Vikas Awasthy, Judicial Member - These cross appeals have been filed by the assessee and the Revenue impugning the order passed by the Commissioner of Income Tax (Appeals), Aurangabad dated 14-02-2012 u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for the assessment year 2008-09.
2. The brief facts of the case as emanating from records are: The assessee is an individual, engaged in the business of ginning and pressing of cotton and warehousing. The assessee filed its return of income for the assessment year 2008-09 on 29-09-2008 declaring taxable income as Nil. The case of the assessee was selected for scrutiny under CASS and accordingly notice u/s. 143(2) and 143(1) was issued to the assessee on 31-08-2009. During the scrutiny assessment proceedings, the Assessing Officer observed that the assessee had claimed deduction under the provisions of section 80IB(11A) of the Act. The Assessing Officer held that the assessee is not engaged in the integrated business of handling, storage and transportation of food grains. The assessee is neither having labourers on its payroll nor the assessee is having own fleet of vehicles for transportation. Therefore, the assessee does not fulfill the requisite conditions for claiming deduction u/s. 80IB(11A) of the Act. The Assessing Officer disallowed the deduction of Rs. 12,03,353/-. Apart from the above, the Assessing Officer made certain other disallowances/additions in the income returned by the assessee.
Aggrieved by the assessment order dated 30-12-2010, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) rejected the contentions of the assessee with regard to claim of deduction u/s. 80IB(11A) and partly allowed the appeal of the assessee by deleting certain other disallowances/additions made by the Assessing Officer. Against the findings of Commissioner of Income Tax (Appeals), both, the assessee and the Revenue are in appeal before the Tribunal.
3. The assessee has assailed the findings of Commissioner of Income Tax (Appeals) on two counts:
| i. |
Confirming the disallowance of deduction u/s. 80IB(11A) amounting to Rs. 12,03,353/-, and |
ii. |
Non-consideration of the Audit Report filed at the time of assessment proceedings. |
4. Smt. Deepa Khare appearing on behalf of the assessee submitted that the assessee had made claim of deduction u/s. 80IB(11A) for the first time in assessment year 2004-05. It is only in the assessment year under appeal that the Assessing Officer has disallowed the claim of deduction. Based on the disallowance made during the assessment year 2008-09, assessment for the earlier years have been reopened. The ld. Counsel for the assessee submitted that the assessee had claimed deduction u/s. 80IB(11A) as the assessee is engaged in the integrated business of handling, storage and transportation of food grains. The assessee has created storage facilities for food grains in accordance with the norms prescribed by the NABARD. In support of her submissions, the ld. Counsel placed on record a copy of the report by Joint Monitoring Committee dated 20-05-2005 under Rural Godown Scheme. One of the committee members is official of NABARD. The object of the committee is to examine the conditions of warehousing facilities. The ld. Counsel submitted that the Assessing Officer has disallowed the claim of deduction u/s. 80IB(11A) on three counts, viz :
| i. |
There are no labourers on payroll of the assessee, |
ii. |
The assessee is not having transport facility of its own, |
iii. |
Thus, the assessee is not engaged in integrated activity of handling, storage and transportation of food grains. |
4.1 The ld. Counsel for the assessee submitted that a perusal of the provisions of section 80IB(11A) would show that to be eligible to claim deduction, the assessee should be engaged in the integrated business of handling, storage and transportation of food grains. The section does not require that these activities should be carried out by the assessee by employing labours on its payroll or owning warehouse or having own fleet of vehicles for transportation. The assessee is engaged in the integrated activity by engaging the labourers through outsource agencies and hiring of vehicles from various operators. The requirements of labourer keep on changing throughout the year. More labourers are required immediately after the harvesting season. Accordingly, the requirement of transport vehicles goes up when there is frequent purchase of food grains. The ld. Counsel referred to profit and loss account for the year ending 31-03-2008 at page 44 of the paper book to show that the assessee has claimed warehousing receipts and expenses towards the transportation. The Counsel further referred to page 138 of the paper book to show that the assessee has claimed loading and unloading expenses. The ld. Counsel referred to letter written by the assessee to the Assessing Officer on 06-12-2012 at page 105 of the paper book. The ld. Counsel submitted that the assessee had submitted the list of vehicles along with the name of owners, details of transportation expenses and completion certificate of warehousing building. The ld. Counsel further submitted that as regards labour charges, the same are collected by the agency directly from the respective parties, although, the labour arrangements for loading and unloading at the warehouse is made by the assessee. To substantiate the payment of transportation expenses, the ld. Counsel referred to the ledger account for the period 01-04-2007 to 31-03-2008 at page 144 of the paper book. The Counsel contended that the issue whether owning of infrastructure is necessary to claim deduction u/s. 80IB(11A) was considered by the Hyderabad Bench of the Tribunal in the case of A.P. State Warehousing Corporation v. Dy. CIT [2014] 45 taxmann.com 332/150 ITD 485 (Hyd.). The Tribunal held that owning of infrastructure facilities is not necessary to claim deduction u/s. 80IB(11A).
5. In respect of second issue raised in the appeal regarding filing of Audit report for claiming deduction, the ld. Counsel submitted that the Audit report in the prescribed form was obtained from the Chartered Accountant on 20-08-2008. However, the same could not be filed along with the return of income. The assessee thereafter offered to file Audit Report before the authorities below but the request of assessee was not considered. The ld. Counsel filed an application for placing on record Audit report as additional evidence. The ld. Counsel prayed for accepting the Audit report and allowing the appeal of the assessee on merits.
6. On the other hand Shri Subhash K.R. representing the Department vehemently supported the findings of Commissioner of Income Tax (Appeals) in rejecting the claim of assessee u/s. 80IB(11A). The ld. DR submitted that the assessee is neither owning infrastructure facilities nor it is engaged in the integrated business of handling, storage and transportation of food grains. Further, the assessee had not filed Audit report in the prescribed form which is necessary for claiming deduction u/s. 80IB(11A) of the Act. No sufficient reason has been given for not placing the Audit report either during assessment proceedings or during the first appellate proceedings. In the absence of Audit report the claim of the assessee cannot be accepted. The ld. DR prayed for dismissing the appeal of the assessee.
7. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. Before adverting to the facts of the case it is necessary to first examine the provisions of section 80IB(11A) under which the assessee is claiming deduction. The relevant provisions of section 80IB(11A) are reproduced here-in-below:
"(11A) The amount of deduction in a case of an undertaking deriving profit from the business of processing, preservation and packaging of fruits or vegetables or meat and meat products or poultry or marine or dairy products or from the integrated business of handling, storage and transportation of food grains, shall be hundred per cent of the profits and gains derived from such undertaking for five assessment years beginning with the initial assessment year and thereafter, twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains derived from the operation of such business in a manner that the total period of deduction does not exceed ten consecutive assessment years and subject to fulfilment of the condition that it begins to operate such business on or after the 1st day of April, 2001.
Provided that the provisions of this section shall not apply to an undertaking engaged in the business of processing, preservation and packaging of meat or meat products or poultry or marine or dairy products if it begins to operate such business before the 1st day of April, 2009."
8. A bare perusal of the provisions of section show that deduction u/s. 80IB(11A) is available in the case of an undertaking deriving profit from the 'integrated' business of handling, storage and transportation of food grains. The vital word used in the section is 'integrated'. The term integrated has not been defined in the Act nor it is defined under the General Clauses Act, 1897. Thus, to understand the meaning of word 'integrated' in common parlance, we referred to Oxford English Dictionary, which explains the word integrate as,
(i) Combine or be combined to form whole and (ii) Bring or come into equal participation in an institution or body.
Thus, the word integrated used in the section connotes, that the business of handling, storage and transportation of food grains should be carried out in a combined manner. However, the section does not put any pre-condition that for carrying out the integrated activities of handling, storage and transportation of food grains the assessee should own the infrastructure facilities or should have manpower on its rolls for carrying out such business activities. If the undertaking is carrying out these integrated activities by employing hired labourers or by taking warehousing facilities on rent and hiring transportation facilities, in our considered opinion the undertaking is eligible to claim deduction u/s. 80IB(11A).
9. The Hyderabad Bench of the Tribunal in the case of A.P. State Warehousing Corporation (supra) also supports our view. The Co-ordinate Bench observed that the godowns where this business is to be carried on need not be owned by the assessee. The Tribunal further observed that merely because the assessee has engaged outsiders for transportation does not mean that the assessee is not engaged in the integrated business of handling, storage and food grains.
10. In the present case it is an undisputed fact that the assessee is neither having labour on its payrolls nor the assessee is owning fleet of vehicles for the transportation. However, the assessee is having warehousing facilities of its own. The assessee in support of his contention has placed on record vouchers for loading, unloading and transportation to substantiate that it is engaged in integrated business. Some of these vouchers are placed on record by the assessee at pages 1 to 16 of the paper book. The First Appellate Authority rejected the claim of the assessee by observing as under:
'8.2 …………….. The assessee has claimed that the handling charges in the form of payment to labourers though not debited in the books of accounts it has been included in the bill for storage as the bill for storage is inclusive of labour charges. On the other hand, the A.O. has pointed out that the said bills issued by the assessee for warehousing does not contain charges for handling and no separate bills are issued for handling charges and hence the handling charges are also not credited to profit & loss account. As regards transportation facility, the appellant has claimed that it has hired vehicles for transportation of food grains whenever required by the farmers and has debited the said expenses in the books of accounts. The A.O. has claimed that the appellant has not earned any transportation receipt from farmers and has not credited the same in the profit & loss account. In this regard, it has been noticed that the appellant has claimed the expenditure of transportation at Rs.1,20,000/- on estimate basis at Rs.10,000/- per month on the basis of self made vouchers. In view of the above facts, it has been observed that the assessee has not proved beyond doubt that it has provided handling services to the farmers as the contention of the assessee that he has employed skilled labour for handling the food grains is not supported by any payment vouchers supporting the contention. The contention of the appellant that "the farmers charged for handling charges & the labours are paid for their services & the surplus being margin is credited net to the income of the assessee" is therefore not supported by any documentary evidence. Therefore, I am of the considered view that the appellant has failed to prove that he has carried out business activity of handling of food grains alongwith storage of food grains. Further, as regards providing business activity of transportation, it has been noticed that the appellant has claimed transportation expenses on adhoc basis at Rs.10,000/- per month that too on the basis of internal vouchers. Therefore, I am of the considered view that the appellant has not proved beyond doubt that he has provided transportation facility to farmers alongwith storage facility.'
In addition to above the Commissioner of Income Tax (Appeals) has also noted that the assessee has not filed Audit report in the prescribed from 10CCB for claiming deduction.
11. As has been observed by us in the preceding paragraphs the deduction u/s. 80IB(11A) can be claimed only if the assessee has been able to show that it is engaged in integrated activities of handling, transportation and storage of food grains. Owning of transportation facilities, warehousing facilities and manpower on payroll is not sine-qua-non for claiming the deduction. What is essential is that all the three activities of handling, storage and transportation should be sewn together in a manner that they become a single structured process. In the present case the assessee has not been able to show the integration of the three activities for claiming deduction. With regard to manpower the contention of the assessee is that it does not have skilled/unskilled labour on its payroll and has outsourced the same. However, the assessee has failed to place on record any document to show any agreement/arrangement with the outsourcing agencies for supply of labour. The assessee has further failed to show from the records that the payments have been made to labourers, except for some self made vouchers, the sanctity of which is highly doubtful, there is no other document to support the claim of assessee.
Similarly, in respect of transportation activity the contention of the assessee is that the assessee is using hired trucks. A perusal of records show, that the assessee has claimed ad hoc expenditure of Rs. 10,000/- per month for transportation that to on the basis of internal vouchers. The assessee has not placed on record any agreement/arrangement with the transporters for the transportation of food grains nor any bills/invoices have been produced to substantiate the payment for transportation. Although, the assessee has placed on record a report from the Joint Monitoring Committee to show that the warehouses owned by the assessee are as per Govt. specifications, but this is not sufficient to claim deduction u/s. 80IB(11A). From the documents on record the only indelible inference that can be drawn is that the assessee is providing warehousing facilities for storage of food grains. The assessee has not been able to show from the records that the activities of handling, storage and transportation of food grains allegedly carried out by the assessee are part of one composite activity and are integrated in any manner. The assessee has failed to substantiate handling and transportation component of integrated business.
12. In so far as the objection of the Revenue for non-filing of Audit report is concerned, we are of the considered view that the assessee can file Audit report even at the appellate stage for claiming deduction. The deduction cannot be denied merely on the ground that the assessee has not filed Audit report along with the return of income or at the time of assessment proceedings. In the present case, the assessee has not filed Audit report before the Assessing Officer. Thereafter, the assessee did not file the Audit report in the prescribed form before the First Appellate Authority. Although, one of the reasons for rejecting the claim of the assessee was non-filing of the Audit report. Now, before the Tribunal the assessee has filed an application for admission of additional evidence i.e. the Audit report. The assessee has placed on record Audit report in form 10CCB dated 20-08-2008 at pages 14 to 18 of the paper book. In the application for admission of additional evidence the reason for non-filing of Audit report before the Assessing Officer, as well as, Commissioner of Income Tax (Appeals) has been mentioned as inadvertent mistake. No other reason has been given for non-filing of the Audit report.
13. The Chandigarh Bench of the Tribunal in the case of Lakshmi Energy & Food Ltd. v. Asstt. CIT [2014] 44 taxmann.com 248/63 SOT 70 (URO) (Chd.) accepted the Audit report as additional evidence since the assessee was able to show reasonable cause for not producing the same before the Assessing Officer or Commissioner of Income Tax (Appeals) as per Rule 46A(b) of the Income Tax Rules, 1962. Additional evidence can be admitted if the assessee can show sufficient cause for not producing the same before the authorities below. In the said case the assessee could not file Audit report as the assessee had serious disputes with the Auditor whose services were ultimately terminated.
14. The Hon'ble Gujarat High Court in the case of CIT v. Xavier Kelavani Mandal (P) Ltd. [2014] 41 taxmann.com 184/221 Taxman 43 (Mag.) (Guj.) has held that the assessee is permissible to produce Audit report before the Appellate Authority by showing a sufficient cause. Thus, there is no bar for filing Audit report at later stage. However, the assessee has to show bona fide reason for not filing the same before the Assessing Officer and the Commissioner of Income Tax (Appeals). 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.
15. Thus, in the facts of the case and documents on record, we are of the considered opinion that 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.
16. In the result, the appeal of the assessee is dismissed.
ITA No. 863/PN/2012 (Revenue's Appeal)
17. The Revenue in its appeal has assailed the order of Commissioner of Income Tax (Appeals) in deleting the disallowance made by Assessing Officer u/s. 40(A)(3) on account of cash payment made by the assessee. The Revenue has also assailed the findings of Commissioner of Income Tax (Appeals) in treating Shri Prashant Jakite, Shri Sonaji Trimbakrao Bedke, Shri Sheikh Rashid Shaikh Chand and Shri Siddheshwar Kondiba Sontakke as agents of the assessee through whom cash payments were made by the assessee.
18. The ld. DR submitted that the assessee has made payments to the commission agents/traders and not to the farmers. Thus, the cash payments made by the assessee would not fall within the exceptions provided under Rule 6DD (e) and (k) of the Income Tax Rules.
19. On the other hand the ld. Counsel for the assessee submitted that the person's name in the appeal filed by Department are not traders but are facilitators. The assessee purchases the agricultural produce from farmers through them and make direct payment to the farmers. In return the aforesaid persons charge their commission for facilitating the sale and purchase. The aforesaid persons do not purchase the produce from farmers for further sale to the consumers.
20. Both sides heard. During the First Appellate proceedings the assessee made submissions in respect of disallowance of cash payments u/s. 40(A)(3). The Commissioner of Income Tax (Appeals) forwarded the same to Assessing Officer for his report. 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 Rs. 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. The order passed by the Commissioner of Income Tax (Appeals) is well reasoned and does not call for any interference. Accordingly, the appeal of the Revenue is dismissed being devoid of any merit.
21. In the result, the appeal of the assessee, as well as, that of Revenue is dismissed.