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Income Tax Appellate Tribunal, HYDERABAD BENCH ‘A, HYDERABAD
Before: SHRI SATBEER SINGH GODARA & SHRI LAXMI PRASAD SAHU
O R D E R PER L.P. Sahu, AM: These three appeals filed by the assessee for AYs 2013-14 to 2015-16 2009-10 are directed against the CIT(A) - 2, Hyderabad’s common order, dated 31/01/2017 involving proceedings u/s 143(3) of the Income Tax Act, 1961 ; in short “the Act”. Since the facts and grounds are identical in these appeals, the same were clubbed and heard together and, therefore, a common order is passed for the sake of convenience.
2 to 652/Hyd/2018 Tanvi Foods (India) Ltd., Hyd. 2. The assessee has raised the following grounds of appeal in AY 2013-14, which are common in other AYs also except the quantum of additions:
1. The order of the learned Commissioner of Income Tax (Appeals) is against the law, weight of evidence and probabilities of case.
2. The learned Commissioner erred in confirming the order of the Assessing Officer, wherein, the net profit was estimated at 10% of the turnover.
3. The learned Commissioner further erred in an enhancing the income by an amount of Rs.2,45,67,815/- by bifurcating the gross receipts of RS.13,91,80,000/- as revenue from operations Rs.11,46,12,185/- and other income Rs. 2,45,67,815/-, without considering overall expenditure incurred in the business.
4. The learned Commissioner ought to have appreciated that when books of accounts are rejected to estimate the profit rate at 10% no further addition could have been from the same books, bifurcating the turnover as revenue from operation and other income, ignoring the overall expenditure of the assessee.
5. The learned Commissioner ought to have appreciated that assessee is eligible for deduction u/s 80lB (11A), as the assessee is deriving profit from the business of processing, preservation and packing of sweet corn, which is a vegetable.
6. The learned Commissioner ought to have appreciated that even if the sweet corn is considered as a grain still the assessee is eligible for deduction u/s 80lB (11A) as assessee is in the integrated business of handling, storage and transportation of sweet corn.
3 to 652/Hyd/2018 Tanvi Foods (India) Ltd., Hyd.
7. The learned Commissioner erred in assuming that the business activities of the appellant are not covered by the provisions of section 80lB (11A) to disallow the claim of deduction u/s 80lB (11A) of the IT Act.
8. The learned Commissioner erred in determining the total income at Rs.3,60,29,033/- as against the admitted income of Rs.62,96,212/-.
9. The appellant craves leave to add to, amend or modify the above grounds of appeal either before or at the time of hearing of the appeal, if it is considered necessary.”
2.1 The assessee has also raised the following additional ground of appeal: “1. The learned Commissioner erred in enhancing the income by an amount of Rs.2,45,67,815/- as this issue relating to the addition, is not germinated from the assessment order, therefore, the same is beyond the scope of power of the Appellate Commissioner u/s 251(1)(a) of the IT Act.”
3. To dispose of these appeals, we refer to the facts from AY 2013-14 and the decision taken in this appeal shall apply mutatis-mutandis to other impugned AYs also i.e. AYs 2014-15 & 2015-16.
4. Brief facts of the case are that the assessee, engaged in the business of purchase and sale of sweet corn besides preparation and sale of frozen food items like sweet corn samosa, spring rolls etc., filed its return of income for AY 2013-14 on 30/09/2013 declaring total income of Rs. 62,96,212/- and the return was 4 to 652/Hyd/2018 Tanvi Foods (India) Ltd., Hyd. revised on 03/12/2013 declaring total income of Rs. 62,96,212/-. Subsequently, the case was selected for scrutiny and statutory notices were issued to the assessee, against which, the AR of the assessee furnished the required information.
