ITO 19(2)(2), MUMBAI V. TROPICA NURSERY, MUMBAI

ITA 2258/MUM/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7738 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 15-12-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 09-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Keywords: Business income; Difference of opinion; Change of opinion; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI R.K. PANDA (AM) AND SMT. ASHA VIJAYARAG HAVAN (JM) ITA NO. 2258/MUM/2009 ASSESSMENT YEAR-2003-04 THE ITO - 19(2)(2), PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI-400 012 VS. M/S. TROPICA NURSERY, 22, NAVJIVAN BLDG., DATTATRAY ROAD, SANTACRUZ(W), MUMBAI-400 054 PAN-AAAFT 7632D (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SURENDRA KUMAR RESPONDENT BY: SHRI K. SHIVRAM O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER DATED 20.1.2009 PASSED BY THE LD. CIT(A)-XIX FOR TH E ASSESSMENT YEAR 2003-04. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE AGRICULTURAL ACTIVITY SINCE 1997. T HE ASSESSEE IS ENGAGED IN THE ACTIVITY OF GROWING VARIOUS ORNAMENTAL AND F RUIT PLANTS, SEEDS, CUT FOLIAGE ETC. THIS AGRICULTURAL PRODUCE IS SOLD LOC ALLY AS WELL AS IN EXPORT MARKET. THEY HAVE PLANTED SOME OF THE PLANTS (CYCA S OR RHAPIS PLANTS) FROM IMPORTED SEEDS AND NOW THE PLANTS ARE MATURE A ND THEY SELL THEIR CUT LEAVES OR OFFSETS FROM THE MOTHER PLANTS. ITA NO. 2258/M/09 2 3. THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AN D WAS ASSESSED U/S. 143(3). THE ASSESSING OFFICER HAD SUBSEQUENTL Y REOPENED THE ASSESSMENT U/S. 147. 4. BEFORE THE LD. CIT(A) THE AR OF THE ASSESSEE SUB MITTED AS FOLLOWS: DURING THIS SCRUTINY ASSESSMENT WE HAVE MET THE A O SEVERAL TIMES AND DISCUSSED ALL THE MATTERS. WE HAVE PROVI DED THE AO WITH COMPREHENSIVE DETAILS, IN WRITING, ON OUR OPERATION S ALONG WITH PHOTOS AND COPIES OF DOCUMENTS, CERTIFICATES ETC. THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE MAT ERIAL FACTS NECESSARY FOR THE ASSESSMENT. AFTER EXHAUSTIVE SCR UTINY THE AO INDEED CONCLUDED THAT WE ARE CARRYING OUT AGRICULTU RAL OPERATIONS AND ALLOWED US EXEMPTION U/S. 10(1). 5. THE AR FURTHER SUBMITTED THAT THE AOS REOPENING OF THE ASSESSMENT AMOUNTS TO MERE CHANGE OF OPINION. 6. THE LD. CIT(A) HELD AS FOLLOWS: THE ADDITIONAL GROUND OF APPEAL WHICH CHALLENGES T HE LEGALITY OF JURISDICTION OF REOPENING THE CASE IS TAKEN UP F IRST. THE FACTS OF THE CASE ARE THAT THE RETURN OF INCOME FOR A.Y. 200 3-04 WAS FILED ON 28.10.2003 DECLARING A TOTAL INCOME OF RS. NIL AFTE R CLAIMING EXEMPTION U/S. 10(1) OF THE I.T. ACT. IT WAS ACCOM PANIED BY STATEMENT OF TOTAL INCOME, PROFIT AND LOSS ACCOUNT, BALANCE SHEET AND OTHER SUPPORTING STATEMENTS. THIS RETURN WAS SCRUT INIZED U/S. 143(3) OF THE I.T. ACT AND THE CLAIM OF EXEMPTION A FTER DUE VERIFICATION AND APPLICATION OF MIND WAS ALLOWED. T HE CASE WAS SUBSEQUENTLY REOPENED AND A NOTICE U/S. 148 DT. 20. 11.2006 WAS ISSUED AND SERVED ON THE APPELLANT. THE APPELLANT FILED A LETTER DT. 13.12.2006 IN THE AOS OFFICE ON 15.12.2006 AS WELL AS LETTER DT. 28.12.2006 RECEIVED IN THE AOS OFFICE ON THE SAME DAY REQUESTING TO SUPPLY A COPY OF REASONS RECORDED U/S. 148 OF THE I.T. ACT. THE AO IGNORED THE TWO LETTERS OF REQUEST AND THE APPELLAN T ALSO DID NOT FILE ANY RETURN OF INCOME. THE APPELLANT ALSO OBJECTED TO THE REOPENING OF THE ASSESSMENT VIDE ITS LETTER DT. 28.12.2006 WH ICH WAS NOT DISCUSSED BY THE AO IN HIS ASSESSMENT ORDER AND THE AO PROCEEDED TO DISALLOW THE EXEMPTION U/S. 10(1) OF THE I.T. AC T. THE AO HELD THAT THE ISSUES WERE DISCUSSED AT LENGTH IN THE ASSESSME NT ORDER FOR A.Y. ITA NO. 2258/M/09 3 2004-05 TO PROVE THAT THE ACTIVITY CARRIED OUT BY T HE ASSESSEE IS NOT AN AGRICULTURAL ACTIVITY. THE FACTS AND CIRCUMSTAN CES CONTINUES TO BE APPLICABLE TO THE PRESENT YEAR AND IN VIEW OF THE A NALOGY OF THE FACTS AND CIRCUMSTANCES AND STAND TAKEN BY THE AO FOR THA T YEAR (2004- 05) THE CONTENTION OF THE APPELLANT WAS REJECTED. I HAVE CONSIDERED THE ADDITIONAL GROUND TAKEN BY TH E APPELLANT REGARDING THE REOPENING OF THE ASSESSMENT . I HAVE ALSO SEEN THE LETTERS FILED BY THE APPELLANT SEEKING THE REASONS FOR REOPENING. THIS GROUND IS SQUARELY COVERED BY THE DECISION OF THE HONSUPREME COURT IN THE CASE OF G.K.M. DRIVE SHAFT (INDIA) PVT. LTD. (2003) 259 ITR 19. THE HONBLE SC IN ITS LANDMARK JUDGEMENT HAS LAID DOWN THE FOLLOWING SEQUENCES TO BE FOLLOWED WH EN A NOTICE U/S. 148 IS ISSUED. ON RECEIPT OF A NOTICE U/S. 148, AN ASSESSEE IS EXPECTED TO FILE A RETURN OF INCOME AS PER ITS OWN ASSESSMENT. THEREAFTER IT COULD OBJECT TO THE JURISDICTION BEFO RE THE AO AND THAT THE AO IS BOUND TO FURNISH REASONS WITHIN A REASONA BLE TIME AND MEET THE OBJECTIONS OF THE ASSESSEE FOR JURISDICTIO N BY A SPEAKING ORDER. APPLIED TO THE FACTS OF THIS CASE IT IS OBS ERVED THAT THE APPELLANT DID NOT FILE ANY RETURN OF INCOME IN RESP ONSE TO NOTICE U/S. 148. HOWEVER, THAT THE ACTIVITY FALLS UNDER GROWER NURSERY AND THE APPELLANT HAS RIGHTLY CLAIMED EXEMPTION U/S. 10(1) OF THE I.T. ACT. THUS GROUND NO. 1 AND 2 OF THE APPELLANT ARE ALLOWE D. 7. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US AND R AISED THE FOLLOWING GROUND: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE REOPEN ING OF THE ASSESSMENT IS BAD IN LAW. 8. THE LD. CIT(A) OBSERVED IN HIS ORDER THAT THE LE TTERS FILED BY THE ASSESSEE SEEKING REASONS FOR REOPENING WERE IGN ORED BY THE AO AND THE AO MERELY HELD THAT THE ISSUES WERE DISC USSED AT LENGTH IN THE ASSESSMENT ORDER FOR A.Y. 2004-05 TO PROVE THAT THE ACTIVITY CARRIED OUT BY THE ASSESSEE DOES NOT CONST ITUTE AGRICULTURAL ACTIVITY. THE AO FURTHER HELD THAT IN VIEW OF THE ANALOGY OF THE FACTS AND THE STAND TAKEN BY THE DEP ARTMENT FOR YEAR 2004-05 THE CONTENTION OF THE ASSESSEE THAT IT IS ELIGIBLE FOR ITA NO. 2258/M/09 4 EXEMPTION U/S. 10(1) IS NOT ACCEPTABLE FOR THE ASS ESSMENT YEAR 2003-04 ALSO. THE LD. CIT(A) THEREFORE HELD THAT T HE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF G.K.M. DR IVE SHAFT (INDIA) PVT. LTD. 259 ITR 19 APPLIES TO THE FACTS O F THE CASE AND HENCE REOPENING IS BAD IN LAW. 9. WE ARE IN CONFORMITY IN THE ORDER OF THE LD. CIT (A) ON THE ISSUE OF THE ASSESSMENT BEING BAD IN LAW AS THE REA SONS WERE NOT MADE AVAILABLE TO THE ASSESSEE. FURTHER THE REOPEN ING OF THE ASSESSMENT U/S. 147 IS BASED ON THE MERE CHANGE OF OPINION, AS ALL THE FACTS AND DETAILS HAD BEEN BEFORE THE AO AT THE TIME OF THE ASSESSMENT. FOLLOWING THE DECISION IN THE CASE OF COMMISSIONER OF INCOME-TAX VS KELVINATOR OF INDIA L TD. (DEL) 256 ITR 01, WE HOLD THAT THE REOPENING IS BAD IN LA W HENCE THE GROUND RAISED BY THE DEPARTMENT IS DISMISSED. 10. GROUND NO. 2 RELATES TO REJECTING THE CLAIM OF EXEMPTION U/S. 10(1) OF THE ACT. THIS ISSUE IS COVERED COVE RED BY THE DECISION OF THE MUMBAI TRIBUNAL IN ASSESSEES OWN C ASE FOR THE ASSESSMENT YEARS 2004-05 & 2005-06 IN ITA NOS. 756 & 1027/M/09 WHEREIN IT HAS BEEN HELD AS FOLLOWS: WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE DECISIONS CITED. THE ADMITTED FACTS OF THE CASE ARE THAT THE ASSESSEE IS A NURSERY THAT GROWS AND SELLS ORNAMENTAL PLANTS AND PLANT PRODUCTS SEEDS LEAVES, CUTTINGS ETC. AND ITS TURNOVER MOSTLY CONSI STS OF SALE OF LOCAL SALES TO RETAIL OUTLETS, WHILE A PART IS EXPORTED ALSO. SINCE ASSESSMENT YEAR 2000-01, THE ASSESSEE HAS BEEN FILED RETURNS OF INCOME OFFERING AGRICULTURAL INCOME AND CLAIMED EXEMPTION U/S 10(1 ) OF THE ACT, WHICH HAVE BEEN ACCEPTED SUMMARILY TILL ASSESSMENT YEAR 2003-04. IN THE YEAR UNDER CONSIDERATION I.E. 2004-05, THE CASE WAS AGAIN ITA NO. 2258/M/09 5 SELECTED FROM SCRUTINY ASSESSMENT IN WHICH THE VERY SAME AO CAME TO AN OPPOSITE CONCLUSION THAT THE AGRICULTURAL INCOME WAS TREATED AS BUSINESS INCOME AND TAXED ACCORDINGLY AS AGAINST THE EARLIER YEARS BY RELYING UPON DECISION OF MAHARAJA VIBHUTI NARAIN SI NGH VS. STATE OF UTTER PRADESH [1967] 65 ITR 364 AND ON THE OTHER GROUNDS WHICH HAVE BEEN EXTRACTED BY THE CIT(A) IN HIS ORDER AT PAGES 4 & 5. THE CIT(A) HAS DISCUSSED THE ISSUE AT LENGTH AND ANSWERED THE GROUNDS ON WHICH THE AO TREATED THE ASSESSEES INCOME AS BUSINESS INCOME. THE LEARNED DR HAS NOT BEEN ABLE TO BRING ANY CONTROVERT MATERIAL ON RECOR D AGAINST THE FINDINGS OF THE CIT(A) TO ESTABLISH THA T THE FINDINGS OF THE CIT(A) ARE WRONG. HOWEVER, THE DR H AS PLACED RELIANCE ON SOME OF THE DECISIONS, WHICH ARE DISTINGUISHABLE ON FACTS AND THEY ARE NOT HELPFUL T O THE CASE OF THE REVENUE. THE ASSESSEE HAD SOLD CUT-LEAV ES OF CYCAS PLANTS AMOUNTING TO RS39,95,825/-, WHICH HAVE BEEN GROWN IN THE GROUND BY THE ASSESSEE FROM IMPORTED SEEDS. THE AO WORKED OUT THE EXPENDITURE INCURRED BY THE ASSESSEE ON GROWING THE SAID PLANTS OF RS.3,85,705/- AND DISALLOWED THE SAME AS CAPITAL EXPENDITURE BY TREATING IT AS TEA BUSHES. THE ASSES SEE HAS PLACED RELIANCE ON VARIOUS JUDGMENTS BEFORE THE CIT(A) INCLUDING THE DECISION IN THE CASE OF JUGAL KISHORE ARORA V. DCIT[2004] 141 TAXMAN 187 (ALL.) WHEREIN IT WAS HELD THAT THE NATURE OF THE PRODUCE RAISED HAS NO RELEVANCE TO THE CHARACTER OF AGRICUL TURAL OPERATION. THUS, EVEN CULTIVATION OF FLOWERS OF ART ISTIC AND DECORATIVE VALUE HAS BEEN HELD TO BE AN AGRICULTURE OPERATION. THE HONBLE SUPREME COURT I N THE CASE OF CIT VS. RAJA BENOY KUMAR SAHAS ROY, 32 ITR 466 (SC), ON WHICH RELIANCE PLACED BY THE ASSESSEE, HELD THAT THE TERM AGRICULTURE CANNOT BE CONFINED MERELY TO THE PRODUCTION OF GRAIN AND FOOD PRODUCTS FOR HUMAN BEINGS AND BEASTS INDEED I TH INK AGRICULTURE CANNOT BE DEFINED BY THE NATURE OF THE PRODUCTS CULTIVATED, BUT SHOULD BE DEFINED RATHER BY THE CIRCUMSTANCES IN WHICH THE CULTIVATION IS CARRI ED ON. THE HON'BLE MADRAS HIGH COURT IN THE CASE OF SOUNDARYA NURSERY (SUPRA) HAS HELD THAT THE INCOME FROM THE SALE OF PLANTS GROWN IN PARTS AND THE SALE OF SEEDS DERIVED ON ACCOUNT OF CULTIVATION BY THE ASSE SSEE WAS AGRICULTURE INCOME. THE HON'BLE UTTARAKHAND HI GH COURT IN THE CASE OF GREEN GOLD TREE FARMERS PVT. L TD. (SUPRA) HAS HELD THAT THE PROCEEDS FOR THE SALE OF ITA NO. 2258/M/09 6 PLANTS IN THE NURSERY BELONGING TO THE ASSESSEE CONSTITUTED INCOME FROM AGRICULTURE AND HENCE WERE EXEMPT FROM THE TAX UNDER THE INCOME TAX ACT. AFTE R CONSIDERING THE SUBMISSIONS AND CASE LAWS ON WHICH RELIANCE PLACED BY THE ASSESSEE, THE CIT(A) HELD TH AT THE ASSESSEE HAS PROVED THAT AGRICULTURAL ACTIVITIE S ARE EXTENSIVELY AND ROUTINELY PERFORMED FOR WHICH EXTENSION DIRECTION AND INDIRECT EVIDENCES HAVE BEE N SUBMITTED AT THE ASSESSMENT STAGE AND THERE IS NO TRADING ACTIVITY (PURCHASE AND CORRESPONDING SALE O F PLANTS) LAND SCALPING SERVICES, RETAIL SALES OR MAINTENANCE CONTRACTS UNDERTAKEN BY IT. HE FURTHER HELD THAT THE ASSESSEE HAS CLEARLY ESTABLISHED THAT IT HAS CARRIED OUT AGRICULTURAL OPERATION AND SO ELIGI BLE FOR EXEMPTION U/S 10(1) OF THE ACT AND, THEREFORE, THE ADDITION OF RS.39,55,848/- AND RS.3,85,705/- ARE DELETED. WE, THEREFORE, ON THE FACTS OF THE CASE AS WELL AS ON THE BASIS OF JUDICIAL PRONOUNCEMENTS AS INDICATED ABOVE, FIND THAT THE LD. CIT(A) HAS RIGH TLY DECIDED THE ISSUE THAT THE ASSESSEE IS ELIGIBLE FOR EXEMPT FROM THE TAX UNDER THE INCOME TAX ACT, 1961 AND WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CI T(A) AND THE SAME IS HEREBY UPHELD. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE IN THIS REGARD ARE DISMISSED. RESPECTFULLY FOLLOWING THE ABOVE DECISION IN ASSES SEES OWN CASE, WE DISMISS THIS GROUND RAISED BY THE REVENUE. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 31 ST DAY OF MARCH, 2011 SD/- SD/- (R.K. PANDA) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 31 ST MARCH, 2011 RJ ITA NO. 2258/M/09 7 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR I BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 2258/M/09 8 DATE INITIALS 1 DRAFT DICTATED ON: 25 . 0 3 .201 1 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 2 8 .0 3 .2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10 . DATE OF DISPATCH OF ORDER: _________ ______