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Income Tax Appellate Tribunal, Hyderabad ‘ A ‘ Bench, Hyderabad
Before: Shri A. Mohan Alankamony & Shri S.S. Godara
IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ A ‘ Bench, Hyderabad (Through Video Conferencing) Before Shri A. Mohan Alankamony, Accountant Member AND Shri S.S. Godara, Judicial Member Assessment Year: 2015-16 Smt. Vyjayanthi Vs. Income Tax Officer, Mudapaka, Ward 11(1), Hyderabad. Hyderabad. PAN No.AGCPM5127G. (Appellant) (Respondent) Assessee by: Shri KC Devdas. Revenue by: Shri Rajendra Kumar. Date of hearing: 21.12.2022 Date of pronouncement: 03.02.2022 O R D E R Per S. S. Godara, J.M.
This assessee’s appeal for A.Y. 2015-16 arises from the Principal Commissioner of Income Tax, Hyderabad – 2’s order dated 28.03.2021 in case No.ITBA/REV/F/REV5/2020-21/ 1031854464(1), involving proceedings u/s 263 of the Income Tax Act, 1961 [in short, ‘the Act’].
Heard both the parties. Case file perused.
The appeal filed by the assessee is barred by limitation by 11 days. She has moved a condonation explaining reasons thereof. We have heard both the parties on this preliminary issue. Having regard to the reasons given in the petition, we condone the delay and admit the appeal for hearing.
3. The assessee pleads the following substantive grounds in the instant appeal :
“1. The order of the Pr CIT-2, Hyderabad in holding that the operations carried on by the appellant were not agricultural in nature is totally contrary to the facts and evidence on record and therefore unsustainable both on facts and in law.
2. The Ld. Pr.CIT failed to note that the income derived from some of the banana saplings which are subject to rigorous operations culminating in production and sale of banana samplings by adopting tissue culture methodology and therefore erred in coming to an erroneous conclusion that the order passed by the ITO, Ward 11(1), Hyderabad (AO) was erroneous and prejudicial to the interest of Revenue.
The Ld. Pr. CIT failed to note that the subject matter of issue namely whether the activity carried on by the Appellant that is production and sale of banana saplings by carrying out various phases to make the production marketable is an agricultural activity and therefore the Assessing Officer was right in concluding that the operations carried out by the Appellant was agriculture in nature and the income arising there from was exempt.
4. The Ld. Pr. CIT on a wrong foundation of reasoning, misconception of facts and nonappreciation of the operations carried out by the Appellant came to an erroneous conclusion that the assessment order passed by the A.O. was erroneous and prejudicial to the interest of Revenue.
5. The Ld. Pr. CIT failed to note that the Assessing Officer in an order passed u/s.143(3) on 28-.12.2017, after application of mind in relation to the queries raised and explanations tendered by the Appellant about its operations and rightly came to the conclusion that the income earned by the Appellant was agricultural income and totally exempt u/s. 2 of the Income Tax Act,1961.
6. Without prejudice to any of the aforesaid grounds the Ld. Pr. CIT failed to note that the issue involved was capable of more than two views and the Assessing Officer having adopted one of them the Principal CIT failed to note that under such circumstances an order cannot be said to be prejudicial to the interest of Revenue.
7. The Learned Pro CIT failed to appreciate that the Appellant's unit was registered with government authority as carrying on horticulture activity and is therefore eligible for exemption U/S 2(1A) of the Act as agriculture operations.”
We advert to the basic relevant facts. This assessee is stated to be engaged in the activity of production and sale of tissue cultured plants. She had filed her return for the impugned assessment year on 16.02.2016 admitting total income of Rs.1,72,450/- with agricultural income amounting to Rs.28,66,940/-. The Assessing Officer framed the impugned assessment on 28.12.2017 accepting the same thereby treating her as eligible for exemption under Explanation 3 to 2(1A) r.w.s. 10(1) of the Act.
Case file suggests that learned PCIT thereafter sought to invoke section 263 revision jurisdiction thereby terming the foregoing regular assessment as an erroneous one causing prejudice to the interest of Revenue. She proposed to treat the assessee’s income arrived from banana saplings as a business activity than that derived from agricultural operations eligible for the foregoing exemption. The assessee strongly contested the PCIT’s notice to this effect. We note from a perusal of PCIT’s detailed discussion at para 6 that she has thrown very much a detailed light on the entire process adopted in assessee’s line of business as under :
“6. Before proceeding to the submission of assessee, it is pertinent to understand the nature of activities carried out by the assessee. The assessee is in business of producing and selling banana saplings by adopting tissue culture methodology. On verification of the information furnished by assessee, information furnished in the case of Sri Madhu Velayudhan during assessment proceedings for AY 2016-17 related to same nature of business and information available on various sources on internet etc, The process of producing said plants through tissue culture involved following steps: (i) Phase Zero: At this stage, steps taken before the actual process of tissue culture is initiated. It involves selection of appropriate mother plant and keeping it decease free in natural conditions of land. Assessee under consideration is not carrying out any activity at this stage. The present assessee clearly explained in her submission that the suckers are collected from the well maintained banana field and also booked expenditure of Rs.1,07,700/- towards suckers purchase of plants. Thus it is evident that the mother plants are being purchased from the banana farms and not grown by assessee herself by application of human labour and energy on the land. (ii) Phase One - Selection of mother plant: An actively growing healthy shoot tip of auxiliary or terminal bud or shoot-tip of plant is being selected as mother plant. This mother plant maintained under sterile conditions and treated with disinfectant followed by sterile water wash to prevent microbial contamination. (iii) Phase Two - Shoot Generation and propagation: The above mother plant cut into small pieces exposed to light and transferred to specific culture media in glass bottle containing a mixture of chemicals i.e. mixture of nitrogen, phosphorus, potash, vitamins etc. To this, Agar which is a sea product and RO water is added. The piece of sucker is kept in the said media for 3-4 weeks. (iv) Phase Three - Root Generation: The developed shoots are aseptically transferred to fresh medium supplemented with growth regulator which promotes root initiation. Rooting takes place after 2-3 weeks of incubation in the growth rooms. The rooted plants are called plantlets. The plantlets are taken out of the agar and planted in small cups containing sawdust, sand and other substances. These plants are called Ex Agar. (v) Phase Four - Primary and Secondary Hardening: The well rooted plantlets from the culture vessel are removed and washed off agar gently and planted in sterile soil medium and transferred to green house where uniform temperature and relative humidity is maintained. This is called primary hardening and after 4-6 weeks they are shifted to shade house and kept till the plantation in main farm. It is evident from the above discussion that the plant tissue culture is used 'to reproduce clones of plant to get multiple plants with same traits by placing various tissues of the mother plant in containers and required medium which is definitely not consisting of land or soil.”
As per Section 2(1A) in The Income- Tax Act, the term "agricultural hc.or;-.es means- (a) Any rent or revenue derived from land which is situated in India and is ='5SC for agricultural purposes; (b) Any income derived from such land by-
She has thereafter quoted a catena of case law that such an exemption claim accepted at the Assessing Officer’s behest during the course of the impugned regular assessment has been without any factual verification and had therefore, this is a fit case to invoke section 263 revision jurisdiction. This leaves the assessee aggrieved.
7. Learned counsel vehemently contended during the course of hearing that the PCIT’s impugned order has erred in law and on facts in taking recourse to section 263 revision jurisdiction thereby holding the impugned regular assessment to be an erroneous one causing prejudice to the interest of revenue. Mr. Devdas has filed the assessee’s twin paper books running into 69 pages on all factual details and 85 pages compiling the relevant case law; respectively. He failed to rebut the most clinching fact that the Assessing Officer’s regular assessment herein had nowhere carried out the necessary factual verification before holding the assessee eligible for the impugned section 2(1) exemption of agricultural income. We make it clear that the PCIT has elucidated the detailed process in tissue culture activity which had neither been examined by the Assessing Officer nor the assessee had filed the corresponding details. We also deem it appropriate to quote that the legislative amendment made in section 263 by way of insertion of Explanation 2 in Finance Act, 2015 w.e.f. 01.06.2015 that an assessment order passed without making enquiry or verification is deemed to be an erroneous one in so far as it is prejudicial to the interest of Revenue. We thus uphold the learned PCIT’s revision jurisdiction direction herein in principle. It shall however be open to the assessee to raise all factual as well as legal arguments before the Assessing Officer in support of her impugned exemption claim as per law; if so advised in consequential proceedings. The assessee fails in all of her substantive grounds.
This assessee’s appeal is dismissed in above terms.
Order pronounced in the Open Court on 3rd February, 2022.