4.1 A survey u/s 133A was conducted on 30/12/2015 at Registered office at D.No. 7-2-4/D, Old Canteen building, IDA, Sanath Nagar, Hyderabad and workshop and office at 54-20/9-9A, Timmarsuvari Street, Srinagar Colony, Vijayawada. During the course of survey proceedings a statement was recorded from Sri A. Sriagaveer wherein it was asked to furnish the bills/vouchers in respect of purchases, other expenses like employ benefit expenses, farmer commission, farmer’s welfare fund expenses etc,, but no supporting evidences were furnished. The relevant questions and answers, question No. 13 and 14 and its answers are extracted as under: “Q. No. 13 please refer to the balance sheet and profit & Loss account flied by you for the A.Yrs.2013-14 to 2015-16, wherein you have shown huge fresh corn purchases and claimed huge expenditure under various heads. It is now clearly established that you are not maintaining the supporting evidences in respect of purchases made and various heads of expenditure. In the absences of any supporting evidences, the financial statements prepared and submitted by you do not reflect true profits earned by you. Consequently, the net profits shown by you are not tenable and cannot be accepted. Please comment.
Ans: No comments to offer. Q.No.14 In view of the above there is no other alternative left except to reject your books of account as the same do not reflect true profits derived by You and accordingly it is proposed to estimate. net profit at l0%. on gross receipts net of all expenditure including depreciation for the A.Yrs.2013-14, 2014-15, 2015-16 and 2016-17 which are detailed as under. Please offer your comments.
AY TO N.P @ NP Additional 10% Shown income to be offered 2013-14 13.91 1.391 0.60 0.791 2014-15 20.02 2.002 0.26 1.742 2015-16 34.37 3.437 1.02 2.417 Total 4.950
Ans: With regard to our business being agri based we have very less percentage of margins on fresh sweet corn due to heavy wastage and also perishability. The profit margin on fresh sweet corn is about 2% and the profit margin on frozen and processed produce is about 5%."
4.2 From the above questions and answers, the AO observed that there were no supporting evidences for purchases as well as huge expenditure claimed under different heads in the P&L A/c even though sufficient opportunities were given to the assessee to produce the evidence. In the absence of any corroborative evidences, the AO held that the financial statements submitted by the assessee cannot be relied upon as the same do not reflect true profits earned by the assessee and 6 to 652/Hyd/2018 Tanvi Foods (India) Ltd., Hyd. accordingly, he rejected by the profit shown by the assessee and adopted the profits of the business @ 10% on gross receipts of Rs. 13,91,80,000/- which includes all expenses, depreciation, deductions etc. The observations of the AO in his order are as under: 5. For the assessment year under consideration, the assessee has shown gross profit of Rs 7.79 Cr on turnover of Rs 13.91 Cr. Against Gross profit shown, the assessee claimed huge expenditure under different heads in P&L account and shown a net profit of Rs 62.96 lakhs, which works out to R:s 4.52%. The assessee did not maintain any supporting for purchases and no bills/vouchers were maintained in support of various heads of expenditure claimed in P&L account. When asked to explain the reasons for non maintenance of books of account and other documentary evidences, the assessee could not, provide any cogent reply except saying that the same are not readily traceable, 6. In view of the foregoing and in the absence of any corroborative evidences available, the books of account along with audit report and financial statements filed, have been rejected and It is proposed to estimate the net profit at certain percentage of turnover. As per the provisions of Sec. 44AD, the profit and gains of eligible business have to be computed at 8% of total turnover or gross receipts, where the. total turnover or gross receipts in the previous year does not exceed Rs 1 Cr. In the instant case, since the turnover of the business was R$ ,13.91 Cr., the provisions of Sec.44AD cannot be applied. The assessee has shown a meagre profit of 4.52% on a total turnover of Rs 13.91Cr. Since the Act has envisaged a profit of 8% for small businesses, considering the facts and circumstances of the case and since the books of account have been rejected for the reasons discussed above, a profit @ 10% on total turnover is felt to be reasonable.
7 to 652/Hyd/2018 Tanvi Foods (India) Ltd., Hyd. Accordingly I hereby adopt the profits of the business @10% on gross receipts of Rs.13,91,80,OOO/-, which includes all expenses, depreciation, deductions etc.”
Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A).
The CIT(A) after considering the details available with him upheld the profit estimated by the AO on the turnover and enhanced the income of the assessee from Rs. 1,39,18,000/- to Rs. 3,60,29,033/- by treating as other income after considering the documents as well as judgements relied upon by the assessee and as per the following table: Particulars Year ended Year Year 31st March, ended ended 2013 31st 31st March, March, 2014 2015 Franchise income From Bellary & Kakinada 63,45,00 - - Income from technical know how 34,47,520 - - to farmers Branding fee from 23,57,400 - - counters 30,80,427 - - Income from counters 63,37,468 - - Income from sale of seeds 30,00,000 - - Royalty income - - 31,364 from distributors - - 20,100 Handling charges Sale of scrap
Aggrieved by the order of the CIT(A), the assessee is in appeal before the ITAT.
Before us, the ld. AR of the assessee regarding rejection of books of account and estimation of profit, submitted that the assessee maintained proper books of account and they were audited and, therefore, requested that the profit admitted as per books of account may kindly be accepted and reiterated the submissions made before the authorities below.
The ld. DR relied on the orders of revenue authorities and it was stated that during the course of assessment proceedings, the assessee could not furnish the details as sought by the AO in regard to expenses claimed in the Profit & Loss Account, as it is evident from the questions and answers mentioned in the assessment order. The gross profit of the assessee is 56% as observed by the CIT (A) and, therefore, the AO has rightly estimated 10% of the net profit on the gross turn over and requested the Bench to uphold the same.
We have considered the rival submissions and perused the material on record. In his order the AO, before estimating the profits @ 10% on the total 9 to 652/Hyd/2018 Tanvi Foods (India) Ltd., Hyd. turnover, observed that as per the provisions of Sec. 44AD, the profit and gains of eligible business have to be computed at 8% of total turnover or gross receipts, where the. total turnover or gross receipts in the previous year does not exceed Rs 1 Cr. In the instant case, since the turnover of the business was R$ ,13.91 Cr., the provisions of Sec.44AD cannot be applied. The assessee has shown a meager profit of 4.52% on a total turnover of Rs 13.91Cr. Since the Act has envisaged a profit of 8% for small businesses, considering the facts and circumstances of the case and since the books of account have been rejected for the reasons discussed above, a profit @ 10% on total turnover is felt to be reasonable. The CIT(A) upheld the action of the AO. The assessee has earned more Gross Profit i.e. 56% as evident from the order of the CIT (A) at para No.
It was the primary duty of the assessee to produce the bills/vouchers as and when required for verification in support of the claim of expenses debited into the P&L A/c during the course of assessment proceedings , but, the assessee has failed to do so. After considering the totality of the facts of the case and statements recorded of Sri A. Srinagaveer, we do not find any reason to interfere with the orders of revenue authorities and, therefore, approve the 10% estimation on total turnover of the assessee. According, this grounds raised on this issue are dismissed.
10 to 652/Hyd/2018 Tanvi Foods (India) Ltd., Hyd.
11. As the regards the issue of enhancement of the income of the assessee by the CIT(A), the assessee filed written submissions dated 05.04.2021 which are as under: “10. The Assessing Officer treated the other income as a part of turnover and estimated the income at 10%. The CIT (Appeals) on the other hand is of the view that the entire other income is taxable. This is disputed by the appellant before the Hon'ble Income-Tax Appellate Tribunal. It is submitted that even the other income is a part of the business income and the income from the said receipts can be estimated at the same percentage as that of the business income. It cannot be treated as income without allowing any expenses. The appellant is also entitled for deduction u/s 80IB(11A) of the I.T. Act even in respect of the above mentioned other income. A direction to this effect may kindly be given to the Assessing officer to estimate the income and allow deduction u/s 80IB(11A) in respect of the other income.
The third issue is rejection of the books of account and estimation of profit. The appellant humbly submits that proper books of account were maintained and they were audited. The appellant requests that the profit admitted as per books of account may kindly be accepted.”
In addition to the above, during the course of hearing, he reiterated the submissions made before the CIT(A) and relied on the case laws. He further stated that once, has rejected the books of account, further additions cannot be made.
11 to 652/Hyd/2018 Tanvi Foods (India) Ltd., Hyd. 12. The ld. DR supported the order of the CIT(A). and he drew our attention to the comments of the AO, which are available on record letter dated 01.02.2019.
We have considered the rival submissions and perused the material on record. Before the CIT(A), the assessee submitted as under as per para No. 7.2 of the CIT (A)’s order: The AO accepted the claim of assessee in respect of GP, rejected the expenditure part and the estimated the income at 10% of the turnover. The aggregate expenditure claimed by the appellant is Rs.13,31,33,479/- and this is intricately connected with the gross receipts. The AO considered this aspect also and estimated the income. It is not possible to bifurcate the expenditure, part related to revenue operations and other income, and it is further submitted that the AO was conscious of this aspect while estimating the income. Therefore, the CIT(A) cannot take a different view at this stage that the other income is earned without incurring any expenditure. (ii) Once the books of account are rejected, it is trite law that no further additions can be made from the same books of account. In support of the contentions the AR relied upon the following case laws:- i. Indwell Constructions Vs CIT 232 ITR 776 (AP High Court). ii. M/s. Teja Constructions Vs ACIT 39 SOT 13 (ITAT, Hyderabad). iii. Malpani House of Stones Vs CIT, Jaipur dt. 04.10.2016 (Rajasthan High Court).
12 to 652/Hyd/2018 Tanvi Foods (India) Ltd., Hyd. (iii) The AO accepted the total turnover as receipts from business and therefore, the issue of considering the other income separately neither germinated from grounds of appeal nor from the order of the AO and therefore it is improper for the CIT(A) to enhance the income. Reliance was placed on the case of Bikram Singh Vs DCIT; New Delhi of ITAT A Bench, New Delhi in ITA No.3522/DEL/2013, dated 13.04.2016,which considered the full bench decision of Hon'ble Delhi High Court in CIT vs Sardarilal & Co (251 ITR 864) and also Hon'ble Delhi High Court in the case of Shapoorji Pallonji Mistri Vs CIT (34 ITR 342) which was confirmed by the Apex Court in 44. ITR 891.”
13.1 However, the CIT(A) rejecting the submissions of the assessee, enhanced the income of the assessee by using powers u/s 251(2) of the Act. As contended by the ld. AR of the assessee that once the books of account are rejected, it is trite law that no further additions can be made from the same books of account. We find substance in the submissions of the ld. AR and case law relied on by him. Therefore, we set aside the decision of the CIT(A) in enhancing the income of the assessee and uphold the order of the AO in estimating the income of the assessee @ 10% on the total turnover. The ld. CIT(A) has treated it as other income. The CIT(A) has co- terminus powers but once a pragmatic view has been formed by the AO, it should be changed as per the case law cited supra. Further, on perusal of the details of other income shown in the financial statement, this income is related to the primary business activity of the
As regards the assessee’s claim of deduction u/s 80IB (11A) of the Act, we find that there is no claim of assessee under the section in AY 2013-14. In AY 2014- 15 and 2015-16, the filed a revised return of wherein deduction u/s 80IB(11A) amounting to Rs. 25,74,270/- in AY 2014-15 and Rs. 71,99,010/- was claimed stating that the company is engaged in the business of processing, preservation and packaging of vegetables. The audit report in Form No. 10CCB signed by C.A. was also filed. In this connection, vide this office letter dated 13-12-16, a letter was addressed the assessee’s auditor, which is reproduced, by AO in his order at para No. 4, which is extracted as under:
"During the assessment proceedings In the above mentioned case for the A. Y.2014-15, it is noticed that the company made a fresh claim of deduction uls 80IB. The Audit report in Form No. 10CCB was prepared and uploaded by you on 30-03-2016 which was revised on 18-08-2016. In this connection, your attention Is drawn to the fact that a survey uls.133A was conducted In this case on 30-12-2015 and during the survey proceedings, it was noticed that the assessee did not maintain any books of account for the A. Yrs.2013- 14 to 2015-16 and for the period 01-04-2015 to 30- 12-2015, in support of purchases and sales made in respect of sweet corn which constituted 90% of assessee's business turnover. Further, no bills/vouchers were maintained in support of 14 to 652/Hyd/2018 Tanvi Foods (India) Ltd., Hyd. expenditure claimed under Various heads in the P&L account for the said period. In the post survey proceedings, the director of the company Sri A.Sri Nagaveer, in his statement also confirmed the fact that no books of account were maintained. In this back ground, you are requested to explain as to how the audit report in form No.10CCB for claiming deduction u/s 80IB was issued especially when no books of account were maintained by the assessee. Your explanation should reach this within a week from the date of receipt of this letter". 