Deputy Commissioner of Income-tax, V. Futura Bioplants Pvt. Ltd., Pune

ITA 1271/PUN/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9510 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 15-01-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 15-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R R VORA
• Keywords: Business income; Earning of tax free income; Capital expenditure
• Section: 80HHC; 12; 10

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO. 1271/PUN/2015 / ASSESSMENT YEAR : 2011-12 DCIT, CIRCLE-1(2), PUNE . /APPELLANT VS. M/S.FUTURA BIOPLANTS PRIVATE LIMITED, 2413, EAST STREET, KUMAR CAPITAL, CAMP, PUNE - 411001 PAN : AABCF2544E . / RESPONDENT C.O. NO. 41/PUN/2017 (ARISING OUT OF ITA NO.1271/PUN/2015) / ASSESSMENT YEAR : 2011-12 M/S.FUTURA BIOPLANTS PRIVATE LIMITED, 2413, EAST STREET, KUMAR CAPITAL, CAMP, PUNE - 411001 PAN : AABCF2544E . CROSS OBJECTOR VS. DCIT, CIRCLE-1(2), PUNE . APPELLANT IN THE APPEAL ASSESSEE BY : SHRI R.R. VORA & SHRI RAJENDRA AGIW AL REVENUE BY : SHRI AJAY MODI, JCIT / DATE OF HEARING : 15.01.2018 / DATE OF PRONOUNCEMENT: 17.01.2018 / ORDER PER D. KARUNAKARA RAO, AM : THE MAIN APPEAL IS FILED BY THE REVENUE VIDE ITA NO.1271/PUN/2015 AGAINST THE ORDER OF CIT(A)-1, PUN E DATED 19-06-2015 FOR THE A.Y. 2011-12. ASSESSEE ALSO FI LED CROSS OBJECTIONS VIDE C.O. NO.41/PUN/2017 AGAINST THE AP PEAL FILED BY THE REVENUE. ITA NO.1271/PUN/2015 & CO NO.41/PUN/2017 M/S. FUTURA BIOPLANTS PVT. LTD., 2 2. GROUNDS RAISED BY THE REVENUE ARE AS UNDER : 1. THE ORDER OF LD.CIT(A) IS CONTRARY TO LAW AND T O THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LD.CIT(A) GROSSLY ERRED IN DIRECTING THE AO TO TREAT THE ASSESSEES INCOME AS AGRICULTURAL INCOME U/S.2(1A)( B)(II) OF THE I.T.ACT, 1961 AND TO EXCLUDE THE SAID INCOME U/S.10 (1) OF THE ACT. 3. THE LD.CIT(A) GROSSLY ERRED IN IGNORING THE FACT THAT THE ACTIVITY OF THE ASSESSEE CONSISTED MAINLY OF FLOWER ING PLANTS DEVELOPED OUT OF IMPORTED MOTHER PLANTS IN A TISSUE CULTURE LABORATORY AND NOT GROWN IN A NURSERY OR ANY LAND, AND, MOREOVER, THE SAID ACTIVITY HAD NONE OF THE INGREDIENTS OF BA SIC OPERATIONS INTEGRAL TO AGRICULTURE. 4. THE LD.CIT(A) GROSSLY ERRED IN FAILING TO APPREC IATE AND CORRECTLY APPLY THE RATIO OF THE DECISION OF THE HO NBLE SUPREME COURT IN THE CASE OF CIT VS. RAJA BENOY KUMAR SAHAS ROY, 32 ITR 466, WHEREIN CARRYING ON OF BASIC OPERATIONS BY EXP ENDING HUMAN SKILL AND LABOUR ON LAND HAD BEEN HELD AS AN ESSENT IAL PERQUISITE OF AGRICULTURE LAND AND, AS PER THE SAID RATIO THE ASS ESSEES ACTIVITY WOULD NOT AMOUNT TO AGRICULTURE AT ALL. 5. THE LD.CIT(A) GROSSLY ERRED IN FAILING TO APPREC IATE THAT THE GREEN HOUSE ITSELF DOES NOT CONSTITUTE LAND/EARTH E XPLANATION 3 OF SECTION 2(1A) WOULD APPLY IRRESPECTIVE OF WHETHER T HE BASIC OPERATIONS HAVE BEEN CARRIED OUT ON LAND OR NOT, IS NOT ONLY EXTRANEOUS TO THE SAID EXPLANATION BUT ALSO DOES NO T FLOW THEREFROM. 3. GROUNDS RAISED BY THE REVENUE REVOLVES AROUND TH E SOLITARY ISSUE OF RELIEF GRANTED BY THE CIT(A) IN CONNECTION WITH THE ASSESSEES CLAIM OF EXEMPTION IN RESPECT OF INCOME EARNED OUT OF THE SAPLINGS/FLOWERING PLANTS GROWN OUT OF THE TISS UE CULTURE LABORATORY. ASSESSEE IS ENGAGED IN THE BUSINESS OF IMPORT OF MOTHER PLANTS AND GROWING OF SAPLINGS/SEEDLINGS OUT OF CULTURING OF THE PLANTS IN THE LABORATORY USING THE TISSUE CU LTIVATION TECHNIQUES. THE INCOME EARNED BY THE ASSESSEE OUT OF THIS ACTIVITY WAS CLAIMED AS EXEMPTION U/S.10(1) OF THE I.T. ACT. AO DENIED THE CLAIM HOLDING THAT THE SAID ACTIVITY IS NOT DONE IN A NURSERY OR ON ANY LAND. THEREFORE, THE INGREDIENTS OF BASIC OPER ATIONS INTEGRAL TO THE AGRICULTURE ARE NOT MET. ITA NO.1271/PUN/2015 & CO NO.41/PUN/2017 M/S. FUTURA BIOPLANTS PVT. LTD., 3 4. DURING THE FIRST APPELLATE PROCEEDINGS THE CIT(A ) GRANTED RELIEF TO THE ASSESSEE IN VIEW OF VARIOUS DECISIONS . CONTENTS OF PARA NO.4.4.6 ARE RELEVANT FOR THE CONCLUSION OF THE CIT (A). THE SAME READS AS UNDER : 4.4.6 FOR THE FOREGOING REASONS, THE ASSESSING OFF ICER IS NOT JUSTIFIED IN TREATING THE SUBJECT INCOME DERIVED BY THE APPELLANT FROM FLORICULTURE AND TISSUE CULTURE AS NON-AGRICULTURAL INCOME. HOWEVER, THE ACTUAL AMOUNT OF EXEMPTION ADMISSIBLE TO THE AP PELLANT UNDER SEC.10(1) OF THE I.T. ACT WOULD BE QUANTIFIED HEREI NAFTER WHILE ADJUDICATING GROUND OF APPEAL NO.3 RAISED BY THE AP PELLANT. GROUNDS NO. 1 AND 2 OF APPEAL STAND PARTLY ALLOWED. 5. COMING TO THE JUDGMENTAL LAW OF THE LAND, THE CI T(A) WHILE GIVING RELIEF TO THE ASSESSEE HAS RELIED ON FOLLOWI NG DECISIONS MENTIONED AT PARA NO.4.3.5 OF HIS ORDER : 1. R & B FALCON (A) PTY. LTD. VS. CIT 301 ITR 309 ( SC) 2. ACIT VS. ROGINI GARMENTS 294 ITR 15 (AT (CHN) (S B) 3. K.P. VERGHESE VS. ITO 131 ITR 597 (SC) 4. COCOA COLA INDIA INC. VS. ACIT 309 ITR 194 (P&H HC) 5. CIT VS. KERALA ELECTRIC LAMP WORKS LTD. 261 ITR 721 (KER. HC) 6. EVENTUALLY, THE CIT(A) HELD THAT THE INCOME EARNED BY T HE ASSESSEE ON SALE OF SAPLINGS CONSTITUTE DEEMED AGRICULTURA L INCOME OF THE ASSESSEE VIDE EXPLANATION 3 TO SECTION 2(1A) OF THE ACT. 7. AGGRIEVED WITH THE ABOVE DECISION OF CIT(A) THE REVENUE IS IN APPEAL BEFORE US WITH THE GROUNDS EXTRACTED ABOVE. 8. LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORDER OF THE AO. HOWEVER, HE FAIRLY SUBMITTED THAT THE ISSUE NOW STANDS C OVERED IN FAVOUR OF THE ASSESSEE AND THE AMENDED PROVISIONS OF EXP LANATION 3 TO SECTION 10(1A) AND THE ARGUMENTS OF THE ASSESSEE. 9. PER CONTRA, LD. AR FOR THE ASSESSEE EXPLAINING THE ABOV E FACTS OF THE CASE FILED THE FOLLOWING WRITTEN SUBMISSIONS WHICH ARE SU MMARIZED AS UNDER : ITA NO.1271/PUN/2015 & CO NO.41/PUN/2017 M/S. FUTURA BIOPLANTS PVT. LTD., 4 ASSESSEE SUBMITTED THAT HE PRODUCES VARIETY OF SP ECIES IN FLOWER OF PHALAENOPSIS ORCHIDS. HE SUBMITTED THAT THE PROCESS INVOLVES THROUGH THE SELECTION OF MOTHER PLANTS THROUGH IMPORT OR PR OCURING THEM FROM LOCAL SOURCES. HE EXPLAINED THE SOIL HAS TO BE PRE PARED IN SUCH A MANNER THROUGH AN INTENSIVE PROCESS. AFTER PREPARA TION OF THE SOIL AS PER THE REQUIREMENT, THE ASSESSEE USES THE PROCESS OF LAYERING BY PUTTING THE MOTHER PLANT IN THE SOIL. THE PLANT PR OPAGATION IS CARRIED OUT IN A CONTROLLED ENVIRONMENT TAKING CARE OF DISE ASES TO THE PLANT. THE PROPAGATION PROCESS TAKES MINIMUM 8-10 WEEKS AN D MAXIMUM 18 WEEKS IN THE PLANT GROWTH ROOM VARYING WITH THE NAT URE OF SPECIES. WHEN THE PLANTS REACH A PARTICULAR SIZE THEY ARE RE MOVED ENTIRELY FROM THE SOIL, ALONG WITH THE ROOTS. THE PLANTS ARE EIT HER PACKED IN PLASTIC POTS OR TRAYS FOR THE PURPOSE OF DELIVERY. FOR CARRYING OUT THE ABOVEMENTIONED ACTIVITIES, THE EFFORTS OF HUMAN LABOUR ARE INDISPENSABLE. ASSESSEE HIRES HUMAN LABO UR ON A DAILY/ WEEKLY BASIS, DEPENDING ON THE REQUIREMENT IN THE B USINESS. IT IS ALSO SUBMITTED THAT, DURING THE SAID YEAR, ON A MONTHLY BASIS THE ASSESSEE HAD EMPLOYED APPROXIMATELY 110 LABOURS TO CARRY OUT THE AGRICULTURAL ACTIVITIES OF THE ASSESSEE OUT OF TOTAL MONTHLY EMP LOYEES/ LABOUR HAVING TOTAL STRENGTH OF 124. THE COST/ WAGES INCUR RED TOWARDS THEM AMOUNTS TO APPROX. 67% OF THE EMPLOYEE REMUNERATION . ASSESSEE ALSO SUBMITS THAT VARIOUS CERTIFICATES ARE ALSO BEING ISSUED BY CENTRAL/STATE GOVT. VIZ., (1) REGISTRATION-CUM M EMBERSHIP CERTIFICATES ISSUED BY AGRICULTURAL AND PROCESSED F OOD PRODUCTS EXPORT DEVELOPMENT AUTHORITY ('APEDA') WHICH INDICATES THA T THE ASSESSEE IS A MANUFACTURER OF FLORICULTURE PRODUCT, (2) CERTIFICA TE OF RECOGNITION UNDER NATIONAL CERTIFICATION SYSTEM FOR TISSUE CULTURED R AISED PLANTS ('NCS- TCP') ISSUED BY DEPARTMENT OF BIOTECHNOLOGY OF MINI STRY OF SCIENCE & TECHNOLOGY; AND (3) GROWER CERTIFICATE ISSUED BY AG RO-PROCESSING & PLANNING, COMMISSIONERATE OF AGRICULTURE, PUNE, WHI CH STATES THAT ASSESSEE IS ENGAGED IN GROWING OF FLOWERS AND PLANT S. IN THE SAID SUBMISSIONS, HE ALSO DREW OUR ATTENTION TO THE MAIN OBJECTS OF THE COMPANY AS PER MEMORANDUM OF ASSOCIATION, AP PLICABILITY OF EXPLANATION 3 TO SECTION 2(1A) OF THE ACT, BUDGET S PEECH OF THE HONBLE FINANCE MINISTER ETC. ASSESSEE ALSO RELIED ON THE FOLLOWING JUDICIAL PREC EDENTS : 1. RAJA BENOY SAHAS ROY (1957) (32 ITR 466) 2. K.F. BIOPLANTS ITA NO.146/PN/2009 DATED 26-03- 3. BEST ROSES BIOTECH (P) LTD (2012) (144 TTJ 645) (AHD) 4. CIT VS. SOUNDARYA NURSERY (2000) 241 ITR 530 (MA D) 5. CIT VS. RANA GURJIT SINGH (2011) 340 ITR 108 (P& H HC) 6. PURANSINGH M. VERMA VS. CIT (2014) 230 TAXMAN 47 0 (GUJ HC) 7. ITO VS. DR. SEEMANTINI S. PATHARE (ITA NO. 263/P N/2011) DATED 23 JANUARY 2013 8. SMT . REENA PANDA VS. ITO (2011) (47 SOT 533) (CUTTACK TR IB) ITO VS. KISAN BIOTECH (ITA NO. 428/PN/2014) (PUNE I TAT). ITA NO.1271/PUN/2015 & CO NO.41/PUN/2017 M/S. FUTURA BIOPLANTS PVT. LTD., 5 10. FINALLY, THE ASSESSEE PRAYED FOR DISMISSING THE APPEAL O F DEPARTMENT IN VIEW OF THE ABOVE WRITTEN SUBMISSIONS AND E LABORATE DISCUSSION BY THE CIT(A) ANALYZING EACH AND EVERY ASPECT ON THIS ISS UE. 11. ON HEARING BOTH THE SIDES ON THIS ISSUE, I.E. WHETHER THE INCOME EARNED ON EXPORT SALES OF THE SAPLINGS GROWN IN THE TISSU E CULTURE LABORATORY CONSTITUTE AGRICULTURAL INCOME OR NOT WE FIND TH E SAME IS NOW DECIDED IN FAVOUR OF THE ASSESSEE BY VARIOUS DECISIONS RELIED UPON BY THE LD. AR FOR THE ASSESSEE. DETAILS OF THE DECISIONS A RE ALSO NARRATED IN PARA NO. 4 TO 6 OF THE ORDER OF CIT(A). WE A LSO PROCEED TO EXTRACT THE CONTENTS OF EXPLANATION 3 TO SUB-SECTION 2(1 A) OF THE ACT WHICH WAS INSERTED BY THE FINANCE ACT, 2009. 3. FOR THE PURPOSES OF THIS CLAUSE, ANY INCOME DER IVED FROM SAPLINGS OR SEEDLINGS GROWN IN A NURSERY SHALL BE DEEMED TO BE AGRICULTURAL INCOME. 12. THE ABOVE PROVISIONS ARE HEREBY EXPLAINED BY THE CB DT VIDE CIRCULAR NO.1/2009 DATED 27-03-2009 AND THE CONTENTS O F PARA NO. 4.1 AND 4.2 ARE EXTRACTED HERE AS UNDER : 4.1 'AGRICULTURAL INCOME' IS DEFINED IN SUB-SECTI ON (1A) OF SECTION 2 OF THE ACT TO MEAN, INTER ALIA, INCOME DERIVED FROM LA ND WHICH IS SITUATED IN INDIA AND IS USED FOR AGRICULTURAL PURPOSES. SUC H AGRICULTURAL INCOME IS EXEMPT FROM TAX UNDER SUB-SECTION (1) OF SECTION 10 OF THE INCOME-TAX ACT, 1961. IT HAS BEEN HELD BY JUDICIAL AUTHORITIES THAT WHETHER INCOME FROM NURSERY OPERATIONS CONSTITUTES AGRICULTURAL IN COME OR NOT, WILL DEPEND ON THE FACTS OF EACH CASE. IF THE NURSERY IS MAINTAINED BY CARRYING OUT BASIC OPERATIONS ON LAND AND SUBSEQUEN T OPERATIONS ARE CARRIED OUT IN CONTINUATION OF THE BASIC OPERATIONS , THEN INCOME FROM SUCH NURSERY WOULD BE AGRICULTURAL INCOME NOT LIABL E TO TAX UNDER SECTION 10. HOWEVER, IF THE NURSERY IS MAINTAINED I NDEPENDENTLY WITHOUT RESORTING TO BASIC OPERATIONS ON LAND, THEN INCOME FROM SUCH NURSERY WOULD NOT BE AGRICULTURAL INCOME AND WOULD BE LIABL E TO BE INCLUDED IN THE TOTAL INCOME. 4.2 WITH A VIEW TO GIVING FINALITY TO THE ISSUE, A N EXPLANATION IN SECTION 2 OF THE INCOME-TAX ACT, HAS BEEN INSERTED PROVIDING THAT ANY INCOME DERIVED FROM SAPLINGS OR SEEDLINGS GROWN IN A NURSERY SHALL BE DEEMED TO BE AGRICULTURAL INCOME. ACCORDINGLY, IRRE SPECTIVE OF WHETHER THE BASIC OPERATIONS HAVE BEEN CARRIED OUT ON LAND, SUCH INCOME WILL BE TREATED AS AGRICULTURAL INCOME, THUS QUALIFYING FOR EXEMPTION UNDER SUB- SECTION (1) OF SECTION 10 OF THE ACT. ITA NO.1271/PUN/2015 & CO NO.41/PUN/2017 M/S. FUTURA BIOPLANTS PVT. LTD., 6 13. FROM THE ABOVE, IT IS THE SETTLED LEGAL PROPOSITION THAT THE INCOME ARISING FROM THE SAPLINGS AND SEEDLINGS CONSTITUTE TH E EXEMPT INCOME WITHIN THE MEANING OF THE EXPLANATION 3 TO SECTION 2 (1A) R.W.S. 10(1) OF THE ACT IRRESPECTIVE OF THE FACT WHETHER BASIC OPE RATIONS HAVE BEEN CARRIED OUT ON LAND. SUCH INCOME IS DEEMED AS AN E XEMPT AGRICULTURAL INCOME, THUS QUALIFYING FOR EXEMPTION U/S.10(1) OF T HE ACT. ACCORDINGLY, GROUNDS RAISED BY THE REVENUE STAND DISMISS ED. THEREFORE, ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFER ENCE ON THIS ISSUE. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE S TANDS DISMISSED. 14. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. CO NO.41/PUN/2017 (ARISING OUT OF ITA NO.1271/PUN/2015) (BY ASSESSEE) 15. THE ASSESSEE FILED THE ABOVE CROSS OBJECTION AGAINST THE ITA NO.1271/PUN/2015 FILED BY THE REVENUE. THE ONLY ISSUE RA ISED IN THE CROSS OBJECTION RELATES TO ALLOWABILITY OF THE EXEMPTION U/ S.10(1) R.W. 2(1A)(B)(II) OF THE ACT. 16. COMING TO THE FACTS ASSESSEE EARNED FOREIGN EXCHANGE GAIN AND ALSO REGISTERED LOSS ON ACCOUNT OF FOREIGN EXCHANGE ON VA RIOUS ACCOUNTS. DETAILS ARE TABULATED HERE AS UNDER : SR. NO. PARTICULARS AMOUNT OF FOREIGN EXCHANGE GAIN/LOSS (RS.) 1 CAPITAL EXPENDITURE 1,19,514 2 REVENUE CREDITORS (29,530) 3 REVENUE DEBTORS 10,40,664 4 REVALUATION AT THE YEAR END (UNREALISED GAIN) 3,75,230 TOTAL 15,05,878 ITA NO.1271/PUN/2015 & CO NO.41/PUN/2017 M/S. FUTURA BIOPLANTS PVT. LTD., 7 17. THE ASSESSEE CLAIMS THAT THE ABOVE NARRATED GAIN/LOS S ON ACCOUNT OF FOREIGN EXCHANGE IS DUE TO FLUCTUATION IN THE FOR EIGN CURRENCY MARKET AND THEREFORE, THE SAME CONSTITUTES AS DERIVED FROM THE AGRICULTURAL ACTIVITIES. THEREFORE, THE SUM OF RS.15,05,878 /- WHICH FORMED PART OF THE TOTAL INCOME OF RS.1,00,83,467/- CLAIMED A S EXEMPT INCOME U/S10(1) R,W,S, 2(1A)(B)(I) OF THE ACT. AO REJECTED THE CLAIM OF THE ASSESSEE. IN THE FIRST APPELLATE PROCEEDINGS, CIT(A) C ONFIRMED THE SAME BY HOLDING THAT THE SAME IS NOT DERIVED FROM THE AG RICULTURAL ACTIVITIES. CONTENTS OF PARA NO.5.1 TO 5.4 AND ITS SUB-PARA GRAPHS ARE RELEVANT. 18. IT IS THE CASE OF THE REVENUE THAT THE SAID INCOME A T THE MAXIMUM ATTRIBUTABLE TO AGRICULTURAL ACTIVITY BUT CERTAINLY NOT DERIVED FROM THE AGRICULTURAL ACTIVITY OF THE ASSESSEE. EVENTUALLY, THE CIT(A) DENIED THE CLAIM OF EXEMPTION ON THIS PART OF INCOME OF RS.15,05,878/-. AS STATED ABOVE, THIS IS THE PART OF ENTIR E CLAIM OF RS.1,00,83,467/- U/S.10(1) OF THE ACT. 19. AGGRIEVED WITH THE SAME ASSESSEE FILED THE CROSS OBJECTION BEFO RE US. 20. GROUND NOS. 1 TO 3 OF THE CROSS OBJECTION FILED BY TH E ASSESSEE RELATES TO THE GROUNDS RAISED BY THE REVENUE WHICH ARE ALREADY CONSIDERED IN CONNECTION WITH THE APPEAL OF THE REVENUE. CONSIDERING OUR DECISION WHILE ADJUDICATING GROUNDS RAISED BY THE REVE NUE, GROUNDS NOS. 1 TO 3 OF THE CROSS OBJECTION BECOMES AN ACADEMIC AND THEREFORE, THESE OBJECTIONS OF THE ASSESSEE ARE DISMISSED AS ACAD EMIC. 21. OBJECTION NOS. 4 AND 5 OF THE C.O. RELATES TO THE ALLOW ABILITY OF THE NET FOREIGN EXCHANGE GAIN AS DEEMED AGRICULTURAL INCOM E EXEMPT U/S.10(1) OF THE ACT. ITA NO.1271/PUN/2015 & CO NO.41/PUN/2017 M/S. FUTURA BIOPLANTS PVT. LTD., 8 22. IN THIS REGARD, LD. AR FOR THE ASSESSEE FILED THE FOLLOWIN G WRITTEN SUBMISSIONS WHICH ARE REPRODUCED HERE AS UNDER : THE ASSESSEE IMPORTS MOTHER PLANTS FOR PRODUCING T HE ORCHID FLOWERS/TISSUE CULTURE PLANTS AND ALSO EXPORTS THE FINAL PRODUCTS DURING ITS NORMAL BUSINESS OPERATIONS. THE PAYMENTS FOR TH E AFORESAID IMPORT PURCHASES AND REALIZATIONS FOR THESE EXPORT SALES A RE DONE IN FOREIGN CURRENCY. ACCORDINGLY, THE ASSESSEE RECOGNIZES THE FOREIGN CURRENCY FLUCTUATION I.E. THE DIFFERENCE BETWEEN THE INR VAL UE OF SALES OR PURCHASES AT THE TIME OF RECORDING AND REALIZATION OF SUCH TRANSACTIONS. THE ABOVE TREATMENT IS IN ACCORDANCE WITH THE 'AS - 11. THE EFFECT OF CHANGES IN FOREIGN EXCHANGE RATES' ISSUED BY ICAI O N THIS ASPECT. THESE FOREIGN CURRENCY FLUCTUATIONS ARE DEBITED OR CREDIT ED TO THE PROFITS AND LOSS ACCOUNT IN ACCORDANCE WITH THE ACCOUNTING POLICY ADOPTED BY THE COMPANY. THE ASSESSEE HAS RECORDED A GAIN OF RS 15,05,878 IN THE STATEMENT OF PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH 2 011. THE LEARNED AO IN THE FINAL ASSESSMENT ORDER HAS CONTENDED THAT, F OREIGN EXCHANGE FLUCTUATION GAIN HAS RESULTED DUE TO TRANSACTIONS R ELATED TO IMPORT OF RAW MATERIALS AND FINISHED GOODS AND ON ACCOUNT RES TATEMENT OF CREDITORS AND DEBTORS. THEREFORE THE LEARNED AO HAS CONCLUDED THAT AFORESAID FOREIGN CURRENCY FLUCTUATION GAIN IS PURE LY BUSINESS INCOME. IN THIS REGARD, THE ASSESSEE HUMBLY SUBMITS BEFORE YOUR HONOURS THAT, IF THERE IS PROXIMITY BETWEEN SOURCE AND ACTIVITY, INCOME STREAM CANNOT BE ISOLATED. THE TABLE BELOW ILLUSTRATES THE MANNER IN WHICH FOREIGN CURRENCY FLUCTUATION IS RECORDED IN THE ASSESSEE'S BOOKS OF ACCOUNT. SR. NO. TRANSACTION TYPE INVOICE AMOUNT (USD) (A) CONVERSION RATE (B) AMOUNT BOOKED/PAID IN INR (C) = (A*B) 1 IMPORT OF MOTHER PLANTS : 1,000 63 63,000 2 ENTRY PASSED IN BOOKS : RM STOCK A/C (DR) TO, CREDITOR A/C. (CR) 1,000 1,000 63,000 63,000 3 AT THE TIME OF PAYMENT 1,000 62.5 62,500 4 GAIN REALIZED (3-1) -- 0.5 500 5 ENTRY PASSED IN BOOKS : CREDITOR A/C (DR) TO, BANK A/C. (CR) TO, FOREX FLUCTUATION ACCOUNT (GAIN) (CR) 1,000 1,000 63,000 62,500 500 6 SALE OF PLANTS GROWN 1,500 61.5 92,250 7 ENTRY PASSED IN BOOKS : CUSTOMER A/C (DR) TO, SALES A/C (CR) 1,500 1,500 92,250 92,250 8 1,500 62 93,000 9 GAIN REALIZED (8-6) 0.5 750 10 ENTRY PASSED IN BOOKS : BANK A/C. (DR) TO CUSTOMER A/C (CR) TO FOREX FLUCTUATION ACCOUNT (GAIN) (CR) 1,500 93,000 92,250 750 ITA NO.1271/PUN/2015 & CO NO.41/PUN/2017 M/S. FUTURA BIOPLANTS PVT. LTD., 9 THE AS SES SEE HAD FILED LEDGER ACCOUNT OF THE FOREIGN EXCHANG E GAIN/(LOSS) SHOW I NG TRANS ACTION WISE DETAILS BEFORE THE LEARNED CIT(A) . FURTHER, THE ASSESSEE HAS FILED ADD ITI O N AL EVIDENCE CONTAINING SAMPLE COPIES OF IRTT ( I . E. INWARD REMITTANCE TELEG R APHIC TRANSFER) , INVOICES RAISED ON FLORICULTURA B . V . (I . E . DEBTOR) , SBI EXCHANGE R A T E CARD AND AIRWAY BILL IN SUPPORT OF ITS CLAIM AND IN CONT I NUANCE OF THE LEDGER ACCOUNT ALREADY FILED BEFORE LEARNED CIT(A) (ENCLOS ED HEREWITH AT PAGE 163 TO PAGE 2 76 OF THE PAPER BOOK). FURTHER, THE ASSESSEE SUBMIT S A SUMMARY OF THE FOREIGN EXCHANGE GAIN EARNED BY IT I N THE SUBJECT ASSESSMENT YEAR. SR. NO. PARTICULARS AMOUNT OF FOREIGN EXCHANGE GAIN/LOSS (RS.) 1 CAPITAL EXPENDITURE 1,19,514 2 REVENUE CREDITORS (29,530) 3 REVENUE DEBTORS 10,40,664 4 REVALUATION AT THE YEAR END (UNREALISED GAIN) 3,75,230 TOTAL 15,05,878 SUBMISSIONS ON MERITS : THE LEARNED AO HAS GROSSLY ERRED IN CONCLUDING THAT , THE GAINS ARISING ON ACCOUNT OF FOREIGN CURRENCY FLUCTUATION WERE PUR ELY BUS I NESS I NCOME . THE CONTENTION OF THE LEARNED AO WAS THAT THE GAINS HAVE RESULTED DUE TO IMPORT OF RAW MATERIAL AND EXPORT OF FINISHED GO ODS. THE LEARNED AO DID NOT PROVIDE ANY JUSTIFICATION FOR TREAT I NG THE FOREIGN CURRENCY FLUCTUATION GAINS AS TAXABLE BUSINESS INCOME . THE ASSESSEE WOULD WISH TO REITERATE THE FACTS THAT , THE GAINS ON ACCOUNT OF FOREIGN CURRENCY FLUCTUAT I ON HAS RESULTED FROM ITS NORMAL COURSE OF BUSINESS I . E. AGRICULTURAL OPERATIONS AND THE ASSESSEE IS NOT ENGAGED IN ANY OTHER BUSINESS ACTIVITY . THUS , THE AFORESAID FOREIGN CURRENCY FLUCTUATION GA I N IS INCIDENTAL TO THE CAR R YING ON OF AGR I CULTURAL ACTIVITIES . FURTHER, THE ABOVE GAINS HAVE RESULTED FROM THE TRA NSACTION OF IMPORT OF MOTHER PLANTS AND EXPORTS OF FLOWERS/PLAN TS. THUS, IT IS VERY CLEAR FROM THE ABOVE FACT THAT, THE FOREIGN CURRENC Y FLUCTUAT I ON IS PART OF AGRICULTURAL INCOME AS THE ASSESSEE DOES NOT CARRY OUT ANY OTHER ACTIVITY . SECTION 2(1A) WHICH DEFINES AGRICULTURAL INCOME , U SED THE PHRASE ...... DERIVED FROM LAND..... IN VARIOUS CASES THE WORD DERIVED HAS BEEN A SUBJECT MATTER OF JUDICIAL SCRUTINY. FOREIGN EXCHA NGE GAIN/LOSS IN THIS CASE HAS A DIRECT LINKAGE WITH PURCHASE OF MOTHER P LANTS AND SALE OF GROWN PLANTS (WHICH INEXTRICABLY LINKED TO FOREIGN EXCHANGE), IT CANNOT BE DISASSOCIATED FROM THE AGRICULTURAL ACTIVITIES C ARRIED OUT BY THE ASSESSEE. THIS PROPOSITION HAS BEEN ACCEPTED IN TH E CASE OF LIBERTY INDIA VS. CIT (2009) 317 ITR 218 (SC) BY THE HONBL E SUPREME COURT. THE ASSESSEE RELIES ON THE FOLLOWING JUDICIAL PRECE DENTS IN THIS REGARD WHICH ARE IN THE CONTEXT OF SECTION 80HHC OF THE AC T : C IT VS . RACHNA UDHYOG [2010] 230 CTR 72 (BOMBAY) (ENCLOSED HEREWITH AT PA GE 305 TO PAGE 306 OF THE PAPER BOOK) ACIT VS. PRAKASH L . SHAH [2008] 118 TT J 577 (MUMBAI) (SB) (ENCLOSED HEREWITH AT PAGE 307 TO PAGE 322 OF THE P APER BOOK) ACIT VS . BMC SOFTWARE (ITA NO. 1423/PN/2008) (PUNE ITAT) (ENCLOSED HEREWITH AT PAGE 323 TO PAGE 326 OF THE P APER BOOK) ASIA PACIFIC MARBLES PVT LTD VS. DCIT ITA NO. 1217/ MUM/2008 ITA NO.1271/PUN/2015 & CO NO.41/PUN/2017 M/S. FUTURA BIOPLANTS PVT. LTD., 10 (MUM ITAT) (ENCLOSED HEREWITH AT PAGE 327 TO PAGE 3 38 OF THE PAPER BOOK) THE CASE OF THE ASSESSEE I S THAT , FOREIGN EXCHANGE GAIN ARISING OUT OF DAY-TO-DAY AGRICULTURAL ACTIVITIES I . E . REALIZATION OF SALES CONSIDERATION ON EXPORT SALES IS AGRICULTURAL INCOME, SINCE IT IS DI RECTLY DERIVED FROM LAND , AND WHETHER REALIZATION OF SALES CONSIDERATION FOR GOODS IS MADE IN FOREIGN CURRENCY OR INR , IT DOES NOT ALTER THE NATURE OF REVENUE, AS THE SAME IS DERIVED FROM AGRICULTURAL ACTIVITY . IN THE AFOREMENTIONED CASES, IT IS HELD THAT, EXCHA NGE GAIN ARISES OUT OF AND IS DIRECTLY RELATED TO THE MAIN ACTIVITY OF THE ASSESSEE, AND THEREFORE, TREATED AT PAR WITH THE INCOME EARNED BY THE ASSESS EE FROM ITS MAIN ACTIVITY. THE ASSESSEE IN THE ABOVE MENTIONED CASES WERE ELIGIBLE FOR TAX DEDUCTION UNDER SECTIONS 80OB AND 80HHC OF THE ACT . THEREFORE , THE EXCHANGE GAIN EARNED DURING THE NORMAL COURSE OF BU SINESS ACTIVITIES WERE HELD BUSINESS INCOME AND ELIGIBLE F OR DEDUCTION . PRAYER : IN LIGHT OF THE ABOVE FACTS, WE HUMBLY PRAY BEFORE YOUR HONOURS THAT, THE AFORESAID GAINS ON FOREIGN CURRENCY FLUCTUATION BE CONSIDERED AS AGRICULTURAL INCOME AND ACCORDINGLY, ELIGIBLE FOR E XEMPTION U/S.10(1) READ WITH SECTION 2(1A)(B)(I) OF THE ACT. THEREFORE, TH E ASSESSEE PRAYS BEFORE YOUR HONOUR TO KINDLY DIRECT THE LD. AO TO CONSIDER THE AFORESAID INCOME AS AGRICULTURAL INCOME. 23. WITHOUT PREJUDICE TO THE ABOVE, LD. AR FOR THE ASSES SEE BROUGHT OUR ATTENTION TO THE TABLE - SUMMARY OF THE FOREIGN EXCHANGE GAIN EARNED AND SUBMITTED VARIOUS SUBMISSIONS AGAINST EACH ITEM OF T HE SAID FOREIGN GAIN/LOSS. 24. REFERRING TO THE AMOUNT OF RS.1,19,514/-, I.E. THE GAIN E ARNED ON ACCOUNT OF CAPITAL CREDITORS, LD. AR FAIRLY SUBMITTED THAT ASSESSEE HAS NO OBJECTION IF THE CLAIM OF EXEMPTION ON THE FOREIGN EX CHANGE EARNINGS OF RS.1,19,514/- (CAPITAL EXPENDITURE ACCOUNT) IS D ENIED. HE FAIRLY SUBMITTED, THE SAME IS DERIVED IN THE CONTEXT OF IM PORT OF THE FIXED ASSETS AND CERTAINLY NOT RELATABLE TO THE SALE OF T HE SAPLINGS/SEEDLINGS. 25. ON HEARING BOTH THE PARTIES, CONSIDERING THE SAID CONC ESSION OF LD. AR FOR THE ASSESSEE AND WITHOUT GOING INTO THE OTHER ARGUMENTS OF THE LD. AR, WE FIND THE ORDER OF CIT(A) DOES NOT CALL FOR ANY ITA NO.1271/PUN/2015 & CO NO.41/PUN/2017 M/S. FUTURA BIOPLANTS PVT. LTD., 11 INTERFERENCE ON THESE RECEIPTS AND FOR THE SAID REASON. WE DIRECT THE AO TO TAX THE SAME AS NON-AGRICULTURAL INCOME, A TAXABLE REVENUE IN THE HANDS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 26. SIMILAR ARGUMENT OR CONCESSION IS GIVEN BY THE LD. AR FOR THE ASSESSEE WITH REGARD TO (1) LOSS OF RS.29,530/- EARNED ON ACCOUNT OF REVENUE CREDITORS (2) RS.3,75,230/- THE EARNINGS ON THE FOREIGN EXCHANGE DEPOSITED IN THE EXCHANGE EARNERS FOREIGN CURRENCY ACCOUNT ( IN SHORT EEFC) OF THE ASSESSEE. ON THESE TWO ISSUES, LIKE IN THE CASE OF CAPITAL EXPENDITURE ACCOUNT, THE FOREIGN EXCHANGE GAIN/LOSS IS DUE TO REVALUATION OF THE BALANCE OF FOREIGN EXCHANGE APPEARING IN THE CREDIT OF THE ASSESSEE IN THE SAID ACCOUNT. AO IS DIRECTED TO TAX THESE RECEIPTS OF THREE TYPES (RS. 1,19,514 +3,75,230 (-)29,530) AS NON-AGRICULTURAL INCOME. 27. FINALLY, REGARDING THE GAIN OF RS.10,40,664/- EARNED ON A CCOUNT OF REVENUE DEBTORS, IT IS THE CASE OF THE ASSESSEE THAT THESE AMOUNTS REPRESENTS GAINS ACCRUED TO THE ASSESSEE AND DIRECTLY DERIVED FROM THE SALE PROCEEDS PAYABLE TO THE ASSESSEE BY THE DEBTORS. THE SAME CONSTITUTES GAINS DERIVED FROM THE SALE OF THE SAPLINGS/SEE DLINGS. THEREFORE, THE SAME SHOULD BE CONSIDERED AS DERIVED FROM AGRICULTURAL ACTIVITY OF THE ASSESSEE. LD. AR FOR THE ASSESSEE BROUGH T OUR ATTENTION TO THE VARIOUS DECISIONS WHICH ARE OF COURSE DECIDED IN T HE CONTEXT OF 80IB/10A OF THE ACT. HOWEVER, THEY ARE DELIVERED IN THE CONTEXT OF THE CRUCIAL EXPRESSION DERIVED AND THE SAME SHOULD HELP THE BENCH IN TAKING THE DECISION. 28. ON GOING THROUGH THE SAME, WE FIND THE FOREIGN EXCHANG E GAIN WAS CONSIDERED AS DERIVED FROM THE SALES ACTIVITY RECEIVAB LE FROM THE DEBTORS AND THE SAID GAIN IS FOUND ELIGIBLE FOR CLAIM OF DEDUC TION ITA NO.1271/PUN/2015 & CO NO.41/PUN/2017 M/S. FUTURA BIOPLANTS PVT. LTD., 12 U/S.80IB/10A OF THE ACT. THE EXPRESSION DERIVED IS USE D COMMONLY IN ALL THESE SECTIONS INCLUDING THE EXPLANATION 3 TO SECTION 2(1A) OF THE ACT. IN OUR VIEW, THE SAME LOGIC AND REASONING IS APPLICABLE WHEN IT COMES TO THE PROVISIONS OF SECTION 10(1) R.W. EXPLANATION 3 TO SECTION 2(1A) OF THE ACT. ACCORDINGLY, THE CLAIM OF THE ASSESSEE ON THE INCOME OF RS.10,40,664/- IS ALLOWED IN FAVOUR OF THE ASSESSEE. TO T HAT EXTENT, THE ORDER OF THE CIT(A) STANDS REVERSED AND THEREFORE, T HIS PART OF THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 29. IN THE RESULT, THE CROSS OBJECTION FILED BY THE ASSES SEE IS PARTLY ALLOWED. 30. TO SUM UP, APPEAL OF THE REVENUE IS DISMISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 17 TH DAY OF JANUARY, 2018. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 17 TH JANUARY, 2018. / COPY OF THE ORDER FORWARDED TO : BY ORDER // TRUE COPY // //TRUE COPY// SENIOR PRIVATE SECRETARY , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. CIT(A) - 1, PUNE 4 . 5. CIT - 1, PUNE % , , A BENCH PUNE; 6 . / GUARD FILE.