SATHAPRA SUBRAMANIAN MADHAVI,SALEM vs. ITO, WARD-1,, PUDUKKOTTAI

For that the Commissioner of Income Tax (Appeals) failed to appreciate that the order passed u/s. 143(3) by the Assessing Officer is without jurisdiction.

For that, the Commissioner of Income Tax (Appeals) erred in upholding the action of the Assessing Officer in adding a sum of Rs.7,35,271 / under the business income.

For that, the Commissioner of Income Tax (Appeals) failed to appreciate that the agriculture income returned by the appellant is exempted under the provisions of Income Tax Act, 1961.

For that, the Commissioner of Income Tax (Appeals) failed to appreciate that the additions under the head business income amounting to Rs.7,35,271/- are not warranted in the facts and circumstances of the case.

For that, the Commissioner of Income Tax (Appeals) failed to appreciate that Rule 7B(1) of the Income Tax Rules, 1962 is not applicable to the facts and circumstances of the case.

For that the Commissioner of Income Tax (Appeals) erred in upholding the ad hoc disallowance of 1/5th of agricultural expenses amounting to Rs.3,70,995/-.

For that, the Commissioner of Income Tax (Appeals) erred in confirming the above additions merely out of conjectures, surmises, and suspicions.

For that, the appellant objects to the levy of interest u/s 234A, 234B, and 234C.

The above grounds are taken without prejudice to one another. For these grounds and such other grounds that may be urged before or during the hearing of the appeal, it is most humbly prayed that this Hon'ble Income Tax Appellate Tribunal may be pleased to

The assessee is an individual and filed the return of income for AY 2017-18 on 27.02.2018 declaring total income of Rs.2,49,650/- along with an agricultural income of Rs.25,70,089/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. The A.O called on the assessee to furnish various details pertaining to the agriculture income claimed as exempt by the assessee. The A.O from the details furnished noticed that the assessee is having a coffee estate admeasuring 50 Acres and the assessee is cultivating coffee plants under the name of Merry Land Estate. The A.O further noticed that the assessee has admitted Rs.54,89,725/- from the sale of coffee and claimed expenditure to the tune of Rs.18,54,978/-. The A.O was of the view that the agricultural income offered by the assessee amounting to Rs.25,70,089/- is not in proportion to the sale consideration. The A.O accordingly held that 1/5th of the agricultural income is to be disallowed and to be treated as undisclosed income of the assessee. The A.O further held that the assessee apart from growing coffee is also involved in curing activity of coffee beans and therefore, Rule 7B(1) of Income Tax Rules, 1962 (in short "the Rules") is applicable in assessee's case. Accordingly, the A.O treated 25% of the agricultural income after including income disallowed as the business income of the assessee to make an addition of Rs.7,35,271/-. The A.O treated the difference as the agricultural income as tax purposes. Aggrieved, the assessee filed further appeal before the CIT(A). The assessee submitted before the CIT(A) that Rule 7B(1) of the Rules is not applicable in assessee's case since the assessee is carrying out agricultural operation growing coffee. The assessee further submitted that in order to apply Rule 7B(1) of the Rules, the assessee ought to have carried out the curing process which involves expensive machinery which is not possessed by the assessee. The CIT(A) after considering the submissions of the assessee

The Ld. Authorized Representative (AR) of the assessee submitted that the assessee is deriving income from sale of raw coffee grown in assessee's land which is pulped and dried by her before selling the same. The Ld. AR further submitted that pulping and drying is the simple process of removing the pulp from the coffee fruit, washing the seeds and dry them in open area and the said process is to ensure by the quality of the coffee does not deteriorate before selling it to the curing houses. The Ld. AR also submitted that the said activity is basic and is minimum required to preserve the coffee seeds in good condition till it is sold to the curing houses. The Ld. AR argued that Section 3(d) of the Coffee Act, 1942 defines curing as application to raw coffee a mechanical process other than pulping for the purpose of preparing it for marketing and from the said definition, it is clear that the pulping activity is excluded from the definition of curing. The Ld. AR further argued that when the activity carried on by the assessee does not come within the meaning of curing then Rule 7B(1) of the Rules is not applicable. The Ld. AR also without prejudice argued that the A.O while treating 25% of agricultural income as business of the assessee failed to consider that the gross receipts of the assessee includes a sum of Rs.11,17,810/- from sale of pepper. The Ld. AR submitted a paper book containing certain additional evidences to substantiate the claim that the assessee has sold the coffee seeds to the curing houses and prayed for admissions of the same.

The Ld. Departmental Representative (DR), on the other hand, vehemently opposed the admission of additional evidence stating that the assessee has not made the claim with regard to non applicability of Rule 7B(1) of the Rules before the CIT(A) and that the assessee did not file any documentary evidence.

We have heard the parties, and perused the material available on record. The A.O disallowed 1/5th expenses claimed by the assessee towards agricultural activities and re-computed that the agricultural income declared by the assessee at Rs.29,41,084/-. The A.O treated 25% of the said amount as business income of the assessee by invoking Rule 7B(1) of the Rules stating that the assessee is involved in curing of coffee and therefore as per the Rule 25% of the agricultural income need to be treated as business income. The CIT(A) on further appeal rejected the claim of the assessee stating that curing activity namely dry method does not involve heavy machinery and accordingly upheld the addition made by the A.O. The argument of the assessee is that the assessee carries on only pulping and drying process before the selling coffee to the curing houses and therefore Rule 7B(1) of the Rules is not applicable. In this regard, we notice that as per the definition of curing u/s.3(d) of the Coffee Act, the activity of pulping is specifically excluded. Further, we notice that the curing process involves the following steps:

During the course of hearing, the Ld. AR submitted additional evidences containing confirmations from the parties to whom the assessee is selling the coffee seeds stating that the assessee is selling only a raw coffee for curing process and conversion. Since the additional evidences goes to the route of the issue involved for a proper adjudication of the issue and for substantial cause, the additional evidence is admitted and taken on record. Considering that the additional evidences now submitted by the assessee have not been examined by the lower authorities in the interest natural justice, we deem it fit to remit the issue back to the A.O for considering afresh. The A.O is directed to consider the additional evidences now submitted by the assessee and keep in mind the various stages of curing process as extracted in the earlier part of this order to decide the contentions of the assessee in accordance with law. Needless to say that the assessee be given a reasonable opportunity of being heard. It is ordered accordingly.

In the result, the appeal of the assessee is allowed for statistical purposes.