2020 (10) TMI 88 - AT - Income Tax

Deduction u/s 80IB(11A) - Denial of claim as assessee is not engaged in the integrated business of handling, storage and transportation of the food grains and also that the assessee put to use at Bahalgarh unit the plant and machinery containing more than 20% of the old plant and machinery and thereby violated the conditions stipulated in 80IB (2) - HELD THAT - In plain English handling includes any process not amounting to manufacture of the treatment of the product with a view to deal with the same to achieve a desired purpose. In a sense it includes all the activities preparatory and auxiliary in nature. Merely because the word processing is occurring in 80IB(11A) of the Act in respect of the fruits or vegetables, it does not exclude all the processes from meaning of handling . The word has to be understood in its contextual sense and merely because the learned assessing officer does not agree with the assessee to include the milling of the paddy is covered by handling , it does not take away the other activities from the meaning of handling, so long as such activities keep nexus with the objective for which the benefit is intended. Whether or not the de-husking of paddy would form part of the handling, we shall deal with it a little later. In our opinion, the activities carried out by the assessee certainly form part of the expression handling. . The activities involving the cleaning, steaming, soaking, drying, polishing, grinding etc.are covered by the expression handling and the assessee is certainly conducting such activities which would entitle to the benefit of deduction under section 80IB(11A) of the Act. Alternative prayer of the Ld. DR that the activity of processing the paddy to rice and subsequent packing and marketing is a distinct from the integrated business of storage, handling and transportation of food grains and therefore, the expenses relatable to such a distinct and separate activity cannot be allowed under section 80IB(11A) - Since undoubtedly the provisions of section 80IB(11A) of the Act are applicable to the activities of the assessee like clearing, steaming, soaking, drying, polishing and grinding it can also be not denied that de-husking the paddy would significantly enhance the life of the food grain, thereby reduces the loss of food grain and contributes to the preservation of food grains - we are unable to understand how this particular process does not fit in the expression handling - de-husking of the paddy to convert it into rice is also an integral part of reducing the post-harvest food grain loss. There is no material was either examined by AO before reaching the conclusion as to the uses of old machinery nor the same is produced before us, in support of such conclusion. In the absence of any reasons to show the contrary, we find it difficult to take a different view from the view taken by the Ld. CIT(A) that without undertaking any exercise to ascertain the instances of old plant and machinery being used at Bahalgarh, AO presumed that plant and machinery for Bahalgarh unit was used prior to 1/4/2001 and was transferred to Bahalgarh unit subsequently. Such unfounded observations of AO cannot be one of the bases to deny the deduction under section 80IB(11A) of the Act. Occurrence of the expression industrial undertaking in subsections(2)to (5) in juxtaposition to the same in subsection (11) and relaxing the conditions stipulated under clause (iii) of subsection(2)and subsections 3 to 5 makes it amply clear that the industrial undertakings are treated separate from other businesses or undertakings . For the purpose of testing the eligibility under section 80IB(11A) there is no need to look into 80IB (2) of the Act, and non-fulfilment of condition stipulated vide clause (iii) thereof cannot be a ground for denying the deduction u/s 80IB(11A). Assessee cannot be denied the deduction under section 80IB(11A) of the Act either in respect of the activities conducted by the assessee to meet the demand of the section, namely, deriving income from the integrated business of handling, storage and transportation of food grains or for non-compliance with the conditions depleted under section 80IB (2) of the Act. We do not find anything illegality are regularity either in the reasoning or the conclusions reached by the Ld. CIT(A) on this aspect, and while confirming the same find the grounds numbe r1 to 3 of Revenue s appeal devoid of merits and reliable to be dismissed. Addition u/s 69 - unaccounted receipts and payments taxable in the hands of the assessee, as unaccounted income on the basis of seized documents - CIT- A deleted the addition - HELD THAT - It is always open for the assessing officer to show that the amount surrendered by the individuals was in respect of their own undisclosed income independent of the entries in the seized documents, basing on which now the learned Assessing Officer wants to tax the company. Without undertaking any such exercise, it is not permissible for the learned Assessing Officer to proceed to tax the company for the very same amount, basing on suspicions. We find substance in the contentions raised on behalf of the assessee and hold that inasmuch as the amount covered by the entries in the seized documents was already offered to tax by the promoters/directors of the assessee company in their individual returns of income and has already been accepted by AO taking into consideration the entries in the seized documents vis-a-vis the trading accounts as well as the peak arrived on the basis of such entries, it is not open for the learned Assessing Officer to tax the same again in the hands of the company. Consequently, we find that the findings of the Ld. CIT(A) not suffer any legality or irregularity and no interference with the same is warranted. Disallowance under section 40A(3) - cash payments to various concerns in violation of provisions of section 40A(3) - HELD THAT - According to the assessee, the truck driver acts as an agent of the assessee. By no stretch of imagination can we say that the truck driver who operates the track pursuant to the agreement between the assessee and the transport contractor would be the agent of the assessee. Even otherwise also, we are not prepared to accept such an argument because such acceptance would render the provisions under section 40A(3) nugatory and every payment could be taken out of the purview of section 40A(3) of the Act by delivering the cash to some intermediary calling him as an agent. There is no privity of contract between the person receiving the sums in cash and the assessee and the truck driver. Such payments are not protected under rule 6 DD (k) of the Rules. On this premise, we reject contention of the assessee. Alternative plea of assessee to the effect that in certain instances, the assessing officer has proceeded to disallow expenses without first verifying if the aggregate payments were made to a single person on a single day and if the pre-requisites of section 40A(3) of the Act were fulfilled does not seem to have been taken before the Ld. CIT(A) and at this stage it is difficult to accept the same because the assessee does not produce any material to show that any such instances had taken place. In the absence of any such material prima facie to show that, as a matter of fact, the learned Assessing Officer had proceeded to disallowed expenses without any verification of the aggregate payments to a single person on a single day, we cannot countenance such plea. Disallowance under section 40(a)(ia) - Scope of amendment - HELD THAT - We find it difficult to understand that the amended provisions under section 40(a)(ia) of the Act would address the hardships that would be resulting subsequent to the amendment, leaving apart the hardship that had caused earlier, thereto. The considered opinion that the amended provision under section 40(a)(ia) of the Act has to be understood as creative in nature and introduce you to reduce the new hardship caused to the assessee on the disallowance of the entire amount of expenditure both prior and subsequent to such amendment. What follows naturally in view of the decision in the case of CIT VS. Gold Coin Health Food (P) Ltd, 2008 (8) TMI 5 - SUPREME COURT the presumption goes in favour of the retrospective operation of this curative or declaratory amendment. Shorter deduction of tax at source - HELD THAT - The issue is a squarely covered by the decision of the Hon ble Calcutta High Court in the case of CIT VS.SK Tekriwal 2012 (12) TMI 873 - CALCUTTA HIGH COURT and following the same, we hold that no disallowance is permissible in cases where there has been a shortfall in deduction of tax as the same is not covered by the provisions of section 40(a)(ia) of the Act. Set-aside the impugned findings of the authorities below on the aspect of disallowance arising out of the non-deduction of tax at source as detailed supra, and remand the issue to the file of the learned Assessing Officer to apply the restriction on the disallowance in terms of section 40(a)(ia) of the Act, as amended by the Finance Act, 2014. Addition made on account of the foreign trip of the family members of the directors/promoters of the assessee company - HELD THAT - Expenditure on travel of wives and the directors abroad when they have accompanied the directors on business is an allowable expenditure and consequently directed the assessing officer to allow the expenditure on the travel of the voice of the directors when they have accompanied the directors on foreign visits of verification. Since there is no change in this position, and there is no reason for us not to accept the findings of the learned DRP in assessee s own case for the assessment years 2008-09 and 2009-10. In the circumstances, we find merit in the contentions of the assessee on this aspect. Addition made under 14A of the Act read with Rule 8D of the Rules - HELD THAT - No ground to sustain addition made under 14A of the Act read with Rule 8D as it cannot be said that any borrowed funds could have been utilised to make such investment incurring any interest expenditure.

Summary

Issues Involved:
1. Deduction under section 80IB(11A) of the Income Tax Act.
2. Addition under section 69 of the Income Tax Act.
3. Disallowance under section 40A(3) of the Income Tax Act.
4. Disallowance under section 40(a)(ia) of the Income Tax Act.
5. Addition on account of personal expenses.
6. Disallowance under section 14A of the Income Tax Act read with Rule 8D.

Issue-wise Detailed Analysis:

1. Deduction under section 80IB(11A) of the Income Tax Act:
The Revenue challenged the deletion of disallowance under section 80IB(11A) of the Act, arguing that the assessee was engaged in the manufacture and sale-purchase of rice rather than the integrated business of handling, storage, and transportation of food grains. The assessee contended that their activities, including processing, transporting, storage, handling, and sale of food grains, met the criteria for deduction under section 80IB(11A). The Tribunal, after examining the legislative intent, concluded that the activities of the assessee, including cleaning, steaming, soaking, drying, polishing, and grinding, fell within the ambit of "handling" and thus qualified for the deduction under section 80IB(11A). The Tribunal also found no evidence to support the Revenue's claim that more than 20% of the machinery used was old, thereby dismissing the Revenue's appeal on this ground.

2. Addition under section 69 of the Income Tax Act:
The Revenue made an addition of ?1,63,39,670/- under section 69 based on unaccounted receipts and payments found in seized documents. The assessee argued that these amounts were already offered to tax by the directors in their individual capacities. The Tribunal agreed with the assessee, noting that taxing the same amount again in the hands of the company would result in double taxation. The Tribunal upheld the CIT(A)'s decision to delete the addition, confirming that the amounts covered by the seized documents were already taxed in the hands of the individuals.

3. Disallowance under section 40A(3) of the Income Tax Act:
The AO disallowed ?8,00,129/- under section 40A(3) for cash payments exceeding the prescribed limit. The CIT(A) provided partial relief, deleting disallowance for payments made on holidays and Sundays but confirming disallowance for other payments. The assessee argued that payments to truck drivers should be exempt under Rule 6DD(k). The Tribunal rejected this argument, stating that truck drivers could not be considered agents of the assessee. The Tribunal upheld the disallowance confirmed by the CIT(A).

4. Disallowance under section 40(a)(ia) of the Income Tax Act:
The AO disallowed ?1,84,67,810/- for non-deduction of TDS and ?10,30,213/- for short deduction of TDS. The CIT(A) provided partial relief, deleting disallowance for certain payments. The assessee argued that the disallowance should be restricted to 30% of the expenditure as per the amended provisions of section 40(a)(ia) introduced by the Finance Act, 2014. The Tribunal agreed, holding that the amendment was curative and should be applied retrospectively. The Tribunal remanded the issue to the AO to apply the restriction on disallowance as per the amended provisions.

5. Addition on account of personal expenses:
The AO disallowed expenses for a foreign trip of family members of directors/promoters. The assessee argued that similar expenses were allowed in previous years by the DRP. The Tribunal agreed with the assessee, directing the AO to delete the addition, as there was no change in the position from previous years.

6. Disallowance under section 14A of the Income Tax Act read with Rule 8D:
The AO disallowed ?18,18,915/- under section 14A read with Rule 8D for expenses related to exempt income. The assessee argued that the AO did not record satisfaction for denying the claim and that the investments were made from own funds. The Tribunal found that the AO did not consider the assessee's accounts and that the investments were made from own funds, thus no interest expense was incurred for earning exempt income. The Tribunal directed the deletion of the disallowance.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal in part, providing relief on several grounds while upholding certain disallowances. The Tribunal's decisions were based on a detailed examination of the legislative intent, factual evidence, and previous rulings.