DCIT, Cir. 3(2), , Ahmedabad V. M/s Greenwell Orchard, Ahmedabad

ITA 1981/AHD/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 3658 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 31-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S.S. SHUKLA
• Keywords: Business income; Corroborative evidences
• Section: 143(3); 133(6); 145(3)

Judgement Text

आयकर अपील य अ धकरण, अहमदाबाद यायपीठ । IN THE INCOME TAX APPELLATE TRIBUNAL, “A” BENCH, AHMEDABAD BEFORE SHRI PRAMOD M. JAGTAP, VICE-PRESIDENT AND Ms. MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील सं./ ITA.No.1981/Ahd/2017 नधा रण वष / Asstt. Year: 2013-14 DCIT, CIR.3(2) Ahmedabad. Vs. M/s. Greenwell Orchard PAN : AABFG 4602 M Survey No.80 Nr.Unique Fabrics P.Ltd. Piplaj, Ahmedabad. (Applicant) (Responent) Revenue by : Shri S.S. Shukla, Sr. DR Assessee by : Shri S.N. Soparkar, Sr. Adv स ु नवाई क तार ख/D a t e o f H e a r i n g : 3 0 / 0 3 / 2 0 2 2 घोषणा क तार ख /D a t e o f P r o n o u n c e m e n t : 2 7 / 0 4 / 2 0 2 2 आदेश/O R D E R PER MADHUMITA ROY, JUDICIAL MEMBER: Instant appeal is filed by the Revenue against the order dated 30.6.2017 passed by the ld. Commissioner of Income-tax (Appeals)-3, Ahmedabad arising out of order passed by the DCIT, Cir.3(1)(2), Ahmedabad dated 31.3.2016 under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to “the Act”) for the Assessment Year 2013-14. 2. In this appeal, the Revenue has challenged order passed by the ld.CIT(A) restricting expenditure to the extent of 5% of the total agriculture income instead of 20% adopted by the AO) with alleged unconsidered various direct and ancillary activities related to upkeep, maintenance, marketing and sales of agriculture income. ITA.No.1981/Ahd/2017 2 3. Brief facts leading to the case is this that assessee firm is engaged in agricultural plantation activity of growing teak/seven trees. It has filed return of income showing income from agriculture to the tune of Rs.12,05,67,502/-. No other source of income has been declared in the return. During the assessment proceedings, the details of agriculture income along with details of land owned, sale bill for agricultural produce, expenses etc. were asked for by the AO. Upon perusal of profit & loss account of the assessee-firm, it appeared that the assessee has shown total sales of Rs.12,07,73,250/- and total expenses of Rs.2,49,938/- as claimed which is around 0.2% of the sales. Thus the assessee showed a net total income of Rs.12,05,67,502/- i.e. 99.8% of the total sales. These small expenses consisted of mainly administrative expenses like bank charges, franking charges, interest and salary accounts. Thus, it was the view of the AO that almost nil expenses have been booked on obvious and probable expenses related to any agricultural produce, whereupon assessment was ultimately finalized by making addition of Rs.2,41,54,650/- i.e. 20% of the total sales of Rs.2,41,54,650/-, upon treating the same as income from other sources, thereby restricting the agricultural income to Rs.9,66,18,600/-. 4. In appeal preferred by the assessee, the ld.CIT(A) restricted the same to the extent of 5% of teak tree sales worked out at Rs.60,38,662/- which is under challenge before the Tribunal. 5. The case of the assessee is that, it is in the business of agricultural plantation and growing of teak/sevan trees. The firm was constituted on 28th June, 1995. The agricultural land was owned by the partners. During the initial years of its operation only the assessee-firm cultivated and nourished teak/sevan trees and incurred the expenses towards the same, and the same were done over a period of time, and the resultant agricultural produce i.e. teak/sevan trees have been sold during the year, and agriculture income ITA.No.1981/Ahd/2017 3 therefrom has been disclosed in the return of income by the assessee. Relying on the peculiar facts and circumstances, it was the contentions of the assessee that during the year under consideration there was no produce. The assessee therefore submitted that the major expenses incurred in earlier years for the cultivation of teak/sevan trees. It is also the case of the assessee that the business of the assessee is highly profitable. The assessee has claimed to have incurred expenditure of Rs.2,49,938/- in the current year which mainly included salary expenditure of Rs.1,44,000/-. However, upon verification of entire set of documents placed before the ld.AO, the ld.AO came to the following conclusions: • As outlined in earlier paragraphs, the assesses itself has claimed that the requisite agricultural operations have been made to earn the income. However, no comparable instance of expenses made is reflected in the books. • Teakwood