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02-11-2018, Nath Bio Genes, Section 10(1), 133(6), 17(1)(a), Tribunal Pune

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1 week 3 days ago #7654 by amit
Section - 10(1), 133(6), 17(1)(a), 17(1A), 14A
Order Date - 02-11-2018
Favouring - Assessee
Court - Tribunal Pune
Appellant - ITO
Respondent - Nath Bio Genes (I) Ltd.
Citation - 1118Taxpundit73
Appeal No. - ITA No. 642/PUN/2015
Asstt. Year - 2011-12



There are 4 appeals filed by the Revenue under consideration involving assessment years 2011-12 to 2014-15. In all these appeals, the common issue raised by the Revenue relates to allowability of exemption u/s.10(1) of the Act in respect of the claim of agricultural income The assessee claims that it is engaged in production of specialized seeds in the leased lands, (1) making of certified seeds; (2) undertaking other processing activities and finally (3) trading of the said certified seeds. Assessee also engaged in the trading activity of the said seeds too. Considering the commonality of the facts, issues, the arguments of the counsels etc., we are of the opinion that all these appeals should be heard together for passing a composite order. For the sake of reference the grounds for A.Y. 2011-12 are extracted here as under :

“(a) Whether on the facts and in the circumstances of this case, assessee’s income from its seed production activity is exempt under section 10(1) of the Income Tax Act, 1961.

(b) Whether on the facts and in the circumstances of this case, the land utilized for production of seeds can be termed as assessee’s “leased land”;

(c) Whether on the facts and in the circumstances of this case, grower can be termed as representative of assessee company;

(d) Whether on the fact and in the circumstances of this case, assessee’s seeds procurement from grower is its agricultural activity;

(e) Whether on the facts and in the circumstances of this case, converting of seeds into certified seeds is an agriculture activity;

(f) The Appellant craves leave to amend, alter, modify, add, submit additional ground;”

2. Revenue revised grounds during the proceedings before us and the same are extracted as follows :

“1. Whether on the facts & in the circumstances of the case, the Ld.CIT(A), Aurangabad was correct in deleting the addition in question treating the seeds production as agriculture income u/s.10(1) of the Act.

2. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was correct in holding that the assessee was absolute owner of the land in absence of valid lease deed agreement, if not, then no right in land vests with the assessee company.

3. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was correct in holding that the seeds growers were producing the seeds for the assessee only whereas as per information received u/s.133(6) of the Act revealed that some of the growers were producing the grains at their own level, i.e. independently and in view of the above, the seeds p ocured by the assessee from growers is nothing but purchases from the seeds growers in question.

4. Whether on the facts and in the circumstances of the case the Ld.CIT(A) was correct in accepting assessee’s version of agricultural operation based on invalid documentation making the entire ope ation sham.

5. Whether on facts & circumstanc s of the case the Ld.CIT(A) was correct in appreciating that converting seeds into certified seeds is an agricultural activity.

6. On the facts and in the circumstances of the case, the order of the AO be restored and that of the CIT(A)-1 be vacated.

7. The appellant craves leave to add, amend or alter all or any of the Grounds of Appeal.”

On facts, the issues raised in Ground Nos. 4 & 5 has genesis in the outcome of the enquiries/investigation by the AO in the subsequent assessment years.

3. Basic facts relating to the assessee and issues include that the assessee is a company engaged in growing the foundation seeds, the seed production, undertaking other processing activities of seeds, making of certified seeds and trading of the said seeds. As per the assessee, all these activities, constitute agricultural activities. Assessee filed the return of income on 27-09-2011 declaring total income of Rs.35,99,340/- for the A.Y. 2011-12 after claiming exemption of agricultural income at Rs.6.90 crores (rounded off) for this year. During the assessment proceedings, the issue of allowing exemption of agricultural income from tax was scrutinized by the AO.

4. In this regard, the AO issued a show cause notice informing the assessee that the basic operations of agriculture were not carried out by the assessee and, therefore, the seeds procured by the assessee from the growers constitute the trading activity of purchase of seeds. Further, the series of processing activities in order to make certified seeds ready for trading, constitutes a manufacturing/business activity and when the same are sold, the income earned by the assessee become taxable. In this regard, AO also analysed the land lease agreements signed by the assessee and the land owners and found that they are unregistered ones. Further, the AO found that certain expenses to the tune of Rs.30.94 crores (rounded off) unrelated to the agricultural activity were also claimed. AO held that these expenditure constitute manufacturing expenses, research expenses, power and fuel, freight inward, Hamali & Cartage, etc., and not agricultural expenditure incurred for earning exempt agricultural income. AO came to the conclusion that the entire activity is not agricultural activity and the same constitutes “business activity”. Therefore, AO show caused the assessee as to why the income of Rs.6.90 crores earned by the assessee for A.Y. 2011-12 on sale of the certified seeds, should not be treated as “income from business” and not exempt as an agricultural income.

In addition, the assessee offered profits/loss on account of seed trading activity about which there is no issue in the assessment. Assessee admittedly purchased said seeds and sold them in market. The profits are offered as taxable income and the AO taxed the same.

5. In reply to the said show cause notice, assessee filed written submissions and explained the facts relating to (a) leasing of lands from the land owners across width and breadth of the country; (b) giving of

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