4.1. In response to the tetter issued, the Chartered Accountant submitted a letter dated 16-12-16 wherein certain information was given on nature of business activity of the company and the deduction claimed u/s.80IB(11A). The relevant excerpts regarding deduction u/s.80IB are reproduced as under: "M/s. Tanvi Foods (India) pvt. Ltd has produced accounts in tally Including Trail Balance, Balance Sheet, P&L, sales and other ledgers. It has also produced Income tax returns filed, audit reports, note on business activity & business process and other relevant documents. . Based on the verification of above documents and information produced before us, we have considered that M/s . Tanvi Foods (India) Pvt. Ltd. is eligible for deduction u/s. 80IB(11A) and issued form 10CCB.
14.2 The AO denied assessee’s claim of deduction u/s 80IB in the revised return by observing as under: 4.2. From the above, it is clear that the Chartered Accountant has given audit certificate in form No.10CCB relying on the accounts maintained in 15 to 652/Hyd/2018 Tanvi Foods (India) Ltd., Hyd. tally package only. In this connection, it is reiterated that during the, assessment proceedings and also in post survey proceedings, it was clearly brought out and proved beyond doubt that the assessee did not maintain any proper books of account like bills, vouchers etc. The said fact was already admitted by the director in his statement recorded, the relevant excerpt are reproduced in Para ;3.1 supra. In the absence of any such supporting evidences, the accounts maintained in any packaqe'ibecome invalid and irrelevant and such accounts cannot be relied upon as-the same do not reflect true profits of the assessee's business. 4 3. Mere entry of some figures in accounts package do not make the accounts legitimate unless the same are supported by documentary evidences. The' accounts which are not supported by documentary evidences cannot hold any water and the flnanclal statements prepared based on such accounts are baseless and untenable. under these circumstances, the books of account in the instant case were rejected and profits were estimated. 4.4. Therefore, the audit certificate issued by the Chartered Accountant simply basing on the figures maintained in tally package without any supporting documentary evidences, is nothing but a piece of paper which do not have any weight in the eyes of law. Accordingly, the assessee's fresh claim in the form of revised return claiming deduction uls 80IB is not maintainable and deserves to be rejected summarily.”
14.3 On appeal, the CIT(A) confirmed the action of the AO.
14.4 Before us, the ld. AR of the assessee filed written submissions in this regard, which are as under:
16 to 652/Hyd/2018 Tanvi Foods (India) Ltd., Hyd. “2. The appellant submits that the company was incorporated on 30.3.2007. Till May 2009 it carried on the activity mostly manually without using much of the machines.
During the financial year 2009-10, the company ordered for supply of processing unit on a turn key basis from Raghu Marketing Agencies. Accordingly, Raghu Marketing Agencies supplied the following machinery used in the various stages of procuring, processing and packing of Sweet Corn. A copy of the invoice raised by the said concern for supply of machinery is submitted for perusal. The invoice itself is known as "Turn Key supply of Corn processing Unit". The invoice raised for Rs.1,10,31,954j- include the following machinery. (1) The first stage of the activity is purchase of fresh corn directly from the farmers and local markets. The assessee needs weighing machines and purchased eight weighing machines for weighment of corn cob purchased. (2) The second stage is removal of husk and corn silk and peeling of cobs to corn kernels. For this purpose the assessee purchased three working tables of 2500 kg/hour (page No.2 of annexures)and were used for removal of husk. (3) The next stage is cleaning of raw kernels. For this purpose the assessee purchased three numbers of Air bubbled cleaning machines of the capacity of 2500 kg/hour (page No.2 of annexures). (4) The next stage is boiling of raw kernels. The assessee purchased 2 Nos. of Boiler Chambers of the capacity of 2500 Kg/hour(page No.2 of annexures).
17 to 652/Hyd/2018 Tanvi Foods (India) Ltd., Hyd. (5) The next stage in the process is temperature dropping of boiled kernels. For this purpose the assessee purchased 4 Nos. of Spray Driers of the capacity of 2500 kg/Hr(page No.2 of annexures) .. (6) The next stage is packing of processed kernels. The packing is undertaken with machine stitching by the employees. Seven stitching machines (page No.2 of annexures) of suitable capacity were purchased. Further, packing machines were purchased on 17.3.2010 from Echo Cosmos. Later, in the year 2013-14 packing sealer machines, cover designer, cover design cylinders were all acquired which form part of the plant and machinery of the appellant to improve the packing. (7) The preservation is made in Deep freeze (blast freezing) in the Blast room arranged vide invoice dated 5.6.2009 with puff panels in an area of 1950 sq Mtrs. In addition, the Blast Room equipment of the capacity of 35TR consisting of three units (page No.3 of annexures) were provided. (8) The .next stage of preservation is storage of processed kernels in Cold rooms. For this purpose the Cold room puff panels of an area of 3350 sq. mtrs were purchased vide invoice dated 5.6.2009 and provided alongwith Cold room equipment of the capacity of 15TR in three units(page N03 of annexures). (9) At the time of transport, the processed com is required to be carried in air conditioned carriers and the assessee owns two Air-conditioned carriers
18 to 652/Hyd/2018 Tanvi Foods (India) Ltd., Hyd. during the financial year 2012-13. Later during the FY 2013-14, 2014-15 & 2015-16, more vehicles were purchased (pages No.54 to 75 of annexures. The availability of above equipment clearly indicate that the appellant has all the necessary equipment for procurement, processing, packing and preservation of sweet corn. '5. During the previous year relevant for the assessment year 2013-14 the appellant incurred expenditure Rs.57,16,485/- ( page No.38 of the paper book as per details of other expenses under Note-"U") towards storage freezer charges. The charges were paid at out stations where the sweet corn is preserved and sold, Similarly for the period ended 31.3.2014 and 31.3.2015, the following amounts were paid towards storage and freezer charges. a) Asst. year 2014-15 _ Rs.57,81,232/- ( page No.85 of the paper book as per details of other expenses under Note-"V") b) Asst. year 2015-16 ( page No.128 of the paper book as per details of other expenses under Note- "W") 6. It can be seen from the above that the appellant possessed the required machinery for procurement, processing, cleaning, boiling and packing the material at the place of production. It has its own deep freezers and blast rooms at the place of production. At the places of sale ( i.e., at various outstations) it hired freezing chambers and paid rent as mentioned above. The above facts would indicate that the appellant is in the activity of purchase, processing, preservation and packing of sweet corn which is a vegetable product. Therefore, it is entitled for deduction u/s 80IB(11A) of the LT. Act.”
19 to 652/Hyd/2018 Tanvi Foods (India) Ltd., Hyd. 14.5 During the course of hearing, the ld. AR of the assessee strongly submitted that the business of the assessee is eligible for deduction u/s 80IB(11A) of the Act because assessee is engaged in the business of corn processing & packaging. In this regard, the assessee has invested on plant & machinery, which are evident from the Schedule of fixed assets and has incurred expenditure under the head ‘storage’ debited into P&L Account and he also strongly reiterated the submissions made before the CIT(A) that the corn is covered as a vegetable. In this regard he referred the submissions made before the CIT(A) dated 11/09/2017, 24/11/2017, 5/12/2017, 25/12/2017 & 26/12/2017, which are placed in the paper book and relied on the case laws quoted in the written submissions before the CIT(A). Further, he also relied on the paper book at page No. 155 & 156 regarding sweet corn, which is a vegetable, which is as under: Sweet Corn is a vegetable? “Dictionary meaning of Vegetable: A plant or part of a plant used as food, such as a cabbage, potato, turnip, or bean. Corn can be considered either a grain or a vegetable, based on when it is harvested. The maturity level of corn at harvest affects both its use at meals and its nutritional value. Corn that is harvested when fully mature and dry is considered a grain. It can be milled into cornmeal and used in such foods as corn tortillas and cornbread. Popcorn
20 to 652/Hyd/2018 Tanvi Foods (India) Ltd., Hyd. is also harvested when mature, and is considered to be a whole grain. On the other hand, fresh corn (e.g., corn on the cob, frozen corn kernels) is harvested when it is soft and has kernels full of liquid. Fresh corn is considered a starchy vegetable. Its nutrient content differs from dry corn, and it is eaten in different ways -- often on the cob, as a side dish, or mixed with other vegetables. A grain is defined as the harvested dry seeds or fruit of a cereal grass, or the term can refer to the cereal grasses collectively. Field corn that is harvested when the seeds are dry would thus be considered a grain. Sweet corn when harvested before maturity is usually considered a vegetable. Wikipedia Sweet corn (Zea mays convar. saccharata var. rUfiosa;l'J also called sugar corn and pole corn) is a variety of maize with a high sugar content. Sweet com is the result of a naturally occurring recessive mutation in the genes which control conversion of sugar to starch inside the ENO of the com kernel. Unlike field com varieties, which are harvested when the kernels are dry and mature (dent stage), sweet corn is picked when immature (milk stage) and prepared and eaten as a vegetable, rather than a grain. Since the process of maturation involves converting sugar to starch, sweet corn stores poorly and must be eaten Fresh, canned, or frozen, before the kernels become tough and starchy. Income Tax Act APVAT ACT According to the AP Vat Act also Sweet Corn considered as a Vegetable.
Entry 18 of Schedule I of the APV AT Act, 2005 is "Vegetables & fruits other than those cured frozen, preserved, processed, dried, dehydrated or canned." According to the Entry 18 of schedule I of the APVAT Act, vegetables are exempted from \'A! To conclude weather Sweet Corn in vegetable or not we applied for advance ruling from the AI V AT department. Mis Sri Sai Agencies, Proprietor - A.Sri Nagaveer, was applied for advance ruling from Commercial tax department for taxability and classification of Sweet corn. He is Mancl~lI1; Director of Mis Tanvi Foods Pvt Ltd Question: Whether the Sweet Corn I Maize I Corn is exempted or fall under Schedule IV of the I\PVA 1 Act? ; AP Vat Act: Under AP VAT Act 2005, Schedule IV of the AP Vat Act contains taxable goods @4/5%, whereas Schedule I of the AP Vat Act is containing tax exempted goods. In the above said advance ruling it is concluded that: Fresh Sweet Corn is exempted under Entry 18 of Schedule I of the APVAT Act, 2005. SCHEDULE -1 (See Section 7) List of Goods exempt from Tax under Section 7: 18. Vegetables & fruits other than those cured, frozen, preserved, processed, dried, dehydrated or canned. From the above it is clearly evident that sweet corn is a vegetable.”
14.6 On the other hand, the ld. DR relied on the orders of revenue authorities and submitted that the CIT(A)_ has coterminous powers with that of AO as provided in the Income Tax Act. He submitted that he can enhance the income as determined by the AO or reduce. He submitted that during the course of assessment proceedings, AO has wrongly taken the 10% of the profit on the entire receipts of the assessee. He submitted that the assessee in the P&L account no corresponding expenditure in regard to other income has been debited by the assessee. It shows that the assessee has not incurred any expenditure towards earning of the other income as shown by the assessee. In view of the above submissions, the ld. DR submitted that the CIT(A) has rightly enhanced the income of the assessee. Further, he submitted that the assessee has not complied for getting deduction as per section 80IB(11A) of the Act. He therefore submitted that the CIT(A) is justified in enhancing the income of the assessee, which may be upheld.
