ORISSA STATE WAREHOUSING CORPORATION,BHUBANESWAR vs. DCIT, CIRCLE-1(1), BHUBANESWAR, BHUBANESWAR

1 ITA No. 346/CT K/ 2014 Asse ssment Year : 20 10- 201 1

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK

BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER

ITA No.346/CTK/2014 Assessment Year : 2010-2011

Orissa State Warehousing Vs. DCIT, Circle-1(1), Corporation, Plot No.2, Bhubaneswar Cuttack Road, Bhubaneswar. PAN/GIR No.AAACO 4742 N (Appellant) .. ( Respondent)

Assessee by : Shri B.K.Mohapatra, AR Revenue by : Shri Kunal Singh, CIT DR

Date of Hearing : 30/08/ 2017 Date of Pronouncement : 20 /09/ 2017

O R D E R Per N.S.Saini, AM This is an appeal filed by the assessee against the order of the

CIT(A)-1, Bhubaneswar dated 11.6.2014 for the assessment year 2010-

2011.

“1. That the order appealed against is bad in law, without jurisdiction and void. 2. That the order appealed against is bad in law as it is passed on the prejudices, surmises, guesses and misunderstanding of the fact and law and is contrary to the evidence on record.” 3. These grounds are general in nature and hence, require no separate

adjudication by us.

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“That the ld CIT(A) has erred in confirming the disallowance of the claim of deduction u/s.80IB of the Act on the contention that the new warehouses are mere extension or expansion of the existing business and should not be considered as an “undertaking” for the purpose of the provisions of section 80- IB.”

engaged in the business of handling, storage and transportation of food

grains and other materials. Mostly, the company handles the food grains

on behalf of M/s. Food Corporation of India (FCI). Till assessment year

2002-03, the assessee was claiming exemption u/s. 10(29) of the Act

until the removal of said exemption. During the financial year 2002-03,

the assessee was identified as a Nodal Agency for construction of 2.00

lacs MT additional storage capacity in Orissa and M/s. FCI stood guarantor

for the use of above additional capacity for 7 years. Accordingly, the

assessee undertook the construction of additional godowns and

completed construction of additional storage capacity of 1.825 lacs MT

during the financial year 2002-03 and offered the the same for

commercial use. In regard to such newly constructed warehouses, the

assessee has claimed deduction under sub-section (11 A) of section 80-IB

of the Act. The Assessing Officer was of the view that in this case there

has been mere construction of additional warehouses enhancing the

capacity. It cannot be treated as a new undertaking making it eligible for

deduction u/s.80-IB. To support his view, the Assessing Officer relied

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upon the decision of the Supreme Court in the case of Textile Machinery

Corporation Ltd. v. CIT (107 ITR 195) where it was held that the true

tests of a new (industrial) undertaking is whether a new or an identifiable

undertaking separate and distinct from the existing business comes into

being. It should not be a case of substantially the same person carrying

on substantially the same business. The Assessing Officer observed that

in the case of the assessee, the P&L account of the entire business was a

consolidated one and there is no bifurcation for the new unit for which

deduction u/s.80-IB has been claimed. The deduction has been worked

out on apportionate method. There is absolutely no difference in the

manner in which business was carried on by addition to the existing

capacity in the form of new warehouses. Therefore, the Assessing Officer

held that no new undertaking has come into existence and the

undertaking in question is an old one which has gone for extension of old

business and, therefore, disallowed the claim of deduction u/s.80 IB of

the Act.

it is stated that the assessee is an eligible undertaking which is deriving

profit from integrated business of handling, storage and transportation of

food grains. The eligible undertaking is required to begin operation of

such business on or after 1.4.2001. In the case of the assessee, the

entire capacity of mini godowns measuring 1,98,500 MT is to be

considered as new undertaking as it confirms to the following conditions:

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i) New godowns have been created to cater to the need of warehousing in the State . ii) The new godowns are exclusively used for storage of food grains pursuant to the 7 years guarantee provided by Food Corporation of India.

iii) The new godowns have been created pursuant to the "Gramin Bhandaran Yojana" of the Govt, of India.

iv) The new godowns have been created as completely new structures without any restructuring / relocation of any of the existing godowns.

v) The new godowns have been created by employing fresh capital by availing loan facilities from Nationalized Banks pursuant to the above said schemes of Govt, of India.

vi) The new godowns have been put to use after the specified date in the Act i.e. 01.04.2001.

vii) The godowns have been utilized for the purpose of the eligible business as specified under the provisions of Section 80 IB (11A) i.e. "Integrated business of Handling, Storage and Transportation of Food Grains".

It was submitted that the assessee has maintained separate records in

respect of income generated from the new godowns. It was also

submitted that the assessee also produced profit & loss account and

balance sheet for the new business before the Assessing Officer as a part

of the report in Form-IOCCB. The assessee relied upon the decision in

the case of CIT v. Bhageeratha Engineering Ltd. (1992), 193 ITR 674

(Ker.) which was affirmed by the Supreme Court in 199 ITR 12, wherein

the expression 'Industrial Undertaking' in section 80-J has been

interpreted to mean any venture or enterprise which a person undertakes

to do and which has relation to some industry or has some industrial

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consequences. The assessee also relied upon the decision in the case of

CIT v. Associated Cement Companies Ltd., (1979) 118 ITR 406 (Bom.).

confirmed the action of the Assessing Officer in disallowing deduction

u/s.80 IB of the Act following the decision of his predecessor for the

assessment year 2006-07 in the case of the assessee, which is extracted

below:

"The undisputed fact of the case is that the appellant corporation is an existing entity engaged in the business of handling, storage and transportation of food grains and other materials, As par details provided during the appellate proceedings, it had, 1,84,550 MT existing godown capacity at 49 different places -in Orissa. To the above, it added godown capacity of 1,98,500 MT in 17 of the existing 49 places under Gramin Bhandaran Yojana, the use of which was guaranteed by FCI for 7 years. The issue to be decided here is whether the above additional godowns would constitute an undertaking commencing business after 1.4.2001 or merely expansion of existing warehousing capacity. To be eligible for deduction u/s.80-IB (11 A), the additional godowns operationalized during the previous year have to constitute a new undertaking different from the existing undertaking/undertakings. While it is correct that the company and undertaking are different and the new undertaking may carry out the existing business, it has to be necessarily a separate undertaking distinguishable from the existing set up. The AO has rightly observed that every new godown set up by the appellant would not result in a new undertaking. The meaning of the word 'undertaking' can be understood from following judicial pronouncements:

i) The word 'undertaking' must be defined as any business or any work or project which one engages in or attempts as an enterprise analogous to business or trade. Secretary, Madras Gymkhana Club, AIR 1968 SC 54, 563. ii) The expression 'undertaking' means a separate and distinct business or industrial activity and does not comprehend an infinitesimally small part of manufacturing

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process. Painting section of a factory is not "undertaking". A. S. Production Agencies v. Ind. Tribunal, Haryana, AIR 1979 SC 170, 180. Therefore, a new , undertaking has to have a separate identity and distinguishable from the existing business. In the case of the appellant corporation, what has happened is construction of new godowns at the same places where there were existing godowns. The management and financial control at the places where the-godowns were added and at the central level remained unchanged. Nothing has happened whereby the existing of a new undertaking can be seen and identified. As already observed, it will not be correct to treat every new godown as a new undertaking in itself. This will dilute the meaning of 'undertaking' to infinitesimally small part of the business activity. The AO has already observed on accounting aspects where the expenses have been earmarked on proportionate method. Therefore, the obvious nature of the transaction is the expansion of the existing warehousing capacity in response to a Central Govt, scheme and it has to be accepted as :such. A forced interpretation of the expansion of existing capacity as coming into existence a new undertaking with everything else remaining unchanged,, is not consistent with the facts of the case or law on the subject. The denial of deduction by the AO u/s.80-IB (HA) is upheld"

