M/s Saffa Seeds Producing Farm, Cuttack V. ACIT, Cuttack

ITA 274/CTK/2012

• Counselvise Citation: 27422114 RSA 2012
• Duration Of Justice: 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 16-04-2012
• Court: TRIBUNAL
• Department Lawyers: A BHATTACHARJEE
• Assessee Lawyers: S N SAHU
• Keywords: Business income; Principle of natural justice; Assessment record
• Section: 142(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , HONB LE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER / I.T.A.NO. 274/CTK/2012 ( / ASSESSMENT YEAR 2008 - 09) M/S. SAFFA SEEDS PRODUCING FARM, AT/P.O. KALYANI NAGAR, CUTTACK 753013 PAN: AAEFS 6097 B - - - VERSUS - ASST.COMMISSIONER OF INC OME - TAX, CIRCLE 2(1), CUTTACK. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI S.N.SAHU, AR / FOR THE RESPONDENT: / SHRI . A.BHATTACHARJEE, DR / DATE OF HEARING: 07.0 8.2012 / DATE OF PRONOUNCEMENT: 14.08.2012 / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER . THIS APPEAL BY THE ASSESSEE IS ON THE SOLITARY ISSUE THAT THE ASSESSING OFFICER EXCEEDED HIS JURISDICTION TO CONVERT THE T OTAL AGRICULTURAL INCOME RENDERED BY THE ASSESSEE PROPORTIONATELY AS BUSINESS INCOME ON THE BASIS OF ASSUMPTION AND PRESUMPTION WHICH HAVE BEEN CONFIRMED AND SECONDED BY THE LEARNED CIT(A) WITHOUT INDICATING AS TO HOW THE ADOPTION OF PERCENTAGE FOR BUSINES S AND AGRICULTURE SEPARATELY COULD BE HELD WHEN THE PAST HISTORY OF THE ASSESSEES CASE HAS BEEN ACCEPTANCE OF THE ENTIRE INCOME FROM AGRICULTURAL OPERATION BEING S EEDS PRODUCING F A RM MAINTAINED BY THE PARTNERS IN THE FIRM. 2. THE BRIEF FACTS ARE THAT THE ASSESSEE FIRM FILED ITS RETURN OF INCOME DECLARING NIL INCOME BUT HAVING NET AGRICULTURAL INCOME OF 40,24,218. I.T.A.NO. 274/CTK/2012 2 DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE ASSESSING OFFICER AFTER VERIFYING THE OWNERSHIP OF AGRICULTURAL LAND AND CONSIDERING THE EXPENDI TURE INCURRED IN CASH, VERIFYING THE PURCHASES AND SALES AND STOCK OF SEEDS CONCLUDED THAT THE TURNOVER OF THE ASSESSEE BEING 74,97,335 WAS TO BE SEGREGATED AS BUSINESS INCOME IN VIEW OF THE HIGH GROSS MARGIN GENERATED WHEN THE RESIDUAL AMOUNT OF TURNOVE R THEREIN AMOUNTING TO 10,14,390 COULD ONLY BE TREATED AS INCOME FROM AGRICULTURE. HE HELD THAT 42,30,530 WAS INCOME FROM BUSINESS AND 2,36,760 WAS THE AGRICULTURAL INCOME WHEN HE LEVIED TAX ACCORDINGLY. 3. AGGRIEVED, THE ASSESSEE APPEALED BEFORE THE FI RST APPELLATE AUTHORITY, WHO CONFIRMED THE ACTION OF THE ASSESSING OFFICER WITHOUT REASONING OUT THE ASSESSEES CONTENTION BEFORE THE ASSESSING OFFICER AND HIM TO REBUT UNDISPUTED FACTS INDICATING THE REASONS FOR DENYING THE CONTENTION OF THE ASSESSEE INSO FAR AS HITHERTO THE SAME ACTIVITY WAS ACCEPTABLE GENERATING INCOME TO THE DEPARTMENT AS FROM AGRICULTURAL OPERATION. 4. INITIATING HIS ARGUMENT, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE FIRM CARRIES ON BUSINESS OF CULTIVATION, AGRI CULTURAL RESEARCH AND DEVELOPMENT OF SEEDS PRODUCTION SINCE ASSESSMENT YEAR 1993 - 94. THE YEAR UNDER APPEAL IS NOT THE FIRST YEAR OF BUSINESS. THE ASSESSMENTS FOR EARLIER YEARS HAVE BEEN COMPLETED ACCEPTING THE INCOME OF THE FIRM AS AGRICULTURAL INCOME AN D EXEMPT U/S. 10 (1) OF THE I.T. ACT 1961. IT HAS BEEN HELD, IN THE ASSESSMENT ORDER U/S. 143 (3) FOR THE ASST YEAR 2003 - 2004 & 2007 - 2008 THAT THE ASSESSEE FIRM DERIVES INCOME FROM PRODUCTION OF SEEDS OF VARIOUS VEGETABLES. NECESSARY ENQUIRIES THROUGH INCO ME - TAX INSPECTOR HAVE BEEN CONDUCTED AND ON VERIFICATION OF FACTS AND ON EXAMINATION OF ACCOUNTS