DCIT, CIRCLE - 2, KOLKATA, KOLKATA vs. M/S. LMJ LOGISTICS LTD., KOLKATA

आदेश /O R D E R

PER Waseem Ahmed, Accountant Member:-

This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-I, Kolkata dated 09.07.2010. Assessment was framed by DCIT, Circle-2, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide her order dated 31.12.2009 for assessment year 2007-08. Md. Ghayas Uddin, Ld. Departmental Representative represented on behalf of Revenue and Smt. Arti Debnath, Ld. Authorized Representative appeared on behalf of assessee.

ITA No.1800/Kol/2010 A.Y. 2007-08 DCIT Cir-2, Kol. Vs. M/s LMJ Logistics Ltd. Page 2 2. At the outset we find that the issues raised by the Revenue in ground no. 1 to 3 are inter-connected, therefore we decided to adjudicate the same together for the sake of convenience. 2.1 The issues raised by Revenue in its grounds no. 1 to 3 of appeal are that Ld. CIT(A) erred in directing the Assessing Officer for re-verification of addition of ₹1,09,11,962/- on account of rent receipts shown as “business income” as well denying the benefit u/s 80-IB(11A) of the Act for Rs. 1,25,22,588/- only. 3. Facts in brief are that assessee is a limited company and engaged in business of clearing and forwarding agents. The assessee is also engaged in the business of integrated activity of handling, storage and transportation of food-grains at Gandhidham, Gujarat. The assessee is running a warehouse in Gandhidham providing integrated facilities for the food-grains. The assessee from its unit at Gandhidham has shown gross receipt of ₹1,98,69,397.97 on account of handling charges, transportation and storage charges. The assessee in respect of its unit at Gandhidham has claimed deduction u/s. 80IB(11A) of the Act. The AO, during the course of assessment proceedings, issued a letter to the Directorate of Income-tax (Investigation) unit at Gandhidham to verify the veracity of its income from the unit of Gandhidham. The Inspector of Directorate of Income-tax (Investigation) Gandhidham in turn submitted its report which reads as under:- i) Assessee is having two warehouses which are Numbered as 8 & 13 at Gandhidham, ii) These warehouses were registered in the name of assessee on 28.07.2005; iii) The completion certificate in respect of warehouse No. 8 was issued on 07.04.2007 and in respect of ware house No. 13 was issued on 12.03.2007. iv) The part of warehouse was given on rent since long time to M/s Rishi Shipping Ltd. which was filled with the DAP (fertilizer)

ITA No.1800/Kol/2010 A.Y. 2007-08 DCIT Cir-2, Kol. Vs. M/s LMJ Logistics Ltd. Page 3 In view of the above, the AO sought clarification by issuing a notice for the deduction claimed by the assessee u/s. 80B(11A) of the Act. The AO was of the view that warehouses in question were completed at the fag-end of the relevant financial year. Therefore the assessee cannot be entitled for deduction u/s. 80IB(11A) of the Act. In compliance thereto the assessee submitted that the construction activity of warehouse and Logistic Infrastructure was completed sometime in the month of April, 2006 and after the completion of the construction of warehouse, the warehouse space were rented out to M/s Rishi Shipping Ltd. in the month of May, 2006. The assessee also submitted that the report of the Inspector was furnished vide dated 23.12.2009 whereas the impugned case relates to the previous year 2006-07. At that relevant time, there was a stock of food-grains of M/s Rishi Shipping Ltd. in the warehouse of the assessee. Thus, the report of Inspector alleging that the warehouse was filled for storage of DAP (fertilizer) cannot be accepted. However, the AO disregarded that the contention of the assessee by observing as under:- a) The completion certificate in respect of warehouse No. 13 and 8 by the Deputy Secretary (P) Kandla Port Trust were given at the fag- end of the relevant previous year i.e. 12.3.2007 and in the beginning of next financial year i.e. 7.4.2007. The year of dispute is financial year 2006-07. Therefore there is no question of utilization of the warehouse for the purpose of the food-grains. Thus the assessee is not entitled for deduction u/s. 80IB(11A) of the Act. b) The deduction u/s 80IB(11A) is available where the assessee is engaged in the business of providing integrated facilities for handling, transportation and storage of food-grains. No copy of agreement with M/s Rishi Shipping Ltd. was provided before having the report of the Inspector. Therefore, it is transpired that the assessee was not engaged in the integrated facilities as envisaged. Thus, the AO worked out the income from the unit located at Gandhidham as detailed under:-

ITA No.1800/Kol/2010 A.Y. 2007-08 DCIT Cir-2, Kol. Vs. M/s LMJ Logistics Ltd. Page 4 1) Gross received from Gandhidham of ₹198,09,398/- Less : relevant expense in respect of Gandhidham unit 1. Electricity charges Rs. 23,879.00 2. Generator charges Rs. 20,528.00 3. Insurance charges Rs. 78,568.00 4. Printing & Stationery Rs. 10,865.00 5. Repairs & Maintenance Rs. 7,800.00 6. Travelling charges Rs. 5,194.00 7. Financial charges Rs.24,50,230.00 (the above expenses are allowed as claimed by the assessee, brokerage & commission, cartage expenses, transportation charges are disallowed as they cannot relate to be claimed to an unit of hire, amount on rates & taxes are disallowed as they cannot be segregated from penalty & fines, which are not allowable) 9. Depreciation Rs.11,81,721.00 Rs.37,78,784.00 Net profit Rs.1,60,30,614 (a)

Therefore, AO worked out net profit of ₹160,30,614/- as discussed above. The AO further observed that the assessee in respect of its unit at Gandhidham has already declared profit for a sum of ₹51,18,652/- and accordingly opined that sum of ₹109,11,962/- (160306134 -5118652) has to be added to the total income of assessee. Accordingly, the AO added the sum of ₹109,11,962/- to the total income of assessee.

3.1 Besides the above, the assessee in its original return of income claimed a deduction of ₹125,22,588/- u/s. 80IB(11A) of the Act in respect of its Gandhidham unit which was denied by the AO in his assessment order for the reasons as discussed aforesaid. Thus, the AO concluded the issue of Gandhidham unit by adding a sum of ₹109,1,962/- to the total income of assessee and by disallowing the claim of assessee for ₹125,22,588/- u/s 80IB(11A) of the Act. 4. Aggrieved, assessee preferred an appeal before Ld. CIT(A).

ITA No.1800/Kol/2010 A.Y. 2007-08 DCIT Cir-2, Kol. Vs. M/s LMJ Logistics Ltd. Page 5 Submission in respect of addition for ₹10,911,962/-. The assessee before Ld. CIT(A) submitted that the income in respect of Gandhidham unit has already been included in its financial statement and has been duly offered to tax in its income tax return. Therefore, further addition of ₹109,11,962/- will lead to double taxation.

Submission in respect of disallowance of deduction for ₹125,22,588/- u/s. 80IB(11A) of the Act.

In this regard, the submission of assessee can be summarized as under:- (i) There is no requirement u/s. 80IB(11A) of the Act that for claiming the deduction a completion certificate has to be obtained from the concerned authority. In fact major construction was completed in the beginning of financial year and accordingly it was let out to M/s Rishi Shipping Ltd. in the month of May, 2006. (ii) The observation of the AO that the agreement with M/s Rishi Shipping Ltd., was not revealed prior to the inquiry conducted by the Inspector at Gandhidham is not true. It is because in the course of assessment various details/ statements were submitted before the AO wherein the name of M/s Rishi Shipping Ltd was very much mentioned. Therefore, the allegation of the AO is based on its own surmise and conjecture. (iii) It was a clearly mentioned in the report of Inspector that the warehouse was let out to M/s Rishi Shipping Ltd. since long. Therefore the contention of the AO that completion certificate was obtained by the assessee subsequently proves to be wrong. The investigation report shows that the commercial activity was started before obtaining the completion certificate from the appropriate authority. As per the investigation report, which was conducted in the month of December, 2009 revealed that there was storage of DAP (fertilizer) and not of the food grains. Here it is pertinent to note that the issue before the AO pertains to the financial year 2006-07 and the report of the Inspector

ITA No.1800/Kol/2010 A.Y. 2007-08 DCIT Cir-2, Kol. Vs. M/s LMJ Logistics Ltd. Page 6 was obtained in the month of December 2009 and thus the report of inspector is silent about the items stored in the financial year 2006-07. The report of the inspector contains items stored in the period of December 2009 which is irrelevant to the year under consideration. Thus, the allegation of the AO that there was storage of DAP (fertilizer) is based on its own surmise and conjecture. Ld. CIT(A) after considering the submissions of assessee has deleted the addition made by the AO as well as granted relief u/s. 80IB(11A) of the Act by observing as under:- “1. In this ground the Appellant has objected to the action of the assessing officer in making an addition of Rs.1,09,11,9620/- as income from its Gandhidham Unit, though the same appears as a part of net profit as per the profit and loss account. 2. The appellant had submitted during the appellate proceedings that the amount was already a part of income as per the audited profit and loss account. The DCIT has mistakenly added the same again to the total income. 3. In view of the submissions made by the appellant and looking into the facts and assessment order of the case it appears that the addition made by the AO in taxing the same income twice while computing the total income of the appellant is incorrect. Hence, a direction is being issued to the AO to verify the fact an accordingly if the appellant’s contention is correct, as apparently it is deleted the addition.”

Deduction u/s. 80IB(11A) of the Act for ₹1,25,22,588/- “1. In this ground the Appellant has objected to the action of the assessing officer in disallowing the claim of the appellant and adding Rs.1,25,22,588/- u/s 80IB(11A) of the Act. 2. The assessing officer based on the report of inspector, ha stated that the completion certificate for the warehouses at Kandla Port Trust area we obtained by the assessee on 12.03.2007 & 07.04.2007. Further, the AO contended that the assessee had never came up with the information on its engagement with M/s Rishi Shipping Co. prior to the revealing of the results of the enquiry by the inspector at Gandhidham. Hence, there was no occupation, thus no handling, transportation and storage operation in FY 2006-07. Hence, the total claim of deduction u/s. 80IB(11A) amounting to Rs.1,25,22,588/- was disallowed. 3. The appellant on the contrary has challenged this hypothesis of the AO that completion certificate is not the determining factor for claiming deduction u/s 80IB(11A) of the Act. In other words, it is not a pre-requisite for claiming a deduction u/s. 80IB. Te appellant submitted that they had submitted a list of Storage, Handling & transportation charges for the FY 2006-07 on 03.12.2009, which contains the name of M/s Rishi Shipping on various dates. Further, a per the investigation report only, the plot at Kandla Port was given to Rishi Shipping Limited since long.

ITA No.1800/Kol/2010 A.Y. 2007-08 DCIT Cir-2, Kol. Vs. M/s LMJ Logistics Ltd. Page 7 As far as the facts relating to the storage of DAP (Fertilizer) is concerned and as per the investigation report from the inspector, Gandhidham, it apparently relates to the current year only and not for the assessment year in question. There is nothing on records to prove that the warehouse at plot no 13 at Kandla Port Trust was used for purposes other than the storage of foodgrains. 4. Considering the submissions made by the appellant and the assessment order, it appears that the AO was not justified in disallowing the claim. The submissions made show that the appellant was carrying on the integrated operation of Handling, Transportation and storage since some time and nothing speedier was placed on the records by the AO to prove that the contention of the appellant was wrong. Further, nothing on the record has been placed by the AO that the assessee was not carrying on the integrated activit9y of Handling, Transportation and storage of food grains for the assessment year under appeal. Hence, in view of the above submissions & relying on the decision of the Supreme Court in the case of Dhakeshwari Cotton Mills 26 ITR 775 (SC), which states the guideline that the Assessing Officer while making an assessment section 143(3), is not entitled to guess and make an assessment without reference to any evidence or any material at all which could well apply to the case of the appellant. The disallowance is therefore remains unsubstantiated and cannot be sustained.”

The Revenue, being aggrieved, is in appeal before us on the following grounds:- “1.That on facts and circumstances of the case the Ld. CIT(A) erred in passing an order based exclusively on the submission of the assessee and completely ignoring the discussions in the assessment order on each of the decided issues. 2. That on facts and circumstances of the case the Ld. CIT(A) erred in directing the AO for re-verification of the addition of Rs.1,09,11,962/- disregarding the fact that this addition was on account of determination of rent [as business income] based on receipts disclosed by the assessee from the unit and subsequent rejection of claim u/s. 80IB(11A).” 3. That on the facts 4. That on the facts