assessee’s own case for the assessment years 2004-05 to 2008-09,

deduction u/s.80 IB(11A) was disallowed by the Assessing Officer and

confirmed in appeal by the CIT(A). The matter was carried in appeal

before the Tribunal and the Tribunal in its order dated 22.10.2014 in ITA

Nos.330, 331 & 332/CTK/2010 for the assessment years 2004-05, 2006-

07 and 2007-08 and ITA No.396/Ctk/2011 for the Assessment year 2005-

06 and ITA No.305/CTK/2012 for assessment year 2008-09 has directed

the Assessing Officer to verify the claim for deduction u/s. 80IB in respect

of new undertaking set up on or after 1.4.2001 and allow deduction in

accordance with law to the assessee and, therefore, following the same,

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deduction u/s.80IB(11A) should be allowed for the year under appeal. He

submitted that for the assessment year 2011-2012, the Assessing Officer

has allowed deduction u/s.80IB(11A) of the Act following the decision of

the Tribunal for the assessment years 2004-05 to 2008-09 (supra), which

has been upheld by the CIT(A) in his order dated 4.10.2016. He further

submitted that for the assessment year 2009-2010, the Assessing Officer

has allowed deduction to the assessee following the decision of the

Tribunal dated 2.2.2015 in ITA No.553/CTK/2013.

lower authorities as well as the decision of the Tribunal in assessee’s own

case for the assessment years 2004-05 to 2008-09 (supra), we find that

the Tribunal has allowed the deduction u/s. 80 IB(11A) of the Act to the

assessee by observing as under:

“23 Apropos Ground No.3, at the outset, ld counsel submitted that this issue is covered by the decision of ITAT Hyderabad Bench in the case of A.P. State Warehousing Corporation vs DCIT, 45 Taxmann.com.332 (Hyd), wherein, it has been held 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

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S.80IB(11 A), 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 godowns 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 undertaking 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. 13. As for the eligibility of the activity of the assessee to the relief under S.80IB(11A), it is worthwhile to refer to the intention of the Legislature in introducing sec 80IB(11 A), which is reproduced hereunder : "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 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

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efficiency in the grain management system and minimize post harvest food grain losses." It is evident from the above, that the 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 the 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 assessee's main business is to provide warehousing facility 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 godowns for storage does not mean that the Assessee is not engaged in the integrated business of handling and storage of foodgrains. In the course of their integrated business, the assessee had collected rentals for storing foodgrains and had engaged outsiders to transport the food grains. Further, the fact that the assessee had been carrying on similar business would not disentitle the assessee from claiming relief u/s 80IB(11 A), 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 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 [19771 107ITR195(SC) and CIT v. Indian Aluminium Co. Ltd. [19771 108 ITR367 (SC). The number of new godowns operated by the Assessee after 1.4.2001 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(11 A), 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.80IA(11A) of the Act in

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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.

the facts for the assessment years 2004-05 to 2010-2011 (supra) and

respectfully following the decision of the Co-ordinate Bench in assessee’s

own case(supra), we set aside the orders of lower authorities and direct

the Assessing Officer to allow deduction u/s. 80IB(11A) of the Act to the

assessee and allow this ground of appeal.

“That the CIT(A) has erred in confirming the addition of liabilities due to disallowance of insurance claim of Rs.34,22,860/- made by the AO on the basis of audit report of the assessee and without considering the fact that the amount is under reconciliation pending which no adjustment is made in the books of account of the appellant corporation.”

that at Sl. No.5 of the Annexure-A to auditor’s report, the auditor has

mentioned that liabilities due to disallowance of insurance claim of

Rs.34,22,860/- in Schedule-I should be written back. The Assessing

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Officer required the assessee to explain why the above amount of

Rs.34,22,860/- shall not be disallowed. Before the Assessing Officer, the

assessee submitted that Rs.34,22,860/- represents liability due to

disallowance of insurance claim which is still under reconciliation and

stands unadjusted in the accounts of the assessee. The above

explanation of the assessee was not acceptable to the Assessing Officer

and, therefore, he added the sum of Rs.34,22,860/- as cessation of

liability u/s.41(1) of the Act in the hands of the assessee.

outstanding liability on account of insurance claims is brought forward

balance from the earlier years. The said amount represents less/non-

settled amounts by the insurance company which remains payable to the

depositors in the books of account of the assessee.

the amounts of insurance claim now outstanding have already been

claimed as expenditure in the earlier years.

authorities. He submitted that as per the practice followed by the

assessee in the event of shortage found in godown the assessee lodges

claims with insurance company for its settlement. After the claims are

settled, adjustments are made in insurance claims receivable account and

the less/unsettled amount is credited to liabilities due to disallowance of

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insurance claims. The amount of Rs.34,22,859.72 represents

less/unsettled amounts by the insurance company, which remains payable

in the books of account of the Corporation to the depositors. It was

submitted that the following 15 outstanding entries are the insurance

claims:

SL Claim Settled Claim Name of the Nature of Claim No. Warehouse Claim Preferred Disallowed 1 Berhampur (1999-2000) Flood 1,057,840.00 360,611.00 697,229.00 2 Jatni (1999-2000) Flood 3,459,168.00 1,481,104.00 1,978,064.00 3 Flood 866,531.00 537,756.00 328,775.00 Jagatsinghpur (1999- 2000) 4 Bhadrak (1999-2000) Flood 1,116,675.40 776,841.00 339,834.40 5 Berhampur (1999-2000) Cyclone 483,160.00 154,150.00 329,010.00 6 Bhadrak (1998-1999) Flood ! 411,480.95 177,029.00 234,451.95 7 Phulbani (1993-1994) Fidelity 327,496.00 218,702.00 108,794.00 8 Berhampur (1990-1991) Flood 29,644.00 - 29,644.00 9 Cuttack (1993-1994) Flood 382,206.00 194,135.00 188,071.00 10 Jatni (1991-1992) Burglary 26,274.53 - 26,274.53 11 Jagatpur (1991-1992) Burglary 6,000.00 2,740.00 3,260.00 12 Berhampur (1992-1993) Burglary 8,400.00 176.00 8,224.00 ' 13 Jatni (1991-1992) Burglary 11,000.00 - 11,000.00 14 Bolangir Burglary 25,800.00 - 25,800.00 15 Paradeep Transit 606,438.80 34,868.89 571,569.91 Total : 8,818,114.68 3,938,112.89 4,880,001.79 Less: Liability reduced in 2001 -2002 1,457,142.07 Balance as on 31.03.2005 3,422,859.72

authorities and materials available on record. In the instant case, the

Assessing Officer made addition of Rs.34,22,860/- u/s. 41(1) of the Act

on account of cessation of liability, which was confirmed in appeal by the

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CIT(A). The contention of the assessee is that it follows the practice

whereby shortage found in the godown of the Corporation is claimed from

insurance company by lodging the claim. When the claim is settled, the

assessee credits the insurance claim receivable account for the amount

received and for the balance amount short received against the insurance

claim is put under the head liabilities due to disallowance of insurance

claim. The amount of Rs.34,22,859.72 represents less/unsettled amounts

by the insurance company which remains payable in the books of account

of the assessee. Hence, it was his submission that the addition made by

the Assessing Officer is not justified.

addition, it has been stated that the auditors in their report have stated

that the liability due to disallowance of insurance claim of Rs.34,22,860/-

should be written back. Thus, it is seen that the Assessing Officer after

carrying out verification of facts of the case has not brought the entire

materials on record before making the addition. Therefore, in our

considered view, the issue requires to be restored back to the file of the

Assessing Officer for adjudication of the same afresh. We order

accordingly. Needless to mention that the Assessing Officer shall allow

reasonable and proper opportunity of hearing to the assessee before

adjudicating the issue afresh. With these directions, this ground of appeal

of the assessee is allowed for statistical purposes.

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purposes.

Order pronounced in the open court on 20 /09/2017. Sd/- sd/- (Pavan Kumar Gadale) (N.S Saini) JUDICIALMEMBER ACCOUNTANT MEMBER Cuttack; Dated 20 /09/2017 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : Orissa State Warehousing Corporation, Plot No.2, Cuttack Road, Bhubaneswar 2. The Respondent. DCIT, Circle-1(1), Bhubaneswar 3. The CIT(A)-1, Bhubaneswar 4. Pr.CIT-1, Bhubaneswar 5. DR, ITAT, Cuttack BY ORDER, 6. Guard file. //True Copy// SR.PRIVATE SECRETARY ITAT, Cuttack