2016 (5) TMI 111 - AT - Income Tax

Deduction u/s. 35AD - expenditure incurred in construction of a SILO (warehouse) for storage of agricultural produce - Held that - CIT(A) noted that it is not in dispute that the manner in which assessee has used its warehousing facility has enabled savings on storage cost, which it had to otherwise incur in the past years. The underlying point is that the warehouse has been utilised in the course of business. Therefore, in our considered opinion, CIT(A) made no mistake in holding that mere usage of the warehousing facility for captive purposes would not disentitle the assessee from the claim of deduction u/s. 35AD of the Act inasmuch as the assessee has otherwise complied with all the requirements to claim deduction u/s. 35AD of the Act. Therefore, we conclude by holding that the order of CIT(A) deserves to be affirmed, which we hereby do. - Decided in favour of assessee

Summary

Issues:
- Dispute over deduction u/s. 35AD of the Income Tax Act for setting up a SILO for storage of agricultural produce.

Analysis:

Issue 1: Deduction u/s. 35AD of the Act

The appeal by the Revenue challenges the order of CIT(A) upholding the assessee's claim for deduction u/s. 35AD of the Income Tax Act. The Revenue contended that the deduction was not allowable as the SILO was set up for captive purposes, contrary to the provisions of Sec. 35AD which require a "specified business." The Assessing Officer disallowed the claim, stating that the assessee did not set up a warehouse for agricultural produce and was not in the business of warehousing. However, the CIT(A) disagreed, equating a SILO to a warehouse and emphasizing that the assessee had met the requirements of Sec. 35AD. The Tribunal noted that the deduction is based on capital expenditure for a specified business, which includes operating a warehousing facility for agricultural produce. The assessee had indeed constructed a SILO for storing castor seeds used in its manufacturing business. The Revenue's objection that the assessee did not operate a warehousing facility was deemed incorrect, as the warehouse was used in the course of business, resulting in savings on storage costs. Therefore, the Tribunal affirmed the CIT(A)'s decision, ruling in favor of the assessee.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to allow the deduction u/s. 35AD for the expenditure on constructing a SILO for storage of agricultural produce.