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Income Tax Appellate Tribunal, ‘C’ BENCH : BANGALORE
Before: SHRI. CHANDRA POOJARI & SMT. BEENA PILLAI
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER Present appeal arises out of the order u/s. 263 dated 15.03.2022 passed by the Ld.Pr.CIT, Bengaluru – 2, Bengaluru for assessment year 2017-18 on following grounds of appeal: “The Appellant objects to the Revision Order passed u/s. 263 on the following grounds in so far as it is prejudicial to the as it is opposed to law and circumstances of the case: - Originally the Appellant has taken only one ground relating to deduction u/s.35(2AB). The following grounds were not taken by oversight. Hence the Appellant is filing Revised Grounds of Appeal as mentioned below.
1. The Pr. CIT erred in invoking the provisions of section 263 of the Act ignoring the fact that the Appellant company's activities falls under Agricultural activities and the said agricultural income is exempt from tax u/s.10(1) of the Act and the same was examined by the A.O. during the course of assessment.
2. The Pr. CIT was not correct in not appreciating the facts that the A.O. has verified the Agricultural income claimed as exempt and allowed the same as exemption from ta, based on the Appellant company's activities, during u/s.143(3) proceedings by calling detailed information in this regard. 3. The Pr. CIT erred in invoking the provisions of section 263 of the Act ignoring the facts that the AO has made detailed enquiry about the allowability of Agricultural income as exempt by issuing specific show cause notice dated 16.12.2019. 4. The Pr. CIT was not correct in directing AO to revise the assessment by invoking he provisions of section 263 relying on the decision of Hon'ble High court in the case of Namdhari Seeds Pvt Ltd without appreciating the facts that the Appellants company activities falls under Agricultural activities and the same is exempt u/s.10(1) of the Act. 5. The Appellant craves leave to add, to alter, to amend or to delete any of the grounds that may be urged at the time of hearing of the Appeal Wherefore on the above grounds and on such other grounds the prays the Appellate Authority to set aside the Revision order passed u/s.263 as above and may pass such other as the Appellate Authority deems fit.” 2. Brief facts of the case are as under: 2.1 The assessee is a company and is into the business of R&D of germ plasm, production of foundation seeds from germ plasm, processing and marketing of commercial seeds in India and abroad. For the year under consideration, the assessee filed its return of income on 29/11/2017 declaring loss of ₹ 6,46,24,711/- after claiming agricultural income of Rs.14,50,17,783/- and deduction u/s. 35(2AB) of Rs.7,52,26,133/-. The case was selected for a complete scrutiny under CASS.
Page 3 of 2.2 The assessment was completed under section 143 (3) of the Act on 23/12/2019. In the assessment order the Ld.AO disallowed ₹ 7,52,26,133/- claimed as weighted deduction under section 35(2AB) of the act in absence of Form 3CL issued by DSIR thereby determining the total taxable income at ₹ 1,06,01,422/- in the hands of assessee. 2.3 The Ld.Pr.CIT, called for the assessment records and examined the exemptions claimed on agricultural income of Rs.14,50,17,783/- by the assessee that was allowed by the Ld.AO in the order passed under section 143 (3) of the Act. He also noted that a sum of Rs.46,44,792/- was deposited in the bank account of assessee during the demonetisation period. 2.4 The Ld.Pr.CIT was of the opinion that, the assessing officer did not make sufficient enquiries to understand the facts behind the agricultural income declared by the assessee. The Ld.Pr.CIT, accordingly issued notice under section 263 of the Act, on 18/03/2021, reproduced as under: “On perusal of your Income Tax assessment records, it is noticed that the assessment concluded by Dy. Commissioner of Income Tax, Circle-2(2)(1) Bengaluru for the assessment year 2017-18 on 23-12-2019 is erroneous and prejudicial to the interest of revenue for the following reason(s); 2. It is seen that scrutiny assessment u/s 143(3) in your case was concluded on 23-12-2019 by assessing the total income at Rs.. 1,06„01,422/- after making addition of Rs.7,52,26,133/- as unexplained deduction u/s 35(2AB) of the Act.
Further it is noticed from the financials that you had claimed exemption of agricultural income u/s 10(1) amounting to Rs.14,50,17,783 /- and the same has been allowed in the order passed u/s 143(3). The company is into the R & D of Germ plasm, production of foundation seeds from germ plasm, processing and marketing of commercial seeds in India and abroad. The basic operation of agriculture is not carried on by the assessee and assessee enters into agreement with farmers and agricultural operations are conducted by farmers.
In decision of Hon'ble Karnataka High Court in CIT V. Namdhari Seeds P. Ltd., it was held that the such income of agri-business firms come under the purview of business income which attracts tax under the provisions of IT Act, 1961. Therefore, the income derived there from does not qualify as agricultural income and has to be treated as business income.
Therefore, you are required to show cause why the income derived by company from sale of commercial seeds amounting to Rs.14,50,17,783 /- should not be treated as business income as it does not qualify as agricultural income. 6. As such, action u/s 263 of IT Act is warranted and the assessment for the assessment year 2017-18 is proposed to be revised accordingly. 7. In this connection, you are hereby given an opportunity of being heard by the undersigned on 23.03.2021 at 3.30 PM at Room No.516, BMTC Building, 5th Floor, 80 Feet Road, Koramangala 6th Block. BENGALURU- 560095. You may appear in person or through your Authorised representative as per Section 288 of the Income-tax Act or furnish your written submission on the above proposal on or before the said date, failing which the proceedings u/s 263 of IT Act will be concluded based on the materials available on record.” 2.5 In response to the show cause notice, assessee filed its objections vide letter dated 23/03/2021 justifying the agricultural income to be exempt as contemplated under section 10 (1) of the Act. 2.6 The Ld.Pr.CIT, after considering the submissions of the assessee passed the 263 order by setting aside the assessment order passed by the Ld.AO, with a direction, to carry out fresh examination of the claim of agricultural income claimed to be exempt by the assessee under section 10 (1) of the Act. 2.7 Aggrieved by the order of the Ld.Pr.CIT, the assessee is in appeal before this Tribunal.
3. All the grounds raised
by assessee are in respect of the validity of the proceedings initiated under section 263 of the Act by Ld.Pr.CIT.
4. The Ld.AR submitted that, the activity carried on by the assessee falls under agricultural operation and is eligible for claim under section 10 (1) of the Act. He submitted that, before the Ld.AO, during the course of assessment proceedings, under section 143(3) of the Act, the assessee filed various details/documents in respect of the claim. Referring to the show cause notice issued by the Ld.AO during the original assessment proceedings dated 16/12/2019, the Ld.AR submitted that, the assessing officer had raised a specific query in respect of the exempt income and the letter filed by assessee dated 19/12/2019 furnishing all the relevant details in respect of the claim. He submitted that, all material facts necessary for completing the assessment was available before the Ld.AO and therefore no prejudice is caused to the revenue.
5. It is the argument of the Ld.AR that, merely because issue was not elaborately discussed in the original assessment order, could not be a ground to invoke revisionary jurisdiction, particularly when, the details were called for by the Ld.AO during the original assessment proceedings. In support of his contention, he placed reliance on the following decisions: Reliance Payment Solutions Ltd Vs Principal Commissioner of Income- tax-8, [2022] 136 taxmann.com 277 (Mumbai - Trib.) K R Mahesha Vs Pr. CIT , Bengaluru — 3, — AY 2016-17, order dated 05.01.2022 Pr. CIT Vs Brahma Centre Development Pvt. Ltd (Delhi —HC) ITA No.116/2011 & 118/2011 dt 05.07.2011 CIT Vs P Sudhar [2015] 61 taxmann.com 17 (Karnataka),
The Ld.AR contended that, the entire proceedings initiated under section 263 of the Act, is based on the decision of Hon’ble Karnataka High Court in case of Namdhari Seeds Pvt.Ltd., wherein, the Hon’ble Court on similar set of facts, denied the claim under section 10(1) of the Act.
The Ld.AR submitted that, the assessee entered into agreement with farmers for production of hybrid seeds and that, the farmers upon the instructions and specifications and guidance by the assessee, carried on with the cultivation of agricultural produce. He submitted that, the assessee not only produces in the leased lands, but it is also producing in its own land, and hence the observation of the Ld.Pr.CIT that, the assessee is not directly involved in cultivating the land is incorrect. 8. The Ld.AR contended that, production of basic seeds as well as hybrid seeds were part of basic agricultural operations carried out by the assessee on its own land as well as on leasehold land and that contract farming did not take away the character of basic operations carried out by the assessee, which were agricultural in nature. 8.1 It is the submitted that, claim of the assessee cannot be denied and that the Ld.AO, while passing the assessment order in the original proceedings verified all these details. He thus vehemently opposed the revisionary proceedings initiated by the Ld.Pr.CIT. 9. On the contrary, the Ld.CIT.DR submitted that, the revisionary proceedings initiated, is based on the fact that there has not been detailed enquiry by the Ld.AO in respect of a liability of Page 7 of agricultural income as exempt from tax. He submitted that lack of enquiry by the Ld.AO in respect of the issue raised in the revisionary proceeding amounts to the assessment order to be erroneous in so far as prejudicial to the interest of the revenue. In support of this argument he placed reliance on following decisions: decision of Hon’ble Karnataka High Court in case of CIT vs. Infosys Technologies Ltd., reported in (2012) 17 taxman.com 203; decision of Hon’ble Karnataka High Court in case of CIT versus Namdhari Seeds Pvt.Ltd., reported in (2011) 16 taxman.com 83 decision of Hon’ble Bombay High Court in case of a than the Ltd versus CIT reported (2021) 124 taxman.com 435. We have perused submissions advanced for both sides in light of records placed before us.
In the present facts, it is not in dispute that, the assessee claimed exemption under section 10(1) of the Act, amounting to Rs.14,50,17,783/-. It is the submission of the Ld.AR that, a specific query was raised by the Ld.AO during original assessment proceedings regarding the exemption claimed amounting to Rs. 14,50,17,783/-. Pages 14-15 of the paperbook filed before this Tribunal is the notice issued under section 143(1) of the Act, wherein specific query relating to agricultural income of Rs.14,50,17,783/- claimed by assessee as exemption was asked/called upon by the Ld.AO for justification. The assessee in response filed following details:
We note that the in paper book filed before us, the assessee has filed copies of above details. The agreement entered into by the assessee with the farmer, is the agreement for raising seed plantations. It is submitted that, all these agreements were filed before the Ld.AO in reply to the query raised, during the original assessment proceedings, in respect of the claim made by the assessee. A sample agreement with a farmer is placed at pages 22-29 of the paper book.
We have perused the agreement with the farmer relied by the Ld.AR. This agreement reveals that, the farmer was absolute owner or the leased land and, the assessee agreed to supply fertilisers and pesticides as per the schedule therein at specified time. It is also agreed by the assessee that, a particular variety of seed would be supplied to the farmer on credit basis. Similar is the position in all the agreement placed in the paper book. 13. Before us, the assessee has not filed any agreement, showing the lands being leased in favour of the assessee. It is submitted that these were the documents filed by the assessee in reply to the query raised by the Ld.AO at the time of original assessment proceedings. Even there are no agreements placed before us that reveals ownership in land by the assessee, on which farming was carried out. 14. From the materials placed before the Ld.AO it is prima facie inferred that the no details are filed by the assessee and the Ld.AO has not verified the exemption claimed by the assessee under section 10(1) of the Act. Thus, in our view, the original assessment is completed without proper enquiries, that necessitated the Ld.Pr.CIT to issue section 263 of the Act. We Page 11 of Hon’ble Karnataka High Court in case of CIT vs. Infosys Technologies Ltd., reported in (2012) 17 taxmann.com 203. Therefore in our view, the decisions relied by the Ld.AR are distinguishable on facts with that of assessee. We therefore do not fine any infirmity in the action of the Ld.Pr.CIT in invoking the provisions of section 263 of the Act. 15. We also note that Coordinate Bench of this Tribunal in assessee’s own case for A.Y. 2016-17 vide order dated 24/04/2022 had upheld the 263 proceedings on identical facts by observing as under: “The Ld.Pr.CIT directed the Ld.AO to carry out necessary verification in respect of the exemption by the assessee under section 10(1) of the Act. This in no manner will prejudice the assessee. We direct the Ld.AO to grant proper opportunity of being heard to the assessee and the assessee is directed to file all requisite details in support of the claim.” Respectfully following the same, we uphold the order passed u/s. 263 of the act. Accordingly the grounds raised by the assessee stands dismissed. In the result the appeal filed by the assessee stands dismissed. Order pronounced in open court on 21st September, 2022.