M/S ANUBHUTI COLD CHAINS PVT. LTD.,CHANDIGARH vs. PR. CIT 2, CHANDIGARH

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH ‘A’, CHANDIGARH

BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No.799/Chd/2017 (Assessment Year : 2012-13) M/s Anubhuti Cold Chains Pvt. Ltd., Vs. The Principal CIT-2, SCO 363-364, 2nd Floor, Sector 35-B, Chandigarh. Chandigarh. PAN: AAGCA7238R (Appellant) (Respondent)

Appellant by : Shri Sahil Chadha Respondent by : Dr. Gulshan Raj, CIT DR Date of hearing : 17.05.2018 Date of Pronouncement : 18.07.2018

ORDER PER ANNAPURNA GUPTA, AM:

The present appeal has been filed by the assessee

against the order passed by Pr. Commissioner of Income

Tax-2 (hereinafter referred to as ‘Pr.CIT’), Chandigarh,

passed u/s 263 of the Income Tax Act,1961 (hereinafter

referred to as ‘the Act’), dated 09.03.2017 relating to

assessment year 2012-13.

made u/s 143(3) of the Act. Thereafter, on perusal of

records of the assessee, the Ld. Pr. CIT found that the order

passed by the A.O. was erroneous so as to cause prejudice

to the revenue, since the AO had not examined the claim of

the assessee u/s 80-IB (11A) of the Act, of deduction of

profits earned from carrying out the integrated activity of

processing, packaging and preservation of fruits and

vegetables. The Ld.Pr.CIT found that the AO had not

examined whether the assessee engaged in the integrated

activities of processing, packaging and preservation of

fruits and vegetables and had neither examined what

processing and preservation activity had been carried on by

the assessee to entitle it to claim deduction u/s 80-IB(11A)

of the Act. Accordingly a show cause notice was issued to

assessee by Learned P.R. CIT dated 15/02/2017 asking as

to why the assessment order be not cancelled, by invoking

the provisions of Section 263 of the Act.

AO had conducted enquiries during assessment proceedings

vis-à-vis the claim of deduction under 80-IB (11A) of the Act

and on being satisfied, had allowed the claim of the

assessee. The assessee therefore contended that there was

no error in the order of the AO with regard to the impugned

claim of deduction. The said contention of the assessee was

rejected by the Ld. Pr. CIT stating that the inquiry

conducted by the AO was not adequate and on account of

the insertion of Explanation 2 (a) to Section 263 of the Act

applicable with effect from 01/06/2015, orders passed

without making adequate enquiries and verification, were

deemed to be erroneous and prejudicial to the interest of

the revenue .

Ld.Pr.CIT that even otherwise it was eligible to claim

deduction u/s 80IB (11A) of the Act, since the activities

undertaken by it, consisting of purchase of fruits and

vegetables from the farmers, cleaning and segregating them

grade wise and putting them in a storage facility under

controlled temperature, fulfilled the requirement of carrying

out integrated activities of processing, packaging and

preservation of fruits and vegetables as required u/s 80-IB

(11A) of the act. The Ld. Pr. CIT dismissed this contention

of the assessee also stating that keeping goods in a cold

storage did not tantamount to be a “process”. Ld. Pr. CIT

referred to the decision of the apex court in the case of

Delhi Cold Storage Pvt. Ltd vs CIT -191 ITR 656 (SC) in this

regard. Ld. Pr. CIT therefore held that the assessee by no

means could be said to be processing fruits & vegetables by

merely storing them in a cold storage. Ld. Pr. CIT further

stated that the AO had also not conducted proper enquiry

into the claim of assessee u/s 80-IB (11A). He therefore

held the assessment order passed by the AO to be erroneous

in so for as being prejudicial to the interest of the revenue

u/s 263 of the Act and thereby cancelled the same directing

the AO to pass a fresh order in accordance with the law.

the appeal before us raising the following grounds:-

“1. During the course of assessment proceedings, all requisite details/documents were filed and examined by the Ld. Assessing officer. After examination and verification, the Ld. Assessing officer allowed the deduction claimed by the assessee u/s 80IB (11A) of the Income Tax Act, 1961 stating clearly the eligibility of assessee thereof. Rebuttal of the recording of assessing officer on arbitrary ground by the Ld. Pr.

Commissioner of Income Tax- 2 is not justified and the same is to be quashed. 2. That the appellant craves the right to amend, modify and/or alter grounds and / or to adduce and rely upon such further evidences and/or documents as may be required before and during the course of proceedings.” 6. During the course of hearing before us Ld Counsel for

the assessee reiterated the contentions made before Ld. Pr.

CIT. The first contention raised by the Ld. Counsel for the

assessee was that adequate enquiries were conducted by AO

during assessment proceedings vis-à-vis the claim of

deduction u/s 80-IB (11A) and on being satisfied with the

reply filed by the assessee no disallowance made by the AO.

In this regard Ld Counsel for the assessee drew our

attention to the query raised by AO during assessment

proceedings vide questionnaire dated 16.09.2014, placed at

paper book Page No 26 to 30. Our attention was drawn to

the specific query raised by the AO vis-à-vis the claim of

deduction u/s 80-IB (11A)asking the assessee to justify the

same vide Question No. 26 as under:

Q26. Please justify how your unit is eligible for claim of deduction u/s 80IB(11A) (Rs.3173270) of the Income Tax Act 1961. 7. Thereafter our attention was drawn to the reply filed

by the assessee to the above query vide its letter dated

12/12/2014 placed at paper book Page Nos.31 and 32 as

under:

The Income Tax Officer, Ward 4(4), Aayakar Bhawan, Chandigarh Subject ;- Reply to the questionnaire for the assessment proceedings m the matter of M/s Anubhuti Cold Chains Pvt. Ltd, having PAN - AAGCA7238R for AY 2012-13.

In continuation to our previous reply dated 12.11.2014 in the matter of M/s Anubhuti Cold Chains Pvt. Ltd. having PAN - AAGCA7238R for assessment proceedings u/s 143 of the Income Tax Act, 1961 for AY 2012-13. Here are the pending information sought by your office:- 1. Refer Para 14 of your letter, enclosed the detail of breakup of items constituting closing stock vide Annexure A. 2. Refer Para 23 of your letter, the reserve and surplus as on 31st March, 2012 comes out to be Rs. 43,24,8 76/- which accounts for undistributed profits of the company under the head profit and loss account. The details of the same is given in Schedule 3 attached to the balance sheet. 3. Refer Para 26 of your letter, the assessee is a private limited company who has set-up a cold chain facility situated in Village Mubarikpur, Derabassi (Punjab). The main operation of the company consisting of purchase of fruits and vegetables directly from the farmers, cleaning and segregation of the respective materials, put them in a storage facility under the controlled temperature required by the particular vegetables/fruits considering there quality and life and then pack them as per the customer requirement for the sale in the market. Going through the provision of section 80IB(11A) of the Income Tax Act, 1961, the company financial year from the date of start. The company started its operation on dated 01.08.2008 which entitle the company to claim 100 percent deduction of the profits under Section 80IB(11A) of the Income Tax Act, 1961. Further, the asseessee has employed 20 number of employees during the year in pursuance to' Section 80-IB(2)(iv) of the Income Tax Act, 1961. Assuring you of our full co-operation. Thanking You, 8. Our attention thereafter was drawn to the assessment

order pointing out therefrom the satisfaction noted by the

AO regarding the assessee’s claim of deduction u/s 80-IB

(11A) as under:

“The assessee started its manufacturing activities in August 2008 as mentioned in the audit report and the year under consideration is the 4th year in which 100% deduction u/s 80-IB (11A) has been claimed. It has further been noticed that assessee fulfills all the requisite conditions which are essential for claiming deduction under section 80-IB (11A). Therefore assessee is eligible for deduction under section 80-IB (11A) of the I.T. Act.”

that AO had asked a specific query regarding the claim of

deduction u/s 80-IB (11A), to which detailed reply had been

filed by the assessee pointing out that the main operation of

the assessee consisting of purchase of fruits and vegetables

directly from the farmer, cleaning and segregating them and

thereafter putting them in storage facility under controlled

temperature, fulfilled the requirement of conducting of

integrated activity processing, preservation and packaging

of fruits and vegetables. Ld Counsel for the assessee stated

that the AO had recorded his satisfaction vis-à-vis the

assessee’s claim of deduction u/s 80-IB (11A) in his

assessment order. Ld Counsel for the assessee contended

that clearly , adequate enquiry had been conducted by AO

on the impugned issue, and the exercise of powers by the

Ld. Pr. CIT u/s 263 of the Act holding the order so passed

by the AO as erroneous on this account, was invalid.

Pr. CIT stating that AO had simply accepted the claim of

assessee without verifying whether the integrated activities

of processing, preservation and packaging of fruits and

vegetables, essentially to be carried out by the assessee for

claiming deduction u/s 80IB(11A) were being actually

performed by the assessee. Ld DR stated that the AO had

not conducted any enquiry and verification at all vis-à-vis

the said claim, having not asked for the details of raw

material, plant, machinery, technical manpower required to

carry out above activity, to verify the nature of activity

being carried out by assessee company. Ld DR stated that it

was a clear case of inadequate enquiry carried out by the

AO and was thus hit by the explanation 2(a) to Sec 263 of

the act by virtue of which the assessment order was deemed

to be erroneous and prejudicial to the interest of revenue

on the account of inadequate enquiry conducted by AO.

assessee was that even otherwise on merits it had

demonstrated to the Ld. Pr. CIT that its activities qualified

for deduction u/s 80-IB (11A) of the Act .Our attention was

drawn to the submission filed before the Ld Pr. CIT placed

at paper book page No.16 & 17 as under:

- That the assessee is a private limited company who had set- up a cold chain facility situated in Village Mubarikpur, Derabassi (Punjab). The main operation of the company consisting of purchase of fruits and vegetables directly from the farmers, cleaning and segregation of the respective materials grade wise and put them in a storage facility under the controlled temperature required by the particular vegetables/fruits considering their quality and life and then pack them as per the customer requirement for the customer in the market. Going through the provision of section 80IB(11A) of the Income Tax Act, 1961, the company is fully eligible up to 100 percent of the first five financial year from the date of start and then 30% in next five years. The company started its operation on dated 01.08.2008 which entitle the company to claim 100 percent deduction of the profits under Section 8018(11 A) of the Income Tax Act, 1961 during the year under consideration as it was the 4th year to claim deduction. That an abstract of section 80IB(11 A) is as under:- "Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings. 80-IB. (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 foodgrains, 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 fulfillment 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." That while going through the provisions of the section, it is pertinent to know for what purpose this section was introduced in Finance Act, 2001 w.e.f 1st April, 2002. This provision was brought on the statute 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 efficiency in the grain management system and minimize post harvest food grain, fruits and vegetable losses. The object was provide the security to the farmers engaged in fruits and vegetables for distress selling and saving the goods in post harvest operations by promoting the cold chain facilities. This cold chains should not compared with normal cold stores which can handle only some products including potato. 12. Referring to the above the Ld counsel for the assessee

stated that it had been duly explained to Ld. Pr. CIT that

the activities carried out by it qualified as processing ,

preserving and packaging of fruits and vegetables, thus

making it eligible for deduction u/s 80-IB(11A) of the act.

findings of the Ld.Pr. CIT in this regard that providing cold

storage facility did not tantamount to any process and

therefore since the assessee was doing only the said activity

it could not said to be carrying out any process to qualify

for deduction u/s 80-IB (11A) of the Act. Our attention was

drawn to the decision of the Hon’ble Supreme Court in the

case of Delhi Cold Storage Pvt. Ltd. vs. CIT, 191 ITR 656

(SC.) relied upon by Ld Pr. CIT in this regard pointing out

the findings of the Hon'ble Apex court vis–a-vis the

definition of term “Processing” reproduced in the order of

the Ld.Pr. CIT as under:

“What is necessary in order to characterise on operation as ‘processing’ is that the commodity must, as a result of the operation, experience some change …………….It is obvious that keeping of goods in a cold storage does not bring about any change, whatsoever, in the goods stored therein. To the contrary, they are kept intact, in th same nature and form in which they are originally stored. IN this view of the matter, running of a cold storage cannot be said to be involve processing of goods stored therein.” 14. Ld. DR therefore stated that even on merits the

assessee failed to prove before the Ld Pr. CIT that it was

eligible to claim deduction u/s 80-IB (11 A) of the act.

the order of Ld Pr. CIT and also the documents referred to

before us, we agree with Ld Pr. CIT that the present is a

case of inadequate enquiry conducted by the AO and thus a

fit case for revision u/s 263 of the Act. As it evident from

the documents produced before us the AO had asked the

assessee to justify its claim u/s 80-IB (11A) of the Act to

which the assessee had replied by detailing the activities

carried out by it and that accordingly it was entitled to

claim deduction u/s 80-IB (11A) of the act. The said reply

of the assessee was accepted as such by the AO. No further

enquiry was made nor any information was called from the

assessee to substantiate the claim of carrying out the

stated activity. No attempt was also made by the AO to look

into the aspect whether the stated activities qualified for

deduction u/s 80-IB (11A) of the Act, as rightly stated by

the Ld. Pr. CIT. The AO simply accepted the assessee’s

contention without making any effort to verify the same

and also whether the carrying out of the stated activities

qualified for claim of deduction u/s 80 IB (11A) of the Act.

Even on merits we find that the Ld.Pr.CIT found that the

cold storage activity carried out by the assessee had been

held by the Hon’ble apex court to be not in the nature of

any “process” so as to qualify as an activity entitled to

deduction u/s 80IB(11A) of the Act. The Ld counsel for

the assessee has not brought to our notice any decisions to

the contrary. Thus even on merits we find that assessee has

not been able to demonstrate that it was eligible to claim

deduction u/s 80-IB(11A) of the Act before the Ld. Pr. CIT.

enquiry had been made by the AO during the assessment

proceedings vis-à-vis the assessees claim of deduction u/s

80-IB(11A) .In view of the same therefore we uphold the

order of the Ld.Pr. CIT, holding the order passed by AO to

be erroneous and prejudicial to the interest of revenue

agreeing with his findings that AO had allowed the

assessee’s claim of deduction u/s 80-IB(11A) of the Act

without conducting adequate and proper enquiry relating to

the same, when the activities carried out by it did not

qualify for deduction u/s 80IB(11A) of the Act. The appeal

filed by the assessee is therefore dismissed.

Order pronounced in the Open Court.

Sd/- Sd/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 18th July, 2018 *Rati* Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) 4. The CIT 5. The DR

Assistant Registrar, ITAT, Chandigarh