2021 (10) TMI 1105 - AT - Income Tax

Deduction u/s 80IB(11A) - AO disallowing the deduction claimed as the predominant activity of the assessee is milling/de-husking of paddy, which does not constitutes a manufacturing activity , and is beyond the scope of Section 80IB(11A) and that the activity of storage and transportation undertaken by the assessee are only incidental to the main manufacturing activity off the assessee - HELD THAT - The aforesaid issue is squarely covered in favour of the assessee by the order of the Co-ordinate Bench of Tribunal in assesse s own case for the A.Y. 2009-10 2021 (6) TMI 258 - ITAT DELHI Following the order of the co-ordinate Bench in the case of a group company, LT Foods Ltd. 2020 (10) TMI 88 - ITAT DELHI allowed deduction claimed u/s 80 IB(11 A) - activities involving cleaning, steaming, soaking, drying, polishing, grinding etc. clearly fall within the expression handling as contemplated under section 80 IB(11 A) - de- husking of the paddy to convert it into rice is an integral part of reducing the post- harvest food grain loss as it enhances life of food grain and reduces the loss of food grain and contributes to the preservation of food grains - CIT(A) has righty allowed the claim of deduction under section 80IB(11A) of the Act and we decline to interfere with the order of the ld. CIT(A). Disallowance u/s 14A - HELD THAT - The assessee is not liable for any disallowance on interest as no interest bearing funds have been utilized for the purpose of making investment. Since, the share of profit from the partnership is mere distribution of income which is already been taxed, hence the provisions u/s 14A are not attracted in such case. Further, we also affirm the principle of no disallowance is called for where there is no exempt income earned. The AO is directed to re- compute the disallowance, keeping in view the guidelines mentioned above. Prior period Expenses - amount comprised of excess input tax receivable and bank processing charges - AO disallowed prior period expenses on the grounds that they do not relate to the relevant previous year - HELD THAT - The relevant facts are that the aforesaid expenditure was duly claimed as deduction in the computation of income as the same were business expenditure incurred in the ordinary course of running the business and allowable revenue deduction u/s 37(1) of the Act. Further, in so far as bank processing chargesis concerned, the processing charges was accounted and charged by the bank during the relevant assessment year only, but the assessee inadvertently debited the same into prior period expenses. In view of the above, the disallowance of prior period expenses is being deleted in toto.

Summary

Issues Involved:
1. Deduction under Section 80IB(11A) of the Income Tax Act, 1961.
2. Disallowance under Section 14A of the Income Tax Act, 1961.
3. Disallowance of prior period expenses.

Detailed Analysis:

1. Deduction under Section 80IB(11A):
The primary issue was whether the assessee's activities qualified for a deduction under Section 80IB(11A). The assessee, a domestic company engaged in handling, processing, storage, and transportation of food grains, claimed this deduction. The Assessing Officer (AO) disallowed the deduction, arguing that milling/de-husking of paddy did not constitute a 'manufacturing activity' and that storage and transportation were incidental activities.

The Tribunal noted that the issue had already been decided in favor of the assessee in earlier years. The Tribunal emphasized that Section 80IB(11A) mandates an 'integrated business' involving handling, storage, and transportation of food grains, which the assessee demonstrated. The Tribunal referenced previous decisions, including the case of LT Foods Ltd., where similar activities were deemed eligible for the deduction. It was concluded that the processes undertaken by the assessee, such as cleaning, steaming, soaking, drying, polishing, and grinding, fall within the scope of "handling" as per Section 80IB(11A). Consequently, the Tribunal upheld the CIT(A)'s decision to allow the deduction.

2. Disallowance under Section 14A:
The second issue concerned the disallowance of expenses under Section 14A read with Rule 8D. The assessee received exempt income from a partnership firm and the AO made a disallowance of ?36,87,907/-. The CIT(A) deleted this disallowance.

The Tribunal referenced a similar case involving LT Foods Ltd., where the disallowance under Section 14A for share of profit from a partnership firm was deleted. The Tribunal observed that the investments were made from the assessee's own funds, not borrowed funds, and therefore, no interest expenditure was incurred. It was also noted that the share of profit from the partnership firm is not taxable in the hands of the partner to avoid double taxation. The Tribunal directed the AO to verify and restrict the disallowance to ?23,264/- if the assessee's contentions were found correct.

3. Disallowance of Prior Period Expenses:
The third issue involved the disallowance of prior period expenses amounting to ?8,79,356/-. The AO disallowed these expenses on the grounds that they did not relate to the relevant previous year. However, the CIT(A) deleted the disallowance.

The Tribunal noted that the expenses were business expenditures incurred in the ordinary course of running the business and allowable under Section 37(1). Specifically, the bank processing charges were accounted for during the relevant assessment year but were inadvertently debited as prior period expenses. The Tribunal upheld the CIT(A)'s decision to delete the disallowance of prior period expenses.

Conclusion:
The Tribunal dismissed all the appeals filed by the Revenue, upheld the CIT(A)'s decisions on all issues, and allowed the assessee's claims for deductions and disallowances. The order was pronounced in the open court on 22/10/2021.