2016 (6) TMI 27 - AT - Income Tax

Disallowance of deduction u/s. 80IB(11A) - Non-consideration of the Audit Report filed at the time of assessment proceedings - Held that - . Non-filing of Audit report inadvertently before the Commissioner of Income Tax (Appeals) cannot be considered as sufficient cause when the Assessing Officer has specifically taken a ground to disallow deduction to the assessee for non-filing of Audit report before him. The assessee has been negligent and callous in pursuing his cause before the authorities below. As the assessee has failed to show that he is engaged in the integrated business of handling, storage and transportation of food grains and thus, the assessee is not eligible for claim deduction u/s. 80IB(11A) of the Act. - Decided against assessee Disallowance u/s. 40(A)(3) - Held that - In the report the Assessing Officer furnished his comments in respect of four persons i.e. Shri Prashant Jakite, Shri Sonaji Trimbakrao Bedke, Shri Sheikh Rashid Shaikh Chand and Shri Siddheshwar Kondiba Sontakke. The Assessing Officer has categorically stated that the payments are made by the assessee to the farmers through them. The Assessing Officer has not stated anywhere in the report that the assessee has purchased agricultural produce from these persons. The Assessing Officer has further stated that the assessee has paid commission to the above mentioned four persons. The Commissioner of Income Tax (Appeals) after considering the observations of the Assessing Officer deleted the disallowance u/s. 40(A)(3) in respect of cash payments to the tune of ₹ 61,38,831/-. After perusing the documents on record, we are of the considered view that the Commissioner of Income Tax (Appeals) was justified in deleting the disallowance u/s. 40(A)(3) of the Act. - Decided against revenue

Issues Involved:
1. Disallowance of deduction under Section 80IB(11A) of the Income Tax Act.
2. Non-consideration of the Audit Report filed at the time of assessment proceedings.
3. Deletion of disallowance made under Section 40(A)(3) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 80IB(11A):
The assessee, engaged in the business of ginning and pressing of cotton and warehousing, claimed a deduction under Section 80IB(11A) for the assessment year 2008-09. The Assessing Officer disallowed the deduction of Rs. 12,03,353 on the grounds that the assessee was not engaged in the integrated business of handling, storage, and transportation of food grains, as there were no laborers on its payroll, and it did not own transport facilities. The Commissioner of Income Tax (Appeals) upheld this disallowance. The Tribunal analyzed the provisions of Section 80IB(11A) and concluded that the term "integrated" implies that the business activities should be carried out in a combined manner but does not necessitate owning infrastructure or having manpower on payroll. The Tribunal referred to the Hyderabad Bench decision in the case of A.P. State Warehousing Corporation, which supported this interpretation. However, the Tribunal found that the assessee failed to substantiate the integration of handling, storage, and transportation activities with sufficient evidence, such as agreements with outsourcing agencies or transporters and proper documentation of payments. Consequently, the Tribunal upheld the disallowance of the deduction under Section 80IB(11A).

2. Non-consideration of the Audit Report:
The assessee contended that the Audit Report in the prescribed form was obtained but not filed during the assessment proceedings due to an inadvertent mistake. The Tribunal noted that while the Audit Report can be filed at the appellate stage, the assessee must show a bona fide reason for not submitting it earlier. In this case, the reason provided was deemed insufficient, and the assessee was considered negligent in pursuing the matter. Therefore, the Tribunal did not accept the Audit Report as additional evidence and upheld the disallowance based on the non-filing of the Audit Report.

3. Deletion of Disallowance under Section 40(A)(3):
The Revenue appealed against the order of the Commissioner of Income Tax (Appeals), which deleted the disallowance of cash payments made by the assessee under Section 40(A)(3). The Revenue argued that the payments were made to commission agents/traders and not directly to farmers, thus not falling within the exceptions provided under Rule 6DD. The Tribunal reviewed the submissions and the report from the Assessing Officer, which confirmed that the payments were made to farmers through facilitators, and the facilitators charged a commission for their services. The Tribunal found that the Commissioner of Income Tax (Appeals) was justified in deleting the disallowance, as the payments were made to farmers through facilitators and not to traders. Consequently, the Tribunal dismissed the Revenue's appeal.

Conclusion:
The Tribunal dismissed both the assessee's and the Revenue's appeals. The disallowance of the deduction under Section 80IB(11A) was upheld due to insufficient evidence of integrated business activities. The non-filing of the Audit Report was not accepted as a valid reason for reconsideration. The deletion of disallowance under Section 40(A)(3) was upheld as the payments were made to farmers through facilitators.

← Previous Next →