A.P. State Warehousing Croporation, Hyderabad V. DCIT, Circle-1(1), Hyd., Hyderabad

ITA 836/HYD/2012

• Counselvise Citation: 83622514 RSA 2012
• Duration Of Justice: 1 year(s) 7 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 25-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHARA REDDY
• Assessee Lawyers: B SATYANARAYANA MURTHY
• Keywords: Business expenditure; Revised return
• Section: 11A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.834/HYD/2012 : ASSTT. YEAR 2005 - 06 ITA NO.835/HYD/2012 : ASSTT. YEAR 2006 - 07 ITA NO.836/HYD/2012 : ASSTT. YEAR 2007 - 08 A.P.STATE WAREHOUSING CORPORATION, HYDERABAD ( PAN - AABCA 7364 F) V/S. DY. COMMISSIONER OF INCOME - TAX CIRCLE 1( 1), HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.SATYANARAYANA MURTHY RESPONDENT BY : SHRI P.SOMASEKHARA REDDY DATE OF HEARING 6 .11.201 3 DATE OF PRONOUNCEMENT 24.1.2014 O R D E R PER SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER: THESE THREE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST SEPARATE ORDERS OF THE COMMISSIONER OF INCOME - TAX(APPEALS) II, HYDERABAD, ALL DATED 20.3.2012 FOR THE ASSESSMENT YEARS 2005 - 06 TO 2007 - 08. SINCE COMMON ISSUES ARE INVOLVED, THESE APPEALS ARE BEING DISPOSED OF WITH THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST COMMON ISSUE IN ALL THESE APPEALS RELATES TO DENIAL OF ASSESSEES CLAIM FOR RELIEF UNDER S.80IB(11A) OF THE ACT. 3. FACTS OF THE CASE, IN BRIEF, AS TAKEN FROM THE AP PEAL FOLDER FOR THE ASSESSMENT YEAR 2005 - 06, VIZ. ITA NO.834/HYD/2012, ARE THAT THE ASSESSEE COMPANY, CARRYING ON THE BU S IN E SS OF TAKING GODOWNS ON LEASE FROM PRIVATE PARTIES AND LETTING THEM TO FCI ON GUARANTEE FOR SPECIFIC YEARS. THE ASSESSEE COMPANY INITIALLY FILED THE RETURN O F INCOME FO R THE ASSESSMENT YEAR 2005 - 06 I TA NO. 834 TO 836/ HYD/2012 A.P. STATE WAREHOUSING CORPORATION HYDERABAD 2 UNDER S.139(1) ADMITTING A TOTAL INCOME OF RS.18,74,14,600, AFTER CLAIMING DEDUCTION UNDER S.80IB OF RS.1,09,59,828 ON 30.10.2005 . THOUGH T HE ASSESSEE SUBSEQUENTLY FILED REVISED RETURN OF INCOME ON 2.4.2007 ADMITTING A TOTAL INCOME OF RS.3,07,04,490 AFTER CLAIMING DEDUCTION UNDER S.80IB OF RS.16,56,60,932 , O N THE GROUND THAT THE ASSESSEE HAS NO T FILED THE REVISED RETURN WITHIN THE TIME SPECIFIED IN THE ACT, THE ASSESSING OFFICER IGNORI NG THE REVISED RETURN, PROCEED E D TO COMPLETE THE IMPUGNED ASSESSMENT UNDER S.143(3)OF THE ACT, ON THE BASIS OF ORIGINAL RETURN. 4. WHILE DOING SO, THE ASSESSING OFFICER INTER ALIA EXAMIN ING THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER S.80IB( 11A) OF THE ACT, NOTED THAT THE FOLLOWING CONDITIONS SHALL HAVE TO B E FULFILLED BY AN ASSESSEE , WHO I S IN THE INTEGRATED BUSINESS OF HANDLING, STORAGE AND TRANSPORTATION OF FOOD GRAINS , TO CLAIM DEDUCTION UNDER S.80IB(11A) . A ) PROFITS AND GAINS HAVE TO BE DE RIVED FROM THE ELIGIBLE BUSINESS, I.E. FROM THE INTEGRATED BUSINESS OF HANDLING, STORAGE AND TRANSPORTATION OF FOOD - GRAINS. B ) THE PROFITS HAVE TO BE DERIVED FROM THE OPERATION OF INTEGRATED BU S IN E SS OF HANDLING, STORAGE AND TRANSPORTATION OF FOOD - GRAINS, C ) THE ELIGIBLE UNDERTAKING HAS TO BEGIN SUCH BUSINESS FORM THE INITIAL YEAR OF CLAIM OF DEDUCTION. D ) THE UNITS IN RESPECT OF WHICH I T CLAIMED EXEMPTION SHOULD HAVE STARTED OPERATIONS ON OR AFTER THE 1 ST DAY OF APRIL, 2001. THE ASSESSING OFFICER ALSO REFERR ED TO THE FUNCTIONS LISTED IN THE WAREHOUSING CORPORATION ACT, 1962, DULY EXTRACTING THE RELEVANT PORTION THEREOF FROM THE SAID STATUTE , AND OBSERVED THAT THE BASIC FUNCTIONS OF THE ASSESSEE AS PER THE SAID ACT ARE AS FOL L OWS - I TA NO. 834 TO 836/ HYD/2012 A.P. STATE WAREHOUSING CORPORATION HYDERABAD 3 ( I ) ACQUIRE AND BUILD GODOWNS AN D WAREHOUSES ( II ) RUN WAREHOUSES FOR THE STORAGE OF AGRICULTURAL PRODUCE, SEEDS, MANURES, FERTILIZERS, AGRICULTURAL IMPLEMENTS AND NOTIFIED COMMODITIES. ( III ) ARRANGE FACILITIES FOR THE TRANSPORT OF THE SPECIFIED COMMODITIES IN (II) TO AND FROM WAREHOUSES. 5 . THE ASSESSING OFFICER, ON PERUSAL OF THE ABOVE FUNCTIONS, NOTED THAT NOWHERE IT IS MEN T ION E D THAT HANDLING AND TRANSPORTATION ARE MAIN FUN C TION S OF TH E ASSESSEE CORPORATION, AND WITHOUT ANY AMBIGUITY, IT IS STATED AT SUB - SECTION (C) OF S.24 OF THE CORPORATION ACT, THAT THE CO R P O RATION HAS TO ARRANGE FACILITIES FOR TRANSPORT OF THE SPECIFIED COMMODITIES TO AND FROM WAREHOUSES. THE ASSESSING OFFICER FURTHER NOTED T HAT AS P E R THE INFORMATION FURNISHED BY THE ASSESSEE, IT HAS NO T ADDED ANY NEW ACTIVITY SUCH AS HA NDLING AND TRANSPORTATION ON ITS OWN FROM 1.4.2001 ONWAR D S. TO KNOW ABOUT THE HANDLING AND TR ANSPO R T ACTIVITIES, IF ANY, ASSESSEE WAS REQUESTED TO FURNISH THE DETAILS OF ASSETS ACQUIRED ON OR AFTER 1.4.2001. ON GO I NG THROUGH THE ASSESSEES REPLY I N THAT BEHALF, THE ASSESSING OFFICER FOUND THAT NO EQUIPMENT FOR HAN D LIN G OPERATION OR VEHICLES FOR TRANSPORTATION ARE ACQUIRED. THE ASSESSING OFFICER FURTHER EXAMINED THE LEGISLATIVE INTENT WHILE INSERTING SU B - SECTION (11A) IN S.80IB BY THE FINANCE ACT, 2001 AND NOTED THAT IT WAS TO ENCOURAGE THE PERSON S TO COME FORWARD TO CR E ATE FACILITIES TO BRING THE FOOD GRAINS FROM REMOTE PLACES WITHOUT MUCH LOSS OF QUANTITY OF THE COMMODITIES BY ADOPTING MODERN HANDLING AND STORA G E METHODS. THE MAIN OBJECTIVE IS MINIMIZATI ON OF WASTAGE OF FOOD - GRAINS IN HANDLING, STORAGE AND TRANSPORTATION. THE WORD INTEGRATED , ACCORDING TO THE ASSESSING OFFICER, MIGHT HAVE BEEN USED SPECIFICALLY TO SEE THAT ALL THESE ACTIVITIES ARE CARRIED OUT BY SING L E PERSON, SO THAT IT WOULD GIVE DE S I RED RE S ULT. IF T H AT WAS NO T INTENTION OF THE P ARLIAMENT, TH E WORD INTEGRATED , ACCORDING TO THE ASSESSING OFFICER, COULD HAVE NOT FOUND PL A CE IN SUB - SECTION 11A OF S.,80IB OF THE ACT. FOR TH E SE REASONS, TH E ASSESSING OFFICER CONCLUDED THA T THE ASSESSEE IS NOT ELIGIBLE I TA NO. 834 TO 836/ HYD/2012 A.P. STATE WAREHOUSING CORPORATION HYDERABAD 4 TO CL A IM THE DE D UC T ION UNDER S.80IB(11A), AND ACCORDINGLY DISALLOWED THE CLAIM MADE BY THE ASSESSEE IN THAT BEHALF. 6 . ON APPEAL BEFORE THE CIT( A), THE ASSESSEE, REITERATING THE CONTENTIONS URGED BEFORE THE ASSESSING OFFICER SUBMITTED THAT THE ASSESSEE WAS EARLIER CLAIMING EXEMPTION PROVIDED IN S .10(29) OF THE ACT UPTO THE ASSESSMENT YEAR 2002 - 03, AND THE WAREHOUSING INCOME WAS EX E MPTED UNDER THAT PROVIS I ON AND THE OTHER INCOMES WERE USED TO B E TAXED IN THE HANDS OF TH E CORPO R ATION . SINCE S.10(29) WAS OMITTED BY FINANCE ACT, 2002 W.E.F. 1.4.2003, AND SUB - SECTION 11A WAS INTRODUCED IN S.80IB FROM ASSESSMENT YEAR 2002 - 03 IN RESPECT OF UN D ERTAKIN G S DE RIVING THE PROFITS FROM THE INTEGRATED BU S IN E SS OF HANDLING, STORAGE AND TRANSPORTATION OF FOOD - GRAIN S , THE ASSESSEE CORPORATION CLAIMED THAT IT IS ENTITLED TO THIS EXEMPTION, AS ITS BUSINESS IS MAINLY HANDLING, S T ORAGE AND TRANSPORTATION OF FOOD - GRAINS. THE CIT(A) TOO, FOUND NO MERIT IN THE CONTENTIONS OF THE ASSESSEE WITH REGARD TO ITS ENTITLEMENT TO RELIEF UNDER S .80 - IB(11) OF THE ACT. HE NO T ED T HAT THE ASSESSEE WAS INCORPORATED IN TH E Y E AR 1958 AND IT HAS BEEN ENJOYING THE EXE MP TION UNDER S.10(2 9 ) S INCE TH E N . THE CIT(A) THEN, REFERR ED TO THE BOARDS CIRCULAR NO.8 OF 2002 DATED 27.2.2002 WHICH EXPLAINED THE OMISSION OF CLAUSE (2 9 ) OF S.10 . HE FURTHER OBSERVED THAT DEDUCTION UN D ER S.80IB(11A) IS AVAILABLE FOR FIVE Y EA RS COMMENCING FROM THE INITIAL Y E AR COMMENCING FROM 1.4.2001, I.E. THE RELIEF WILL BE AVAILABLE W.E.F. 1.4.2002 FOR ALL UN D ERTAKIN G S WHICH HAVE BEGUN OPERATION S OR AFTER 1 ST APRIL, 2001 FOR ANY INCOME FROM THE INTEGRATED BU S I NE SS OF HANDLING, STORAGE, TRANSPORTATION OF FOOD GRAINS. THEN, HE REFERRED TO THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CA S E OF DY.CIT V/S. GEO EMPRO PETROLEUM LTD. (2007)15 SOT 419, WHEREIN THE EXPRESSION INITIAL YE A R VIS - - VIS A DMISSIBILI TY O F DEDUCTION UNDER S.80IB OF THE ACT HAS BEEN EXAMINED, AND NOTED THAT IN THE PRESENT CA S E, THE OP ER ATION S O F THE ASSESSEE CORPORATION HAVE STARTED IN 1958 AND THERE IS NO NEW ACTIVITY WHICH B E GUN TO OPERATE ON OR AFTER 1.4.2001 AND THE ASSESSEE HAS NO T SUBSTANTIATED WIT H ANY DOCUM E N T ARY PROOF THAT IT HAS OBTAINED ANY CONTRACT EITHER FOR CONSTRUCTION OR PRESERVATION , OUT OF A SCHEME SPONSORED BY TH E I TA NO. 834 TO 836/ HYD/2012 A.P. STATE WAREHOUSING CORPORATION HYDERABAD 5 GOVERNMENT OF INDIA ADMINI S TERED BY AN AGENCY OF THE ST ATE GOVERNMENT. IF THE ASSESSEE HAS BEEN DOING THE SAME BUSINESS S IN C E 1958 ONW A RDS, THEN, THE CIT(A) NO T ED, THE BENEFIT U/S. 80IB(11A) CANNO T B E APPLIED R E TROSPECTIVELY AND EVEN THEN THE PERIOD OF FIVE Y EA RS SPECIFIED IN THE SECTION HAS ALREADY EXPIRED. THE CIT(A) ALSO REJECTED THE ASSESSEES PLEA FOR L IBERAL INTERPRETATION OF S.80IB(11A), IT BEING A BENEFICIAL PROVISION, REFERRING TO THE DECISION OF MUMBAI BENCH OF TRIBUNAL IN THE CA S E OF LAUKIK DEVELO P ERS V/S. DY. CIT(2007)15 (II)ITCL 379(MUM - TRIB). THE CIT(A) , ACCORDINGLY UPHELD THE ACTION OF THE ASSE SSING OFFICER IN DENYING THE RELIEF CLAIMED BY THE ASSESSEE UNDER S.80IB(11A) OF THE ACT. 7 . FOR THE OTHER TWO YEARS ALSO, BU T FOR THE AMOUNTS INVOLVED, FACTS ARE IDENTICAL, AND IN FACT, THE CIT(A) BY THE SEPARATE ORDERS PASSED, UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER, BY FOLLOWING HIS ORDER O F THE ASSESSMENT YEAR 2005 - 06. 8 . AGGRIEVED BY THE ORDER S OF THE CIT(A ) SUSTAINING THE DISALLOWANCE OF THE CLAIM FOR RELIEF UNDER S.80IB(11A) OF THE ACT, ASSESSEE PREFERRED THE PR E SEN T APPEAL S BEFORE US. 9 . THE LEARNED COUNSEL FOR THE ASSESSEE, R E IT E RATING THE CONTENTION S URGED BEFORE THE LOWER AUTHORITIES SUBMITTED THA T THE ASSESSEE CORPORATION IS RIGHTLY ENTITLED TO DEDU CT ION UNDER S.80IB(11A) IN RESPECT OF THE NEW WAREHOUSES CONST R U C TED. HE SUBMI T T E D THAT THE ASSESSEE CO R PORATION HAS FULFILLED ALL TH E CONDIT I ONS CONTAINED IN SUB - SECTION (11A) OF S.80IB OF THE ACT. H E SUBMITTED THAT THE ASSESSEE - CORPORATION HAS GODOWNS EITHER NEWLY CONSTRUCTED BY IT OR TAKEN ON LEASE THAT IT STORES FOOD - GRAINS BELONGING TO FOOD CORPORATION OF INDIA MAINLY AND HANDLES AND TRANSPORTS SUCH FOODGRAINS UNDER ITS SUPERVISION BY HIRING MEN AND MATERIAL WHEREVER NECESSARY. THEREFORE, IT IS SUBMITTED THAT THE LOWER AUTHORITIES SHOULD HAVE SEEN THAT THE ASSESSEE HAS ACTUALLY CARRIED ON INTEGRATED BUSINESS OF STORAGE, AND HANDLING OF FOODGRAINS. IT I TA NO. 834 TO 836/ HYD/2012 A.P. STATE WAREHOUSING CORPORATION HYDERABAD 6 IS FURTHER SUBMITTED THAT THE EXEMPTION CLAIME D BY THE ASSESSEE WAS ONLY N RESPECT OF NEW WAREHOUSES CONSTRUCTED OR ACQUIRED OR TAKEN ON LEASE. HE SUBMITTED THAT THE ASSESSEE CORPORATION WAS ESTABLISHED IN 1958, IT HAS BEEN ESTABLISHING NEW WAREHOUSES AT DIFFERENT PLACES IN THE STATE FROM TIME TO TIM E AND THAT EACH NEW WAREHOUSE SO ESTABLISHED IS A NEW UNDERTAKING OF THE ASSESSEE, ELIGIBLE FOR EXEMPTION UNDER S.80IB(11A) OF THE ACT. IT IS ALSO POINTED OUT THAT THE CIT(A) WAS NOT CORRECT IN HOLDING THAT THERE WAS NO ACTIVITY WHICH BEGAN TO OPERATE ON OR AFTER 1.4.2001, SINCE THE ASSESSEE - CORPORATION SET UP SEVERAL NEW WAREHOUSE AFTER 1.4.2001 IN RESPECT OF WHICH THE ASEE - CORPORATION CLAIMED EXEMPTION UNDER S.80IB(11A) OF THE ACT. 10 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, STRONG LY RELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE ASSESSEE, NOT BEING AN INTEGRATED UNDERTAKING, IS NOT ENTITLED FOR THE RELIEF UNDER S.80IB(11A) OF THE ACT. HE SUBMITTED THAT TRANSPORT AND HANDLING ACTIVITIES CLAIMED BY THE ASSESSEE ARE MERELY INCIDENTAL AND NOT INTEGRATED TO ITS MAIN ACTIVITY. HE ALSO SUBMITTED THAT THE ASSESSEE, IN THE COURSE OF ITS WAREHOUSING ACTIVITY DEALS NOT ONLY WITH FOODGRAINS SPECIFIED IN SUB - SECTION (11A) BUT ALSO WITH FERTILIZERS. 1 1 . WE HAVE CONSIDER ED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD . IT IS EVIDENT FROM THE ORDERS OF THE LOWER AUTHORITIES THAT THE CLAIM OF THE ASSESSEE FOR RELIEF UNDER S.80IB(11A) HAS BEEN DISALLOWED MAINLY ON THE GROUND THAT THE ACTIVITIES OF THE AS SESSEE DO NOT CONSTITUTE AN INTEGRATED. THE NEXT REASON FOR WHICH THE CLAIM WAS DISALLOWED WAS ALSO THAT , ASSESSEE CORPORATION, HAVING BEEN INCORPORATED IN 1958, AND IN THE ABSENCE OF ANYTHING ON RECORD TO SUBSTANTIATE THAT THE ASSESSEE HAS TAKEN UP A NY NEW ACTIVITY OF HANDLING AND TRANSPORTATION OF FOODGRAINS SUBSEQUENT TO 2002, ASSESSEE IS NOT ENTITLED FOR RELIEF UNDER S.80IB(11A), SINCE RELIEF UNDER THAT SECTION IS AVAILABLE ONLY FOR FIVE YEARS FROM INITIAL YEAR, VIZ. EITHER FROM 1958 OR FROM THE YEAR IN WHICH SUCH NEW ACTIVITY WAS TAKEN UP BY THE ASSESSEE. WE DO I TA NO. 834 TO 836/ HYD/2012 A.P. STATE WAREHOUSING CORPORATION HYDERABAD 7 NOT FIND MERIT IN THESE REASONS OF THE LOWER AUTHORITIES FOR MAKING THE DISALLOWANCE. WE MAY NOW EXAMINE THE CORRECTNESS OR OTHERWISE OF THESE REASONS GIVEN BY THE LOWER AUTHORITIES. 1 2 . WE FIND THAT THE A SSESSEE - C ORPORATION OWNS PREMISES ACCOMMODATING GODOWNS AT DIFFERENT PLACES ALL OVER THE STATE. IN EACH AREA IT EITHER CONSTRUCTS OR OFFERS AN INVESTOR TO CONSTRUCT NEW GODOWNS, WHICH THE CORPORATION TAKES ON LEASE. IT IS THE CLAIM OF THE ASSESSEE BEFORE THE CIT(A) THAT T HE PLINTH AREA OF CONSTRUCTION OF THE GODOWNS VARIES FROM MINIMUM AREA OF 10,000 SFT. UP TO A MAXIMUM AREA OF 50,000 SFT. AND T HE SCHEME OF CONSTRUCTION OF GODOWNS STARTED IN THE YEAR 2002. EACH UN IT IS A N U NDERTAKING BECAUSE F OOD - G RAINS ARE STORED AND HANDLED AND TRANSPORTED THERETO AND THEREFROM . IT MAY BE NOTED AT THIS JUNCTURE THAT THERE IS NO RESTRICTION IN S. 80 - IB THAT AN EXISTING BUSINESS UNIT CANNOT SET UP NEW U NDERTAKINGS TO CARRY ON THE INTEGRATED BUSINESS OF HANDLING, STORAGE AND TRANSPORTATION OF FOOD GRAINS. THE GODOWNS WHERE THIS BUSINESS IS TO BE CARRIED ON NEED NOT BE OWNED BY THE ASSESSEE. WHEN THE ASSESSEE - CORPORATION HAS SET UP THESE GODOWNS IN AS MANY AS IN 73 TOWNS AND AT DIF FERENT PLACES IN THOSE TOWNS , IT IS VERY MUCH ENTITLED FOR RELIEF UNDER S.80IB(11A) OF THE ACT IN RESPECT OF EACH SUCH NEW UNDERTAKING SET UP BY IT. IT APPEARS FROM THE IMPUGNED ORDERS THAT THE LOWER AUTHORITIES HAVE PROCEEDED AS IF THE ASSESSEES CLAIM FOR RELIEF UNDER S.80IB(11A) IS IN RESPECT OF EXISTING GODOWNS, AND NOT MERELY IN RESPECT OF THE NEW ONES STARTED AFTER 2001. IT IS SO BECAUSE THE PERIOD OF FIVE YEARS WAS SOUGHT TO BE COUNTED FROM THE YEAR OF INCORPORATION OF THE ASSESSEE, VIZ. 1958; AND ALSO OBSERV ING THAT NO NEW ACTIVITY WAS TAKEN UP AFTER 2001 . SINCE EACH NEW GODOWN IS AN UNDERTAKING IN ITSELF, ASSESSEE IS ENTITLED FOR SUCH RELIEF UNDER S.80IB(11A) FOR FIVE YEARS IN RESPECT OF EACH SUCH UNDERTAKING FROM THE INITIAL YEAR IN WHICH IT WAS SET UP. 1 3 . AS FOR THE ELIGIBILITY OF THE ACTIVITY OF THE ASSESSEE TO THE RELIEF UNDER S.80IB(11A), IT IS WORTHWHILE TO REFER TO T HE INTENTION OF THE LEGISLATURE IN INTRODUCING SEC 80IB(11A) , WHICH IS REPRODUCED HEREUNDER : UNDER THE EXISTING P ROVISIONS OF SEC. 80 - IB OF THE INCOME - TAX ACT, A DEDUCTION IS ALLOWED, IN COMPUTING THE TAXABLE INCOME, IN RESPECT OF PROFITS DERIVED FROM A NEW INDUSTRIAL UNDERTAKING OR A SHIP OR THE BUSINESS OF A HOTEL. TO ADDRESS THE COUNTRY'S BASIC CONCERNS RELATING T O ENHANCED FOOD SECURITY AND AGRICULTURAL DEVELOPMENT, UPGRADATION AND MODERNIZATION OF INFRASTRUCTURE FOR STORAGE, I TA NO. 834 TO 836/ HYD/2012 A.P. STATE WAREHOUSING CORPORATION HYDERABAD 8 HANDLING AND TRANSPORTATION OF FOOD GRAINS IS A CENTRAL CONCERN IN WHICH INTRODUCTION OF MODERN TECHNOLOGY WOULD BRING GREATER EFFICIENCY IN THE GRAIN MANAGEMENT SYSTEM AND MINIMIZE POST HARVEST FOOD GRAIN LOSSES. IT IS EVIDENT FROM THE ABOVE, THAT T HE INSERTION OF SUB - SECTION (11A) IS INTENDED TO ENCOURAGE BUILDING OF STORAGE CAPACITIES, BY PROVIDING THAT ANY UNDERTAKING ENGAGED IN INTEGRATED BULK HANDLING, STORAGE AND TRANSPORTATION WOULD BE ALLOWED HUNDRED PER CENT DEDUCTION FOR THE FIRST FIVE YEARS AND THIRTY PER CENT DEDUCTION FOR THE NEXT FIVE YEARS. THUS , SEC 80IB(11A) IS APPLICABLE TO INCOME DERIVED FROM THE INTEGRATED BUSINESS OF HANDLING, STORAGE AND TRANSPORTATION OF FOODGRAINS. A PERUSAL OF THE ACTIVITIES OF THE ASSESSEE IN ASSOCIATION WITH THE FOOD CORPORATION OF INDIA, AS DEMONSTRATED BY TH E LEARNED COUNSEL FOR THE ASSESSEE IN THE PAPER - BOOK FILED, CLEARLY INDICATES IT IS ENGAGED IN THE INTEGRATED BUSINESS OF HANDLING, STORAGE AND TRANSPORTATION OF FOOD GRAINS. THERE IS NO DISPUTE THE A SSESSEES MAIN BUSINESS IS TO PROVIDE WAREHOUSING FAC ILITY FOR FOODGRAINS. THE ASSESSEE HAS BEEN CONSTITUTED UNDER WITH THESE VERY OBJECTS IN VIEW. MERELY BECAUSE THE ASSESSEE HAS ENGAGED OUTSIDERS FOR TRANSPORTATION OR LEASED OUT SOME OF THE G ODOWNS FOR STORAGE DOES NOT MEAN THAT THE ASSESSEE IS NOT EN GAGED IN THE INTEGRATED BUSINESS OF HANDLING AND STORAGE OF F OODGRAINS. IN THE COURSE OF THEIR INTEGRATED BUSINESS, THE A SSESSEE HAD COLLECTED RENTALS FOR STORING FOODGRAINS AND HA D ENGAGED OUTSIDERS TO TRANSPORT THE FOOD GRAINS. FURTHER , THE FACT THAT T HE A SSESSEE HAD BEEN CARRYING ON SIMILAR BUSINESS WOULD NOT DISENTITLE THE A SSESSEE FROM CLAIMING RELIEF U/S 80IB(11A) , IN RESPECT OF THE NEW WAREHOUSES PUT TO USE AFTER THE INTRODUCTION OF SEC 80IB(11A) I.E ON OR AFTER 1.4.2001. THE A SSESSEE HAS FURNISHED IN THE PAPER - BOOK LIST OF NEW GODOWNS, WHICH HAVE BEEN PUT TO USE BY THE A SSESSEE AFTER 1.4.2001. IT IS WELL SETTLED THAT DEDUCTION UNDER CHAP VIA, IN RESPECT OF NEW UNDERTAKINGS SET UP BY THE ASSESSEE BY WAY OF EXPANSION OF THE EX ISTING UNDERTAKINGS , AS HELD BY THE APEX COURT IN THE CASE S OF TEXTILE MACHINERY CORPORATION LTD V CIT 107 ITR 195 SC AND CIT V INDIAN ALUMINIUM COMPANY LTD ( 108 ITR 367 ). THE NUMBER OF NEW G ODOWNS OPERATED BY THE ASSESSEE AFTER 1.4.2001 CLEARLY SHOWS T HAT THERE WAS SUBSTANTIAL EXPANSION OF THE ASSESSEES BUSINESS OF HANDLING, STORING AND TRANSPORTATION OF FOOD GRAINS , WHICH OBVIOUSLY COULD HAVE BEEN DONE ONLY BE UNDERTAKING NEW WAREHOUSING FACILITIES YEAR AFTER YEAR EVEN AFTER 2001. IN RESPECT OF THESE NEW WAREHOUSES, EACH OF WHICH CONSTITUTE S A N ELIGIBLE UNDERTAKING, ASSESSEE IS SEPARATELY ENTITLED FOR DEDUCTION UNDER S.80IB(11A) OF THE ACT. IN OUR OPINION THEREFORE, T HE A SSESSEE IS ENTITLED TO DEDUCTION U/S 80IB(11A), IN I TA NO. 834 TO 836/ HYD/2012 A.P. STATE WAREHOUSING CORPORATION HYDERABAD 9 RESPECT OF INCOME DERIVED FROM THE NEW UNDERTAKINGS, WAREHOUSES, SET UP AND OPERATED FROM 1.4.2001 FOR STORAGE, HANDLING AND TRANSPORTATION OF FOOD GRAINS. WE ACCORDINGLY SET ASIDE THE IMPUGNED ORDER S OF THE CIT(A) ON THIS ISSUE FOR ALL THE THREE YEARS AND SET ASIDE THE MATTER T O THE FILE OF THE ASSESSING OFFICER, WITH A DIRECTION TO VERIFY THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER S.80IA(11A) OF THE ACT IN RESPECT OF NEW UNDERTAKINGS SET UP AFTER 2001, AND ALLOW THE SAME IN ACCORDANCE WITH LAW, AND AFTER GIVING DUE OPPORTUNI TY OF HEARING TO THE ASSESSEE. 1 4 . ASSESSEES GROUNDS ON THE ISSUE OF DEDUCTION UNDER S.80IA(11A) ARE ALLOWED FOR STATISTICAL PURPOSES. 1 5 . THE ONLY OTHER ISSUE, COMMON ONLY IN THE APPEALS FOR ASSESSMENT YEAR 200 5 - 0 6 AND 200 6 - 0 7 , VIZ. ITA N OS.83 4 AND 83 5/HYD/2012 RELATE TO DISALLOWANCE OF THE ASSESSEE CLAIM FOR DEDUCTION OF R S .2 LAKH S IN RESPECT OF C ONTRIBU T ION TO IAS OFFI C ERS AS S OCIATION BUILDING. 1 6 . FACTS OF THE CASE IN BRIEF IN RELATION TO THIS ISSUE ARE THAT ASSESSEE PAID AN ADVANCE OF R S . 10,00,000 TO IAS OFFICERS QUARTERS DURING THE YEAR 2002 - 03 AND HAS WRITTEN OFF THE SAME IN FIVE EQUAL INSTALMEN T S OVER A PERIOD OF FIVE Y EA RS AND REQU E STED THE SAME TO BE ALLOWED UNDER S.37 OF THE ACT. IT WAS CONTENDED THAT THE IAS OFFI C ERS AS S OCI A T I ON B UILDING IS USEFUL TO THE MD OF THE ASSESSEE CORPORATION TO CONDUCT DEPARTMENTAL MEETINGS AND I T WAS EXPLAINED THAT THE EXPENDITURE WAS INCURRED ON THE DIRECTION O F TH E GOVERNMENT. THE ASSESSING OFFICER DISALLOWED THE SAID CLAIM OF THE ASSESSEE AND MADE ADDITION IN THAT BEHALF. 1 7 . AGGRIEVED, ASSESSEE PREFERRED APPEALS BEFORE THE CIT(A). AS FOR ASSESSMENT YEAR 2005 - 06, THE CONTENTION OF THE ASSESSEE BEFORE THE CIT(A) WAS THAT IT ITSELF ADDED THE AMOUNT I N TH E CO M PU T ATION OF INCOME. THAT BEING SO, THE C IT(A) DIRECTED THE ASSESSING OFFICER TO VERIFY THE CLAIM O F THE ASSESSEE AND IF IT IS FOUND TO BE CORRECT, TO DELETE THE ADDITION MADE BY HIM IN THAT BEHALF. AS I TA NO. 834 TO 836/ HYD/2012 A.P. STATE WAREHOUSING CORPORATION HYDERABAD 10 FOR THE ASSESSMENT YEAR 2006 - 07, THE CIT(A), BY THE IMPUGNED ORDER CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER IN THE FOLLOWING MANNER - .THE CONTENTION OF THE APPELLANT HAS BEEN CAREFULLY CONSI D ERED AND IT I S FOUND THAT THE PAYMENT WAS IN THE FORM OF AD V ANCE FOR THE CON S TRUC T ION OF GUEST HOUSE IN THE PREMI S ES OF IAS QUARTERS. IN THE PR E MISES OF IAS QUARTERS, THE CORPOR A TION CANNO T BUILD AND OWN ANY PROPERTY OF ITS OWN. IT IS ALSO NO T I C ED T HAT THE CORPORATION HAS NO T IN C LU D ED THE ACCOMMODATION/GUEST HOU S E ON WHICH THE AMOUNT O F RS .10 LAKHS WAS PAID IN THE ASSETS LI S T WHICH SHOWS THAT THE APPELLANT HAS NO OWNERSHIP RIGHTS ON THE BUIL D IN G . THE ONLY CONDITION FOR MAKING TH E CON T RIBUTION WAS THE DIRECTION FROM THE GOVERNMENT TO MAKE THE PAYM E N T AND NO T HIN G ELSE WHICH SHOWS THE EXPENDITURE WAS NO T INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BU S I NE SS. AS PO I N T E D OUT BY THE ASSESSING OFFICER THE AP P ELLANT COULD NO T SUBSTANTIATE TH E CLAIM WITH ANY DOCUM E N T ARY PROOF EITHER IN THE FORM O F AGREEMENT OR MEMORANDUM OF UNDERSTANDING WITH THE IAS OFFICERS AS S OCIAT I ON AND IT COULD NO T SHOW HOW THE PAYMENT WOULD BENEFIT THE CORPORAT I ON. MOREOVER, TH E CORPORATION HAS ITS OWN OFFICE BUI L DIN G AND THE MD OF TH E CORPO R ATION CAN ORGANIZE MEETINGS IN ITS BUILDING A ND IF NE CE SSARY, I T CAN USE ANY GOVERNMENT ACCOMMODATION FOR ANY OFFICIAL PU R POSES WITH THE APP R O V AL O F THE GO V ERNMENT AND THEREFORE THE PAYMENT OF RS .10 LAKHS AT THE INSTANCE O F TH E GOVERNMENT IS NO T AN ALLOWABLE EXPENDITURE AND THE S AME IS HEREBY CONFIRM ED. 1 8 . AGGRIEVED BY THE ORDERS OF THE CIT(A) ON THIS I S SUE, ASSESSEE PREFERRED THE PRESENT APPEALS FOR ASSESSMENT YEAR 2005 - 06 AND 2006 - 07 BEFORE US. 1 9 . THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE A SSESSEE - CORPORATION IS ALWAYS HEADED BY AN IAS OFFICER AND THE IAS OFFICERS ASSOCIATION BUILDING IS ALWAYS USEFUL TO THE MANAGING DIRECTOR TO CONVENE DEPARTMENTAL MEETINGS. THEREFORE, IT WAS EXPLAINED THAT ON THE ONE HAND THE EXPENDITURE IS INCURRED THE ON THE DIRECTIONS FROM THE GOVERNMENT AND ON THE OTHER HAND, IT RELATES TO THE BUSINESS OF THE ASSESSEE, AS THE BUILDING CAN BE AND IS USED BY THE ASSESSEE - CORPORATION FOR CONDUCTING THE MEETINGS OF THE DEPARTMENTAL HEADS , AND AS SUCH THE EXPENDITURE IS C LEARLY ALLOWABLE AS BUSINESS EXPENDITURE . IT IS FURTHER SUBMITTED THAT THERE WAS NO SUCH DISALLOWANCE MADE IN THE EARLIER YEAR ASSESSMENTS OF THE ASSESSEE - CORPORATION , WHEN SIMILAR AMOUNT WAS CLAIMED IN THE ASSESSMENT YEARS 2003 - 04 AND 2004 - 05. I TA NO. 834 TO 836/ HYD/2012 A.P. STATE WAREHOUSING CORPORATION HYDERABAD 11 20 . THE LEARNED DEPARTMENTAL REPRESENTATIVE , ON THE OTH E R HAND STRONGLY SUPPORTED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE CIT(A). 2 1 . WE HEARD BOTH SIDES AND PE R USED THE ORD E RS OF THE LOWER AUTHO R ITI E S. AS FOR THE CLAIM OF THE ASS ESSEE FOR THE ASSESSMENT YEAR 2005 - 06, THE CONTENTION OF THE ASSESSEE BEFORE THE CIT(A), AS RECORDED BY THE FIRST APPELLATE AUTHORITY AND NOT CONTROVERTED BY THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US, IS THAT THE ASSESSEE ITSELF HAS ADDED THE AMOUNT O F RS.2 LAKHS IN THE COMPUTATION OF INCOME, AND A SEPARATE ADDITION HENCE IS NOT CALLED FOR. IT IS TO VERIFY THIS CONTENTION OF THE ASSESSEE AND TO DELETE THE ADDITION MADE BY THE ASSESSING OFFICER, IF THE SAME IS FOUND TO BE CORRECT THAT THE CIT(A) SET ASI DE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH SPECIFIC DIRECTIONS IN THAT BEHALF. WE FIND NO INFIRMITY IN THE ACTION OF THE CIT(A) IN THIS BEHALF. ACCORDINGLY GROUNDS OF THE ASSESSEE ON THIS ASPECT IN THE APPEAL FOR THE ASSESSMENT YEAR 2005 - 06 ARE LIABLE TO BE REJECTED. 22. EVEN FOR THE ASSESSMENT YEAR 2006 - 07 AS WELL , WE DO NOT FIND MERIT IN THE GROUNDS OF THE ASSESSEE ON THIS ISSUE. THE CIT( A) HAS GIVEN VALID REASONS, WHICH WE HAVE EXTRACTED IN PARA 17 ABOVE, FOR REJECTING THE CLAIM OF THE ASSESSEE. FURTHER, AS NOTED WHILE DEALING WITH THE ASSESSEES APPEAL ON THIS ISSUE FOR ASSESSMENT YEAR 2005 - 06 IN THE PRECEDING PARA, THE ASSESSEE IT SELF HAS CLAIMED FOR THE ASSESSMENT YEAR 2005 - 06 THAT IT HAS ADDED THE AMOUNT OF RS.2 LAKHS IN THE COMPUTATION OF INCOME, THEREBY ADMITTING THAT IT CANNOT BE ALLOWED. FURTHER, IT IS AN ADMITTED FACT THAT THE AMOUNT OF RS.10 LAKHS WAS ADVANCED FOR THE CONS TRUCTION OF A GUEST HOUSE AND AS SUCH IT IS CAPITAL IN NATURE, AND HENCE NOT ALLOWABLE AS DEDUCTION UNDER S.37 OF THE ACT. IN THIS VIEW OF THE MATTER AND IN THE ABSENCE OF ANYTHING TO THE CONTRARY BROUGHT ON RECORD BY THE ASSESSEE TO SUBSTANTIATE ITS ASSE RTIONS WITH REGARD TO ALLOWABILITY OF DEDUCTION OF THE AMOUNT OF CONTRIBUTION MADE BY THE ASSESSEE FOR THE CONSTRUCTION OF THE GUEST HOUSE, WE FIND NO INFIRMITY IN THE ACTION OF THE CIT(A) I TA NO. 834 TO 836/ HYD/2012 A.P. STATE WAREHOUSING CORPORATION HYDERABAD 12 IN UPHOLDING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. WE A CCORDINGLY REJECT THE GROUNDS OF THE ASSESSEE ON THIS ISSUE FOR THE ASSESSMENT YEAR 2006 - 07 AS WELL. 2 3 . IN THE RESULT, ALL THE THREE APPEALS OF THE ASSESSEE ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 24.1.2014 SD/ - SD/ - (B.RAMAKOTAIAH ) ( ASHA VIJAYARAGHAVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER DT/ - 24 TH JANUARY, 2014 COPY FORWARDED TO: 1. A.P. STATE WAREHOUSING CORPORATION, C/O. VENUGOPAL & CHENOY, CHARTERED ACCOUNTANTS, 4 - 1 - 889/ - 16/2, TILAK RAOD, HYDERABAD 500001. HYDERABAD 2 . ASST. COMMISSIONER OF INCOME - TAX, CIRCLE 1( 3 ), HYDERABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) II , HYDERABAD 4. COMMISSIONER OF INCOME - TAX I HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S