Sobha Jose L/hr of Late Sri. Jose Pyloth Kangappadan, Kottayam V. The ITO, Kottayam

ITA 374/COCH/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86392 (ITAT-COCHIN)
• Duration Of Justice: 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 17-11-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 06-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K JHN
• Assessee Lawyers: A GOPALAKRISHNAN

Judgement Text

1 ITA NO.374/COCH/2014 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI CHANDRA PO OJARI (AM) I.T.A NO.374/COCH/2014 (ASSESSMENT YEAR 2007-08) SOBHA JOSE LEGAL HEIR OF (LATE) VS THE ITO, WD.2 JOSE PYLOTH KANGAPPADAN KOTTAYAM KANGAPPADAN ORCHARDS, M.C. ROAD KODIMATHA, KOTTAYAM 686 039 PAN : AGVPK7183M (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A GOPALAKRISHNAN RESPONDENT BY : SHRI K.K. JHN DATE OF HEARING : 17-11-2014 DATE OF PRONOUNCEMENT : 09-01-2015 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF CIT(A)- V, KOCHI DATED 27-05-2014 AND PERTAINS TO ASSESSMEN T YEAR 2007-08. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS WHETH ER INCOME OF THE ASSESSEE IS EXEMPT U/S 10(1) OF THE ACT AS AGRICULT URAL INCOME. 2 ITA NO.374/COCH/2014 3. SHRI A GOPALAKRISHNAN, THE LD.REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS IN POSSESSION OF 8 ACRES OF LAND IN NATTAKOM PANCHAYAT. ACCORDING TO THE LD.RPERESENTA TIVE, THE ASSESSEE IS CULTIVATING VARIOUS TYPES OF NURSERY PLANTS, SAPLIN GS, SEEDLINGS, FLOWER PLANTS, VEGETABLE PLANTS, FRUIT PLANTS AND ITS SIBL INGS WERE GROWN AND CULTIVATED. THE ASSESSEE IS RUNNING ACTIVITY OF NU RSERY IN THE NAME AND STYLE KANGAPADEN ORCHARDS. THE LD.COUNSEL FURTHE R SUBMITTED THAT THE ASSESSEE HAS ALSO AVAILED AGRICULTURAL TERM LOAN OF RS.35 LAKHS AND A CROP OF RS.5 LAKHS FROM DENA BANK, KOTTAYAM BRANCH FOR U NDERTAKING THE AGRICULTURAL OPERATIONS. ACCORDING TO THE LD.REPRE SENTATIVE, THE ASSESSEE HAS UNDERTAKEN LAYERING, GOOTYING INARCHING, CUTTIN G AND DEVELOPING HYBRID SEEDS, ETC. ACCORDING TO THE LD.REPRESENTATIVE, FO R THE PURPOSE OF PRODUCING PLANTS, THE ASSESSEE SELECTS A MOTHER PLA NT AND THE BRANCH OF THE SAME IS BENT ON AND A SEED IS MADE. THE ASSESS EE CARRIES ON WEEDING, MANURING, WATERING REGULARLY FOR DEVELOPME NT OF ROOTS. SEEDS AND THE PLANTS GERMINATE AND GROW AND IT TAKES ON A N AVERAGE SIX MONTHS TO 15 MONTHS FOR TRANSFERRING THE SEEDLINGS FROM TH E EARTHEN BEDS TO THE POTS AND PLASTIC BAGS FOR THE FINAL SALE. GRAFTING OF ALL VARIETIES SUCH AS BUD GRAFTING SADDLE GRAFTING, AND SIDE GRAFTING AND CLE FT GRAFTING ARE UNDERTAKEN AS PER THE REQUIREMENTS OF THE RESPECTIVE PLANTS AN D SEEDLINGS. ACCORDING TO THE LD.REPRESENTATIVE, THE ASSESSEE HAS DEVELOPE D MORE THAN 20 TO 30 VARIETIES OF COCONUT SEEDLINGS, BANANA SEEDS, ETC. ACCORDING TO THE 3 ITA NO.374/COCH/2014 LD.REPRESENTATIVE, THE ASSESSEE HAS UNDERTAKEN BASI C AGRICULTURAL OPERATIONS SUCH AS GRAFTING, MANURING, PLOUGHING, T RANSPLANTATION, IRRIGATION AND SUCH OTHER ACTIVITIES NECESSARY FOR THE OPERATI ON OF A NURSERY. ALL THE PLANTS MEANT FOR SALE ARE DEVELOPED BY SYSTEMATICAL LY CARRYING OUT THE PRIMARY AND BASIC OPERATIONS AND ACTIVITIES. THE A SSESSEE PRODUCED NECESSARY EVIDENCE BEFORE THE ASSESSING OFFICER IN SUPPORT OF PURCHASE OF POT, TOP SOIL, EARTH WORMS, MOTHER PLANTS, ETC. TH E VOUCHERS AGAINST THE EXPENSES INCURRED FOR CULTIVATION, ADMINISTRATION A ND ESTABLISHMENT CHARGES WERE ALSO PRODUCED. HOWEVER, FOR PURCHASE OF COCONUT SEEDS, THE ASSESSEE COULD NOT PRODUCE ANY VOUCHER SINCE RA W COCONUTS REQUIRED FOR GROWING COCONUT SEEDLINGS ARE PURCHASED FROM IL LITERATE FARMERS, THEREFORE, THE ASSESSEE COULD NOT GET VOUCHERS FROM THEM. ACCORDING TO THE LD.REPRESENTATIVE, IT IS NOT POSSIBLE TO OBTAIN BILLS AND INVOICES FROM THE REGISTERED DEALERS FOR PURCHASE OF RAW COCONUT. AC CORDING TO THE LD.REPRESENTATIVE, THE AGRICULTURAL SECTOR IN KERAL A IS UNORGANIZED AND IRREGULATED. THEREFORE, IT IS NOT FAIR AND REASONA BLE TO EXPECT FROM A PERSON, WHO RUNS NURSERY IN A SMALL VILLAGE PANCHAY AT TO MAINTAIN BILLS AND OTHER VOUCHERS IN SUPPORT OF THE EXPENSES INCURRED FOR RUNNING THE NURSERY. ACCORDING TO THE LD.REPRESENTATIVE, THE ASSESSEE HA D MAINTAINED INITIAL VOUCHERS FOR ALL NECESSARY PARTICULARS OF EXPENDITU RE INCURRED FOR EACH AND EVERY ITEM AND THE NAMES OF THE PERSON TO WHOM THE PAYMENTS WERE MADE. THEREFORE, ACCORDING TO THE LD.REPRESENTATIV E, THE ASSESSEE HAS 4 ITA NO.374/COCH/2014 ESTABLISHED THAT SHE HAS UNDERTAKEN BASIC AGRICULTU RAL OPERATIONS IN THE NURSERY. 4. THE LD.REPRESENTATIVE FURTHER SUBMITTED THAT THE ASSESSING OFFICER CLAIMS THAT THE INSPECTOR OF INCOME-TAX INSPECTED T HE NURSERY AND CONDUCTED LOCAL ENQUIRIES. ACCORDING TO THE LD.REP RESENTATIVE, THE LOCAL ENQUIRY SAID TO BE CONDUCTED BY THE INSPECTOR ATTAC HED TO THE ASSESSING OFFICER WAS DONE BEHIND THE BACK OF THE ASSESSEE. ACCORDING TO THE LD.RPERESENTATIVE, THE ASSESSEE WAS NOT GIVEN ANY O PPORTUNITY ABOUT THE INSPECTION BY THE INSPECTOR OF INCOME-TAX. HAD AN OPPORTUNITY BEEN GIVEN, THE ASSESSEE COULD HAVE EXPLAINED THE NATURE OF THE ACTIVITY UNDER BY HER PROPERLY. THEREFORE, ACCORDING TO THE LD.REPRESEN TATIVE, THE CONCLUSION REACHED BY THE INSPECTOR OF INCOME-TAX ON THE BASIS OF THE SO-CALLED LOCAL ENQUIRY CANNOT STAND IN THE EYE OF LAW. THE LD.REP RESENTATIVE FURTHER SUBMITTED THAT THE SO-CALLED LOCAL ENQUIRY REPORT O F THE INSPECTOR WAS FURNISHED TO THE ASSESSEE SUBSEQUENT TO PASSING OF THE ASSESSMENT ORDER. THE ASSESSEE HAD NO OCCASION TO EXPLAIN THE SAME BE FORE THE ASSESSING OFFICER. ACCORDING TO THE LD.REPRESENTATIVE, SEEDL INGS AND THE FLOWER PLANTS WERE DISPLAYED AT THE ENTRANCE OF THE NURSERY FACIN G THE MAIN GATE. THE ASSESSEE WAS ALSO HAVING A BUILDING FOR THE PURPOSE OF LABORATORY. THE ASSESSEE IS TESTING THE NURSERY PLANT IN THE LABORA TORY SET UP IN THE BUILDING. THE EARTHEN POTS OR POLYTHENE BAGS FILLE D IN WITH MANURE OR 5 ITA NO.374/COCH/2014 FERTILIZED MUDDY SOIL AND PLANTS OR PLANT LINGS EMB EDDED THEREIN ARE SEEN DISPLAYED OVER THE LAND. ACCORDING TO THE LD.REPRE SENTATIVE, THE INSPECTOR OF INCOME-TAX APPEARS TO HAVE MADE A REPORT TO THE ASSESSING OFFICER THAT THE PLANTS ARE GROWN SOMEWHERE AND ARE BEING BROUGH T FOR TRADING IN THE ASSESSEES PREMISES. ACCORDING TO THE LD.REPRESENTA TIVE, IT IS NOT THE CASE OF THE INSPECTOR THAT THE ASSESSEE HAS NOT GROWN AN Y PLANTS. ACCORDING TO THE LD.REPRESENTATIVE, THE OBSERVATION OF THE ASSES SING OFFICER AS WELL AS THE INSPECTOR OF INCOME-TAX IS WITHOUT ANY BASIS AN D EVIDENCE. ACCORDING TO THE LD.REPRESENTATIVE, THE COMMISSIONER OF INCOM E-TAX SIMPLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER. PLACING RELIAN CE ON THE JUDGMENT OF MADRAS HIGH COURT IN CIT VS SOUNDARYA NURSERY (2000 ) 241 ITR 530 (MAD), THE LD.REPRESENTATIVE SUBMITTED THAT WHEN TH E ASSESSEE GREW NECESSARY PLANTS BY UNDERTAKING BASIC AGRICULTURAL OPERATIONS, ACCORDING TO THE LD.REPRESENTATIVE, THE INCOME GENERATED ON SALE OF SUCH PLANT CANNOT BE TREATED AS INCOME FROM TRADING. ACCORDING TO TH E LD.REPRESENTATIVE, SUCH INCOME HAS TO BE NECESSARILY TREATED AS AGRICU LTURAL INCOME IN VIEW OF THE JUDGMENT OF THE MADRAS HIGH COURT IN SOUNDARYA NURSERY (SUPRA). THE LD.REPRESENTATIVE FURTHER RELIED ON THE DECISION OF THE HYDERABAD BENCH OF THIS TRIBUNAL IN VICHA AGROTECH LTD (2008 DTR (HYD) (TRIB) 281, COPY OF WHICH IS AVAILABLE AT PAGE 9 OF THE PAPER BOOK. TH E LD.REPRESENTATIVE HAS ALSO PLACED RELIANCE ON THE JUDGMENT OF THE UTTARAK HAND HIGH COURT 6 ITA NO.374/COCH/2014 REPORTED IN CIT VS GREEN GOLD TREE FARMERS (P) LTD (208) 299 ITR 262 (UTTARAKHAND). 5. ON THE CONTRARY, SHRI K.K. JOHN, THE LD.DR SUBMI TTED THAT THE ASSESSEE CLAIMS THAT THE ASSESSEE IS CULTIVATING PL ANTS IN THE LAND OWNED BY HER. HOWEVER, THE INSPECTOR OF INCOME-TAX DEPUT ED BY THE ASSESSING OFFICER FOUND THAT THE ASSESSEE WAS IN POSSESSION O F 4.25 ACRES OF LAND. THE ASSESSEE IS HAVING A NURSERY IN OR AROUND 40 CE NTS OF LAND ON THE SIDES OF M.C. ROAD. THE REST OF THE LAND SPREADS B ACK SIDE OF THE MAIN ROAD OVER 2.5 ACRES REMAINED UNCULTIVATED DURING TH E VISIT OF THE INSPECTOR. ACCORDING TO THE LD.DR, THE ASSESSEES ELDER SON OW NS 1.25 ACRES OF LAND. IN THE VERY SAME LOCALITY 3,000 SQ.FT OF RESIDENTIA L HOUSE WAS CONSTRUCTED. NEAR TO THE HOUSE, PILING HAS BEEN DONE FOR CONSTRU CTION OF A BUILDING. ACCORDING TO THE LD.DR, THE NURSERY WAS SPREAD OVER ONLY 40 CENTS OF LAND AND THE OFFICE OF THE NURSERY WAS LOCATED IN A TWO STOREYED BUILDING. THE INSPECTOR FURTHER FOUND THAT SEVERAL PLANTS, PLANTL INGS AND ORCHIDS WERE DISPLAYED. THE ABOVE PLANTS WERE NOT GROWN BY THE ASSESSEE. THE PLANTS WHICH WERE GROWN SOMEWHERE ELSE IN EARTHEN POTS OR POLYTHENE BAGS WERE BROUGHT TO THE NURSERY FOR TRADING. THE ASSESSING OFFICER ALSO FOUND THAT NO BASIC AGRICULTURAL OPERATIONS, LIKE TILLING, PLOUGH ING, SOWING OR IRRIGATING WERE SEEN BEING DONE THERE. ACCORDING TO THE LD.DR, THE ASSESSEE HAS EMPLOYED ONLY TWO LABOURERS. ONE IS AN OFFICE STAF F AND THE OTHER IS A 7 ITA NO.374/COCH/2014 WATERING WOMAN FOR WATERING THE PLANTS. THEREFORE, ACCORDING TO THE LD.DR, THE ASSESSEE IS ENGAGED HERSELF IN TRADING O F PLANTS AND ORCHARDS WHICH WERE GROWN SOMEWHERE ELSE. THE ASSESSEE IS N OT DOING ANY BASIC AGRICULTURAL OPERATIONS. THEREFORE, ACCORDING TO T HE LD.DR, THE CIT(A) HAS RIGHTLY CONFIRMED THE ADDITION MADE BY THE ASSESSIN G OFFICER. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSE SSEE IS CLAIMING BEFORE THIS TRIBUNAL THAT SHE UNDERTOOK BASIC AGRICULTURAL OPERATION IN 8 ACRES OF LAND OWNED BY HER. THE ASSESSEE HAS ALSO AVAILED A GRICULTURAL TERM LOAN OF RS.35 LAKHS AND A CROP OF RS.5 LAKHS FROM DENA B ANK, KOTTAYAM BRANCH FOR UNDERTAKING THE AGRICULTURAL OPERATIONS. HOWEV ER, THE COPY OF THE INSPECTORS REPORT SAID TO BE FILED BEFORE THE ASSE SSING OFFICER SAYS THAT THE ASSESSEE WAS IN POSSESSION OF 4.25 ACRES OF LAND OU T OF WHICH 40 CENTS OF AND WAS USED FOR NURSERY. THE ASSESSEE CLAIMS THAT SHE FILED BILLS / VOUCHERS IN SUPPORT OF PURCHASE OF POTS, TOP SOIL, EARTH WORMS, MOTHER PLANTS, ETC. THE ASSESSEE ALSO CLAIMS THAT SHE IS CULTIVATING COCONUT SAPLINGS BY PURCHASING RAW COCONUT FROM AGRICULTURI STS. THE INSPECTOR OF INCOME-TAX ON INSPECTION FOUND THAT 2.5 ACRES OF LA ND ON THE BACKSIDE OF THE ROAD REMAINED UNCULTIVATED WITH WILD BUSHES GRO WN ALL OVER. THE FACT REMAINS IS THAT DURING THE COURSE OF INSPECTION BY THE INSPECTOR OF INCOME- TAX, NO OPPORTUNITY WAS GIVEN TO THE ASSESSEE. THE COPY OF THE REPORT OF 8 ITA NO.374/COCH/2014 THE INSPECTOR OF INCOME-TAX WAS ALSO NOT FURNISHED TO THE ASSESSEE DURING THE COURSE OF PROCEEDINGS BEFORE THE ASSESSING OFFI CER. IT IS NOT THE CASE OF THE REVENUE THAT THE COPY OF THE REPORT WAS FURN ISHED TO THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THERE FORE, THE ASSESSEE HAD NO OCCASION TO EXPLAIN THE NATURE OF THE ACTIVI TY UNDERTAKEN BY THE ASSESSEE WITH REGARD TO THE BASIS AGRICULTURAL OPER ATIONS EITHER BEFORE THE INSPECTOR OF INCOME-TAX OR BEFORE THE ASSESSING OFF ICER. SINCE THE ACTIVITY OF THE ASSESSEE IS PURELY AGRICULTURE IN NATURE WHI CH NEEDS TO BE ESTABLISHED, THIS TRIBUNAL IS OF THE CONSIDERED OPI NION THAT THE INSPECTOR OF INCOME-TAX SHOULD HAVE GIVEN AN OPPORTUNITY TO THE ASSESSEE DURING THE COURSE OF INSPECTION. THE ASSESSING OFFICER ALSO S HOULD FURNISH THE COPIES OF THE REPORT OF THE INSPECTOR OF INCOME-TAX DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND CALL FOR THE OBJECTION O F THE ASSESSEE. IN THIS CASE, NO OPPORTUNITY WAS GIVEN TO THE ASSESSEE DURI NG THE COURSE OF INSPECTION BY THE INSPECTOR OF INCOME-TAX AND THE A SSESSEE WAS NOT GIVEN ANY OPPORTUNITY TO EXPLAIN THE NATURE OF ACTIVITIES UNDERTAKEN BY THE ASSESSEE BEFORE THE ASSESSING OFFICER EITHER. THER EFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT AN OPPORTUNITY SHALL BE GIVEN TO THE ASSESSEE BEFORE PLACING ANY RELIANCE ON THE ENQUIRY REPORT O F THE INSPECTOR OF INCOME-TAX RELIED UPON BY THE ASSESSING OFFICER. T HIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE STATEMENT, IF ANY, RECO RDED BY THE INSPECTOR OF INCOME-TAX IN THE COURSE OF LOCAL ENQUIRY SHOULD AL SO BE FURNISHED TO THE 9 ITA NO.374/COCH/2014 ASSESSEE. THE PROCEEDING BEFORE THE ASSESSING OFFIC ER IS A JUDICIAL PROCEEDING U/S 136 OF THE INCOME-TAX ACT. THE EVID ENCE SAID TO BE COLLECTED BY THE ASSESSING OFFICER HAS TO BE FURNIS HED TO THE ASSESSEE SO THAT THE ASSESSEE WILL HAVE AN OCCASION TO EXPLAIN THE SAME HOW IT IS RELEVANT OR NOT RELEVANT IN HER CASE. 7. IN VIEW OF THE ABOVE, THIS TRIBUNAL BEING A FINA L FACT FINDING AUTHORITY, IS OF THE OPINION THAT THE ASSESSEE SHOULD BE GIVEN AN OPPORTUNITY TO EXPLAIN THE FACTS BEFORE THE ASSESSING OFFICER. AC CORDINGLY, THE ORDER OF THE ASSESSING OFFICER IS SET SIDE AND THE ENTIRE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SH ALL EXAMINE THE ISSUE AFRESH AFTER GIVING OPPORTUNITY TO THE ASSESSEE TO EXPLAIN THE NATURE OF ACTIVITIES UNDERTAKEN BY HER AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 09 TH JANUARY, 2015. SD/- SD/- (CHANDRA POOJARI) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 09 TH JANUARY, 2015 PK/- 10 ITA NO.374/COCH/2014 COPY TO: 1. SOBHA JOSE LEGAL HEIR OF (LATE) JOSE PYLOTH KANG APPADAN, KANGAPPADAN ORCHARDS, M.C. ROAD, KODIMATHA, KOTTAYA M 686 039 2. THE ITO, WD.2, KOTTAYAM 3. THE COMMISSIONER OF INCOME-TAX, KOCHI 4. THE COMMISSIONER OF INCOME-TAX(A)-V, KOCHI 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH