Assistant Commissioner of Income-tax, Aurangabad V. M/s. Nath Bio-Genes (I) Ltd., Aurangabad

ITA 398/PUN/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4031 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 13-06-2018
• Assessment Year: 2012-2013
• Appeal Filed On: 10-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: N R AGARWAL; VIJAY SABU
• Keywords: Business income; Depreciation; Principle of natural justice; Rule of consistency; Bonafide belief; Earning of tax free income; Question of law; Procedural lapse
• Section: 14A; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AW ASTHY, JM . / ITA NO. 642/PUN/2015 / ASSESSMENT YEAR : 2011-12 ITO, WARD-1(2),/AURANGABAD ....... / APPELLANT / V/S. M/S. NATH BIO GENES (I) LTD., NATH HOUSE, NATH ROAD, PAITHAN ROAD, DIST. AURANGABAD 431 005 PAN : AABCN7978E / RESPONDENT . / ITA NO. 398/PUN/2016 & ITA NO. 1505/PUN/2016 / ASSESSMENT YEARS : 2012-13 & 2013-14 ACIT, CIRCLE-1/ AURANGABAD ....... / APPELLANT / V/S. M/S. NATH BIO GENES (I) LTD., NATH HOUSE, NATH ROAD, PAITHAN ROAD, DIST. AURANGABAD 431 005 PAN : AABCN7978E / RESPONDENT . / ITA NO. 1548/PUN/2017 / ASSESSMENT YEAR : 2014-15 DCIT, CIRCLE-1/ AURANGABAD ....... / APPELLANT / V/S. M/S. NATH BIO GENES (I) LTD., NATH HOUSE, NATH ROAD, PAITHAN ROAD, DIST. AURANGABAD 431 005 PAN : AABCN7978E / RESPONDENT ASSESSEE BY : SHRI N.R. AGARWAL & SHRI VIJAY SABU REVENUE BY : SHRI RAJEEV KUMAR, CIT-DR 2 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 / DATE OF HEARING : 06.08.2018 / DATE OF PRONOUNCEMENT : 02.11.2018 / ORDER PER D. KARUNAKARA RAO, AM : THERE ARE 4 APPEALS FILED BY THE REVENUE UNDER CONSIDER ATION INVOLVING ASSESSMENT YEARS 2011-12 TO 2014-15. IN ALL THESE A PPEALS, THE COMMON ISSUE RAISED BY THE REVENUE RELATES TO ALLOWABILITY OF EXEM PTION U/S.10(1) OF THE ACT IN RESPECT OF THE CLAIM OF AGRICULTURAL INCOME. THE ASSESSEE CLAIMS THAT IT IS ENGAGED IN PRODUCTION OF SPECIALIZED SEEDS IN TH E LEASED LANDS, (1) MAKING OF CERTIFIED SEEDS; (2) UNDERTAKING OTHER PROCESSING ACTIVITIES AND FINALLY (3) TRADING OF THE SAID CERTIFIED SEEDS. ASSESSEE ALSO ENGAGED IN THE TRADING ACTIVITY OF THE SAID SEEDS TOO. CONSIDERING THE CO MMONALITY OF THE FACTS, ISSUES, THE ARGUMENTS OF THE COUNSELS ETC., WE ARE OF THE OPINIO N THAT ALL THESE APPEALS SHOULD BE HEARD TOGETHER FOR PASSING A CO MPOSITE ORDER. FOR THE SAKE OF REFERENCE, THE GROUNDS FOR A.Y. 2011-12 ARE EXTRACTED HERE AS UNDER : (A) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THIS CASE, ASSESSEES INCOME FROM ITS SEED PRODUCTION ACTIVITY IS EXEMPT UNDER SECTION 10(1) OF THE INCOME TAX ACT, 1961. (B) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THIS CASE, THE LAND UTILIZED FOR PRODUCTION OF SEEDS CAN BE TERMED AS A SSESSEES LEASED LAND; (C) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THIS CASE, GROWER CAN BE TERMED AS REPRESENTATIVE OF ASSESSEE COMPANY; (D) WHETHER ON THE FACT AND IN THE CIRCUMSTANCES OF THIS CASE, ASSESSEES SEEDS PROCUREMENT FROM GROWER IS ITS AGRICULTURAL A CTIVITY; (E) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THIS CASE, CONVERTING OF SEEDS INTO CERTIFIED SEEDS IS AN AGRICULTURE ACTIVI TY; (F) THE APPELLANT CRAVES LEAVE TO AMEND, ALTER, MOD IFY, ADD, SUBMIT ADDITIONAL GROUND; 3 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 2. REVENUE REVISED GROUNDS DURING THE PROCEEDINGS BEFOR E US AND THE SAME ARE EXTRACTED AS FOLLOWS : 1. WHETHER ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A), AURANGABAD WAS CORRECT IN DELETING THE ADDITION IN QUESTION TREATING THE SEEDS PRODUCTION AS AGRICULTURE INCOME U/S.10(1) OF THE A CT. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) WAS CORRECT IN HOLDING THAT THE ASSESSEE WAS ABSOLU TE OWNER OF THE LAND IN ABSENCE OF VALID LEASE DEED AGREEMENT, IF NOT, THEN NO RIGHT IN LAND VESTS WITH THE ASSESSEE COMPANY. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) WAS CORRECT IN HOLDING THAT THE SEEDS GROWERS WERE PRODUCING THE SEEDS FOR THE ASSESSEE ONLY WHEREAS AS PER INFORMATION RECEIVED U /S.133(6) OF THE ACT REVEALED THAT SOME OF THE GROWERS WERE PRODUCING TH E GRAINS AT THEIR OWN LEVEL, I.E. INDEPENDENTLY AND IN VIEW OF THE ABOVE, THE SE EDS PROCURED BY THE ASSESSEE FROM GROWERS IS NOTHING BUT PURCHASES FROM THE SEED S GROWERS IN QUESTION. 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD.CIT(A) WAS CORRECT IN ACCEPTING ASSESSEES VERSION OF AGRI CULTURAL OPERATION BASED ON INVALID DOCUMENTATION MAKING THE ENTIRE OPERATION S HAM. 5. WHETHER ON FACTS & CIRCUMSTANCES OF THE CASE THE LD.CIT(A) WAS CORRECT IN APPRECIATING THAT CONVERTING SEEDS INTO CERTIFIE D SEEDS IS AN AGRICULTURAL ACTIVITY. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE ORDER OF THE AO BE RESTORED AND THAT OF THE CIT(A)-1 BE VACATED. 7. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTE R ALL OR ANY OF THE GROUNDS OF APPEAL. ON FACTS, THE ISSUES RAISED IN GROUND NOS. 4 & 5 HAS GENE SIS IN THE OUTCOME OF THE ENQUIRIES/INVESTIGATION BY THE AO IN THE SUBSEQUENT ASSESSME NT YEARS. 3. BASIC FACTS RELATING TO THE ASSESSEE AND ISSUES INCLUDE THAT THE AS SESSEE IS A COMPANY ENGAGED IN GROWING THE FOUNDATION SEEDS, THE SEED PRODUCTION, UNDERTAKING OTHER PROCESSING ACTIVITIES OF SEEDS, MAKING OF CERTIFIED SEEDS AND TRADING OF THE SAID SEEDS. AS PER THE ASSESSEE, ALL THESE ACTIVITIES, CONSTITUTE AGRICULTURAL ACTIVITIES. ASSESSEE FILED THE RETURN OF INCOME O N 27-09-2011 DECLARING TOTAL INCOME OF RS.35,99,340/- FOR THE A.Y. 2011-12 AFTER CLAIMING EXEMPTION OF AGRICULTURAL INCOME AT RS.6.90 CRORES (ROUNDED OFF) FOR THIS YEAR. DURING THE ASSESSMENT PROCEEDINGS, THE ISSUE OF ALLOWING E XEMPTION OF AGRICULTURAL INCOME FROM TAX WAS SCRUTINIZED BY THE AO. 4 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 4. IN THIS REGARD, THE AO ISSUED A SHOW CAUSE NOTICE INFO RMING THE ASSESSEE THAT THE BASIC OPERATIONS OF AGRICULTURE WERE N OT CARRIED OUT BY THE ASSESSEE AND, THEREFORE, THE SEEDS PROCURED BY THE AS SESSEE FROM THE GROWERS CONSTITUTE THE TRADING ACTIVITY OF PURCHASE OF SEEDS. FUR THER, THE SERIES OF PROCESSING ACTIVITIES IN ORDER TO MAKE CERTIFIED SEEDS READ Y FOR TRADING, CONSTITUTES A MANUFACTURING/BUSINESS ACTIVITY AND WHEN TH E SAME ARE SOLD, THE INCOME EARNED BY THE ASSESSEE BECOME TAXABLE. IN T HIS REGARD, AO ALSO ANALYSED THE LAND LEASE AGREEMENTS SIGNED BY THE ASSES SEE AND THE LAND OWNERS AND FOUND THAT THEY ARE UNREGISTERED ONES. FUR THER, THE AO FOUND THAT CERTAIN EXPENSES