ITA No.1800/Kol/2010 A.Y. 2007-08 DCIT Cir-2, Kol. Vs. M/s LMJ Logistics Ltd. Page 8 Sec. 80IB(11A) of the Act. Ld. DR also submitted that it is nowhere clear from the agreement between the assessee and M/s Rishi Shipping Ltd. suggesting that the integrated services were provided by the assessee. Ld. DR also submitted that there is no evidence provided by the assessee at the time of assessment proceedings suggesting that he is providing integrated services as envisaged u/s. 80IB(11A) of the Act as well as there is no evidence that food-grains was stored by the assessee in its warehouse. Ld. DR vehemently relied on the order of AO. On the other hand, Ld. AR for the assessee filed two sets of paper book which is running pages from 1 to 41 and 1 to 89 respectively. He submitted that the construction activity of the warehouse was duly completed in the year under consideration as evident from the Schedule-4 of the depreciation chart which is placed on page 11 of the paper book. The assessee in support of its warehouse at Gandhidham has claimed depreciation in the books of account. Therefore, the allegation of the AO that it was completed at the fag-end of the financial year is not justifiable and he reiterated the arguments that were made before the Ld. CIT(A). 6. We have heard the rival contentions of both the parties and perused and carefully considered the material on record; including the judicial pronouncements cited and placed reliance upon. At the outset, we find that the income in respect of Gadhidham unit was already offered to tax as evident from the financial statement of the assessee which are placed on pages 1 to 21 of the paper book, more particularly from the profit and loss account which is placed on page 9 of the paper book. Moreover, we find that Ld. CIT(A) has merely directed the AO to verify the same whether the income in respect of Gandhidham unit has been included in its books of account, as such, we find no infirmity in the order of Ld. CIT(A). Thus the AO has all the right as provided under the statute to ensure whether income has been included in the income of the assessee and therefore we find no infirmity in the order of ld. CIT(A). Hence, this ground of Revenue’s appeal is dismissed.

ITA No.1800/Kol/2010 A.Y. 2007-08 DCIT Cir-2, Kol. Vs. M/s LMJ Logistics Ltd. Page 9 7. Next issue in the instant case relates the deduction claim by assessee u/s 80IB(11A) of the Act. The deduction was denied by AO on the ground that the warehouses in respect of which the deduction was claimed were not ready for commercial activities in the year under consideration. The observation of the AO was based on the completion certificates which were issued by the appropriate authority at the fag-end of the relevant financial year and in the beginning of the next financial year. However, on perusal of Section u/s 80IB of the Act we find there is no pre-condition for claiming the deduction that there has to be any completion certificate. Admittedly, the income of assessee has shown the unit located at Gandhidham in its profit and loss account. Thus, in our considered view, the deduction u/s. 80IB(11A) of the Act cannot be denied merely on the ground that completion certificate was furnished at the fag-end of financial year. It is also pertinent to note that the inspector has given the report by stating that the warehouse was rented out to M/s Rishi Shipping Limited since long which proves that the commercial activity started before the completion certificated obtained by the assessee. 7.1 Now coming to the other reason that the requirement of provision of Sec. 80IB(11A) of the Act that the assessee must be engaged in the integrated facilities providing for handling, transportation and storage charges. In this regard, we find that the assessee has not produced any supporting documents other than list of clients which are placed in the record. On perusal of that list, we find that it is internal list maintained by assessee which was duly furnished before Authorities Below. However, in our considered view, the list cannot be a conclusive evidence that the assessee is engaged in providing integrated service. However, we disagree with the contention of Ld. DR that there was a storage of DAP (fertilizer) in the warehouse maintained by assessee. it is because, the AO observed that there was a storage of DAP (fertilizer) on the basis of report submitted by Inspector which was furnished in the year 2009-10 and there is no information available with the Revenue what was stored in the year under consideration in the warehouse of the assessee. Therefore, we are of the view

ITA No.1800/Kol/2010 A.Y. 2007-08 DCIT Cir-2, Kol. Vs. M/s LMJ Logistics Ltd. Page 10 that the Revenue has failed to produce necessary evidence suggesting that there was storage of DAP (fertilizer) and not food-grains in the year under consideration. Now, the issue remains to be adjudicated whether the assessee is engaged in the integrated service as envisaged under the provision of Section 80IB(11A) of the Act. In this regard, Ld. AR has furnished a list of 17 pages wherein the income of storage, transportation, and handling charges was shown. However, in our considered view, that the list cannot be treated as conclusive evidence to hold that the assessee is engaged in the integrated services. Besides the above, we also find that the AO has not exercised his power u/s. 143(3) of the Act to ascertain from the parties where they availed integrated services from the assessee. With this view of the matter, we are inclined to give one more opportunity to assessee to justify its claim for deduction u/s. 80IB(1A) of the Act. In the light of above stated discussion, thus, we restore this issue to the file of AO to adjudicate the issue afresh in accordance with law and after giving opportunity of being heard to assessee. Hence, this ground of Revenue’s appeal is allowed for statistical purpose. 8. Last issue raised by Revenue is that Ld. CIT(A) erred in deleting the disallowance made by AO for debt redemption reserve in calculating book profit u/s. 115JB of the Act. 10. The AO while calculating the book profit has treated the debt redemption reserve as unascertained liability and accordingly disallowed the same. 11. Aggrieved, assessee preferred an appeal before Ld.CIT(A). The assessee before Ld.CIT(A) submitted that the amount of debt redemption reserve represents the ascertained liability and therefore liable to be deducted while working out the book profit u/s.115JB of the Act. The Ld.CIT(A) after considering the submission of assessee has deleted the addition made by the AO by observing as under:- “1. In this ground the appellant has objected to the action of the assessing officer in disallowing the deduction of Rs.91,30,524/- made from book profit on

ITA No.1800/Kol/2010 A.Y. 2007-08 DCIT Cir-2, Kol. Vs. M/s LMJ Logistics Ltd. Page 11 account of “profit transferred to debt redemption fund” for the purposes of calculation of book profit u/s. 115JB of the Income tax Act, 1961. The AO submitted that in calculation of MAT u/s. 115JB “Deferred tax’ and Profit transferred to Debt Redemption Reserve” is not allowance as per the Act. The appellant during the appellate proceeding submitted that transfer to debt redemption reserve account is meant to meet future liability arising out of the redemption of debts. This debt redemption reserve is called reserve only namesake. It is in fact, a provision to meet a future liability. The appellant also placed reliance on the decision of the Hon. Calcutta Tribunal in the case of IOL Ltd. 81 TTJ 525 (Cal)which hold that Debenture Redemption reserve is neither a Reserve nor amount set aside to meet unascertained liabilities. Based on the submission made and following the above decision, the disallowance of debt redemption reserves while calculating the profit u/s.115JB is deleted.”

The Revenue, being aggrieved, is in appeal before us on the following ground:- “4. That on facts and circumstances of the case the Ld. CIT(A) erred in deleting the disallowance of debt redemption reserve in calculating the profit u/s 115JB.”

ITA No.1800/Kol/2010 A.Y. 2007-08 DCIT Cir-2, Kol. Vs. M/s LMJ Logistics Ltd. Page 12 redeem the debenture has to be treated as monies set apart to meet a known liability-Consequently, debentures have to be shown in the balance sheet of a company as a liability-Being monies set apart to meet a known liability, a Debenture Redemption Reserve cannot be regarded as a reserve for the purpose of Schedule VI to the Companies Act, 1956-Mere fact that a Debenture Redemption Reserve is labeled as a reserve will not render it as a reserve in the true sense or meaning of that concept-An amount which is retained by way of providing for a known liability is not a reserve-Therefore, Tribunal was correct in holding that the amount which was set apart as a Debenture Redemption Reserve is not a reserve within the meaning of Explanation (b) to Section 115JA of the Income Tax Act, 1961.”

Respectfully following the same we do not find any reason to interfere in the order of Ld. CIT(A). Hence, this ground of Revenue is dismissed.

Sd/- Sd/- (�या�यक सद�य) (लेखा सद�य) (N.V.Vasudevan) (Waseem Ahmed) (Judicial Member) (Accountant Member) Kolkata,

*Dkp, Sr.P.S �दनांकः- 02/06/2017 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-DCIT, Circle-2, P-7, Chowringhee Square, Kolkata-69 2. ��यथ�/Respondent-M/s LMJ Logistics Ltd., 30, J.L. Nehru Road, Kolkata-16 3. संबं�धत आयकर आयु�त / Concerned CIT Kolkata 4. आयकर आयु�त- अपील / CIT (A) Kolkata 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड� फाइल / Guard file. By order/आदेश से, /True Copy/

Sr. Private Secretary, Head of Office/DDO आयकर अपील�य अ�धकरण, कोलकाता ।

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