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Income Tax Appellate Tribunal, PUNE BENCH, ‘A’, PUNE – VIRTUAL COURT
Before: SHRI R.S. SYAL & SHRI PARTHA SARATHI CHAUDHURY
This appeal by the Revenue and Cross Objection by the assessee emanate from the order dated 17-03-2017 passed by the CIT(A)-1, Pune in relation to the assessment year 2014-15.
CO No.03/PUN/2020 Futura Bioplants Pvt. Ltd.
The first issue raised by the Revenue in its appeal is against the ld. CIT(A) holding income of Rs.5,66,86,518/- as agricultural income as against the Assessing Officer (AO) treating the same as business income.
Succinctly, the facts of the case are that the assessee is engaged in the business of agricultural activities of growing and selling the flower plants mainly for export purpose. A return was filed declaring total income of Rs.62,69,340. During the course of the assessment proceedings, the AO observed that the assessee earned total profit of Rs.6.29 crore on total sales of Rs.18.30 crore.
After making certain adjustments, income of Rs.5,66,86,518 was computed, which was claimed as exempt u/s.10(1) r.w.s. 2(1A) of the Income-tax Act, 1961 (hereinafter also called ‘the Act’). On being called upon to explain as to why the income of Rs.5.66 crore should not be treated as business income, the assessee furnished copious details stating the operations carried out by it viz., purchase of mother plant; preparation of land; propagation of land; and cutting and sale of plants. The assessee explained the entire procedure and lodged a claim that the income was in the nature of agricultural income not chargeable to tax. The AO did not accept the same and came to hold that the income was chargeable to tax as CO No.03/PUN/2020 Futura Bioplants Pvt. Ltd.
`Business income’ as the activities of purchase of mother plants and sale of flowers developed therefrom, carried out by the assessee did not amount to agricultural activities. The ld. CIT(A), relying on the order passed by his predecessor for A.Y. 2011-12, allowed the claim of the assessee. The Revenue has approached the Tribunal against such a point of view.
We have heard both the sides through virtual court and gone through the relevant material on record. It is observed that an identical issue came up for consideration before the Tribunal in assessee’s own case for the A.Y. 2011-12. A copy of the order passed by the Tribunal has been placed at page 1 onwards of the paper book. The Tribunal has considered the nature of activity carried out by the assessee and after taking into account Explanation 3 to section 2 (1A), inserted by the Finance Act, 2009, has held that the income derived by the assessee from such activity as agriculture inasmuch as the Explanation 3 states that “income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income”. The Tribunal further relied on CBDT Circular No.01/2009 dated 27-03-2009 explaining the rationale of Explanation 3. It is seen that similar issue once again came up for consideration before the Tribunal in assessee’s own
CO No.03/PUN/2020 Futura Bioplants Pvt. Ltd. case for A.Y. 2013-14. A copy of such order has also been placed on record in which the earlier view has been reiterated. The ld. DR fairly conceded that the facts and circumstances of the instant case are mutatis mutandis similar to those of the earlier years. Since the issue under consideration is fully covered by the orders passed by the Tribunal for the preceding years, respectfully following the precedent, we countenance the view taken by the ld. CIT(A). This issue is, therefore, decided in favour of the assessee.
The only other issue which survives in the appeal of the Revenue is against allowing the claim of depreciation. The facts anent to this issue are that the assessee claimed depreciation of Rs.1,64,49,002/- as per the Companies Act and as per the Income- tax Act at Rs.1,41,61,226/-. Since the AO treated the so-claimed agricultural income as business income, he, therefore, disallowed differential depreciation (Rs.1,64,49,002/- minus Rs.1,41,61,226/-) amounting to Rs.22,87,776/- and added the same to the total income. The ld. CIT(A) vacated the view point of the AO.
Having heard both the sides and gone through the relevant material on record, it is found that the primary ground on which the AO made disallowance of depreciation is that of canvassing the CO No.03/PUN/2020 Futura Bioplants Pvt. Ltd.
view about the income of Rs.5.66 crore as business income as against agricultural income claimed by the assessee. Since we have approved the opinion of the ld. CIT(A), reversing the view of the AO on this issue, the reason for disallowance of depreciation to the above extent, ceases to exist. Since the entire income from operations has been held by us as agricultural income, the fortiori is that the full amount of depreciation at Rs.1.64 crore should get reduced from the computation of agricultural income and consequently value of assets for carrying forward written down value to the subsequent years. Be that as it may, there can be no addition on account of disallowance of depreciation for the year under consideration.
The first four grounds taken by the assessee in its Cross Objection are only against the observations made by the AO in treating income from operations as business income as against agricultural income. In view of our decision in upholding the impugned order treating the income from business operations as agricultural income, such grounds have been rendered academic in nature.
CO No.03/PUN/2020 Futura Bioplants Pvt. Ltd.
The only other issue raised by the assessee is against the claim of Foreign Exchange Gain held to be taxable.
The factual matrix of this ground is that the assessee credited a sum of Rs.54,84,571/- to its Profit and loss account as Foreign Exchange Fluctuation Gain. The AO held such gain to be in the nature of business income. The ld. CIT(A) relied on the order passed by his predecessor for the A.Y. 2011-12 and came to hold that the fluctuation gain of Rs.54,84,571/- was chargeable to tax.
Having heard both the sides and gone through the relevant material on record, it is seen that the assessee filed Cross Objection before the Tribunal for the A.Y. 2011-12 as well. The Tribunal made the bifurcation of Foreign Exchange Fluctuation Gain into four parts, namely, relating to Capital Expenditure; Revenue Creditors, Revenue Debtors; and Revaluation at the year-end (unrealised gain). It held that the Foreign Exchange Fluctuation Gain in relation to the Capital expenditure; Revenue creditors; and Revaluation at the year-end was chargeable to tax. Only Foreign Exchange Fluctuation Gain from Revenue debtors was held to be in the nature of agricultural income and hence, not taxable. The ld. AR has placed on record similar details for the year under CO No.03/PUN/2020 Futura Bioplants Pvt. Ltd.
consideration at page 160 of the paper book. Since such classification of the Foreign Exchange Fluctuation Gain under four categories by the assessee, as placed on record at page 160 of the paper book, have been examined neither by the AO nor by the CIT(A), we set-aside the impugned order and direct the AO to consider taxability of Foreign Exchange Fluctuation Gain from these four items in accordance with the view canvassed by the Tribunal in assessee’s own for the A.Y. 2011-12 as discussed above.
In the result, the appeal of the Revenue is dismissed and the Cross Objection of the assessee is partly allowed for statistical purposes.
Order pronounced in the open Court on 31st August, 2020.