TO THE TUNE OF RS.30.94 CRORES (ROUNDED OFF) U NRELATED TO THE AGRICULTURAL ACTIVITY WERE ALSO CLAIMED. AO HELD THAT T HESE EXPENDITURE CONSTITUTE MANUFACTURING EXPENSES, RESEARCH EXPENSES, PO WER AND FUEL, FREIGHT INWARD, HAMALI & CARTAGE, ETC., AND NOT AGRICULTURAL EXPENDITURE INCURRED FOR EARNING EXEMPT AGRICULTURAL INCOME. AO CAME TO THE CONCLUSION THAT THE ENTIRE ACTIVITY IS NOT AGRICULTURAL ACTIVITY AND TH E SAME CONSTITUTES BUSINESS ACTIVITY. THEREFORE, AO SHOW CAUSED THE ASSE SSEE AS TO WHY THE INCOME OF RS.6.90 CRORES EARNED BY THE ASSESSEE FOR A.Y. 2 011-12 ON SALE OF THE CERTIFIED SEEDS, SHOULD NOT BE TREATED AS INCOME FROM BUSINESS AND NOT EXEMPT AS AN AGRICULTURAL INCOME. IN ADDITION, THE ASSESSEE OFFERED PROFITS/LOSS ON ACCOUNT O F SEED TRADING ACTIVITY ABOUT WHICH THERE IS NO ISSUE IN THE ASSESSMENT. ASSESSE E ADMITTEDLY PURCHASED SAID SEEDS AND SOLD THEM IN MARKET. THE PROF ITS ARE OFFERED AS TAXABLE INCOME AND THE AO TAXED THE SAME. 5. IN REPLY TO THE SAID SHOW CAUSE NOTICE, ASSESSEE FILED WRITTEN SUBMISSIONS AND EXPLAINED THE FACTS RELATING TO (A) LEASING OF LANDS FROM THE LAND OWNERS ACROSS WIDTH AND BREADTH OF THE COUNTRY; (B) GIVING OF 5 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 AGRICULTURAL ADVANCES TO THE SAID LANDLORDS OR GROWERS OF SEEDS FOR UNDERTAKING THE AGRICULTURAL ACTIVITY UNDER THE CONTROL AN D MANAGEMENT OF THE ASSESSEE WHO HAS EXPERTISE IN GROWING (A) NUCLEAR SEE DS; (B) THE BREEDER SEEDS; (C) THE FOUNDATION SEEDS AND FINALLY (D) THE CERTIFIED SE EDS. ASSESSEE FURTHER SUBMITTED THAT THE CERTIFIED SEEDS ARE FINALLY SOLD FOR HIGHER RATE AND THEREFORE, ALL THESE PROCEDURES INVOLVE SCIENTIFIC METHODS AN D INNOVATIONS ON ONE SIDE AND THE CONTROL AND MANAGEMENT OF THE ASSESSE ES TECHNICAL STAFF SUCH AS AGRICULTURAL GRADUATES . ACCORDING TO THE ASSE SSEE, THE LANDLORDS ARE NOT EMPLOYEES OF THE ASSESSEE. THEY WORK ON CONTRACTUAL BASIS. 6. ON CONSIDERING THE SAME, THE AO REJECTED THE CONTENT ION OF THE ASSESSEE. ACCORDINGLY, AO HELD THAT THE LEASE-LAND DOCUM ENTATION, BEING AN UNREGISTERED ONES, IS NOT A RELIABLE ONES. THEY ARE TYPE D ONES ON THE UNREGISTERED DOCUMENTS; THEY ARE STEREO-TYPED ONES AN D THEY SUFFER FROM CREDIBILITY. FURTHER, AO HELD THAT THE ASSESSEE FAILED TO DEM ONSTRATE THAT THE ASSESSEE DISCHARGED THE ONUS IN MATTERS RELATING TO APP LICATION OF SCIENTIFIC KNOWLEDGE; IN MATTERS OF THE CLAIM OF CONTROL AND MANAGEMEN T IN THE AGRICULTURAL ACTIVITIES ETC. FURTHER, AO DISCUSSED THE VAR IOUS PROCESSES INVOLVED IN MAKING THE CERTIFIED SEEDS AND HELD THAT THE SA ME DO NOT AMOUNT TO AGRICULTURAL ACTIVITY. FURTHER, RELYING ON THE JUDGMENT OF ALLAHABAD HIGH COURT IN THE CASE OF M/S. TARAI DEVELOPMENT CORPORATION V S. CIT 120 ITR 342, AO HELD THAT SUCH ACTIVITIES OF SEEDS SAMPLING, PROCESS ING OF SEEDS, TESTING AND QUALITY CONTROL, MARKETING OF SEEDS CONSTITUTES , A MANUFACTURING BUSINESS ACTIVITY OF SEEDS. AO ALSO RELIED ON THE DECISION OF ALLAHABAD BENCH OF THE TRIBUNAL IN THE CASE OF M/S. NAVBHARAT SEEDS PVT . LTD. IN ITA NO.2814/AHD/1986 DECIDED ON 29-1-1989, THE DECISIONS OF P UNE BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. M/S.GODAVARI SEEDS PV T. LTD., M/S.MAHENDRA HYBRID SEEDS COMPANY LTD., JALNA, AND THE DE CISION OF DELHI 6 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 BENCH OF THE TRIBUNAL IN THE CASE OF M/S.PRO-AGRO SEEDS COMPANY LTD. REPORTED IN 126 TAXMANN 37 TO SUPPORT HIS CONCLUSIONS A GAINST THE CLAIMS OF THE ASSESSEE. AS PER THE AO, THESE DECISIONS ADVOCATE FOR TREATING SUCH ACTIVITIES NOT AS AGRICULTURAL ACTIVITIES BUT THEY CONSTITUTE THE BUSINESS OF MANUFACTURING AND PRODUCTION OF SEEDS. AO HELD THAT MOST OF THE SEEDS PROCURED ARE FROM THE LANDS NOT OWNED BY THE ASSESSEE. FURTHER, AO REJECTED THE ARGUMENTS OF THE ASSESSEE AN D CONSIDERED THE FOLLOWING DECISIONS RELIED UPON BY THE ASSESSEE : I. RAJA BINOY KUMAR SAHAS ROY 32 ITR 460 II. CIT VS. SOUNDARYA NURSERY (2000) 241 ITR 530 III. MONSANTO INDIA LIMITED VS. DCIT ITA NO.6093/ MUM/2007 EVENTUALLY, AO TAXED THE ENTIRE CLAIM OF AGRICULTURAL INCOME IN ALL THESE ASSESSMENT YEARS UNDER CONSIDERATION. 7. DURING THE SUBSEQUENT ASSESSMENT YEARS, AO PROCEED ED TO INVOKE THE PROVISIONS OF SECTION 133(6) OF THE ACT IN FEW SELECT CASES O F GROWERS TO ESTABLISH THAT THE ASSESSEE INVOLVED IN GROWTH OF THE SAID SEEDS AND THE MODE OF PROCURING OF THE SEEDS, I.E., IF THEY ARE PURCHASED OR O THERWISE. BARRING A SOLITARY CASE, OTHER GROWERS CONFIRMED THAT THE SEEDS AR E GROWN BY THEM AT THE INSTANCE OF THE ASSESSEE AND UNDER THEIR CONTROL AN D MANAGEMENT. FURTHER, THEY AFFIRMED THAT THE SEEDS GROWN IN THEIR LANDS ARE GIVEN TO THE ASSESSEE AND THE NATURE OF TRANSACTION IS NOT SALE OF SE EDS. HOWEVER, THE SOLITARY CASE REFERRED ABOVE, THE GROWER MENTIONED THAT THE NATURE OF TRANSACTION IS A TRADING ACTIVITY ONLY. HOWEVER, AO DID NOT FIND THEM RELEVANT FOR CONSIDERING THE CASE OF THE ASSESSEE. EVENTUALLY, AO DENIED THE CLAIM OF AGRICULTURAL INC OME AND TREATED THE SAME AS INCOME FROM BUSINESS ACTIVITIES AS PER THE D ISCUSSION GIVEN IN PARA NOS. 5.8 AND 5.9 OF HIS ORDER AND THE SAME ARE EXTRACTED HERE UN DER : 7 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 5.8.. HOWEVER, IN THE CASE OF NAMDHARI SEEDS PVT. LTD., H ONBLE HIGH COURT OF KARNATAKA REPORTED IN 17 TAXMANN 83, (2011) HAS CON SIDERED THE JUDGMENTS CITED SUPRA AND HELD THAT WHERE ASSESSEE COMPANY EN GAGED IN PRODUCTION OF HYBRID SEEDS, ENTERED INTO AGREEMENT WITH FARMERS F OR PRODUCTION OF TOTAL HYBRID SEEDS ON THEIR LAND FOR ITS OWN BENEFIT INCOME ARIS ES TO ASSESSEE FROM SALE OF SUCH SEEDS GROWN BY FARMERS COULD NOT BE AGRICULTUR AL INCOME FOR THE PURPOSE OF EXEMPTION U/S.10(1) OF THE I.T. ACT. THE COURT ALS O STATED THAT ENTIRE READING OF TERMS OF AGREEMENT COULD ONLY INDICATE THAT ASSESSE E COMPANY WAS INTERESTED ONLY TO HAVE HEALTHY FOUNDATION SEEDS GROWN PROCESS OF CONVERTING SAME AS CERTIFIED SEEDS AND HONBLE COURT HELD THAT THE ENT IRE INCOME AMOUNTS TO BUSINESS INCOME OF THE ASSESSEE. FURTHER, AS A MAT TER OF FACT, FOR PREVIOUS ASSESSMENT YEARS THE ASSESSEE COMPANY OFFERED ITS I NCOME AS BUSINESS INCOME. IN THE SAID MODUS OPERANDI WHEN IT WAS HAVI NG HUGE BUSINESS LOSSES. THIS IS THE FIRST YEAR IN WHICH ASSESSEE HAS CLAIME D AGRICULTURAL INCOME. 