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TMI Blog2007 (3) TMI 414X X X X Extracts X X X X X X X X Extracts X X X X ..... be reasonably held to be from the business of operating cold storage plant, it is eligible for deduction u/s 80-IB - irrespective of whether or not the services are used by the assessee himself or by outsiders on payment of consideration. Ideally, it should be the amount that the assessee would have paid to an outside concern if he was to use these facilities from such a concern. However, since such an amount cannot be computed at this stage, and, having regard to the flow chart filed by the assessee which demonstrates various stages of processing and use of cold storage facilities in such processing, we consider it appropriate to hold that 30% of the profits of the assessee can be treated as derived from the business of operating the cold storage plant. We, accordingly, direct the Assessing Officer to compute deduction to the assessee in respect of 30% of the profits earned by the assessee from the business of processing frozen sea food. Ground No. 1 of the assessee is thus partly allowed in the terms indicated above. Our findings in the present case are based on the material produced before us as regards the various stages of processing involved and the involvement of cold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the matter, and for the reasons set out by the CIT(A) with which we are in considered agreement, we hold that the Assessing Officer was indeed unjustified in making the impugned disallowance. The CIT(A) rightly deleted the disallowance. We confirm and approve the action of the CIT(A) and decline to interfere in the matter. Ground No. 2 of the appeal filed by the Assessing Officer is also, therefore, dismissed. - PRAMOD KUMAR AND RAJPAL YADAV, JJ. C.S. Vaze for the Appellant. Dilip Sharma for the Respondent. ORDER Pramod Kumar, Accountant Member . - These cross appeals, as also the cross objection filed by the assessee, are directed against the order dated 27th October, 2004, passed by the CIT(A) in the matter of assessment under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act ), for the assessment year 2001-02. As these appeals and the cross objection pertain to the same assessee, involve common issues and were heard together, both of these appeals as well as cross objection are being disposed of by way of this consolidated order. 2. Learned counsel for the assessee fairly accepts that cross objection filed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jected on both the counts. As regards the processing of sea food having been held to be in the nature of manufacturing activities, the Assessing Officer placed rejected this plea by placing his reliance on the judicial precedents. As regards assessees claim that the income so earned by the assessee is on account of cold storage facilities, and that all other activities in the processing of sea food are in fact ancillary to the cold storage activities, the Assessing Officer rejected the same by relying upon legislative intention behind section 80-IB. According to the Assessing Officer, the very purpose of deduction under section 80-IB is as follows : ". . . in order to minimise the loss and wastage of perishable agricultural produce, vegetables and similar commodities and to ensure a smooth and uniform distribution of agricultural and processed products, benefit of 100% deduction of profit for initial 5 years, and 25% to 30% (in case of the companies) of the profit in subsequent 5 to 7 years extended to undertakings, which derived profits from operating cold chains; Cold storage defined to mean a chain of facilities for the storage or transportation of agricultural produce unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill be granted in computation of total income, and that this deduction will be given only for such period as may be specified. It is also an undisputed position that this section applies only to an industrial undertaking and one of the eligible businesses is that such an industrial undertaking operates one or more cold storage or plant or plants in any part of the India . A plain reading of this provision makes it clear that, in order to be eligible for deduction under section 80-IB, profit must be derived from an industrial undertaking engaged in eligible business. The words in section 80-IB(1) are "profits and gains derived from any of the eligible business" and it is only specified percentage of such profit which is eligible for deduction under section 80-IB. What is, therefore, to be seen is whether or not the profits earned by the assessee could be said to be derived from the business of operating cold storage, and if so, to what extent can the profits earned by the assessee could be said to be derived from the business of cold storage. 9. Let us try to appreciate the nature of business that the assessee is involved in. The simplified process is this. The assessee buys ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffering cold storage services to outsiders. As long as profit can be reasonably held to be from the business of operating cold storage plant, it is eligible for deduction under section 80-IB - irrespective of whether or not the services are used by the assessee himself or by outsiders on payment of consideration. Ideally, it should be the amount that the assessee would have paid to an outside concern if he was to use these facilities from such a concern. However, since such an amount cannot be computed at this stage, and, having regard to the flow chart filed by the assessee which demonstrates various stages of processing and use of cold storage facilities in such processing, we consider it appropriate to hold that 30% of the profits of the assessee can be treated as derived from the business of operating the cold storage plant. We, accordingly, direct the Assessing Officer to compute deduction to the assessee in respect of 30% of the profits earned by the assessee from the business of processing frozen sea food. 10. We must put a word of caution here. As to what is the amount of profit attributable to the assessee in case an assessee uses own cold storage facilities is essenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed out that in view of the fact that he had a bank account, it was beyond doubt that the person was in existence. As to the withdrawals from bank accounts, and infirmities in the billing by the said concern, it was pointed out that this was too usual a situation because most of the fisherman are illiterate, men of limited means and quite unlike a normal businessmen. As for introduction for bank account, the assessee submitted that this was done to facilitate assessee s payments through banking channels. A quantitative statement showing reconciliation of purchases, processing and exports was also filed before the CIT(A) with a view to demonstrate that the goods in question was actually purchased, processed and exported out of India. The CIT(A) accepted the assessee s quantitative reconciliation statements. The CIT(A) observed that "in this type of trade, the parties normally do not have a fixed place of operations", that "the business of purchases/sales of the marine products is highly unorganized business and the purchasing party as well as the selling parties are not generally inclined to carry out trade through banking channels" and that "it is not assessee s concern that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly. 16. Ground No. 2 of the appeal filed by the assessee is, thus, allowed. 17. In the result, the appeal filed by the assessee is partly allowed in the terms indicated above. 18. That takes us to the appeal filed by the Assessing Officer. 19. In the first ground of appeal, the Assessing Officer has raised the following grievance : "On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in concluding that interest income is to be treated as income under the head Business despite the fact that the accrual of interest income was not derived directly from the business of exports of the assessee-company." 20. In the course of assessment proceedings, the Assessing Officer noticed that the assessee has earned interest income of Rs. 4,22,443 from the bank deposits. The Assessing Officer was of the view that interest so earned is not derived from business activities of the assessee; it is earned out of unused or idle funds of the assessee. He thus held that this interest income is to be taxed under the head "Income from other sources". Aggrieved, assessee carried the matter in appeal before the CIT(A). The CIT(A) took note of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. @ Rs. 14 per kg. from Ulhas Seafoods. The Assessing Officer observed that "same quality of Ribbon Fish has been purchased from S.M. Auti @ Rs. 10 per kg. Using this rate of Rs. 10 per kg. as the bench mark, the Assessing Officer disallowed the amount paid in excess of Rs. 10 per kg. as disallowable under section 40A(2)( b ) of the Income-tax Act. Aggrieved, assessee carried the matter in appeal before the CIT(A). The CIT(A) upheld the contention of the assessee that the prices of fish vary from day-to-day and depend on various grades of quality, that it is not possible to take any particular figure as representative rate, that the prices paid to the sister concerns are reasonable vis-a-vis the market rates and comparable with the rates paid to other vendors; and that the disallowance was uncalled for. The disallowance of Rs. 97,80,154 was thus deleted. The Assessing Officer is aggrieved of the relief so given by the CIT(A) and is in appeal before us. 25. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position. 26. We find that the Assessing Officer has proceeded to take a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 made on account of bogus purchases in spite of the fact that the confirmation of the same could not be produced before the Assessing Officer." 32. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position. 33. A plain reading of this ground of appeal indicates that the only grievance of the Assessing Officer is against admission of additional evidence. However, not only that the CIT(A) has confronted the Assessing Officer with the additional evidence so filed and obtained his report on the same, but the CIT(A) also placed on record his reasons for doing the same as also his satisfaction that the assessee had bona fide reasons for not filing the same earlier. As regards the validity of admitting additional evidence, this issue is directly covered by jurisdictional High Court s judgment in the case of Smt. Prabhavati S. Shah v. CIT [1998] 231 ITR 1 (Bom.). The grievance raised by the Assessing Officer is thus devoid of any substance. In any event, even on merits, we have upheld the action of the Assessing Officer in deleting the addition on account of bogus purchases, in par ..... X X X X Extracts X X X X X X X X Extracts X X X X
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