CENTRAL WAREHOUSING CORPORATION v. COMMISSIONER OF INCOME TAX
[Citation -2008-LL-0125-10]

Citation 2008-LL-0125-10
Appellant Name CENTRAL WAREHOUSING CORPORATION
Respondent Name COMMISSIONER OF INCOME TAX
Court ITAT
Relevant Act Income-tax
Date of Order 25/01/2008
Assessment Year 2000-01
Judgment View Judgment
Keyword Tags disallowance of depreciation • opportunity of being heard • agricultural implements • warehousing corporation • computation of income • agency commission • show-cause notice • exempted income
Bot Summary: During the assessment proceedings, the Assessing Officer noted that the assessee had treated the entire income arising from all the activities as exempt under section 10(29) though under the provisions of said section, only the income derived from letting of godowns or warehousing for storage, processing or facilitating marketing of agricultural products, seeds, manure, fertilizer, agricultural implements and notified commodities. The Assessing Officer asked the assessee to explain as to why the receipts not directly related to warehousing activities be denied exemption under section 10(29) and also to give details of income and expenditure relating to the different activities. The Assessing Officer also asked the assessee to explain why the deduction under section 10(29) should not be denied in respect of interest and dividend income, misc. 2.1 In appeal, the assessee disputed the decision of the Assessing Officer denying exemption under section 10(29) and also the decision of the Assessing Officer to treat the activities of CFS/ICD as a distinct line of business. In relation to applicability of section 14A, the assessee reiterated the earlier submission that the business of assessee was one and indivisible and expenses could not apportioned between exempted and non-exempted income following the judgment of Hon'ble Supreme Court in case of Rajasthan State Warehousing Corpn. A.R. for the assessee pointed out that the Assessing Officer in the questionnaire issued to the assessee, which is available at page 21 of the paper book had made clear reference to section 14A of the Act. Further, as per clause of the Explanation to sub-section of section 263, in case, the assessment order passed by the Assessing Officer is disputed in appeal, CIT cannot exercise jurisdiction under section 263 in respect o f matters considered and decided in appeal.


Per Rajendra Singh, Accountant Member: This appeal by assessee is directed against order dated 29-3-2005 of CIT-I, New Delhi for assessment year 2000-01. Though assessee has raised several grounds of appeal, only effective issue is whether on facts and in circumstances of case, CIT was justified in setting aside assessment made by Assessing Officer under section 263. 2. facts of case in brief are that assessee which was originally set up for warehousing activities diversified its activities in 1984 and started new lines of business of running of container freight station (CFS) and inland container depot (ICD). During assessment proceedings, Assessing Officer noted that assessee had treated entire income arising from all activities as exempt under section 10(29) though under provisions of said section, only income derived from letting of godowns or warehousing for storage, processing or facilitating marketing of agricultural products, seeds, manure, fertilizer, agricultural implements and notified commodities. Assessing Officer asked assessee to explain as to why receipts not directly related to warehousing activities be denied exemption under section 10(29) and also to give details of income and expenditure relating to different activities. Assessing Officer also asked assessee to explain why deduction under section 10(29) should not be denied in respect of interest and dividend income, misc. receipts and income from investment and other joint ventures. assessee explained that major income of assessee was from warehousing activities and remaining income was from activities, which were incidental to warehousing such as agency commission from handling of transportation. It was also submitted that though income from interest dividend, income from investments and from joint ventures etc., was not exempt as held by Hon'ble Supreme Court, assessee had one and only indivisible business and, therefore, entire expenditure incurred by assessee had to be set off against taxable income as held by Hon'ble Supreme Court in case o f Rajasthan State Warehousing Corpn. v. CIT [2000] 242 ITR 450. Assessing Officer was not satisfied with explanation given by him. It was observed by him that assessee failed to give information required to bifurcate income into exempted and non-exempted categories and thus provisions of section 14A as per which expenditure in relation to exempted income was not allowable as deduction, could not be applied. Assessing Officer, therefore, denied entire claim of exemption amounting to Rs. 2,10,72,72,892 under section 10(29). decision of Assessing Officer was disputed by assessee in appeal. 2.1 In appeal, assessee disputed decision of Assessing Officer denying exemption under section 10(29) and also decision of Assessing Officer to treat activities of CFS/ICD as distinct line of business. CIT(A) following decision in earlier year held that activities of CFS/ICD was neither independent activity nor separate line of business as held by Assessing Officer. It was also held by him that only storage charges received by assessee from activities of CFS/ICD would qualify for exemption under section 10(29) and not other income derived from CFS/ICD activity. As regards exemption under section 10(29), CIT(A) observed that Hon'ble Supreme Court in case of Orissa State Warehousing Coprn. v. CIT [1999] 237 ITR 589 had denied exemption of warehousing corporation only in respect of such income which did not have any direct nexus to warehousing activities such as interest, dividend and other income not derived from warehousing. It was accordingly held that assessee will be entitled to exemption under section 10(29) in respect of warehousing charges and not in respect of other income. In relation to applicability of section 14A, assessee reiterated earlier submission that business of assessee was one and indivisible and, therefore, expenses could not apportioned between exempted and non-exempted income following judgment of Hon'ble Supreme Court in case of Rajasthan State Warehousing Corpn. (supra). It was also pointed out that section 14A had been amended by Finance Act, 2002 and as per amendment, provisions were effective only from 11-5-2001 whereas, present assessment related to assessment year 2000-01. provisions of section 14A were, therefore, not applicable in case of assessee. Reference was also made to decision of Tribunal in assessee's own case in assessment years 1976-77 to 1979-80 in ITA Nos. 696-699 in which it was held that business of assessee was indivisible. CIT(A) was satisfied with explanation given by assessee. It was held by him that provisions of section 14A were not applicable for assessment year 2000-01 and considering judgment of Hon'ble Supreme Court in case of Rajasthan State Warehousing Corpn. (supra), expenses relating to exempted income could not be disallowed. 2.2 Subsequently CIT examined assessment records and noted that though Assessing Officer had denied exemption under section 10(29) on ground of non-furnishing of details, he did not mention in assessment order that in case exemption was found allowable in appeal, claim of expenses relating to warehousing activities would be disallowed. He noted that assessee had claimed depreciation on warehousing building amounting to Rs. 12,69,10,786 which stood allowed after decision of CIT(A) allowing exemption under section 10(29). It was also noted by him that assessee had debited sum of Rs. 2,58,67,057 on account of prior period expenses but in computation of income assessee had made addition only to tune of Rs. 1,51,23,578. CIT accordingly issued show-cause notice to assessee to explain as to why assessment order should not be modified being erroneous and prejudicial to interest of revenue. assessee pointed out that order passed by Assessing Officer had merged with order of CIT(A) and, therefore, CIT was not empowered to take action under section 263. CIT was however not satisfied. It was observed by him that these issues were not mentioned by Assessing Officer in assessment order and, therefore, same could not be subject-matter of appeal before CIT(A). contention of assessee that order of Assessing Officer had merged with that of CIT(A) was thus rejected. CIT accordingly, cancelled assessment order under section 263 and directed Assessing Officer to reframe assessment after making proper inquiries and after allowing opportunity of being heard to assessee. Aggrieved by said decision, assessee is in appeal before Tribunal. 3. Before us, ld. A.R. for assessee argued that CIT was not empowered to exercise jurisdiction under section 263 as order dated 31-3- 2003 of Assessing Officer had merged with order of CIT(A) dated 3-9- 2003. It was pointed out that issues raised by CIT in show-cause notice under section 263 were in relation to disallowance of depreciation on under section 263 were in relation to disallowance of depreciation on warehousing building, disallowance of expenses in relation to exempt dividend income and prior period expenses. issue relating to disallowance of expenses in relation to exempted income, i.e., warehousing income and dividend income was duly considered by Assessing Officer who had made specific reference to section 14A of Income-tax Act. This issue had also been raised before CIT(A) who had held that that provisions of section 14A were not applicable and business of assessee being one and indivisible, expenses relating to exempted part of income could not be disallowed. Thus, insofar as disallowance of depreciation on warehousing building used for exempted income as well as expenses in relation to dividend income were concerned, these were clearly subject-matter of appeal on which CIT(A) had given decision and, therefore, such issue could not be made subject-matter of jurisdiction under section 263. As regards prior period expenses, it was submitted that as per CIT, prior period expenses disallowable were to tune of Rs. 2.58 crores in place of only Rs. 1.51 crores added by assessee. It was pointed out that assessee in revised computation of income, which is available at page 2 of paper book had already added sum of Rs. 2.70 crores on account of prior period expenses, which consisted of Rs. 1,51,23,578 and Rs. 1,19,30,086. As assessee had already added more than sum pointed out by CIT, order of Assessing Officer could not be prejudicial to interest of revenue. 3.1 ld. Sr. DR appearing for revenue on other hand supported order of CIT. It was submitted that issue relating to section 14A did not arise before Assessing Officer as Assessing Officer had treated entire income as non-exempt. issue of apportioning expenses was not, therefore, before Assessing Officer. CIT had, therefore, jurisdiction to pass order under section 263. 3.2 In reply, ld. A.R. for assessee pointed out that Assessing Officer in questionnaire issued to assessee, which is available at page 21 of paper book had made clear reference to section 14A of Act. He had also made specific reference regarding apportionment of expenses in relation to exempted and non-exempted income in letter dated 9-1-2003 addressed to t h e assessee which is available at page 22 of paper book. Further, assessee had raised specific ground in relation to section 14A before CIT(A) which had been dealt with by latter. It was, therefore, not correct to say that t h e issue raised in show-cause notice under section 263 had not been decided by CIT(A). 4. We have perused records and considered rival contentions carefully. issue raised before us is regarding jurisdiction of CIT for setting aside assessment made by Assessing Officer for assessment year 2000- 01 under section 263 of Income-tax Act. assessee was originally set up for undertaking warehousing activities but subsequently also started new lines of business of running of container freight service (CFS) and Inland Container Depot (ICD). assessee for relevant year had also derived income from interest, dividend as well as income from investments and joint ventures. Under provisions of section 10(29), income derived from letting of godown or warehousing for storage, processing or facilitating of marketing of agricultural products, seeds, manure, fertilizers, agricultural implements and other notified commodities is exempt from tax. dividend income was also exempt under section 10(34). Assessing Officer during assessment proceedings, asked assessee to explain as to why deduction under section 10(29) should not be denied in respect of receipts not directly related to warehousing activities. He also asked for bifurcation of exempted and non-exempted income with view to applying provisions of section 14A as per which expenditure relatable to exempted income could not be allowed as deduction. As assessee did not give necessary details and bifurcation, Assessing Officer disallowed entire claim of exemption under section 10(29). assessee had claimed entire income as exempt on ground that it had one indivisible business and, therefore, expenditure in relation to exempted income could not be disallowed in such cases following judgment of Hon'ble Supreme Court in case o f Rajasthan State Warehousing Corpn. (supra). In appeal, CIT(A) held that business of CFS/ICD was not separate line of business but only storage charges received by assessee in respect of CFS/ICD activities would qualify for exemption under section 10(29). He also held that assessee was entitled to exemption under section 10(29) only in respect of warehousing charges and not in respect of other income such as interest etc. CIT(A) also examined applicability of section 14A. It was held by him that in view of amendment made by Finance Act, 2002, provisions of section 14A were effective only from 11-5-2001 and, therefore, not applicable to present case which related to assessment year 2000-01. As provisions of section 14A were not applicable, CIT(A) held that expenditure in relation to exempted income could not be disallowed following judgment of Hon'ble Supreme Court in case of Rajasthan State Warehousing Corpn. (supra) as assessee had one indivisible business. 4.1 power of CIT to modify assessment made by Assessing Officer has to be examined in background of case given in preceding p r . CIT can modify assessment under section 263 only when assessment made is found to erroneous and prejudicial to interest of revenue. Further, as per clause (c) of Explanation to sub-section (1) of section 263, in case, assessment order passed by Assessing Officer is disputed in appeal, CIT cannot exercise jurisdiction under section 263 in respect o f matters considered and decided in appeal. CIT in this case, issued notice under section 263 for modifying assessment in respect of disallowance of depreciation on warehousing building, disallowance of expenses in relation to exempt dividend income and prior period expenses. CIT had proposed to disallow expenses and depreciation under section 14A as income from warehousing and dividend was exempt. We find that this issue had already been considered by CIT(A) who had specifically examined allowability of expenses with respect to provision of section 14A in respect of exempted income but held that provisions of section 14A were not applicable and expenses in relation to exempted income could not be disallowed following judgment of Hon'ble Supreme Court in case of Rajasthan State Warehousing Corpn. (supra). Therefore, we find force in argument of ld. A.R. that depreciation on warehousing building and expenses relating to dividend income which had already been considered by CIT(A) could not be considered by CIT under section 263. Proper remedy in such case would be to appeal against order of CIT(A) and not action under section 263. As regards prior period expenses, CIT had proposed to disallow only sum of Rs. 2.58 crores whereas ld. A.R. has pointed out that assessee in revised computation of income bad already added sum of Rs. 2.7 crores on account of prior period expenses. ld Sr. D.R. appearing for revenue could not controvert factual submissions made by ld. A.R. As assessee had already added prior period expenses more than sum proposed by CIT under section 263, order of Assessing Officer could not be said to be prejudicial to interest of revenue. In view of foregoing discussion, we are of opinion that CIT, on facts of case, had no power to exercise jurisdiction under section 263. Accordingly, we set aside order of CIT passed under section 263 and allow appeal of assessee. 5. In result, appeal of assessee stands allowed. *** CENTRAL WAREHOUSING CORPORATION v. COMMISSIONER OF INCOME TAX
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