5.9 IN VIEW OF FACTS AND CIRCUMSTANCED AND ABOVE JU DICIAL PRONOUNCEMENTS, THE CLAIM OF INCOME FROM AGRICULTURAL IS BEING DISA LLOWED AND THE SAME IS TREATED AS INCOME FROM BUSINESS AND MANUFACTURING ACTIVITIES AND ADDITION OF RS.6,89,99,157/- IS MADE TO THE TOTAL INCOME OF THE ASSESSEE. PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT ARE SEPARATELY INITIATED FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME/CONCEALMENT OF INC OME (ADDITION : RS.6,89,99,157/-) 8. BEFORE THE CIT(A) : AGGRIEVED WITH SUCH ORDER OF THE AO, THE ASSESSEE FILED APPEAL BEFORE THE CIT(A). THE ISSUE RELATING TO THE CLAIM OF AGRICULTURAL INCOME VS. BUSINESS INCOME OF THE ASSESSEE WAS DISCUSSED AT LENGTH BY THE CIT(A). CIT(A) ENLISTED THE REASONS/POINTS ARISING OUT OF TH E ASSESSMENT ORDER IN PARA NO.5 OF HIS ORDER. CIT(A) ALSO EXTRACTED THE SUBMISSIONS GIVEN BY THE ASSESSEE IN PARA NO.6 OF HIS ORDER AND PROCEEDED TO GIVE HIS CONCLUSION FROM PARA NO.7 ONWARDS. IN HIS ORDER, CIT(A) EXAMINED COU PLE OF ISSUES; NAMELY (1) WHETHER THE INCOME DERIVED FROM THE USE OF LE ASEHOLD LAND WHICH IS CULTIVATED BY THE FARMERS UNDER THE SUPERVISIONS OF EMP LOYEES OF THE ASSESSEE TO GIVE RISE TO THE HYBRID SEEDS CONSTITUTES AN AGRICULTURAL ACTIVITY OR NOT; AND (2) SUBSEQUENT ACTIVITIES OF PROCESSING OF THE H YBRID SEEDS TO MAKE THE SEEDS TO BE MARKETABLE AS CERTIFIED SEEDS AMOUNTS T O BUSINESS ACTIVITY OR NOT. THE CIT(A) CONSIDERED THE FACT THAT THE ASSESSEE E NGAGED THE LANDLORDS AND THEIR LANDS THROUGH THE WRITTEN CONTRACTS AND HELD THAT SUCH ACTIVITY CONSTITUTES AGRICULTURAL ACTIVITY. RELYING ON THE DECISION O F BANGALORE BENCH 8 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 OF THE TRIBUNAL IN THE CASE OF M/S.ADVANTA INDIA LTD. VS. DCIT 5 ITR 57 (BANG. TRIB.), THE CIT(A) OBSERVED THAT ASSESSEE IS ENGAGED IN SEEDS RELATED RESEARCH, PRODUCTION OF QUALITY SEEDS, SALE OF HYBRID SEEDS FOLLOWING THE METHOD OF CONTRACT FARMING AND BASIC SEEDS SOWN IN LEASEH OLD LAND AND THEREFORE, THE SAME CONSTITUTES AGRICULTURAL ACTIVITY. CIT(A) ALSO DIST INGUISHED THE CASE LAWS CITED BY THE AO (SUPRA) AND, RELYING HEAVILY ON THE FAVOURABLE DECISION OF PUNE BENCH IN THE CASE OF ACIT VS. M/S.AJEET SEEDS LTD. IN ITA NOS. 109 TO 115/PN/2012 DECIDED ON 22-03-2013, CIT(A) HELD AS UNDE R : 7.8 IN VIEW OF THE ABOVE FACTS AND DISCUSSION AND IN VIEW OF THE RATIO LAID DOWN BY THE ABOVE REFERRED DECISIONS, I AM OF THE C ONSIDERED VIEW THAT THE AO IS NOT JUSTIFIED IN MAKING ADDITION OF RS.6,89,99,1 57/- BY TREATING AGRICULTURAL INCOME OF THE APPELLANT COMPANY AS NON-AGRICULTURAL INCOME. THE ADDITION OF RS.6,89,99,157/- IS DELETED. THE AO IS DIRECTED AC CORDINGLY. FROM THE ABOVE, IT IS EVIDENT THAT THE CIT(A) RELIED HEAVIL Y ON THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. M/S.AJ EET SEEDS LTD. (SUPRA) AND ALLOWED THE APPEALS OF THE ASSESSEE FOR THESE YEARS UNDER CONSIDERATION. IN THE SUBSEQUENT ASSESSMENT YEARS TOO , RELIEF WAS GRANTED TO THE ASSESSEE. 9. AGGRIEVED WITH THE SAME, THE REVENUE FILED THE PRESENT APPEALS FOR A.YRS. 2011-12 TO 2014-15. 10. REGARDING THE APPEAL FOR A.Y. 2012-13 BY THE REVENUE, THE AO ROPED IN THE ADDITIONAL POINTS TO DENY THE CLAIM OF EXEMPTION TO THE SAID AGRICULTURAL INCOME OF RS.10.22 CRORES (ROUNDED OFF). THE SAID ADDITIONAL PO INTS INCLUDE THE SUSPECTED AND SELF-SERVING LEASE AGREEMENT OF LAND, W HICH IS THE SOLE DOCUMENT IN THE POSSESSION OF THE ASSESSEE DEMONSTRATIN G THE AGRICULTURAL NATURE OF THE ACTIVITIES. ON THESE DOCUMENTS, AS STATED EARLIER, THE AO FOUND THE SAID LEASE DEED IS MADE FOR 4 YEARS AND THE AGREEME NT IS MADE ON 100/- STAMP PAPER. FURTHER, AO NOTICED THAT THE SAID LEASE DE ED IS NOT REGISTERED 9 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 AS PER THE PROVISIONS OF SECTION 17(1)(A) OF THE REGISTRATIO N ACT, 1908. THEREFORE, AO TREATED THE SAME AS INVALID DOCUMENT. FOR THIS, AO RELIED ON THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT IN THE CAS E OF NAMDHARI SEEDS PVT. LTD. REPORTED IN 341 ITR 342. FURTHER, REFERRING TO 7/12 DOCUMENTS AND CONSIDERING THE FACT THAT ASSESSEE IS NAMED AS LESSEE OF THE LAND ON THOSE LAND RECORDS OF REVENUE DEPARTMENT, AO HELD THAT THE GR OWERS ARE THE OWNERS OF THE SEEDS AND CONSEQUENTLY, THE SEEDS GROW N IN THE SAID LAND WOULD BELONG TO THE LAND OWNER. THEREFORE, THE ASSESSEE STANDS PURCHASED THE SAID HYBRID SEEDS GROWN BY THEM FOR FURTHER PROCESS ING AND CERTIFICATION. RESULTANTLY, AS PER AO, THE ASSESSEE REMAINED TO BE A T RADER OF THE HYBRID/CERTIFIED SEEDS. EVENTUALLY, THE AO FOR THE A.Y. 2012 -13 GAVE HIS CONCLUSION ON PAGE 11 OF THE ASSESSMENT ORDER AND THE SAME IS EXTRACTED HERE AS UNDER : THEREFORE, SEED AND GRAIN BOTH ARE DIFFERENT TYPE OF PRODUCE AND SEEDS PRODUCTION ACTIVITY IS NOT SIMILAR THAT OF PRODUCTI ON OF GRAIN. SEEDS ARE PRODUCED BY SCIENTIFIC METHOD ANY BY INVESTING HUGE MONEY AND SKILLED MANPOWER, WHEREAS GRAIN IS PRODUCED ON CONVENTIONAL METHOD AND BY LOWER INVESTMENT AND AVERAGE SKILLED MANPOWER. FURTHER, AGRICULTURAL PRODUCE SUCH AS GRAIN ARE FIT FOR HUMAN CONSUMPTION, WHEREAS WHE N SEEDS ARE PROCESSED THEY ARE CHEMICALLY TREATED AND COATED WITH PESTICI DES, FUNGICIDES TO PROTECT IT AND IF SEEDS ARE NOT SOLD FOR GERMINATION THEY ARE SOLD FOR ANIMAL FOODS ONLY, AS IT IS NOT FIT FOR HUMAN CONSUMPTION. HENCE, SEED P RODUCTION ACTIVITY CANNOT BE TREATED AS AGRICULTURE ACTIVITY. IN THE LIGHT OF ABOVE FACTS AND JUDICIAL PRONOUNCEM ENT, ASSESSEE COMPANY HAS NEITHER PERFORMED THE BASIC AGRICULTURAL OPERATION OR SUBSEQUENT OPERATIONS ORDINARILY EMPLOYED BY THE FARMER OR AGRICULTURIST, AS THE ASSESSEE COMPANY NEITHER HAS DERIVATIVE INTEREST IN THE LAND NOR IT HAS ACTUALLY CULTIVATE THE LAND. ON SCRUTINY OF TOTAL ACTIVITY OF ASSESSEE COMPANY I N SEEDS PRODUCTION, IT APPEARS THAT ASSESSEE HAS ONLY FACILITATED AND PROV IDED THE MARKET TO GROWERS IN ITS OWN INTEREST. FURTHER, PRODUCTION OF SEED I S MADE WITH HIGHLY TECHNICAL METHOD, WHEREAS GRAIN IS GENERALLY PRODUCED BY CONV ENTIONAL METHOD. THEREFORE, ASSESSEE COMPANY DOES NOT FULFILS EVEN B ASIC CONDITION OF AGRICULTURE. IF THE BASIC OPERATION OF AGRICULTURE ARE NOT CARRI ED ON BY THE ASSESSEE COMPANY, THEN THE HARVESTED FOUNDATION SEEDS PURCHASED BY HI M AND CONVERTING THEM TO CERTIFICATION SEEDS CANNOT BE TERMED AS INTEGRATED PART OF THE FOUNDATION ACTIVITY OF AGRICULTURE. IN ADDITION TO ABOVE, THE COURT HA S ALSO VIEWED THAT, INCOME FROM DEVELOPING/PRODUCING OF BREEDER SEED OR HYBRID GERM PLASM OR PARENT HYBRID SEEDS, CANNOT BE TREATED AS AGRICULTURE INCOME AT R S.10,22,21,189/- IS HEREBY TREATED AS ITS BUSINESS INCOME AND THE SAME IS ADDE D TO THE TOTAL INCOME OF ASSESSEE. HOWEVER, AS ASSESSEE COMPANY HAS RECOGNI TION OF IN HOUSE R&D UNITS (S) UPTO 31/03/2012, ON AFORESAID BUSINESS IN COME AT RS.10,22,21,189/-, IT IS ENTITLED FOR DEDUCTION U/S.35(2AB) OF THE INC OME TAX ACT, 1961. INITIATE 10 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 PENALTY PROCEEDINGS U/S.271(1)(C) OF THE INCOME TAX ACT, 1961, FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. 11. REGARDING THE APPEAL FOR A.Y. 2013-14, ASSESSEE MADE S IMILAR CLAIM AS IN THE A.YRS. 2011-12 AND 2012-13 AND CLAIMED RS.12,02,03,94 5/- AS AGRICULTURAL INCOME EXEMPT FROM TAXATION. IN THIS ORDER, THE AO MADE ANOTHER ADDITION OF RS.7,71,422/ - ON ACCOUNT OF DISALLOWANCE U/S.14A RW. RULE 8D(2) OF THE I.T. RU LES, 1962. THERE IS NO REFERENCE TO EXEMPT/DIVIDEND INCOME BECOMING PART OF THE TOTAL INCOME. 12. REGARDING THE APPEAL FOR A.Y. 2014-15, ASSESSEE CLAIMED EXEMPTION OF AGRICULTURAL INCOME AT RS.24,49,88,866/-. THE AO IN THIS YEAR FOLLOWED THE SAME LINE OF ASSESSMENT AND DISALLOWED THE SAID SUM OF RS.24,49,88,866/- . IN ADDITION, AO DISALLOWED RS.13,65,554/- ON ACCOUNT OF DISALLO WANCE U/S.14A R.W. RULE 8D(2) OF THE I.T. RULES, 1962. 13. IN ALL THESE ASSESSMENT YEARS, I.E., 2011-12 TO 2014-1 5, THE CIT(A) ALLOWED THE APPEALS OF THE ASSESSEE. GROSS AGRICULTURAL IN COME CLAIMED EXEMPT IN ALL THESE 4 ASSESSMENT YEARS WORKS OUT TO RS .53.64 CRORES (ROUNDED OFF). AO DID NOT DISTURB THE CLAIM RELATING TO THE CLAIM OF TRADING ACTIVITIES OVER THE YEARS. 14. AGGRIEVED WITH THE CONCLUSIONS OF THE CIT(A), BOTH ON AC COUNT OF CLAIM OF AGRICULTURAL INCOME AS WELL AS CLAIM OF EXPENDITURE U/S.14A R.W. RULE 8D FOR THE A.YRS. 2013-14 AND 2014-15), THE REVENUE FILED ALL T HE FOUR APPEALS UNDER CONSIDERATION BEFORE THE TRIBUNAL. 11 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 BEFORE THE TRIBUNAL 15. REVENUE CONTENTIONS : SHRI RAJIV KUMAR, LD. CIT-DR FOR THE REVENUE RELIED HEAVILY ON THE ORDERS OF THE AO IN ALL THESE 4 ASSE SSMENT YEARS. LD. DR READ OUT THE CONTENTS OF THE ASSESSMENT ORDERS IN ALL THESE APPEALS AND SUBMITTED THAT CONCLUSIONS OF THE AO NEEDS TO BE CONFIRME D BY REVERSING THE DECISIONS OF THE CIT(A)S. FURTHER, LD. DR MADE VARIOUS SU BMISSIONS AND THE SAID SUBMISSIONS ARE SUMMARIZED IN THE FOLLOWING PARAGRAPHS : (A) WHEN THE ASSESSEE MADE A CLAIM OF EXEMPTION U/S.10(1) O F THE ACT, THE ONUS IS ON THE ASSESSEE AND THE ASSESSEE FAILED TO DEMONSTRATE THAT THERE IS AN AGRICULTURAL ACTIVITY OR THERE IS ANY EXP ERT SUPERVISION IN THE AGRICULTURAL ACTIVITIES UNDERTAKEN BY THE ASSESSEE ON THE LEASEHOLD LANDS. (B) REFERRING TO THE IMPERFECT LAND-LEASE AGREEMENT, UNREG ISTERED ONES, THE LEASEHOLD LANDS IN QUESTION ARE IN FORCE FOR 4 YEA RS AND THE SAID LEASE AGREEMENTS ARE INVALID AS THEY ARE NOT IN TUN E WITH THE PROVISIONS OF SECTION 17(1)(D) OF THE REGISTRATION ACT, 1908. THEREFORE, CONSIDERING THE FACT THAT THERE ARE NO VALID AGREEMENTS, THE ACTIVITIES UNDERTAKEN BY THE GROWERS BECOMES THEIR AGRICULTURAL A CTIVITIES. RESULTANTLY, THE GROWERS BECOME THE SELLERS OF THE AGRIC ULTURAL PRODUCE TO THE ASSESSEE. THUS, THE ASSESSEE BECOMES BUYER IN THE CAPACITY OF TRADER OF SEEDS. THUS, CONSIDERING THE PROCESSING ACTIVITIE S, THE WHOLE EXERCISE FOR THE ASSESSEE BECOMES A MANUFACTURING