Pandalur Plantations (Pvt) Ltd, Bengaluru V. Income Tax Officer, Ward-5(1)(2), Bengaluru

ITA 263/BANG/2018

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4748 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 31-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANDEEP GOEL BE NGALURU
• Assessee Lawyers: H N KHINCHA
• Keywords: Earning of tax free income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO. 263/BANG/2018 ASSESSMENT YEAR : 2013 - 14 PANDALUR PLANTATIONS (PVT.) LTD., # 29, 3 RD FLOOR, EMPIRE INFANTRY, INFANTRY ROAD, BANGALORE 560 001. PAN: AABCP 0368G VS. THE INCOME TAX OFFICER, WARD 5(1)(2), BENGALURU. APP ELL ANT RESPONDENT A PP EL LANT BY : SHRI H.N. KHINCHA, CA RE SPONDENT BY : SHRI SANDEEP GOEL, ADDL. CIT(DR)(ITAT), BE NGALURU. DATE OF HEARING : 2 3 . 0 5 .201 8 DATE OF PRONOUNCEMENT : 01.06.2018 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 24.010.2017 OF THE CIT(APPEALS)-5, BENGALURU RELATI NG TO ASSESSMENT YEAR 2013-14. 2. THE ASSESSEE IS A COMPANY OWNING RUBBER PLANTATI ONS. IT IS THE CLAIM OF THE ASSESSEE THAT IT DERIVES INCOME FROM S ALE OF DRY RUBBER CONTENT (DRC) AND RUBBER SHEETS. THE PROCESS IS FI RST REMOVE LATEX FROM RUBBER TREE, ALLOW THE WATER CONTENT TO EVAPORATE A ND THE RESULTANT SUBSTANCE IS CALLED DRY RUBBER CONTENT (DRC). ACCO RDING TO THE ASSESSEE THIS IS NOTHING BUT INCOME FROM AGRICULTURE AS DRC IS NOT MANUFACTURED OR ITA NO.263/BANG/2018 PAGE 2 OF 5 PROCESSED FROM FIELD LATEX OBTAINED FROM RUBBER PLA NTS. SIMILARLY, THE RUBBER SHEETS WERE ALSO NOT MANUFACTURED OR PROCESS ED FROM FIELD LATEX AND THEREFORE INCOME FROM SALE OF RUBBER SHEETS IS ALSO AGRICULTURAL INCOME. THE INCOME FROM AGRICULTURE DECLARED BY T HE ASSESSEE WAS RS.1,03,95,338/-. OUT OF THE ABOVE RS.3,60,404/- I S INCOME FROM SALE OF RUBBER SHEETS. AS PER THE PROVISIONS OF RULE 7A OF THE INCOME TAX RULES, 1962 (RULES) IF RUBBER LATEX IS GROWN BY THE ASSESS EE AND SUBSEQUENTLY MANUFACTURED OR PROCESSED AND SOLD AND INCOME DERIV ED FROM SUCH SALE, A METHOD OF DETERMINING INCOME WHICH IS TAXABLE AND A TTRIBUTABLE TO NON- AGRICULTURAL ACTIVITIES HAS BEEN PRESCRIBED. IT IS BECAUSE PART OF THE INCOME IS FROM AGRICULTURE AND PART OF IT IS FROM MANUFACT URING AND PROCESSING. IF THERE IS NO MANUFACTURING OR PROCESSING THEN THE EN TIRE INCOME IS EXEMPT AND THERE IS NO QUESTION OF APPLYING RULE 7A OF THE RULES. THE PROVISIONS OF RULE 7A OF THE RULES READS AS FOLLOWS:- RULE - 7A, INCOME-TAX RULES INCOME FROM THE MANUFACTURE OF RUBBER. 