2015 (8) TMI 45 - AT - Income Tax

Claim of deduction u/s 35AD - CIT(A) allowed claim - Held that - There cannot be any doubt with regard to assessee s claim that the cold storage has started operating during the relevant FY, irrespective of the fact whether it is in February 10 or March 10. The department has failed to bring any material on record to either controvert the factual finding of ld. CIT(A) or any other contrary evidence to conclusively prove the fact that the cold storage has started operating in April 10. As far as the allegation of AO that some of the farmers have stated that cold storage started operating in April 10, we find merit in the submissions of ld. AR that in absence of confrontation of such statement to assessee and allowing opportunity to cross-examine the farmers, AO could not have used such adverse material for disallowing assessee s claim of deduction u/s 35AD. Even otherwise also, in the face of substantive evidence brought on record in the form of electricity bill, bonds/receipts issued to farmers, etc. demonstrating that assessee has commenced operation of cold storage in the FY 2009-10, the statement of the farmers cannot be given much credence. In the aforesaid view of the matter, there being no infirmity in the order of ld. CIT(A) - Decided in favour of assessee. Addition u/s 69 - addition deleted by CIT(A) - Held that - Addition u/s 69 of the Act has been made purely on conjectures and surmises. The department s contention that bonds were not produced before AO by assessee, though, technically may be correct, but, at the same time, it is to be noted that bank authorities have submitted all informations relating to loan granted to farmers on the basis of the bonds/receipts given by assessee. Therefore, on the face of such evidence, it cannot be said that stocks kept in the cold storage are unexplained investment of assessee. Department having failed to bring any material on record to controvert the aforesaid facts, addition made has no legs to stand. Accordingly, ld. CIT(A) was justified in deleting the addition and, hence, upholding the order of ld. CIT(A), we dismiss the grounds raised by revenue.- Decided in favour of assessee.

Summary

Issues Involved:
1. Deduction under Section 35AD of the Income Tax Act.
2. Addition under Section 69 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deduction under Section 35AD of the Income Tax Act:

The department challenged the decision of the Commissioner of Income-tax (Appeals) [CIT(A)] in allowing the assessee's claim of deduction under Section 35AD for an amount of Rs. 3,23,16,963. The assessee, a partnership firm running a cold storage, filed its return declaring total income at Rs. Nil after claiming this deduction. The Assessing Officer (AO) questioned the commencement of the business activity and the statutory licenses required, ultimately disallowing the deduction claim, citing discrepancies in the commencement dates provided by the assessee and farmers' statements.

The CIT(A), however, observed that the assessee met the conditions of Section 35AD, which required the expenditure to be incurred before the commencement of operations and capitalized in the books. The CIT(A) relied on electricity bills showing significant consumption in February and March 2010, bonds issued to farmers, and the acknowledgment from the Industries Department indicating the commencement date as 23/03/2010. The CIT(A) concluded that the assessee commenced its business within the relevant financial year and allowed the deduction.

The Tribunal upheld the CIT(A)'s decision, noting that the AO's doubts were based on unsubstantiated statements from farmers and the timing of the statutory license. The Tribunal emphasized the substantial evidence of electricity consumption, bonds/receipts issued, and the AO's own admission of stock in the cold storage during the relevant financial year. The Tribunal dismissed the department's grounds, affirming the CIT(A)'s findings.

2. Addition under Section 69 of the Income Tax Act:

The AO added Rs. 1,43,05,000 as unexplained investment under Section 69, suspecting that the stock of chillies in the cold storage belonged to the assessee and was purchased from unexplained sources. The AO based this on discrepancies in the list of farmers provided by the assessee and the bank, and the failure to produce bonds for some farmers.

The CIT(A) deleted the addition, noting that the assessee issued bonds to farmers for storing their produce, and these farmers obtained loans from the bank against these bonds. The CIT(A) found substantial evidence in the form of bonds, bank loans, and rents collected in the subsequent year, concluding that the stock belonged to the farmers, not the assessee.

The Tribunal agreed with the CIT(A), emphasizing that the AO had conducted an enquiry with the bank, which confirmed the loans to farmers based on the bonds. The Tribunal found no evidence that the stock belonged to the assessee and criticized the AO's addition as based on conjectures and surmises. The Tribunal upheld the CIT(A)'s deletion of the addition, dismissing the department's grounds.

Conclusion:

The Tribunal dismissed the department's appeal, affirming the CIT(A)'s decisions on both the deduction under Section 35AD and the addition under Section 69. The Tribunal found no infirmity in the CIT(A)'s findings and upheld the order in favor of the assessee.