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Income Tax Appellate Tribunal, SMC-‘B’ BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
Date of Hearing : 10-07-2024 Date of Pronouncement : 30-07-2024 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal arises out of order dated 25.01.2024 passed by NFAC, Delhi for A.Y. 2018-19.
At the outset, the Ld.AR submitted that, there is a delay of 24 days in filing the present appeal before this Tribunal.
It is submitted that, the assessee is residing in Shimogga and had to travel to Bangalore to engage an advocate to represent her case before this Tribunal which caused the delay. It is submitted that, the delay is unintentional and has caused due to circumstances beyond control of the assessee. The Ld.AR has thus prayed for the condonation of the delay of 24 days.
3.1 The Ld.DR on the contrary though vehemently opposed, but could not controvert the fact that substantial justice will not be rendered in the event the appeal is dismissed for technicalities.
We have perused the submissions advanced by both sides in the light of records placed before us.
In our opinion there is sufficient cause for condoning the delay as observed by Hon’ble Supreme Court in case of Collector Land Acquisition Vs. Mst. Katiji & Ors., reported in (1987) 167 ITR 471 in support of his contentions.
4.1 It is also noted that there is no malafide intention on behalf of assessee in not filing the appeal before this Tribunal within time. Nothing is brought on record by revenue to establish any malafide intention before this Tribunal.
4.2 Considering the circumstances under which the delay was caused, we are of the opinion that, there is a reasonable and sufficient cause, made out by the assessee.
4.3 We place reliance on following observations by Hon’ble Supreme Court in case of Collector Land Acquisition Vs. Mst. Katiji & Ors., reported in (1987) 167 ITR 471 wherein, Hon’ble Court observed as under:- “The Legislature has conferred the power to condone delay by enacting section 51 of the Limitation Act of 1963 in order to enable the courts to do substantial justice to parties by disposing of matters on de merits". The expression “sufficient cause” employed by the Legislature is adequately elastic to enable the courts to apply the law in a meaningful manner which subserves the ends of justice that being the life-purpose of the existence of the institution of courts. It is common knowledge that this court has been making a justifiably liberal approach in matters instituted in this court. But the message does not appear to have percolated down to all the other courts in the hierarchy. And such a liberal approach is adopted on principle as it is realized that :
1. 1. Ordinarily, a litigant does not stand to benefit by lodging an appeal late.
2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties. ......................................................1.Any appeal or any application, other than an application under any of the provisions of Order XXI of the Code of Civil Procedure, 1908, may be admitted after the prescribed period if the appellant or the applicant satisfies the court that he had sufficient cause for not preferring the appeal or making the application within such period.” Considering the submissions by both sides and respectfully following the observation by Hon’ble Supreme Court, we find it fit to condone the delay caused in filing the present appeal as it is not attributable to the assessee.
Page 4 of Accordingly, the delay in filing the appeal before this Tribunal stands condoned.
On merits of the case, the Ld.AR submitted that assessee is an individual and filed her return of income for the year under consideration declaring total income of Rs.20,45,770/- and agricultural income of Rs.1,01,77,965/-. The case was selected for limited scrutiny to verify agricultural income declared by the assessee. Accordingly, notice u/s. 143(2) of the act was issued in response to which the assessee filed details as called for.
5.1 During the assessment proceedings, the Ld.AO observed that, the assessee derived income from sale of coffee products that attracted the provisions of Rule 7 of IT Rules, 1962. The Ld.AO was of the opinion that, the income earned by the assessee by sale of agricultural product is classified as business income. The Ld.AO thus attributed 40% of the income as derived from coffee products which was treated as business income liable to be taxed in the same way under the head income from business in the hands of the assessee. Aggrieved by the order of the Ld.AO, assessee preferred an appeal before the Ld.CIT(A).
The Ld.CIT(A) upheld the view taken by the Ld.AO of assessing 40% of the income received from sale of coffee products under the head business income as per Rule 7 of the IT Rules, 1962.
Page 5 of Aggrieved by the order of the Ld.CIT(A), assessee is in appeal before this Tribunal.
