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TMI Blog2017 (6) TMI 1317X X X X Extracts X X X X X X X X Extracts X X X X ..... re-verification of addition of Rs.1,09,11,962/- on account of rent receipts shown as "business income" as well denying the benefit u/s 80-IB(11A) of the Act for Rs. 1,25,22,588/- only. 3. Facts in brief are that assessee is a limited company and engaged in business of clearing and forwarding agents. The assessee is also engaged in the business of integrated activity of handling, storage and transportation of food-grains at Gandhidham, Gujarat. The assessee is running a warehouse in Gandhidham providing integrated facilities for the food-grains. The assessee from its unit at Gandhidham has shown gross receipt of Rs.1,98,69,397.97 on account of handling charges, transportation and storage charges. The assessee in respect of its unit at Gandhidham has claimed deduction u/s. 80IB(11A) of the Act. The AO, during the course of assessment proceedings, issued a letter to the Directorate of Income-tax (Investigation) unit at Gandhidham to verify the veracity of its income from the unit of Gandhidham. The Inspector of Directorate of Income-tax (Investigation) Gandhidham in turn submitted its report which reads as under:- i) Assessee is having two warehouses which are Numbered as 8 & 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked out the income from the unit located at Gandhidham as detailed under:- 1) Gross received from Gandhidham of Rs.198,09,398/- Less : relevant expense in respect of Gandhidham unit 1. Electricity charges Rs. 23,879.00 2. Generator charges Rs. 20,528.00 3. Insurance charges Rs. 78,568.00 4. Printing & Stationery Rs. 10,865.00 5. Repairs & Maintenance Rs. 7,800.00 6. Travelling charges Rs. 5,194.00 7. Financial charges Rs. 24,50,230.00 (the above expenses are allowed as claimed by the assessee, brokerage & commission, cartage expenses, transportation charges are disallowed as they cannot relate to be claimed to an unit of hire, amount on rates & taxes are disallowed as they cannot be segregated from penalty & fines, which are not allowable) 9. Depreciation Rs. 11,81,721.00 Rs. 37,78,784.00 Net profit Rs. 1,60,30,614 (a) Therefore, AO worked out net profit of Rs.160,30,614/- as discussed above. The AO further observed that the assessee in respect of its unit at Gandhidham has already declared profit for a sum of Rs.51,18,652/- and accordingly opined that sum of Rs.109,11,962/- (160306134 -5118652) has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09 revealed that there was storage of DAP (fertilizer) and not of the food grains. Here it is pertinent to note that the issue before the AO pertains to the financial year 2006-07 and the report of the Inspector was obtained in the month of December 2009 and thus the report of inspector is silent about the items stored in the financial year 2006-07. The report of the inspector contains items stored in the period of December 2009 which is irrelevant to the year under consideration. Thus, the allegation of the AO that there was storage of DAP (fertilizer) is based on its own surmise and conjecture. Ld. CIT(A) after considering the submissions of assessee has deleted the addition made by the AO as well as granted relief u/s. 80IB(11A) of the Act by observing as under:- "1. In this ground the Appellant has objected to the action of the assessing officer in making an addition of Rs. 1,09,11,9620/- as income from its Gandhidham Unit, though the same appears as a part of net profit as per the profit and loss account. 2. The appellant had submitted during the appellate proceedings that the amount was already a part of income as per the audited profit and loss account. The DCIT has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the AO was not justified in disallowing the claim. The submissions made show that the appellant was carrying on the integrated operation of Handling, Transportation and storage since some time and nothing speedier was placed on the records by the AO to prove that the contention of the appellant was wrong. Further, nothing on the record has been placed by the AO that the assessee was not carrying on the integrated activit9y of Handling, Transportation and storage of food grains for the assessment year under appeal. Hence, in view of the above submissions & relying on the decision of the Supreme Court in the case of Dhakeshwari Cotton Mills 26 ITR 775 (SC), which states the guideline that the Assessing Officer while making an assessment section 143(3), is not entitled to guess and make an assessment without reference to any evidence or any material at all which could well apply to the case of the appellant. The disallowance is therefore remains unsubstantiated and cannot be sustained." The Revenue, being aggrieved, is in appeal before us on the following grounds:- "1.That on facts and circumstances of the case the Ld. CIT(A) erred in passing an order based exclusively on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judicial pronouncements cited and placed reliance upon. At the outset, we find that the income in respect of Gadhidham unit was already offered to tax as evident from the financial statement of the assessee which are placed on pages 1 to 21 of the paper book, more particularly from the profit and loss account which is placed on page 9 of the paper book. Moreover, we find that Ld. CIT(A) has merely directed the AO to verify the same whether the income in respect of Gandhidham unit has been included in its books of account, as such, we find no infirmity in the order of Ld. CIT(A). Thus the AO has all the right as provided under the statute to ensure whether income has been included in the income of the assessee and therefore we find no infirmity in the order of ld. CIT(A). Hence, this ground of Revenue's appeal is dismissed. 7. Next issue in the instant case relates the deduction claim by assessee u/s 80IB(11A) of the Act. The deduction was denied by AO on the ground that the warehouses in respect of which the deduction was claimed were not ready for commercial activities in the year under consideration. The observation of the AO was based on the completion certificates which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng charges was shown. However, in our considered view, that the list cannot be treated as conclusive evidence to hold that the assessee is engaged in the integrated services. Besides the above, we also find that the AO has not exercised his power u/s. 143(3) of the Act to ascertain from the parties where they availed integrated services from the assessee. With this view of the matter, we are inclined to give one more opportunity to assessee to justify its claim for deduction u/s. 80IB(1A) of the Act. In the light of above stated discussion, thus, we restore this issue to the file of AO to adjudicate the issue afresh in accordance with law and after giving opportunity of being heard to assessee. Hence, this ground of Revenue's appeal is allowed for statistical purpose. 8. Last issue raised by Revenue is that Ld. CIT(A) erred in deleting the disallowance made by AO for debt redemption reserve in calculating book profit u/s. 115JB of the Act. 10. The AO while calculating the book profit has treated the debt redemption reserve as unascertained liability and accordingly disallowed the same. 11. Aggrieved, assessee preferred an appeal before Ld.CIT(A). The assessee before Ld.CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting to Rs. 18.80 crores-Held, nature of a Debenture Redemption Reserve (DDR) has been considered by the judgment of the Supreme Court in National Rayon Corporation Ltd. Vs. Commissioner of Income Tax [(1997) 227 ITR 764], wherein it was held that "the basic principle is that an amount set apart to meet a known liability cannot be regarded as reserve"- where a company issues debentures, the liability to repay arises the moment the money is borrowed-By issuing debentures a company takes a loan against the security of its assets-Though the loan may not be repayable in the year of account, the obligation to repay is a present obligation. Hence any money set apart in the accounts of the company to redeem the debenture has to be treated as monies set apart to meet a known liability-Consequently, debentures have to be shown in the balance sheet of a company as a liability-Being monies set apart to meet a known liability, a Debenture Redemption Reserve cannot be regarded as a reserve for the purpose of Schedule VI to the Companies Act, 1956-Mere fact that a Debenture Redemption Reserve is labeled as a reserve will not render it as a reserve in the true sense or meaning of that concept-A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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