plantation no doubt needs maximum care at the initial stage as claimed by the assessee but it also requires regular care and management at latter stage of its life. • It is not an automated sequence or an automatic one where trees after certain initial care, flourish on their own , reach to their full maturity and achieve excellent girth and quality. • It is also not palatable that the trees themselves solicit buyers and that too buyers who are ready to not only pay top billing but also bear the transportation and felling cost without resorting to bargain of any kind. • No expenses at all on weeding, pruning, overall maintenance, fire safety, marketing, sizing/evaluation of sale potential, expert help has been claimed by the assessee firm. • The transportation mode allegedly utilized by the buyers viz. Camel cart despite having perfectly motorable roads as highlighted in the Inspector's Report also raises doubt. • The photographs furnished by the assessee alongwith its reply dated nil in response to show cause notice dated 22.3.2016 also show a number of workers involved in pruning and cutting of trees at the assessee land. The Inspector report mentioned above also emphasized about a number of laborers at the site. ITA.No.1981/Ahd/2017 4 • The plantation and maintenance of teakwood and especially one of such high quality as claimed by the assessee which allegedly fetches such high value in the market without and marketing definitely requires a lot of expenses esp. w.r.t. pesticide and insecticide. • Further, intermittent services of expert agriculturists and timber merchants must be required to adjust to exigencies/demands of the market and improvise. • No stock register or details of opening and closing stock has been maintained in the books of account and the stand taken by the assessee that the sales are that of standing trees is specious. Such precious agricultural commodity as teak wood (whether standing or felled) deserves detailed book-keeping especially one which bestows upon the assessee tax-free income and capital build-up. 6. He was, therefore, not satisfied about the correctness and completeness of the accounts of the assessee, and the books of accounts were rejected under section 145(3) of the Act in order to arrive at true and correct profits of the assessee’s agricultural income. However, he finally came to a finding that on an estimated basis 20% of the teakwood sales made by the assessee must have been spent on various direct and ancillary activities related to the upkeep, maintenance, marketing and sale of the agricultural produce keeping in mind the size of the land holding, the number of trees and the yield of the produce as he was not satisfied with the details in respect of actual expenditure incurred by the assessee. Finally 20% of the total sales to the tune of Rs.2,41,54,650/- has been reduced from the total agricultural income of Rs.12,05,67,502.50 and upon treating the same as “income from other sources” has been added to the total income of the assessee. 7. In appeal, the ld.CIT(A) while considering the issue, restricted the impugned addition to 5% of teak tree sales. The relevant observations contained in para-5.11 and 5.12 of the impugned order of the ld.CIT(A) is as follows: “5.11 While passing the assessment order and estimating agriculture expenses @ 20%, the AO has referred to decision of Zamindara Timber Traders 55 taxman.com 80 in which Hon'ble court has held that "Where assessee, ITA.No.1981/Ahd/2017 5 engaged in trading of timber, did not mention quality of timber on sale vouchers, even though it had purchased timber at different rates according to quality of timber, Assessing Officer rightly rejected assessee's books of account holding that stock register was not maintained properly ". In above case, assessee was a timber merchant and when AO tallied purchase vouchers with sale vouchers, gross profit was not properly reflected hence AO rejected such books of account. In present case, appellant is not at all timber merchant but has planted teak tree hence entire nature of activity carried out by both the persons are different hence ratio of said decision cannot be made applicable in appellant's case. The AO has also referred to decision of Hon'ble Punjab & Hariyana High court in the case of Smt Kusum Sharma Vs CIT 158 Taxman 303 wherein Hon'ble court has held as under: "Section 143 of the Income-tax Act, 1961 - Assessment - Additions to income - Assessment year 1997-98 - Assessee was deriving income from rent and agriculture - Assessee in her return had shown allegedly inflated sale of agricultural produce - Assessing Officer assessed assessee's income on basis of revenue records, produced by assessee, by partially rejecting assessee's claim - Tribunal upheld additions on ground that evidence furnished by assessee to support her claim for agricultural income did not inspire confidence - Whether since it was a case where genuine claim in terms of entries in revenue record was estimated and relief to that extent was granted while rejecting assessee's excessive claim, Tribunal's view could not be faulted with - Held, yes It is observed that in above case issue was with regards to whether appellant has correctly shown agriculture income or not whereas in present case, AO has accepted agriculture income shown in return of income. Even in said case, inquiry made by AO reveal that buyer has not found at existed address whereas in present case, all buyers have filed their reply in response to notice issued u/s 133(6) of the Act and confirmed the transactions with appellant hence said decision cannot be made applicable in present case. The decision of Hon'ble MP high court in the case of Smt Kamlabai Vs CIT 87 Taxman 346 cannot be made applicable in present case as in said case assessee has declared agriculture income to justify her investment and agriculture activity was in doubt whereas in present case, no such facts exists. Even decision of Hon'ble Delhi ITAT in the case of DCIT Vs R.S. Farms 145 taxman 35 wherein Hon'ble ITAT has held as under: "Section 143 of the Income-tax Act, 1961 - Assessment - Additions to income -Assessment years 1996-97 and 1997-98 - Assessee-firm had taken certain agricultural land on rent/batai from different persons - In agricultural income assessee had mainly shown sales of three commodities, namely, Jwar, Dhan and Wheat - Based on experts' opinion that maturity period for Jwar is October-November, Assessing Officer concluded that sales of Jwar in July shown by assessee were sham and non-genuine -Similarly, on basis of experts' opinion, he found sale of wheat yield shown by assessee was highly excessive and inflated as against maximum yield under Modern conditions and made further addition - Whether in view of statements of persons whose lands were taken on batai basis by assessee-firm as well as fact that Assessing Officer had himself admitted in assessment year 1996-97 that lands had been taken on batai basis, Assessing Officer's conclusion reached for ITA.No.1981/Ahd/2017 6 assessment year 1997-98 that entire agricultural income was non- genuine, could not be upheld - Held, yes - Whether in view of experts' opinion and in absence of rebuttal of evidence by assessee, additions on account of sale of Jwar had to be confirmed - Held, yes - Whether looking to facts of instant case as also cultivation of wheat and area covered and keeping in view of material placed on record, inflation in wheat sale for each of assessment years could be estimated at Rs. 1 lakh each and addition to that extent was to be sustained - Held, yes" In above case issue was with regards to bogus nature of agriculture income which in present case no where exists. The Decision of Hon'ble Cochin ITAT in the case of K. Govinda Pillai Vs DCIT 61 taxman.com 35, facts was that assessee was not owner of agriculture land and shown agriculture income hence AO has not allowed credit of such income against available cash balance. Thus, all the decisions referred by AO are not at all relevant for estimating agriculture expenses @ 20% in case of appellant and same does not support the observation of AO hence it is held that ratio of such decisions cannot be made applicable in present case. The AO has also referred to decision of Hon'ble Ahmedabad ITAT in the case of Dhirubhai L Narola, Surat Vs ITO, wherein AO has estimated agriculture expenses @ 40%j of agriculture income but in said case, issue was not with regards to cultivation of teak trees bjt casr and plantations of cash crops are different than teak tree plantations hence ratio such expenditure cannot be made applicable in present case. The agriculture sector has many facets and each facet has its own dynamics so far as income and expenditure is involved. The income and expenditure shall be different for cereals, cash crops, fruits and timber plantation. The cycle of the crop also is important in the sense that timber plantation once done would continue to survive for years and the initial cost once incurred, need not to be repeated as it is done for seasonal crops. 5.12 Considering the facts discussed herein above, it is observed that AO has estimated agriculture expenses @ 20% of agriculture income of teak tree sale is on higher side and on estimate basis without bringing any corroborative evidences to support his view that appellant would have incurred expenditure of Rs 2,41,54,650/-for earning such income. Even web site referred by AO clearly suggests that such plantation is highly profitable. The AO has not stated that appellant would have incurred any further expenditure on irrigation etc and teak tree once grow, can further grow with the help of normal monsoon water. On the other hand, appellant has claimed to have incurred expenditure of Rs.2,49,938/- In current year which mainly includes salary expenditure of Rs 1,41,250/- and such expenditure is very meager in comparison with plantations made by appellant. It is correct that teak tree plantations do not require much care or day to day maintenance like other agriculture produce but appellant has made extensive teak tree plantations at three different blocks wherein security expenses, and laboures expenditure for routine maintenance is bound to happen. The appellant has not shown any salary of administrative staff to maintain such activity. Even, appellant has not claimed any expenditure on pesticide and insecticide and as stated supra, such expenditure is bound to incur for any plantations. Normal weeding expenditure might have been incurred by appellant and same has to be confirmed on estimation basis. Considering the facts of entire case as discussed herein above and the dynamics involved in timber cultivation, it is held that appellant should have incurred expenditure to the extent of 5% of teak tree sale and same is worked out at Rs.60,38,662/- and as appellant was unable to explain .source of such expenditure The same is considered to be adequate to meet ends of justice. Therefore, the addition made by AO is restricted to Rs.60,38,662/- and ITA.No.1981/Ahd/2017 7 appellant gets relief of Rs.1,81,15,987/-. Thus, both the grounds of appeal are partly allowed.” 8. Against this order of the ld.CIT(A), the Revenue is before us. 9. At the time of hearing of the instant appeal the Ld. Representative appearing for the Revenue submitted before us that the expenses claimed by the assessee in its books of accounts is too low compare to the sales made. There is no doubt that teak wood plantation needs maximum care at the initial stage as claimed by the assessee but in later stage of its life it also requires regular care and management and condoned by him. While supporting the order passed by the Ld. AO the Ld. DR further argued that no expenses on weeding, pruning, overall maintenance, fire safety, marketing, sizing/evaluation of sale potential, expert help has been claimed by the assessee which has rightly been considered by the Ld. AO while making addition. Furthermore, despite of having perfectly motorable roads as highlighted in the Inspector’s Report, the transportation by utilizing Camel cart has been claimed to have been made by the assessee. Apart from that it was also pointed out by the Ld. DR that no stock register reflecting opening and closing stock has been maintained in books of account of the assessee while dealing with the business of precious agricultural commodity as teak wood. It was further argued by the Ld. DR that a reasonable estimate of 20% of the teak wood sales made by the assessee must have been spent on various direct and ancillary activities in relation to upkeep, maintenance, marketing and sales of the agricultural produce keeping in view the size of the land holding, the number of trees and the yield of the produce and therefore, the view of the Ld. AO that the assessee has not presented the true details in regard to the actual expenses incurred is justified. He, thus, supported the order passed by the Ld. AO in making addition and ITA.No.1981/Ahd/2017 8 prays for quashing of the order passed by the Ld. CIT(A) who has not considered the above aspects while deleting addition made by the Ld. AO. 10. Before us, the ld.counsel for the assessee while reiterating the submissions made before the Revenue authorities, further contended that the factum of cultivation and growing of teak/sevan trees by the assessee was not disputed by the Department nor the quantum of the sales. But looking to the amount of sales, the department has doubted the expenditure incurred by the assessee for the plantation. The ld.AO is trying to make out a case that the expenditure should be in proportion to the sale, which is not justifiable. It is a common knowledge that plantation activities of this type does require attention for initial three to five years and thereafter they grow themselves and does not need extra care or further financial implication. In other words, initial years require some major expenses, when years pass away, expenses gradually get reduced in the subsequent years. The assessee has explained elaborately before the appellate authority the basic operation for raising the produce and the break-up of the expenses for the nine years. The ld.CIT(A) has reproduced the explanations and submissions of the assessee in his impugned order, and by appreciating the same, he has rightly restricted the impugned addition. Further, all the transactions are through banking channel and the parties to whom timbers were sold have also been confirmed. Therefore, it is abundantly prove that the assessee firm has genuinely carried out agricultural operations and therefore there is no room for doubting the expenditure incurred by the assessee-firm. Accordingly, the ld.counsel for the assessee seeks upholding of order of the ld.CIT(A). On the other hand, the ld.DR supported the order passed by the AO. 11. We have heard the rival contentions made by the respective parties. We have also gone through orders of the Revenue authorities and relevant ITA.No.1981/Ahd/2017 9 materials placed on record. The case of the Revenue is that the assessee-firm derives income from sale of teak/sevan trees, which was exempted as agricultural income. The assessee has shown total sale proceeds of Rs.12,07,73,250/-, against which the assessee-firm claimed expenditure of Rs.2,49,938/- only, which according to the AO is meager and thus assumed that the assessee has inflated agricultural income. The assessee explained the factual position regarding agricultural operations; nature of expenditure involved in cultivation, details of purchases and sales supported by bills and vouchers and that all the payments were received through banking channels. It is a fact that the AO has failed to bring any material or evidence on record to suggest that the assessee incurred expenditure 20% of the sales. On the other hand, we find that the ld.CIT(A) has elaborately discussed the issue and taken note of detailed submissions made by the assessee. Considering the nature of activity carried out by the assessee, and dynamics involved in such operation, the ld.CIT(A) though accepted claim of the assessee, but restricted the addition to 5% of the total sales. He observed that the ld.AO while estimating agriculture expenditure at 20% of the income on sale of teak, has not brought on record any corroborative evidence to support his view. Further, the ld.CIT(A) controverted the orders passed by the ld.AO on the ground that the ld.AO while making addition of 20% of sales relied upon decision of the ITAT in the case of Shri Dhirubhai L. Narola Vs. ITO, wherein he AO estimated agriculture expenses at 40%. But the fact was completely different from the nature of the business of the assessee, that is to say, cash crops and plantations of cash crops was the business of the assessee in the case relied upon the ld.AO, whereas business of the assessee before us was teak plantations, which is completely different and ratio of such decision cannot be made applicable in the case in hand. The income and expenditure shall be different for cereals, cash crops, fruits and timber plantation. The cycle of the crop also was important so that timber plantation once done ITA.No.1981/Ahd/2017 10 would continue to survive for years and the initial cost once incurred, need not to be repeated as it is done for seasonal crops. In that view of the matter, the ld.CIT(A) was not agreed with the disallowance made by the AO on estimate basis at 20% of the total of the sales in the absence of any corroborative evidences. However, keeping in view the claim of expenditure on different three blocks, salary of administrative staff to maintain such activity, expenditure on pesticides and insecticide which is bound to incur for any plantations, and taking into consideration the nature of activity carried out by the assessee, the ld.CIT(A) restricted the addition by estimating the expenditure incurred by the assessee to the tune of 5% of teak wood sales i.e. Rs.60,38,662/-, which in our opinion seems to be reasonable and justified. Hence, we do not find any ambiguity in the order passed by the ld.CIT(A) in restricting the addition to the extent of 5% of the total sales as aforesaid so as to warrant interference. Thus, the appeal filed by the Revenue being devoid of any merit, stands rejected. 12. In the result, appeal of the Revenue is dismissed. Order pronounced in the Court on 27 th April, 2022 at Ahmedabad. Sd/- Sd/- (PRAMOD M. JAGTAP) VICE-PRESIDENT (Ms. MADHUMITA ROY) JUDICIAL MEMBER Ahmedabad; Dated 27/04/2022 आदेश क- . त0ल1प अ2े1षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु !त / Concerned CIT 4. आयकर आय ु !त(अपील) / The CIT(A) 5. $वभागीय 'त'न ध, आयकर अपील य अ धकरण / DR, ITAT, 6. गाड* फाईल / Guard file. आदेशान ु सार/ BY ORDER, TRUE COPY उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad