M/s. Charoen Pokphand Seeds (India) Private Limited, Bengaluru V. The Deputy Commissioner of Income Tax, Circle-2(1)(1), Bangalore

ITA 311/BANG/2021

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 3334 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2016-2017
• Appeal Filed On: 01-07-2021
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: BIJOY KUMAR PANDA
• Keywords: Earning of tax free income; Assessment record; Set aside
• Section: 263; 143(3); 143(1); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH : BANGALORE BEFORE SHRI. B.R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA No. 311/Bang/2021 Assessment Year : 2016-17 M/s. Charoen Pokphand Seeds India Pvt. Ltd., No. 1021/1, Service Road, Gitanjali Layout, HAL III Stage, Bangalore – 560 075. PAN: AACCC3259N Vs. The Principal Commissioner of Income Tax, Bengaluru – 2, Bengaluru. APPELLANT RESPONDENT Assessee by : Shri C. Ramesh, CA Revenue by : Shri Bijoy Kumar Panda, CIT (DR) Date of Hearing : 21-04-2022 Date of Pronouncement : 29-04-2022 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal arises out of the order u/s. 263 dated 30.03.2021 passed by the Ld.Pr.CIT, Bengaluru – 2, Bengaluru for assessment year 2016-17 on following revised grounds of appeal: “The Appellant objects to the Revision Order passed u/s. 263 on the following grounds in so far as it is prejudicial to the as it is opposed to law and circumstances of the case: - Originally the Appellant has taken only one ground relating to deduction u/s.35(2AB). The following grounds were not taken by oversight. Hence the Appellant is filing Revised Grounds of Appeal as mentioned below. Page 2 of 10 ITA No. 311/Bang/2021 1. The Pr. CIT erred in invoking the provisions of section 263 of the Act ignoring the fact that the Appellant company's activities falls under Agricultural activities and the said agricultural income is exempt from tax u/s.10(1A) of the Act and the same was examined by the A.O. during the course of assessment. 2. The Pr. CIT was not correct in not appreciating the facts that the A.O. has verified the Agricultural income claimed as exempt and allowed the same as exemption from ta, based on the Appellant company's activities, during u/s.143(3) proceedings by calling detailed information in this regard. 3. The Pr. CIT was not correct in directing AO to revise the assessment by invoking the provisions of section 263 relying on the decision of Hon'ble High court in the case of Namdhari Seeds Pvt Ltd without appreciating the facts that the Appellants company activities falls under Agricultural activities and the same is exempt u/s.10(1A) of the Act. 4. The Appellant craves leave to add, to alter, to amend or to delete any of the grounds that may be urged at the time of hearing of the Appeal Wherefore on the above grounds and on such other grounds the prays the Appellate Authority to set aside the Revision order passed u/s. 263 as above and may pass such other as the Appellate Authority deems fit.” 2. Brief facts of the case are as under: 2.1 The assessee is a company and is into the business of R&D of germ plasm, production of foundation seeds from germ plasm, processing and marketing of commercial seeds in India and abroad. For the year under consideration, the assessee filed its return of income on 17/10/2016 declaring loss of ₹5,21,28,936/-. The case was selected for a complete scrutiny under CASS. 2.2 The assessment was completed under section 143 (3) of the Act on 28/12/2018. In the assessment order the Ld.AO disallowed claim of Page 3 of 10 ITA No. 311/Bang/2021 ₹6,73,43,469/- claimed as weighted deduction under section 35(2AB) of the act by assessee thereby determining the total taxable income of ₹1,52,14,731/- in the hands of assessee. 2.3 The Ld.Pr.CIT, called for the assessment records and examined the exemption claimed on agricultural income under section 10 (1) of the Act claimed by assessee amounting to ₹4,65,63,312/- that was allowed by the Ld.AO in the order passed under section 143 (3) of the Act. 2.4 The Ld.Pr.CIT was of the opinion that, the assessing officer did not make sufficient enquiries to understand the real activities carried on by the assessee and whether such activities were eligible for claim under section 10(1) of the Act. The Ld.Pr.CIT, accordingly issued notice under section 263 of the Act, on 18/03/2021, reproduced as under: “...On examination of records, it was noticed that the assessee had claimed exemption on agricultural income u/s.10(1) of IT Act amounting to Rs.4,65,63,312/- and the sum has been allowed in the order passed u/s.143(3) of the act. The company is into the R&D of germ plasm, production of foundation seeds from germ plasm, processing and marketing of commercial seeds in India and abroad. As seen from the records, the Assessee enters into agreement with farmers for production of seeds. Actual agricultural operations are conducted by farmers. The assessee had not carried out any basic and subsequent operations of agriculture. Hence income derived there from cannot said to be "agricultural income" to be eligible for claim of exemption u/s.10 of the Income Tax Act. The AO did not make sufficient enquiries to understand the real activities carried on by the assessee and whether such activities are eligible for claim made u/s.10A. Further the AO did not apply the binding ration of the decision of Hon'ble Karnataka High Court in C1T V Namdari seeds Pvt Ltd rendered on similar set of facts. In this backdrop, the order of the AO dated 28.12.2018 passed u/s.143(3) was found to be erroneous and prejudicial to the interest of the revenue.” 2.5 In response to the show cause notice, assessee filed its objections vide letter dated 06/02/2019, and subsequently, by Page 4 of 10 ITA No. 311/Bang/2021 another letter dated 23/03/2021 justifying the claim of agricultural income to be exempt as contemplated under section 10 (1) of the Act. 2.6 The Ld.Pr.CIT, after considering the submissions of assessee passed the 263 order by setting aside the assessment order passed by the Ld.AO, with a direction, to carry out fresh examination of the claim of agricultural income claimed to be exempt by the assessee under section 10 (1) of the Act. 2.7 Aggrieved by the order of the Ld.Pr.CIT, the assessee is in appeal before this Tribunal. 3. All the grounds raised by assessee is in respect of the validity of the proceedings initiated under section 263 of the Act by Ld.Pr.CIT. 4. The Ld.AR submitted that, the activity carried on by the assessee falls under agricultural operation and is eligible for claim under section 10 (1) of the Act. He submitted that, before the Ld.AO, during the course of assessment proceedings, under section 143(3) of the Act, the assessee filed various details/documents in respect of the claim. Referring to the show cause notice issued by the Ld.AO during the original assessment proceedings dated 10/11/2018, the Ld.AR submitted that, the assessing officer had raised a specific query in respect of the exempt income and the letter filed by assessee dated 14/12/2018 furnishing all the relevant details in respect of the claim. He submitted that, all material facts necessary for completing the assessment was available before the Ld.AO and therefore no prejudice is caused to the revenue. Page 5 of 10 ITA No. 311/Bang/2021 5. It is the argument of the Ld.AR that, merely because issue was not elaborately discussed in the original assessment order, could not be a ground to invoke revisionary jurisdiction, particularly when, the details were called for by the Ld.AO during the original assessment proceedings. In support of his contention, he placed reliance on the following decisions:  Reliance Payment Solutions Ltd Vs Principal Commissioner of Income- tax-8, [2022] 136 taxmann.com 277 (Mumbai - Trib.)  K R Mahesha Vs Pr. CIT , Bengaluru — 3, ITA No.365/Bang/2021 — AY 2016-17, order dated 05.01.2022  Pr. CIT Vs Brahma Centre Development Pvt. Ltd (Delhi —HC) ITA No.116/2011 & 118/2011 dt 05.07.2011  CIT Vs P Sudhar [2015] 61 taxmann.com 17 (Karnataka), 6. The Ld.AR contended that, the entire proceedings initiated under section 263 of the Act, is based on the decision of Hon’ble Karnataka High Court in case of Namdhari Seeds Pvt.Ltd., wherein, the Hon’ble Court on similar set of facts, denied the claim under section 10(1) of the Act. 7. The Ld.AR submitted that, the assessee entered into agreement with farmers for production of hybrid seeds and that, the farmers upon the instructions and specifications and guidance by the assessee, carried on with the cultivation of agricultural produce. He submitted that, the assessee not only produces in the leased lands, but it is also producing in its own land, and hence the observation of the Ld.Pr.CIT that, the assessee is not directly involved in cultivating the land is incorrect. 8. The Ld.AR contended that, production of basic seeds as well as hybrid seeds were part of basic agricultural operations carried out by the assessee on its own land as well as on leasehold land and that contract farming did not take away the character of Page 6 of 10 ITA No. 311/Bang/2021 basic operations carried out by the assessee, which were agricultural in nature. 8.1 It is the submitted that, claim of the assessee cannot be denied and that the Ld.AO, while passing the assessment order in the original proceedings verified all these details. He thus vehemently opposed the revisionary proceedings initiated by the Ld.Pr.CIT. 9. On the contrary, the Ld.CIT.DR submitted that, the revisionary proceedings initiated, is based on the fact that there has not been detailed enquiry by the Ld.AO in respect of a liability of agricultural income as exempt from tax. He submitted that lack of enquiry by the Ld.AO in respect of the issue raised in the revisionary proceeding amounts to the assessment order to be erroneous in so far as prejudicial to the interest of the revenue. In support of this argument he placed reliance on following decisions:  decision of Hon’ble Karnataka High Court in case of CIT vs. Infosys Technologies Ltd., reported in (2012) 17 taxman.com 203;  decision of Hon’ble Karnataka High Court in case of CIT versus Namdhari Seeds Pvt.Ltd., reported in (2011) 16 taxman.com 83  decision of Hon’ble Bombay High Court in case of a than the Ltd versus CIT reported (2021) 124 taxman.com 435. We have perused submissions advanced for both sides in light of records placed before us. 10. In the present facts, it is not in dispute that, the assessee claimed exemption under section 10(1) of the Act, of agricultural income amounting to Rs.4,65,63,312/-. It is the submission of the Ld.AR that, a specific query was raised by the Ld.AO during original assessment proceedings regarding the exemption claimed amounting to Rs.4,65,63,312/-. Page 11 of the paperbook filed before this Tribunal is the notice issued under section 143(1) of the Act, wherein specific Page 7 of 10 ITA No. 311/Bang/2021 query relating to agricultural income of Rs.4,65,63,312/- claimed by assessee as exemption was asked/called upon by the Ld.AO for justification. The assessee in response filed following details: Page 8 of 10 ITA No. 311/Bang/2021 11. We note that the in paper book filed before us, the assessee has filed copies of above details. The agreement entered into by the assessee with the farmer, is the agreement for raising seed plantations. It is submitted that, all these agreements were filed before the Ld.AO in reply to the query raised, during the original assessment proceedings, in respect of the claim made by the assessee. A sample agreement with a farmer is placed at page 13 -16 of the paper book. We have perused the agreement with the farmer relied by the Ld.AR. This agreement reveals that, the farmer was absolute owner or the leased land and, the assessee agreed to supply fertilisers and pesticides as per the schedule therein at specified time. It is also agreed by the assessee that, a particular variety of seed would be supplied to the farmer on credit basis. Similar is the position in all the agreement placed in the paper book at page 17-20. 12. Before us, the assessee has not filed any agreement, showing the lands being leased in favour of the assessee. It is submitted that these were the documents filed by the assessee in reply to the query raised by the Ld.AO at the time of original assessment proceedings. Even there are no agreements placed before us that reveals ownership in land by the assessee, on which farming was carried out. 13. From the materials placed before the Ld.AO it is prima facie inferred that the no details are filed by the assessee and the Ld.AO has not verified the exemption claimed by the assessee under section 10(1) of the Act. Thus, in our view, the original assessment is completed without proper enquiries, that Page 9 of 10 ITA No. 311/Bang/2021 necessitated the Ld.Pr.CIT to issue section 263 of the Act. We draw support from the decision of Hon’ble Karnataka High Court in case of CIT vs. Infosys Technologies Ltd., reported in (2012) 17 taxmann.com 203. Therefore in our view, the decisions relied by the Ld.AR are distinguishable on facts with that of assessee. We therefore do not fine any infirmity in the action of the Ld.Pr.CIT in invoking the provisions of section 263 of the Act. 14. The Ld.Pr.CIT has directed the Ld.AO to carry out necessary verification in respect of the exemption by the assessee under section 10(1) of the Act. This in no manner will prejudice the assessee. We direct the Ld.AO to grant proper opportunity of being heard to the assessee and the assessee is directed to file all requisite details in support of the claim. Accordingly the grounds raised by the assessee stands dismissed. In the result the appeal filed by the assessee stands dismissed. Order pronounced in open court on 29 th April, 2022. Sd/- Sd/- (B.R. BASKARAN) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 29 th April, 2022. /MS / Page 10 of 10 ITA No. 311/Bang/2021 Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order Assistant Registrar, ITAT, Bangalore