K.N.Pannerselvam, CHENNAI V. DCIT, CHENNAI

CO 49/CHNY/2015

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1145 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 3 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 10-09-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 27-05-2015
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Keywords: Reopening of assessment; Business income; Charitable institution; Audit objection; Difference of opinion; Change of opinion
• Section: 143(3); 80G

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , ! ' , # $% BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ ITA NO. 667/MDS/2015 / ASSESSMENT YEAR : 2007-08 AND C.O.NO.49/MDS/2015 (IN ITA NO.667/MDS/2015) THE DEPUTY COMMISSIONER OF INCOME-TAX, NON-CORPORATE CIRCLE-2, CHENNAI -34. ( /APPELLANT) VS SHRI K.N.PANNIRSELVAM, 3B, PARKLAND APARTMENT, KAMALABHAI STREET, T. NAGAR, CHENNAI 600 017. PAN AAOPP8632M ( /RESPONDENT/CROSS-OBJECTOR) / APPELLANT BY : SHRI A.B. KOLI, JCIT / RESPONDENT BY : SHRI PHILIP GEORGE, ADVOCATE / DATE OF HEARING : 10.09.2015 ! / DATE OF PRONOUNCEMENT : 30.09.2015 & / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THE APPEAL IS FILED BY THE REVENUE AND THE CROSS OBJECTION IS FILED BY THE ASSESSEE. THE APPEAL AND THE CROSS OBJECTION ARE DIRECTED AGAINST THE ORDER OF THE COM MISSIONER OF INCOME-TAX(APPEALS) DATED 26.12.2014. - - ITA 667 & CO 49/15 2 2. THE GRIEVANCE OF THE REVENUE IS WITH REGARD TO T REATMENT OF INCOME EARNED FROM THE ACTIVITY OF THE NURSERY A S AGRICULTURAL INCOME AND EXEMPT U/S.10(1) OF THE I.T. ACT. IN TH E CROSS- OBJECTION, THE ASSESSEE IS CHALLENGING THE REOPENIN G OF ASSESSMENT, WHICH IS BASED ON AUDIT OBJECTION. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A N INDIVIDUAL AND GROWN PLANTS IN NURSERY ON THE AGRIC ULTURAL LAND OWNED BY HIM AT VELICHAI VILLAGE NEAR KELAMBAKKAM M EASURING ACRES 23.03 CENTS AND ACRES 16.93 CENTS IN CHENGALP ET AND DERIVED INCOME FROM SALE OF SUCH PLANTS. THE ASSESS EE FILED THE ORIGINAL RETURN OF INCOME FOR THE AY 2007-08 ON 24. 10.2007 DECLARING A TOTAL INCOME OF ` 3,47,238/- AND AGRICULTURAL INCOME OF ` 51,89,480/-. THE ASSESSMENT WAS COMPLETED U/S.143( 3) OF THE ACT ON 11.12.2009 ON THE ASSESSED INCOME OF ` 10,47,616/- AND AGRICULTURAL INCOME OF ` 51,89,480/-. THE CASE WAS REOPENED BY ISSUE OF NOTICE U/S.148 DATED 23.9.2011 . AFTER HEARING THE ASSESSEE, THE ASSESSMENT WAS COMPLETED U/S.143(3) R.W.S.147 ON 22.3.2013 DETERMINING TAXAB LE INCOME AT ` 62,37,096/- AFTER MAKING DISALLOWANCE OF AGRICULTU RAL INCOME CLAIMED OF ` 51,89,480/- FROM NURSERY. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS) CHALLENGING THE REO PENING AS - - ITA 667 & CO 49/15 3 WELL THE ADDITIONS MADE BY THE ASSESSING OFFICER. 4. THE CIT(APPEALS) CONFIRMED THE REOPENING OBSERV ING AS FOLLOWS: (I) DELHI HIGH COURT IN THE CASE OF OPG METALS AND FINSEC LTD V. CIT , 358 ITR 144 HAS HELD THAT RE- ASSESSMENT IS VALID IF THE ISSUE IS NOT A SUBJECT M ATTER OF EARLIER ASSESSMENT . ( II) SUPREME COURT IN THE CASE OF KALYANJI MAVJI & COMPANY V. CIT (102 ITR 287) (SC) (1976) HAS HELD THAT THERE IS NO CHANGE OF OPINION IF THE ASSESSMEN T IS REOPENED ON NEW FACTS WHICH CAME TO NOTICE SUBSEQUENTLY, EVEN THOUGH THEY ARE ALREADY ON RECOR D. (III) GUJARAT HIGH COURT IN THE CASE OF PRAFUL CHUN ILAL PATEL AND VASANTH CHUNILAL PATEL V . ACIT (236 ITR 832) (1999) HAS HELD THAT WHERE THE AO HAD OVERLOOKED SOMETHING AT THE FIRST ASSESSMENT, THERE CAN BE NO QUESTION OF ANY CHANGE OF OPINION , WHEN THE INCOME WHICH WAS CHARGEABLE TO TAX IS ACTUALLY TAXE D AS IT OUGHT TO HAVE BEEN UNDER THE LAW BUT WAS NOT TAXED DUE TO AN ERROR COMMITTED AT THE FIRST ASSESSMENT, THE REOPENING WAS HELD VALID . (IV) ITAT, CHENNAI IN THE CASE OF CHENNAI PETROLEUM CORPN . LTD A . Y. 2006-07 (ITA NO.66/11-12/LTU(A) DATED 08 . 01 . 2013 RELYING ON THE HIGH COURT OF DELHI I N THE CASE OF CONSOLIDATED PHOTO AND FINVEST LTD. V. ACIT (281 ITR 394) (2006) AND HIGH COURT O F MUMBA I IN TH E CASE OF D R . A M I R'S P ATHO LOG I C AL LAB O RATORY V . J C I T (2 52 I T R 6 7 3 ) H AS H E L D T HA T MERE P R ODUC TI ON OF B OOKS O F ACC O UNT , BA L A NC E - SHEE T AN D PROFIT AND L OSS ACCOUNT WILL NOT N E CESSARI L Y A M O UNT TO DISCLOSURE NECESSAR Y FOR E X PLA N A T I ON 1 OF SEC.147 . ( V ) H IG H COURT OF DELHI IN T HE CASE O F H O NDA SIEL POWER P R ODUCTS LTD V . DCIT ( 1 97 TAXMAN 4 1 5 ) (201 1 ) - - ITA 667 & CO 49/15 4 H A S HELD THAT M E R EL Y BECAUSE THE MA T ERIA L LIES EMB E D D E D I N THE MATERIAL EVIDENCE WHICH THE AO COULD HAVE UNCOVE RE D BUT DID NO T UNCOVE R , I S NOT A GOO D REASO N F O R ST R IKING DOWN R EOPE N I NG . (V I ) HIGH COURT OF MUMBAI IN THE CASE OF EXPORT CREDIT GUARANTEE CORPO R AT I ON OF INDIA LTD V. ADDL . CIT (30 TAXMAN . COM 211) (2013) HAS H ELD THAT T HE R E IS NO FA I LU R E ON THE PART OF ASSESSEE TO DISCLOSE MATERIAL FACTS BUT THERE IS COMPLETE FAILURE ON THE PAR T OF THE AO TO APPLY HIS MIND DURING ORIGINAL ASSESSMENT TO POI NTS ON WHICH ASSESSMEN T IS REOPENED , REOPENING WAS TREATED AS VALID . (VII) ABOVE ALL, I T IS THE PREROGATIVE OF THE AO/REVENUE TO REOPEN THE ASSESSME NT IF THE AO HAS FOUND IN THE COURSE OF TIME THAT CERTAIN AMOUNTS WHICH SHOULD HA VE BEE N BROU GHT TO TAX HAV E ESCAPE D ASSESS M EN T . T HE POWERS WE R E C L EAR L Y E N AC T ED U / S 149 R . W . S . 151 O F THE ACT . AS PER THESE P R O VI SIONS W H AT THE A O IS S UPP O SED TO SE E I S WHETHER THERE IS AN ESCAPEMENT OF INCOME AND W H ETHE R IT IS WI T HI N F O U R Y EA R S OR BEYOND FOUR YEARS, WHETHER IT IS A CASE OF 143(1) OR 143(3) AND WHETHER HE HAS TAKEN APPROVAL FROM HIS SENIOR OFFIC ERS AS PE R THE PROVIS I ONS. ONCE THE AO FULFILLS THESE REQUIREMENTS THEN HE CAN REOPEN THE ASSESSMENT BY RECORDING THE REASONS . THE AO WILL BE WITHIN HIS JURISDICTION TO REOPEN THE ASSESSMENT AND HIS JURISDICTION CANNOT BE CHALLENGED PER SE. AGAINST THIS, THE ASSESSEE FILED CROSS-OBJECTION CH ALLENGING THE REOPENING OF ASSESSMENT. 5. REGARDING THE ISSUE OF REOPENING OF ASSESSMENT R AISED BY THE ASSESSEE IN THE CROSSOBJECTION IS CONCERNED , IT IS SEEN THAT THE AO HAS REOPENED THE ASSESSMENT WITHIN FOUR YEARS FROM THE END OF THE RELEVANT ASSESSRNENT YEAR. THE ID.AR HAS - - ITA 667 & CO 49/15 5 PRIMARILY QUESTIONED THE REOPENING OF THE ASSESSMEN T BASED ON AUDIT OBJECTION. WE DISAGREE WITH THIS CONTENTION OF THE LD. AR. REOPENING ON THE BASIS OF AUDIT OBJECTION WAS UPHEL D AS VALID BY THE SUPREME COURT IN CIT V. P. V.S. BEEDIES PVT. LTD (SC) (237 ITR 13). THE HEAD NOTE IS QUOTED AS BELOW: REASSESSMENT - INFORMATION - INTERNAL AUDIT PAR T Y EN T ITLED TO POINT OUT FACTUAL ERROR OR OMISSION IN ASSESSMEN T - REOPENING OF CASE ON BASIS OF ACTUAL ERROR POINTED OUT B Y I NTE R NAL AUDIT PARTY IS PERMISSIBLE UNDER LAW - ITO GRANTING DEDUCTION UNDER SECTION 80G ON ACCOUNT OF DONATION TO CHARITABLE TRUST OVERLOOKING FACT THAT RECOGNITION GRANTED TO CHARITABLE TRUST HAD EXPIRED - REOPENING WAS ON BASIS OF FACTUAL INFORMATION GIVEN BY INTERNAL AUDIT PARTY - REOPENING OF ASSESSMENT VALID - INCOME-TAX ACT , 1961, S . 147(B) . ' IN VIEW OF THE ABOVE, WE AGREE WITH THE FINDINGS OF THE LOWER AUTHORITIES ON THIS ISSUE AND REJECT THE ISSU E RAISED BY THE ASSESSEE IN THE CROSS OBJECTION. 6. AS FAR AS THE ISSUE OF DISALLOWANCE OF AGRICULTU RAL INCOME IS CONCERNED, IN REVENUES APPEAL, ASSESSEE CLAIMED AGRICULTURAL INCOME OF ` 51,89,480/- BUT THE SAME WAS TREATED AS BUSINESS INCOME BY THE AO. THE ASSESSEE, A LANDSCAPING ARCHITECT WAS RUNNING TWO BUSINESS CONCERNS VIZ.(I)PLANTS SCAPE AND (II) FLOW ER AND PETALS. THE BUSINESS INCOME OF THE PLANT SCAPE AMOUNTING TO ` 7,19,626/- WAS OFFERED AND ASSESSED AS BUSINESS INCOME, WHEREAS THE INCOME FROM FLOWERS - - ITA 667 & CO 49/15 6 AND PETALS INVOLVING ` 51,89,480/- DERIVED FROM NURSERY WAS CLAIMED EXEMPT AS AGRICULTURAL INCOME. THE AO TREATED THE INCOME FROM NURSERY AS BUSINESS INCOME AND DENIED EXEMPTION AVAILABLE U/S.10(1) OF THE ACT AS AGRICULTURAL INCOME RELYING ON THE FOLLOWING DECISI ONS: (I) ITO VS. RAJA BENOY KUMAR SAHAS ROY (32 ITR 466)(SC) (II) H.H.MAHARAJA VIBHUTI NARAIN SINGH VS. STATE OF UP (65 ITR 3640(ALL. HC) (III) CIT VS. RAJA BAHADUR KARMAKYA NARAIN SINGH (1 61 ITR 325)(PUN. HC) AGAINST THIS, THE ASSESSEE WENT IN APPEAL BEFORE TH E CIT(APPEALS). 7. BEFORE THE CIT(APPEALS), THE LD. AR CONTENDED THAT SINCE THE ASSESSEE IS THE OWNER OF THE AGRICUL TURAL LAND ON WHICH NURSERY PLANTS WERE GROWN, HIS INCOME FROM THE ACTIVITY OF THE NURSERY IS AGRICULTURAL IN COME AND EXEMPT U/S.10(1) OF THE ACT. THE CIT(APPEALS) OBSERVED THAT FROM EXPALANTION-3 TO SEC.2(1A) OF TH E ACT, THE INCOME FROM NURSERY SHOULD BE TAKEN AS AGRICULTURAL INCOME, AS INSERTED BY THE FINANCE ACT , 2008 W.E.F. 1.4.09. THE PROVISIONS ARE REPRODUCED AS - - ITA 667 & CO 49/15 7 UNDER: 2(1A) ' AGRICUL T URE I N COME ' M EANS- EXPL A N A TI ON 3 - F OR T H E PURPO S E O F THI S C LA U SE, A NY INCOME D E RIV E D FROM SAPLIN G S OR SEEDL I NGS G ROW N IN A NURSERY SHALL BE DEEMED TO BE AGRICU L TU R E INCOME . 7.1 ACCORDING TO THE CIT (APPEALS), THE AME ND E D PROVISION S TRE A TED T HE I NCOME DER IVED F ROM NURSERY AS AGR I CU L TU R E INCOME WH I C H ARE APP LI CABLE FROM A Y . 0 9 - 1 0. AS P E R THE DECISION IN THE CASE OF CIT V. GREEN GOLD TREE FARMERS P L TD (2008) 167 TAXMAN 151, (UTTARAKAND), RELIED ON BY THE ID.AR, S A L E PROCEEDS OF PLANTS R AISED IN N URSE RY ON LAND BELONGING TO THE ASSESSEE CONSTITUTE AGRICULTURE INCOME. THIS JUDGMENT WAS DELIVERED ON 28.2 . 2007. IN VIEW OF THE ABOVE DECISION, THE CIT(APPEALS) HELD THAT THE INCOME FROM NURSERY RAIS ED ON THE LAND OWNED BY THE ASSESSEE WILL BE TREATED AS AGRIC ULTURE INCOME AND HE CONSIDERED THE MOOT QUESTION, WHETHER THESE LEGAL PROVISIONS ARE APP L ICABLE IN ASSESSEES CASE WH I CH PERTAINS TO A . Y . 07 -08 . 7.2 THE CIT(APPEALS) OBSERVED THAT SIMILAR DECISIO NS INCLUDING THE DECISION IN THE CASE OF GREEN GOLD TR EE FARMERS P LTD (SUPRA), T REATING THE I NCOME DER IV ED FROM NUR SER Y A S AGR I CULTURE INCOME WERE DELIVERED EVEN PRIOR TO THE INC LUSION OF - - ITA 667 & CO 49/15 8 EXPLANATION 3 TO S.2(1A) . IN THE CASE OF CIT V . SOUNDARYA NURSERY (2000) (241 ITR 531) DATED 5 . 8 . 98, THE JURISDICTIONAL HIGH COURT, WHILE CITING THE DECISIONS OF RAJA BENO Y KUMAR SAHAS ROY (SUPRA) AND MAHARAJA VIBHUTI NARAIN SINGH (SUPRA), RELIED ON BY THE AO, HAS TAKEN AN EXTREME VIEW THAT EVEN THE PLANTS GROWN IN POTS IS AN AGRICULTURE ACTIVITY AS THEY INVOLVE ALL THE ACTIVITIES OF AGRICULTURE FARMING LIKE SEEDING , WEED I NG , WATERING, MANURING ETC. A SIMILAR VIEW WAS ALSO TAK EN BY THE ITAT DELHI IN THE CASE OF SUDISHA FARM NURSERY V. I TO (2003) (81 TTJ 714) DATED 18 . 9.03 AND HIGH COURT OF ALLAHABAD IN THE CASE OF JUGAL KISHORE ARORA V . DCIT (2004) (269 ITR 133) DATED 19 . 5.04. 7.3 ACCORDING TO THE CIT(APPEALS), SIMILAR DECISION S TREATING INCOME FROM NURSERY AS AGRICULTURE INCOME WERE DELI VERED PRIOR TO THE INSERTION OF EXPLANATION 3 WHICH WAS BROUGHT IN FROM AY . 09-10 . IT WAS ALSO OBSERVED BY THE CIT(APPEALS) THAT THESE DECISIONS WERE EVEN PRIOR TO AY . 07-08, THEREFORE, IN THE ASSESSEE'S CASE THEY ARE VERY MUCH APPLICABLE . FURTHER, THE CIT(APPEALS) OBSERVED THAT CLARIFICATION AS TO WHETHER THE ACTIVITY OF NURSERY FALLS UNDER AGRICULTURAL ACTIVITY OR NOT WAS BURNING FOR QUITE SOME-TIME AND THE LEGISLATURE HAS MADE IT CLE AR WITH THE - - ITA 667 & CO 49/15 9 INSERTION OF EXPLANATION-3. IT DOES NOT MEAN THAT THE DEFINITION OF AGRICULTURE INCOME PRIOR TO INSERTION OF THIS EXPLA NATION DID NOT INCLUDE NURSERY AS AGRICULTURAL ACTIVITY AT ALL. T HE EXPLANATION IS NOT AN AMENDMENT TO THE MAIN PROVISIONS OF THE DEFI NITION OF AGRICULTURE INCOME. IT IS ONLY A CLARIFICATION OF WHAT AGRICULTURE INCOME MEANS. THEREFORE, THE CIT(APPEALS) HELD THA T THE DEFINITION OF AGRICULTURE INCOME PRIOR TO INSERTION OF EXPLANATION-3 WOULD INCLUDE THE ACTIVITY OF NURSERY ALSO AND DIRE CTED THE AO TO ALLOW EXEMPTION U/S.10(1) OF THE ACT. AGGRIEVED BY THIS ORDER, THE REVENUE IS IN APPEAL BEFORE US AND THE CROSS OB JECTION FILED BY THE ASSESSEE IS IN SUPPORT OF DELETION OF ADDITI ON BY THE CIT(APPEALS). 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IN OUR OPINION, THE DECISION TAKEN BY T HE CIT(APPEALS) TREATING THE INCOME FROM NURSERY AS AG RICULTURE INCOME IS JUSTIFIED AND AS IN SIMILAR CIRCUMSTANCES , IN THE CASE OF CIT V. SOUNDARYA NURSERY (241 ITR 530), THE JURISDI CTIONAL HIGH COURT HAS HELD THAT THE INCOME FROM THE SALE OF PLA NTS GROWN IN POTS AND THE SALE OF SEEDS DERIVED ON ACCOUNT OF CU LTIVATION BY THE ASSESSEE WAS AGRICULTURAL INCOME. THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THAT OF THE JURISDICTIONAL HIGH COURT, WE HAVE - - ITA 667 & CO 49/15 10 NO HESITATION IN FOLLOWING THE SAME. FURTHER, IT I S NOTICED THAT THE AHMEDABAD BENCH OF THE TRIBUNAL, IN THE CASE OF CIT V. BEST ROSES BIOTECH (P) LTD. [17 ITR (TRIB) 211], HELD TH AT THE INCOME EARNED FROM FLORICULTURE ACTIVITY OF GROWING ROSE P LANTS ON LEASEHOLD AGRICULTURAL LAND FALLS WITHIN THE DEFINI TION OF AGRICULTURAL INCOME AS PER SEC.2(1A) OF THE ACT. IN VIEW OF ALL THESE DECISIONS, WE ARE INCLINED TO UPHOLD THE ORDE R OF THE CIT(APPEALS) AND DISMISS THE APPEAL OF THE REVENUE. 9. IN THE RESULT, THE APPEAL OF THE REVENUE AND THE CROSS- OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 3 0 TH OF SEPT., 2015 AT CHENNAI. SD/- SD/- ( '# $%& ' ) ( ' & ( ) ) *+,-..-/-01234-54-6-37 *+,-234-5889-4 :7 % '; /JUDICIAL MEMBER ';<=>>8?2@-2@A1BC14 '% /CHENNAI, D' /DATED, THE 30 TH SEPT, 2015. MPO* 'E FGHG /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. I*7 /CIT(A) 4. I /CIT 5. GJ$ K /DR 6. $LM /GF.