RIDHI AGRO COLD CARE, HYDERABAD,HYDERABAD vs. ITO, WARD-11(2), HYDERABAD, HYDERABAD

O R D E R PER L.P. SAHU, A.M.: These appeals filed by the Assessee are directed against CIT(A) - 5, Hyderabad’s separate orders for AYs 2012-13 to 2014-15 involving proceedings u/s 143(3) of the Income- Tax Act, 1961; in short “the Act”. As similar issues are involved in all these appeals, the same were clubbed and heard together and therefore a common order is passed for the sake of convenience.

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2. Common grounds are raised in these appeals that the CIT(A) erred in confirming the disallowance of deduction u/s 80IB(11A) of the Act. To dispose of these appeals, we refer to the facts from AY 2012-13 being AY mutatis mutandis shall apply to other appeals.

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agricultural products or the integrated business of handling, storage and transportation of food grains. In the case on hand, the basic and the only activity carried out by the assessee is letting out the cold storage on rent to others and this is not the activity envisaged in the provisions. Sub section 11A of Section 80lB of the IT Act read as under: "The amount of deduction in a case of [an undertaking deriving profit from the business of processing, Preservation and packaging of fruits or vegetables or [meat and meat products or poultry or marine or dairy products or(from] the integrated business of handling, storage and transportation of food grains, shall be hundred percent of the profit and gains derived from such undertaking for five assessment years beginning with the initial assessment year and thereafter, twenty- five percent thirty percent where the assessee is a company) of the profits and gains derived from the operation of such business in a manner that the total period of deduction does, not exceed ten consecutive assessment years and subject to fulfillment of the condition that it begins to operate such business on or after the 1st day of april,2001] [Provided that the provisions of this section shall not apply to an undertaking engaged in the business of processing, preservation and packaging of meat or meat products or poultry or marine or dairy products if it begins to operate such business before the 1st day of April, 2009] A bare perusal of the provisions of section show that deduction ul s. 80IB(11A) is available in the case of an undertaking deriving profit from the 'integrated' business of handling, storage and transportation of food grains. The vital word used in the section is 'integrated'. The word integrated used in the section connotes, that the business of handling, storage and transportation of food grains should be carried out in a :- 5 -: Ridhi Agro Cold Care, Hyd. combined manner. [ITA No. 829jPNj2012 Assessment Year: 2008-09 Anurag Radhesham Attal followed). Thus, going by the above provisions, deduction u/s 80IB(11A) is allowable only to an undertaking deriving profit from the business of processing, preservation and packaging of fruits or vegetables or meat products or marine or dairy products or from the integrated business of handling storage and transportation of food grains. 5.3 In the present case it is a fact that the assessee is neither having vehicles for the transportation but the assessee is having cold storage facilities of its own. However, the assessee's nature of business activity is only collecting rent for the storage of food grains. But, the assessee argued that this is not a rental income but cold storage charges for maintaining the agricultural products. The assessee entered the agreement with the various parties for providing the services of storing the seeds at the required temperature. 5.4 During the appellate proceedings the assessee submitted a different line of argument. It was contended that the assessee is entitled for deduction under the section deduction as it is in the business of processing, preservation and packaging of fruits or vegetables. The assessee received the agricultural produce. The same is preserved. They are packed into the cold storage plant. 5.5 The appellant also relied on the decision in the case of Commissioner of Income Tax, Circle-L, Nizamabad Vs Mis. Sarang Hi Tech Cold Storage Ltd., Nizamabad 1533 -1535/Hyd/2011 dated 11.04.2012. But this decision was rendered in connection with deduction u/s 80IB(11) i.e. deduction in case of industrial undertaking deriving profit from the business of setting up and operating a cold chain facility for agricultural produce. But the said section is not applicable in the present case it was subject to fulfilment of the condition

:- 6 -: Ridhi Agro Cold Care, Hyd. that it begins to operate such facility on or after the 1 st day of April, 1999, but before the 1st day of April, 2004. In the present case the appellant is claiming deduction u/s 80IB(11A). 5.6 A plain reading of the aforementioned provisions show that the deduction ~ is available to an undertaking deriving profit from three business activities. i. business of processing, Preservation and packaging of fruits or vegetables; ii. business of processing, Preservation and packaging of meat and meat products or poultry or marine or dairy products; iii. integrated business of handling, storage and transportation of food grains 5.7 Before the AO the appellant claimed deduction quoting 3rd activity. With respect to the third business activity the provision is as under: “ The amount of deduction in a case of an undertaking deriving profit from the integrated business of handling, storage and transportation of food grains shall be .............. Three conditions have to be fulfilled as it appears from a plain reading of the aforesaid provision. First handling, second storage and third transportation of food grains. All the three conditions should be integrated with each other. The present case only relates to the second condition i.e. storage. Let us now see how important is this condition. The memorandum appended to the Financial Bill by which Sec. 80lB(11A) was amended show the Legislative intent is as under:

