PHI SEEDS PVT. LTD.,HYDERABAD vs. ADDL.CIT, SPECIAL RANGE-7, NEW DELHI

4. None of the confirmations submitted are for the relevant assessment year and the lease is for a period of six months from October-November, 1999. Though, the confirmations mentions about the rent of Rs. 1440/- per acre, the extent of land taken on lease or the amount of rent paid to the farmers are not mentioned in the confirmation. The only payment made to the farmer mentioned in the confirmation letter is about a composite sum of Rs.6.75/- per kg of good seeds of corn and it is pertinent to note that the rent is not paid at per acre rate but at per kg rate of seeds. The other payment mentioned as paid to the farmers is towards substandard quality seeds and both these payments cannot be considered as payment of rent to the farmer. Therefore, from the evidence available, it is not possible to conclude that the appellant had taken any land on lease as there is no evidence of any payment of lease rent to the farmers. In this regard my finding in my earlier appellate order for A. Y. 2007-08 was as under: “5.3. Few of such leave and license agreements were filed in the paper book submitted during the appellant proceedings. The appellant's AR during the appellant proceedings was specifically asked as to how the license fee was paid to the owners of land and he had intimated that the license fee was paid post harvest only and at the time of purchase of seeds or at the end of the contract period. In this connection, it is pertinent to mention clause 5 of the agreement which is as under: “5. The said license fee shall be paid by the licenses to the licensor at such intervals or times as may be determined by the licensee provided however that the same shall, in any case, be paid within 6 months from the end of the period of license." 5.4. It is strange that as per leave or license agreements the poor farmers who gave the land on lease, is at the mercy of the appellant company to get the license fee and may even have to wait for 6 months after termination of the agreement to receive the license fee. There is no provision in leave and license agreement for advance payment of license fee and the AR admits that the license fee is paid post harvest only, at the time of purchase of seeds or at the end of the contract period. Therefore, the appellant's AR was specifically asked whether these agreements were entered into in local language or only in English and the appellant's AR was not clear about the language in which these agreements were entered into with the farmers/land owners. No prudent farmers/land owners would part with this land even if it is for a season without receiving the license fee in advance or up front. Therefore, the AO's conclusion that no prudent person will enter in such kind of agreements, appears to be correct.” 5.5. The first condition for earning agricultural income is the possession of agricultural land as per the definition of agricultural income in section 2 (IA) of the I. T. Act, 1961 and as per the Hon'ble Supreme Court's decision in the case of Raja Binoy Kumar Sahas Roy reported in 32 ITR 460 mentioned above. In this case, the appellant is even unable to prove that they had taken land on lease to carry out agricultural operations. The only payment mentioned in the confirmation is the amounts paid for purchase of seeds either for good seeds or substandard seeds and there is no mention of any lease rent paid for land in these confirmations. Therefore, the appellant's claim that they had taken land on lease from the farmers is without any evidence and thus not acceptable. Even in the appellate proceedings for A. Y. 2007-08, the appellant could show only composite payments to farmers and that too at a fixed rate per kg of seeds purchased from the farmers. The appellant is unable to furnish any evidence of any lease rent paid to farmers in the appellate proceedings and therefore, I am of the view that the AO's decision to disallow the appellant's claim of agricultural income of Rs. 55,07,79, 154/- requires to be sustained. 5.6. The next important aspect to be verified is whether the appellant had carried out any agricultural operations. The confirmations mentioned above though it does not pertain to the relevant assessment year mentions only purchase of seeds under two categories i.e. good seeds and substandard seeds. Therefore, it is clear that the appellant had not carried out any agricultural operations as required for claiming agricultural income as per the definition of agricultural income in section 2 (1A) of the I. T. Act, 1961 and as per the decision of the Hon'ble Supreme Court in the case of Raja Binoy Kumar Sahas Roy reported in 32 TR 460 relied by the AO in his assessment order. 5.7. As per the above affidavit the farmers are only "adequately compensated" by the appellant for their work. There is no mention of any payments made to the farmers towards basic agricultural operations carried out by them. The finding of the CIT(A)s right from the A. Y. 1996-97 was that the appellant is not a cultivator but only a purchaser of hybrid seeds produced by the farmers. In view of the above and based on the evidence submitted during the appellate proceedings, it is clear that the appellant is only purchasing seeds from farmers and various agreements with the farmers produced before me is not adequate to camouflage these purchases as agricultural receipts. The Hon'ble ITAT's decision in the case of Monsanto India Ltd. relied by the appellant also is of no help the appellant's case as the appellant had not received any agricultural receipts but received income from the sale of seeds only and this do not qualify for exemption as agricultural income u/s 10(1) read with section 2 (1A) of the I. T. Act, 1961. The facts of the case clearly indicate that the appellant only purchased seeds from the farmers after supplying them with parent seeds initially. The purchase and sale of seeds made by the appellant can by no stretch of imagination be considered as agricultural income exempted u/s 10(1) in view of definition of agricultural income in section 2 (1A) of the I. T. Act, 1961. Therefore, the addition of Rs.55,07,79, 154/- made by the A0 is sustained as there is no evidence on records to come to the conclusion that the appellant had agricultural income during the relevant assessment year. Thus, ground No. 1 to 3 stands rejected. "6. The alternative plea of the appellant company for application of Rule 7 of I. T. Rules, 1962. The appellant company in this alternative plea requests that a portion of its income needs to be treated as agricultural income as per Rule 7 on the ground that the AO had failed to consider their plea in the assessment order. In this connection, I have already held that the appellant company had not taken any land on lease or carried out any agricultural operations during the relevant assessment year. In view of the above, Rule 7 is not at all applicable in the case of the appellant. Provisions of Rule 7 are as follows: "Income which is partially agricultural and partially from business. 7.(1) In the case of income which is partially agricultural income as defined in section 2 and partially income chargeable to income tax under the head "Profits an gains of business", in determining that part which is chargeable to income tax the market value of any agricultural produce which has been raised by the assessee or received by him as rent-in-kind and which has been utilized as a raw material in such business or the sale receipts of which are included in the accounts of the business shall be deducted, and no further deduction shall be made in respect of any expenditure incurred by the assessee as a cultivator or receiver of rent-in-kind." 6.1. The appellant has not made out a case during the appellate proceedings to consider that its income was partially agricultural and therefore Rule 7 is not applicable at all to the appellant's case. From the facts mentioned in the earlier paragraphs with regard to Ground No. 1, 2 & 3 it is clear that the appellant has no agricultural income in view of definition of agricultural income in section 2 (IA) and therefore the question of considering the appellant's income partly as agricultural income do not arise at all. As a result, ground No. 4 of the summary of the grounds of appeal stands rejected." 5.3. I have carefully considered the facts of the case, order of the AO and submissions made by the la. AR. It is seen that there is no material change in facts and circumstances and therefore, I do not find any reasons for deviating from the order of my predecessors in earlier years and I also concur with the detailed finding of my predecessors that the appellant company's claim of exemption u/s 10(1) for agricultural income is not allowable. The appellant is deriving income from manufacturing/processing and sale/purchase of hybrid Rs.100,87,51, 183/- which is claimed as agricultural income is liable to be assessed as income from business activities. The action of the AO is accordingly confirmed. These grounds of appeal are ruled against the appellant." 3.4. I have carefully considered the facts of the case, order of the AO and submissions made by the ld. AR. It is seen that there is no material change in facts and circumstances and therefore, I do not find any reasons for deviating from the order of my predecessors in earlier years and I also concur with the detailed finding of my predecessors that the appellant company's claim of exemption u/s 10(1) for agricultural income is not allowable. The appellant is deriving income from manufacturing/processing and sale/purchase of hybrid seeds and therefore, income of Rs.1,24,59,41,832/- which is claimed as agricultural income is liable to be assessed as income from business activities. The action of the is accordingly confirmed. These grounds of appeal are ruled against the appellant.” 9. On similar facts, the Co-ordinate Bench of the Tribunal in assessee’s own case vide its order dated 18.12.2017 in ITA Nos.1988/Del/2006, 4383/Del/2006, 443/Del/2010, 5285/Del /2012, 3670/Del/2013, 1903/Del/2014 and 4269/Del/2014 for Assessment Years 2002-03, 2003-04, 2005- 06, 2007-08, 2008-09, 2009-10 and 2010-11 respectively confirmed the action of the Assessing Officer rejecting the claim of the assessee for exemption u/s 10(1) of the Act in respect of the agricultural income for the respective assessment years and endorsed the action of the Assessing Officer to treat the same as business income. The relevant findings of the Tribunal as appearing in para no.15 to 23 of the order are reproduced as under:- “15. We have heard the rival submissions and perused the relevant material on record. The principles regarding the scope of agricultural activities and agricultural income has been laid down by the Hon’ble Supreme Court in the case of CIT Vs. Raja Benoy Kumar Sahas Roy(supra), wherein it was held as under: “The primary sense in which the term agriculture is understood is agar-field and cultra-cultivation, i.e., the cultivation of the field, and if the term is understood only in that sense agriculture would be restricted only to cultivation of the land in the strict sense of the term meaning thereby, tilling of the land, sowing of the seeds, planting and similar operations on the land. They would be the basic operations and would require the expenditure of human skill and labour upon the land itself. There are however other operations which have got to be resorted to by the agriculturist and which are absolutely necessary for the purpose of effectively raising the produce from the land. They are operations to be performed after the produce sprouts from the land, e.g., weeding, digging the soil around the growth, removal of undesirable undergrowths and all operations which foster the growth and preserve the same not only from insects and pests but also from depredation from outside, tending, pruning, cutting, harvesting, and rendering the produce fit for the market. The latter would all be agricultural operations when taken in conjunction with the basic operations above described, and it would be futile to urge that they are not agricultural operations at all……….. …….We are of opinion that the mere performance of these subsequent operations on the products of the land, where such products have not been raised on the land by the performance of the basic operations which we have described above would not be enough to characterize them as agricultural operations. In order to invest them with the character of agricultural operations, these subsequent operations must necessarily be in conjunction with and a continuation of the basic operations which are the effective cause of the products being raised from the land. It is only if the products are raised from the land by the performance of these basic operations that the subsequent operations attach themselves to the products of the land and acquire the characteristic of agricultural operations. The cultivation of the land does not comprise merely of raising the products of land in the narrower sense of the term like tilling of the land, sowing of the seeds, planting, and similar work done on the land but also includes the subsequent operations set out above all of which operations, basic as well as subsequent, from one integrated activity of the agriculturist and the term “ agriculture” has got to be understood as connoting this integrated activity of the agriculturist. One cannot dissociate the basic operations from the subsequent operations and say that the subsequent operations, even though they are divorced from the basic operations can constitute agricultural operations by themselves. If this integrated activity which constitutes agriculture is undertaken and performed in regard to any land that land can be said to have been used for “agricultural purposes” and the income derived there from can be said to be “agricultural income” derived from the land by agriculture. If the term “agriculture” is thus understood as comprising within its scope the basic as well as subsequent operations in the process of agriculture and the raising on the land of products which have some utility seen that the term “agriculture” receives a wider interpretation both in regard to its operations as well as the results of the same. Nevertheless, there is present all throughout the basic idea that there must be at the bottom of it cultivation of land in the sense of tilling of the land, sowing of the seeds, planting, and similar work done on the land itself. This basic conception is the essential sine qua non of any operation performed on the land constituting agricultural operation. If the basic operations are there, the rest of the operations found themselves upon the same. But if these basic operations are wanting the subsequent operations do not acquire the characteristic of agricultural operations. All these operations no doubt require the expenditure of human labour and skill but the human labour and skill spent upon the land. The human labour and skill spent in the performance of subsequent operations cannot be said to have been spent on the land itself, though it may have the effect of preserving, fostering and regenerating the products of the land.” 16. The Hon’ble Supreme Court in the aforesaid judgment has clearly held that agricultural income will arise when basic operations such as cultivation of land like tilling of the land, sowing of seeds, planting and other similar operations are carried out. The said basic operations should be on the land itself and it cannot be outside the land. Section 2(1A)(b)(i) refers to income derived from such land by agriculture. Sec. 2(1A)(b)(ii) refers to any income derived from such land by the performance of a cultivator or receiver of rent –in-kind to render the produce raised or received by him fit to be taken to the market. 17. The factual matrix of the present case reveals that the farmer had entered into lease agreement with the assessee company and the farmer is the lawful owner of the land. The said farmers had leased the farm land to the assessee company which has handed it back to the farmer to carry out cultivation of seeds on behalf of the assessee company. The parent seeds are provided free of cost to the farmer by the assessee company. The farmer is paid, amount for procurement of seeds by the assessee at fixed rate, which is bifurcated under the heads, land lease rent, fertilizers & chemicals and labour & services charges. 18. We find from the arrangement between the farmer and the assessee that the assessee is not carrying any agricultural operations required in terms of tests laid in the judgment of the Hon’ble Supreme Court in the case of CIT Vs Raja Benoy Kumar Sahas Roy (supra). The actual cultivation on the land is done by the farmer like tilling, sowing, etc. The mere supervision by the hands of the assessee. The argument of the assessee that the company is an artificial person and could not have conducted the agricultural operations by itself and, therefore, required such kind of an arrangement with the farmers for earning agricultural income does not have any merit. The farmers are not the employees of the assessee company. Had it been the case where the actual agricultural operations were carried out by the employees of the assessee company, it would have been a different case altogether. 19. The features of the agreement relied upon by the assessee like composite payment, giving parent seeds free of cost to the farmer, not carrying out any agricultural operations by itself clearly shows that the assessee company is only earning business income from the activity and not agricultural income. It is the farmer in the present case, who has to ensure the watering of the land, fertility and the suitability of the land. Without carrying out the basic operations alongwith the subsequent operations on the agricultural field, the assessee cannot claim agricultural income. The facts of the present case though represent a legal business model preferred by the assessee and the farmer but the said arrangement only gives rise to business income in the hands of the assessee and not agricultural income. The leave and license agreement as well as the service provider agreement read alongwith the statements of the farmers also show that the agricultural operations are carried out by the farmers only. 20. The reliance placed by the Ld. AR upon the judgment in the case of CIT vs. Monsanto India Ltd. passed by the Hon’ble Bombay High Court is misplaced in as much as even in the said judgment the Hon’ble High Court in para 3 has clearly observed that agricultural operations ought to have been actually carried out by the assessee. 21. The judgment of the Hon’ble Karnataka High Court rendered case. In the aforesaid judgment of Namdhari Seeds, the Hon’ble High Court held as under: - “54. From different terms and conditions of arrangement, what we notice is except supplying the foundation seeds and giving scientific advice from time to time, either at the time of sowing or pollination or harvesting, none of the normal activities of agriculture are undertaken by the assessee company. Except sowing the foundation seeds belonging to the assessee, farmer is not entitled to grow any other seeds in the land earmarked for the purpose of growing hybrid seeds and is not allowed to part with the seeds supplied to him to anyone else and so far as unused seeds, he had to give back the same to the company. Farmer conducts the cultivation and assessee-company only allots machinery and personnel for the purpose of achievement of better results in producing the quality hybrid seeds. Preparation of bed, sowing of the seeds, cultivation and harvesting of hybrid seeds is done by the farmer. He is entitled for the price fixed by the assessee per quintal for all such seeds which would qualify the specification indicated by the assessee. The seeds which do not qualify the specification” are also not sold by the farmer, but by the company and the sale consideration, if any is given to the farmer. The farmer while multiplying foundation seeds, uses his land and labour. The input given by the assessee is only technical supervision of the company. Whatever seeds grown by the farmer whether qualifies the specification indicated by the assessee or not has to be given to the assessee and the assessee will pay a fixed price so far as the seeds which quality the specification and other seeds will be sold in the open market by the assessee and there is no fixation of any price for the seeds which do not meet the specification. The farmer has to ensure fertility of the land, suitability of the land, cultivation of the land, watering of the land, use of the seeds supplied by the assessee and also had to sell the hybrid seeds at a price fixed by the assessee…… ….If the farmer has to arrange the labour and pay the labour charges and also spend money for other operations either basic or subsequent operations, he can only take advance amount from the assessee and such amount paid by the assessee would be deducted from the so called compensation to be paid for the qualified foundation seeds at the end by the assessee. The entire terms of agreement would only indicate that the foundation seeds grown by the farmer would be purchased by the assessee at the end for a certain price provided seeds qualify the specifications as per the agreement. It is nothing short of a fertile womb being offered by a surrogate mother for the growth of child of someone else. The assessee supervises and oversees the sowing cultivation right from the process of certified seeds. The main interest of the assessee is to see that good and healthy seeds are produced by the farmer meeting the requirement specified by it. Such input or scientific method in giving advice to the farmer cannot be termed as either basic agricultural operation or subsequent operations ordinarily employed by the farmer or agriculturist. If the basic operations of agriculture are not carried on by the assessee–company, then the harvested foundation seeds purchased by him and converting them to certification seeds cannot be termed as integrated part of the foundation activity of agriculture. Therefore, even if we agree that the mechanical process of agricultural operations either basic operations or subsequent operations would not be an impediment to make such operations as agricultural operations, the question is whether such operations are conducted by the assessee or the farmer or someone else. The entire reading of the terms of the agreement would only indicate that assessee-company was interested only to have healthy foundation seeds grown for the process of converting the same as certified seeds. 58. Therefore the view of first appellate authority that 100 per cent of the operations upto conversion of the foundation seeds as agricultural activity conducted by the assessee company and therefore income deserves to be exempted from tax under s. 10(1) of the Act is erroneous. Similarly exemption given by the Tribunal for 90 per cent of the income is also erroneous. We opine that the Tribunal was justified in treating 10 per cent of the income as business income which involved processing of foundation seeds to certified seeds. In that view of the matter, we hold that the entire income amounts to business income. As a matter of fact for some of the assessment years based on the opinion of one of the senior counsel on taxation Mr. K.R. Prasad, the assessee – company offered its income as business income and even claimed deduction under s. 80HHC of the Act. 22. In view of the aforesaid, we affirm the reasoning given by the AO and the CIT(A) and dismiss grounds No. 1 to 12 raised by the assessee. 23. As a result, the appeal of the assessee stands dismissed.” 10. Against this order, the assessee has filed an appeal u/s 260A of the Act before the Hon’ble Delhi High Court. The Hon’ble Delhi High Court has admitted the appeal of the assessee by observing as under:- “ITA Nos.1051/2018, 1052/2018, 1053/2018 and 1054/2018 Notice. Mr. Deepak Anand, Junior Standing Counsel accepts notice on behalf of respondent. It is pointed out that there are conflicting judgments of the Bombay High Court and the Karnataka High Court, against which SLPs are pending. Admit. The following question of law is framed: (1) Whether the assessee's income from "cultivation" and sale of hybrid seeds is agricultural income exempt under Section 10(1) read with Section 2(1)(a) of the Income Tax Act, 1961. No other issue arises or is pressed To be listed along with ITA No. 698/2018 and other connected appeals filed by the appellant.” 11. During the course of hearing before us, the ld. AR made similar arguments as considered by the Tribunal in the case of the assessee for the earlier years as referred above. It was submitted that the assessee company manufactured parent seeds, which is used to produce hybrid seeds. The assessee company submitted that it had entered into a Leave and License Agreement (sample copy appearing on page no.400 to 406 of the paper book) and service provider agreement (sample copy appearing on page no.407 to 415 of the paper book) with the land owners to contend that the assessee company was carrying out the agricultural activity by itself and that the farmers were divested the possession and the enjoyment of the land. According to the ld. AR, the farmer/land owner was a permissive licensee and not the owner of the land. It was submitted that it was the assessee who knew the produce and therefore for uniformity produced the seeds and supervised the whole operation. According to him the short point was whether the farmers were enjoying the leased land as its owner or were only a permissive licensee. 11.1. The ld. AR also relied upon the decision of Hon’ble decision of Hon’ble Karnataka High Court in the case of CIT vs Namdhari Seeds Pvt. Ltd. 341 ITR 342 (Karn.) relied by the AO stating that in the said decision, the Hon’ble Karnataka High Court denied the exemption of the agricultural income on the ground that no lease of the land was created in terms of the agreement entered by M/s Namdhari Seeds Pvt. Ltd. and the farmers as no leasing was permitted under the Karnataka Land Reforms Act. The Ld. AR further relied upon the decision of Hon’ble Karnataka High Court in the case of M/s Namdhari Seeds and ACIT, Circle-2(1), Bangalore in ITA No.346/2012 and Ors, wherein, the Hon’ble Court in para no.12 observed that in case, where the law permits taking agricultural leases of land entitled to the benefit of section 10(1) of the Act. It was submitted that the assessee had entered into valid ‘Leave and License Agreement’ with the farmers and had carried out the agricultural activities under its supervision and therefore, the assessee was entitled to the benefit of exemption u/s 10(1) of the Act. It was further submitted that the claim of all expenses on lease rent and labour charges for carrying out agri-operations have been fully allowed and the accounts have been accepted in toto in all the years. Further, it was submitted that the assessee, being in lawful possession of the impugned lands taken on lease for the cropping season for raising crops has derivative interest in the land and there was no contrary finding by AO/CIT)(A). The Ld. AR further submitted that the possession of the agricultural land by the assessee company for a cultivation season creates a derivative and beneficial interest in the land and it is the derivative interest that matters in the claim u/s 10 (1) of the Act and it is immaterial if such a person carries out cultivation on the land itself or by others contracted by him. 11.2. Ltd. in ITA No. 398 & 1505/Del/20016 was in favour of the assessee on similar facts and relying upon the decision of the Hon’ble Apex Court in the case of CIT vs M/s. Vegetables Products Ltd. 88 ITR 192 (SC) submitted that when two views are possible, the view preferable to the assessee should be preferred. The Ld. AR also referred to the decision of the Hon’ble Supreme Court in the case of Commissioner of Customs (import) vs in the case of Dilip Kumar & Company, AIR 2018 Supreme Court 3606 to submit that the provision of exemption is to be strictly implemented and the onus is on the assessee to satisfy that it was entitled to the exemption claimed by it. But, however, if the assessee is able to satisfy that it was the eligible for exemption claimed then the exemption provisions should be liberally interpreted. It was further submitted that the claim of deduction u/s 80I of the Act was a without prejudice claim when the ld. CIT(A) had rejected its claim for exemption u/s 10(1) of the Act for AY 1996-97 to AY 2000-01. It was further informed by him that the ld. CIT(A) had directed to allow the claim of deduction under section 80I of the Act for these years as a without prejudice claim made by the assessee company, but till the Act. It was also submitted that the assessee company was Indian company being 100% subsidiary of a foreign company and there was no bar in its claim for exemption u/s 2(1A) r.w.s 10(1) of the Act. He also referred to the decision of the Hon’ble Bombay High Court in the case of HA Shah & co. vs CIT & Excess 30 ITR 618 to submit that no res-judicata applies to the Tribunal and the Tribunal was justified in law in departing from its previous findings of the circumstances. 12. On the other hand, the ld. CIT-DR supported the orders of the authorities below. It was submitted by him that the ld. AR could not bring any point or any submission which the Tribunal had not considered in the earlier years when deciding the matter against the assessee on this issue. It was submitted that the DIT(Inv.), Hyderabad, had conducted a survey, wherein the Investigation Wing concluded that the ‘Leave and License Agreement’ were make believe arrangements, which was supported by statement of farmers as recorded placed at page no.610 of the paper book. It was further submitted that the purchase of seeds was by the farmers and all other expenses and efforts are incurred by the assessee. It was submitted that provisions of section 2(1A) of the Act is an activity which is considered below the land and after it comes out of land. It was further submitted that all the judgments relied upon by the ld. AR are prior to the matter heard and considered by the Tribunal in assessee’s own case for the earlier years as referred earlier in this order. As regards the order dated 18.07.2014 of the Hon’ble Karnataka High Court in the case of M/s Namdhari Seeds and ACIT, Circle-2(1), Bangalore in ITA No.346/2012 and Ors., it was submitted that the decision in the case of Namdhari Seeds in favour of the Revenue was delivered by Hon’ble Karnataka High farmers/land owners were the permissive licensee and their ownership was no longer there. In this regard, the ld. AR drew our attention to the affidavit of the land owner/farmer on a sample basis at page no.566 of the paper book, wherein, it was local customs. The said affidavit on page-566 of the paper book is reproduced hereunder:- . 13.1. The Ld. AR also drew our attention to the Leave and License Agreement placed at page 400 to 406 and the service provider agreement placed at page 407 to 415 on sample basis to support his contentions. He further relied upon the judgement of the Hon’ble Apex Court in the case of CIT vs Sun Engineering 198 ITR 320 (SC) to contend that if a fact has not been considered by any judicial authority, then it is not a valid judgment. 14. We have considered the rival submissions and perused the material available on record. As discussed above, we have noted that the Tribunal in assessee’s own case vide order dated 18.12.2017 in ITA Nos.1988/Del/2006, 4383/Del/2006, 443/Del/2010, 5285/Del /2012, 3670/Del/2013, 1903/Del/2014 and 4269/Del/2014 for Assessment Years 2002-03, 2003-04, 2005-06, 2007-08, 2008- 09, 2009-10 and 2010-11 respectively, had confirmed the disallowance of the claim by the assessee u/s 2(1A) r.w.s. 10(1) of the Act in respect of its agricultural income and its treatment as business income by the AO. In coming to the said conclusion, the Tribunal gave a finding of fact in para no.18 of its order that the assessee was not carrying any agricultural operations Hon’ble Supreme Court in the case of CIT vs Raja Benoy Kumar Sahas Roy (supra). It further recorded that the actual cultivation on the land is done by the farmer like tilling, sowing etc. and the mere supervision by the assessee without carrying of the basic operations would leave no manner of doubt that no agricultural income arose in the hands of the assessee. During the year also, there is no change in the position in the carrying out of the agricultural activity for the present year as noted by the Tribunal in the case of the assessee for the earlier years. Further, on perusal of the ‘Leave and License Agreement’ dated 01.11.2011 between the farmer/land owner and the assessee (sample copy placed at page no.400 to 404 of the paper book) and the service provider contract between the assessee and the farmer/land owner (sample copy placed at page no.407 to 415 of the paper book), it is seen that in the said agreement/contract, the assessee has not undertaken the responsibility of carrying out the basic agricultural operations as per the tests laid down by the Hon’ble Apex Court in the case of CIT vs Raja Benoy Kumar Sahas Roy (Supra). Thus, its claim as referred in para no.11 and 11.1 of this order that the possession of the agricultural land by the assessee company for a cultivation (1) of the Act and it is immaterial if such a person carries out cultivation on the land itself or by others contracted by him is not acceptable. 14.1. The Tribunal in its order in the case of the assessee as referred above, also negated the arguments of the assessee that the company is in artificial person and could not have conducted the agricultural operation by itself and therefore such kind of an arrangement with the farmers for earning agricultural income does not have any merit. It was also held that the farmers are not the employees of the assessee company. 14.2. In this regard, the reliance placed by the assessee on the decision of the Hon’ble Supreme Court in the case of 1957 AIR 264 (SC) to contend that in its case, employer- employee/master servant relationship existed between the assessee and the farmers has been perused very carefully by us. This judgment cannot be relied upon the facts of the present case, firstly on the ground that in the cited case, the Hon’ble Apex Court was dealing with the issue of the Agarias as land owners of the said land on which they were working. Further, had they been the employees of the assessee then there was no necessity for entering into ‘Leave and License Agreement’ and ‘Service Provider Agreement’ as referred by the assessee earlier in its contentions. Moreover, no other compliance as required under the various other Acts for the welfare of the employees has been shown by the assessee company. Therefore, the contention of the assessee that employer-employee/master constitutes basic agricultural operations as held by Hon’ble using the services of the land owners-cum-growers. Another important fact noted by the Tribunal in that case was, that it is not a case of buying of seeds from the landlords. Further, it was noted by the Tribunal that the assessee paid to the landlords for the services as well as the rent of the lands. The same findings were also noted by the Tribunal in the cited case in its concluding para no.18 and 23, which is reproduced as below “18. We heard both the sides and perused the orders of the Revenue. We have also perused the paper book filed by both the sides and the decision relied on by them. The objections of the AOs are : A. Absence of the registered deeds of leased lands on stamp papers makes the claim of the assessee u/s.10(1) of the Act unviable. B. a. Letter from Mr.Bhuma Bala Narasimha Reddy conveying the sale of seeds; and b. AO’s failure to put the said letter to the assessee or allowing assessee to cross examine Mr. Reddy. C. Applicability of judgmental laws in general and the juri ictional High Court judgment in the case of Ajeet Seeds Ltd. D DR’s request for remanding. We shall deal with each of these issues as follows : A. Absence of the registered deeds of leased lands on the stamp paper makes the claim u/s.10(1) of the Act unviable – Acted upon by both parties Undisputedly, the facts relevant to this issue include that the assessee in the A.Y. 2011-12 entered into contractual agreements with land owners/growers, The list is available on pages 1 to 240 of Paper Book No.3. As part of the agricultural activity, assessee incurred Rs.2.59 crores for preparation of the lands owned by the landlords. Assessee used these lands for growing the seeds and provided basic seeds for use by the landlords-cum-growers. In this context, the assessee incurred Rs.4.76 crores in supply of the fertilizers and pesticides. Rs.7.10 crores was spent on the labour wages. Rs.2.21 crores was incurred by the assessee on account of lease rent paid to the landlords. In addition, Rs.3.32 crores was spent on other farm expenses. Rs.5.26 crores was spent on supply of processing material. Thus, the AO never doubted the genuineness of the expenditure on all the heads of expenditure enlisted in the schedules extracted in the tables given in the preceding paragraphs of this order (land preparation expenses, fertilizers and pesticides, labour, wages, incentive growers, land rent, other form expenses, stores and material consumed etc). The genuineness of these expenses were undoubted by the AO. Additionally, Rs.33.45 crores was spent on certain direct expenses, the details of which are discussed in the preceding paragraphs of this order. When these expenses are incurred undisputedly by the assessee on all the basic activities of agriculture, mere absence of registered leasehold land agreement does not disentitle the assessee from the benefits of the agricultural income. In the process, the written lease deeds were acted upon by the parties of the agreement in their true spirit. We find it is a case that that assessee supplied all the needs required for agricultural activities, i.e. money, seeds, lease lands and met all the expenditure and collected the seeds grown in the said lands using the services of the landowners-cum-growers. It is not a case of buying of seeds from the landlords. Assessee paid to the landlords for the services as well as the rent of the lands.” xxxxxxxxxxxxxxx 23. To sum up, on the facts of assessee entering into an agreement with the agricultural landlords-cum-growers for growing the foundation and breeder seeds as per the terms and conditions and also the scientific specifications provided by the assessee, when the assessee bears all the expenditure on land development, irrigation, fertilizers, pesticides, transportation etc., when the assessee pays the land rent and also for the labour, when the landlord acts only as a grower and hands over the entire agricultural produce of foundation and breeder seeds to the assessee at the end. Grower never sold the agricultural produce to the assessee etc. Thus, the activity constitutes agricultural activity as the assessee constitutes an agriculturist and the entire activity of production and growing of said seeds becomes an agricultural activity. The solitary evidence gathered by the AO in the solitary case of Shri Bhuma Bala Narasimha Reddy does not hold good considering the fact that the said evidences was not put to the assessee in a settled perspective of legal proceedings. Therefore, procurement of seeds from the landlords-cum- growers is not the transaction of purchase of seeds for trading activity. Further, the judgment of Coordinate Bench of the Tribunal in the case of Ajeet Seeds Ltd. (supra) was confirmed by the Hon’ble Court of judicature Bombay, Aurangabad Bench in the said case. Therefore, we are of the opinion that the claim made by the assessee is proper. The decision of CIT(A) is fair and reasonable and does not call for any interference. The relevant grounds raised by the Revenue are dismissed.” 14.4. However, in the case of our assessee, no expenditure has been incurred by the assessee for the preparation of the lands owned by the farmers. The assessee has claimed Rs.2,80,14,000/- towards cultivation and production expenses in which no such expenses for preparation of the lands has been incurred . The details of the same as provided in schedule 22 of the Profit & loss account is reproduced as under:- 14.5. Further, the assessee procured the seeds from the farmers at a price predetermined by the company itself (as per the findings of the Assessing Officer on page no.54 of its order at sr. no.vii and also reproduced in para no.7.1 on page no.6-7 of this order) as distinguished in the case of M/s Nath Genes (I) Ltd. (supra), wherein, the Tribunal in para-23 of its order as reproduced above gave a categorical finding that the ‘Grower never sold the agricultural produce to the assessee etc.” Further, the Assessing Officer also noted that though the assessee claims to have borne all expenses on account of seeds, fertilizers, pesticides, etc. on the basis of some standard formula (and not on actual basis) but all these were adjusted against the sale proceeds of crop and the farmers were paid only the balance amount after adjusting the aforesaid expenses. Therefore, the 2(1A) to become eligible for claiming exemption u/s 10 of the Act without carrying out the basic operations of agriculture as per the tests laid down by the Hon’ble Supreme Court in the case of Act and confirmed by the Co-ordinate Bench of the Tribunal in the case of the assessee as discussed above. Moreover, the decision of Hon’ble Apex Court relied by the ld. Sr. AR in the case of Commissioner of Customs (Import), Mumbai vs M/s Dilip Kumar and Company & Ors.(supra) will not support the case of the assessee because the assessee has not carried out the basic agricultural operations, which is the strict requirement to term an activity as an agricultural activity within the meaning of section 2(1A) of the Act to become eligible for exemption u/s 10(1) of the Act. The relevant extract of the decision of Hon’ble Roy(supra), wherein it was held as under: “The primary sense in which the term agriculture is understood is agar-field and cultra-cultivation, i.e., the cultivation of the field, and if the term is understood only in that sense agriculture would be restricted only to cultivation of the land in the strict sense of the term meaning thereby, tilling of the land, sowing of the seeds, planting and similar operations on the land. They would be the basic operations and would require the expenditure of human skill and labour upon the land itself……..” 14.7. The Hon’ble Apex Court in the case of Commissioner of Customs (Import), Mumbai vs M/s Dilip Kumar and Company & Ors.(supra) had summed up its findings in para no.52 of its order, which are reproduced as under:- 2.To sum up, we answer the reference holding as under ¬ (1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. (2) When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue. (3) The ratio in Sun Export case (supra) is not correct and all the decisions which took similar view as in Sun Export Case (supra) stands over-ruled. 14.8. In view of the above discussion, we are of the considered view that the assessee fails to satisfy the condition as per clause-(1) of para 52 of the aforesaid order. In view of the facts as discussed by us earlier in this order, we are of the considered view that the assessee has not carried out the basic operations of agricultural activity as per the tests laid in the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Raja Benoy Kumar Sahas Roy (Supra) and has thus has failed to discharge the burden cast upon it that its case comes within the parameters for seeking exemption of Rs.124,59,41,832/- as claimed u/s 2(1A) r.w.s. 10(1) of the Act. 14.9. Therefore, in view of the above facts and following the order dated 18.12.2017 of the Co-ordinate Bench in the case of the assessee, we confirm the order of the Ld. CIT(A) in confirming the disallowance of agricultural income amounting to Rs.124,59,41,832/- claimed u/s 2(1A) r.w.s. 10(1) of the Act and treating it a business income by the AO. Ground nos.1 to 3 of the appeal are dismissed. 14.10. Further, regarding the additional ground filed by the assessee that the Ld. CIT(A) erred in not giving directions to assess the total income of the assessee as per normal provisions of the Act by making necessary adjustments as per section 28 to 43B of the Act filed vide letter dated 26.07.2024 in relation to the above grounds is also dismissed as no submission were made in respect of this additional ground. 15. Ground nos. 4 to 10 of the appeal are against TP adjustment made by the Assessing Officer on account of delayed receipt of receivables from AE's. The Assessing Officer had made an adjustment of Rs.67,17,965/-, which after giving effect to the order of the CIT(A), the adjustment on account of account receivable stood reduced to Rs. 37,03,330/-. 15.1. The Assessing Officer had made the adjustment of Rs.67,17,965/- on the basis of report of the TPO u/s 92CA(3) of the Act dated 27.10.2016. In this regard, the TPO had issued a show-cause notice to the assessee after noting the major international transactions undertaken by the assessee with its AE during the FY 2012-13. According to the TPO, the assessee failed to submit any reply even after due date and therefore he had no other option left but to calculate the interest on all the days. Thereafter, the Assessing Officer relied upon various case laws and in support of his action and applied the interest rate of LIBOR plus 400 basis points to be the most appropriate CUP. The details of the transactions noted by the Assessing Officer and the show-cause and the comments regarding non-receipt of reply of the assessee is reproduced as under:- “4. The major international transactions undertaken by assessee with its ASSESSEE, and during the F.Y. 2012-13 are as under:-

Receivables A show cause dated 18.10.2016 was issued to the taxpayer as per details below: [QUOTE] "2. Examination of the balance sheet reveals receivables thereby implying that the payment for the invoices raised by you have not been received within the stipulated time as provided in your service agreement with your AE. In this regard, you are requested to furnish the time period for payment as per your service agreement with your AE. However, to be reasonable and fair to you (the assessee), instead of charging penal interest, the beyond the time stipulated in the services agreement. You are requested to furnish details as to whether the invoices were raised in INR(Domestic currency) or in foreign currency. In case of the invoices raised in domestic currency, the interest rate is proposed to be charged on the basis of mark-up on prevailing average SBI base rate(300 basis points) during the year. Whereas in case the invoices have been raised in foreign currency, the interest rate is proposed to be charged on the basis of Mark-up on prevailing LIBOR rate(400 basis points) during the year." [UNQUOTE) The taxpayer failed to submit any reply, even after the due date. TPO contacted the taxpayer via all possible communication means like email, telephone call, speed post etc. As TPO had no other option left, so the interest was calculated on all the receivables, for the whole year by giving a grace period of 30 days.”

2. Aggrieved with the said order, the assessee filed an appeal before the ld. CIT(A), where inter-alia the assessee submitted that it is a debt free company and therefore receiving of any interest on receivable was not justified in its case. In this regard, the assessee relied upon the decision of Co-ordinate Bench of the Tribunal in the case of Bechtel India Pvt. Ltd., vs DCIT, Circle 4(2), New Delhi (ITA no 1478/Del/2015) which was subsequently confirmed by the Hon’ble Delhi High Court and the SLP against the same was dismissed by Hon’ble Supreme Court. The relevant submission of the assessee before the Ld. CIT(A) in this regard is reproduced as under:- Private Limited - Supreme Court of India -(TS-591-SC-2017-TP) - July 21,2017 (Copy enclosed vide Annexure 2) We are in agreement with the High Court that as far as Question-B concerning adjustment for interest on receivables is concerned the Tribunal has returned a finding of fact. Consequently, no substantial question of law therefore, arises, on the facts of this case. The special leave petition is dismissed" Principal Commissioner of Income Tax vs M/s Bechtel India Private Limited - Delhi High Court :TS-508-HC-2016(DEL)-TP) - July 21,2016 / Copy enclosed vide Annexure 3) “4. As far as question (B) concerning the adjustment for interest no receivables, the Court finds that the ITAT has returned a detailed finding of fact that the Assesse is a debt free company and the question of receiving any interest on receivables did not arise. Consequently, no substantial question of law arises for consideration as far as this issue is concerned." 1478/Del/2015) dated December 21,2015 - Delhi ITAT( Copy enclosed vide Annexure 4) “15.1. It is brought to our notice that the assessee is a debt free company. In such circumstances it is not justifiable to presume that, borrowed funds have been utilized to pass on the facility to its AE's. The revenue has also not brought on record that the assessee has been found paying interest to its creditors or suppliers on delayed payments.” 16. In lieu of the discussions and the ratio laid down in the case of Kusum Healthcare Pvt. Ltd., we direct that no separate adjustment for interest on receivables are warranted in the hands of the assessee.” 15.3. However, the ld. CIT(A) did not make any comment regarding the above contention of the assessee but relying upon the decision of Co-ordinate Bench in the case of Ameriprise India Pvt. Ltd. in ITA No.2010/Del/2014 AY 2009-10 and of the the Assessing Officer. The relevant finding of the Ld. CIT(A) in para no.4.3 to 4.5 of her order is reproduced as under:- “4.3. I have carefully gone through the submissions of the appellant, the assessment order and the assessment record. The facts of the case are that the TPO passed order u/s 92CA(3) dated 27.10.2016. The TPO 3(3)(1), New Delhi observed that in view of the receivables from foreign AEs i.e. Pioneer Overseas Corporation, USA of Rs. 12,21,87,074/- and from Pioneer Pakistan Seed Co. Ltd. of Rs. 4,20,43,090/-, interest on the receivables was at international transaction and accordingly computed interest @ of 4.4569% for 11 months amounting to Rs.67,17,965/- and recommended that the assessing officer should make an a TP adjustment for the said international transaction. 4.4 I find that the facts in the case of the appellant can be distinguished from the facts of the above cases referred by Ld. AR of the appellant. The Hon'ble ITAT Delhi in ITA NO. 2010/Del/2014 Assessment Year: 2009-10, in the case of the non-realization of invoice value beyond the stipulated period is a separate international transaction, whose ALP is separately determinable. "The International transaction of charging interest on late recovery of trade receivable covers the period which starts with the termination of the period of credit allowed under the agreement, which is subject matter of the International Transaction of rending of services...... The TP adjustment on account of interest on delayed realization of invoice value... depends on transaction to transaction basis. To put it differently, suppose an invoice is raised on 1st May; period allowed for realization is two months; and the invoice is actually realized on 31st December; Notwithstanding the fact that interest on such late realization would become chargeable for a period of 6 months (from 1st July to 31st December) but the amount of invoice will not be receivable as at the end of the financial year on 31st March. As such, this receivable would not have an impact on the working capital adjustment in any manner, but would call for addition on account of the late realization of invoice value for a period of six months." 4.5 It may further be mentioned that Hon'ble ITAT, Mumbai bench on account of interest for period beyond the agreed credit period. In light of the TPO's report, if the appellant did not have sufficient surplus funds to lend, it may borrow such funds from banks or others, then cost of borrowings in India would be relevant. Also if the surplus funds were to be invested in existing business or expansion into new businesses, the return also would be linked with domestic interest rates. So, the entire opportunity cost to the appellant, will be with reference to the interest rates prevailing in India. TPO has applied LIBOR rate + 400 basis points applicable to the ECBs having average maturity period between 3 and 5 years after taking into consideration the foreign exchange risk. The Ld TPO has carried out Interest adjustment for a flat period of 11 months after applying the grace period of 30 days from due date. Hence, I hold that the CUP to be used is the Libor to which 200 basis points is being added to take into account the various factors / risks as already discussed in the order of TPO, reducing the addition above LIBOR rate + 200 basis points from 400 basis points as computed by TPO and AO. Hence, this ground of appeal is partly allowed.” 16. Aggrieved with the order of the ld. CIT(A), the assessee is in appeal before us on the following grounds:- 4. That the CIT(A) has erred in law and on facts in treating receivables from AE as a separate international transaction and benchmarking it separately. 5. That CIT(A) has erred in law in ignoring Trade payable transactions and considering Trade Receivables in isolation when all the transactions belong to a single class of transactions and have been benchmarked accordingly in TP Report. 6. That the CIT(A) has erred in law and on facts by re - characterizing the nature of outstanding receivables as loan advanced to AEs when the same is not permitted under the Act and charging interest on the same. 7. That the CIT(A) has erred in law by determining the Comparable Uncontrolled Price ("CUP") method as the most appropriate method without providing and analyzing any comparable uncontrolled transactions). 8. That whether on the facts and circumstances of the case and in law the CIT(A) was justified in upholding the addition made by the Transfer Pricing officer thereby ignoring the fact that Associated Enterprises with whom sales /other Non AEs and no interest was charged even from Non AEs. 9. That the CIT(A) has erred in law by not following the principles laid down by Honb'le Supreme Court of India in case of M/s Bechtel India Private Limited. 10. That the CIT(A) erred in rejecting the without prejudice claim made by the appellant and upholding the adjustment made for a flat period of 11 months without verifying the actual period of delay if any.” 16.1. Further, with respect to the above issue, the assessee has filed an additional ground of appeal vide letter dated 26.07.2024 and also without prejudice ground in terms of Rule- 11 of the Income Tax (Appellate Tribunal) Rules 1963 as under:- “That on the facts and circumstances of the case and in law, CIT(4) ought to have appreciated that since operating margin of the appellant is higher than the working capital adjusted margin of the comparable companies, no adjustment on account of interest on receivables is warranted. Without prejudice, that on the facts and circumstances of the case and in law, CIT(A) erred in not giving directions to assess the total income of the Appellant as per normal provisions of Act by making necessary adjustments as per sections 28 to 43B of the Act." 16.2. We find that all the facts relevant for adjudication of the aforesaid additional grounds are already on record. The additional grounds raised by the assessee are purely legal in nature. Hence, in view of the decision of the Hon’ble Supreme 16.3. In this regard, the ld. AR filed a written synopsis giving a factual position and contending the various proposition as under:- “The appellant is primarily engaged in the activities of cultivation and sale of commercial hybrid seeds. The company purchases the parent seeds form Pioneer Overseas Corporation India Branch (POC IB) and cultivates them, to grown commercial hybrid seeds on agricultural land situated in India, taken on lease at various locations in Andhra Pradesh, Karnataka, Gujarat and Rajasthan. The commercial hybrid seeds are sold to unrelated parties in India through distributors and retailers across the country. During the year, the appellant entered into the following international transaction with associated enterprise: S. No. Name of the Party Nature of Transactions Amount Received /Receivables 1 Pioneer Overseas Corporation US Sale of Hybrid seeds to AE 8,76,02,672 Reimbursement of Expenses from AE 3,45,84,402 2 Pioneer Pakistan Seeds Co. Ltd. Sale of Hybrid seeds to AE 4,20,43,090

6. The ld. CIT-DR relied upon the findings of the TPO and the order of the Ld. CIT(A) and the case laws relied thereupon to submit that interest on delayed realization of receivables is a separate international transaction and, therefore, requires separate benchmarking. 16.7. We have considered the rival submissions and perused the material available on record. As noted above, the assessee in its submissions has stated that the assessee is a debt free company and therefore no TPO Adjustment on account of interest receivables could be made in its case and has relied upon the order of the Co-ordinate Bench of the Tribunal in the case of Bechtel India Pvt. Ltd.(supra), which has been affirmed by the Hon’ble Delhi High Court and the SLP against the same has been dismissed by the Hon’ble Apex Court. The relevant extract of the said orders are reproduced as under:- ITA No.1478/Del/2015 (AY 2010-11) order dated 21.12.2015 “This is an appeal filed by the assessee against the assessment order dated 30.01.2015, of ld. DCIT Circle 4(2) u/s 143(3) r.w. sec 144C of I.T. Act, 1961 for A.Y. 2010-11. 2. Brief facts of the case are as under: The assessee filed its return of income declaring total income of Rs.33,42,28,149/-. Subsequently the same was revised to Rs.33,39,32,080/-. 3. The assessee is a captive service provider, providing (a) engineering design and related services, (b) financial and accounting support (‘FAS’) services and (c) IT Infrastructure support services (‘IT Infra’) to its Associated Enterprises (‘AEs’), to support the oversea office’s turnkey project execution. The international transactions entered into by the assessee are as under: S. No. International Transaction Amount (in Rs.) 1. Engineering services/Other services 114,37,93,036/- 2. Financial and accounting support services 4,57,02,508/- 3. IT infrastructure support services. 5,50,04,596/- 4. Reimbursement of expenses(paid) 6,70,973/- 5. Reimbursement of expenses(received) 21,97,07,529/-

For benchmarking the international transactions, assessee selected TNMM as the most appropriate method (MAM), with Operating Profit to Total Cost(OP/TC) as Profit level Indicator (PLI). The approach followed by the assessee in the TP Study has been encapsulated in the table below: Nature of International Transaction Amount (In INR crores) Most Appropriate Method & Profit Level Indicator (‘PLI’) Results

The ld. TPO disagreed with the various filters used by the assessee in the TP study. The detailed submissions, workings and evidences provided during the course of the TP assessment proceedings, was considered by the ld. TPO, and thereafter he selected the final set of comparables based on the application of additional/modified filters in all three segments. The final comparable adopted by ld. TPO are as under: I. Engineering design and related services S. No. Company Name OP/Cost (%)* 1. Kirloskar Consultants Ltd. 15.64% 2. Mahindra Consulting Engineers Ltd. 23.50% 3. TCE Consulting Engineers Ltd. 25.88% 4. IBI Chematur Ltd. 52.66% 5. Kitco Ltd. 14.01% 6. Cades Digitech Private Ltd. -5.71%

The ld. TPO further observed that the payment received from the AE was not as per the terms of the service agreement. The Ld.TPO therefore held that the assessee has provided benefit to its AE, by way of advancement of interest free loan in the garb of delay of receipt of receivable. The ld.TPO used CUP method by selecting credit period of 30 days and applying the rate of 14.88%. xxxxxxxxxxxxx 14.7 During the course of the proceedings before TPO, he observed that payments on account of sales to the AE, is realized after a significant time period. The ld.TPO ascertained that payment for invoices raised by the assessee has not been paid within the stipulated time as provided in the service agreement and accordingly treated the delayed payments as loan facility advanced to the AE’s. The ld.TPO charged 14.88% interest for the delayed period, beyond a period of 30 days. The ld. DRP upheld the adjustments made by the ld.TPO.

8. The ld.AR submitted that during the financial year, the assessee had entered into international transactions pertaining to provision of support services to its AE’s. In this regards, the details of the invoices raised and the payment received with dated were submitted before the TPO/DRP. The ld.AR has submitted that thought there was no credit period that was specified in the service agreement, however the assessee had agreed a credit period of 60 days with its AE’s. The ld.AR submits that it has sufficient cash balance to manage its cash flow requirements. 14.9. He further submitted that the assessee does not earn any interest on the current account maintained with the bank. Except for interest earned from fixed assets, the assessee has not earned any interest, on any advances paid to third parties. The ld.AR further submitted that being a captive undertaking, the assessee does not render similar services to any other concern. He submitted that, excess credit period arises, only when there is a standard credit period for the services sold at the same price to independent enterprises. He submitted that the cost of funds blocked in the credit period was inbuilt in the sale price. 14.10. The ld.AR relies on the judgment of Indo American Jewellery in ITA no. 5872/M/2009, wherein it has been held that the transaction of sale and lending are distinctly set out as per section 92 of the Act. The Tribunal further held that interest and not with sale. The Tribunal further held while determining the ALP of sale transaction, all relevant aspects, including credit period allowed, are taken into consideration and that interest aspect is embedded in the sale price. The Tribunal held that there can be no separate international transaction of interest, on outstanding receivables and that early of late realization of the sale proceeds is incidental to transaction of sale. The l d.AR also places his reliance on the Delhi Tribunal decision in the case of Kusum Healthcare Pvt.Ltd., reported in TS-129-ITAT-2015(Del)- TP. 14.11. The ld. DR relied on the orders of the authorities below. 15. From the submissions of both the parties we observe as under; 15.1. It is brought to our notice that the assessee is a debt free company. In such circumstances it is not justifiable to presume that, borrowed funds have been utilized to pass on the facility to its AE’s. The revenue has also not brought on record that the assessee has been found paying interest to its creditors or suppliers on delayed payments. 16. In lieu of the discussions and the ratio laid down in the case of Kusum Healthcare Pvt. Ltd., we direct that no separate adjustment for interest on receivables are warranted in the hands of the assessee. Ground no. 3 of the assessee’s appeal is there by allowed. Decision of Hon’ble Delhi High Court in ITA No. 379 of 2016 “4. As far as question (B) concerning the adjustment for interest no receivables, the Court finds that the ITAT has returned a detailed finding of fact that the Assessee is a debt free company and the question of receiving any interest on receivables did not arise. Consequently, no substantial question of law arises for consideration as far as this issue is concerned. 5. The appeal is dismissed.” SLP Dismissed by Hon’ble Supreme Court in CC No(s).4596/2017 “We are in agreement with the High Court that as far as Question-B concerning adjustment for interest on receivables is concerned the Tribunal has returned a finding of fact. Consequently, no substantial question of law therefore, arises, on the facts of this case. The special leave petition is dismissed.” 16.8. However, on perusal of the balance sheet of the assessee for FY 2012-13 relevant to AY 2013-14, it is seen that that the assessee has taken a loan of Rs.967 lakhs as ‘Short Term Borrowing’ as against nil in FY 2011-12 relevant to AY 2012-13. The schedule-6 of the balance sheet reflecting ‘Short Term Borrowing’ on page no.1019 is reproduced as under:-

9. Thus, the above claim of the assessee that it was a debt free company during the year requires verification and as noted above the assessee did not file the details before the Ld. TPO and the ld. CIT(A) also did not verify the above contention/submission of the assessee. On the issue of interest on receivables the Hon’ble Delhi High Court in the case of PCIT vs Kusum Health Care Pvt. Ltd.(2017) 398 ITR 66(Del.) in para no.10 and 11 has observed as under:- “10. The court is unable to agree with the above submissions. The inclusion in the Explanation to section 92B of the Act of the expression "receivables" does not mean that dehors the context every item of "receivables" appearing in the accounts of an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which will have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the assessee will have to be studied. In other words, there has to be a proper inquiry by the Transfer Pricing Officer by analysing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an associated enterprise, the arrangement reflects an international transaction intended to benefit the associated enterprise in some way. 11. The court finds that the entire focus of the Assessing Officer was on just one assessment year and the figure of receivables in relation to that assessment year can hardly reflect a pattern that would justify a Transfer Pricing Officer concluding that the figure of receivables beyond 180 days constitutes an international transaction by itself. With the assessee having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis-a-vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have distorted the picture and re-characterised the transaction. This was clearly impermissible in law as explained by this court in CIT v. EKL Appliances Ltd. [2012] 209 Taxman 200/345 ITR 241/345 ITR 241 (Delhi).” 16.10. Thus, it is seen that the Hon’ble Delhi High Court has observed iner-alia that in order to justify adjustments on the issue of receivables, the TPO has to establish a pattern wherein, the arrangement reflects an international transaction intended to benefit the associated enterprise in some way. Even though in this case, the Assessing Officer has made said adjustments for AY 2013-14, 2014-15 and 2015-16 but in view of the submissions made by the assessee before us that I. No interest charged from third party customers II. No interest paid by the appellant on outstanding payables to associated enterprises III. Without prejudice-Incorrect computation of interest the TPO will have to verify as to whether there is any pattern in not charging interest on the receivables from its AEs so as to benefit the associated enterprise in some way, which has not been done by the TPO in this case. 16.11. Further, the Assessing Officer is also required to examine in view of the above observations of the Hon’ble Court regarding the factoring of the impact of the receivables on the working capital of the assessee and whether in such a situation further adjustment on the basis of outstanding receivables would be required in the case of the assessee or not. This has also been raised by the assessee by way of additional ground of appeal as referred in para no.16.1 as above. 17. Therefore, in view of the above facts and discussion, we deem it fit to restore the entire issue in dispute to the file of the ld. AO/ TPO to consider the applicability of the decision of Hon'ble Delhi High Court rendered in Kusum Healthcare (supra) in its true spirit vis a vis the pattern followed by the assessee and also to consider the alternative argument made by the Id AR decide the entire issue in accordance with law. Accordingly, ground Nos. 4 to 10 and the additional ground 1 raised by the assessee are allowed for statistical purposes. 18. The assessee had further filed additional grounds of appeal in terms of Rule-11 of the Income Tax (Appellate Tribunal) Rules 1963 claiming deduction of Education Cess computed on returned income and dividend distribution tax paid by the appellant before the due date of filing of return of income for the subject assessment year. The said additional ground was not pressed by the assessee, hence, the same is dismissed as not pressed. 19. This is an appeal of the assessee for AY 2014-15. Grounds No. 1 to 2 pertain to claim for exemption agricultural income under section 10 (1) of the Act. Since the facts are identical to the case of the assessee for AY 2013-14, we follow our own decision in ITA No. 1575/DEL /2018 and dismiss the aforesaid grounds. 20. Ground no.3 pertain to transfer pricing issue relating to transfer pricing adjustment amounting to Rs.20,37,553/- on account of delayed receipt of receivables from AE's. Since the facts are identical to the case of the assessee for AY 2013-14, we follow our own decision in ITA No. 1575/DEL /2018 and allow the ground of the assessee for statistical purpose. 21. This is an appeal of the assessee for AY 2015-16. Grounds No. 1 to 2 pertain to claim of agricultural income under section 10 (1) of the Act. Since the facts are identical to the case of the assessee for AY 2013-14, we follow our own decision in ITA No. 1575/DEL /2018 and dismiss the aforesaid grounds. 22. Ground no.3 of the appeal raised by the assessee is reproduced as under:- “3. That the Ld AO has erred in not following the directions given by DRP in its final order with respect to the additions made by AO in its Draft Order on account of Capital Expenditure (Rs. 78 lacs), Provision of Doubtful Debts and CSR (Rs. 19.22 Crores) and Gratuity / Bonus /Compensated Absence (Rs. 3,20,55,753/-) and passed the order without verifying the facts.” 22.1. In this case, draft assessment order (hereinafter referred as DAO) dated 14.12.2018 was passed by the Addl. CIT, Special Range-7, New Delhi. The reasoning given by the Assessing Officer in respect of the above additions in para no.4, 5 and 6 on page no.54 of DAO is reproduced as under:- 4. Addition on account of capital expenditure: Vide notice under section 142(1) dated 15.10.2018, the assessee was required that as per Point no. 21(a) of audit report it has claimed capital expenditure in the Profit and loss account Rs. 78,00,000/-(7778000+22000) but not added to income in the computation of income, so as to why the same may not be disallowed and added to income. The notice was properly served through ITBA portal. The date of compliance was 22.10.2018, but the assessee filed no reply till date. The above facts prove that the assessee has nothing to say therefore, capital expenditure of Rs. 78,00,000/- is added to the income of the assessee. (Addition: Rs. 78,00,000/-) 5. Addition on account of Provision for doubtful debts and responsibility activities: Vide notice under section 142(1) dated 05.11.2018, the assessee was required that it has debited provision for doubtful debts Rs. 11,69,00,000/- and responsibility activities Rs. 7,53,00,000/- which are not of allowable nature, so as to why the same may not be disallowed and added to income. The notice was properly served through ITBA portal. The date of compliance was 09.11.2018, but the assessee filed no reply till date. The above facts prove that the assessee has nothing to say. The expenses claimed by the assessee are not of allowable nature therefore, added to the income of the assessee. (Addition: Rs. 19,22,00,000/-) 6. Addition on account of unexplained gratuity, bonus and compensated absence. Vide notice under section 142(1) dated 15.10.2018, the assessee was required that as per Point no. 26(i)(B)(a) of audit report it has claimed gratuity, bonus and compensated absence in the Profit and loss account Rs. 3,20,55,733/- 12282872+15781974+3990887) but not paid before the due date of filing return under section 139, so as to why the same may not be disallowed and added to income. The notice was properly served through ITBA portal. The date of compliance was 22.10.2018, but the assessee filed no reply till date. The above facts prove that the assessee has nothing to say therefore, gratuity, bonus and compensated absence of Rs. 3,20,55,733/- are disallowed under section 43B and added to the income of the assessee.” 22.2. Against the above disallowances, the assessee filed an appeal before the DRP. The DRP vide it order dated 25.07.2019 gave the following directions in respect of ground no.3 as under:- 2.3 Ground no. 3: 3. That the Ld. AO has erred in law and on facts in making additions on account of Capital Expenditure (Rs.78 lacs), Provision of Doubtful Debts and CSR (Rs.19.22 Crores) and Gratuity/Bonus/Compensated Absence (Rs.3,20,55,753/-) without application of mind. DRP Directions: 2.3.1 The assessee has submitted that "capital expenditure of INR 78 lacs represents capital goods purchased which has correctly been disallowed but depreciation as per Section 32 of the Income Tax Act amounting to INR 17,76,50,304/- as mentioned in Tax Audit Report should have been allowed". The AO is directed to allow depreciation as per law. 2.3.2 In respect of Provision of Doubtful Debts and CSR, the assessee has not objected to the disallowance per se but has simply submitted that the La. AO has mistakenly considered the amount of Provision for Doubtful debts as Rs.11.69 Cr. Instead of Rs.7.53 cr. as shown in Note 26 of financials of FY 2014-15 (Refer Pg. No. 1118 of Paper Book 4) and similarly for expenses towards CSR activities taken as Rs. 7.53 cr. Instead of Rs.3.38 Cr. The AO is directed to take the correct figures for disallowance. In respect of Gratuity/Bonus/Compensated Absence, it has been submitted that the Ld. AO has disallowed the amount of gratuity (Rs.1,22,82,872), Bonus (Rs.1,57,81,974) and compensated absences (Rs.39,90,887) which were not paid by the company on or before filing the return of income. However, the Ld. AO has not given the allowances u/s. 43B of the payments (Gratuity of Rs.43,72,643/-, Bonus of Rs.1,50,84,665/- and compensated absences of Rs.17,88,235/-) made during and before filing the return of income which should have been allowed the appellant company and is evident from Clause 26 of the Tax Audit Report. The AO is directed to verify the same and allow the expenses to the extent paid before the due date for filling of return. 2.3.4 The assessee has also contended that the deduction of profit on sale of fixed assets of Rs.1,39,58,198/- should have been allowed by the AO since such profit or loss is not to be included in the taxable income and the same should be considered in the block of assets. The AO is directed to verify the same from the fixed asset schedule of the financial accounts and reduce the taxable income accordingly.” 22.3. The Assessing Officer passed the final order u/s 143(3) of the Act r.w.s. 144C(13) of the Act on 30.09.2019. On its perusal, it is seen that the Assessing Officer did not make the necessary verifications as directed by the ld. DRP and simply made the additions without any discussions. 22.4. Against the above order, the assessee is in appeal before us. 22.5. During the course of hearing, both the parties agreed that the matter may be set-aside to the file of the Assessing Officer for verifying the directions of the DRP and pass the necessary order after the said verification as per law. Considering the facts of the case and the request of both the parties, the above three matters as raised in the ground no. 3 of the appeal are set-aside to the file of the Assessing Officer for verifying the directions of the DRP and pass the necessary order after the said verification as per law. Ground no.3 of the appeal is allowed for statistical purpose. 23. In the result, all appeals of the assessee are partly allowed. Order pronounced in the open court on 06th August, 2025 [VIKAS AWASTHY] [BRAJESH KUMAR SINGH]