ASST CIT (OSD) 8(2), MUMBAI V. IHSEDU AGROCHEM P.LTD, MUMBAI

ITA 5057/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3726 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Assessment Year: 2010-2011
• Appeal Filed On: 04-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: OM PRAKASH MEENA
• Keywords: Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH , JUDICIAL MEMBER ITA NO. 5057/MUM/2014 : (A.Y : 2010 - 11) ACIT (OSD) - 8(2), MUMBAI VS. M/S. IHSEDU AGROCHEM PVT. LTD. AKHANDANAND, 38, MAROL CO.OP. INDL. ESTATE, OFF M.V. ROAD, SAKINAKA, MUMBAI 400 072 PAN : AAACI7321K (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MADHUR AGARWAL REVENUE BY : SHRI OMPRAKASH MEENA DATE OF HEARING : 25/02/2016 DATE OF PRONOUNCEMENT : 29 /04/2016 O R D E R PER G.S. PANNU , AM : THE CAPTIONED APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A) - 17 , MUMBAI DATED 07 . 05 .2014, PERTAINING TO THE ASSESSMENT YEAR 20 1 0 - 11 , WHICH IN TURN HAS ARISEN FROM THE ORDER PASSED BY THE ASSESSING OFFICER DATED 15 .0 2 .201 3 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. IN THIS APPEAL, REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 1. ON THE FACTS AN D IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN UPHOLDING THE ASSESSEES CLAIM OF DEDUCTION U/S. 35AD OF THE ACT WITHOUT 2 M/S. IHSEDU AGROCHEM PVT. LTD. ITA NO. 5057/MUM/2014 APPRECIATING THAT THE ASSESSEE HAS INCURRED EXPENDITURE OF SETTING UP OF SILO FOR CAPTIVE PURPOSES IN CONTRAVENTION OF THE PROVISIONS OF S 35AD WHICH PROVIDES FOR DEDUCTION IN RESPECT OF SPECIFIED BUSINESS? 2. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO BE RESTORED. 3. SUBSTANTIVELY SPEAKING, THE SOLITARY DISPUTE IN THIS APPEAL ARISES FROM THE DECISION OF THE CIT(A) IN HOLDING THAT ASSESSEES CLAIM FOR DEDUCTION OF RS.2,89,54,750/ - U/S. 35AD OF THE ACT IS JUSTIFIED IN THE CONTEXT OF THE EXPENDITURE INCURRED IN CONSTRUCTION OF A SILO (WAREHOUSE) FOR STORAGE OF AGRICULTURAL PRODUCE . 4. THE FACTUAL BACKGROUND NECESSARY TO ADJUDICATE THE AFORESAID CONTROVERSY CAN BE SUMMARIZED AS FOLLOWS. THE RESPONDENT - ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS, INTER - ALIA , ENGA GED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF VARIOUS GRAD E S OF CASTOR OILS. IN THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, THE TOTAL INCOME UNDER NORMAL PROVISIONS OF THE ACT WAS DECLARED AT RS. 92,22,420/ - WHICH, INTER ALIA , INCLUDED A CLAIM FOR DEDUCTION U/S. 35AD OF THE ACT OF RS.2,89,54,750/ - ON ACCOUNT OF INCURRENCE OF CAPITAL EXPENDITURE ON CONSTRUCTION OF SILO (WAREHOUSE). THE ASSESSING OFFICER SHOW CAUSED THE ASSESSEE TO JUSTIFY ITS CLAIM U/S. 35AD OF THE ACT FOR THE REASON THAT ASSESSEE WAS NOT IN THE BUSINESS OF SETTING UP AND OPERATING COLD CHAIN OR WAREHOUSING FACILITY FOR AGRICULTURAL PRODUCE WHICH WAS A REQUIREMENT OF SEC. 35AD OF THE ACT. BEFORE THE ASSESSING OFFICER, THE ASSESSEE MADE DETAILED SUBMISSIONS WHICH HAVE BEEN REPRODUCED IN THE ASSESSMENT ORDER, WHEREBY FACTUALLY IT WAS ASSERTED THAT DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAD SET UP A WAREHOUSING FACILITY FOR STORAGE OF AGRICULTURAL PRODUCE AND THAT THIS 3 M/S. IHSEDU AGROCHEM PVT. LTD. ITA NO. 5057/MUM/2014 FACILITY WAS UTILIZED FOR CAPTIVE P URPOSES INSTEAD OF RENTING IT TO THE OUTSIDERS. APART THEREFROM, IT WAS ALSO ASSERTED THAT MERELY FOR THE REASON THAT THE WAREHOUSING FACILITY IS USED FOR CAPTIVE PURPOSES WOULD NOT LEAD TO DISENTITLEMENT OF THE DEDUCTION U/S. 35AD OF THE ACT. AS THE ASS ESSMENT ORDER REVEALS, THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE ON TWO GROUNDS, VIZ., THAT THE ASSESSEE HAD SET UP A SILO AND NOT A WAREHOUSE TO STORE AGRICULTURAL PRODUCE WITHIN THE MEANING OF SEC. 35AD OF THE ACT; AND, THAT THE ASSESSEE C OMPANY WAS NOT IN THE BUSINESS OF SETTING UP OF WAREHOUSING FACILITY. ACCORDINGLY, THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S. 35AD OF THE ACT AMOUNTING TO RS. 2,89,54,750/ - WAS DISALLOWED. THE AFORESTATED DISALLOWANCE WAS CARRIED IN APPEAL BEFORE THE C IT(A) ON VARIOUS POINTS OF LAW AND FACTS. THE CIT(A) CONSIDERED THE SUBMISSIONS PUT FORTH BY THE ASSESSEE AND DISAGREED WITH THE ASSESSING OFFICER ON BOTH THE AFORESAID COUNTS. FIRSTLY, AS PER THE CIT(A), SILO IS NOTHING BUT A MODERN DEFINITION OF WARE HOUSE AND, THEREFORE, HE HELD THAT SETTING UP A SILO WAS TO BE UNDERSTOOD AS SETTING UP A WAREHOUSE FACILITY TO STORE AGRICULTURAL PRODUCE WITHIN THE MEANING OF SEC. 35AD OF THE ACT. SECONDLY, WITH REGARD TO THE OTHER OBJECTION OF THE ASSESSING OFFICER NO TED ABOVE, THE CIT(A) RELIED UPON THE PHRASEOLOGY OF SEC. 35AD(1) OF THE ACT AND HELD THAT THE SAME REQUIRED THE ASSESSEE ONLY TO SET UP AND OPERATE A WAREHOUSE FACILITY WHICH WAS DONE BY THE ASSESSEE AND THAT THERE WAS NO MERIT IN THE ARGUMENT OF THE ASSE SSING OFFICER THAT THE DEDUCTION IS NOT ALLOWABLE TO THE ASSESSEE BECAUSE IT IS NOT IN THE BUSINESS OF SETTING UP AND OPERATING WAREHOUSING FACILIT Y . IN A DETAILED DISCUSSION IN PARAS 2.3.2 TO 2.3.3 CIT(A) HAS CONSIDERED THE AFORESAID OBJECTIONS AND DISAG REED WITH THE ASSESSING OFFICER, AND ULTIMATELY UPHELD ASSESSEES CLAIM FOR DEDUCTION U/S. 35AD OF THE ACT. 4 M/S. IHSEDU AGROCHEM PVT. LTD. ITA NO. 5057/MUM/2014 5. BEFORE US, THE REVENUE IS IN APPEAL ON THE BASIS OF THE AFORESTATED GROUNDS OF APPEAL WHEREIN THE CHALLENGE TO THE ORDER OF THE CIT(A) IS ON A L IMITED PLATFORM. THE GRIEVANCE OF THE REVENUE, AS MANIFESTED IN THE GROUNDS OF APPEAL, IS THAT DEDUCTION U/S. 35AD OF THE ACT IS NOT ALLOWABLE IN THE INSTANT CASE BECAUSE CAPITAL EXPENDITURE HAS BEEN INCURRED FOR SETTING UP OF A SILO FOR CAPTIVE PURPOSES IN CONTRAVENTION OF THE PROVISIONS OF SEC. 35AD OF THE ACT WHICH PROVIDES FOR DEDUCTION IN RESPECT OF SPECIFIED BUSINESS. QUITE CLEARLY, THE OTHER OBJECTION RAISED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER TO THE EFFECT THAT SETTING UP A SILO W AS NOT TO BE REGARDED AS A WAREHOUSING FACILITY WITHIN THE MEANING OF SEC. 35AD OF THE ACT IS NOT MANIFESTED IN THE GROUNDS OF APPEAL RAISED BY THE REVENUE. BE THAT AS IT MAY, WE HAVE HEARD THE RIVAL COUNSELS IN THE CONTEXT OF THE GROUNDS OF APPEAL RAISED BY THE REVENUE. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE (IN SHORT THE DR) CONTENDED THAT THE SILO SET UP BY THE ASSESSEE WAS USED ONLY FOR CAPTIVE PURPOSES INSTEAD OF RENTING OUT TO OUTSIDERS AND, THEREFORE, IT COULD NOT BE SAID THAT SUCH ACTIVITY WAS A SPECIFIED BUSINESS REFERRED TO IN SEC. 35AD OF THE ACT. 7. ON THE OTHER HAND, THE LEARNED REPRESENTATIVE FOR THE RESPONDENT - ASSESSEE VEHEMENTLY POINTED OUT THAT THE CIT(A) MADE NO MISTAKE IN ALLOWING THE CLAIM OF THE ASSESSEE HAVING REGARD TO THE EXPLICIT REQUIREMENT S OF SEC. 35AD(1) OF THE ACT , WHICH SPECIFICALLY PROVIDE THAT DEDUCTION U/S. 35AD OF THE ACT IS BASED ON INCURRENCE OF CAPITAL EXPENDITURE BY AN ASSESSEE CARRYING ON THE SPECIFIED BUSINESS . THE LEARNED REPRESENTATIVE POINTED OUT THAT BEFORE THE CIT(A) AS WELL AS BEFORE THE ASSESSING OFFICER , ASSESSEE HAD ESTABLISHED THAT DURING THE YEAR UNDER CONSIDERATION IT HAD DIVERSIFIED BY SET TING - UP AND 5 M/S. IHSEDU AGROCHEM PVT. LTD. ITA NO. 5057/MUM/2014 OPERAT ING A WAREHOUSING FACILITY FOR STORAGE OF AGRICULTURAL PRODUCE AND FOR THIS PURPOSE A SILO (WAREHOUSE) WAS CONSTRUCTED BY INCURRING CAPITAL EXPENDITURE OF RS. 2,89,54,750/ - FOR STORING CASTOR SEEDS. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. THE CRUX OF THE CONTROVERSY IN THE PRESENT APPEAL REVOLVES AROUND THE PROVISIONS OF SEC. 35AD OF THE ACT WHICH PRESCRIBED FOR DEDUCTION IN RESPECT OF ANY EXPENDITURE OF CAPITAL NATURE INCURRED ON SPECIFIED BUSINESS. SUB - SECTION (1) OF SEC. 35AD OF THE ACT PO STULATES THAT AN ASSESSEE SHALL BE ALLOWED DEDUCTION IN RESPECT OF ANY EXPENDITURE OF CAPITAL NATURE INCURRED, WHOLLY AND EXCLUSIVELY, FOR THE PURPOSES OF ANY SPECIFIED BUSINESS CARRIED ON DURING THE YEAR IN WHICH SUCH EXPENDITURE IS INCURRED. SANS OTHER DETAILS, SO FAR AS IT IS RELEVANT FOR THE PRESENT CONTROVERSY, CLAUSE (C) OF SUB - SECTION 8 OF SEC. 35AD OF THE ACT PRESCRIBES THE MEANING OF THE EXPRESSION SPECIFIED BUSINESS TO INCLUDE SETTING UP AND OPERATING A WAREHOUSING FACILITY FOR STORAGE OF AGRI CULTURAL PRODUCE . THE CASE OF THE ASSESSEE IS THAT IT HAS INCURRED CAPITAL EXPENDITURE OF RS.2,89,54,750/ - IN CONSTRUCTING A WAREHOUSING FACILITY FOR STORAGE OF AGRICULTURAL PRODUCE BY CONSTRUCTING A SILO (WAREHOUSE). FACTUALLY SPEAKING, THE RESPONDENT - ASSESSEE IS ENGAGED IN THE ACTIVITY OF MANUFACTURING AND EXPORT OF CASTOR OILS BY USING CASTOR SEEDS AS ITS RAW MATERIALS. APART FROM THE SAID ACTIVITY, ASSESSEE ALSO PERFORMS CRUSHING OPERATIONS (I.E. CRUSHING OF CASTOR SEEDS) ON JOB WORK BASIS FOR WHICH IT RECEIVES JOB WORK CHARGES. IN CASE OF JOB WORK CONTRACT S , THE ASSESSEE COMPANY RECEIVES CASTOR SEEDS FROM THE CLIENTS, STORES THE SAME AND THEN PERFORMS CRUSHING OPERATIONS. DURING THE YEAR UNDER CONSIDERATION ASSESSEE CONSTRUCTED A SILO (WAREHOUSE) WHERE IT WAS STORING CASTOR SEEDS, BOTH ITS OWN RAW MATERIAL AS WELL AS THOSE RECEIVED FROM CLIENTS FOR CRUSHING. THE NEWLY CONSTRUCTED FACILITY WAS PUT TO USE FOR CAPTIVE 6 M/S. IHSEDU AGROCHEM PVT. LTD. ITA NO. 5057/MUM/2014 PURPOSES INSTEAD OF RENTING IT TO OUTSIDERS. UNDOUBTEDLY, IF ASSESSEE HAD LET OUT THIS SILO (WAREHOUSE) FACILITY, IT WOULD HAVE EARNED INCOME FROM OPERATION OF WAREHOUSING FACILITY, BUT AT THE SAME TIME IT WOULD HAVE TO PAY WAREHOUSING CHARGES FOR STORING ITS OWN RAW MATERIALS AS WELL AS THAT OF THE PARTIES FOR WHOM IT UNDERTOOK JOB WOR K OF CRUSHING CASTOR SEEDS. IN THE BACKGROUND OF SUCH FACTUAL ANALYSIS, ASSESSEE EXPLAINED BEFORE THE LOWER AUTHORITIES THAT IT HAS THUS SAVED ON STORAGE COSTS WHICH IT HAD TO INCUR IN THE PAST. THE AFORESAID FACTUAL MATRIX IS NOT IN DISPUTE. INSOFAR AS THE STAND OF THE REVENUE IS CONCERNED, AS MANIFESTED IN THE GROUNDS OF APPEAL, THE SAME IS TO THE EFFECT THAT USAGE OF SUCH WAREHOUSING FACILITY DOES NOT AMOUNT TO SPECIFIED BUSINESS WITHIN THE MEANING OF SEC. 35AD OF THE ACT. 9. IN OUR CONSIDERED OPINION, THE OBJECTION RAISED BY THE REVENUE IS MISPLACED BOTH ON FACTS AND ALSO IN LAW AS REFLECTED BY THE PHRASEOLOGY OF SEC. 35AD OF THE ACT. QUITE CLEARLY, THE RATIONALE OF THE DEDUCTION PRESCRIBED IN SEC. 35AD OF THE ACT IS BASED ON INVESTMENT AND, IN THE PRESENT CASE, THE CLAIM IS ON ACCOUNT OF INVESTMENT MADE IN THE CONSTRUCTION OF A WAREHOUSE FACILITY WHICH IS USED FOR STORAGE OF AGRICULTURAL PRODUCE, THEREFORE, TO DENY DEDUCTION ON THE GROUND THAT THE APPELLANT IS NOT IN THE BUSI NESS OF SETTING UP AND OPERATING WAREHOUSE FACILITY IS NOT PROPER. THE FACTUM OF THE ASSESSEE HAVING USED ITS WAREHOUSE FACILITY FOR STORAGE OF AGRICULTURAL PRODUCE IN THE COURSE OF ITS BUSINESS IS NOT IN QUESTION. THE MOOT POINT IS WOULD THE OBJECTION OF THE REVENUE BE MET IF THE ASSESSEE WAS TO EARN RENTAL BY GIVING OUT ITS WAREHOUSE FACILITY FOR STORAGE OF AGRICULTURAL PRODUCE AND INSTEAD INCUR COSTS FOR HIRING FACILITY FOR STORAGE OF ITS OWN CASTOR SEEDS. IN FACT , THE CIT(A) NOTED THAT IT IS NOT IN DISPUTE THAT THE MANNER IN WHICH ASSESSEE HAS USED ITS WAREHOUSING FACILITY HAS ENABLE D SAVING S ON STORAGE COST , WHICH IT HAD TO OTHE RWISE INCUR IN THE PAST 7 M/S. IHSEDU AGROCHEM PVT. LTD. ITA NO. 5057/MUM/2014 YEARS. THE UNDERLYING POINT IS THAT THE WAREHOUSE HAS BEEN UT ILISED IN THE COURSE OF BUSINESS. THEREFORE, IN OUR CONSIDERED OPINION, CIT(A) MADE NO MISTAKE IN HOLDING THAT MERE USAGE OF THE WAREHOUSING FACILITY FOR CAPTIVE PURPOSES WOULD NOT DISENTITLE THE ASSESSEE FROM THE CLAIM OF DEDUCTION U/S. 35AD OF THE ACT I NASMUCH AS THE ASSESSEE HAS OTHERWISE COMPLIED WITH ALL THE REQUIREMENTS TO CLAIM DEDUCTION U/S. 35AD OF THE ACT. THEREFORE, WE CONCLUDE BY HOLDING THAT THE ORDER OF CIT(A) DESERVES TO BE AFFIRMED, WHICH WE HEREBY DO. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 9 T H APRIL, 2016. SD/ - SD/ - ( AMARJIT SINGH ) JUDICIAL MEMBER ( G.S. PANNU ) ACCOUNTANT MEMBER MUMBAI, DATE : 2 9 T H APRIL , 2016 *SSL* COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, I BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI