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2007 (3) TMI 414 - AT - Income TaxDenial of deduction u/s 80-IB - No income derived - cold storage plant only for the purpose of storing its own goods - Percentage of profit derived from the cold storage activity - stages of processing involved and the involvement of cold storage facilities - Disallowance of purchases on Non-filing of a transaction confirmation - disallowance of the amount paid in excess u/s 40A(2)(b) - HELD THAT:- We see no force in the stand of the revenue that the assessee is eligible for deduction u/s 80-IB only when he receives the money for use of cold storage by an outsider and not when he uses the cold storage himself. The scheme of the section 80-IB is that the deduction is available in respect of profits and gains derived from the business of operating a cold storage plant, and not the business of offering 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 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 storage facilities therein. This cannot, therefore, be taken as an authority for the proposition that the same ratio of profits can be said to be derived from operation of cold storage plant in all cases. Disallowance of purchases - Non-filing of a transaction confirmation enough for making or sustaining disallowance ? - HELD THAT:- It is really difficult to reconcile between CIT(A)’s agreeing with the assessee about the fact that the vendors are generally small fisherman of limited means, who are highly mobile depending on the availability of work, and yet, at the same time, his holding that the disallowance is to be confirmed because the assessee could not produce the confirmation from the vendor. Non-filing of a transaction confirmation, by itself, cannot be reason enough for making or sustaining disallowance. All the things are to be considered in totality. The observations made by the CIT(A), in our considered view, are quite justified and reasonable. We approve his stand to that extent. However, despite all these well-reasoned findings, which meet out approval, the CIT(A) has sustained the disallowance on account of purchases made by the assessee from GMP. Thus, CIT(A) indeed erred in sustaining this disallowance. We, therefore, direct the Assessing Officer to delete this disallowance. The assessee gets the relief accordingly. Ground No. 2 of the appeal filed by the assessee is, thus, allowed - In the result, the appeal filed by the assessee is partly allowed in the terms indicated above. Disallowable u/s 40A(2)(b) - Purchases made in excess of the prevailing market rates from its sister concerns - HELD THAT:- It is also important to bear in mind that prices at which one concern has supplied will only be relevant for comparison of supplies by other persons only if supplies were made on the same day and the supplies are of the same grade. There is no mention that the grades of fish supplied by all the vendors, including the sister concerns, is the same. That is not possible also. We have also taken note of the fact that as per details filed by the assessee, which have been reproduced in the order of the CIT(A), there have been several instances in which the supplies by the sister concerns are at lower prices. Therefore, the kind of oversimplification that has been resorted to is indeed unsustainable in law and on facts. In this view 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.
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