGS. ON THE OTHER HAND, THE FACT THAT A PORTION OF THE ARTICLES PRODUCED IN THESE TW O NEW INDUSTRIAL UNDERTAKINGS HAD BEEN SOLD IN THE OPEN M ARKET TO OTHERS IS A CIRCUMSTANCE IN FAVOUR OF THE ASSESSEE THAT THE NEW INDUSTRIAL UNITS CAN FUNCTION ON THEIR OWN. US E OF ARTICLES BY THE ASSESSEE IS NOT DECISIVE TO DENY TH E BENEFIT OF SECTION 15C. 8. THE QUESTION THAT ARISES NOW IS WHETHER THE TWO CHAMBERS CAN FUNCTION INDEPENDENTLY AS A SEPARATE UNIT OR NOT. IN THIS REGARD, THE FACTS PREVAILING IN THE YEAR RELEVANT TO THE ASSESSMENT Y EAR 2007-08, BECOMES HANDY TO RESOLVE THIS QUESTION. WE NOTICE THAT THE ASSESSEE HAS SOLD ONE OF THE CHAMBERS DURING THE YEAR RELEVANT TO THE ASS ESSMENT YEAR 2007-08 AND HAS CONTINUED TO CARRY ON HIS BUSINESS WITH ONL Y ONE CHAMBER. THIS FACT PROVES BEYOND DOUBT THAT THE TWO CHAMBERS DO N OT DEPEND UPON EACH OTHER FOR THEIR RESPECTIVE FUNCTIONING, MEANING THE REBY THEY CAN FUNCTION INDEPENDENTLY. IN THAT CASE, EACH CHAMBER HAS TO BE TREATED AS A SEPARATE INDUSTRIAL UNDERTAKING. HENCE, THE SECOND CHAMBER WHICH COMMENCED ITS OPERATION AFTER THE PRESCRIBED DATE WILL NOT BECOME ELIGIBLE FOR THE DEDUCTION U/S 80IB(11) OF THE ACT. ITA NOS 290 AND 474 OF 2010 KANYAKA PARAMESWARI CO LD STORAGE (P) LTD., VISAKHAPATNAM PAGE 6 OF 6 9. IN VIEW OF THE FOREGOING DISCUSSIONS, WE FIND NO INFIRMITY IN THE DECISION OF LD CIT(A) IN DENYING DEDUCTION U/S 80IB( 11) TO THE CHAMBER WHICH COMMENCED ITS OPERATIONS AFTER THE PRESCRIBED DATE. 10. IN THE RESULT, BOTH THE APPEALS OF THE ASSE SSEE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 28 TH JUNE, 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE:28-06-2011 COPY TO 1 M/S. KANYAKA PARAMESWARI COLD STORAGE PVT. LTD., 24-2-2/3 G.T. ROAD, R-AGRAHARAM, GUNTUR 2 THE ITO WARD-1(1) GUNTUR 3 4. THE CIT GUNTUR THE CIT(A), GUNTUR 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM