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Income Tax Appellate Tribunal, BANGALORE BENCH ‘C’, BANGALORE
Before: SHRI A. K. GARODIA & SMT ASHA VIJAYARAGHAVAN
per this order also, the income was determined by the A.O. at the same amount of Rs. 484,92,357/- and similar set off of B/F Losses was allowed.
He submitted that the original order passed u/s 143 (3) on 30.11.2010 is also under challenge as per 2014 and hence, the proceedings u/s 147 are bad in law. Learned DR of the revenue supported the orders of the authorities below.
We have considered the rival submissions and in view of this fact that even as per the assessment order passed by the A.O. u/s 147 also, the income determined before set off of B/F Losses and after such set off is same as was determined as per the original assessment order u/s 143 (3) dated 30.11.2010, it comes out that whatever be the result of assessee’s appeal in those proceedings u/s 143 (3), one thing is certain that there was no escapement of income because the A.O. has already determined and assessed same income as per the original assessment order. Hence, the reassessment proceedings are not valid. We hold accordingly. In view of our this decision, other grounds on merit do not require any adjudication in these proceedings u/s 147.
In the result, this appeal of the assessee is allowed.
Now, we take up the remaining two appeals of the assessee in the proceedings u/s 143 (3) for A. Y. 2008 – 09 and 2010 – 11 in & 1340/B/2014.
In these appeals, although the assessee has raised various grounds but the only grievance of the assessee is about denial of exemption of Rs. 413,57,215/- in A. Y. 2008 – 09 and Rs. 575,98,236/- in A. Y. 2010 – 11 declared by the assessee as agricultural income.
Learned AR of the assessee submitted that in A.Y. 2008 – 09, the assessee declared net agricultural income of Rs. 413,57,215/- comprising of a) Income from Nursery Plant (own) Rs. 38,66,592/-, own farm cultivation Rs. 612,68,641/- and loss from cultivation through farmers Rs. 191,83,172/- totaling Rs. 459,52,061/- and out of this, the assessee treated 10% i.e. Rs. 45,95,246/- as business income and balance Rs. 413,57,215/- was declared as agricultural income. Thereafter, he submitted that as per the judgments of Hon’ble Karnataka High Court in the case of CIT vs. Namdhari Seeds P. Ltd. in of 2007 and in case of CIT vs. M/s Indo American Exports, ITA No. 76 of 2007 followed by CIT (A), income from cultivation through farmers was treated as business income and accordingly, loss from cultivation through farmers Rs. 191,83,172/- should be held as business loss and should be allowed to be carried forward but a)
Income from Nursery Plant (own) Rs. 38,66,592/- and own farm cultivation Rs. 612,68,641/- Thereafter, he submitted that the issue of cultivation on own land and leased land was not before Hon’ble High Court in these two cases and therefore, these judgments are not relevant in respect of these two incomes and in a subsequent judgment of Hon’ble Karnataka High Court rendered in the case of M/s Namdhari Seeds, similar matter as in the present case was remanded to the A.O. He further submitted that no finding is given by the learned CIT (A) in respect of these arguments regarding these two incomes from own land and leased land by saying that this is an afterthought. He submitted that in the present case also, this issue may be remanded to A.O. for a fresh decision in line with the subsequent judgment of Hon’ble Karnataka High Court rendered in the case of M/s Namdhari Seeds. Learned DR of the revenue supported the orders of the authorities below.
We have considered the rival submissions. We find that the relevant portion of the judgment of Hon’ble Karnataka High Court rendered in case of CIT Vs M/s Indo American Exports, of 2007 has been reproduced by the A.O. on pages 3 & 4 of the assessment order dated 31.10.2012 passed u/s 143 (3) r.w.s. 147 and the same is reproduced below for ready reference:-
“The asssessee companies neither have derivative interest in the land nor actually cultivate the land. Even if they cultivate the land, they are not lessees of the land in view of terms of agreement eliminating such relationship. At the most, they cultivate the land on behalf of the farmer or owner. Not only the Karnataka Land Reforms Act such lease is prohibited but the terms specify so, therefore, it is not open to the assessee to contend that is for the concerned authorities to question the same and not under the I. T.Act. Then explanation to Section 37 of the Act also comes in the way. Even if the assessee has benefits u/s 80J or 80HHC of the Act treating the conversion of foundation seeds to certified sees as manufacturing activity, it would not ensure to the benefit of the assessee so far as See. 10(1) of the Act (total exemption). The assessee is not paying any rent per acre to the farmer and is not giving anything in kind like produce to the farmer. The assessee only pays a fixed price of RS. 3200/- per quintal or any other price depending upon the terms of the agreement for foundation seeds grown by the farmer. Farmer has to agree that the seeds grown by him will be subjected to process of cleaning and grading. The assessee-company could have paid the rent or a particular amount per acre for the lease of the land. They are not paying farmer any other amount towards the labour or supplying any input. The only payment they are making is the so called compensation at a specified rate per quintal as agreed. If the farmer has to arrange the labour and pay the labour charges and also spend money for other operations either basic or subsequent operations, he can only take advance amount from the assessee and such amount paid by the assessee would be deducted from the so called compensation to be paid for the qualified foundation seeds at the end by the assessee. The entire terms of agreement would only indicate that the foundation seeds grown by the farmer would be purchased by the assessee at the end for a certain price provided sees qualify the specifications as per the agreement. It is nothing short of a fertile womb being offered by a surrogate mother for the growth of child of someone else. The assessee supervises and oversees the sowing, cultivation right from the process of sowing till the end in order to get the qualified foundation seeds as per the specifications so as to carry on his trade in selling certified sees. The main interest of the assessee is to see that goad and healthy seeds are produced by the farmer meeting the requirement specified by it. Such input or scientific method in giving advice to the farmer cannot be termed as either basic agricultural operation or subsequent operations ordinarily employed by the farmer or agriculturist. If the basis operations of agriculture are not carried on by the assessee- .company, then the harvested foundation seeds cannot be termed as integrated part of the foundation activity of agriculture. Therefore even if we agree that the mechanical process of agricultural operations either basic operations or subsequent operations would not be an impediment to make such operations as agricultural operations, the question is whether, such operations are conducted by the assessee or the farmer or someone else. The entire reading of the terms of the agreement would only indicate that assessee company was interested only to have healthy foundation seeds grown for the process of converting the same as certified seeds. Therefore the view of the first appellate authority that 100% of the operations upto conversion of the foundation sees as agricultural activity conducted by the assesessee company and therefore income deserves to be exempted from tax under section 10(1) of the Act is erroneous. Similarly Exemption given by the Tribunal for 90% of the Income is also erroneous. We opine that the Tribunal was justified in treating 10% of the Income as business income which involved processing of foundation seeds to certified seeds. In that view of the matter, we hold that the entire income amounts to business income of the assessee and Assessing Officer was justified in treating the total income as business income. As a matter of fact for Some of the assessment years based on the opinion of one of the senior counsel on taxation Mr. K.R. Prasad, the assessee company offered its income as business income and even claimed deduction u/s 80HHC of the Act. In view of the above discussion and reasoning, we answer the substantial question of law in favour of the Revenue and against the assessee".
From this judgment as reproduced above, it is seen that it is noted by the Hon’ble Karnataka High Court that the assessee in that case was neither having derivative interest in the land nor actually cultivated the land and wherever they cultivated the land, they were not lessees of the land. Hence it is apparent that the cases where the assessee has cultivated the land and not given to other farmers for cultivation and the land is owned by the assessee or the assessee is a lessee of such land, this judgment cannot be made applicable and the issue has to be decided on the basis of the facts of the case independently. Since this was not done by the authorizes below in any of these two years, we feel it fit and proper that this matter should go back to the A.O. for a fresh decision as per law in both years after providing adequate opportunity of being heard to the assessee. We order accordingly.
In the result, these two appeals of the assessee are allowed for statistical purposes.
Now we take up the appeals of the revenue in 1331/B/2014.
The grounds raised by the revenue in both years are identical except difference in amount and hence, the same are reproduced from ITA No. 1330/B/2014. These are as under:-
“1.The order of the ld. CIT(A) is opposed to law and facts and circumstances of the case.
The ld. CIT(A) erred in coming to a conclusion that the profit to the extent of Rs.5,46, 26,149/- comes under provisions of section 10 and hence under the purview of clause (ii) of Explanation-I to Sec.115JB(2)a without appreciating that the AO appellate authorities upto the High Court have held that the concerned receipts are not from agricultural activity but from business and therefore, the receipt of Rs.5,46,26,149/- is not reduceable under clause (ii) of Explanation-I to Sec.115JB(2).
The CIT(A) erred in holding that the Supreme Court decision in the case of Appollo Tyres Ltd. Vs CIT reported in255 ITR 273 is applicable and the AO is not empowered to make the adjustment to the book profit without appreciating that the so-called agricultural income is already credited to the profit and loss account and by holding it to be the business income, the question of exclusion from the book profit as claimed by the assessee do not arise and as such it does not amount to change of book profit b y the AO.
For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the CIT(A) be reversed and that of the AO be restored.
5. The appellant craves leave to add, to alter, amend or delete any of the grounds that may be urged at the time of hearing of the appeal.
Learned DR of the revenue supported the assessment order and learned AR of the assessee supported the order of CIT (A).
We have considered the rival submissions. We find that the issue in dispute is this as to how much is the amounts of agricultural income exempt u/s 10 and accordingly is to be reduced from Book Profit to be computed u/s 115JB in these two years. Since, the issue about quantum of agricultural income exempt u/s 10 has been restored by us to the file of A.O. for fresh decision in both years, this issue about computation of Book Profit u/s 115JB is also to be restored back to the A.O. for a simultaneous decision. We order accordingly and set aside the orders of CIT (A) on this issue in both years and restore this matter to A.O. for a fresh decision on this aspect also in both years after providing adequate opportunity of being heard to the assessee.
In the result, both the appeals of the revenue are allowed for statistical purposes.
In the combined result, the appeal of the assessee in 147 proceedings for A. Y. 2008 – 09 in is allowed and the remaining two appeals of the assessee and two appeals of the revenue are allowed for statistical purposes.
Order pronounced in the open court on the date mentioned on the caption page.