ACIT CIRCLE-15(1), NEW DELHI vs. LTC COMMERCIAL COMPANY PVT LTD, NEW DELHI

PER AMIT SHUKLA, J.M.

The aforesaid appeal has been filed by the Revenue against impugned order dated 27.5.2019, passed by Ld. CIT (Appeals)-5, New Delhi for the quantum of assessment u/s 143(3) for the assessment year 2014-15. In the grounds of appeal, the Revenue has raised following grounds :- 1. “That the Ld. C1T Appeal has erred in law in deleting the addition relying on the basis of M/s AP State Warehousing Corporation vs. DCIT, ITAT, Hyderabad, ignoring the fact that

the intention of legislation as laid down by the section 80IB (11 A) to promote/encourage the development/constructions of infrastructure of warehouses, godowns. 2. That the Ld. CIT (A) has erred in law and facts in ignoring the fact that the assessee does not full fil the condition for claiming deduction u/s 80IB (11 A) as the assessee could not have it own godown. 3. That the Ld. CIT(A) has erred in law and facts in holding that the assessee engaged the business of Handling Storage and Transportation of Food Grain, where as the AO has categorically held in the assessment order that the assessee has that only 6% revenue pertain to handling and transportation activities. 4. That the Ld. CIT(A) has also ignore the case law i.e. ITO vs Shankar K. Bhanage ITAT Mumbai, the facts of the case law are identical to the instant case by simply accepting the contention of the assessee that facts are different, without going through the judgment upon which AO was relied.”

has been worked out at Rs. 7,54,53,146/- out of which an amount of Rs 6,40,43,928/- has been claimed as deduction under section 80IB (11A) of the I T Act, 1961. 3. The assessee during the course of assessment proceedings has filed copy of Form No. 10 CCB, wherein it was mentioned that assessee is engaged in the integrated business of handling, storage and transportation of food grains which is an eligible business u/s 80IB(11A) of the Act. 4. Ld. AO after discussing the provision of Section 80IB (11A) observed that, three conditions are required to be fulfilled for availing deduction and not only storage and transportation of food grains. All the three conditions should be integrated with each other. He further observed that the profit and loss account of the assessee reflected that out of total receipt of Rs. 38,00,15,441/- from storage charges only a small portion amounting to Rs. 71,40,254/- and Rs.1,55,65,857/.- pertains to receipt from transportation and handling charges. Thus, he was of the view that assessee cannot said to be engaged in the integrated business of handling, storage and transportation of food grains. In response to show cause notice by the Assessing Officer, assessee has given detailed submission and clarification which has been incorporated in the impugned assessment order. However, Ld. AO rejected the assessee’s explanation mainly on the ground that;  firstly, the assessee cannot be said to be wholly engaged in the integrated business of handling, storage and transportation of food grains ;  secondly, no specific revenue has been earned by the assessee in the direction of development of infrastructure, because, assessee is simply earning income from sub letting of godowns which were in existence at the time of taking them on rent which means

that assessee is deriving income from using the existing infrastructure. Whereas the main purpose of bringing this provision is construction of godowns specifically for stocking food grains for greater efficiency in grain management system.  thirdly, he heavily relied upon the decision of ITAT Mumbai Bench in the case of ITO vs. Shanker K. Bhanage reported in (2012) 125 taxmann.com310.

In sums and substance, Assessing Officer has denied the deduction u/s 80 –IB(11A) for following two reasons :- i. The Assessee cannot be said to be engaged in the integrated business of handling, storage and transportation of food grains. ii. The assessee is simply earning income from sub-letting of godown which were in existence at the time of taking them on rent, which means that the assessee is deriving income from using the existing infrastructure, whereas the main purpose of bringing this provision is construction of godowns specifically for stocking food grains for greater efficiency in grain management system and minimize post- harvest food grain losses.

The assessee has also claimed corresponding interest expenses of Rs. 79,86,636/-.The net interest income of Rs.4,41,047/- (84,27,683 - 79,86,636) is not related to the business of the Assessee and therefore is to be treated as 'Income from other sources’ as has been held in the case of M/s Pandian chemicals Ltd 262 ITR 278 and M/s Dollar Apparels vs. ITO (2007) 294 ITR 484 (Mad). Accordingly, the disallowance under section 801B(11A) works out to Rs. 6,40,43,928/- (Business income as per computation of income Rs 7.54 53.146/- minus net interest income Rs. 4,41,047/-, is Rs. 7,50,12,099/-). The claim of interest expenditure of Rs. 79,86,636/- is allowed as a deduction from the assessee’s income from other source. [Disallowance – Rs. 6,40,43,928/- & Income from Other Sources Rs. 4,41,047]”

6.9 The appellant also distinguished the decision relied upon by the AO in the case of ITO vs. Shankar K Bhange (Supra) where the facts are different. The appellant further relied upon the case of Orisa State Warehousing Corporation vs. ACIT (Supra) and other decisions to substantiate that it is not necessary to have warehouse of its own or construction of warehouse to be eligible for this claim. 6.10 Looking to the facts and circumstances of this case and in law, as discussed in foregoing paragraphs, the claim of appellant u/s 80IB(11A) is not required to be rejected on the reasoning as discussed in the assessment order and following the decision relied upon and considering the activities of the appellant, which is as per the provisions of section 80IB(11A), the appellant is found eligible for this claim. Accordingly the AO is directed to allow the claim as made by the appellant. This ground of appeal is allowed. “ 7. Before us, Ld. DR after referring to the various observations and findings of the Ld. Assessing Officer, submitted that it has been clearly made out by the AO that the assessee company does not fulfil the conditions laid down in section 80-IB (!1A). He further submitted that assessee is only eligible to claim deduction u/s 80IB(11A) for each undertaking which has began to operate on or after first day of April 2001, whereby employing that eligibility of claim of deduction shall be considered for each warehouse separately after claiming the date of which each of warehouse began their operations.

