The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) has upheld the disallowance only with respect to the godown which was leased to Banas Diary for non-agricultural purposes.
The assessee company, Rushay Commodities Pvt Ltd was engaged in the business of warehousing agricultural products. The Assessing Officer found that one of the parties i.e. Banas Dairy, had items stored in the godown was skimmed milk powder. The Assessing Officer was of the view that the said item was not agricultural produce. The Assessing Officer was of the view that the assessee was not carrying out the specified business in respect of the godown leased to Banas Dairy since Banas Dairy was using the godown for storing skimmed milk powder, which was not an “agricultural produce”, disallowed the entire claim of deduction under Section 35AD of the Income Tax Act 1961.
Since only one godown was not used for specified business and accordingly, the disallowance should be restricted to that particular godown only the Commissioner of Income Tax Appeals (CIT(A) granted relief accordingly.
Parin Shah, on behalf of the assessee, submitted that even if it were accepted that the 5th godown leased out to Banas Dairy was used for storage of non-agricultural produce, even then, the disallowance should be proportionately disallowed in view of the express language of 35AD(7B) of the Act.
Sudhendu Das, on behalf of the revenue, submitted that even if the default is committed in respect of one of the godowns which have not been used for specified purposes i.e. for storage of agricultural produce”, then, the entire amount claimed by the assessee under Section 35AD of the Income Tax Act 1961 was liable to be disallowed.
The Division Bench of Waseem Ahmed, (Accountant Member) and Siddhartha Nautiyal, (Judicial Member) dismissed the appeal observing that, “since the assessee had undisputedly leased four out of the five properties/godowns for the purpose of storage of “agricultural produce” and there was discrepancy only with respect to one leased out godown to Banas Dairy, the whole deduction claimed by the assessee could not be denied u/s. 35AD of the Act and in view of the provisions of section 35AD(7B) of the Income Tax Act.”
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