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TMI Blog2020 (5) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) - A.O. after going through the material on record and after considering the explanation of the assessee, had applied his mind. His view was that the amendment are not applicable in the case of the assessee for the year under consideration which is a possible view. Section 263 of the Act does not empower him to take action on these facts to arrive at the conclusion that the order passed by the ITO is erroneous and prejudicial to the interest of the revenue. Since the material was there on record and the said material was considered by the ITO and a particular view was taken, the mere fact that different view can be taken, should not be the basis for an action U/s 263 of the Ac and it cannot be held to be justified. - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... dings were being conducted which is bad in law and bad on facts. 14. The appellant pray for suitable costs. 15. The appellant pray for stay of impugned order. 16. The appellant crave liberty to add, amend, alter, and modify any of the ground of appeal on or before its hearing before your honour." 2. The main grievance of the assessee relates to passing of order U/s 263 of the Act by the Pr.CIT. 3. The ld AR appearing on behalf of the assessee has reiterated the submissions as were made before the ld. Pr.CIT and also filed written submissions. The main contents of the written submissions filed before the ld Pr.CIT was reproduced as under: It appears from the notice that present proceeding have been initiated by considering the assessment order to be erroneous and prejudicial to the interest of the revenue for the reason that following facts have not been enquired and investigated before passing the assessment order: i) claim of net interest ₹ 75,81,296/- allowed without verification of nature of interest, business need of loans on which interest paid, ii) Godown rent allowed ₹ 10,15,93,864/- at Head office against deduction claimed u/s 80IB(11A) in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot meticulously dealt with the issue of commission payments and genuineness of credit entries it can't be said that there was no application of mind by him, CIT was in error in exercising his revisionary power, impugned order quashed. We submit point wise reply in details against your observations in the following paras:- (1) EXPLANATION IN RESPECT OF CLAIM OF NET INTEREST ₹ 75,81,296/- In show cause notice your honour has stated that from appraisal of assessment record it is observed that assessee firm has received interest income ₹ 84,20,153/- against which interest paid during the year ₹ 1,60,01,449/- as such net interest of ₹ 75,81,296/- claimed as expenditure. The A.O. has not enquired and verified the nature of interest paid, necessity of heavy loan taken on interest for business need. As such claim of net interest is not only wrongly claimed but wrongly allowed by the A.O. without any enquiry and verification of the facts. The proposed revision u/s 263 for issue of non verification and enquiry of net interest allowed as expenditure is unwarranted and unsustainable due to the following reasons:- i) During the course of assessment proceeding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment record kept such details nor the A.O. asked and verified the facts that assess has paid godown rent while deduction u/s 80IB(11A) claimed against ware house receipt. As per provision of section 80IB (11A) deduction against ware house receipts allowed only to those assessee which have own ware house. The proposed disallowance of claim of Godown rent of ₹ 10,15,93,864/- paid by H.O. is unwarranted and unsustainable due to the following reasons:- i) The learned DCIT Circle 2, Bikaner (A.O.) in his assessment order clearly stated That "During the course of assessment proceedings, as stated above the issues for allowing claim of deduction u/s 801B (11A) were elaborately discussed with the A/R and detailed queries as stated below were raised: " In this regard, in continuation of assessment proceeding your attention is drawn towards the first questionnaire issued by the undersigned dated 25.01.2016 whereby it was pointed out in query no. 18 that for claiming deduction u/s 80IB, it is mandatory that as per rule 18BBB of IT Rules, a report of audit in form no. 10CCB is appended with tax audit report given in the form 3CD/CB but in the audit report submitted the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort can be e-filed hence, composite report comprising of the aggregate deduction was electronically filed at the portal of the income tax department. After end of the year separate trial balances are generated with reference to each unit and financial statements are clubbed out. Even interest on capital paid by the units situated at Boranada and Nokha to its Khara office against investment of capital at these locations which is shown in the Profit and Loss account of the respective Branches. The assessee is hereby furnishing separate reports in form no. 10CCB u/s 80IB of the I.T. Act in relation to all the eligible business activity which qualify for deduction u/s 80IB (11A). The assessee have made a consolidated claim of the 80IB in his computation is ₹ 21131163.00. Statement showing how the assessees have calculated the amount of claim u/s 80IB is enclosed with the letter." The learned A.O. in his order stated that "during the course of assessment proceedings the A/R of the assessee was queried regarding working and justification of the amount of the claim made u/s 80IB by the firm as the working given by him in reply to the specific query made in the questionnaire in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above two - 82:18 6. Travelling Expenses Against Rental Receipts - ₹ 2,82,208/- Against Infrastructure receipt - ₹ 29,481/- Ratio between the above two - 91:9 Thus, there is disproportionate claim of expenses out of gross receipts of rental income and infrastructural income. Since deduction u/s 80IB is only granted on infrastructural income, hence variation in claim of expenses definitely effects the computation of allowable deduction. During the assessment proceedings, the A/R of the assessee when confronted with this aspect fairly admitted the effect of this disproportion in the claim of deduction u/s 80IB made by the firm. Considering this fact a lump sum addition of ₹ 5,50,000/- is made to cover up excessive claim of expenses out of rental income. Accordingly, a sum of ₹ 5,50,000/- is added to the total income of the assessee firm. Hence your view that A.O. has not verified and investigate the claim of Godown rent paid against ware house receipts eligible for deduction u/s 80IB (11A) is not correct and not tenable in eye of law. ii) We beg to draw your kind attention that assessee has submitted statement of calculation of Net Profit f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty and assessee. The said municipal tax is against rental income at Kadi ware house and for which no deduction u/s 80IB (11A) has been claimed. ii) In the course of assessment proceeding learned A.O. has verified the insurance charges of ₹ 40,96,386.00 claimed by the assessee at H.O. against infrastructural receipt and rental receipt of which details are as under: S.No . Insurance Charges paid for Amount Insured Property i) Infrastructural receipt 3,28,975.32 Own warehouse building and goods store on ware house. ii) Rental receipt 37,07,531.68 Goods stored on rented ware houses. Hence your view that A.O. has not verified the expenditure claimed is neither correct nor prejudicial to the interest of revenue. (4) EXPLANATION IN RESPECT OF NON VERIFICATION OF DEDUCTION @ 100% OR 25% U/S 80IB(11A) ON WAREHOUSE INCOME OF HEAD OFFICE AND BRANCHES In show cause notice your honour have stated that from appraisal of assessment record details about ware house receipts eligible for deduction of warehouse receipts of Head office and branches are not available. There is no evidence in assessment record which proved that the A.O. has verified the claim of 100% deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessees have calculated the amount of claim u/s 80IB is enclosed with the letter." The above submission of the A/R of the assessee is found to be technically correct for the reason uploading of filed electronically audit report did not have the feature of separately filling the same in respect of each of the undertaking (unit) of the assessee and that made compulsion to filed a consolidated Audit report electronically. Hence your view that A.O. has not enquired and verified the claim of deduction u/s 80IB (11A) for Bikaner H.O. and other branches at different rates is not correct and not tenable. (5) EXPLANATION IN RESPECT OF NON VERIFICATION OF HANDLING & TRANSPORTATION RECEIPTS OF ₹ 13,43,806/- In show cause notice your honour have stated that on appraisal of assessment record it is observed that assessee has shown Handling and transportation income of ₹ 13,43,806/- while assessee has no transport vehicle. The A.O. has accepted the claim of deduction without verification of facts. As such claim of deduction as exempted income is not only wrongly claimed but wrongly allowed by the A.O. Hence order of A.O. is erroneous and prejudicial to the interest of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not engaged in the integrated business of handling and storage of food grains. In the course of their integrated business, the assessee had collected rentals for storing food grains and had engaged outsiders to transport the food grains. ii. In the present case assessee firm's main business is providing storage services in respect of food grains. Handling & transportation services are allied activities which are undoubtedly present there. Handling & transportation are essential for main business. Because without providing handling & transportation, loading-unloading, shifting, repacking & cleaning activities it is impossible to run business of warehousing / storage services. Without handling and transportation services deposit and withdrawal of goods to/from godowns couldn't possible. Hence this is not worthwhile to reach the conclusion that there was not "Integrated business of handling, storage and transportation of food grains". In the case of A. P. State Warehousing Corporation v/s. Dy. Commissioner of Income-tax, Hyderabad (Income Tax Appellate Tribunal - Hyderabad- 28/08/2014) same views were expressed. Moreover assessee firm's profit & loss account shows S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontext of food grains would cover within it ambit the process and activities relating to creation of facilities for cleaning and removing of foreign material from the food grain so as to prevent damage from such material, Facilities for drying of food grains to prevent loss during storage due to excessive moisture, pre storage bulk grain dumping and drying facilities, creation of facilities for mechanized sampling, weighing and detection of live infectants, mechanized receiving and handling by storing in Silos equipped with facilities of aeration and fumigation, loading and unloading facilities and traffic management and dumping pits, chain conveyors, elevators and facilities for mechanized shipment so as to integrate storage with quick transportation. Keeping the overall intent of this particular provision it is clear that the word "handling" can not include the manufacture or transportation of food grains by any stretch of imagination. The provisions of the Act have to be interpreted in a way that absurdity and mischief is avoided. In this regard he referred to the decision of Hon'ble Supreme Court in case of KP Varghese Vs. ITO, 131 ITR 597. In fact a particular wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al to the interest of revenue is not correct. (6) EXPLANATION IN RESPECT OF NON VERIFICATION OF WEIGH BRIDGE CHARGES ₹ 7,21,105/- In show cause notice your honour have stated that on appraisal of assessment record it is observed that in H.O. books weigh bridge charges is ₹ 6,52,595/- while assessee has no weigh bridge at Head office. As such claim of deduction as exempted income is not only wrongly claimed but wrongly allowed by the A.O. Hence order of A.O. is erroneous and prejudicial to the interest of revenue. Your honour has failed to consider that in books of H.O., H.O. has acquired weigh bridge and cleaning & grading machine on 1.10.2007 at the cost of ₹ 18,31,710/- Hence your view that order of A.O. is erroneous and prejudicial interest of revenue is not correct. (7) EXPLANATION IN RESPECT OF CLAIM OF DEPRECIATION In show cause notice your honour have stated that on appraisal of depreciation chart it is observed that you have claimed depreciation on branches property like Delhi, Indore, Jaipur, Gujarat, Kota, Sriganganagar, Ankola, Sangli, Maharashtra. There are no documents which shows the godowns taken at these places are with or without Plant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome assessee has not claimed any deduction u/s 80IB. Hence order of A.O. is neither erroneous nor prejudicial to the interest of revenue. (9) EXPLANATION IN RESPECT OF REMUNERATION TO WORKING PARTNERS NOT CLAIMED In respect of remuneration to working partners you are of the view that assessee firm has not given remuneration to working partners despite the facts that assessee firm earned considerable profit. Intention of the firm for not allowing remuneration to working partners was to get maximum benefit of exemption under section 80IB (11A), if remuneration allowed to partners they are liable to tax on such remuneration. In this relation Assessing officer has neither asked question nor made any enquiry or investigation. The A.O. is required to compute the remuneration payable as per partnership deed and provisions of the Income tax Act. The proposed disallowance of deduction under section 80IB (11A) by mandatorily allowing remuneration to working partners is unwarranted and unsustainable due to the following reasons:- i. The act of compulsory allowing the remuneration to working partners is unjustified and unlawful. Section 40(b) of the Income Tax Act, 1961 provides the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to time." Hence there is no question to mandatorily allow remuneration to working partner. vi. Remuneration to working partner is not justified due to following reasons: a) Remuneration was not provided /paid in the book of account. b) Partnership deed authorised the partners to reduce or NIL the remuneration. c) Firm paid a huge amount in the account of salary to its staff/employees. Thus allowing mandatorily remuneration in the case of assessee is unjustified and unlawful. vii. During the course of assessment proceeding the learned A.O. has enquired and verified that the partner's remuneration not claimed as per terms of partnership deed. The decision of the A.O. cannot be held to be erroneous only because in his order he did not made an elaborate discussion in this regard. 4. On the other hand, the ld CIT-DR has relied on the order of the Pr.CIT. 5. We have heard the ld. counsels for both the parties and have also considered the material placed on record, order passed by the Revenue Authorities as well as judgements relied upon by the parties. From the record, we notice that main issue in the present controversy is as to whether the order passed by the A.O. can be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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