14.7 We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The provisions of section 80IB(11A) read as under:
23 to 652/Hyd/2018 Tanvi Foods (India) Ltd., Hyd. “80IB(11A) 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 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 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.”
14.8 Whether the business of the assessee falls under this section for claiming the deduction U/s 80IB (11A) or not , therefore, it has to be decided first that the corn is vegetable or a fruit or it does not fall under any of these categories. In this regard we are concurred with the submissions made by the ld. AR (supra) which is extract from paper book page no. 155 & 156 . So far as our considered opinion “Although corn falls into the grain category, it also fits into the definition of a starchy vegetable. “The definition of a vegetable is ‘a usually herbaceous plant grown for an edible part that is usually eaten as part of a meal,’” Gorin says. Yep, corn definitely fits the bill. Plus, the 2015-2020 U.S. Dietary Guidelines for Americans also lists corn as both a 24 to 652/Hyd/2018 Tanvi Foods (India) Ltd., Hyd. vegetable and a grain, she adds. So the double-identity is actually legit. Since corn is higher in carbohydrates and calories than vegetables like leafy greens and cruciferous veggies (think broccoli), it's typically considered a starchy vegetable. (Other examples of starchy veggies include potatoes and squash.) As part of a meal, corn and other starchy vegetables are more energizing than their non-starchy counterparts. The assessee has all the necessary equipment for procurement, processing, packing and preservation of sweet corn.” In both the situation i.e. be it a fruit or vegetable the assessee is indeed eligible for the impugned Section 80IB (11A) deduction.
14.9 When the bench asked the ld. AR of the assessee that whether any plant and machinery has been installed for the processing , preservation and packaging of fruits or vegetables as envisaged U/s 80IB (11A) of the Income Tax Act. 1961, he drew our attention to the balance sheet under the head fixed assets, shown investment on plant & machinery under the block of Aeets. He also filed details of the additions to the plant & machinery. The assessee has maintained workshop also, which means it cannot be denied that there was no plant & machinery for the processing , preservation and packaging of fruits or vegetables. Therefore, the assessee is entitled for claim of deduction u/s 80IB(11A) on the profit estimated by the AO @ 10% on the revenue from operations as per Note No. “O” of 25 to 652/Hyd/2018 Tanvi Foods (India) Ltd., Hyd. the financial statements. Hence, we set aside the order of the CIT(A) in this regard and direct the AO to allow the assessee’s claim of deduction u/s 80IB(11A). In the result, the ground raised by the assessee on this issue is allowed.
14.10 The items mentioned in the table extracted by the CIT(A) in his order at page 7 quoted supra, are not covered part of the turnover of the assessee. In this regard, the assessee has shown separately under two heads, one is from revenue from operations and from other income. The other income shown by the assessee are arising during the course of principal business activity of the assessee. Therefore, profit derived under these heads is also forms part of the main business of the assessee and therefore, the entire profit enhanced by the CIT(A) is not justified. In this regard, the AO has rejected the books of account of the assessee and applied 10% of the net profit on entire receipts of the assessee. In the result, the appeal of the assessee is allowed. We make it clear that the assessee will not get benefit of deduction u/s 80IB(11A) on the profits estimated @ 10% on the other income vide Note No. “P” of the financial statements.
In the result appeal of the assessee is partly allowed in above terms.
26 to 652/Hyd/2018 Tanvi Foods (India) Ltd., Hyd. 16. As the facts and grounds are identical in AYs 2014- 15 and 2015-16 to that of AY 2013-14, following the decision AY 2013-14, the ground regarding estimation of income is dismissed, the ground regarding enhancement of income by the CIT(A) is allowed and the ground regarding claim of deduction u/s 80IB(11A) is allowed in both the AYs 2014-15 & 2015-16.
To sum up, all the appeals under consideration are partly allowed.
Pronounced in the open court on 12th May, 2021.