THE COMMISSIONER OF INCOME TAX vs. M/S HARYANA STATE COOP SUPPLY AND MARKET

ITA/112/2004HC Punjab & HaryanaPHHC01051232200426 April 2011Author: MR. JUSTICE ADARSH KUMAR GOEL,MR. JUSTICE AJAY KUMAR MITTAL7 pages
AI SummaryAllowed

What were the facts?

The assessee, M/s Haryana State Co-op. Supply & Marketing Federation Ltd., is a cooperative society engaged in marketing agricultural produce. For assessment year 1992-93, it claimed exemption under Section 80P(2)(a)(iii) and later under Section 80P(2)(e) for income derived from marketing its members' produce, specifically from storage charges. The Assessing Officer (AO) initially disallowed the exemption but, after remand, allowed it under Section 80P(2)(e). The Commissioner of Income-tax (CIT) revised the AO's order under Section 263, holding that the income was from business and not from letting out storage space, deeming the AO's order erroneous and prejudicial to revenue. The Income Tax Appellate Tribunal (ITAT) cancelled the CIT's order, finding the AO's order not erroneous or prejudicial to revenue. The Revenue appealed this ITAT order to the High Court.

What did the High Court hold?

The High Court held that the ITAT's order could not be sustained. The Court found that the previous judgment of the High Court in ITA No.157 of 2005, which dealt with a similar factual matrix involving the same assessee, was fully applicable. That judgment had held that deduction under Section 80P(2)(e) is permissible only for income derived from letting out storage space. If the assessee uses the storage as part of its own business of purchasing and selling goods, the deduction is not available. In such a scenario, the storage is part of the assessee's business, and the income derived is not equivalent to hire charges. Therefore, the view taken by the Assessing Officer, which allowed the deduction, was clearly erroneous and prejudicial to the interest of the revenue, justifying the invocation of powers under Section 263 by the CIT. The questions raised were answered in favour of the revenue. The appeal was allowed, meaning the CIT's order under Section 263 was upheld, and the ITAT's decision was set aside.

What were the issues?

1. Whether on the facts and in the circumstances of the case, the ITAT is justified in cancelling the order of the Commissioner of Income-tax u/s 263 by holding that the Assessing Officer's order was not erroneous and was not prejudicial to the interest of revenue? (Question of law) 2. Whether on the facts and in the circumstances of the case, the ITAT is justified in cancelling the order of the Commissioner of Income-tax u/s 263 wherein he had held the action of the Assessing Officer as unsustainable in law? (Question of law) Assessee's contentions (as per ITAT's reasoning): The assessee was entitled to deduction under Section 80P(2)(e). Such deduction for storage charges had been claimed and allowed in the original assessment. The claim was supported by judgments of the Rajasthan High Court in CIT Vs. Rajasthan State Warehousing Corpn. and the ITAT, Delhi Bench in Haryana Warehousing Corporation Vs. DCIT, and the Supreme Court in Orissa State Warehousing Corporation and Rajasthan State Warehousing Corporation Vs. CIT. The AO had restricted the deduction to income from letting of godowns and warehouses, not the entire income. The AO's order was not based on incorrect facts or law, and therefore, could not be considered erroneous or prejudicial to revenue merely because the CIT disagreed. The twin conditions for Section 263 jurisdiction were not met. Revenue's contentions (as per High Court's reasoning): The Revenue relied on a previous High Court order in ITA No.157 of 2005 (The Commissioner of Income Tax, Panchkula Vs. M/s Haryana State Coop. Supply and Marketing Federation Limited, Panchkula) which held that deduction under Section 80P(2)(e) is available only for income from letting out storage, not when the assessee uses storage as part of its own business of purchasing and selling goods. In such cases, storing is part of the assessee's business, not letting out capacity.

Which sections of the Income-tax Act were involved?

Section 260A,Section 80P(2)(a)(iii),Section 80P(2)(e),Section 263

AI-generated summary — verify with the full judgment below

-1- *** IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of decision: 26.4.2011 The Commissioner of Income-tax, Panchkula ...Appellant Versus M/s Haryana State Co-op. Supply & Marketing Federation Ltd. ...Respondent CORAM: HON'BLE MR.JUSTICE ADARSH KUMAR GOEL HON'BLE MR.JUSTICE AJAY KUMAR MITTAL Present: Mr. Yogesh Putney, Senior Standing Counsel for the appellant.

**** ADARSH KUMAR GOEL, J (

Oral)

.

1.

This Appeal has been preferred by the assessee under Section 260A of the Income Tax Act, 1961 (for short “the Act”) against order dated 31.7.2003 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'A', Chandigarh in ITA No.520/CHANDI/98, for the assessment year 1992-93, raising following substantial questions of law:- “i) Whether on the facts and in the circumstances of the case, the Ld. ITAT is justified in cancelling the order of Commissioner of Income tax u/s 263 by holding that the Assessing Officer's order was not erroneous and was not prejudicial to the interest of revenue?

-2- *** ii) Whether on the facts and

The order continues below.

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