7A. (1) INCOME DERIVED FROM THE SALE OF CENTRIFUGED LA TEX OR CENEX OR LATEX BASED CREPES (SUCH AS PALE LATEX CREPE) OR BR OWN CREPES (SUCH AS ESTATE BROWN CREPE, REMILLED CREPE, SMOKED BLANKET CREPE OR FLAT BARK CREPE) OR TECHNICALLY SPECIFIED BLOCK RUBBERS MANUF ACTURED OR PROCESSED FROM FIELD LATEX OR COAGULUM OBTAINED FROM RUBBER P LANTS GROWN BY THE SELLER IN INDIA SHALL BE COMPUTED AS IF IT WERE INC OME DERIVED FROM BUSINESS, AND THIRTY-FIVE PER CENT OF SUCH INCOME S HALL BE DEEMED TO BE INCOME LIABLE TO TAX. (2) IN COMPUTING SUCH INCOME, AN ALLOWANCE SHALL BE MADE IN RESPECT OF THE COST OF PLANTING RUBBER PLANTS IN REPLACEMENT O F PLANTS THAT HAVE DIED OR BECOME PERMANENTLY USELESS IN AN AREA ALREA DY PLANTED, IF SUCH AREA HAS NOT PREVIOUSLY BEEN ABANDONED, AND FOR THE PURPOSE OF DETERMINING SUCH COST, NO DEDUCTION SHALL BE MADE I N RESPECT OF THE AMOUNT OF ANY SUBSIDY WHICH, UNDER THE PROVISIONS O F CLAUSE ( 31 ) OF SECTION 10, IS NOT INCLUDIBLE IN THE TOTAL INCOME. ITA NO.263/BANG/2018 PAGE 3 OF 5 3. IN THE PRESENT CASE THE REVENUE AUTHORITIES HAVE PROCEEDED ON THE BASIS THAT CONVERSION OF LATEX INTO DRC OR RUBBER S HEET AMOUNTS TO MANUFACTURE OR PROCESSING OF FIELD LATEX AND THEREF ORE INCOME DERIVED FROM SUCH ACTIVITIES HAS TO BE TAXED AS PER RULE 7A OF T HE RULES. THE CASE OF THE ASSESSEE IS THAT INCOME FROM SALE OF DRC AND RUBBER SHEETS IS INCOME FROM AGRICULTURE AS THERE IS NO MANUFACTURING OR PR OCESS INVOLVED IN CONVERTING LATEX INTO DRC OR RUBBER SHEETS. 4. AT THE TIME OF HEARING BOTH THE PARTIES AGREED T HAT THE EVIDENCE TO COME TO CONCLUSION ONE WAY OR THE OTHER WAS INSUFFI CIENT AND THEREFORE THE MATTERS REQUIRES FRESH CONSIDERATION BY THE AO. AC CORDINGLY THE ORDER OF THE CIT(A) IS SET ASIDE. THE GRIEVANCE PROJECTED B Y THE ASSESSEE IN GR.NO.1 TO 3 IN THE GROUNDS OF APPEAL BEFORE THE TR IBUNAL READS AS FOLLOWS:- 1. THE LEARNED ASSESSING OFFICER HAD ERRED IN PASS ING THE ORDER IN THE MANNER PASSED BY HIM AND THE LEARNED C OMMISSIONER OF INCOME TAX(APPEALS) HAD ERRED IN CONFIRMING THE SAME WHILE DISMISSING THE APPEAL, BY HOLDING THAT THE APPELLAN T WAS ENGAGED IN MANUFACTURING OR PROCESSING WHEREBY FIELD LATEX OR COAGULUM AFTER MANUFACTURING OR PROCESSING EMERGED AS CENTRI FUGED LATEX OR CENEX OR LATEX BASED CREPES OR BROWN CREPES TECHNIC ALLY SPECIFIED BLOCK RUBBERS, WHILE NO SUCH MANUFACTURING OR PROCE SSING ACTIVITY WAS UNDERTAKEN BY THE APPELLANT. THE CONCL USION DRAWN BEING TOTALLY ERRONEOUS ON FACTS AND CIRCUMSTANCES OF THE CASE, IS TO BE DISREGARDED. 2. THE LEARNED ASSESSING OFFICER HAS ERRED IN NOT APPRECIATING THE FACT THAT THE ACTIVITIES OF THE AP PELLANT WERE PURELY AGRICULTURE IN NATURE AND FIELD LATEX TAPPED FROM THE RUBBER PLANTS WAS SOLD AS A NATURAL PRODUCT, WITHOUT TAKIN G UP ANY PROCESSING OR MANUFACTURING ACTIVITY. ON PROPER APP RECIATION OF FACTS AND EVIDENCE AVAILABLE, THERE IS NO GROUND TO INVOKE RULE 7A AND BRING TO TAX 35% OF THE REVENUE AS PER P & L ACCOUNT AND RAISE DEMAND FOR TAX AND SAME IS TO BE DELETED. 3. THE LEARNED ASSESSING OFFICER ERRED IN CONCLUDIN G THAT SOME PROCESSING OR MANUFACTURING ACTIVITY WAS INVOL VED TO MAKE ITA NO.263/BANG/2018 PAGE 4 OF 5 THE RUBBER SHEETS OR DRY RUBBER CONTENTS FROM THE F IELD LATEX, FAILING TO APPRECIATE THE MATERIAL/EVIDENCE SUBMITT ED TO THE EFFECT THAT RUBBER SHEETS WERE MADE THROUGH THE NATURAL PR OCESS OF DRYING BY EXPOSURE TO NATURE & IN THE SMOKE HOUSES AND NOT THROUGH ANY PROCESSING OR MANUFACTURING AND DRY RUB BER CONTENT DID NOT DENOTE ANY DISTINGUISHABLE PRODUCT EMERGING AFTER PROCESSING OR MANUFACTURING, AS IT REPRESENTED THE RUBBER CONTENT IN THE FIELD LATEX, WHICH WAS IN LIQUID FORM WITH S UBSTANTIAL MOISTURE CONTENT AND IT WAS THE INDUSTRY PRACTICE T O DETERMINE THE PRICE OF FIELD LATEX WITH REFERENCE TO THE DRY RUBB ER CONTENT IN IT AND THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAD ERRED IN FAILING TO APPRECIATE THESE FACTS PRESENTED WITH DOCUMENTARY & PICTORIAL EVIDENCE THROUGH THE CD, WHILE DISMISSING THE APPEAL. 5. THE GRIEVANCE PROJECTED IN GR.NO.1 TO 3 IS REMAN DED TO THE AO FOR CONSIDERATION DE NOVO. ALL CONTENTIONS RAISED BY T HE ASSESSEE AND THE AO ARE LEFT OPEN FOR ADJUDICATION. 6. AS FAR AS GR.NO.4 RAISED BY THE ASSESSEE IS CONC ERNED, THE SAME READS AS FOLLOWS:- 4. THE LEARNED ASSESSING OFFICER HAS ERRED IN BRIN GING TO TAX DIVIDENDS OF RS 32,431, CLAIMED AS EXEMPT INCOME BY THE APPELLANT AND DISALLOWING RS 21,250 UNDER SECTION 1 4A, WITHOUT ASSIGNING ANY REASON, AS THE APPELLANT DID NOT HAVE ANY OUTGO BY WAY OF INTEREST OR OTHER EXPENDITURE TO EARN THE EX EMPT INCOME AND THE LEARNED COMMISSIONER OF INCOME(APPEALS) HAD ERRED IN DISMISSING THE APPEAL WITHOUT ANY FINDING ON BRINGI NG TO TAX EXEMPTED INCOME OF DIVIDENDS AND DISALLOWANCE UNDER SECTION 14A. 7. IT IS THE PLEA OF THE ASSESSEE BEFORE US THAT TH E DISALLOWANCE U/S.14A OF THE ACT IS MADE TWICE ONCE WHILE DISALLO WING EXPENSES WHILE COMPUTING INCOME FROM OTHER SOURCES BUT THE INCOME SO DISALLOWED IS AGAIN CONSIDERED WHILE DISALLOWING EXPENSES U/S.14A OF THE ACT. THE PARTIES AGREED THAT THIS ISSUE MAY ALSO BE REMANDED TO THE AO FOR ITA NO.263/BANG/2018 PAGE 5 OF 5 CONSIDERATION DE NOVO. ACCORDINGLY, THE AO IS DIRE CTED TO CONSIDER THE GRIEVANCE PROJECTED IN GR.NO.4 BY THE ASSESSEE DE N OVO. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON THIS 1 ST DAY OF JUNE, 2018. SD/- SD/- ( INTURI RAMA RAO ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 1 ST JUNE, 2018. / D ESAI S MURTHY / COPY TO: 1. APP ELL ANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.