Vildirect: IncomeTax-caselaws-1970-VIL-462-ITAT-MUM

1970-VIL-462-ITAT-MUM

Income Tax Appellate Tribunal MUMBAI

ITA No.7368/Mum./2018

Date: 01.01.1970

RITESH AGARWAL

ASSTT. COMMISSIONER OF INCOME TAX CIRCLEâ17 (3) , MUMBAI

JUDGMENT

PER SAKTIJIT DEY. J.M.

The captioned appeal has been filed by the assessee challenging the order dated 28th November 2018, passed by the learned Commissioner of Income Tax (Appeals)–28, Mumbai, pertaining to the assessment year 2013–14.

2. In ground no.1, the assessee has challenged the disallowance of Rs. 10,16,400, claimed towards deduction under section 80IC of the Income Tax Act, 1961 (for short "the Act").

3. Brief facts are, the assessee, an individual, is engaged in the business of manufacturing plastic packing material through his Proprietorship concern “Creative Plastopack”. For the assessment year under dispute, the assessee filed his return of income on 23rd September 2013, declaring income of Rs. 12,52,69,162, after claiming deduction under section 80IC of the Act. In the course of assessment proceedings, the Assessing Officer while verifying assessee’s claim of deduction under section 80IC of the Act found that it also includes warehousing charges of Rs. 10,16,400. Noticing this, he called upon the assessee to explain why claim of deduction under section 80IC of the Act in respect of warehousing charges should not be disallowed. In response, it was submitted by the assessee that warehousing charges were received from customers for lifting material beyond permitted time limit, hence, is directly related to sales effected. Therefore, the deduction is allowable. The Assessing Officer, however, did not accept the submissions of the assessee. Referring to the provisions of section 80IC of the Act, he observed that the profit which is subject to deduction under section 80IC of the act, has to be derived directly from the manufacturing of any item. Whereas, the warehousing charges received by the assessee is not a part of manufacturing activity. According to the Assessing Officer, warehousing charges received by the assessee is a part of other income which the assessee has also acknowledged in its financial statement. Thereafter, relying upon the decisions of the Hon'ble Supreme Court in Liberty India v/s CIT, [2009] 183 Taxman 349 (SC) and CIT v/s Sterling Foods, [2999] 104 Taxman 204 (SC), the Assessing Officer disallowed deduction claimed under section 80IC of the Act of Rs. 10,16,400, which worked out at 25% amounted to Rs. 2,54,100. Though, the assessee challenged the aforesaid disallowance before learned Commissioner (Appeals), however, he was unsuccessful.

4. Reiterating the stand taken before the Departmental Authorities learned Authorised Representative submitted, warehousing charge is integrally connected to the business of the undertaking. He submitted, as per the terms of the agreement, the customer has to lift the goods within the permitted time limit. He submitted, if a customer does not lift the goods within the permitted time limit, the assessee has to store the goods in its warehouse and for providing the facility of storage he charges certain fee towards warehousing charges. Thus, he submitted, warehousing charge being integrally connected to the business of the assessee is eligible for deduction under section 80IC of the Act. Further, he submitted, the language used in section 80IC of the Act is different from language used in section 80HHC / 80HH of the Act. He submitted, like section 80IB, section 80IC also speaks of profits and gains derived from any business of the industrial undertaking. Thus, he submitted, if the income is from any source of business, it is eligible for deduction under section 80IC of the Act. Thus, he submitted, assessee is entitled to claim deduction under section 80IC of the Act in respect of warehousing charges. In support of such contention, the learned Authorised Representative relied upon the following decisions:–

i) CIT v/s Eltek SGS Pvt. Ltd., [2008], 300 ITR 006 (Del.); and

ii) CIT v/s Jagdish Prasad M. Joshi, [2009] 318 ITR 420 (Bom.).

5. The learned Departmental Representative strongly relying upon the observations of the Assessing Officer and learned Commissioner (Appeals) submitted, as per the provisions of section 80IC of the Act, only the profits and gains derived from any business of the undertaking is eligible for deduction under section 80IC of the Act. She submitted, warehousing is certainly not the business of the assessee. Therefore, the warehouse charges cannot be considered to be eligible for deduction under section 80IC of the Act. She submitted, the decisions relied upon by the learned Authorised Representative, since, are not concerning section 80IC of the Act, the ratio laid down therein would not apply.

6. We have considered rival submissions in the light of the decisions relied upon and perused the material on record. The core issue arising for consideration is, whether or not the warehousing charges received by the assessee qualify for deduction under section 80IC of the Act. On a reading of section 80IC of the Act it becomes clear that any profits and gains derived by an undertaking from any business will be eligible for deduction under section 80IC of the Act. The expression “any business” would mean any business carried on by the undertaking or enterprise. In the present case, the business of the assessee is manufacturing of plastic packing material. Thus, prima facie, it appears that the assessee is not engaged in the business of warehousing. However, it is the contention of the assessee from the assessment stage itself that in the event the customer does not lift the goods within the permissible time limit, warehousing charges is levied for storage of goods in the warehouse. Thus, it has been contended that the warehousing charge is integrally connected to manufacture and sale of goods. In this context, it is essential to look into the terms of the contract between the assessee and the customers for levy of warehousing charges. As it appears, no material has been brought before the Departmental Authorities to demonstrate under what circumstances warehousing charge can be levied from the customers. Even, on a specific query from the Bench to furnish any agreement or document providing for levy of warehousing charges, the learned Authorised Representative was unable to furnish them. In our considered opinion, the terms and conditions of levy of warehousing charges would have a crucial bearing on determining whether the warehousing charge is integrally connected to the profits and gains derived from the business. Since, the aforesaid aspect has not been factually verified either due to lack of material or otherwise, we are inclined to restore the issue to the Assessing Officer for fresh adjudication after due opportunity of being heard to the assessee. Ground raised is allowed for statistical purposes.

7. In ground no.2, the assessee has challenged ad–hoc disallowance made out of conveyance expenses.

8. Brief facts are, during the assessment proceedings the Assessing Officer called upon the assessee to furnish the details of cash expenses amounting to Rs. 32,67,749. After verifying the details furnished by the assessee, the Assessing Officer found that the expenditure shown under the following heads were not supported by any third party evidence, but are only supported by self made vouchers.

i)	Conveyance Expenses	Rs. 5,84,368
ii)	Staff Welfare Expenses	Rs. 1,37,217
iii)	Labour Welfare Expenses	Rs. 3,29,039

9. Stating that assessee’s claim relating to the aforesaid expenditure is not fully verifiable, the Assessing Officer disallowed 20% out of the expenditure claimed under the aforesaid three heads. As a corollary, he also made proportionate disallowance from the deduction claimed under section 80IC, which worked out to Rs. 52,531.

10. While deciding assessee’s appeal on the issue, learned Commissioner (Appeals) restricted the disallowance to 50% of the amount disallowed by the Assessing Officer.

11. The learned Authorised Representative submitted, the disallowance is purely on ad–hoc and estimate basis without any reasonable ground. He submitted, looking at the turnover of the assessee, the expenditure claimed is quite reasonable. Hence, no part of it should have been disallowed. He submitted, no such disallowance has ever been made in any other assessment year. Thus, he submitted, the disallowance made should be deleted.

12. The learned Departmental Representative relied upon the observations of learned Commissioner (Appeals).

13. We have considered rival submissions and perused the material on record. As could be seen, the Assessing Officer has disallowed a part of the expenditure on a purely ad–hoc basis by simply stating that these are not supported by any third party evidence, hence, not fully verifiable. Whereas, learned Commissioner (Appeals) reduced the disallowance made by the Assessing Officer to 50%. On a perusal of the nature of expenditure, we are of the view that considering the turnover shown by the assessee, the expenditure claimed cannot be considered to be either unreasonable or excessive. Further, it is a fact on record that the assessee has produced some evidences to support the claim of expenditure. The Assessing Officer has not found such evidences to be totally unreliable. In such circumstances, a part disallowance of the expenditure claimed purely on ad–hoc basis, in our view, is not sustainable. Accordingly, we delete the disallowance of the expenditure. The assessee would get consequential benefit under section 80IC of the Act. Grounds no.2 and 3 are allowed.

14. Ground no.4, being general in nature does not require adjudication, hence, dismissed.

15. In the result, appeal is partly allowed.

Order pronounced in the open Court on 26.02.2020

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