RAJASTHAN HORTICULTURE AND NURSURY SOCIETY,JAIPUR vs. INCOME TAX DEPARTMENT, JAIPUR

IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, “B” BENCH, JAIPUR BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI T. R. SENTHIL KUMAR, JUDICIAL MEMBER ITA No.416/JPR/2025 (Assessment Year:2016-17)

Rajasthan Horticulture Vs. ITO and Nursury Society Ward 6(2), III floor Bhawani Singh Jaipur Marg, C-Scheme Jaipur �थायीलेखासं./जीआइआरसं./PAN/GIR No:AABTR 1450J Appellant .. Respondent Assessee by : Sh. S.K. Gogra, CA Departmentby : Sh. Shravan Kumar Meena, CIT Date of Hearing 29.07.2026 Date of Pronouncement 28.10.2026 O R D E R Per Annapurna Gupta, AM:- The present appeal has been filed by the assessee against the order passed by the National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as “Ld. CIT(A)”), dated 27.09.2023 under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).

P a g e | 2 ITA No.416/JPR/2025 Rajasthan Horticulture and Nursury Society 2. The appeal is noted to be delayed for filing by 473 days. An application by way of a notarized affidavit by the assessee seeking condonation of the delay has been filed before us, the contents of which are reproduced hereunder:- I, Sanjay Kumar Sharma s/o. Shri Nand Kishore Sharma, Aged 45 years, resident of 120, Sindhu Nagar, Murlipura, Jaipur do hereby take oath and solemnly affirm as under:- 1. That I am working at the post of Assistant Director-Horticulture, 1.That I am Rajhans, Jaipur and is appointed as officer-in-charge in the Income tax appeal case vide office letter no.:P.7/Nursury/RAJHANS-I/Income Tax Issue/2024-25/3206-09 dt.21.03.2025. 2. That appellant being the Rajasthan State Government society has worked under ministry of Agriculture, Government of Rajasthan and wherein there are several check and balances which are required to be undertaken before initiating any action including filing of appeal. 3. That appeal against the impugned order issued by CIT (A) dt.27.09.2023 vide DIN & Order no. ITBA/NFAC/S/250/2023-24/105618072(1) served on 27.09.2023 on IT Portal is filed (e-filed) on dt.17.03.2025. And it has delayed filed by 1 year and 110 days from the due time allowed as computed as under:-

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That as stated above because of remain under confusion of scope of work of CA firm appointed for preparation of financial statement and getting statutory audit conducted from them. And it was understood that tax appeal work is included in scope of balance sheet statutory auditor whereas while doing communication with the statutory auditor it was denied by both the auditors that tax litigation work is not included in their scope of work. That by going through with above note sheet it is loud and clear that appellant has never slept and file was moving around for appointment of tax professional so that appeal may be filed at the earliest. 5. That because of not having prior experience of handling any tax litigation by appellant and being working under ministry of Agriculture and engaged in work of doing disbursement of funds to agriculturist for development of crop, nursery and it was always deemed that they are providing service to society and therefore no tax can be levied upon them. Apart from this there was a strong belief that appellant is not doing any commercial activity and on perception that Income tax is leviable on commercial activities and therefore under such belief the appeal could not be filed within time. 6. That several times detailed chart of pending demand is prepared by office of RAJHANS and which is quiet evident from the Note Sheet but due to having confusion it has resulted in delayed filing of appeal.