The Ld.AR submitted that only issue that is raised by the assessee in the present appeal is in respect of applicability of Rule 7B(1A). He submitted that, the authorities below failed to understand the process that was carried out by the assessee being curing and pulping of coffee beans. He submitted that the authorities below misunderstood the two process of curing and pulping to mean processing of raw coffee beans into finished coffee. The Ld.AR submitted that sub-clause (1A) of Rule 7B is in respect of income that is derived from sale of finished coffee beans into coffee powder ready to consume.
7.1 The Ld.AR emphasized that the product that is sold by the assessee in present fact is not ready to consume, but a raw material that has to be further processed by way of roasting and grounding which leads to the final finished product ready to be consumed. He submitted that, the assessee is only selling raw coffee to parties who further process it to be sold in the open market for consumption. He submitted that the assessee is only carrying out curing and pulping being the initial stage of manufacturing coffee which cannot be treated as a finished product that is referred in Rule 7B(1A) of IT Rules.
7.2 He also referred to the definition of curing that has been relied by Rule 7B(1A) in the Coffee Act, 1942 that reads as under: “3……………………………….
Page 6 of a…………… …………….. d. curing means the application to raw coffee of mechanical process other than pulping for the purpose of preparing it for marketing”………………… 7.3 The Ld.AR further submitted that for year under consideration, assessee also sold arecanut and black pepper. He submitted that the Ld.AO did not bifurcate the total sale proceeds into three parts. He submitted that assessee earned following income from sale of the agricultural products as under: 1) Sale of arecanut – Rs. 53,42,159/- 2) Sale of pepper – Rs. 45,25,900/- 3) Sale of raw coffee – Rs. 32,00,965/- 7.4 The Ld.AR submitted that Rule 7B can be applied only if the assessee is selling finished coffee. He thus prayed for the deletion of disallowance confirmed by the Ld.CIT(A) on the gross sale proceeds.
7.5 On the contrary, the Ld.DR submitted that whether curing includes pulping needs to be verified and whether it amounts to manufacture of finished coffee has not been verified by the authorities below. He thus prayed for the issue to be remanded to the appropriate authority. We have perused the submissions advanced by both sides in the light of records placed before us.
We note that the authorities below treated 40% of Rs.72,25,956/- derived from coffee products making a disallowance of Rs.28,90,832/-. Primarily, we fail to understand the amount that is attributed by the authorities below towards the sale of coffee product. It is found that the Ld.AO proceeded on the premise that the assessee’s activity involves growing and curing of coffee and sells finished coffee products.
8.1 As we understand the process involved in pulping and curing, it is noted that pulping is a process, where coffee beans are plucked from the plant and is directly put into a machine to remove the skin. Whereas curing is a process where after plucking the coffee beans, it is dried for 3 to 4 weeks to reduce the moisture content. The end product after pulping/curing is not the final coffee that could be sold or consumed. After both these process which is independently carried out depending upon the requirement of assessee’s customers who are the coffee manufacturers, it is sold in the market by the assessee. In short, the assessee is only selling raw coffee product which has to undergo further process before it is ready to be consumed. In the instant case, the assessee is carrying out only 10% processing of coffee beans which are then sold directly in the market. That income from the sale of such coffee beans that cannot be readily consumed could not be treated incidental to the business to fall within the garb of Rule 7B.
Page 8 of 8.2 On perusal of the above, it is noted that Rule 7B deals with income end from manufacture of coffee, which means it refers to the income that is derived from sale of coffee that includes various stages of manufacturing, that leads to bringing into existence coffee that is ready for consumption. Thus Rule 7B does not talk about income derived from sale of raw coffee products. In our understanding, the Rule 7B applied to the case of assessee before us does not have legs to stand in the eyes of law. The authorities below did not verify the factual process involved in coffee manufacture and the process undertaken by the assessee. We do not find any merit in the disallowance made by the authorities below that do not have statutory support. Accordingly, we direct the Ld.AO to delete the addition made by applying provisions which is not applicable to the facts of the present case. Accordingly, the grounds raised by the assessee stands allowed. In the result, the appeal filed by the assessee stands allowed. Order pronounced in the open court on 30th July, 2024.