PRODUCED, IT HAS BEEN CONCLUDED BY THE I.T.A.NO. 274/CTK/2012 3 ASSESSING OFFICERS FOR THE EARLIER YEARS THAT THE FIRM IS MAINLY ENGAGED IN AGRICULTURAL ACTIVITIES BY PRODUCING HYBRID SEEDS AND DERIVES INCOME BY SELLING THOSE SEEDS. ALL ALONG IN THE PAST, THE INCOME RETURNED BY THE ASSESSEE FIRM HAS BEEN ASSESSED AS AGRICULTURAL INCOME AND E XEMPT U/S 10(1) OF THE I.T. ACT. REFERENCE WAS MADE IN THIS REGARD TO THE ASSESSMENTS ORDERS U/S 143 (3) FOR THE ASST. YEAR 2003 - 2004 AND 2007 - 2008 (THE IMMEDIATE YEAR BEFORE) OF THE YEAR UNDER APPEAL. THIS FACT HAS NOT BEEN CHALLENGED AT ANY TIME IN THE PAST BY THE DEPARTMENT. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION THE LEARNED A.O. ON MER E SUSPICION AND SURMISES AND ON WRONG ASSUMPTION OF FACTS HAS DISPUTED THE FACT AND CONVERTED THE INCOME OF THE APPELLANT FROM AGRICULTURE TO BE BUSINESS INCOME. HE HAS MADE ASSESSMENT ON ESTIMATE OF INCOME AS UNDER AND HAS RAISED HEAVY DEMAND : - (A) I NCOME FROM BUSINESS RS. 22,61,755/ - (B) INCOME FROM AGRICULTURE RS. 22,61,755/ - RS. 44,67,290/ - FOR MAKING SUCH ASSESSMENT HE HAS TAKEN RECOURSE TO CERTAIN IRRELEVANT FACTS INTO CONSIDERATION AS WOULD BE EVIDENT FROM PLAIN READING OF THE ASSESSMENT ORDE R ITSELF. UNFORTUNATELY, THE SAID ASSESSMENT HAS BEEN CONFIRMED BY THE 1ST APPELLATE AUTHORITY. 4.1. THE LEARNED COUNSEL CONTINUED HIS ARGUMENT BY STATING THAT IT IS WORTH WHILE TO MENTION HERE THAT THE LEARNED A.O. HIMSELF HAS ADMITTED IN PARA 2.17 OF HIS ASSESSMENT ORDER WHICH READS AS UNDER : THE NATURE OF LAND IS PRIMARY FACTOR IS DECIDING THE QUANTUM OF YIELD. THE RECORDS CLEARLY SHOW THAT THERE WAS NO CHANGE IN THE AREA OR VALUE OF THE LANDS REPORTEDLY OWNED BY THE FIRM IN RECENT PAST. IT ALSO SHOW THAT THERE WAS NO DRAMATIC RISE IN THE PRICE OF THE GOODS SOLD OR REDUCTION IN THE PRICE OF THE RAW MATERIALS. BUT THE INCOME OF THE ASSESSEE SHOWS A RECORD GROWTH IN LAST THREE YEARS. I.T.A.NO. 274/CTK/2012 4 THE ABOVE OBSERVATIONS OF THE ASSESSING OFFICER INDICATE THAT THERE HAS BEEN NO CHANGE IN THE NATURE OF THE OPERATIONS . THE LAST SENTENCE WITH OBSERVATION THAT THE INCOME OF THE ASSESSEE SHOWS A RECORD GROWTH IN LAST THREE YEARS IS WRONG. IT WOULD BE EVIDENT FROM THE TABLE GIVEN BELOW : FINANCIAL YEAR SALE PROFIT PROFI T RATIO 2004 - 2005 53,90,175.00 29,47,128.00 54.67 % 2005 - 2006 42,33,749.00 24,60,314.00 58.11 % 2006 - 2007 41,61,594.00 22,91,755.00 55.07 % 2007 - 2008 74,97,335.00 40,24,318.00 53.67 % BUT THE LEARNED AO HAS DISPUTED AND DIFFERED THE PRESENT ASSESSMENT. IN PAST ASSESSMENT YEARS THE STATUS OF FIRM AND ACTIVITIES OF AGRICULTURE HAS BEEN ACCEPTED, AFTER DUE INVESTIGATION AND ENQUIRY THROUGH DEPARTMENTAL INSPECTOR IN TO THE FACTS. THERE WAS NO DISPUTE REGARDING THE GENUINENESS OF FIRM. IT WAS ALSO HELD THAT THE FIRM IS ENGAGED IN THE AGRICULTURAL OPERATION ACTIVITIES. THE SAME HAVING BEEN ACCEPTED , THE INCOME HAS BEEN CONSIDERED AS EXEMPT U/S. 10(1) OF THE I.T. ACT, 1961. NO NEW FACTS HAVE COME TO THE POSSESSION OF THE ASSESSING OFFICER DURING THE YEAR UND ER CONSIDERATION SO AS TO TAKE A DIFFERENT VIEW. IN SUPPORT OF THE ABOVE, THE LEARNED COUNSEL FURNISHED COPIES OF THE ASSESSMENT ORDER DATED. 24.12.2004 U/S. 143 (3) FOR THE ASST. YEAR 2003 - 2004 AND THE ASST. ORDER U/S. 143 (3) DATED 2.9.2009 FOR THE ASST. YEAR 2007 - 2008. HE FURTHER CONTENDED THAT THE OTHER YEARS OF ASSESSMENT HAVE BEEN COMPLETED U/S. 143(1) ACCEPTING THE RETURN. RELEVANT PORTION FROM THE ORDER IS QUOTED AS UNDER : - ASSESSMENT YEAR 2003 - 2004 THE ASSESSEE FIRM DERIVED ITS INCOME FROM PRO DUCING SEEDS FROM VARIOUS VEGETABLES, I.E. BRINJAL, TOMATO, GREEN CHILLY ETC. DURING THE ASSESSMENT YEAR THE ASSESSEE HAD DISCLOSED CAPITAL LOSS FROM SALE OF AGRICULTURAL LAND FOR RS. 1,59,893/ - & AGRICULTURAL INCOME FOR RS. 20,41,141/ - . THE INSPECTOR OF I NCOME - TAX OF THIS CIRCLE WAS DIRECTED TO MAKE ENQUIRY REGARDING AGRICULTURAL PRODUCTS AND SEEDS SELLING. THE IIT SUBMITTED HIS REPORT. THE A/R OF THE ASSESSEE PRODUCED BOOKS OF ACCOUNT, COPY OF SALE DEED OF AGRICULTURAL LAND, CASH MEMOS ETC. ON VERIFICATIO N, IT IS FOUND THAT I.T.A.NO. 274/CTK/2012 5 THE ASSESSEE FIRM PURCHASED AGRICULTURAL LAND ON 10.11.93 FOR RS. 1,45,250 & SOLD IT ON 10.01.2003, FOR RS.1,06,200. TAKING COST ON INFLATION INDEX CAPITAL LOSS IS ACCEPTED & AGRICULTURAL INCOME FOR RS. 20,41,141 SHOWN BY THE ASSESSEE I S ACCEPTED IN VIEW OF ENQUIRY REPORT OF THE INSPECTOR. SUBJECT TO THE ABOVE DISCUSSION THE RETURN OF INCOME OF THE ASSESSEE IS ACCEPTED. ASSESSED U/S. 143 (3) ON TOTAL INCOME OF RS. NIL & AGRICULTURAL INCOME OF RS. 20,41,141/ - . ISSUED D.N., AND COPY OF AS SESSMENT ORDER. ASSESSMENT YEAR 2007 - 2008 THE ASSESSEE IS A FIRM DERIVING INCOME FROM AGRICULTURAL ACTIVITIES FOR PRODUCTION OF HYBRID VEGETABLE SEEDS ESPECIALLY IN BRINJAL AND TOMATO. RETURN OF INCOME SHOWING TOTAL INCOME OF RS. NIL / - WAS FILED ON 10 .11.2007 THROUGH ELECTRONICALLY. THIS CASE WAS SELECTED FOR SCRUTINY. NOTICE U/S. 143(2) & 142(1) WERE ISSUED AND SERVED ON THE ASSESSEE. IN RESPONSE TO STATUTORY NOTICES, AUTHORIZED REPRESENTATIVE SRI. S.K. SAHU, FCA APPEARED BEFORE ME TO EXPLAIN THE RETU RN AND SUBMITTED THE COPY OF TAX AUDIT REPORT AND PAPER COPY OF RETURN FILED. THE BOOKS OF ACCOUNTS WERE PRODUCED ALONG WITH VOUCHERS AND SUPPORTING DOCUMENTS WHICH ARE VERIFIED. THE FIRM IS MAINLY ENGAGED IN AGRICULTURAL ACTIVITIES BY PRODUCING HYBRID SEE DS AND DERIVES INCOME BY SELLING THESE SEEDS. AFTER VERIFICATION OF FACTS, THE RETURN INCOME OF THE ASSESSEE IS TREATED AS THE ASSESSED INCOME. NET PROFIT AS PER P / L ACCOUNT SHOWN RS. 22,61,755/ - LESS : EXEMPTION U/S. 10(1) OF THE I.T. ACT. RS. 22,6 1,755/ - NET TAXABLE INCOME RS. NIL 4.2. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE ASSESSMENT ORDER UNDER CONSIDERATION, THE ASSESSING OFFICER HAS ALMOST QUOTED THE OBJECT OF THE PARTNERSHIP DEED THAT IS TO CARRY ON BUSINESS OF CULTIVAT ION, AGRICULTURAL RESEARCH AND DEVELOPMENT OF SEED PRODUCTION AND ANY OTHER BUSINESS AS MAY BE CONDUCIVE IN THE INTEREST OF THE FIRM . ACCORDING TO THE OBJECT OF THE FIRM IS CARRYING ON ITS BUSINESS. SINCE THE ASSESSING OFFICER HAS BEEN BIASED AGAINST THE ASSESSEE, HE HAS MADE CERTAIN ADVERSE OBSERVATION WHILE FRAMING THE ORDER. THOSE OBSERVATION S HAVE NO BEARING OR IMPACT / RELEVANCE ON THE FACTS IN ISSUE AND WHILE COMPUTING THE ASSESSED INCOME THOSE ARE NOT TAKEN INTO CONSIDERATION. THOSE ARE REGARDING I.T.A.NO. 274/CTK/2012 6 O WNERS HIP OF LAND, AREA OF LAND, OVER - DRAWAL OF PARTNERS FROM THEIR CAPITAL ACCOUNT, INTEREST PAYMENT ON CROP LOAN ETC. 4.3. THE ASSESSEE MAINTAINS REGULAR BOOKS OF ACCOUNTS AUDITED BY QUALIFIED CHARTERED ACCOUNTANTS AS PER LAW. NO ADVERSE COMMENT HAS BEEN MADE BY THE AUDITORS. BUT THE A.O. HAS RAISED CERTAIN OBJECTIONS LIKE CASH PAYMENT OF EXPENDITURE, VOUCHERS ARE SELF MADE ETC., WHICH ARE OF GENERAL IN NATURE JUST TO JUSTIFY THAT THE EXPENSES ARE NOT GENUINE. WITH REGARD TO THE 1ST GROUNDS OF APPEAL, THE LEARNED COUNSEL SUBMITTED TH AT THE ASSESSING OFFICER HAS NO WHERE REJECTED THE BOOKS OF ACCOUNT U/S. 145 OF THE INCOME TAX ACT, 1961, HENCE, THE ASSESSMENT MADE U/S. 144 BIFURCATING INTO AGRICULTURAL INCOME AND BUSINESS INCOME CANNOT BE DONE. HE HAS FAILE D TO GIVE SUFFICIENT REASON TO REJECT THE BOOKS OF ACCOUNT OF THE ASSESSEE AND ESTIMATE INCOME. FOR THIS PROPOSITION, THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENT. (I) GHASIRAM TODARMAL VRS. ITO (1992) 196 I TR 329 (RAJ.); (II) CIT VRS. DAULTARAM RAWATMULL (1973) 87 ITR 349 (SC); (III) S. GURULAL SINGH TULI VRS. ACIT - ITAT, NAGPUR BENCH (2001) 70 TTJ (NAG) 144; (IV) CIT VRS. MACMILLAN & CO (1958) 33 ITR 182 (SC); (V) RAMJIWAN LAL VRS. CIT (1980) 123 ITR 319 (ALL) (VI) PUSPANJALI DYEING & PRINTING MILL PVT. LTD VRS. JOINT CIT - ITAT, AHMEDABAD BENCH (2001) 72 TTJ 887. THE SAID JUDGMENTS OF THE CO - ORDINATE BENCH OF THE TRIBUNALS ACCEPTING THE AUDITED ACCOUNTS WERE THOUGH CITED BY THE APPELLANT BEFORE CIT (A) BUT HAVE NOT BEEN CONSIDERED UNDER THE PLEA THAT THEY ARE FACTUALLY DIFFERENT. FURTHER, THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE AO MADE ENQUIRY THROUGH INSPECTOR OF INCOME - TAX BEHIND THE BACK OF THE ASSESSEE AFTER LONG LAPSE OF TIME . HE HAS ALLEGED THAT IN TWO LOCATIONS HE DID NOT FIND SUCH PERSONS. BUT TWO SUPPLIERS KAILASH CH. BISWAL AND GANESH NAYAK SENT REPLIES TO THE QUERRIES AS NOTED BY PARA 2.2.2 OF PAGE 4 OF THE ASSESSMENT ORDER HAVE NOT BEEN TAKEN NOTE NOR JUDICIALLY CONSIDE RED. THEREFORE, THE I.T.A.NO. 274/CTK/2012 7 ADVERSE MATERIALS COLLECTED BEHIND THE BACK OF THE ASSESSEE CANNOT BE UTILIZED WITHOUT CONFRONTATION TO THE ASSESSEE IN VIEW OF THE DECISION IN THE CASE OF STATE OF ORISSA VS. MURALI MANOHAR PRABHUDAYAL 1983 ( 52 S.T.C. 35 (ORISSA). IT IS ALSO THE LAW THAT NO MATERIALS SHOULD BE ACCEPTED WITHOUT BEING TESTED (MURALI MANOHAR PRABHUDAYAL VS. STATE OF ORISSA (26 STC PAGE 22 AT PAGE 25). WITHOUT FOLLOWING THE ABOVE PRINCIPLES OF NATURAL JUSTICE, THE ENTIRE ASSESSMENT HAS BECOME ILLEGAL, NU LL & VOID AND LIABLE TO BE QUASHED. A CCORDING THE JUDGMENT OF HON BLE ORISSA HIGH COURT AN ORDER PASSED WITHOUT FOLLOWING THE PRINCIPLES OF NATURAL JUSTICE IS A NULLITY (187 ITR 594 (ORI). THE A.O. HAS MADE ADVERSE REMARKS AND BIASED BECAUSE THE ENTIRE SA LE IS MADE TO A PRIVATE LIMITED COMPANY I.E. M/S. SREEMA SEEDS PVT. LTD. MANAGED BY SOME OF THE FAMILY MEMBERS OF THE PARTNERS. IT MAY KINDLY BE NOTED THAT THE SAID FIRM IS A LIMITED COMPANY AND HAS SEPARATE LEGAL ENTITY IN THE EYE OF LAW. THE COMPANY IS SEPARATELY ASSESSED SINCE LAST SEVERAL YEARS HAVING ITS PAN NO. ETC. LAW DOES NOT PREVENT FOR HAVING BUSINESS TRANSACTION WITH SUCH LTD COMPANY EVEN THOUGH IT IS MANAGED BY THE RELATIVE OF THE PARTNERS. RATHER SAFFA SEEDS THE PARTNERSHIP FIRM IS LOOKING AFTER THE AGRICULTURAL RESEARCH AND PRODUCTION OF THE COMPANY MANAGED BY A PARTNERSHIP FIRM UNDER THE NAME SAFFA SEEDS PRODUCING FARM. THE ENTIRE SEEDS SCIENTIFICALLY PRODUCED ARE SOLD TO THE COMPANY AT THE MARKET RATE AND IN TURN THE LTD COMPANY SELLS IT IN THE OPEN MARKET. THIS IS AN ACCEPTED BUSINESS PRACTICE. THERE IS NO LEGAL BAR. THIS BUSINESS PRACTICE IS ACCEPTED YEAR AFTER YEAR FOR THE LAST MORE THAN A DECADE. IT IS NOT A NEW FACT. NO INSTANCE OF PURCHASE OF GOODS BY THE FIRMS TO SELL AS IT IS WI THOUT THE PROCESS OF AGRICULTURE HAS BEEN BROUGHT ON RECORD OR POINTED OUT BY THE A.O., SO AS TO SAY THAT IT IS TRADING BUSINESS. THE AO HAS ACCEPTED ALL THE I.T.A.NO. 274/CTK/2012 8 FIGURES WITH REGARD TO PURCHASE, SALE AND EXPENSES , BUT HAS NOT ACCEPTED THE FACT OF AGRICULTUR AL OPERATION AND HAS TREATED 86.47% OF THE TURNOVER TO BE TRADING BUSINESS AND 13.53% TO BE OF AGRICULTURAL TURN OVER. ALL THE DISCUSSIONS BY BOTH THE AO AS WELL AS THE LEARNED CIT(A) REGARDING PARTNERSHIP FIRM NEED NO ELABORATION AS IT HAS NO RELEVANCE OR IMPACT ON ASSESSMENT. BECAUSE ULTIMATELY THE ISSUE AND DISPUTE IS WHETHER THE ASSESSEE HAS EARNED INCOME FROM AGRICULTURE OR OTHERWISE FROM BUSINESS OF PURCHASE AND SALE OF SEEDS BY NOT PUTTING THE SAME INTO THE PROCESS OF AGRICULTURE WHICH IS TECHNICA LLY AND SCIENTIFICALLY CARRIED ON. IN THIS REGARD HE DREW OUR ATTENTION TO WRITTEN SUBMISSIONS DATED 21 - 06 - 2011 (COPY SUBMITTED) IN PARAGRAPH 4(IV) REGARDING PROCESS OF CULTIVATION. IT HAS ALREADY BEEN SUBMITTED THAT WHEN SEEDS ARE COLLECTED FROM FARMERS, THEY UNDERGO VARIOUS PROCESS OF AGRICULTURAL OPERATION RIGHT FROM PURCHASE. THE ST EPS OF AGRICULTURAL OPERATIONS ARE : 1. PURCHASE OF SEEDS. 2. PREPARATION OF MOTHER BED. 3. PLOUGHING. 4. MULCHING COWDUNG USING SOME FERTILIZERS. 5. WEEDING OUT UNWANTED S EEDS AND SEPARATING QUALITY SEEDS. 6. CONVERTING WASTE NON CULTIVABLE LAND TO CULTIVABLE LAND ACCORDING TO AGRICULTURE NORMS. 8. BRINGING OUT CERTIFIED SEED WITH MINIMUM HEIGHT. 9. PLANTING AT THE FARMING SITE GIVING APPROPRIATE SPACE AS SPECIFIED ACCORDI NG TO THE GUIDANCE OF THE TECHNICAL ADVISOR. 10.INSECTICITING / SUPERVISING 11.PROTECTING THE PLANTS FROM CATTLE AND OTHER ANIMALS AND INSECTS. 12.MAINTAINING THE PLANTS TILL HARVESTING. 13.AFTER HARVEST, CLEARING, SEPARATING, THE HYBRID SEED FROM LOW YIE LDING SEEDS. 14.SEPARATING THE BEST VARIETY FROM ORDINARY VARIETY. 15.COLLECTION OF BREEDS. 16. FOUNDATION, POLLINATION, CERTIFICATION AND TRUTHFUL LEVEL OF TEAR FOR SALE TO THE FARMERS FOR PRODUCTION OF HIGH LEVEL YIELDING VEGETABLES ETC. IT HAS ALSO BEE N STATED THAT IN BETWEEN THE COLLECTION OF SEEDS FROM THE FARMERS AND OTHERS TO THE SALE, THE SEEDS UNDERGO SEVERAL PROCESS OF I.T.A.NO. 274/CTK/2012 9 CULTIVATION OR AGRICULTURE. THE ABOVE PROCESSES ARE CAREFULLY AND SCIENTIFICALLY DONE WHICH REQUIRES TECHNICAL EXPERTISE, SKILL A ND IS ALSO TIME CONSUMING. THE SEEDS AS IT IS ARE PURCHASED IN LESSER PRICE AND AFTER INCURRING LOT OF EXPENSES FOR UNDERGOING VARIOUS PROCESS OF SCIENTIFIC CULTIVATION AS NARRATED ABOVE FOR CONVERTING TO HYBRID SEED ARE SOLD AT A HIGHER PRICE. IT IS NOT A CASE AS IF IT IS JUST PURCHASED AND SOLD LIKE THAT. THE SEEDS ARE PURCHASED AT LOWER PRICE AND SOLD AT A HIGHER PRICE BECAUSE IT IS MADE AS HIGH YIELDING VARIETY OF VEGETABLES AFTER UNDERGOING VARIOUS PROCESSES OF CULTIVATION AND INCURRING LOT OF EXPENSE S THERE ON WITH REGARD TO FIELD LABOURERS, E TC. AS DETAILED ABOVE. OUT OF BA D SEEDS , QUALITY SEEDS ARE TAKEN OUT AFTER INSECTICIDES, MEDICINES HIGH TECHNICALITIES AND TIME CONSUMING FACTORS ETC. ARE ALSO INVOLVED. THESE DIFFERENT PROCESSING CANNOT BE TERM ED AS OR PRESUMED AS SIMPLE BUSINESS IGNORING THE ACTUAL FACT OF ABOVE AGRICULTURAL OPERATIONAL ACTIVITIES FOR CONVER TING ORDINARY SEEDS TO HYBRI D QUALITY. IT IS NOT JUST PURCHASE OF STOCK AND SOLD. ONE OF THE PARTNERS SRI BISWANATH BEHERA IS HIGHLY EXPE RIENCED AND EXPERT IN AGRICULTURAL SCIENCE. HE IS A VISITING PROFESSOR IN ORISSA UNIVERSITY OF AGRICULTURE AND TECHNOLOGY (OUAT) AND HE IS INVITED TO GIVE LECTURE IN NATIONAL LEVEL SEMINAR. THE SEEDS PRODUCED HAVE BEEN REGISTERED AND CERTIFIED BY THE GOVT . THE PRODUCT IS WORLD CLASS SEEDS WHICH IS IN HIGH DEMAND IN THE MARKET. HE DREW OUR ATTENTION TO C ERTAIN CORRESPONDENCE REGARDING THE GENUINENESS OF AGRICULTURAL & HORTICULTURAL ACTIVITIES OF THE FIRM IS GIVEN BELOW : 1) CERTIFIED SEED PRODUCTION 2) RELE ASE OF FINANCIAL INCENTIVE TO THE PRIVATE SEED GROWERS TOWARDS PRODUCTION OF CERTIFIED SEED UNDER CENTRAL SECTOR SCHEME. 3) ORISSA STATE SEED CERTIFICATION, CORRESPONDENCES WITH ORISSA SEEDS CORPORATION LTD. 4) REPORT BY THE SEED CERTIFICATION OFFICERS. I.T.A.NO. 274/CTK/2012 10 5) CORRESPONDENCE REGARDING SUPPLY OF FOUNDATION VEGETABLE SEEDS FROM THE OFFICE. 6) VEGETABLE SPECIALIST, ORISSA, BHUBANESWAR - VISITING REPORT. 7) LETTER FROM THE ORISSA HORTICULTURAL SOCIETY TO HAVE PAPER SPECIALLY ON THE PRODUCTION AND MARKETING OF VEGETA BLE SEEDS WITH EXPERIENCE OF PARTNER SRI BISHWANATH BEHERA. 8) LETTER BY OUAT TO SRI B. BEHERA TO PARTICIPATE THE HORTICULTURE CONGRESS, 2008 AND PROVIDE PAPER ON NEW R&D. INITIATIVE IN HORTICULTURE FOR ACCELERATED GROWTH AND PROSPERITY. 9) LIST OF PARTI CIPANT IN NATIONAL LEVEL SEMINAR ON VEGETABLE FOR SUSTAINABLE FOOD AND NUTRITIONAL SECURITY IN THE NEW MILLENNIUM. (SOURCE - INTERNATIONAL CONFERENCE ON VEGETABLES) THE NAME OF SRI BISHWANATH BEHERA LISTED. 4.4. REGARDING PAYMENT OF INTEREST TO FINANCIERS O N CROP LOAN, IT WAS SUBMITTED THAT THE FINANCERS ALSO CONDUCT ENQUIRY TO CONFIRM WHETHER THE LOANEE OR BORROWER IS AGRICULTURIST AND IS UTILIZING THE LOAN FOR THE PURPOSE THEY HAVE TAKEN, BECAUSE LESSER RATE OF INTEREST IS CHARGED FOR CROP LOAN. THE RATE O F INTEREST CHARGED FOR BUSINESS LOAN IS MORE. REGARDING OBJECTION RAISED BY THE AUTHORITIES BELOW WITH REGARD TO OVER DRAWL BY PARTNERS FROM THEIR CAPITAL ACCOUNT, THE EXPLANATION GIVEN BY THE APPELLANT SHOULD HAVE BEEN ACCEPTED. MORE SO REFERENCE TO CAPI TAL A/C IN THE BALANCE SHEET, IT CAN BE SEEN THAT MOST OF PARTNERS HAVE SUFFICIENT CAPITAL TO THEIR CREDIT FOR WITHDRAWAL AND NOTHING ILLEGAL TO WITHDRAW FOR PERSONAL USE . THE LEARNED CIT(A) HAS REJECTED THE CASE LAWS CITED ON BEHALF OF THE ASSESSEE AS F ACTUALLY DIFFERENT WHICH IS NOT CORRECT RATHER ON THE CONTRARY THE CASE LAWS CITED BY THE LEARNED CIT(A) ARE NOT AT ALL APPLICABLE TO THE FACTS OF THE PRESENT CASE. 4.5. REGARDING THE POINT RAISED BY THE LEARNED A.O. THAT THERE WAS LESS STOCK AND HOW COULD THE ASSESSEE S ALE MORE, THE LEARNED COUNSEL FOR THE ASSESSEE EXPLAINED THAT THEY RAISE 3 (THREE) CROPS DURING THE YEAR, THE THIRD CROP IS HARVESTED AFTER MARCH AND AROUND APRIL AND MAY, HENCE THERE WAS NO QUESTION OF SHORTAGE OF STOCK. THE BOOKS OF ACCOU NTS ARE PROPERLY MAINTAINED BY THE APPELLANT WHICH ARE DULY AUDITED BY THE QUALIFIED AUDITORS I.T.A.NO. 274/CTK/2012 11 AND NO ADVERSE OBSERVATION POINTED OUT BY THE AUDITORS. THE OBJECTIONS REGARDING ASSESSEES OWN VOUCHER ARE GENERAL IN NATURE. THEREFORE, THE SAME SHOULD HAVE BEE N ACCEPTED BY THE AUTHORITIES BELOW IN VIEW OF SEVERAL CASE LAWS ON THE POINT. FEW OF THEM ARE GIVEN SEPARATELY WITH THE RATIO ANALYSIS . THEREFORE THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN REJECTING THE ACCOUNTS AND RESORTING TO ESTIMATE OF INCOME. HE FUR THER SUBMITTED THAT THE WRITTEN SUBMISSIONS AND EXPLANATION IN COMPLIANCE TO THE NOTICE OF THE AO BE PERUSED AS SUBMITTED IN THE PAPER BOOK AS THEY HAVE NOT BEEN ANALYSED OR REASONED OUT BY THE LEARNED CIT(A) IN HIS ORDER. 5. THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. HE SUBMITTED THAT IT WAS NOT THE CASE OF THE ASSESSING OFFICER SUDDENLY FINDING THAT THE ASSESSEES BUSINESS OF AGRICULTURAL OPERATION COULD NOT BE SEGREG ATED AS INCOME FROM AGRICULTURAL OPERATIONS INSOFAR AS THE PERUSAL OF THE ASSESSMENT RECORD WOULD CLEARLY INDICATE THAT THE ASSESSEE HAS TRADED IN SEEDS AND THEREFORE HAVING PURCHASED AND SOLD SEEDS TO ITS SISTER CONCERN BECOMES A TRADING ACTIVITY WHICH PARTLY COUL D BE CONSIDERED AS F ROM AGRICULTURAL OPERATION ONLY HAS BEEN SEGREGATED ON PERCENTAGE BASIS AND CONFIRMED BY THE LEARNED CIT(A) AS WELL. THE QUANTITY YIELD AND THE AGRICULTURAL OPERATION CARRIED OUT IN THREE CROPS DURING THE YEAR WAS NOT EXPLAINED INSOFAR AS THE VENDORS WERE VERIFIED WHO PRODUCED THE PURCHASE BILL S WHICH WERE NOT ACCOUNTED FOR BY THE ASSESSEE. MOST OF THE SALES ARE TO SHREE SREEMAA SEEDS P. LTD., WHEREIN THE FAMILY MEMBE RS OF THE PARTNERS ARE INVOLVED. HAVING FOUND SUCH IRREGULARITY IN THE BOOKS OF ACCOUNT, THE PRINCIPLES OF RES JUDICATA CANNOT AP PLY ON WHICH THE LEARNED COUNSEL FOR THE ASSESSEE HAS HEAVILY RELIED UPON. HE SUBMITTED THAT DUE TO SALE OF AGRICULTURAL LAND THE ASSESSEE COULD NOT BE SAID TO BE CARRYING OUT THE I.T.A.NO. 274/CTK/2012 12 AGRICULTURAL OPERATION WAS THE ENDEAVOR OF THE ASSESSING OFFICER TO FIND WHE THER THE SEEDS HAD ACTUALLY GROWN OR WHETHER THEY WERE PURCHASED AND NOT ACCOUNTED FOR SALES TO ITS SISTER CONCERN. ON THESE FACTS AND CIRCUMSTANCES THEREFORE, THE LEARNED CIT(A) VERIFIED THAT THE CASH EXPENDITURE DID NOT CORRELATE THE Y IELD AND THEREFORE ON A SPECIFIC FINDING IT WAS FOUND THAT THE ASSESSEE HAD ACTUALLY EARNED INCOME FROM BUSINESS ACTIVITIES WHICH PART INCOME WAS TO ITS SISTER CONCERN HAD BEEN ACTUALLY RENDERED BY THE ASSESSEE AS AGRICULTURAL INCOME NOT TO BE TAXED IN THE HANDS OF THE ASSES SEE. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE INCLINED TO FIND THAT THE ASSESSING OFFICER IN HIS ENTHUSIASM HAS TRIED TO DILUTE HIS OWN FINDING BY AD OPTING PERCENTAGE METHOD FOR SEGREGATING BUSINESS ACTIVITY FOR GENERATING AGRICULTURAL INCOME . THE BOOKS OF ACCOUNT OF ASSESSEE ARE AUDITED AND THE FINANCIAL STATEMENTS ARE CERTIFIED AS PER THE AUDIT REPORT IN FORM 3CB. MAINTENANCE OF RECORDS IS NOT DISP UTED AND THE EXPENDITURE INCURRED FOR THE AGRICULTURAL OPERATION CARRIED OUT ARE ALSO NOT DOUBTED. DETERMINATION OF GROSS MARGIN AND NET MA RGIN THEREFORE DO NOT APPEAR TO BE A REQUIREMENT OF AGRICULTURAL OPERATION WHEN THE ASSESSEE IS R EAPING THE NATURE S BOUNTY. THEREFORE, THE ASSESSING OFFICER HIMSELF MISDIRECTED THAT PURCHASES OUGHT TO HAVE BEEN ACCOUNTED FOR WHICH WAS NEVER THE CASE OF THE ASSESSEE. THE ASSESSEE PRODUCED SEEDS TO SOW WHICH IS THE UNDISPUTED FACT ACCEPTABLE TO THE ASSESSING OFFICER. HE HAS CARRIED OUT FERTILIZATION, RESEARCH FOR HYBRID SEEDS, INSECTICIDES , TILLING OF LAND AND ALSO OBTAINED CROP LOANS FROM BANKS WHICH INTEREST WAS SOUGHT TO BE DISALLOWED BY THE ASSESSING OFFICER. THEREFORE ON OUR PERUSAL OF THE ASSESSMENT ORDER IT I.T.A.NO. 274/CTK/2012 13 TRANSPI RES THAT THE ASSESSING OFFICER HAS TRIED TO INVOKE HIS OWN METHOD OF CARRYING OUT THE AGRICULTURAL OPERATION TO COMPUTE THE INCOME FROM BUSINESS SEPARATELY BUT ON THE BASIS OF THE SAME FACTS THAT THE ACTIVITIES ARE CARRIED OUT FOR THE PURPOSE OF GERMINATIN G SEEDS WHICH ARE CERTIFIED SEEDS NOT FIT FOR HUMAN CONSUMPTION. THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US CONTENDED THAT THE GOVERNMENT PATRONIZES THE ASSESSEE ENCOURAGING DEVELOPMENT OF GENETICALLY MODIFIED SEEDS AND ALSO PRODUCTION OF HIGH YIELD V ARIETY SEEDS ON THE BASIS OF VARIOUS COMPOSITIONS OF DIFFERENT VARIETIES WHICH THE ASSESSING OFFICER HIMSELF HAS OBSERVED. BEING A HIGHLY TECHNICAL FIELD IT WAS NOBODYS CASE THAT THE EXPENDITURE COULD BE INCURRED FOR EARNING AS BUSINESS INCOME IN TRADING OF SEEDS. THE ASSESSEE HIMSELF W OULD NOT KNOW THE YIELD BUT WAS TO SELL THE SAME AS CERTIFIED SEEDS TO THE SISTER CONCERN WHETHER COULD BE CONSIDERED AS BUSINESS INCOME IN THE HANDS OF A SISTER CONCERN WAS NOBODYS CASE AS THE SALES WERE ON FAIR MARKET VAL UE . IT WAS NOT THE CASE OF THE SISTER CONCERN WHICH IS A LIMITED CONCERN TO CLAIM PURCHASE OF SEEDS TO BE SOLD FOR HUMAN CONSUMPTION TO BE TREATED AS AGRICULTURAL INCOME. THEREFORE, ON PERUSAL OF THE ORDER OF THE LEARNED CIT(A) AS WELL AND ALSO APPRECIATIN G THE FACTS BR OUGHT ON RECORD IN THE LIGHT OF SUBMISSIONS MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE ARE OF THE CONSIDERED VIEW THAT THE DENIAL MADE BY BOTH THE AUTHORITIES IN NOT ACCEPTING THE ACTUAL VERSION OF THE ASSESSEE INSPITE OF FINDING FROM SPOT VERIFICATION WHICH THE INSPECTOR OF INCOME - TAX DEPARTMENT IN EARLIER YEAR S HAD NOTED THAT AGRICULTURAL OPERATION ARE BEING CARRIED OUT BY THE ASSESSEE COULD NOT BE CHANGED TO EARNING OF INCOME FROM TRADING OF SEEDS , WHEN THE ASSESSEE IS ABLE TO MAINT AIN THREE CROPS IN A YEAR DEALING IN VEGETABLE SEEDS ALONE . THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THE COPIES OF THE ORDERS OF I.T.A.NO. 274/CTK/2012 14 THE AUTHORITIES BELOW FOR THE ASSESSMENT YEAR 2003 - 04 AND 2007 - 08 PASSED U/S.14 3 (3 ) WHEN EXEMPTION U/S.10(1 ) HAS BEE N GRANTED TO THE ASSESSEE. NO CONTROVERTING MATERIAL INSOFAR AS FROM SIMILAR OPERATIONS WHETHER COULD BE BIFURCATED IN THE IMPUGNED ASSESSMENT YEAR FOR TWO DIFFERENT ACTIVITIES , HAS BEEN BROUGHT ON RECORD BY THE REVENUE EXCEPT FOR THE SUBMISSION OF THE ASS ESSEE BEFORE THE ASSESSING OFFICER AS WELL AS THE LEARNED CIT(A) HAS BEEN OUT RIGHTLY REJECTED WITHOUT REASONING OUT AS TO HOW INCOME GENERATED FROM NATURES BOUNTY , DULY CERTIFIED BY GOVERNMENT AGENCY AS AGRICULTURAL PRODUCE , COULD BE DIFFERENTIA TED FOR T HE PURPOSE OF TAXATION. NO SPECIFIC DEFECTS HAVE BEEN FOUND OUT IN THE BOOKS OF ACCOUNT THEREFORE COULD NOT BE A MATERIAL FOR DETERMINING CORRECT INCOME INVOLVING THE PROVISIONS OF SECTION 14 5 (3) BY CHANGING THE NATURE OF THE VERY INCOME CLAIMED EXEMPTED U/S.10(1). THE EXPENDITURE INCURRED FOR CARRYING OUT AGRICULTURAL ACTIVITY WOULD YIELD AGRICULTURAL PRODUCE AND PERCENTAGE OF MARGIN EARNED ON SALE OF AGRICULTURAL PRODUCE CANNOT BE THE BASIS FOR BIFURCATING MARGIN FROM BUSINESS ACTIVITY AND MARGIN FROM A GRICULTURAL ACTIVITY WHEN WHOLE OF THE EXPENDITURE IS ALLOWABLE BY THE ASSESSING OFFICER AS FOR CARRYING OUT AGRICULTURAL OPERATIONS. IN VIEW OF THE ABOVE, WE SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(A) AND DIRECT THE ASSESSING OFFICER TO ACCEPT THE RETURN AS FILED BY THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. S D/ - S D/ - ( . . . ) , (K.S.S.PRAS AD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 14.08.2012 ( ), (H.K.PADHEE), SENIOR.PRIVATE SECRETARY. I.T.A.NO. 274/CTK/2012 15 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : 2 / THE RESPONDENT: 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / T RUE COPY, / BY ORDER, APPENDIX XVII SEAL TO BE AFFIXED ON THE ORDER SHEET BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN 1. DATE OF DICTATION 07.08.2012 . 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 08.08.2012 OTHER MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4. DAT E ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S 14.08.2012 . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 14.08.2012 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ................ 9. DATE OF DESPATCH OF THE ORDER ..