P a g e | 7 ITA No.416/JPR/2025 Rajasthan Horticulture and Nursury Society the initiation of appellate proceedings under the Act. Consequently, the process of deciding upon and initiating tax litigation involves internal consultations, administrative approvals and necessary communications among the concerned officials and professionals. It is further explained that several communications took place within the assessee’s organization and with the concerned professionals in connection with the handling of tax matters and the appointment of an appropriate tax professional for filing the appeal. The delay occurred, inter alia, on account of an ambiguity and misunderstanding regarding the scope of work entrusted to the chartered accountant firm engaged for the preparation of financial statements and conduct of the statutory audit. The assessee was under the bona fide impression that the work relating to income-tax appeals and other tax litigation was also covered within the scope of the engagement of the statutory auditor. However, upon subsequent communication with the statutory auditors, it was clarified by both the auditors that representation and other work relating to tax litigation did not fall within their respective scopes of work. This necessitated further deliberations and efforts for identifying and appointing a suitable tax professional to undertake the appellate proceedings. 4. The relevant office note sheets placed on record indicate that the matter was being processed at various levels for the purpose of addressing the outstanding tax demand and arranging for professional assistance. The assessee has also submitted that detailed charts of pending tax demands were prepared on several occasions by its office, which is evident from the notings and documents maintained in the official file. These

P a g e | 8 ITA No.416/JPR/2025 Rajasthan Horticulture and Nursury Society circumstances lend support to the assessee's explanation that the matter was not deliberately ignored and that the delay arose in the course of administrative processing and the efforts made to determine the appropriate professional assistance required for filing the appeal. 5. Ld. DR, on the other hand, vehemently opposed the condonation of delay contending that the reason brought out by the assessee reflected laxity on his part in pursuing the remedy of filing appeal and therefore the delay ought not to be condoned. 6. We have heard both the parties. 7. The law governing condonation of delay is now well settled. The Hon'ble Supreme Court in Collector, Land Acquisition, Anantnag &Anr. v. Mst. Katiji & Ors.(1987) 167 ITR 471 (SC) laid down that the expression "sufficient cause" occurring in the Limitation Act should receive a liberal construction so as to advance substantial justice. The Court held that when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred. The Court further observed that there is no presumption that delay is deliberate or occasioned on account of culpable negligence or mala fides and that ordinarily a litigant does not stand to benefit by lodging an appeal belatedly. 8. Having regard to the entirety of the facts and circumstances, it is evident that the delay was attributable to a combination of administrative procedures, internal communications, confusion regarding the scope of work of the statutory auditors, the subsequent requirement to appoint a tax professional, and the assessee's bona fide understanding concerning

P a g e | 9 ITA No.416/JPR/2025 Rajasthan Horticulture and Nursury Society the taxability of its activities. The material available on record, particularly the office note sheets and the details of the pending tax demands, lends support to the assessee's contention that the matter remained under consideration within its administrative machinery and that steps were being taken to address the outstanding demand and arrange for filing the appeal.We accordingly condone the delay of 473 days in the filing of the present appeal before us. Order was pronounced in the Open Court. 9. Taking up the appeal for hearing. 10. The grounds raised by the assessee read as under:- 1. That assessment order passed by Ld AO is perverse, illegal, unjustified and bad in law and deserve to be quashed. Ld AO has grosslyerred in appreciating facts as well as in law while passing assessment order u/s.143(3) as same is passed without proper understanding of facts of case and same may please be declared to be illegal be set aside. 2. That Ld AO has grossly erred in treating interest income of Rs. Rs. 11276941/-as taxable interest whereas this interest is not forming part of income of the appellant rather this is forming part of corpus of funds granted by Central Government and is to be utilized be for achieving object of the Society. 3. That Ld AO has grossly erred in not properly appreciating that appellant society is constituted by Government of Rajasthan to support the activities for promotion of agriculture/ horticulture by providing best quality and hybrid types of plants to farmers after the development and research on same. 4. That Id CIT(A) has erred in confirming the order of assessing officer mechanically and without proper appreciating facts and legality of case and therefore same may be please be declared as illegal & be quashed. 5. That the appellant craves leave to add, amend or alter any of the grounds to this appeal and further request to allow to submit the written submission at time ofhearing of appeal. 11. Briefly stated the assessee is registered with Registrar of Societies, Jaipur engaged in the activity for promotion of agriculture and

P a g e | 10 ITA No.416/JPR/2025 Rajasthan Horticulture and Nursury Society horticulture by providing saplings and seedling to farmers grown in its own nurseries. For the impugned year return was filed declaring NIL income. Subsequently, the case was picked up for scrutiny and the AO noted that the assessee had, besides reflecting gross profit from its agricultural activities of Rs.59,62,460/-, had also reflected interest income of Rs.1,12,76,940/- in its profit and loss account as under:-  Interest income Rs.42,94,657/-  Interest income on FDR Rs.69,82,283/- Total Rs.1,12,76,940/- 12. The assessee was asked to as to why the interest income also be treated as exempt. In the absence of any explanation furnished by the assessee, the AO added the entire interest income of Rs.1,12,76,940/- to the income of the assessee as taxable under the head income from other sources. 13. The matter was carried in appeal before the Ld. CIT(A) where none appeared for the assessee. 14. The Ld. CIT(A) noted that similar issue had arisen in the preceding year also in the case of the assessee wherein the matter had travelled to the ITAT and the ITAT had restored the issue back to the AO noting that the assessee for the first time had furnished explanation of the interest income earned and the reason for the same not being taxable in its hand; that it is not the income of the assessee but had to be returned to the Central or State Government or had to be adjusted against future grant to be given to it by the Central or State Government since the interest

P a g e | 11 ITA No.416/JPR/2025 Rajasthan Horticulture and Nursury Society income has arisen on account of grant received from Central or State Government for various projects and the unutilized portion was invested in FDRs. The assessee had contended that the grant received from the Central or State Government was utilized for the purpose forwhich it was given and remaining amount if any returned to Central or State Government and even the interest earned thereon was to be utilized for the purposes of which grant was given. The assessee had referred to instructions issued by the Department of Agriculture and Cooperation of Horticulture Division Government of India Ministry of Agriculture to substantiate its contention that the interest earned on unspent funds was to be added to the respective scheme fund and was to be adjusted for the future utilization of installments. The assessee had relied on the decision of Hon’ble Karnataka High Court in the case of CIT Vs. Karnataka Urban Infrastructure 284 ITR 582 which had held in identical case that the interest accrued could not be treated as the income of the assessee as it was earned out of money given by the Government of India for the purpose of employment of the scheme. 15. The ITAT noted that since the plea was not raised before the Lower Authorities and required verification of fact and accordingly restored the issue back to the AO. 16. The Ld. CIT(A), in the appellate proceedings for the impugned year considered the decision of the ITAT in the case of the assessee for the preceding year but however, in the absence of any submissions made by the assessee before him, held that the decision of the ITAT even if considered by him would not help the assessee, since the relevant

P a g e | 12 ITA No.416/JPR/2025 Rajasthan Horticulture and Nursury Society circulars were not placed before him nor the sanction letters were placed before him. The order of the Ld. CIT(A) in this regard at para 14 to 18 of his order as under:- …… 14.0 The appellant had not complied with any notice issued by the NFAC during the appeal proceedings. The circulars issued by the State and Central Govt. and judicial decisions mentioned are not submitted before the AO or CIT(A) to know whether the same are applicable to the appellant's case. The only substance which can be found accessible to the CIT(A) is the decision of the Hon'ble ITAT, Jaipur in the assessee's own case. The issues in the decision of ITAT are discussed in the subsequent para of the order.

15.0 The appellant had cited the decision of the Hon'ble ITAT, Jaipur in its own case for the AY 2015-16. The ITAT has remanded the matter to the file of the AO for verification of facts as per the directions given therein. The relevant facts of the case and directions of the ITAT are extracted for completeness as under-

"2. .......

In the scrutiny assessment the AO noted that the assessee has credited various amount in the profit and loss account which include interest on FDRs, interest income and misc. income etc. After deducting various expenditure, the net profit was determined of Rs. 2,01,10,247/-and the said income was claimed exemption on account of agriculture income. The AO observed that the above said income is not relatable to any agriculture activity for which exemption is provided. The AOaccordingly, issued show cause notice to the assessee as to why the said income is not assessed to tax. In response thereto the assessee submitted that the assessee received grant from the Central and State Government for various projects and the grant used for the project of the society. It was further submitted that the grant amount and remaining amount after project work and interest is used for the objects of the assessee. Even otherwise the remaining amounts return back to the Central and State Government. The object to invest in FDR is to protect the grant amount from Central and State Government. The AO did not accept the reply and explanation of the assessee and assessed the interest income as income from other sources by disallowing the claim of agriculture income exempt from tax. The assessee challenged the action of the AO before the Id. CIT(A) but could not succeed.

P a g e | 13 ITA No.416/JPR/2025 Rajasthan Horticulture and Nursury Society In support of his contention, he has referred to the instruction no. 20-12/2007 dated 11.08.2009 issued by the department of Agriculture and Cooperation of Horticulture Division Government of India Ministry of Agriculture and submitted that the interest earned on the Central share and other unspent funds available as on 1st April of previous financial year will added to the respective scheme fund as the case may be and the interest amount will be adjusted accordingly for the future release of installment. The Id. AR has thus submitted that the said interest belongs to the Government funds and will be adjusted for the future installment of the Government aid therefore, the same cannot be treated as income of the assessee. In support of his contention, he has relied upon the decision of Hon'ble Karnataka High Court in case of CIT vs. Karnataka Urban Infrastructure 284 ITR 582 and submitted that the Hon'ble High Court while considering an identical issue held that the interest accrued on bank deposits cannot be treated as an income of the assessee as the interest is earned out of the money given by the Government of India for the purpose of implementation of the scheme. The Id. AR has then relied upon the decision of Bangalore Benches of the Tribunal dated 20.04.2016 in case of Karnataka Industrial Areas Development Board vs. DDIT(E) in ITA No. 661/Bang/2014 & 822/Bang/2014. In the view of the decision referred to the above the Id. AR has contended that the addition of interest income made by the AO is not sustainable andliable to be deleted.

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The AO further noted that after debiting the expenses the net profit has been determined at Rs. 2,01,10,247.67/- which was claimed as exemption on account of agriculture income. We further note that the assessee has taken a stand before the AO as well as the Id. CIT(A) that the income earned by the assessee on account of interest received on FDR is agriculture income. Thus, no plea was raised either before the AO or before the Id. CIT(A) that the interest earned by the assessee is on the amount received from the Government being aid given by the Government. Therefore, the assessee has not agitated the claim ofagriculture income before us but a new plea has been taken before us that the interest earned by the assessee is not the income of the assessee but it belongs to the government being part of the aid and liable to be adjusted against the future installment of aid given by the Government. Since, this plea was not raised before the authorities below and it requires verification of the fact whether it is received on the amount of aid deposited with the bank which has not been spent by the assessee or interest was earned on some other received of the assessee on account of its activity therefore, we set aside this issue to the record of the Assessing Officer for verification and afresh adjudication after giving an opportunity of hearing to the assessee."

16.0 The contention made by the appellant before the ITAT needs the scrutiny and the same cannot be taken into consideration on its face value. That is the very reason due to which the Hon'ble ITAT had directed the AO to examine the issue of taxability of interest income earned from the surplus funds invested in FDRs. It is not known whether the said circular issued by the Ministry of Agriculture is applicable to the facts of the appellant's case. One more issue comes up for interpretation is whether the circular issued by the Ministry of Agriculture overrides the law enacted by the Parliament. If so, the CBDT could have given a clarification in the form of circular or notification not to tax the interest earned from the grants received from the Govt. either state or central Govt. Be it as that may be, the govt. agencies and boards runs for the public interest and the grants issued were sanctioned in the budgets of the legislature and/or parliament. Such budget will be confined to a financial year alone. If the funds are un-utilised, the same must be surrendered to the Govt. at the end of the financial year by the grantees. The carry forward of the budget allocations and adjustment to the future grants is against the fiscal policy followed in India. Generally, the grants allocated to the corporations or Govt. agencies/boards etc., after utilization of the grants, the balance funds would be left with the entities for its future financial needs and

P a g e | 15 ITA No.416/JPR/2025 Rajasthan Horticulture and Nursury Society while allocating the grants in future the amounts unutilized will be reduced from the current year grants by the Govt. The funds allocated to a particular purpose are akin to the corpus donations to a trust. Here also, the assessee is a trust but its activities are not covered under definition of charitable purpose. Though the assessee had relied on some decision of the Karnataka state jurisdiction, but how the ratio decidendi is applicable to the appellant's case is not presentedby the appellant before the AO or the CIT(A). Further, allocation letters of grants are not referred by the appellant. Nothing is prevented the appellant to produce the sanction letter of grant and conditions under which the grant is carried forward along with the accrued interest. Suppose considering but without acceptance, even if the circular is speaking about the interest accrued on FDRs to be adjusted against the future grants, it has to be interpreted that the interest mentioned therein is the interest after tax or interest before tax. Hence, the tax issues have to be decided based on the facts specific to the case rather applying blindly when the facts are not known completely.

17.0 The purposes for which the income derived would not determine the nature and head of the income. The interest earned from the idle funds of the appellant would undoubtedly falls under the income from other sources unless the same is allowed as a deduction or exemption. Unless the Union legislature allows a particular item or source of income under the Income Tax Act as not taxable or any other Act passed by the Union legislature having the overriding power on the provisions of the Income Tax Act nothing will prevent taxing a receipt under the Income tax Act. In my view, without sanction of the Parliament or circulars issued by the CBDT, allowing an interest receipt as exempted without sanction of the parliament is illegal and unjustified.

18.0 Without prejudice to the above, the appellant has not provided any details in respect of sources of the Fixed Deposit Receipts (FDRs) and the interest amount earned out of such FDRs, the claim of the appellant cannot be decided under the category of receipts falling under the tenets of circulars of Ministry of Agriculture, Uol. Whether the grants which are basis for the deposits are received from Union Govt. or State Govt. or any other external agency is not known to AO or CIT(A). Irrespective of the above discussion, how the assessee had claimed set off the loss from agriculture against the interest income is not at all explained by the appellant. As per the scheme of the Act, the agricultural income including loss if any is exempted u/c III of the Act. That means, the income or loss generated from the activities provided in the Chapter III of the Act shall not enter in to the income computation under any head of the income. Due to all the facts and law as discussed above, in my view, the interest earned by the appellant for the AY 2016-17 is taxable under sec.56 of the Act. Consequently, the action of the AO is sustained in taxing the interest income fully without allowing any expenditure u/s 57(iii) of the act since no expenditure is exclusively incurred for earning the interest income from the FDRs. With this discussion, all effective grounds raised against the addition(s) made by the AO are dismissed. ……..

P a g e | 16 ITA No.416/JPR/2025 Rajasthan Horticulture and Nursury Society 17. During the course of hearing before us, since it was noted that identical issue in the preceding year in the case had been restored back by the ITAT to the AO, the ld. Counsel for the assessee was asked to submit the status of the proceedings before the AO.The ld. Counsel for the assessee submitted that case was still pending and had not been adjudicated. 18. Further, noting that even the Ld. CIT(A) ruled against the assessee in the absence of any information or document furnished by the assessee substantiating its claim that the interest was earned on grants received from the Central or State Government for specific projects and the said interest was also to be utilized in the said projects and therefore did not constitute its income, we consider it fit to restore the issue to the AO to be decided in accordance with the decision of the ITAT in the case of the assessee for the preceding year i.e. AY 2015-16 ,after verification of all facts and documents placed by the assessee before it. 19. In effect, the appeal of the assessee is accordingly allowed for statistical purposes. Order pronounced in the Open Court on 28.10.2026

Sd/- Sd/- (T.R. Senthil Kumar) (Annapurna Gupta) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated 28.10.2026 Mittali, Sr. PS Copy forwarded to: 1. Appellant

P a g e | 17 ITA No.416/JPR/2025 Rajasthan Horticulture and Nursury Society 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT By Order, Mittali Digitally signed by: Mittali Asst. Registrar DN: CN = Mittali email = mittaligupta34671@gmail.com C = ITAT, Jaipur IN O = Personal Date: 2026.10.30 12:42:18 +05'30'