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Tax holiday for undertakings engaged in the integrated handling, storage and transportation of food grains. Under the existing provisions of se cion 80IB 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 ship or the business of a hotel. To address the country’s basic concerns relating to enhanced food security and agricultural development, upgradation and modernization of infrastructure for storage, 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. The Bill proposes 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." The entire scheme covered by Sec. 80-IB(11A) relates to services in connection with preservation of food grains promoted by the Government of India under TFC-14/99- Volume III, dt. 4th July, 2000 following the national policy in respect of handling, storage and transportation of food grains. It relates to both construction contract and the preservation contracts arising out of a scheme sponsored by the Government of India administered by an agency of the State Government. It is part of the central scheme under the implementation of Food Corporation of India in pursuance of the national policy for handling, storage and transportation of food grains. 5.8 The dispute in the present case relates to the first and third conditions, i.e., handling and transportation. The AO after examining the Seed Storage Agreement

:- 8 -: Ridhi Agro Cold Care, Hyd. dated 31-03-2011 entered by and between the assessee and M/s Syngenta India Limited (a seed company), which was furnished during the course of proceedings, found that the assessee agreed for the 'services' which mean the services of storing products at its cold storage facility. Clause 3 of the said Agreement evidences that Syngenta shall pack the products in bags to be red at the facility and deliver the same at the facility at its cost. Clause 8 refers to the amount payable and Clause 10 and 10(v) show that Syngenta shall be liable for any shortage or damage upto point of delivery of products at the facility and to hold the assessee a trust for Syngmta and be a bailee for the V custody of the products delivered at the facility from time to time. From the above contents of the agreement, it is inferred that the assessee is not involved in the first activity of handling. M/s Syngenta, who contributed almost 80% of the gross receipts of the assessee for the year, will bring the seeds at its own cost to the cold storage facility of the assessee and the assessee is only liable for unloading the goods by collecting Hamali charges from syngenta and storing the contents/seeds. The third activity of transportation also is not carried out by the assessee. Apart from the contents of the agreement, the Profit & Loss Account does not indicate that the assessee incurred expenditure towards handling and transportation. Further, the AO noticed that the assessee is liable for loading and unloading of the goods to be stored, the basic expenditure to be incurred towards Hamali/labour charges is not explicitly debited, except an expenditure of Rs.6,32,239/- towards salaries. Apart from this head of expenditure, no other expenditure worth mentioning was debited towards the activities of handling and transportation. From above details and discussion, it is observed that the assessee was involved in running a cold storage for rent purpose and did not carry out the integrated activities of handling, storage and transportation of :- 9 -: Ridhi Agro Cold Care, Hyd. goods to make its profit eligible for deduction u/s 80IB(11A) (ITA No. 829/PN/2012 Anurag Radhesham Attal followed]. 5.9. But, during the appellate proceedings, the assessee changed its contention and has claimed deduction u/s 80IB(11A) on the ground that the assessee was also deriving profit from the business of processing, preserving and packing of fruits and vegetables. And it was claimed that it is entitled to deduction u/s 80IB(11A) of the Act which was denied by the AO on the ground that the assessee has only deriving income from cold storage activities. It was argued that the assessee received the agricultural produce, the same is preserved. And they are packed into the cold storage plant. 5.10 The AR completely misinterpreted the provision. Section 80IB (l1A) targets for relief for the business of processing preservation and packaging of fruits and vegetables as newly added from A.Y. 2005-06, while the relief has been available w.e.f.1.4.2002 for all undertakings, which have begun to operate on or after 1st April, 2001 for any income from "the integrated business of handling, storage and transportation of food grains" using the very language of the policy. The relief is for processing preservation and packaging of fruits and vegetables. The appellant admittedly is not involved in processing of agricultural produce. It was stated that it only receives the agricultural produce. It is also not dealing with fruits and vegetables. In the provision activity of processing, preservation and packaging has been included with reference to fruits and vegetables only as well as meat and meat products. But as far as food grains are concerned, Section has been worded as "from the integrated business of storage and handling and transportation of food grains." Thus both processing and packaging are essential requirements of the provision and the assessee

:- 10 -: Ridhi Agro Cold Care, Hyd. is not engaged in these functions. I have mentioned in earlier paragraphs that Mis Syngenta, contributed almost 80% of the gross receipts of the assessee for the year. As per agreement the assessee provides cold storage facility for preservation. Thus the assessee is not engaged in the activity of processing, preservation and packaging of fruits and vegetables. Thus, I hold that the assessee is not entitled for deduction u/s 80IB (11A).”

said platform to bring down goods to normal temperature. It also enables any. other ingredients to be removed. c) The goods are segregated quality-wise and item-wise on the platform itself. At that stage the goods are re-packed so as to keep the goods in the cold store in the appropriate floor. d) The goods are loaded to trolleys by machines and' are carried to the respective floor of the Cold store with the help of Lift. e) The goods are taken to each of the floor and is stored based on the variety and quality. f) The goods are preserved in cold, store. For this purpose, the appellant deploys 2 Nos. KC2· compressors running throughout with 50 HP motors alongwith condenser units which are run by Ammonia gas. The machinery provides the required temperature depending upon the type of goods stored inside the cold store chamber. The temperature level is adjusted for every floor as per the requirement of the goods stored. g) Besides, the appellant has to maintain the relative humidity as required.' For this purpose, two numbers of de-humidifier machines are run with the help of boilers installed. h) The appellant has provided 125KG Generator for power back up in case of power failures and to ensure round the clock operation of the cold store. i) During· the course of storage, the assessee undertakes periodical fumigation of the stocks to make the stocks insect free.

:- 12 -: Ridhi Agro Cold Care, Hyd. j) At the time of delivery of the goods, the goods are . brought out of the Cold Store and kept on the platforms for adjusting with the outside temperature and then they are loaded into transport vehicles for carrying outside the premises.

3. In view of the above, it is submitted that the processing of the goods is not required in the case of food grains which was undertaken by the assessee. The' appellant submits that it fulfilled the conditions mentioned in Section 80IB(11A) of the LT. Act and is entitled for deduction u/s 80IB(11A) of the LT. Act. The assessee is relying on the following decisions: i) The decision of the Hon'ble ITAT, Hyderabad Bench-A in to 1535jHydj2011 in the case of ACIT Vs Sarang Hi Tech Cold Storage Pvt. Ltd .. ii) The decision of the Hon'ble ITAT, Hyderabad Bench- B in ITA No.1045 jHydj2010 in the case of DCIT Vs Sarang Hi Tech Cold Storage Pvt . . Ltd ..

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(copies of the above said two decisions are part of the paper book filed by the assessee for theAY 2012-13 in at pages No.15 to 24) iii) 'Order of High Court of Judicature for Rajasthan in the case of CIT Vs Mefco Enterprises Pvt. Ltd, iv) Order of the Hon'ble ITAT, Hyderabad Bench-A in ITA No.57 jHydj2011 in the case ofT. Devender Reddy. v) The order of the Hon'ble ITAT, Hyderabad in the case of A.P. State Warehousing Corporation reported in 150 lTD 485). (copies of the above said three decisions are part of the paper book filed by the assesse for the decisions relied upon in ITA No.1618jHydj2016 & 340jHydj2018 at pages No.1 to 20) In view of the above, the assessee requests the Hon’ble ITAT to kindly allow the appeals as prayed for.

orders of revenue authorities. The provisions of section 80IB(11A) are as under: “(11A) The amount of deduction in a case of an undertaking deriving profit from the integrated business of handling, storage and transportation of food grains, shall be hundred per cent of the profits and gains derived from such undertaking for five assessment years beginning with the initial assessment year and thereafter, twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains derived from the operation of such business in a manner that the total period of deduction does not exceed ten consecutive assessment years and subject to fulfilment of the condition that it begins to operate such business on or after the 1st day of April, 2001.”

9.1 A plain reading of the aforementioned provisions show that the deduction is available to an undertaking deriving profit from three business activities, as under:

“i. business of processing, Preservation and packaging of fruits or vegetables; ii. business of processing, Preservation and packaging of meat and meat products or poultry or marine or dairy products; iii. integrated business of handling, storage and transportation of food grains.” 9.2 Before the AO the appellant claimed deduction quoting 3rd activity. With respect to the third business activity the provision is as under: Three conditions have to be fulfilled as it appears from a plain reading of the aforesaid provision. First handling, second storage and third transportation of food grains. All the three conditions should be integrated with each other. The present case only relates to the second condition i.e. storage. Let us now see how important is this condition. The memorandum

:- 15 -: Ridhi Agro Cold Care, Hyd. appended to the Financial Bill by which Sec. 80IB(11A) was amended show the Legislative intent is as under: Tax holiday for undertakings engaged in the integrated handling, storage and transportation of food grains. Under the existing provisions 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 or the business of a hotel. To address the country's basic concerns relating to enhanced food security and agricultural development, upgradation and modernization of infrastructure for storage, 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. The Bill proposes 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."

9.3 On perusal of the written submissions and entire documents available before us as well as from the financial statements, we do not find any entry towards transportation expenses debited by the assessee in the P&L Account. If the assessee has paid to third parties towards transportation expenses, it must have been reflected in its books of account, but, there is no such expenses debited by the assessee in P&L Account. If the assessee has undertaken transportation of food grains, there must be vehicle

:- 16 -: Ridhi Agro Cold Care, Hyd. expenses debited in the account, but, no such expenses were found from the financial expenses. The submission of the assessee with regard to movement of goods from one place to other places is a normal activity within the cold storage area for keeping seeds at an appropriate place inside the cold storage. Therefore, there is no substance in the submission of the ld. AR that expenditure towards transportation has been incurred. In the financial statements there is no expenditure is shown under the head “petrol, diesel, oil and lubrications, maintenance, or vehicle hire charges, etc., which shows that the assessee has not incurred an expenditure towards petrol, diesel etc. for transportation of food grains.

9.4 On further perusal of the P&L Account for AY 2012-13, no hamali charges were debited into P&L Account whereas the assessee has submitted paper book with regard to wages (handling, packaging) for payment to hamalis for handling of goods of Rs. 10,07,461/-, and corresponding credit entry also made of Rs. 10,85,100/- which has been in different company’s name, which is placed at pages 25 to 31 of paper book, but, the same was not reflected in the P&L account of the assessee. Further, on perusal of tax audit report, the nature of the business activity of the assessee has been shown as cold storage services and in financial statements also as well as as per the orders of lower authorities, Form 10CCB also does not reflect that the :- 17 -: Ridhi Agro Cold Care, Hyd. assessee is carrying or engaged in the business of handling, storage and transportation of food grains and also not taking of any business of processing and packaging of goods or vegetables vide sl. Nos. 24(b) and 24(c) respectively. No doubt, the assessee is operating cold storage, but, other ingredients for eligibility of deduction is not satisfied. The assessee failed to establish that it had incurred expenses towards hamali charges and transportation of food grains. The case law relied upon by the ld. AR of the assessee are distinguishable on facts to the case of the assessee. Res- judicata does not apply in this case. The ld. AR also failed to produce earlier AYs orders passed u/s 143(3) of the Act to show that any deduction was granted u/s 80IB(11A) of the Act. The case law relied upon by the ld. counsel for the assessee in his written submissions quoted supra, are not applicable to the facts of the case of the assessee as they are distinguishable on facts.

9.5 In view of the above observations, we do not find any infirmity in the order of the CIT(A) wherein he held that the assessee is not entitled for deduction u/s 80IB (11A) by observing as under: “5.10 The AR completely misinterpreted the provision. Section 80-IB (11A) targets for relief for the business of processing preservation and packaging of fruits and vegetables as newly added from A.Y. 2005-06, while the relief has been available w.e.f. 1.4.2002 for all undertakings, which have begun to operate on or after 1st April, 2001 for any income from "the integrated

:- 18 -: Ridhi Agro Cold Care, Hyd. business of handling, storage and transportation of food grains" using the very language of the policy. The relief is for processing preservation and packaging of fruits and vegetables. The appellant admittedly is not involved in processing of agricultural produce. It was stated that it only receives the agricultural produce. It is also not dealing with fruits and vegetables. In the provision activity of processing, preservation and packaging has been included with reference to fruits and vegetables only as well as meat and meat products. But as far as food grains are concerned, Section has been worded as "from the integrated business of storage and handling and transportation of food grains." Thus both processing and packaging are essential requirements of the provision and the assessee is not engaged in these functions. I have mentioned in earlier paragraphs that M/ s Syngenta, contributed almost 80% of the gross receipts of the assessee for the year. As per agreement the assessee provides cold storage facility for preservation. Thus, the assessee is not engaged in the activity of processing, preservation and packaging of fruits and vegetables. Thus, I hold that the assessee is not entitled for deduction u/s 80IB(11A) of the Act.”

9.6. Accordingly, we uphold the order of the CIT(A) and dismiss the grounds raised by the assessee on this issue.

2014-15 respectively as the facts and grounds raised in these appeals are materially identical to that of AY 2012- 13.

Sd/- Sd/- (S.S. GODARA) (L. P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 24th August, 2021. kv Copy to : 1 Ridhi Agro Cold Care, C/o Sri S. Rama Rao, Advocate, Flat No. 102, Shriya’s Elegance, 3-6-643, Street No. 9, Himayatnagar, Hyderabad – 500 029. 2 ITO, Ward – 11(2), Hyderabad. 3 CIT(A) – 5, Hyderabad. Pr. CIT - 5, Hyderabad. 4 ITAT, DR, Hyderabad. 5 6 Guard File.

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S.No. Details Date 1 Draft dictated on 2 Draft placed before author Draft proposed & placed before the Second 3 Member 4 Draft discussed/approved by Second Member 5 Approved Draft comes to the Sr. PS/PS 6 Kept for pronouncement 7 File sent to Bench Clerk 8 Date on which the file goes to Head Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order