KNR Agro Framing Mutually Aided Co-Op. Soceity Limited, Hyderabad V. Addl. CIT, Kurnool Range, Kurnool

ITA 1458/HYD/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69820 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 14-06-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 26-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNIL BABU
• Assessee Lawyers: A V RAGHURAM
• Keywords: Unexplained cash credit; Depreciation; Principle of natural justice; Source of fund; Retraction
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 1458/HYD/2010 ASSESSMENT YEAR : 2007-08 KNR AGRO FARMING MUTUALLY AIDED CO- OPERATIVE SOCIETY LTD., HYDERABAD. PAN AACCK8561H ... APPELLANT VS. ADDL. COMMISSIONER OF INCOME-TAX, KURNOOL ... RESPONDENT APPELLANT BY: SHRI A.V. RAGHURAM RESPONDENT BY: SHRI SUNIL BABU DATE OF HEARING: 28/08/2013 DATE OF PRONOUNCEMENT: 27/09/2013 ORDER PER CHANDRA POOJARI, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A)-IV, HYDERABA D ON 15/09/2010, FOR THE ASSESSMENT YEAR 2007-08. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS A COOPERATIVE SOCIETY. DURING THE YEAR UNDER CONSIDERATION, IT HAD ADMITTED INCOME OF RS. 50,70,000/- AS AGRICULTURAL INCOME. DURING THE COUR SE OF ASSESSMENT PROCEEDINGS, IT WAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE SOCIETY HAD GROWN PROSOP IS 2 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= JULIFLORA PLANTS, WHICH MATURE IN 4 YEARS AND GIVE AN YIELD OF 20 TONNES OF FIREWOOD PER ACRE PER YEAR AT 20% +MOISTURE. IT WAS SUBMITTED THAT THE YIELD AT T HE TIME OF MATURITY IS 80 TONNES OF FIREWOOD AT 20% OF MOISTURE. IT WAS AVERRED BY WAY OF A LETTER DATED 15/09/2009 THAT THE PROSOPIS JULIFLORA PLANTS HAD B EEN SUPPLIED TO THE ASSESSEE BY THE FOREST DEPARTMENT F REE OF COST. HOWEVER, VIDE ANOTHER LETTER DATED 02/12/2009, THE ASSESSEE STATED THAT IT HAD PURCHAS ED SEEDS OF PROSOPIS JULIFLORA, WHICH WAS USED FOR CULTIVATION. 3. THE ASSESSING OFFICER NOTED THAT THE ENTIRE CLAI M OF THE ASSESSEE WAS BASED ON THE PHOTO COPY OF A SINGLE TEAROFF SHEET OPINION GIVEN BY ONE SRI GURU MURTHY K. ETC., INDIA FOR 10:879-94, 1984. AS PER T HE SAID OPINION, THE YIELD WOULD BE ABOUT 45 MT PER AC RE ON MATURITY. IT WAS SUBMITTED BY THE ASSESSEE THAT THE YIELD SHOWN BY THE ASSESSEE COMES TO 40 MT PER ACRE AND THAT THE AVERAGE COST WAS TAKEN BY THEM AT RS. 950/- PER MT. IT WAS SUBMITTED THAT ON 140 ACRES OF LAND CULTIVATED BY THE SOCIETY, THE INCOME WORKED O UT TO RS. 53,00,000/- AROUND [ 140 X 40 X 950] ON THE ABOVE BASIS. 4. IT WAS ALSO CONTENDED THAT THE EXPENSES FOR CUTTING WERE NIL AS THE BUYERS THEMSELVES CUT THE PLANTS INTO LOGS AND TRANSPORT THE LOGS TO THEIR DESTINATION. IT WAS ALSO STATED THAT THE EXPENSES F OR CULTIVATION WERE CAPITALIZED. THE ASSESSEE AVERRED THAT THE PLANTS BEING USED A FIRE WOOD AND WERE THEREFOR E 3 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= SOLD TO NUMBER OF PERSONS. THE ASSESSEE ALSO FILED A COPY OF THE SALES REGISTER CONTAINING SOME DETAILS REGARDING THE DATE OF SALES, PERSON TO WHOM SOLD AN D NAME OF THE BUYERS PLACE, MODE OF TRANSPORT, SALE AMOUNT ETC. IT ALSO PRODUCED A SALE BILL BOOK, CONTAINING THE SAME DETAILS. 5. ON CONSIDERATION OF THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD RELIED ONLY ON SOME THEORETICAL OPINIO N OF SOME ONE FOR SUPPORTING SUCH DERIVE OF INCOME, THOU GH SUCH OPINION WAS ONLY FOR AN INFORMATIVE NATURE. SH E FELT THAT THE CLAIM HAD NO REAL OR ACTUAL BASIS, AS HAVING CLAIMED GROWING THE PLANTS, THE ASSESSEE SHO ULD HAVE GIVEN THE ACTUAL FIGURES, INSTEAD OF SIMPLE ARITHMETICAL CALCULATION OF ESTIMATION. SHE FURTHER OBSERVED THAT THE ASSESSEE COULD NOT SPECIFY THE AC TUAL MODE OF CULTIVATION, AS INITIALLY IT CLAIMED THAT I T HAD USED THE PLANTS SUPPLIED BY THE FOREST DEPARTMENT F REE OF COST, AND SUBSEQUENTLY, ON BEING REQUIRED TO FUR NISH EVIDENCE FROM THE FOREST DEPART. IN THIS REGARD, IT CHANGED ITS VERSION TO CONTEND THAT IT HAD PURCHASE D THE SEEDS, WHICH WERE UTILIZED FOR CULTIVATION. ACCORDINGLY, AS PER THE ASSESSING OFFICER THE ASSES SEE WAS ITSELF IN DOUBT ABOUT THE VERY BASIS OF THE CULTIVATION CONTENTEDLY CARRIED OUT IN 140 ACRES. S HE ALSO NOTED THAT THE ASSESSEE COULD NOT IDENTIFY THE PERSONS TO WHOM THE SAID PLANTS WERE SOLD. 6. IN VIEW OF THE ABOVE OBSERVATIONS, THE ASSESSING OFFICER ISSUED A LETTER TO THE ASSESSEE ON 16/12/20 09, 4 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= RAISING THE FOLLOWING ISSUES AND REQUIRING THE ASSE SSEE TO SUBSTANTIATE THE SAME: 1.7.1 TO CLARIFY REGARDING THE SOURCE OF PLANTATION I.E. WHETHER BY UTILISING THE PLANTS SUPPLIED BY FOREST DEPARTMENT OR BY PURCHASING SEED. 1.72. TO GIVE CORRECT FIGURES OF INCOME, SINCE IT IS CLAIMED THAT IT HAS PRACTICALLY CULTIVATE THE PLANTS, INSTEAD OF RELYING ON SOME ESTIMATION AS PER OPINION OF SOMEBODY AND TO GIVE FULL TEXT OF THE OPINION AND THEIR CREDENTIALS THEREOF. 1.73 THE BASIS FOR CALCULATING COST OF OUTPUT AT RS. 950/- PER MT. 1.74 TO FURNISH YEAR WISE GROWTH OF THE PLANTS WITH RELEVANT TRADING AND P&L ACCOUNTS FOR THE FY 2001-02 TO 2006-07 WITH RESPECT TO SEEDS/PLANTS PURCHASED, GERMINATED, OUTPUT YIELD %, STOCK OF PLANTS AT BEGINNING AND END OF THE YEAR, DETAILS ON AVERAGE HEIGHT, DIA, GIRTH OF THE PLANTS YEAR WISE ETC. 1.7.5 TO EXPLAIN THE MATURITY YIELD RATIOS AND FEASIBILITY TO CUT THE ENTIRE PLANTATION OF 140 ACR ES IN A SHORT SPAN OF 6 MONTHS. 1.7.6 TO PROVE THE SALES MADE TO DIFFERENT PERSONS WITH NECESSARY EVIDENCE AS THE ONUS IS UPON THE ASSESSEE TO PROVE THE RECEIPTS. 1.7.7 TO PRODUCE COPIES OF BANK ACCOUNT STATEMENTS MAINTAINED FOR THE FY 2001-02 TO FY 2006-07. 7. IN REPLY, THE ASSESSEE VIDE A LETTER DATED 23/12/2009 AVERRED THAT THE EARLIER STATEMENT REGARDING FREE SUPPLY OF PLANTS BY THE FOREST DEPARTMENT GIVEN BY ITS ACCOUNTANT INADVERTENTLY, WHEREAS IT HAD PURCHASED SEEDS FROM DEALER VIZ., RAGHAVENDRA SEEDS & PESTICIDES, GOOTY, ANANTHAPUR, IN 5 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= THE YEAR 2001 AND USED THEM FOR CULTIVATION. IT WAS CONTENDED THAT A PHYSICAL INSPECTION MAY ALSO BE CONDUCTED TO VERIFY THE EXISTENCE OF TREES AND CUTT ING THEREOF BY THE BUYERS. THE ASSESSEE ALSO AVERRED TH AT SRI K. GURU MURTHY, IS TECHNICALLY COMPETENT PERSON TO GIVEN SUCH OPINION. IT WAS HOWEVER ADMITTED THAT IT COULD NOT GET THE FULL TEXT OF THE OPINION. THE ASS ESSEE FURTHER SUBMITTED THAT IT HAD TAKEN OUTPUT COST RS. 950/- PER MT ON AN AVERAGE AND THAT THE QUANTITY DEPENDS UPON THE LORRY, TRACTOR OR BULLOCK CART. TH E ASSESSEE PLEADED THAT THIS WAS THE FIRST YEAR OF SA LE AND THE SOCIETY DID NOT HAVE ANY EXPENDITURE IN THI S LINE EARLIER, IT DID NOT MAINTAIN QUANTITY AND WEIG HT DETAILS IN RESPECT OF EACH PLANT. THE ASSESSEE HOWE VER SUBMITTED THAT THE SALE PRICE WAS TAKEN ON ESTIMATE BASIS ON THE MATERIAL SUPPLIED THROUGH DIFFERENT TRANSPORTERS. IT WAS ALSO CLAIMED THAT IN VIEW OF T HE DEMAND OF THE FIRE WOOD, THE ENTIRE CROP WAS SOLD B Y IT IN SIX MONTHS ITSELF AND SINCE THE SALES WERE GENER ALLY TO PETTY VENDORS, ONLY THE NAME AND VILLAGE PARTICU LARS WERE RECORDED. BESIDES, THE ASSESSEE ALSO PRODUCED THE COPIES OF INDS IND BANK, KURNOOL TERM LOAN ACCOUNT AND CURRENT ACCOUNT AND SYNDICATE BANK, KURNOOL ACCOUNT COPIES, WHICH WERE OPENED ON 01/11/2006 AND 01/12/2006 RESPECTIVELY. 8. ON GOING THROUGH THE ABOVE, THE ASSESSING OFFICE R FOUND THE EXPLANATION OF THE ASSESSEE NOT ACCEPTABL E AS ON VERIFICATION BY THE DEPARTMENT, M/S RAGHAVEND RA SEEDS AND PESTICIDES, CATEGORICALLY STATED THAT HE HAD NOT SUPPLIED ANY SUCH SEED TO THE ASSESSEE. IT WAS ALSO 6 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= STATED BY THE DEALER THAT IT WAS IMPOSSIBLE FOR HIM TO ISSUE ANY BILLS IN THE YEAR 2001, AS HE HAD COMMENC ED HIS BUSINESS IN THE APRIL, 2004 ONLY. IN HIS STATEM ENT, THE SAID DEALER ALSO STATED THAT THOUGH HIS SHOP WA S ESTABLISHED IN THE SAME PREMISES NEARLY 7 YEARS BA CK, EVER SINCE THEN THEY HAVE NOT SOLD ANY JULIFLORA SE EDS FROM THERE. ON BEING CONFRONTED WITH BILL NO. 2369 AND 2370 DATED 04/12/2001 AND 06/12/2001 RESPECTIVELY, WHICH WERE SUBMITTED BY THE ASSESSEE THAT SINCE THE SHOP WAS OPENED ONLY IN APRIL 2004, THOSE BILLS MAY NOT BELONG TO HIS SHOP. BESIDES, THE DEALER ALSO PO INTED OUT THAT ALL THE BILL BOOKS MAINTAINED BY HIM BEAR THE NO. 1 TO 300 AND HE GETS THOSE PRINTED IN THAT MANN ER ONLY. HE MAINTAINED THAT BILLS WITH CONTINUOUS S. N OS. WERE GOT PRINTED ONLY IN THE FIRST YEAR AND SUCH PR INTING WAS DISCONTINUED LATER. ACCORDINGLY, THE DEALER CATEGORICALLY DENIED THAT THE BILLS PRODUCED BY THE ASSESSEE HAD BEEN ISSUED BY HIM AND SUBMITTED THAT HE HAD NOT ISSUE THE SAID BILLS TO THE ASSESSEE. 9. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER GAVE ANOTHER OPPORTUNITY TO THE ASSESSEE TO EXPLAIN THE FACTS. IN RESPONSE TO THE LETTER DATED 24/12/2009 I N THIS REGARD, THE ASSESSEE FILED A CLARIFICATION ON 29/12/2009, CONTENDING THAT THE PROPRIETOR OF THE M /S RAGHAVENDRA SEEDS AND PESTICIDES HAD GIVEN THE STATEMENT TO THE INSPECTOR IN THE MOOD OF CONFUSION , THOUGH HE HAD HIMSELF PROCURED SEEDS FROM OUTSIDERS IN 2001 AND SOLD THEM TO THE ASSESSEE. THE ASSESSEE AL SO FURNISHED ANOTHER STATEMENT FROM HIM IN TELUGU DATE D 7 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= 24/12/2009 WHEREIN THE DEALER STATED THAT HE IS A REGISTERED DEALER UNDER VAT ONLY FROM THE YEAR 2004 . 10. THE ASSESSING OFFICER OPINED THAT THE RETRACTIO N OF STATEMENT OBTAINED BY THE ASSESSEE FROM THE SHOP OWNER IS ONLY A DESPERATE ATTEMPT TO SUBSTANTIATE T HE PURCHASE OF SEEDS. SHE NOTED THAT THE PARTICULARS I N THE BILLS WERE BLANK AND THOSE STATED THE AMOUNTS P AID FOR JULIFLORA SEEDS, THEY DID NOT CONTAIN ANY DETAI LS LIKE QUANTITY, DATE, MFG DATE, EXPIRE DATE, PACKING DETA ILS, MANUFACTURERS DETAILS ETC. IT WAS A BLANK BILL STA TING PURCHASE OF SEEDS FOR RS. 3,680/-, WHICH THE ASSESS ING OFFICER CONSIDERED HAD NOT BEEN GENUINE. BESIDES, I N THE RETRACTION STATEMENT, THE SHOP OWNER HAD NOT EV EN MENTIONED AS TO FROM WHOM HE HAD PURCHASED THOSE SEEDS FOR SELLING THEM TO THE ASSESSEE. THEREFORE, SHE OBSERVED THAT THE ASSESSEE HAD ONLY TRIED TO PROTEC T ITS SUBSEQUENT EXPLANATION REGARDING PURCHASE OF SEEDS FROM THE SAID DEALER. 11. THE ASSESSING OFFICER FURTHER NOTED THAT WHILE THE ASSESSEE WAS FIRSTLY UNCERTAIN ABOUT THE MODE OF PLANTATION, I.E. WHETHER BY SAPLINGS OR BY SEEDS, BESIDES IT HAD SUBMITTED CONFLICTING EVIDENCE REGAR DING PURCHASE OF SEEDS. THE ASSESSEE HAD NOT PRODUCED AN Y FURTHER EVIDENCE TO PROVE THE PREPARATION OF LAND, SOWING, GERMINATION, IRRIGATION ETC., WHICH WENT TO SHOW THAT NEITHER ANY SEEDS WERE SOWN NOR THE ASSESSEE MADE ANY EFFORTS TO PLANT AND GROW JULIFLO RA. 8 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= 12. THE ASSESSING OFFICER FURTHER NOTED THAT ADMITTEDLY THE ASSESSEE HAD NOT MAINTAINED PROPER RECORDS FOR THE SAME AND EVEN THE SALE PRICE HAD BE EN ARRIVED AT AN ESTIMATED BASIS, BASING ON THE MATERI AL TRANSPORTED THROUGH DIFFERENT MODES. ACCORDINGLY, THERE WAS NOTHING TO SUBSTANTIATE THE SALE OF PLANT S ON ANY CONCRETE BASIS AND THE ASSESSEE HAD ONLY PREPAR ED THE CALCULATION AND THE SALE REGISTER TO SUIT ITS REQUIREMENTS IN SHOWING THE INCOME UNDER THE HEAD AGRICULTURE. SHE ALSO NOTED THAT SINCE IT WAS CLA IMED THAT THE BUYER THEMSELVES HAD CUT THE PLANTS AND LOADED THEM INTO THEIR TRACTOR/BULLOCK CART/ LORRY ETC., HOW THE SALE PRICE FOR LOAD COULD HAVE BEEN ARRIVED AT IN THE ABSENCE OF WEIGHT, TONNAGE, LOG DETAILS ETC. SHE FELT THAT EVEN IF IT IS ASSUMED THAT THE ASSESSEE H AD SOLD EVERY LOAD ON ESTIMATE BASIS, WHY WOULD ANY BUYER BUY SUCH LOAD WITHOUT ACTUALLY ASCERTAINING T HE SAME AND CONVINCING HIMSELF OF THE PRICE BEING PAID BY HIM. ACCORDINGLY, SHE CONCLUDED THAT THERE WAS NO EVIDENCE IN RESPECT OF SALE AND BASIS OF SALE PRICE . 13. AS OFFERED BY THE ASSESSEE, THE ASSESSING OFFIC ER DEPUTED AN INSPECTOR FOR FIELD ENQUIRY. ON ENQUIRY, IT WAS FOUND THAT THE LAND UNDER CONSIDERATION WAS LAR GE TRACTS OF BARREN LAND, WITH SCANTY AND SCATTERED GR OWTH OF JULIFLORA TREES. THOSE WERE BUSHES, WHICH ON GRO WING RISE TO THE HEIGHT OF 7 TO 8 FEET ONLY, AND ARE OBS ERVED GROWING ALONG THE ROADS AND RAILWAY TRACTS. ENQUIRI ES WITH NEIGHBOURING FARMERS REVEALED THAT THOSE PLANT S GROW SPONTANEOUSLY AND NO TENDING BY WAY OF WATERING, MANURING ETC. IT WAS FOUND THAT THESE PLA NTS 9 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= GROW BACK ONCE THEY ARE CUT. THE FIELD INSPECTION A LSO REVEALED THAT NO SYSTEMATIC PLANTATION WAS MADE AND THE BUSHES WERE SCATTERED FAR AND AWAY AND WERE ALS O FEW IN NUMBER. A VIDEO RECORDING OF THE FIELD INSPE CTION ON THE MOBILE PHONE WAS ALSO MADE BY THE INSPECTOR, BESIDES PHOTOGRAPHY THEREOF. 14. THE ASSESSING OFFICER NOTED THAT AS PER THE SAL ES REGISTER AND THE CASH BOOK, SALES WERE RECORDED ON A DAILY BASIS FOR THE PERIOD 03/04/2006 TO 11/09/2006 . THE BANK ACCOUNTS OF THE ASSESSEE HOWEVER DID NOT REFLECT ANY CREDITS BY WAY OF SALE RECEIPTS, EITHER ON DAILY OR ON PERIODICAL BASIS. RATHER, THE BANK ACCO UNT WERE OPENED IN THE MONTHS OF NOVEMBER AND DECEMBER 2008, I.E. MUCH AFTER THE ALLEGED SALE OF PLANTS IN SEPTEMBER, 2006. THE ASSESSING OFFICER THEREFORE FE LT THAT HAD THE SALES ACTUALLY BEEN MADE, THERE WAS NO REASON FOR NOT OPINING THE BANK ACCOUNTS IN THE APR IL, 2006 ITSELF AND CREDITING THE SALE RECEIPTS THEREIN . IN FACT, SHE NOTED THAT THE SALE PROCEEDS CONTENTEDLY RECEIVED HAD NOT BEEN CREDITED INTO THE BANK ACCOUN TS EVEN UNTIL 31/03/2007, RATHER THE CASH BALANCES WER E SEEN PERIODICALLY TRANSFERRED BY BOOK ENTRIES TO SI STER GROUP OF COMPANY, SRI RAYALASEEMA GREEN STEELOY LTD . TO THE TUNE OF RS. 50,70,000, BEGINNING FROM 10/04/2006 TO 11/09/2006, WHICH INCIDENTALLY WAS TH E AGRICULTURAL INCOME CLAIMED BY THE ASSESSEE. THE ASSESSING OFFICER ALSO NOTED THAT THE SAID AMOUNT H AD BEEN UTILIZED BY THE SISTER CONCERN AND THE ASSESSE E HAD NOT RECEIVED THOSE BACK AND HAD NOT EVEN RECEIV ED ANY INTEREST THEREON. ACCORDINGLY, SHE CONCLUDED TH AT 10 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= THE AGRICULTURAL INCOME CONTENTEDLY EARNED BY THE ASSESSEE SOCIETY WAS ONLY AN EFFORT TO BUILD THE TA X FREE INCOME. SHE CONCLUDED THAT THE ASSESSEE HAD ON LY TAKEN THE ADVANTAGE OF THE LAND AVAILABLE WITH IT F OR SHOWING THE AGRICULTURAL INCOME AND HAD ESTIMATED A N INCOME ONLY ON THE BASIS OF BACKWARD ANALYSIS OF YI ELD AND OUTPUT COST TO SUIT ITS REQUIREMENT. SHE THEREF ORE HELD THAT THE AGRICULTURAL INCOME SHOWN BY THE ASSESSEE WAS NOT THE ACTUAL INCOME EARNED BY THE ASSESSEE BY WAY OF AGRICULTURAL ACTIVITY, BUT WAS O NLY A DEVISE TO LEGALIZE ITS UNKNOWN SOURCES OF INCOME IN THE GARB OF AGRICULTURAL INCOME. ACCORDINGLY, THE ENTIR E INCOME WAS TREATED AS INCOME FROM OTHER SOURCES. 15. THE ASSESSING OFFICER FURTHER NOTED THAT FOR BE ING CREATED AS AGRICULTURAL INCOME, AS DEFINED IN SECTI ON 2(1A), THE FOLLOWING CONDITIONS SHOULD BE FULFILLED . I) INCOME SHOULD BE DERIVED FROM LAND; II) LAND SHOULD BE SITUATED IN INDIA; III) LAND SHOULD BE USED FOR AGRICULTURAL PURPOSES . REFERRING TO THE DECISIONS OF THE HONBLE APEX COUR T IN THE CASE OF CIT VS. RAJA BENOY KUMAR SAHAS ROY (32 ITR 466), SHE NOTED THAT THE LAND COULD BE SAID AS USED FOR AGRICULTURAL PURPOSE ONLY WHERE BASIC OPERATION S, LIKE CULTIVATION, TILLING, SOWING, PLANTING ETC. RE QUIRING HUMAN LABOUR AND SKILL ARE DONE, BESIDES THE SUBSEQUENT OPERATIONS, LIKE WEEDING, DIGGING, REMOV AL OF UNDESIRABLE GROWTHS, PREVENTION OF THE CROP FROM INSECTS AND PESTS, DEPRECIATION BY CATTLE, TENDING PRUNING, CUTTING ETC. ARE DONE. AS PER THE SAID 11 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= DECISIONS, THESE TWO OPERATIONS FROM THE INTEGRATED ACTIVITY OF AGRICULTURE AND THE PERFORMANCE OF SUBSEQUENT OPERATIONS ALONE CANNOT YIELD THE INCOME THE CHARACTER OF AGRICULTURAL OPERATION. IN OTHER W ORDS, BASIC OPERATION MUST BE PERFORMED BEFORE ANY INCOME IS TERMED AN AGRICULTURAL INCOME. 16. THE ASSESSING OFFICER FURTHER NOTED THAT FOR BE ING TREATED AS AGRICULTURAL INCOME, IT SHOULD BE DERIVE D FROM THE LAND AND THE LAND SHOULD BE USED FOR AGRICULTURAL PURPOSES, IMPLYING THAT SOMETHING SHOU LD BE DONE TO THE LAND BY HUMAN OR MECHANICAL AGENCY T O PRODUCE OUT OF THE LAND, ANY CROP TREE PLANTATION O R TO PRODUCE OR PRODUCT. 17. THE ASSESSING OFFICER FURTHER NOTED THAT IN THE ASSESSEES CASE, HOWEVER, THE PLANT CONTENTEDLY GRO WN I.E. PROSIPIS JULIFLORA, WAS NOTHING BUT AN ORDINAR Y PLANT, WHICH CAN BE SEEN ANYWHERE IN BARREN LANDS. SHE GATHERED THAT NO EFFORT IS NECESSARY FOR SUCH P LANTS TO GROW, AS THOSE GROW SPONTANEOUSLY ANYWHERE AND EVERYWHERE. THEREFORE, THOSE DO NOT REQUIRE ANY EFF ORTS AS ARE NEEDED FOR AGRICULTURAL OPERATIONS. BESIDES, SHE NOTED THAT EVEN IF SOME JULIFLORA PLANTS WERE FOUND SCATTERED ON THE ASSESSEES LAND, THE INCOME GENERA TED FROM THE SALE THEREOF COULD NOT BE TREATED AS AGRICULTURAL INCOME, AS THOSE HAD GROWN THERE SPONTANEOUSLY AND WIDELY IN THE AREA OF 140 ACRE LA ND. SHE NOTED THAT EVEN IN SEVERAL JUDICIAL PRONOUNCEMENTS, INCOME FROM PLANTS GROWING SPONTANEOUSLY HAS BEEN HELD AS NOT BEING AGRICULTUR AL 12 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= INCOME IN THE ASSESSEES CASE, THE ASSESSEE HAD GROSSLY FAILED TO SHOW THAT THE LANDS WERE CULTIVAT ED SO THAT THE INCOME FROM THE SAME COULD BE TREATED AS AGRICULTURE. ACCORDINGLY, SHE CONCLUDED THAT THE ASSESSEE HAD FAILED TO DISCHARGE ITS BURDEN OF PROO F. 18. THE ASSESSING OFFICER FURTHER NOTED THAT IN THE ASSESSEES CASE NEITHER THE BASIC OPERATIONS NOR TH E SUBSEQUENT OPERATIONS WERE PERFORMED BY THE ASSESSEE. ENQUIRIES HAD REVEALED THAT THE ASSESSEE HAD NOT PURCHASED/PROCURED ANY SEEDS OR SAPLINGS AND PLANTED THE SAME ON THE LAND, NOR ANY SYSTEMATIC PLANTATION, TENDING, CARING, PRUNING, DE WEEDING ET C. WAS DONE. SINCE THE GROWTHS OF THE PLANTS WAS OF A WILD AND SPONTANEOUS NATURE, NO BASIC ACTIVITIES REQUIRI NG HUMAN SKILL WERE UNDERTAKEN. BESIDES, NO EVIDENCE O F ANY SUBSEQUENT OPERATIONS ALSO ADDUCED, AS THE ASSESSEE HAD NOT SPENT ANYTHING TOWARDS CUTTING AND MAKING THE TREES AS MARKETABLE. SHE THEREFORE CONCLUDED THAT THERE WAS NO PROCESS OF AGRICULTURE INVOLVED IN THE RISING OF THE SAID TREES FROM THE L AND AND THAT THE ASSESSEE ONLY WROTE THE SALE REGISTER AND SALE BILL BOOK. 19. IN VIEW OF THE ABOVE OBSERVATIONS, THE ASSESSIN G OFFICER CONCLUDED THAT FIRSTLY THE ASSESSEE HAD NOT EARNED ANY INCOME FROM THE SALE OF PLANTS AND IT WA S ALSO PROVED THAT IT HAD NOT CARRIED OUT ANY OPERATI ONS IN THE NATURE OF AGRICULTURAL OPERATIONS. SHE FELT THAT EVEN IF ANY INCOME WAS EARNED BY THE SALE OF THOSE PLANTS, THE SAME CANNOT TAKE THE CHARACTER OF 13 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= AGRICULTURAL INCOME AS THE PLANTS WERE GROWN SPONTANEOUSLY WITHOUT APPLICATION OF ANY HUMAN SKIL L AND LABOUR. ACCORDINGLY, IT WAS CONCLUDED THAT THE UNKNOWN INCOMES OF APPLICANTS ONLY WERE ADMITTED IN THE GUISE OF AGRICULTURAL INCOME. THE ASSESSING OFF ICER, THEREFORE ASSESSED THE INCOME AS INCOME UNDER THE HEAD OTHER SOURCES. 20. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER , THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE TH E CIT(A) AND THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 21. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFO RE US AND HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE INCOME DERIVED BY THE ASSESSEE BY SALE OF PROSOPIS JULIFLORA IS NOT AGRICULTURAL INCOME. 3. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE PHOTOS TAKEN BY THE INSPECTOR AS SEEN FROM THE CD, SUPPORT THE STAND OF THE ASSESSING OFFICER THAT THERE IS NO SYSTEMATIC PLANTATION OF THE PLANTS, INSTEAD OF APPRECIATING THE FACT THAT THE PHOTOS DOES NOT LEAD TO SUCH CONCLUSION. 4. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE STATEMENT GIVEN BY THE PROPRIETOR OF M/S RAGHAVENDRA SEEDS TO THE INSPECTOR IS THE BEST EVIDENCE ON THE ISSUE, INSPITE OF SUBSEQUENT AFFIDAVIT AND CONFIRMATION IN SUCH AFFIDAVIT OF SAL E OF SEEDS. 5. THE LEARNED CIT(A) ERRED IN HOLDING THAT TRANSFERRING THE ENTIRE AMOUNT TO ANOTHER 14 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= COMPANY AS LOAN, WITHOUT DISTURBING THE SAME TO ITS MEMBERS, DOES NOT STAND THE TEST OF HUMAN PROBABILITIES WITHOUT APPRECIATING THE FACT THAT IN A COOPERATIVE SOCIETY THE ENTIRE SURPLUS CANNOT BE DISTRIBUTED. 22. BEFORE US, THE LEARNED AR FILED A COPY OF THE ASSESSMENT ORDER FOR THE AY 2009-10 WHERE THE ASSESSING OFFICER ACCEPTED PART OF THE AGRICULTURAL INCOME DECLARED BY THE ASSESSEE AS AGRICULTURAL INC OME AND ONLY TREATED A SUM OF RS. 9 LAKHS AS NON- AGRICULTURAL INCOME. HE FURTHER SUBMITTED THAT AS P ER RECORDS, THE ASSESSEE GROWN JULIFLORA PLANTS AND SO LD THEM IN MARKET. HE DREW OUR ATTENTION TO THE DETAI LS OF THE SALES MADE BY HIM IN PAPER BOOK, WHICH IS KE PT ON RECORD. 23. THE LEARNED AR FURTHER SUBMITTED THAT THE ASSESSEE SOCIETY WAS FORMED BY THE MEMBERS FOR THEI R MUTUAL BENEFITS. IT IS POINTED OUT THAT THIS WAS TH E FIRST YEAR OF HAVING SUCH AGRICULTURAL INCOME AND THAT TH E SOCIETY HAD NO OTHER SOURCES TO EARN SUCH HUGE INCOME. THE AR SUBMITTED THAT IF THE PROSOPIS JULIF LORA PLANT GROW ON THEIR OWN WHY THE SEEDS THEREOF ARE S OLD IN THE MARKET. THE AR FURTHER SUBMITTED THAT THERE ARE VARIOUS VARIETIES THEREOF, WHICH GROW ON THEIR OWN ALSO, BUT IT COULD NOT MEAN ALL SUCH PLANTATION GROWS ON ITS OWN. THE AR ARGUED THAT MANY A TIMES EVEN COTTON GROWS ON ITS OWN BUT IT CANNOT BE SAID THAT INCOME FROM GROWING COTTON IS NOT AN AGRICULTURAL INCOME. IT WAS AVERRED THAT SINCE SEEDS ARE NOT AS VALUABLE AS OTHER SEEDS, ALL THE DETAILS THEREOF WERE NOT WRITT EN IN THEIR BILLS. IT WAS ARGUED THAT THE ASSESSING OFFIC ER DID 15 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= NOT EXAMINE THE TRADER SUPPLYING THE SEEDS TO THE ASSESSEE ONCE AGAIN AND MERELY PROCEEDED TO TREAT T HE AGRICULTURAL INCOME AS INCOME FROM UNKNOWN SOURCES, EVEN THOUGH THE SOCIETY HAS NO OTHER SOURCES, AND I TS MEMBERS ARE NOT IN ANY BUSINESS OF THEIR OWN, SO AS TO HAVE SO MUCH MONEY. THE AR SUBMITTED THAT A COOPERATIVE SOCIETY CANNOT HAVE ANY SISTER COMPANY AS HELD BY THE ASSESSING OFFICER. HE FURTHER SUBMITTED THAT THE MEMBERS OF THE SOCIETY, BEING EMPLOYEES AN D DIRECTORS OF THE SAID COMPANY, HAD ADVANCED THE MONEY DUE TO THE GUARANTEE THAT THE SAME WOULD BE SAFE AND CAN BE DRAWN WHENEVER REQUIRED. 24. REFERRING TO THE PHOTOGRAPHS TAKEN BY THE INSPECTOR DURING HIS VISIT, THE AR SUBMITTED THE PHOTOGRAPHS CLEARLY SHOW THAT THERE WAS A SYSTEMATI C GROWTH ON THE LANDS. THE AR SUBMITTED THAT THE INSPECTOR DID NOT ENQUIRE FROM THE NEIGHBOURHOOD REGARDING ANY PLANTING OPERATIONS HAVING TAKEN PLAC E ON THE SAID LANDS. SUBMITTING A COPY OF THE CD CONTAINING THE PHOTOS AND VIDEOS AT THE TIME OF INSPECTORS VISIT, THE AR SUBMITTED THAT THE SAME REVEALS ACTUAL AGRICULTURAL OPERATIONS. FURTHER, IT IS SUBMITTED THAT THE DISCREPANCY IN THE STATEMENTS REGARDING SOURCING OF SEEDLINGS HAD OCCURRED ON ACCOUNT OF THE FACT THAT IN ONE YEAR THOSE WERE OBTAINED FROM THE FOREST DEPARTMENT, WHILE IN THE ANOTHER THOSE WERE PURCHASED. THE LEARNED AR SUBMITTED THAT GROWING OF PROSIPIS JULIFLORA DOES N OT REQUIRE MUCH OPERATION AS COMPARED TO OTHER AGRICULTURAL PRODUCTS AND THAT ONLY A LITTLE BIT OF 16 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= PLOUGHING AND SOWING OF SEEDS IS ENOUGH AND IT DOES NOT REQUIRE WATERING ALSO AFTER THE SEEDLING HAS CO ME AND THAT EVEN THOUGH JULIFLORA GROWN SPONTANEOUSLY, BUT WOULD NOT GROW TO SUCH AN EXTENT SO AS TO CUT A ND SOLD. FINALLY, THE AR SUBMITTED THAT THE ASSESSING OFFICER DID NOT BRING ANY EVIDENCE ON RECORD TO PRO VE THAT THE ASSESSEE HAD NOT CARRIED OUT THE OPERATION S OF GROWING SEEDS AND IT WAS ONLY THE MAGNITUDE OF INCO ME THAT MADE THE ASSESSING OFFICER TO HOLD THE SAME AS NOT BEING INCOME OF AGRICULTURE. 25. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THAT THE CD CONTAINING THE PHOTOS TAKEN BY THE INSPECTOR DURING THE FIELD ENQUIRY SHOWS THAT THE ASSESSING OFFICER CANNOT BE SAID TO BE INCORRECT INCLUDING THAT THERE WAS NO TRACE OF ANY SYSTEMATIC PLANTATION ON THE 140 ACRES OF LAND, ALLEGEDLY CULTIVATED BY THE ASSESSEES SOCIETY, BY CARRYING O UT REQUISITE AGRICULTURAL OPERATIONS. RATHER, IT CLEAR LY APPEARS FORM THEM THAT AT THE TIME OF SUCH INSPECTI ON, THERE WAS SCANTY AND SCATTERED GROWTH OF PROSIPIS JULIFLORA TREES ON THE SAID LANDS. THE DR SUBMITTED THAT THE PATTERN OF GROWTH OF SUCH TREES THEREON IS QUIT E SIMILAR TO THAT SEEN IN THE JULIFLORA PLANTS GROWIN G ON NORMAL BARREN LANDS, ALONGSIDE THE ROADS, RAILWAY TRACKS ETC. THE DR CONTENDED THAT THE ASSESSEE HAS NOT MAINTAINED ANY RECORDS REGARDING EXPENDITURE INCURR ED FOR CARRYING OUT THE SAID ALLEGED AGRICULTURAL OPER ATIONS AND THERE IS NO RECORD FOR ANY EXPENSES TOWARDS BAS IC OPERATIONS LIKE CULTIVATION, TILLING, SOWING, PLANT ING ETC. THE DR POINTED OUT THAT NO EVIDENCE COULD BE PRODUC ED 17 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= BY THE ASSESSEE AT ANY STAGE AS TO HOW AND WHEN ANY OF SUCH ACTIVITIES WERE ACTUALLY DONE OR GOT DONE A ND THE ENTIRE CLAIM OF CULTIVATION IS BASED ON TWO BIL LS PURPORTEDLY FOR THE PURCHASE OF THE SEEDS. THE DR FURTHER POINTED OUT THAT WHEN THE ASSESSEES CLAIM THAT THE PROSIPIS JULIFLORA PLANTS SUPPLIED FREE OF COST BY THE FOREST DEPARTMENT FOR THE CULTIVATION, WAS PROVED T O BE FALSE BY THE DEPARTMENT, THE ASSESSEE CHANGED ITS VERSION AND CONTENDED THAT THE SAME WERE PURCHASED FROM A SEED DEALER, M/S RAGHAVENDRA SEEDS AND PESTICIDES, HOWEVER EVEN THE SAID DEALER CATEGORICA LLY DENIED HAVING SOLD ANY SEEDS TO THE ASSESSEE IN THE YEAR 2001, CONTENDING THAT THE SAID SHOP HAD BEEN OPENED IN THE YEAR 2004 ONLY. THE DR SUBMITTED THAT EVEN THOUGH THE ASSESSEE MANAGED TO OBTAIN A RETRACTION STATEMENT FROM THE SAID DEALER, IT IS CL EAR THAT THE SAME WAS ONLY AN AFTER THOUGHT, AS THERE I S NOTHING ON RECORD TO SHOW THAT THE SAID DEALER WAS UNDER DURESS, PRESSURE AND COERCION OR WAS UNDER AN Y CONFUSION, SO AS TO ADMIT INITIALLY THAT HE HAD OPE NED THE SHOP IN THE YEAR 2004 ITSELF AND THEREFORE COUL D NOT IN ANY MANNER HAVE ISSUED THE SAID BILLS IN THE YEA R 2001. IT IS SUBMITTED THAT IT IS A WELL SETTLED LAW THAT ADMISSION BY A PARTY IS THE BEST EVIDENCE OF A POIN T IN ISSUE AND, THOUGH NOT CONCLUSIVE, IS DECISIVE OF TH E MATTER UNLESS SUCCESSFULLY WITHDRAWN OR PROVED ERRONEOUS. THE DR REFERRED TO THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN CASE OF KAILASHBEN MANHARLAL CHOWKSHI VS. CIT, 174 TAXMAN 466, WHERE THE HONBLE COURT OBSERVED THAT THE TRIBUNAL IN THE SAID CASE HELD THAT WHAT IS ADMITTED BY A PARTY TO BE 18 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= TRUE MUST BE PRESUMED TO BE TRUE UNLESS THE CONTRAR Y IS SHOWN. THE DR REFERRING TO THE CASE OF THE PRESE NT ASSESSEE, WHILE DENYING THE INITIAL ADMISSION, THE DEALER COULD NOT EXPLAIN AS TO HOW HE HAD HIMSELF PROCURED THE SEEDS/PLANTS, IF AT ALL, WHEN HE HAND HIMSELF ADMITTED STARTING HIS SHOP IN THE YEAR 2004 . HAVING ONCE DENIED ANY SUCH SALE TO THE ASSESSEE, T HE SAID DEALER WAS REQUIRE TO GIVE FURTHER DETAILS/EVI DENCE TO SUPPORT HIS CHANGED SAND. THE DEALER HOWEVER COULD NOT ESTABLISH THAT THE SAID SALES WERE MADE B Y HIM TO THE ASSESSEE OR THAT SALES OF SUCH SEEDS HAD BEEN MADE PRIOR TO 2004 BY HIM TO ANY OTHER FARMER/ORGANISATION. THE AR, THEREFORE, SUBMITTED T HAT THE ASSESSING OFFICER WAS NOT WRONG IN NOT GIVING CREDENCE TO THE SUBSEQUENT STATEMENT OF THE SEED DEALER, AS THE SAME WAS NOT ITSELF BASED ON ANY EVIDENCE. 26. FURTHER, THE DR SUBMITTED THAT SINCE THE ASSESS EE IN THE PRESENT CASE IS A MUTUAL COOPERATIVE SOCIETY , IT CAN VERY WELL BE EXPECTED THAT THE SOCIETY WOULD HA VE MAINTAINED THE RECORDS OF CONTRIBUTIONS MADE BY ITS MEMBERS. SIMILARLY, IT CAN ALSO BE REASONABLY EXPEC TED THAT THE CONTRIBUTIONS SO COLLECTED WOULD HAVE BEEN DEPOSITED INTO A BANK ACCOUNT. THE DR POINTING THE CLAIM OF THE ASSESSEE THAT THE SEEDS WERE PURCHASED FOR RS. 3,680/- IN THE YEAR 2001 ITSELF, SUBMITTED THAT THE ASSESSEE COULD NOT DEMONSTRATE WITH ANY VERIFIA BLE AND CONTEMPORANEOUS EVIDENCE AS TO HOW THE PAYMENT, IF AT ALL, WAS MADE FOR THE STATED PURCHASE. ON THE CONTRARY IT WAS FOUND THAT THE SOCIETY OPENED ITS B ANK 19 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= ACCOUNTS WITH INDS IND BANK AND SYNDICATE BANK ONLY 01/11/2006 AND 01/12/2006 RESPECTIVELY. 27. THE LEARNED DR SUBMITTED THAT THOUGH THE ASSESSEE STATED THAT ALL THE SALES OF SO CALLED PRO DUCE WERE MADE DURING THE PERIOD 03/04/2006 TO 11/09/2006, THE ASSESSEE DID NOT CONSIDER IT APPROPRIATE TO OPEN A BANK ACCOUNT FOR THE SAFE KEE P OF THE PROCEEDS AND BESIDES, IT IS ALSO STRANGE AS TO WHY EVEN AFTER THE OPENING OF BANK ACCOUNTS IN THE MONT HS OF NOVEMBER AND DECEMBER, THE SALE PROCEEDS, IF AT ALL ACCUMULATED, WERE NOT DEPOSITED IN THE SAID BANK ACCOUNTS TILL 31/03/2007. 28. THE LEARNED DR SUBMITTED THAT IT IS IMPORTANT T O CONSIDER THE USER/APPROPRIATION OF THE INCOME CONTENTEDLY EARNED BY THE SOCIETY. IN THE ASSESSEE S CASE, THE AR OF THE ASSESSEE HAS ARGUED THAT THE MEMBERS OF THE SOCIETY ARE NOT IN ANY BUSINESS OF T HEIR OWN, SO AS TO BRING IN SO MUCH OF MONEY, THEREFORE, IT CANNOT BE DENIED THAT THE MEMBERS OF THE SOCIETY CO ULD HAVE THEMSELVES REQUIRED THE MONEY CONTENTEDLY EARNED BY THEIR SOCIETY FOR THEIR OWN USE. HOWEVER, THE ASSESSEES SOCIETY ADVANCED THE ENTIRE CASH BALANCE S OF RS. 50,70,000/- TO ITS SISTER CONCERN, M/S SRI RAYALASEEMA GREEN STEELOY LTD., PERIODICALLY, BY WA Y OF BOOK ENTRIES AND THE SAID TRANSFER STARTED FROM 10/04/2006 AND LASTED TILL 11/09/2006. THIS IMPLIES THAT ALL THE SALE PROCEEDS BETWEEN THE PERIOD GREEN STEELOY LTD., WITHOUT ANY APPROPRIATION OR DISTRIBU TION BY THE SOCIETY AND ITS MEMBERS. THE DR, THEREFORE, 20 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= SUBMITTED THAT THE CONDUCT OF THE ASSESSEE IN NOT DEPOSITING THE SALE PROCEEDS IN ITS BANK ACCOUNTS A ND ADVANCING ALL OF SUCH AMOUNTS AS LOAN TO ANOTHER CONCERN FOR THE PURPOSE OF SAFETY, WITHOUT ANY SELF USE/APPROPRIATION, DOES NOT STAND THE TEST OF HUMAN PROBABILITIES, AS PROPOUNDED BY THE HONBLE SUPREME COURT IN THE CASE OF SUMATI DAYAL VS. CIT, 214 ITR 801. 29. THE DR SUBMITTED THAT THE ASSESSEE INDEED ATTEMPTED TO DISCLOSE TAX FREE AGRICULTURAL INCOME, WITHOUT ANY BASIS FOR ESTABLISHING ITS CLAIM THAT I T HAD EARNED ANY SUCH AGRICULTURAL INCOME. IT IS SUBMITTE D THAT IT IS AN ESTABLISHED LAW THAT IT IS FOR THE AS SESSEE TO ESTABLISH THAT IT INDEED EARNED SUCH TAX FREE IN COME. THE DR REFERRED TO THE DECISION OF THE HONBLE DELH I HIGH COURT IN CASE OF SANDEEP KUMAR HUF VS. CIT, 29 3 ITR 294 WHEREIN IT WAS HELD THAT THE BURDEN OF PROO F IS THE SOURCE OR THE CATEGORY UNDER WHICH THE RECEIPTS SHOULD BE CLASSIFIED IS ON THE ASSESSEE, AND ANY RE CEIPT WILL BE TREATED AS INCOME UNLESS THE ASSESSEE SHOWS THAT THE INCOME COMES UNDER AN EXEMPTION. THE LEARNED DR SUBMITTED THAT IN THE CASE OF THE ASSESS EE THERE IS NO EVIDENCE OF ANY BASIC OPERATIONS OR EVE N SUBSEQUENT OPERATIONS TO ESTABLISH THAT IT HAD EARN ED ANY AGRICULTURAL INCOME FROM THE AGRICULTURAL USE O F SAID LAND BY PLANTING, GROWING AND REAPING THE CROP OF PROSIPIS JULIFLORA PLANTS. HE, THEREFORE, SUBMITTED THAT THE ASSESSING OFFICER HAS PROPERLY HELD THAT EVEN A SINGLE RUPEE EARNED FROM THE SALE OF SUCH PLANTS GROWING ON THE SAID LAND CANNOT BE TERMED AS 21 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= AGRICULTURAL INCOME, AS IT IS ALSO AN ESTABLISHED L AW THAT THE INCOME EARNED FROM THE SALE OF PLANTS GROW ING ON THEIR OWN DOES NOT CONSTITUTE AGRICULTURAL INCOM E. THE DR FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS RIGHTLY CONCLUDED THAT THE ASSESSEE SIMPLY BASE D THE INCOME TO BE SHOWN IN ITS RETURN AS AGRICULTUR AL INCOME ON A BACKWARD ANALYSIS MADE ON THE BASIS OF THE POSSIBLE YIELD SHOWN BY SOME TECHNICAL EXPERT. 30. AS REGARDS THE CONTENTION OF THE ASSESSEE THAT ONE SHOULD NOT BRUSH ASIDE THE EXPLANATION OF THE ASSESSEE THAT IT HAD UTILIZED AS HUGE AS 140 ACRES OF LAND FOR EARNING SUCH INCOME, THE DR REFERRED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. P. MOHAN KALA, 291 ITR 278 WHEREIN THE HONBLE COURT OPINED IN RESPECT OF THE UNEXPLAINED CREDITS U/S 68 THAT THE EXPRESSION THE ASSESSEE OF FERS NO EXPLANATION MUST BE CONSTRUED TO MEAN WHERE THE ASSESSEE OFFERS NO PROPER, REASONABLE AND ACCEPTABL E EXPLANATION AS REGARDS THE SUMS FOUND CREDITED IN T HE BOOKS OF ACCOUNT OF THE ASSESSEE. REFERRING TO THE SAID RATIO, THE DR SUBMITTED THAT IN THE CASE OF THE ASSESSEE THE SIMPLE EXPLANATION REGARDING AGRICULTU RE CONTENTEDLY CARRIED OUT ON 140 ACRES OF LAND IS NOT BACKED BY ANY PROPER, REASONABLE AND ACCEPTABLE EXPLANATION OF ANY SORT. THE DR FINALLY SUBMITTED T HAT THE FINDINGS OF THE ASSESSING OFFICER THAT THE ASSE SSEE ONLY ATTEMPTED TO DISCLOSE INCOME FROM UNEXPLAINED SOURCES TO THE EXTENT OF RS. 50,70,000/- IN THE GAR B OF AGRICULTURAL INCOME ARE CORRECT AND THEREFORE, THE ORDER 22 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= OF THE CIT(A) IN CONFIRMING THE ACTION OF THE ASSES SING OFFICER, MAY BE UPHELD. 31. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES, PERUSED THE RECORD AND HAVE GONE THROUGH T HE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE HAD ADMITTED INCOME OF RS. 50,70,000/- AS AGRICULTURAL INCOME FROM THE SALE OF PROSOPIS JULIFLORA PLANTS, GROWN IN 140 ACRES OF LAND. THE ASSESSING OFFICER AFTER ELABORATE DISCUSSION IN HIS ORDER HELD THAT THE ASS ESSEE HAD NOT EARNED ANY INCOME FROM THE SALE OF PLANTS A ND IT WAS ALSO PROVED THAT IT HAD NOT CARRIED OUT ANY OPERATIONS IN THE NATURE OF AGRICULTURAL OPERATIONS . THE AO OBSERVED THAT EVEN IF ANY INCOME WAS EARNED BY THE SALE OF THOSE PLANTS, THE SAME CANNOT TAKE THE CHARACTER OF AGRICULTURAL INCOME AS THE PLANTS WERE GROWN SPONTANEOUSLY WITHOUT APPLICATION OF ANY HUMA N SKILL AND LABOUR. ACCORDINGLY, IT WAS CONCLUDED THA T THE UNKNOWN INCOMES OF APPLICANTS ONLY WERE ADMITTED IN THE GUISE OF AGRICULTURAL INCOME. THE ASSESSING OFF ICER, THEREFORE ASSESSED THE INCOME AS INCOME UNDER THE HEAD OTHER SOURCES. THE CIT(A) CONFIRMED THE ACTIO N OF THE ASSESSING OFFICER. 32. ADMITTEDLY, THE ASSESSEE IN THIS CASE SUBMITTED THAT IT HAD PURCHASED SEEDS FOR GROWING PROSOPIS JULIFLORA CROP FROM ONE DEALER, VIZ., M/S RAGHAVEND RA SEEDS AND PESTICIDES, GUTTI, ANANTAPUR DISTRICT. TH E DEPARTMENT EXAMINED THE SAID DEALER DURING THE COUR SE OF CROSS-EXAMINATION, WHEREIN, HE HAD STATED AS FOLLOWS: 23 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= Q. WHAT IS YOUR BUSINESS ? A. I AM SELLING SEEDS AND PESTICIDES IN MY SHOP Q. WHAT TYPE OF SEEDS AND PESTICIDES SELL IN YOUR SHOP ? A. I SELL SEEDS OF CHILLIES, TOMATO, BRINJAL SUNFLOWER, PADDY, MAIZE, JOWAR, BAJRA OF DIFFERENT COMPANIES LIKE BEJO SHEETAL, KAVERI SEEDS, ANKUR SEEDS ETC. AND AGRICULTURE PESTICIDES IN MY SHOP. Q. DOES YOUR SHOP SELL ANY JULIFLORA SEEDS ? A. MY SHOP WAS ESTABLISHED IN THE SAME PREMISES NEARLY 7 YEARS BACK, FROM THAT DAY ONWARDS, WE HAVE NOT SOLD ANY JULIFLORA SEEDS IN MY SHOP. Q. I REQUEST YOU TO SHOW THE BILL NO. 2369 DT. 04/12/01 AND BILL NO. 2370 DT. 06/12/01 ISSUED BY YOUR SHOP AND SHOW THE CORRESPONDING BILLS OF THAT BOOKS ? A. MY SHOP HAS OPENED IN THE MONTH OF APRIL 2004. THAT BILLS MAY NOT BELONG TO THIS SHOP. IN MY SHOP ANY BILL BOOK YOU TAKE THE NUMBER WILL BE 1 TO 300. IF ONE BOOK IS OVER ANOTHER BILL BOOK IS ALSO NUMBERS 1 TO 300. ONLY WE PRINTED LIKE THAT ONLY. BILLS WITH CONTINUITY S.NOS PRINTED ONLY IN FIRST YEAR, LATER YEARS DISCONTINUED. Q. I SHOW YOU THE BILL NO. 2369 DT. 4/12/01 AND 2370 DT. 61/12/01 OF BILLS ISSUED BY YOUR SHOP TO KNR AGRO FARMING MUTUALLY AIDED CO-OP SOCIETY. PLEASE EXPLAIN ? A. MY SHOP WAS OPENED IN THE MONTH OF APRIL, 2004, THE BILL PERTAINS TO THE YEAR 2001. THE ABOVE BILLS DO NOT BELONG TO THIS (MY) SHOP AND WE HAVE NOT ISSUED THE SHOWN BILLS TO KNR AGRO FARMING MUTUALLY AIDED CO-OP SOCIETY. 33. LATER ON, THE ASSESSEE FILED ITS REPLY TO THE A BOVE STATEMENT ON 29/12/2009 WHEREIN THE PROPRIETOR OF M /S RAGHAVENDRA SEEDS & PESTICIDES STATED THAT HE HAS GIVEN THE STATEMENT TO THE INCOME-TAX DEPARTMENT IN A 24 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= MOOD OF CONFUSION AND THAT HE HAD PROCURED SEEDS FROM OUTSIDERS IN 2001 AND SOLD IT TO THE ASSESSEE AND THEREFORE FURNISHED ANOTHER STATEMENT IN TELUGU DAT ED 24/12/2009. HE FURTHER STATED THAT HE IS A REGISTER ED DEALER UNDER VAT ONLY FROM THE YEAR 2004. HOWEVER, THE ASSESSING OFFICER AS WELL AS THE CIT(A) BRUSHED ASIDE HIS RETRACTED STATEMENT AND CAME TO THE CONCLUSION THAT THE ASSESSEE HAS NOT PURCHASED ANY SEEDS FROM M/S RAGHAVENDRA SEEDS & PESTICIDES AND THE PROSOPIS JULIFLORA CROP IS A NATURAL CROP AND I T DEVELOPED ITS OWN AND THE ASSESSEE HAS TAKEN AN ADVANTAGE OF OWNING OF 140 ACRES LAND TO SHOW AGRICULTURAL INCOME. HOWEVER, THE FACTS BROUGHT ON RECORD SHOW THAT THE ASSESSEE HAS SOLD THE CROP TO VARIOUS PERSONS AFTER GROWING THE SAID CROP. TO THI S EFFECT, THE ASSESSEE FILED DETAILS PERTAINING TO TH E SAID CROP VIZ., SALES RECEIPTS ETC. TO THE DEPARTMENT, B UT, THE DEPARTMENT REFUSED TO ACCEPT THE SUBMISSION OF THE ASSESSEE. IN OUR OPINION, THE PROPRIETOR M/S RAGHAVENDRA SEEDS AND PESTICIDES HAS PROVED TO BE SHIFTY PERSON AS A WITNESS. AT ONE STAGE HE CLAIME D THAT HE HAS NOT SOLD THE SEEDS OF PROSOPIS JULIFLOR A CROP AND HE HAS COMMENCED THE BUSINESS ONLY IN APRIL, 20 04 AND LATER ON VIDE HIS LETTER DATED 24/12/2009 SHIFT ED HIS STAND IN STATING THAT HE PROCURED THE SEEDS FRO M OUTSIDE AGENCY AND SOLD TO THE ASSESSEE, THEREBY DISOWNED HIS EARLIER STATEMENT. THE STATEMENT MADE BY THE PROPRIETOR OF M/S RAGHAVENDRA SEEDS & PESTICIDE S SHOW THAT THE PROPRIETOR IS NOT TRUSTWORTHY WITNESS AND LITTLE VALUE CAN BE ATTACHED TO WHAT IS STATED IN HIS EXAMINATION BEFORE THE ASSESSING OFFICER OR IN THE 25 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= STATEMENT DATED 24/12/2009. A MAN INDULGING IN DOUBLE SPEAKING CANNOT BE SAID BY ANY MEANS OF TRUTHFUL PERSON AT ANY STAGE AND ONE CANNOT DECIDE ON WHICH OCCASION HE WAS TRUTHFUL. IF HE IS NEUTRALISE D AS A WITNESS WHAT REMAINS IS THE ACCOUNTS, VOUCHERS, SAL ES DETAILS, BACK ACCOUNT. FURTHER, WE OBSERVE THAT WHI CH WAY LIES THE TRUTH IN STATEMENT OF THE PROPRIETOR O F M/S RAGHAVENDRA SEEDS & PESTICIDES COULD HAVE BEEN REVEALED ONLY IF HE WAS SUBJECTED TO A CROSS- EXAMINATION BY THE ASSESSEE. THE DEPARTMENT WHEN RECORDING HIS STATEMENT, THE DEPARTMENT NOT ONLY TO FURNISH THE STATEMENT OF THE PROPRIETOR TO THE ASSE SSEE BUT ALSO AN OPPORTUNITY OF CROSS-EXAMINATION SHALL BE GIVEN TO THE ASSESSEE AND OPPORTUNITY OF SUCH CROSS - EXAMINATION IS ONE OF THE CORNER-STONES OF NATURAL JUSTICE. THE DEPARTMENT CANNOT DENY THAT HE HAS THE WITNESS OF THE DEPARTMENT. THEREFORE, THE DEPARTMEN T CANNOT CUT SHORT THE PROCESS OF TAKING ORAL EVIDENC E BY MERELY HAVING THE EXAMINED HIM. IT IS THE NECESSARY REQUIREMENT OF THE PROCESS OF TAKING EVIDENCE THAT THE EXAMINATION IS FOLLOWED BY CROSS-EXAMINATION AND RE - EXAMINATION, IF NECESSARY. IT IS NOT JUST A QUESTIO N OF FORM OR A QUESTION OF GIVING AN ADVERSE PARTY ITS PRIVILEGE BUT A NECESSITY OF THE PROCESS OF TESTING THE TRUTH OF ORAL EVIDENCE OF A WITNESS. WITHOUT THE TR UTH BEING TESTED NO ORAL EVIDENCE CAN BE ADMISSIBLE EVIDENCE AND COULD NOT FORM THE BASIS OF ANY INFERE NCE AGAINST THE ADVERSE PARTIES. 34. IN VIEW OF THE SAID OBSERVATIONS, WE ARE NOT INCLINED TO GIVE ANY CREDENCE TO THE STATEMENT OF T HE 26 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= PROPRIETOR OF M/S RAGHAVENDRA SEEDS & PESTICIDES. THEREFORE, WE ARE OF THE OPINION THAT THE CLAIM MAD E BY THE ASSESSEE IN RESPECT OF AGRICULTURAL INCOME T O BE ACCEPTED. MOREOVER, BEFORE US, THE LEARNED AR FILE D A COPY OF THE ASSESSMENT ORDER FOR THE AY 2009-10 WHE RE THE ASSESSING OFFICER ACCEPTED PART OF THE AGRICULT URAL INCOME DECLARED BY THE ASSESSEE AS AGRICULTURAL INC OME AND ONLY TREATED A SUM OF RS. 9 LAKHS AS NON- AGRICULTURAL INCOME. 35. CONSIDERING THE ABOVE FACTS, WE ARE OF THE OPIN ION THAT WE CANNOT DRAW ADVERSE INFERENCE ON THE BASIS OF THE STATEMENT OF THE PROPRIETOR OF M/S RAGHAVENDRA SEEDS & PESTICIDES AND THE CLAIM OF THE ASSESSEE HA S TO BE ACCEPTED ON THE BASIS OF EVIDENCES ON RECORD BROUGHT BY THE ASSESSEE. THEREFORE, WE SET ASIDE TH E ORDER OF THE CIT(A) AND ALLOW THE ASSESSEES CLAIM OF RS. 50,70,000/- AS AGRICULTURAL INCOME FROM THE SAL E OF PROSOPIS JULIFLORA CROP. 37. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH SEPTEMBER, 2013. SD/- SD/- (SAKTIJIT DEY) JUDICIAL MEMBER (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED27TH SEPTEMBER, 2013 KV 27 ITA NO. 1458/HYD/10 KNR AGRO FARMING MUTALLY AIDED COOPERATIVE SOCIETY LTD. ================================= COPY TO:- 1. KNR AGRO FARMING MUTUALLY AIDED COOP SOCIETY LTD., C/O AV RAGHU RAM, FLAT NO. 610, 6 TH FLOOR, BABUKHAN ESTATE, BASHEERBAGH, HYDERABAD 500 001. 2. ADDL. CIT, KURNOOL RANGE, KURNOOL. 3. THE CIT (A)-IV, HYDERABAD 4. THE CIT-III, HYDERABAD 5. THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD.