RITESH AGARWAL, MUMBAI V. ASST. CIT 17(3), MUMBAI

ITA 7368/MUM/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4378 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 24-12-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JYOTHILAKSHMI NAYAK
• Keywords: Opportunity of being heard
• Section: 80HHC; 80IC; 80HH; 80IC; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHR I G. MANJUNATH A , ACCOUNTANT MEMBER ITA NO. 7368 / MUM . /201 8 ( ASSESSMENT YEAR : 20 13 14 ) RITESH AGARWAL 501, EMBASSY CENTRE NARIMAN POINT, MUMBAI PAN ABMPA1788L . APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 17(3), MUMBAI . RESPONDENT ASSESSEE BY : SHRI S.L. JAIN REVENUE BY : SMT. JYOTHILAKSHMI NAYAK DATE OF HEARING 20 .01.2020 DATE OF ORDER 26.02.2020 O R D E R PER SAKTIJIT DEY. J.M. THE CAPTIONED APPEAL HA S BEEN FILED BY THE ASSESSEE CHALLENGING THE ORDER DATED 28 TH NOVEMBER 2018, PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 28 , MUMBAI, PERTAINING TO THE ASSESSMENT YEAR 20 13 14 . 2 RITESH AGARWAL 2. IN GROUND NO.1, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF ` 10,16,400, CLAIMED TOWARDS DEDUCTION UNDER SECTION 80IC OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ). 3. BRIEF FACTS ARE, THE ASSESSEE , AN INDIVIDUAL , IS ENGAGED IN THE BUSINESS OF MANUF ACTURING PLASTIC PACKING MATERIAL THROUGH HIS PROPRIETORSHIP CONCERN CREATIVE PLASTOPACK . FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE FILED HIS RETURN OF INCOME ON 23 RD SEPTEMBER 2013, DECLARING INCOME OF ` 12,52,69,162, AFTER CLAIMING DEDUCTION UNDER SECTION 80IC OF THE ACT. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSES SING OFFICER WHILE VERIFYING ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT FOUND THAT IT ALSO INCLUDES WAREHOUSING CHARGES OF ` 10,16,400. NOTICING THIS, HE CALLED UPON THE ASSESSEE TO EXPLAIN WHY CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT IN RESPECT OF WAREHOUSING CHARGES SHOULD NOT BE DISALLOWED. IN RESPONSE, IT WAS SUBMITTED BY THE ASSESSEE THAT WAREHOUSING CHARGES WERE R ECEIVED FROM CUSTOMER S FOR LIFTING MATERIAL BEYOND PERMITTED TIME LIMIT, HENCE, IS DIR ECTLY RELATED TO SALES EFFECTED. T HEREFORE, THE DEDUCTION IS ALLOWABLE. THE ASSESSING OFFICER, HOWEVER, DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE. REFERRING TO THE P ROVISIONS OF SECTION 80IC OF THE ACT, HE OBSERVED THAT THE PROFIT WHICH IS SUBJECT TO DEDUCTION UNDER SECTION 80IC OF THE ACT, HAS TO BE DERIVED DIRECTLY FROM THE MANUFACTURING OF ANY ITEM. WHEREAS, THE WAREHOUSING 3 RITESH AGARWAL CHARGES RECEIVED BY THE ASSESSEE IS NOT A PART OF MANUFACTURING ACTIVITY. ACCORDING TO THE ASSESSING OFFICER, WAREHOUSING CHARGES RECEIVED BY THE ASSESSEE IS A PART OF OTHER INCOME WHICH THE ASSESSEE HAS ALSO ACKNOWLEDGED IN ITS FINANCIAL STATEMENT. THEREAFTER, RELYING UPON THE DECISIONS OF THE H ON'BLE SUPREME COURT IN LIBERTY INDIA V/S CIT, [2009] 183 TAXMAN 349 (SC) AND CIT V/S STERLING FOODS, [2999] 104 TAXMAN 204 (SC), THE ASSESSING OFFICER DISALLOWED DEDUCTION CLAIMED UNDER SECTION 80IC OF THE ACT OF ` 10,16,400, WHICH WORKED OUT AT 25% AMOUN TED TO ` 2,54,100. THOUGH, THE ASSESSEE CHALLENGED THE A FORESAID DISALLOWANCE BEFORE LEARNED COMMISSIONER (APPEALS), HOWEVER, HE WAS UNSUCCESSFUL. 4. REITERATING THE STAND TAKEN BEFORE T HE DEPARTMENTAL AUTHORITIES LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , WAREHOUSING CHARGE IS INTEGRALLY CONNECTED TO THE BUSINESS OF THE UNDERTAKING. HE SUBMITTED , AS PER THE TERMS OF THE AGREEMENT, THE CUSTOMER HAS TO LIFT THE GOODS WITHIN THE PERMITTED TIME LIMIT. HE SUBMITTED , IF A CUSTOMER DOES NOT LIFT THE GOODS WITHIN THE PERMITTED TIME LIMIT, THE ASSESSEE HAS TO STORE THE GOODS IN ITS WAREHOUSE AND FOR PROVIDING THE FACILITY OF STORAGE HE CHARGES CERTAIN FEE TOWARDS WAREHOUSING CHARGES. THUS, HE SUBMITTED , WAREHOUSING CHARGE BEING INTEGRALLY CONNECTED TO THE BUSI NESS O F THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT. FURTHER, HE SUBMITTED , THE LANGUAGE USED IN SECTION 80IC OF THE ACT IS 4 RITESH AGARWAL DIFFERENT FROM LANGUA GE USED IN SECTION 80HHC / 80HH OF THE ACT. HE SUBMITTED , LIKE SECTION 80IB, SECTION 80IC AL SO SPEAKS OF PROFITS AND GAINS DERIVED FROM ANY BUSINESS OF THE INDUSTRIAL UNDERTAKING. THUS, HE SUBMITTED , IF THE INCOME IS FROM ANY SOURCE OF BUSINESS, IT IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT. THUS, HE SUBMITTED , ASSESSEE IS ENTITLED T O CLAIM DEDUCTION UNDER SECTION 80IC OF THE ACT IN RESPECT OF WAREHOUSING CHARGES. IN SUPPORT OF SUCH CONTENTION, THE LEARNED AUTHORISED REPRESENTATIVE RELIED UPON THE FOLLOWING DECISIONS: I) CIT V/S ELTEK SGS PVT. LTD., [2008], 300 ITR 006 (DEL.); AND II) CIT V/S JAGDISH PRASAD M. JOSHI, [2009] 318 ITR 420 (BOM.). 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELYING UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND LEARNED COMMISSIONER (APPEALS) SUBMITTED , AS PER THE PROVISIONS OF SECTION 80I C OF THE ACT, ONLY THE PROFITS AND GAINS DE RIVED FROM ANY BUSINESS OF THE U NDERTAKING IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT. SHE SUBMITTED , WAREHOUSING IS CERTAINLY NOT THE BU SINESS OF THE ASSESSEE. THEREFORE, THE WAREHOUSE CHARGES CANNOT BE CONSIDERE D TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT. SHE SUBMITTED , THE DECISIONS RELIED UPON BY THE LEARNED AUTHORISED REPRESENTATIVE , SINCE , ARE NOT CONCERNING SECTION 80IC OF THE ACT, THE RATIO LAID DOWN THEREIN WOULD NOT APPLY. 5 RITESH AGARWAL 6. WE HAVE CONSID ERED RIVAL SUBMISSIONS IN THE LIGHT OF THE DECISIONS RELIED UPON AND PERUSED THE MATERIAL ON RECORD. THE CORE ISSUE ARISING FOR CONSIDERAT ION IS, WHETHER OR NOT THE WARE HOUSING CHARGES RECEIVED BY TH E ASSESSEE QUALIFY FOR DEDUCTION UNDER SECTION 80IC OF TH E ACT. ON A REA DING OF SECTION 80IC OF THE ACT IT BECOMES CLEAR THAT ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING FROM ANY BUSINESS WILL BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT. THE EXPRESSION ANY BUSINESS WOULD MEAN ANY BUSINESS CARRI ED ON BY THE UNDERTAKING OR ENTERPRISE. IN THE PRESENT CASE, THE BUSINESS OF THE ASSESSEE IS MANUFACTURING OF PLASTIC PACKING MATERIAL. THUS, PRIMA FACIE, IT APPEARS THAT THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF WAREHOUSING. HOWEVER, IT IS THE CONTEN TION OF THE ASSESSEE FROM THE ASSESSMENT STAGE ITSELF THAT IN THE EVENT THE CUSTOMER DOES NOT LIFT THE GOODS WITHIN THE PERMISSIBLE TIME LI MIT, WAREHOUSING CHARGES IS LEVIED FOR STORAGE OF GOODS IN THE WAREHOUSE. THUS, IT HAS BEEN CONTEN DED THAT THE WAREHO USING CHARGE IS INTEGRALLY CONNECTED TO MANUFACTURE AND SALE OF GOODS. IN THIS CONTEXT, IT IS ESSENTIAL TO LOOK INTO THE TERMS OF THE CONTRACT BETWEEN THE ASSESSEE AND THE CUSTOMERS FOR LEVY OF WAREHOUSING CHARGES. AS IT APPEARS, NO MATERIAL HAS BEEN BROUG HT BEFORE THE DEPARTMENTAL AUTHORITIES TO DEMONSTRATE UNDER WHAT CIRCUMSTANCES WAREHOUSING CHA RGE CAN BE LEVIED FROM THE CUSTOMERS. EVEN , ON A SPECIFIC QUERY FROM THE BENCH TO FURNISH ANY AGREEMENT OR 6 RITESH AGARWAL DOCUMENT PROVIDING FOR LEVY OF WAREHOUSING CHARGES, THE LEARNED AUTHORISED REPRESENTATIVE WAS UNABLE TO FURNISH THEM. IN OUR CONSIDERED OPINION, THE TERMS AND CONDITIONS OF LEVY OF WAREHOUSING CHARGES WOULD HAVE A CRUCIAL BEARING ON DETERMINING WHETHER THE WAREHOUSING CHARGE IS INTEGRALLY CONNECTED TO THE PROF ITS AND GAINS DERIVED FROM THE BUSINESS. SINCE , THE AFORESAID ASPECT HAS NOT BEEN FACTUALLY VERIFIED EITHER DUE TO LACK OF MATERIAL OR OTHERWISE, WE ARE INCLINED TO RESTORE THE ISSUE TO THE ASSESSING OFFICER FOR FRESH ADJUDICATION AFTER DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND RAISED IS ALLOWED FOR STATISTICAL PURPOSES. 7. IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED AD HOC DISALLOWANCE MADE OUT OF CONVEYANCE EXPENSES. 8. BRIEF FACTS ARE, DU RING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO FURNISH THE DETAILS OF CASH EXPENSES AMOUNTING TO ` 32,67,749. AFTER VERIFY ING THE DETAILS FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER FOUND THAT THE EXPENDITURE SHOWN UNDER THE FOLLOWING HEADS WERE N OT SUPPORTED BY ANY THIRD PARTY EVIDENCE, BUT ARE ONLY SUPPORTED BY SELF MADE VOUCHERS. I) CONVEYANCE EXPENSES ` 5,84,368 II) STAFF WELFARE EXPENSES ` 1,37,217 III) LABOUR WELFARE EXPENSES ` 3,29,039 7 RITESH AGARWAL 9. STATING THAT ASSESSEES CLAIM RELATING TO THE AFORESAID EXPENDITURE IS NOT FULLY VERIFIABLE, THE ASSESSING OFFICER DISALLOWED 20% OUT OF THE EXPENDITURE CLAIMED UNDER THE AFORESAID THREE HEADS. AS A COROLLARY, HE ALSO MADE PROPORTIONATE DISALLOWANCE FROM THE DEDUCTION CLAIMED UNDER SECTION 80IC , WHICH WORKED OU T TO ` 52,531. 10. WHILE DECIDING ASS ESSEES APPEAL ON THE ISSUE, LEARNED COMMISSIONER (APPEALS) RESTRICTED THE DISALLOWANCE TO 50% OF THE AMOUNT DISALLOWED BY THE ASSESSING OFFICER . 11. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, THE DISALLOWANCE IS PURELY ON AD HOC AND ESTIMATE BASIS WITHOUT ANY REASONABLE GROUND. HE SUBMITTED , LOOKING AT THE TURNOVER OF THE ASSESSEE, THE EXPENDIT URE CLAIMED IS QUITE REASONABLE. H ENCE, NO PART OF IT SHOULD HAVE BEEN DISALLOWED. HE SUBMITTED , NO SUCH DISALLOWANCE HAS EVER BEEN MADE IN ANY OTHER ASSESSMENT YEAR. THUS, HE SUBMITTED , THE DISALLOWANCE MADE SHOULD BE DELETED. 12. THE LEARNED DEPARTMENTAL REPRESENTATIVE REL IED UPON THE OBSERVATIONS OF LEARNED COMMISSIONER (APPEALS). 13. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS COULD BE SEEN, THE ASSESSING OFFICER HAS DISALLOWED A PART OF THE EXPENDITURE ON A PURELY AD HOC BASIS BY SIMPLY STATING THAT 8 RITESH AGARWAL THESE ARE NOT SUPPORT ED BY ANY THIRD PARTY EVIDENCE, HENCE, NOT FULLY VE RIFIABLE. WHEREAS, LEARNED COMMISSIONER (APPEALS) REDUCED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TO 50%. ON A PERUSAL OF THE NATURE OF EXPENDITURE, WE ARE OF THE VIEW THAT CONSIDERING THE TURNOVER SHOWN BY THE ASSESSEE, THE EXPENDITURE CLAIMED CANN OT BE CONSIDERED TO BE EITHER UNREASONABLE OR EXCESSIVE. FURTHER, IT IS A FACT ON RECORD THAT THE ASSESSEE HAS PRODUCED SOME EVIDENCES TO SUPPORT THE CLAIM OF EXPENDITURE. THE ASSESSING OFFICER HAS NOT FOUND SUCH EVIDENCES TO BE TOTALLY UNRELIABLE. IN SUCH CIRCUMSTANCES, A PART DISALLOWANCE OF THE EXPENDITURE CLAIMED PURELY ON AD HOC BASIS, IN OUR VIEW, IS NOT SUSTAINABLE. ACCORDINGLY, WE DELETE THE DISALLOWANCE OF THE EXPENDITURE. THE ASSESSEE WOULD GET CONSEQUENTIAL BENEFIT UNDER SECTION 80IC OF THE AC T. GROUNDS NO.2 AND 3 ARE ALLOWED. 14. GROUND NO.4, BEING GENERAL IN NATURE DO ES NOT REQUIRE ADJUDICATION, HENCE, DISMISSED. 15. IN THE RESULT, APPEAL IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN C OURT ON 26.02.2020 SD/ - G. MANJUNATH A ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 26.02.2020 9 RITESH AGARWAL COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI