ITO, CHENNAI V. Dr. Manu Jacob Abraham, L/R of Late T.C.Abraham, CHENNAI

ITA 1132/CHNY/2013

• Counselvise Citation: 113221714 RSA 2013
• Duration Of Justice: 2 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 07-09-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 23-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MILIND MADHUKAR BHUSARI

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.1132/MDS/2013 ( )( / ASSESSMENT YEAR : 2006-07 THE INCOME TAX OFFICER, BUSINESS WARD XIII(1), CHENNAI - 600 034. V. SHRI T.C. ABRAHAM, NO.1A, ROSSY IN PLACE, NO.5, GURUSWAMY ROAD, CHETPET, CHENNAI - 600 031. PAN : AAAPA 8466 C (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SH. MILIND MADHUKAR BHUSARI, CIT -.+, / 0 / RESPONDENT BY : SH. PHILIP GEORGE, ADVOCATE 1 / 2% / DATE OF HEARING : 07.09.2015 3') / 2% / DATE OF PRONOUNCEMENT : 18.09.2015 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-XII, CHENN AI, DATED 13.02.2013 AND PERTAINS TO ASSESSMENT YEAR 2006-07. 2. SH. MILIND MADHUKAR BHUSARI, THE LD. DEPARTMENTA L REPRESENTATIVE, SUBMITTED THAT THE FIRST ISSUE ARIS ES FOR 2 I.T.A. NO.1132/MDS/13 CONSIDERATION IS WITH REGARD TO ADDITION OF ` 36,53,083/- UNDER THE HEAD INCOME FROM OTHER SOURCES. ACCORDING TO THE LD. D.R., THE ASSESSEE CLAIMED ` 23,55,490/- AS AGRICULTURAL INCOME FROM THE COFFEE ESTATE. THE ASSESSING OFFICER FOUND THAT TH E ASSESSEE OWNED COFFEE ESTATE TO THE EXTENT OF 21.20 HECTARES . THE ASSESSING OFFICER FOUND THAT THE POSSIBLE YIELD FROM ONE HECT ARE OF LAND IS 948 KGS FOR ROBUSTA VARIETY FOR THE FINANCIAL YEAR 2005 -06. IN FACT, THE KERALA COFFEE BOARD ESTIMATED THE YIELD AT 711 KGS PER HECTARE. SINCE THE ESTATE OF THE ASSESSEE IS SITUATED IN THE STATE OF KERALA, THE ASSESSING OFFICER ESTIMATED THE MAXIMUM COFFEE PRODUCTIVITY FROM 21.20 HECTARES OF LAND AT 15073 KGS. THE BILL PRODUCED BY THE ASSESSEE DISCLOSES THE SALE PRICE OF ` 28.50 PER KG. AND THE SAME WORKED OUT TO ` 4,30,000/- FOR 15073 KGS. SINCE THERE WAS A DIFFERENCE, THE ASSESSING OFFICER FOUND THAT ONLY ` 4,30,000/- HAS TO BE TREATED AS INCOME FROM COFFEE ESTATE AND THE BAL ANCE OF ` 31,02,900/- WAS BROUGHT TO TAXATION UNDER THE HEAD INCOME FROM OTHER SOURCES. BY APPLYING RULE 7B OF INCOME-TAX RULES, 1962, THE ASSESSING OFFICER HAD TAKEN THE INCOME FROM AGR ICULTURE AT ` 3,22,500/- AND INCOME FROM BUSINESS AT ` 1,07,500/- AT THE RATIO OF 7.5% AND 25% RESPECTIVELY. 3 I.T.A. NO.1132/MDS/13 3. ON THE CONTRARY, SH. PHILIP GEORGE, THE LD.COUNS EL FOR THE ASSESSEE, SUBMITTED THAT THE CLAIM OF THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT THE ASSESSEE AND HIS FAM ILY PUT TOGETHER OWN 34.39 HECTARES OF COFFEE ESTATE AND NOT 21.20 H ECTARES OF LAND. ACCORDING TO THE LD. COUNSEL, IT IS NOT THE CASE OF THE ASSESSEE THAT THE ASSESSEE WAS NOT ENGAGED IN ANY COFFEE CURING A CTIVITIES. THEREFORE, THE FABRICATION OF 25% OF INCOME IS NOT APPLICABLE. ACCORDING TO THE LD. COUNSEL, THE ASSESSEE IS SELLI NG SUN DRIED COFFEE SEEDS. THE LD.COUNSEL FURTHER CLARIFIED THA T SUN DRIED COFFEE SEEDS ARE SUBJECT TO THE SERIES OF PROCESSES LIKE P ULPING, CURING, ROASTING, GRINDING, ETC. BEFORE THE FINAL COFFEE PO WDER IS PACKED AND MARKED TO FINAL CONSUMER. THE LD.COUNSEL FURTHER S UBMITTED THAT THE ASSESSEE CLAIMED AGRICULTURAL INCOME OF ` 23,55,490/-. HOWEVER, THE ASSESSING OFFICER DISALLOWED A SUM OF ` 49,51,118/-. ACCORDING TO THE LD. COUNSEL, THE ASSESSING OFFICER DISBELIEVED THE CLAIM OF ENTIRE AGRICULTURAL INCOME. REFERRING TO THE ORDER OF THE CIT(APPEALS), THE LD.COUNSEL SUBMITTED THAT THE DIS ALLOWANCE MADE BY THE ASSESSING OFFICER TO THE EXTENT OF ` 49,51,118/- WAS GREATER THAN THE SALE OF AGRICULTURAL PRODUCE CLAIMED BY TH E ASSESSEE AT ` 40,03,084/-. 4 I.T.A. NO.1132/MDS/13 4. THE LD.COUNSEL FOR THE ASSESSEE FURTHER SUBMITTE D THAT THE ASSESSING OFFICER ARRIVED THE YIELD PER HECTARE AT 5,849 KGS. AND COMPARED THE SAME WITH THE REPORT PUBLISHED BY COFF EE BOARD OF INDIA AND KERALA COFFEE BOARD. ACCORDING TO THE LD . COUNSEL, THE CIT(APPEALS) FOUND THAT THE PROBABLE PRODUCTION OF COFFEE HAS TO BE COMPUTED FOR 34.39 HECTARES AND NOT FOR 21.20 HECTA RES OF LAND. THE LD.COUNSEL FURTHER POINTED OUT THAT THE COFFEE BOARD HAS TAKEN THE FINAL PRODUCTION OF COFFEE POWDER AS YIELD OF T HE COFFEE, WHEREAS THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF COFF EE POWDER, THE ASSESSEE IS JUST SELLING THE RAW COFFEE SEEDS, AFTE R SUN DRYING THE SAME. THEREFORE, THE CIT(APPEALS), AFTER EXAMINING THE ENTIRE ACTIVITIES OF THE ASSESSEE, FOUND THAT THE NET AGRI CULTURAL INCOME FROM 34.39 HECTARES OF LAND AT ` 23,55,490/- AND FOUND THAT THE CLAIM OF THE ASSESSEE IS QUITE REASONABLE. THEREFORE, AC CORDING TO THE LD. COUNSEL, NO INTERFERENCE IS CALLED FOR. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSES SEE CLAIMED AGRICULTURAL INCOME OF ` 23,55,490/- FROM COFFEE ESTATE. HOWEVER, THE ASSESSING OFFICER ESTIMATED THE INCOME FROM AGR ICULTURE AT ` 3,22,500/- AND INCOME FROM BUSINESS AT ` 1,07,500/- BY APPLYING 5 I.T.A. NO.1132/MDS/13 THE PROVISIONS OF RULE 7B OF INCOME-TAX RULES, 1962 . THE CIT(APPEALS) FOUND THAT THE ASSESSEE IS NOT MARKETI NG ANY COFFEE PRODUCT AND THE ASSESSEE IS ONLY AN AGRICULTURIST. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF RULE 7B OF THE INCOM E-TAX RULES, 1962, WHICH READS AS FOLLOWS:- 7B. (1) INCOME DERIVED FROM THE SALE OF COFFEE GROWN AND CURED BY THE SELLER IN INDIA SHALL BE COMPUTED AS I F IT WERE INCOME DERIVED FROM BUSINESS, AND TWENTY-FIVE PER C ENT. OF SUCH INCOME SHALL BE DEEMED TO BE INCOME LIABLE TO TAX. (1A) INCOME DERIVED FROM THE SALE OF COFFEE GROWN, CURED, ROASTED AND GROUNDED BY THE SELLER IN INDIA, WITH O R WITHOUT MIXING CHICORY OR OTHER FLAVOURING INGREDIENTS, SHAL L BE COMPUTED AS IF IT WERE INCOME DERIVED FROM BUSINESS , AND FORTY PER CENT. OF SUCH INCOME SHALL BE DEEMED TO BE INCO ME LIABLE TO TAX. EXPLANATION : FOR THE PURPOSES OF SUB-RULES (1) AN D (1A) 'CURING' SHALL HAVE THE SAME MEANING AS ASSIGNED TO IT IN SU B-SECTION (D) OF SECTION 3 OF THE COFFEE ACT, 1942 (7 OF 1942). (2) IN COMPUTING THE INCOMES REFERRED TO IN SUB-RULE S (1) AND (1A), AN ALLOWANCE SHALL BE MADE IN RESPECT OF THE COST OF PLANTING COFFEE PLANTS IN REPLACEMENT OF PLANTS THA T HAVE DIED OR BECOME PERMANENTLY USELESS IN AN AREA ALREADY PL ANTED, IF SUCH AREA HAS NOT PREVIOUSLY BEEN ABANDONED, AND FO R THE PURPOSE OF DETERMINING SUCH COST, NO DEDUCTION SHAL L BE MADE IN RESPECT OF THE AMOUNT OF ANY SUBSIDY WHICH, UNDER T HE PROVISIONS OF CLAUSE (31) OF SECTION 10, IS NOT INCLU DIBLE IN THE TOTAL INCOME. RULE 7B(1) OF THE INCOME-TAX RULES, 1962 SAYS THAT WHEN THE ASSESSEE DERIVED INCOME ON SALE OF COFFEE GROWN AND CURED BY 6 I.T.A. NO.1132/MDS/13 SELLER IN INDIA, 25% OF INCOME SHALL BE TREATED AS FROM BUSINESS AND 75% SHALL BE TREATED AS INCOME FROM AGRICULTURE. H OWEVER, IF THE ASSESSEE DERIVES INCOME FROM SALE OF COFFEE GROWN, CURED, ROASTED AND GRINDED WITH OR WITHOUT MIXING CHICORY OR OTHER FLAVOURING INGREDIENTS, THEN 40% OF INCOME SHALL BE TREATED AS FROM BUSINESS FOR THE PURPOSE OF TAXATION UNDER THE INCOME-TAX AC T. THE BALANCE 60% HAS TO BE TREATED AS INCOME FROM BUSINESS. THE CIT(APPEALS) FOUND THAT THE ASSESSEE IS NOT ENGAGED IN COFFEE PR OCESSING ACTIVITY AND THE ASSESSEE IS ONLY SELLING THE SUN DRIED COFF EE SEEDS. IN OTHER WORDS, THE ASSESSEE IS SELLING CURED COFFEE S EEDS. IF THE ASSESSEE IS SELLING ONLY CURED COFFEE SEEDS, THE PR OVISIONS OF RULE 7B(1) WOULD COME INTO OPERATION. THEREFORE, THE CI T(APPEALS) MAY NOT BE CORRECT IN OBSERVING THAT THE PROVISIONS OF RULE 7B ARE NOT APPLICABLE IN CASE THE ASSESSEE IS SELLING ONLY THE SUN DRIED COFFEE SEEDS AND NOT ENGAGED IN OTHER PROCESSING ACTIVITY. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT INCOME F ROM COFFEE ESTATE HAS TO BE COMPUTED BY APPLYING RULE 7B OF INCOME-TA X RULES, 1962. THEREFORE, THE ORDER OF THE CIT(APPEALS) IS SET ASI DE AND THE ENTIRE ISSUE IS REMITTED BACK TO THE FILE OF THE CIT(APPEA LS). THE CIT(APPEALS) SHALL APPLY THE PROVISIONS OF RULE 7B AND THEREAFTER COMPUTE THE INCOME FROM COFFEE ESTATE. 7 I.T.A. NO.1132/MDS/13 6. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DISA LLOWANCE OF EXPENDITURE TO THE EXTENT OF ` 11,90,535/-. 7. WE HEARD THE LD. DEPARTMENTAL REPRESENTATIVE AND THE LD.COUNSEL FOR THE ASSESSEE. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE FOR EARNI NG INTEREST INCOME FROM DEPOSITS. HOWEVER, THE CIT(APPEALS) FO UND THAT THE ASSESSEE HAS INCURRED EXPENDITURE IN EARNING THE AG RICULTURAL INCOME. THE INTEREST INCOME WAS ONLY ` 9,398/-. ACCORDINGLY, THE CIT(APPEALS) FOUND THAT THERE IS NO JUSTIFICATION I N DISALLOWING THE EXPENDITURE FOR EARNING THE AGRICULTURAL INCOME. I T IS NOT KNOWN WHETHER THE EXPENDITURE OF ` 11,90,535/- WAS CLAIMED AGAINST AGRICULTURAL INCOME OR FROM INCOME TAXABLE UNDER IN COME-TAX ACT. WHILE CONSIDERING THE CLAIM OF THE ASSESSEE FOR COM PUTATION OF INCOME FROM COFFEE ESTATE, THIS TRIBUNAL REMITTED B ACK THE MATTER TO THE FILE OF THE CIT(APPEALS) TO COMPUTE THE INCOME BY APPLYING RULE 7B OF THE INCOME-TAX RULES, 1962. THEREFORE, THIS ISSUE ALSO NEEDS TO BE RECONSIDERED BY THE CIT(APPEALS). ACCORDINGL Y, THE DISALLOWANCE MADE TO THE EXTENT OF ` 11,90,535/- IS ALSO SET ASIDE AND REMITTED BACK TO THE FILE OF THE CIT(APPEALS). THE CIT(APPEALS) SHALL RECONSIDER THE ISSUE AFRESH IN THE LIGHT OF T HE MATERIAL AVAILABLE 8 I.T.A. NO.1132/MDS/13 ON RECORD AND THEREAFTER DECIDE THE SAME, AFTER GIV ING REASONABLE OPPORTUNITY TO THE ASSESSEE. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 18 TH SEPTEMBER, 2015 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 18 TH SEPTEMBER, 2015. KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 92 () /CIT(A)-XII, CHENNAI-34 4. 1 92 /CIT-X, CHENNAI 5. 7: -2 /DR 6. ( ; /GF.