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Income Tax Appellate Tribunal, DELHI BENCH “H”: NEW DELHI
Before: Shri C.M. Garg & Dr. B.R.R. Kumar
O R D E R PER C. M. GARG, J. M.: 1. This appeal has been filed by the assessee against the order of the ld PCIT, Noida dated 25.03.2022 for AY 2017-18. 2. The assessee has raised the following grounds of appeal:- “1. That the impugned order of learned PCIT u/s 263 of the Income Tax, 1961 is illegal in holding that contract farming agreement was not reliable. The reasons given by her are contrary to facts and law
2. That the Ld. PCIT is also not justified in holding that agreement between the assessee & Avyukta Industries Pvt Ltd was collusive.
3. That the Ld. PCIT is also factually wrong in mentioning that the assessee had failed to answer query No (v) of show cause notice 21.2.22 & 9.3.22 and also not filing the evidences in support of the evidences particularly when the assessee had complied with directions by filing the proper replies dated 14.3.22 manually & 21.3.22 through portal.
4. That reason given by the PCIT in para 4.4 is not relevant since the company Avyukta Industries Pvt Ltd was in existence in the year under consideration 5. That doubts raised by the PCIT are not based on any evidence. 6. That observations of PCIT in para 4.6 is also wrong by adopting incorrect criteria 7. That considering the facts on record and the legal position, the PCIT is wrong in directing the AO to make addition instead of directing the AO for adjudicating the issue after giving proper opportunity of hearing and considering the material & evidences. which have already been furnished before the PCIT and further evidence which may be furnished by the assessee in support of the claim.”
3. The ld counsel of the assessee submitted that the impugned order of ld PCIT u/s 263 of the Income Tax, 1961 is illegal in holding that contract farming agreement was not reliable. The reasons given by her are contrary to facts and law. He further submitted that the Ld. PCIT is also not justified in holding that agreement between the assessee & Avyukta Industries Pvt Ltd was collusive. The ld counsel explaining the facts of the case submitted that the ld PCIT has also factually wrong in mentioning that the assessee had failed to answer query No (v) of show cause notice 21.2.22 & 9.3.22 and also not filing the evidences in support of the evidences particularly when the assessee had complied with directions by filing the proper replies dated 14.3.22 manually & 21.3.22 through portal. The ld counsel submitted that the doubts raised by the ld PCIT are not based on any evidence and the reasons given by the ld PCIT in para 4.4 are not relevant since the company Avyukta Industries Pvt. Ltd was in existence in the year under consideration. The ld counsel vehemently submitted that the observation of the Ld PCIT in para 4.6 of impugned order are also incorrect and perverse considering the facts on record and the legal position and submitted that the observation of the PCIT in para 4.6 is also wrong by adopting incorrect criteria. He further submitted that considering the facts on record and the legal position, the PCIT is wrong in directing the AO to make addition instead of directing the AO for adjudicating the issue after giving proper opportunity of hearing and considering the material & evidences, which have already been furnished before the PCIT and further evidence which may be furnished by the assessee in support of the claim.
4. Drawing our attention towards show cause notice issued by Ld PCIT vide dated 03.02.2022, the ld counsel submitted that the ld PCIT has picked up the sole issue for invoking revisionary jurisdictional i.e. net agricultural income of Rs. 97,74,720/- which was considered and adjudicated by the AO after sufficient and adequate enquiry by way of issuance of notice dated 12.04.2019 along with questionnaire wherein, AO specifically asked the assessee to furnish details and documentary evidence regarding agricultural income earned during FY 2016-17. The ld counsel submitted that the said notice was replied by the assessee vide letter dated 06.06.2019 enclosing Annexure 1 to 8 available at page 44 to 74 on assessee’s paper book, which clearly reveals the factum of earning of agricultural income by the assessee by taking on lease the agricultural land from agriculturist and thereafter, cultivation operation on entire stock of fresh vegetable being highly perishable was sold from the farm to purchaser directly on lump sum basis to M/s. Avyukta Industries Pvt. Ltd. Drawing our attention towards tenancy agreement with the agriculturist and purchaser agreement with Abyukta Industries Pvt. Ltd the ld counsel submitted that the assessee company has received almost entire payment of purchaser company was made in the ICICI Saving Bank account through account payee cheque or RTGS/ NEFT. Therefore receiving of sale proceed after goods/agricultural produce sold in market cannot be doubted and the AO took a plausible view after taking into consideration on record the relevant said documentary evidence of assessee. The ld counsel, therefore, submitted that the assessment order cannot be alleged as erroneous and prejudicial to the interest of revenue therefore, revisionary order may kindly be quashed or set aside. The ld counsel submitted that the ld PCIT has set aside the scrutiny assessment order dated 04.07.2019 and directed the AO to make addition of Rs. 97,74,720/- under the head “income from other sources” by considering the alleged agricultural income as unexplained which is not only perverse and incorrect but not valid and sustainable therefore, same may kindly be quashed.
