9911796707
TMI Blog2020 (10) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... 07 declaring an income of Rs. 23, 52, 760/- under the normal provisions of the Income Tax Act, 1961 ("the Act") after availing deduction of Rs. 1, 32, 500/- under section 80 G of the Act and Rs. 25, 66, 86, 795/- under section 80IB of the Act, and, however, declared book profit under section 115 JB of the Act at Rs. 24, 84, 93, 930/-. 3. Subsequently, there was search & survey at different business/ residential premises of the assessee and group cases under section 132(4) of the Act/133A of the Act on 10/02/2009, pursuant to which notice under section 153A of the Act was issued to the assessee on 7/10/2009 and the assessee, in response to the said notice, filed the return of income on 22/01/2010, declaring a total income of Rs. 39, 83, 900/- after availing deduction under section 80 G of the Act amounting to Rs. 2, 65, 000/-and Rs. 25,66,86, 795/-under section 80IB of the Act. After scrutiny, by order dated 19/08/2011, the assessment was complete under section 153A of the Act at Rs. 29, 98, 97, 528/- after denying the claim of the assessee for deduction under section 80IB(11A) of the Act and making the following additions: - S.No Addition Amountin Rs. 1 addition under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibility of the assessee to claim deduction under section 80IB(11A) of the Act, though on two counts. 6. According to the assessee, the assessee commenced the integrated business of processing, transporting, storage, handling and sale of food grains in Bahalgarh, Sonepat, Haryana in the previous year relevant to the assessment year 2003-04 by creating significant infrastructure for storage, handling and transportation of paddy/rice and had deployed the most advanced imported equipment with a view to ensure least possible losses in post-harvest processing of food grains and to enhance the efficiency in the grain management system. Assessee claimed deduction under section 80IB(11A) of the Act, stating that the handling, storage and transportation of paddy/rice constitute the major components of their integrated business, and that all conditions specified in such section stood fulfilled. 7. Ld. Assessing Officer, however, basing on the findings/observations of the special auditor, rejected the claim of the assessee for deduction under section 80IB(11A) of the Act and held that the assessee was not eligible to claim the same on the grounds that the assessee was engaged in manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice from paddy only which is not eligible business in terms of 80IB(1) for claiming deduction u/s 80IB(11A). 11. Justifying the observations of the ld. Assessing Officer as to the manufacture activity of the assessee, Ld. DR argued that the assessee is basically manufacturing rice from paddy, other activities like purchase, storage, milling and transportation being connected to milling and production of rice; that the assessee has been doing this business of rice manufacturing over the years and nothing has changed subsequently; that if the plea of the assessee that it is eligible for deduction u/s 80IB(11A) against manufacturing of rice is accepted it will tantamount to accepting the claim of the assessee that manufacturing of rice is eligible business for deduction u/s 80IB(11A) which was never the intention of the legislature; that there is a separate provision of deduction u/s 80IB for manufacturing concerns and section 80IB(11A) is not the provision meant for such manufacturing activity; that in fact, deduction u/s 80IB(11A) is for certain service activities and not for manufacturing activity; that the Assessee is claiming deduction not against service activities, but agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness of handling, storage and transportation of food grains; that as regards storage and transportation activity, there is no dispute; that the main issue in the instant case is as to what is 'handling' in terms of Section 80IB(11A). According to him, processing/manufacturing of paddy into rice doesn't come under 'handling of food grains', and that on this score the business of the assessee doesn't fall under the eligible business of 'integrated business of handling, storage and transportation of food grains'. 14. Ld. DR referred to the National Policy on Handling, storage and transportation of Food grains notified in the Gazette of India dated 15th July 2000 and submitted that to give effect to the commitment of fiscal initiative, provisions of section 80IB(11A) were introduced by the Finance Act, 2001 and initially benefit was given to the 'integrated business of handling, storage and transportation of food grains', which later on was extended to the business of processing, preservation and packaging of fruits and vegetables by Finance Act, 2004 w.e.f. 1.4.2005 and thereafter by Finance Act, 2009 w.e.f. 1.4.2010 the benefit was further extended to the Meat products and Poultry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee in this case is processing paddy into rice only after storage of food grains in silos, such activity of processing of paddy into rice is not eligible activity in terms of section 80IB(11A). Placing reliance on the decision of Hon'ble Supreme Court in case of CGT v. NS GettiChettiar, [1971] 82 ITR 599, Sole Trustee, LokaShikshana Trust v. CIT, [1975] 101 ITR 234 (SC), and Smt. TarulataShyam v. CIT, [1977] 108 ITR 345 (SC) he submitted that the definitions in other Acts or technical meaning of a word or expression in the statute may be relevant but not sacrosanct, and the Courts should not hesitate to depart the meaning if the text and settings in which the word or expression is used demands so. On this premise he submits that when Sec 80IB(11A) is read along with Memorandum of explaining the provisions in the backdrop of National Policy on Handling, storage and transportation of Food grains, it would emerge that the word "handling" in its ordinary sense and in the context of food grains would cover the above activities defined as 'handling' by him. 16. Keeping the overall intent of this particular provision it is clear that the word "handling" can not include the manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o enhance the efficiency in the grain management system, in furtherance of the larger objective of the agro economy of the Country, by obtaining best prices to the farmers for their produce; to minimize the losses of food grains in the course of handling, storage and transportation; and for creation of modern infrastructure to support agro economy; and that since the process of handling/processing, storage and transportation of paddy/rice is part and parcel of the integrated business of the assessee company, deduction under section 80IB(11A) of the Act was claimed by the assessee on fulfillment of all conditions specified therein which was, of course, denied on two grounds, firstly that there is no handling activity as contemplated in the 'integrated business of handling, storage and transportation of food grains', but only manufacture of rice from paddy, the other ground being that the machinery used by the assessee constitutes more than 20% of the old machinery. 19. Adverting to the manufacturing activity, contended by the Ld. DR, it is submitted that when paddy is de-husked/milled, there is no material difference, so as to render it as a commercially distinct product. He argued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the integrated business of handling, storage and transportation of food grains. 21. In this regard, it is argued that section 80IB(11A) of the Act provides deduction in respect of profits derived from undertakings engaged in the integrated business of handling, storage and transportation of food grains on a cumulative basis and this beneficial provisions of section 80IB(11A) of the Act was introduced in order to encourage transportation, handling and storage of food grains, with the primary intention of minimizing losses which occur during post-harvesting of food grain. Reliance in this regard is placed on the decision of the Mumbai Bench of the Tribunal in the case of ITO vs. Shankar K. Bhanage: 25 taxmann.com 310, where while adverting to the terms "integrated business of handling, storage and transportation of food grains" used in section 80IB(11A) of the Act it was held that the main purpose of bringing this provision is construction of godowns specifically for stocking food grains for greater efficiency in the grain management system and minimize post harvest food grain losses." 22. While referring to the scheme promoted by the Government of India under TFC 14/99-Volume II ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ketable form which shall include the steps required to minimize post harvest food grain losse shall have to be undertaken by the assessee, which also includes the process of de-husking/milling of paddy/rice/wheat to bring it to its consumable form also falls within the ambit of the term 'integrated business' as used in the said section. Then the Ld. AR referred to the various stages involved in the grain management system and also in the prevention of post-harvest losses visà-vis the activities of the assessee and submitted that all the conditions stipulated in the section i.e. all the three activities of (i) handling, (ii) storing and (iii) transportation have been undertaken on an integrated basis, and by picking up the intermediary activity of milling in isolation from the integrated process, it is not open for the Revenue to say that it is only a manufacture of rice from paddy to disallow the deduction under section 80IB(11A) of the Act. According to him such anactivity of the assessee is only intermediary in the activities in the nature of processing of the food grains and falls within the ambit of handling and, therefore, it cannot be the sole basis for denying deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, without disturbing the assessment for the initial year, it is not open to the Revenue to make disallowance of such deduction in the subsequent year(s), unless there is a material change in the fundamental facts. 26. On the aspect of allegation as to the use of old machinery or plant in the new business in excess of 20%, argument of the learned AR is twofold. Firstly, he argues that the learned Assessing Officer failed to demonstrate or establish on facts as to how the assessee violated the conditions of the provisions under explanation-2 to section 80IB (2) of the Act. According to the assessee there was no transfer of any previously used machinery to the new business and the entire machinery at Bahalgarh unit was used for the integrated activity of handling, storage and transportation of food grains with effect from October 2002, and therefore, the assessee does not suffer any disqualification mentioned in explanation two of section 80IB (2) of the Act. The 2nd argument advanced by the learned DR is that the provisions of section 80IB (2) of the Act have no application to the business of the assessee at all, in as much as, the provisions under section 80IB (2) of the Act are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, the assessee claimed deduction under section 80IB(11A) of the Act, stating that the handling, storage and transportation of paddy/rice constitute the major components of their integrated business, and that all conditions specified in such section stood fulfilled; whereas the main contention of the assessing officer in disallowing deduction claimed by the assessee under section 80IB(11A) of the Act, is that the process of milling of paddy for manufacturing of rice and sale & purchase thereof, is beyond the scope of section 80IB(11A) of the Act merely because some part of the assessee's business coincides with a part of the provisions of the said section, deduction cannot be allowed. 28. Before adverting to the specific contentions raised by the parties in respect of deduction claimed under section 80IB(11A) of the Act, we deem it just and necessary to refer to section 80IB(11A) of the Act and to look into the scheme promoted by the Government of India under TFC 14/99-Volume III, dated 4th July, 2000, which resulted in promulgation of the National Policy on Handling Storage and Transportation of Food grains, speech of the Finance Minister while introducing section 80-IB(11A) on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t scientific storage methods. (ii) to modernize the system of handling, storage and transportation of the food grains procured by the Food Corporation of India (FCI). (iii) to harness efforts and resources of public and private sectors, both domestic and foreign to build and operate infrastructure for introduction of bulk handling storage and transportation of food grains in the country." 31. In his speech the Finance Minister, while introducing section 80-IB(11A) on the statute vide Finance Bill, 2001, observed that,- "The storage of food grains and their transportation are our major concern. Sir, I propose to provide a tax holiday for five years and 30% deduction of profits for the next five years to the enterprises engaged in the integrated business of handling, transportation and storage of food grains." 32. Further, the Memorandum explaining provisions of the Finance Bill, 2001, has a bearing on gathering the legislative intent behind insertion of section 80-IB(11A) of the Act: "TAX HOLIDAY FOR UNDERTAKING ENGAGED IN THE INTEGRATED HANDLING, STORAGTE AND TRANSPORTTION OF FOOD GRAINS Under the existing provisions of section 80IB of the Income -tax Act, 1961 a dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nhanced food security by way of acquiring greater efficiency in the grain management system and minimizing the post-harvest food grain losses. There is a purpose of providing incentive to the private operators to create and enhance the infrastructural facilities in handling, storage and transportation in respect of food grains is stretching the financial food security through acquiring greater efficiency in the grain management system and minimize the postharvest food grain losses. 35. As a matter of fact, after referring to the provisions under section 80IB(11A) of the Act, the speech of the Finance Minister, CBD to circular number 14 of 2001 and also the discussion made in the Sampat Iyengar's law of income tax 10th edition, learned Assessing Officer observed that the purpose behind the enactment of section 80IB(11A) of the Act was enhanced food security, because a large quantity of food grains was rotting in the country every year because of inadequate storage facility,and that to enhance food security and agricultural development, upgradation and modernisation of infrastructure for storage, handling and transportation of food grains in order to minimise the post-harvest food g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... percentage (20 percent to 22 percent). - Use of proper method of harvesting. - Avoid excessive drying, fast drying and rewetting of grains, which causes more broken rice. - Immediate drying the wet grain after harvest, preferably within 24 hours to avoid heat accumulation. - Ensure uniform drying to avoid hot and wet spots and mechanical damage due to handling. - Avoid the losses in threshing and winnowing by better mechanical methods. - Follow sanitation during drying, milling and after milling to avoid contamination of grains and protect from insects, rodents and birds. - Use proper technique of processing i.e. cleaning, parboiling and milling. - Adopt the grading practices to get more profit and to avoid the economic losses. - Use efficient and good packaging for storage, as well as in transportation. - Use proper scientific technique in storage for maintaining optimum moisture content i.e. 12 percent for longer period and 14 percent for shorter storage period. - Use pest control measures (fumigation) before storage. - Provide aeration to stored grain and stir grain bulk occasionally. - Move stocks in sacks to discourage pest incidence and their multip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to assessee, they are conducting all the necessary activities from collection of the Paddy from the fields/mandi till they are made ready for human consumption by placing them in the markets, and more particularly, avoiding the losses in threshing and winnowing by better mechanical methods, following sanitation during drying, milling and after milling to avoid contamination of grains and protect from insects, rodents and birds, using proper technique of processing i.e. cleaning, parboiling and milling, adopting the grading practices to get more profit and to avoid the economic losses, and using efficient and good packaging for storage, as well as in transportation, by investing more than Rs. 30 crores for setting up of the eligible unit and for this purpose advanced machinery with improved technology was installed for efficiently handling food grains and to avoid any post-harvest losses, developed huge storage capacity to handle paddy stock of more than 1,50,000 Metric Ton (MT) and 70,000 MT of rice in order to bring efficiency in the grain management system and incurring significant expenditure to facilitate transportation of food grains by way of acquiring trucks, tractor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act would encompass within its ambit, processes 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 faculties for mechanized shipment so as to integrate storage with quick transportation. 44. While there is no problem in understanding the expressions like storage and transport, the expression "handling" has to be understood in the context of the integrated business of handling, storage and transportation of food grains. According to the Ld. DR handling answers certain description were according to the assessee their activities fitting the description of handling. In the absence of any legislative clarification as to precisely which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e objective for which the benefit is intended. Whether or not the de-husking of paddy would form part of the handling, we shall deal with it a little later. In our opinion, the activities carried out by the assessee certainly form part of the expression "handling.". 46. As stated earlier, what could be gathered from the impugned assessment order and the arguments of the learned DR is that the Revenue doesnot dispute the nature of the activities of the assessee, except the process of dehusking the paddy, and their main dispute is that dehusking is a separate manufacturing activity and does not form part of "handling", and therefore, such activity cannot be made to fit in the expression "handling". Reliance of Revenue on the case reported in Lakshmi Energy & Foods Ltd. v. ACIT [2014] 44 taxmann.com 248 (Chandigarh - Trib.) points out the same. As a matter of fact, on similar facts, all thearguments identical to the ones raised in this case, were raised by the Revenue in the case of Lakshmi Energy & Foods Ltd. (supra). In that case also the business of the assessee comprised of the procurement of paddy from market then transport the same to the godown which were specifically designe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng section 80-IB(11A) on the statute vide Finance Bill, 2001, Memorandum explaining provisions of the Finance Bill, 2001, and the Circular No. 14/2001 dated 09.11.2001 issued by the Central Board of Direct Taxes, explaining the intent and purpose of introducing provisions of section 80IB(11A) of the Act in support of the rival contentionsof the parties. Having considered all these things in extenso, the Tribunal reached a conclusion that carrying out milling of paddy to rice will not take out the case of the assessee from the purview of 80IB(11A) of the Act, and all the activities carried out by the assessee by creating infrastructure for handling, storage and transportation would entitle them to be covered by 80IB(11A) of the Act. On the aspect of processing the paddy to rice vis-àvis the stipulated activity of "handling, storage and transportation of food grains" under section 80IB(11A) of the Act, the Tribunal observed that,- "39. xxx xxx xxx ...to find out the intention of the legislature let us understand the process of handling required to be carried on in respect of the food grains. In this regard it will be relevant to refer to the process carried out by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ginal sense and in the context of food grains would encompass within its ambit, processes 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 faculties for mechanized shipment so as to integrate storage with quick transportation. 41. In our opinion, when the activities shown by the assessee through process flow chart are compared with the activities which admittedly constitute 'handling' as per the Revenue then it emerges that the assessee has definitely created certain facilities which can be said to be related to handling, storage and transportation of food grains. The assessee is carrying the paddy from the market in it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial word an entrepreneur would engage in any business only when the same is commercially profitable. Therefore in case of integrated business of handling, storage and transportation of food grains may not itself be very profitable and if the same is combined with the activity of processing of paddy into rice by spending smaller amount of money for milling mills then such entrepreneur would definitely extend the activity and get into the composite business of handling, storage and transportation and processing of the rice. Let us imagine the situation where the businessman is engaged in the business of procuring, handling, storage and transportation of paddy separately and then selling the same to another businessman who is engaged in the business of only processing of paddy into rice then same would involve unnecessary further cost in terms of carrying the paddy from handling and storage unit to processing unit because the paddy bags have to be loaded into the trucks carried to the processing unit and then again unloaded and put in to the milling machines for processing of the paddy. This will make both the businesses unviable. Even the legislature intention cannot be that deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not received any independent income from handling, storage and transportation of the food grains. We have already discussed this aspect earlier and further in view of the decision in case of Sanchita Marine Products (P) Ltd. (supra) and Samraj Seafoods (P.) Ltd.'s case (supra). it is clear that it is not necessary for a businessman to receive income from each of the activity separately in case of a composite business. This can be further understood from a simple example of a car manufacturer. Let us say for example a deduction is available for manufacture and sale of engine of the car. Now a car manufacturer could be producing its own engines and using the same in final assembly of the Car then it cannot be said that the assessee has not received separate income from sale of engine, therefore deduction is not allowable. 48. The Tribunal wondered that if the facilities created by the assessee are not in the nature of handling and storage then which activities would fall in that category and answered that these activities have to be classified as handling and storage etc. because if the meaning was restricted only to creating of stores then legislature would have made the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f paddy, packing and marketing, the matter has to go back to the learned Assessing Officer. 51. On this aspect, argument of the learned AR is that milling is not a distinct process from handling of food grains because by milling nothing more is done than de-husking the paddy to increase the longevity of the grains and it is part of the efficient grain management covered by the expression "handling". He placed reliance on the decision of the Hon'ble Apex Court in the case of CIT VS.Cynamide India Ltd 273 ITR 585 ((SC) wherein the Hon'ble Apex Court considered the question whether dehusking rice was a negligible operation and the consequences of such operation on the rice vis-a-vis the de-husking rice and held that the operation of de-husking paddy is not an industrial or manufacturing operation, as is commonly understood; it is essentially an agricultural operation and such changes as are brought about in the product or outcome of agricultural operations; that both Rice and husk remain in the natural form as a result of de-husking and are covered by the term "agricultural product". Hon'ble Apex Court further held that the beneficial provisions should be construed liberally, so as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n has to be seen in strict sense, and once the section is found to be applicable, then it has to be constructed liberally. Since undoubtedly the provisions of section 80IB(11A) of the Act are applicable to the activities of the assessee like clearing, steaming, soaking, drying, polishing and grinding it can also be not denied that de-husking the paddy would significantly enhance the life of the food grain, thereby reduces the loss of food grain and contributes to the preservation of food grains. In such an event , we are unable to understand how this particular process does not fit in the expression "handling". For these reasons, we are of the considered opinion that the de-husking of the paddy to convert it into rice is also an integral part of reducing the post-harvest food grain loss. 54. In respect of the contention of the allegation of the learned Assessing Officer that part of the old machinery was used in the Bahalgarhunit for the purpose of conduct of the integrated business of handling, storage and transportation of the food grains, it could be seen from the orders of the authorities below that the assessee had taken a plea before the learned assessing officer that entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Revenue audit to the Department, vide audit memo dated 17th March, 2009 wherein additional fact about the commencement of business at Bahalgarh unit by the assessee was brought to light mentioning that the Director's report also pointed to the audited balance sheet of the assessee for the year ended on 31/3/2001, revealing that the production in Bahalgarh unit for which direction under section 80IB of the Act was claimed, commencing December, 2000. 56. Learned Assessing Officer, however, did not refer to any of these contentions raised by the assessee in his order, but straightaway proceeded to observe that the machinery put to use by the assessee prior to 1/4/2001 in Bahalgarh unit constitutes more than 20%, which according to him means that more than 20% of the machinery had become old prior to 1/4/2001. As a matter of fact, the assessing officer could have referred to the schedule of fixed assets or the stock registers or the financials of the assessee to say that none of the missionary that was put to use at Bahalgarh unit for the purpose of the integrated business of handling, storage and transportation of food grains was new and was transferred from the old unit. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains derived from any business referred to in subsection is 3 to 11, 11A and 11 B and if such business happens to be the eligible business, there shall be allowed a deduction from such profits and gains at such percentage as a specified in that subsection. Subsections (2), (3), (4), (5) and (11) deal with the cases of industrial undertakings; whereas subsection (6)deals with business of a ship, (7) deals with the business of Hotel, (7A) deals with the business of any multiplex theatre, (8) and (8A) deal with carrying on scientific Research and Development, (9) with the undertakings located in North-Eastern Region et cetera, (10) deals with an undertaking developing and building housing project, (11A) deals with the undertaking in 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, (11B) and (11C) dealing with an undertaking deriving profits from the business of operating and maintaining a hospital in rural areas etc., (12A) dealing with a company transferred to another Indian company, et cetera. 60. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee based on the CBDT circular number 1/2009, dated 27/3/2009, providing explanatory notes to the provisions of Finance Act, 2008 also merits consideration in this context. In that circular, it was stated that, after the commencement of business, the deduction was being allowed under section 35D only to an industrial undertaking or unit, but in order to provide a level playing field to the service sector, the section was amended to provide the benefit of amortization to all the assessee, is after the commencement of his business, in connection with the extension of his undertaking or in connection with his setting up a new unit. The explanation offered in this circular also makes the distinction between "undertaking" and "industrial undertaking" in unequivocal terms. 62. For the above reasons, we are of the considered opinion that the legislature would not have used different expressions, namely, the expression "industrial undertaking" in subsections (3) to (5), while using the expression "undertaking" in subsections 9, 10, 11A, 11 B, and 11 C and yet "business" in some other subsections of section 80IB of the Act, without any purpose. Redundancy cannot be attributed to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s having cash receivable of Rs. 1,63,39,670 /- as on 31.3.2007 which where not to be found in the books of the assessee. 65. When asked to explain the taxability of the above cash entries found in the seized documents and not recorded in the book as of account, the assessee, while drawing the attention of the learned Assessing Officer to letter dated 28.12.2010 filed in the case of assessment of Shri Vijay Arora offering for taxation a sum of Rs. 3,77,72,500/- submitted that income arising from seized material from all premises searched/surveyed and all persons searched in the group and alleged to be not found in the books of account, was taxed in the hands of Vijay Arora, Surender Arora, Ashok Arora and Ashwani Arora. It was further submitted that though incomes returned in the returns filed and every seized document, in relation to Shri Vijay Arora and his family and all persons in the group, were explained in accordance with requirement of the Act.Since the learned Assessing Officer, however, was not satisfied with such explanation, in order to buy peace and avoid fruitless litigation, Shri Vijay Arora offered an additional income of Rs. 3,77,72,500/- in the assessment year 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned DRP in assessee's own case for the assessment year 2008-09 and 2009-10 by order dated 4/9/2012 not to make any addition on such issue. 68. It is submitted on behalf of the assessee that the entries in the seized papers which formed the basis for the learned Assessing Officer to make the impugned addition, were relating to the trading business of the above said four promoters/Directors of the assessee company, such persons have already surrendered an amount of Rs. 3, 72, 55, 6, 11/- in their return of income filed under section 153A of the Act and subsequently, a further sum of Rs. 5,21,50,000/- was surrendered on the basis of peak of all transactions during the course of their respective assessment proceedings, thereby declaring/surrendering a total sum of rupees, 8,94,05, 611/- on the basis of the seized purpose. He further submitted that a similar question had arisen for the assessment years 2008-09 and 2009-10 and when the issue reached before the learned DRP, learned DRP considered the same very extensively and held that in the background of the promoters/directors surrendering/declaring a sum of rupees, 8,94,05,611/- for the assessment year 2008-09 and 2009-10 in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l as the peak arrived at on the basis of the entries of the seized documents, assessing officer accepted the surrender of the income on the basis of the seized documents in the hands of the individuals, in the interest of Revenue, there is no justification for making again as an addition in the hands of the company. 72. Unless and until the Revenue disputes the contention, with reference to any documents, that the amount declared by the individuals is in respect of their some other undisclosed income and it has nothing to do with the amount covered by the seized documents, mere suspicion of the special auditor or the learned Assessing Officer does not take the place of legal evidence or proof, and it cannot be a basis for bringing the very same amount to tax in the hands of the company also. It is always open for the assessing officer to show that the amount surrendered by the individuals was in respect of their own undisclosed income independent of the entries in the seized documents, basing on which now the learned Assessing Officer wants to tax the company. Without undertaking any such exercise, it is not permissible for the learned Assessing Officer to proceed to tax the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 40A(3) of the Act and it is challenged in these grounds. 76. In respect of freight payments of Rs. 23,86,883/- made to transporters and truck operator, contention of the assessee is that such amount was paid to transporters/truck drivers, and even otherwise, exempted under sub rule (k) of rule 6DD, which provides that no disallowance under sub section (3) of section 40 of the Act shall be made where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee draft exceeds twenty thousand "where the payment is made by a person to his agent who is required to make payment in cash for goods or services on behalf of such person." 77. It is argued by the ld. AR that the legislative intent behind introduction of section 40A(3) of the Act requiring payment of any expenditure by crossed cheque or crossed bank draft, is to prevent evasion of taxes and not to disallow deduction of genuine and bona-fide business expenditure; that the transactions were genuine and made to persons whose identities are fully established by the documents; learned Assessing Officer does not dispute the genuineness of the payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to contravention of provisions of section 40A(3) of the Act in so far as deposit of cash has been made into the bank account of Daawat Foods Ltd. directly and the same cannot, in any way, be construed as cash payment. 79. Per contra, learned DR submitted that the authorities below followed the law and Rules and it is not possible for the Revenue authorities to add any new entries to Rule 6DD (k) of the Rules. He submitted that if the contention of the assessee is accepted, the provisions of Section 40A(3) of the Act can easily be circumvented with impunity by tendering the amount to some person on behalf of the payer stating that it was paid to the agent. Further, when the assessee had a transport contractor, the assessee is not really under any obligation to make payments to the truck drivers, and if the assessee does so, the assessee is liable to the legal consequences. 80. We have gone through the record in the light of the submissions made on either side. According to the learned Assessing Officer the following cash payments aggregating to Rs. 40,00,647/- were made in contravention of provisions of section 40A(3) of the Act and consequently, disallowed expenditure aggregatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under subsection (3A) of section 40A of the Act. 83. According to the assessee, the truck driver acts as an agent of the assessee. By no stretch of imagination can we say that the truck driver who operates the track pursuant to the agreement between the assessee and the transport contractor would be the agent of the assessee. Even otherwise also, we are not prepared to accept such an argugment because such acceptance would render the provisions under section 40A(3) of the Act nugatory and every payment could be taken out of the purview of section 40A(3) of the Act by delivering the cash to some intermediary calling him as an agent. There is no privity of contract between the person receiving the sums in cash and the assessee and the truck driver. Such payments are not protected under rule 6 DD (k) of the Rules. On this premise, we reject contention of the assessee. 84. An alternative plea is taken on behalf of the assessee to the effect that in certain instances, the assessing officer has proceeded to disallow expenses without first verifying if th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to these observations of the Ld. CIT(A), assessing officer deleted the addition to the extent of Rs. 1, 53, 76, 284/-on account of non-deduction of TDS and Rs. 6, 54, 8, 62/- on account of shorter deduction of TDS, against which Revenue does not prefer any appeal. 87. Though the Ld. AR submitted that none of the payments referred to by the authorities below warrant the invocation of section 40(a)(ia) of the Act, he mainly submitted that, if at all such payments must be subjected to the provisions of section 40(a)(ia) of the Act, the disallowance must be confined to 30% of the impugned expenditure in terms of amendment of section 40(a)(ia) of the Act by way of Finance Act, 2014. Read with the memorandum explaining the provisions of the Finance Bill, 2014. He further submitted that no doubt the amendments by way of Finance Act 2014 are effective only from 1st April, 2015, but since they are curating the nature, being introduced to reduce the undue hardship caused to assessee on disallowance of entire amount of expenditure, such amended provision has to be read with retrospective effect. Reliance is placed on the decision of the Hon'ble Apex Court in the case of CIT VS.Gold Coin Hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urce, is concerned, the issue is a squarely covered by the decision of the Hon'ble Calcutta High Court in the case of CIT VS.SK Tekriwal 361 ITR 432 (Cal.HC) and following the same, we hold that no disallowance is permissible in cases where there has been a shortfall in deduction of tax as the same is not covered by the provisions of section 40(a)(ia) of the Act. 90. We, therefore, set-aside the impugned findings of the authorities below on the aspect of disallowance arising out of the non-deduction of tax at source as detailed supra, and remand the issue to the file of the learned Assessing Officer to apply the restriction on the disallowance in terms of section 40(a)(ia) of the Act, as amended by the Finance Act, 2014. Grounds number 14 to 17 or, accordingly, allowed in part for 91. Ground number 16 of the assessee's appeal related to the additions made by the assessing officer on account of the alleged personal expenses. Though were disallowed by the assessing officer, one payment made to M/s Sycorian matrimonial services Ltd to the tune of Rs. 1, 37, 944/-and the other relating to the foreign trip of family members of directors/promoters of the assessee company to the tune of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn funds of the assessee without utilizing any borrowed funds and therefore, there cannot be in interest expense for earning the exempt income. Ld. DR relied on the orders of the authorities below. 95. We have gone through the record, in the light of the submissions made on either side. It could be seen from the assessment order, vide paragraph number 11, there were made the report of the special auditor as the basis for the disallowance, special auditor worked out the total disallowance under section 14A of the Act read with Rule 8D of the Rules at rupees, 41, 80, 208/-, but in view of the provisions of section 14A of the Act, he restricted the disallowance to the exempt income and determined the same at Rs. 18, 18, 915/-. Nowhere in the order, assessing officer had considered the accounts of the assessee as to what could have been the expenditure, that has to be allocated for earning the exempt income. 96. Even otherwise, we find strength in the ornament of the Ld. AR that in order to avoid the double taxation once in the hands of the form and secondly in the hands of the partner, the share in the profits of the partnership form is not taxable in the hands of the partner as has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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