DCIT, CIRCLE-17(2), HYD, HYDERABAD vs. VIBHA AGROTECH LTD., HYD, HYDERABAD

3 ITA.Nos.289 & 331/Hyd./2016 2. The Ld. CIT (A) erred in not allowing the Income admitted by the assessee in the Revised Return of Income as cultivation income. 2.a The Ld. CIT(A) erred in denying the exemption u/s 10(1) of the Act for which the assessee is legally entitled to, merely on technical grounds which is not correct and not justified. 2.b The Ld. CIT (A) ought to have appreciated the fact that total income of Rs.76,18,96,236/ is agricultural income which is exempt u/s 10(1) of the Act 2.c The Ld. CIT (A) ought to have appreciated the fact that the foundation seeds or hybrid seeds produced on contract farming will be the result of agricultural operations and the profit arising out of such activities shall be treated as agricultural income.

3. The Ld. CIT(A) erred in disallowing proportionate R & D Expenditure of Rs.21,07,77,694/ using the provisions of section 14A of the Act without appreciating the fact that the assessee has already added back such expenses to the profit in the computation for the year under consideration.

at any time before or at the time of hearing of the appeal.”

4. Brief facts of the case are that, the assessee company is engaged in the business of research, cultivation, production and marketing of hybrid seeds. The assessee company had filed it’s return of income for the assessment year 2011- 2012 on 24.09.2011 declaring total income of Rs.1,83,13,205/-. The return of income filed by the assessee company has been processed under section 143(1) of the Income Tax Act, 1961 [in short "the Act"] and intimation under section 143(1) of the Act has been issued on 27.01.2012. The case of the assessee company has been selected for scrutiny and notice under section 143(2) and 142(1) of the Act were issued. In response to notice under section 142(1) dated 14.03.2014, the assessee has enclosed copy of revised return filed on 19.02.2014 declaring total

5 ITA.Nos.289 & 331/Hyd./2016 income at Rs.NIL. The Assessing Officer rejected the revised return filed by the assessee on the ground that, the said return has been filed beyond the due date provided under section 139(5) of the Act. Further, during the course of assessment proceedings, the Assessing Officer called-upon the assessee to furnish relevant evidences in support of claim of agriculture income. The Assessing Officer had also called-upon the assessee to file relevant evidences in support of weighted deduction claimed under section 35(2AB) of the Income Tax Act, 1961 [in short “the Act”] towards research and development expenditure. The Assessing Officer after considering the submissions of the assessee, rejected the agricultural income claimed towards sale of foundation seeds on the ground that, the foundation seeds produced by the assessee company are the result of intensive research and other technical inputs and further, the activity of research was inextricably linked and interwoven with the process of growing of foundation seed and both activities, therefore had to be considered together. Production of foundation seeds is not agriculture activity

6 ITA.Nos.289 & 331/Hyd./2016 and that, the income derived from sale of foundation seeds cannot be exempt under section 10(1) of the Act. Accordingly, the Assessing Officer rejected the claim of agriculture income and made addition of Rs.67,08,72,176/- to the total income of the assessee company. Similarly, the Assessing Officer rejected the claim of weighted deduction claimed under section 35(2AB) of the Act on the ground that, the assessee company has not fulfilled the conditions prescribed under Rule 6(4) of I.T. Rules, 1962 including furnishing of relevant Form-3CL from the Competent Authority for approval of in-house research and development expenditure and thus, made addition of Rs.27,58,38,297/-.

5. Aggrieved by the assessment order, the assessee preferred appeal before the learned CIT(A). Before the learned CIT(A), the assessee submitted that, the issue of disallowance of agriculture income is covered by the decision of ITAT, Hyderabad Benches, Hyderabad in appellant’s own case for assessment year 2009-2010, where the Tribunal after considering the relevant submissions, has 7 ITA.Nos.289 & 331/Hyd./2016 allowed the claim of agriculture income under section 10(1) of the Act. The assessee had also challenged the addition made by the Assessing Officer towards disallowance of weighted deduction claimed under section 35(2AB) of the Act. The learned CIT(A) after considering the relevant submissions of the assessee and also by following the decision of ITAT, Hyderabad Bench in assessee’s own case for earlier assessment year, deleted the addition made by the Assessing Officer towards disallowance of agriculture income. Further, the learned CIT(A) upheld the addition made by the Assessing Officer towards disallowance of weighted detection under section 35(2AB) of the Act, on the ground that, the assessee has failed to furnish relevant approval from the Competent Authority in Form-3CL to claim deduction.

6. Aggrieved by the order of the learned CIT(A), the Assessee and Revenue are now, in appeal before the Tribunal.

8 ITA.Nos.289 & 331/Hyd./2016 7. The only issue that came-up for our consideration from grounds of appeal of Revenue is, deletion of addition made by the Assessing Officer towards agriculture income. Dr. Narendra Kumar Naik, Learned CIT-DR for the Revenue submitted that, the learned CIT(A) erred in upholding the claim of the assessee to treat the income from sale of foundation seeds as agriculture income and allowed exemption under section 10(1) of the Act, when the assessee is not entitled for the said claim. Learned CIT-DR further submitted that, to treat the income on the sale of foundation seeds as agricultural income and allow exemption under section 10(1) of the Act, the assessee must maintain separate books of accounts and furnish bifurcation of income from agriculture activity and non- agricultural activity. In the present case, the assessee has not furnished any details and the learned CIT(A) without appreciating the relevant facts, has simply deleted the addition made by the Assessing Officer. Therefore, he submitted that, the Order of the learned CIT(A) on this issue

9 ITA.Nos.289 & 331/Hyd./2016 should be set-aside and addition made by the Assessing Officer should be upheld.

8. None appeared for the assessee. We have heard the learned CIT-DR, perused the material on record and had gone through the orders of the authorities below. The assessee is engaged in the business of plant breeding, research, cultivation, production and marketing of hybrid seeds, foundation seeds and production and marketing of well yielding hybrid seeds and various commercial crops. The assessee has claimed exemption under section 10(1) of the Act on income derived from sale of foundation seeds. The Assessing Officer disallowed exemption claimed by the assessee u/sec.10(1) of the Act on the ground that, the said activity does not fall under agriculture activity and income derived from sale of foundation seed cannot be exempted under section 10(1) of the Act. The CIT(A) deleted the addition made by the Assessing Officer towards disallowance of agriculture income by following decision of ITAT, Hyderabad Benches, Hyderabad in assessee’s own case for the earlier assessment year, where the claim of exemption under section 10(1) of the Act towards income derived from sale of foundation 10 ITA.Nos.289 & 331/Hyd./2016 seed has been allowed. The relevant findings of the learned CIT(A) are under :

11 ITA.Nos.289 & 331/Hyd./2016 12 ITA.Nos.289 & 331/Hyd./2016 13 ITA.Nos.289 & 331/Hyd./2016 14 ITA.Nos.289 & 331/Hyd./2016 15 ITA.Nos.289 & 331/Hyd./2016 16 ITA.Nos.289 & 331/Hyd./2016 17 ITA.Nos.289 & 331/Hyd./2016

ITA.No.331/Hyd./ 2016 – A.Y. 2011-2012 :

19 ITA.Nos.289 & 331/Hyd./2016 11. None appeared for the assessee. We have heard the Learned DR, perused the material on record and the orders of the authorities below. The Assessing Officer disallowed the weighted deduction claimed by the assessee under section 35(2AB) of the Act on the ground that, the assessee has not satisfied the conditions prescribed for claiming deduction by filing necessary evidences including Form-3CK issued by the Competent Authority, certifying the amount eligible for deduction. We find that, the provisions of Section-35(2AB) of the Act mandates that, where a company is engaged in the business of bio-technology or any business of manufacturing and production of article, which is not in the list of 11th Schedule and incurred any expenditure on scientific research, not in the nature of any cost of land or building, on in-house research and development facility which has been approved by the Prescribed Authority which is the Secretary, DSIR, Government of India, then, the assessee shall be allowed sum equal to one and half times of the expenditure so incurred as deduction. Provisions of sub-section (4) provides 20 ITA.Nos.289 & 331/Hyd./2016 that, Prescribed Authority shall submit it’s report in addition to approval of the said facility to the Director General of income Tax in such form and within such time, as may be prescribed. Further Rule 6 of Income Tax Rules, 1962 lays down procedure for making application and approval in the prescribed form which is Form-3CK and the Prescribed Authority is required to grant approval in Form- 3CM. Further, after approval, the assessee shall furnish relevant details of expenditure every year to the Competent Authority and the Competent Authority after satisfying the conditions shall issue Form-3CK, certifying the amount eligible for deduction. In the present case, going by the facts available on record, we find that, the assessee except furnishing approval in Form-3CM, but, could not furnish relevant Form-3CK from the Competent Authority for quantifying the amount of eligible deduction for the year under consideration. Since, the assessee has failed to furnish relevant evidences for claiming weighted deduction under section 35(2AB) of the Act, in our considered view, there is no error in the reasons given by the learned CIT(A)

21 ITA.Nos.289 & 331/Hyd./2016 to sustain the addition made by the Assessing Officer towards disallowance of weighted deduction claimed under section 35(2AB) of the Act. Therefore, we uphold the Order of the learned CIT(A) on this issue and dismiss the appeal filed by the assessee.

Order pronounced in the open Court on 24.09.2025.