5. The ld counsel has placed reliance on the following judgments:- 1. Malabar Industries Ltd vs CIT passed by Hon'ble Supreme court in civil appeal no 3646/1993 2. PCIT vs Brahma Center Development Pvt Ltd passed by Hon'ble Delhi High court ITA 116/2021 3. Rakesh Builders vs DCIT passed by Hon'ble ITAT Mumbai in ITA 2102/2008 4. CIT vs Poddar Cement passed by Hon'ble Supreme court in TRC no 9-10 of 1986 5. Rakesh Kumar vs CIT passed by Hon'ble ITAT Delhi in ITA 6187/2015 6. Replying to the above the ld CIT DR supporting the revisionary order passed u/s 263 of the Act submitted that the ld PCIT after perusal of the assessment records issued show cause to the assessee and taking into consideration reply/ written submissions of assessee set aside the assessment order which was apparently erroneous and prejudicial to the interest of the revenue. The ld CIT DR submitted that the Ld PCIT in para 4.1 to 4.8 evaluated the factual position of claim of assessee and thereafter find that the AO accepted the version of the assessee without making any inquiry or verification. The ld CIT DR submitted that the AO by accepting un-substantiated, vaying and disjointed claims of the assessee, failing to conduct detailed and legitimate inquiries and thus AO utterly failed to conduct meaningful investigation/examination the claim of the assessee essential to determine the actual total taxable income of assessee. Therefore, the ld PCIT was correct in setting aside the assessment order particularly when the AO has failed to notice of all relevant facts and also failed to examine the correctness or otherwise of the claims and assertion by the assessee regarding exempt agricultural income. The ld PCIT submitted from the assessment it is clearly evident that the AO has failed to apply his mind and discharge his duty as Assessing Officer, therefore, the ld PCIT rightly held that the assessment order is erroneous and prejudicial to the interest of revenue. The ld CIT DR finally submitted that the appeal of the assessee being devoid of merit may kindly be dismissed.
On careful consideration of the above submission from the assessment order dated 04.07.2019 passed u/s 143(3) of the Act for AY 2017-18, first of all, we note that the case of the assessee was selected for limited scrutiny on the issue of claim of exemption of agricultural income. From the para 1 of the assessment order we note that the AO issued notices u/s 142(1) of the Act along with questionnaire on issued on 06.02.2019 requiring the assessee to furnish certain details/ information regarding his claim of earning exempt agricultural income. In response to said notice issued online through ITBA the assessee responded online from time to time and furnished details and replies to the queries raised by the AO during the assessment proceedings. In Para 2 of the assessment order the AO considered the facts of the case and adjudicated the issue of claim of assessee earning exempt agricultural income. The AO noted that the assessee was engaged in the agricultural operation i.e. growing vegetables carried out on agricultural land, taken on lease from agriculturist through farm business tenancy right. The AO further noted that the entire stock of fresh vegetables was sold from the farm by directly sold to purchaser on lump sum basis to M/s. Avyukta Industies Pvt. Ltd. From the copies of the income tax return along with computation of income, copy of bank statement and various other details, deeds, agreement and other documents examined and verified the facts pertaining to the claim of assessee and thereafter accepted the return of income of assessee and claim of exempt agricultural income.
The ld PCIT in the show cause notice dated 03.02.2022 alleged that agreement dated 10.04.2016 executed between the assessee and Smt Binita is neither registered nor notarized. Placing reliance on the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Poddar Cement Pvt. Ltd, in TRC No. 9-10 of 1986, order of ITAT Mumbai Bench in the case of Rakesh Builders Vs. DCIT in the ld counsel submitted that the in the income tax act there is no such legal requirement that the agreement should be registered or notarized and the same should be accepted when both the parties agreed that the agreement as acted upon and in such a situation the fact of giving land or property on rent or lease cannot be disputed. The ld PCIT has also alleged that agreement between the assessee and purchaser Avyunkta Industries Pvt. Ltd is neither registered and nor notarized and company has struck off from Registrar of Companies records and company was not engaged in any agricultural activity. The ld counsel by placing copies of record of ROC submitted that the assessment was completed by AO on 04.07.2019 and company has been struck off w.e.f. 25.02.2019 therefore, it was accepted to AO to take a note of the fact that purchaser has been struck off from the ROC records. We are in agreement with the contention of the ld counsel of the assessee that is wrong to allege that the purchaser M/s. Avyukta Industries Pvt. Ltd was not engaged in the business of agricultural activity on the other hand, it is amply clear that the said company was engaged in purchase and marketing of agricultural produce in bulk which is in consonance with the memorandum of association of the company supported with audited balance sheet which was produced before ld PCIT and the same has been overlooked while passing the impugned revisionary order.
In the second show cause notice dated 21.02.2022 the ld PCIT also alleged that exact measurement of land taken on lease, e.g. the khata/ khasra no, location area etc was not found in total agreement and agreement was made for three years and there was no mention of termination clause therein. The ld PCIT also alleged that the signature of the parties are on the last page and not on other pages. In this regard the ld counsel submitted that the agreement was made on standard form.
Since the case was picked up for limited scrutiny therefore, other deficiencies in the agreement cannot be taken into consideration for alleging the assessment order as erroneous and prejudicial to the interest of the revenue. The ld PCIT in the said second show cause notice also alleging discrepancies in the rent paid deposit on huge cash and transfer to the HUF also alleged that after agreement on 10.04.2016 first purchase was made on 10.05.2016 and vegetables cannot be grown so early. It was also alleged that the AO failed to obtain copy of all bills/ vouchers/ invoices in respect of all purchases against the seeds, insecticides pesticides etc, expenses against manpower employed and water charges and expenses on sale of vegetables. The ld PCIT also alleged that the assessee has declared gross agricultural income Rs. 1,16,27,720/- in the ITR and as per ledger account in the books of M/s. Avyukta Industries Pvt. Ltd total receipts were only Rs. 1,06,27,720/-.
The ld Counsel submitted the provision of section 263 can only be invoked on cumulative satisfaction of twin condidiotns viz. of the order being erroneous in law and the order ebing prejudicial to the interest of revenue and these conditions should be applied simultaneously. The ld counsel drawing our attention towards reply to the show cause notice submitted that factually mistakes in the lease agreement does not make it doubtful or unacceptable when the assessee and farmer have acted upon. Ld counsel also pointed out that the payment of lease rent was not an issue in the limited scrutiny and the details of payment to the farmers was submitted at page 24 wherein, the land rent was Rs. 2,21,071/- and machinery rent was of Rs. 76,579/- for 6.809 hecre of land. Therefore, the assessment order cannot be allege as erroneous and prejudicial to the interest of revenue on this patty factual discrepancy. The ld counsel submitted that the difference in the receipts as per ledger of purchaser company and agricultural income shown by the assessee was occurred due to the reason that almost major part of vegetable were sold to said firm but some vegetables have also been sold in the open market in cash therefore, the agricultural income has been shown in the higher side and the same has been deposited in the bank account of the assessee as cash. Sale proceeds of agriculture produce/ vegetables.
In view of the above noted point raised by the ld PCIT in the show cause notices and the reply of the assessee we find that the discrepancy or deficiency of documentation which was out of purview of limited scrutiny cannot be taken as basis for alleging the assessment order is erroneous and prejudicial to the interest to the revenue. So far as the earning of agricultural income is concerned the AO has make sufficient enquiry by issuing notice u/s 142(1) of the Act and after considering the detailed reply of assessee supported with documentary evidences copy of which is available at page 44 to 79 of the assessee’s paper book. From covering letter of said reply we clearly note that the assessee submitted power of attorney in original, copy of income tax return, details of agricultural income of Rs. 97,74,920/-, net of expenses occurred to assessee on agricultural derived carried out on agricultural land taken on lease from agriculturist through farm business tenancy. The assessee also submitted respective agricultural land holding documents and revenue records (khasra Khatiyan) of respective agriculturist with whom he entered into lease agreement. The assessee also submitted the details of cultivation operation of agricultural land on grown vegetables four times during FY 2016-17 and copy of agreement with purchaser company as Annexure 5. The assessee also submitted the copy of bank statement showing receipt of sale proceeds of vegetables from the purchaser company through bank through account payee cheque RTGS/ NEFT ledger account statement of purchaser company along with calculation of agricultural income earned during the relevant financial period.
In view of the above exercise undertaken by the AO we are compelled to hold that the AO has made sufficient and adequate enquiry on the sole issue under the purview of limited scrutiny and thereafter, accepted the claim of assessee regarding exemption of agricultural income.
Thus, we are not in agreement with the conclusion drawn by the Ld. PCIT that the AO has allowed claim of assessee without making any inquiry or verification. On the other hand, as we have noted above the AO has taken a plausible and sustainable view after detailed examination and verification of claim of assessee earning exempt agricultural income therefore, the assessment order cannot be alleged as erroneous and prejudicial to the interest of revenue. Our conclusion gets supports from the judgment of Hon'ble Supreme Court in the case of Malabar Industries ltd Vs. CIT. The ld counsel has relied on the order of the ITAT Delhi Bench in the Rakesh Kumar Vs. CIT wherein, it was held that when the AO has raised specific question on the issue of verified required details then it cannot be said that the assessment order is erroneous and prejudicial to the interest of the revenue. In our considered opinion, in such a condition the conclusion drawn by the ld PCIT to set aside the assessment order is not correct and sustainable.
In view of the foregoing discussion, we reached to a logical conclusion that the ld PCIT was not correct in invoking revisionary order u/s 263 of the Act and setting aside the assessment order and asking the AO to treat the agricultural income as unexplained income of the assessee. Accordingly, grounds of assessee are allowed and revisionary order passed u/s 263 of the Act dated 25.03.2022 is set aside by restoring the limited scrutiny assessment order 04.07.2019 for AY 2017-18.
In the result, the appeal is allowed. Order pronounced in the open court on 18/08/2023.