Regarding Ld. DR’s observation that the undertaking should have began on or after the first day of April 2001, he submitted a copy of the balance sheet for the financial year 2006-07 and pointed out that there was no fixed asset which was owned by the assessee company as on 31st March 2007. The warehouse were constructed or purchased after 1st April 2001 and therefore, the assessee company was eligible for deduction in this regard. Since assessee has commenced its operation on or after 1st April 2001, therefore the condition provided in section 801B (11A) stands fulfilled apart from the other conditions.

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. ” On perusal of the relevant section, it is seen that the following conditions must be fulfilled to become eligible for claim deduction under the said section: - a. Profits and gains must be derived from the ‘eligible businesses, i.e., integrated business of handling, storage and transportation of food grains. b. Such undertaking must begin such business from the initial year of claim of deduction. c. The units in respect of which deduction is claimed should have started operations on or after 1st day of April, 2001.

handling, transportation of food grains. Thus, the reasoning and the grounds given by the Ld. AO to reject the claim of deduction cannot be sustained. 13. In so far the decision of ITAT Mumbai bench in the case of ITO vs. Shankar K. Bhange, which has been heavily relied upon by the Assessing Officer, would not be applicable in the case of the assessee, because in that case the assessee was appointed by the Food Corporation of India as Contractor for handling of food grains. He was merely doing transportation business and there was no storage work/activity which was performed by the Contractor and neither there was any storage belonging to the assessee nor was any storage taken on rent by the assessee. In this background, it was held that assessee does not fulfil the condition as mentioned u/s 80IB (11A). Once the assessee is neither the owner nor lessee of the storage house and the ownership vested with the FCI and assessee was merely transporting food grain, it was in this background the claim for deduction u/s 80IB(11A) of transport activity was denied. On the contrary, in the present case, the assessee’s main revenue is from storage and handling charges. Thus, the aforesaid decision nowhere is applicable on the facts of the present case. In fact the decision of ITAT Hyderabad Bench in the case of AP State Warehousing Corporation vs. DCIT will squarely apply. The relevant portion of the said decision reads as under:- “11. We have considered 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 assessee 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 any new activity of handling and transportation of food grains 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 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. 12. We find that the assessee-corporation 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 the 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 the scheme of construction of go downs started in the year 2002. Each unit is an undertaking because food-grains 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 undertakings 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 different places in those towns, it is very much entitled for relief under S.80IB(11A) of the Act in respect of each such new imdertakins set up by it. It appears from the impugned orders that the lower authorities have proceeded as if the assessee's 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 observing 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.

carrying on similar business would not disentitle the assessee from claiming relief u/s 80IB(11A), in respect of the new warehouses put to use after the introduction of sec80IB(l 1A) i.e on or after 1.4.2001. The assessee has furnished in the paper-book list of new Godowns, which have been put to use by the assessee 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 existing undertakings, as held by the Apex Court in the cases of Textile Machinery Corpn. Ltd. v. CIT [1977] 107ITR 195 (SC) and CIT v. Indian Aluminium Co. Ltd. [1977] 108 ITR 367 (SC). The number of new godowns operated by the Assessee after1.4.2001 clearly shows that there was substantial expansion of the assessee's 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 constitutes an eligible undertaking, assessee is separately entitled for deduction under S.80IB(11A) of the Act. In our opinion therefore, the assessee is entitled to deduction u/s 80IB(11A), in 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 orders of the CIT(A) on this issue for all the three years and set aside the matter to the file of the Assessing Officer, with a direction to verify the claim of the assessee for deduction under S.801A(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 opportunity of hearing to the assessee. 14. Assessee's grounds on the issue of deduction under S. 801A(11A) are allowed for statistical purpose.” 14. Thus, Ld. CIT (A) has correctly applied the said decision while allowing the claim of deduction to the assessee and we do not find any reason to deviate from such finding.

already been clarified by the Ld. Counsel by placing the audited balance sheet as on 31.03.2007 to substantiate that Assessee Company has commenced its operation after 31st March 2007 only which is much after the year 2001. The balance sheet for 31st March 2008 and 2009 clearly shows the business of storage, handling and transportation has started from assessment year post 31st March 2008. Thus, the construction of storage godowns and on rent had started much after the Asstt. Year 2007-08. On these facts it cannot be held that assessee had not commenced its business of operation after the year 2001 which is one of the conditions prescribed u/s 80IB (11A). Accordingly, we hold that assessee fulfils all the mandatory conditions prescribed u/s 80IB (11A), as all its income is derived from warehouse business operation and it is deriving profit from integrated business of handling storage and transportation of food grains. Therefore, the assessee is entitled for claim of deduction u/s. 80IB (11A). Accordingly, the order of the Ld. CIT (A) is confirmed and the Revenue ‘s appeal is dismissed.

In the result appeal of the Revenue is dismissed. Order pronounced in the Open Court on 10th June, 2021.

sd/- sd/- (N.K. BILLAIYA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 10/06/2021 Veena Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT 14

ASSISTANT REGISTRAR ITAT, New Delhi