ACTIVIT Y OR THE BUSINESS ACTIVITY. (C) MISCELLANEOUS ARGUMENTS : THE VERIFICATION THAT LANDLORDS/GROWERS RESULTED IN GATHERING OF INCRIMINATING INFORM ATION WHERE A GROWER CONFIRMED THAT HE MERELY SOLD THE AGRICU LTURAL PRODUCE TO THE ASSESSEE. FURTHER, LD. DR FOR THE REVENUE SUBMITTED THAT THERE IS NO ISSUE ABOUT THE INCOME OR LOSS OF THE TRADING INCOME. FURTHER, ON THE APPORTIONMENT OF THE INDIRECT EXPENDITURE, LD. DR SUBMITTED THAT THE SAME BECOMES RELEVANT ONLY IF THE REVENUE STAND ON THE CLAIM OF EXEMPTION U/S.10 (1) OF THE ACT IS CONFIRMED. LD. DR FOR THE REVENUE FILED THE PAPER BOOK CONTAINING TH E COPIES OF ORDER SHEET DATED 12-01-2018, COPIES OF SHOW CAUSE NOT ICES AND OTHER NOTICES, REPLIES FROM THE ASSESSEE, COPIES OF THE ASSESSMEN T/APPELLATE ORDERS, 12 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 COPIES OF THE FINANCIAL STATEMENT, DETAILS OF EXPENDITURE CLAIME D BY THE ASSESSEE ON ACCOUNT OF AGRICULTURAL ACTIVITIES AND OTHER A CTIVITIES, COPIES OF THE LEASE AGREEMENTS OF LAND ETC. 16. LD. ARS CONTENTIONS : PER CONTRA, SHRI N.R. AGARWAL, LD. COUNSEL FOR THE ASSESSEE RELIED HEAVILY ON THE ORDERS OF CIT(A) FOR ALL T HE ASSESSMENT YEARS AND ALSO BROUGHT OUR ATTENTION TO THE VARIOUS EVIDENCES TO DEMONSTRATE THE VARIOUS AGRICULTURAL ACTIVITIES AND SUB-ACTIVITIES UNDERTAKEN BY THE ASSESSEE. THE LIST STARTS FROM (A) ENTERING INTO THE LEASEHOLD AGREEME NT WITH THE GROWERS/LANDLORDS; (2) MAKING THE PAYMENT OF ADVANCES TO T HEM FOR AGRICULTURAL ACTIVITIES; (3) THE MANAGEMENT AND CONTROL OF AGRICULTURAL P RODUCE INVOLVING THE ASSESSEES QUALIFIED EMPLOYEES; (4) HARVESTING O F THE AGRICULTURAL PRODUCE; (5) PROCUREMENT OF THE AGRICULTURAL PR ODUCE FROM THE LANDLORDS; (6) TRANSPORT OF THE SAME TO THE CENTRES FOR FU RTHER PROCESSING LEADING TO THE GENERATION OF CERTIFIED SEEDS; (7) SALE OF TH E SAID SEEDS TO THE FINAL CONSUMERS ETC., LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TURNOVER OF RS.92.39 CRORES WAS REGISTERED DURING THE YE AR BY THE ASSESSEE AND THE SAME STAND UNDISTURBED BY THE AO. THIS PERFORM ANCE IS NOT POSSIBLE BUT FOR THE WHOLE LIST OF AGRICULTURAL ACTIVITIES UNDERTAKEN BY THE ASSESSEE DURING THE YEARS ON ONE HAND AND ON ACCOUNT OF DIRECT AND INDIRECT EXPENDITURE ON THE OTHER. FURTHER, LD. AR FOR THE ASSESSEE FILED 3 PAPER BOOKS. P APER BOOK NO.1 CONTAINS THE FINANCIAL STATEMENTS, RETURNS OF INCOME AND T HE COPIES OF THE LEASEHOLD AGREEMENT FOR PRODUCTION OF THE SEEDS AND THE COPIES OF THE CONFIRMATION OF THE REJECTED SEEDS WHICH ARE USED AS FOD DER TO THE CATTLE. PAPER BOOK NO.2 CONTAINS THE CORRESPONDENCE BETWEEN T HE AO AND THE ASSESSEE, DETAILS OF AGRICULTURAL EXPENDITURE, COPIES OF THE A GREEMENTS WITH THE FARMERS ETC. FINALLY THE PAPER BOOK NO.3 CONTAINS THE COMPILES THE COPIES 13 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 OF THE 7/12 EXTRACTS OF THE LEASEHOLD LANDS TAKEN BY THE ASSESSEE FOR PRODUCTION OF SEEDS. HE ALSO FURNISHED THE COMPILATION OF TH E SAID 7/12 EXTRACTS SHOWING THE EXTENT OF LAND UTILIZED, DETAILS OF CROP S GROWN IN THE SAID LAND, DETAILS OF THE GROWERS, CROP PRICE ETC. FURTHER, THE CONVEYANCE AND TRANSPORT DETAILS OF THE EMPLOYEES, INCHARGE OF PRODUCTION OF VARIETY OF CROPS GIVING DETAILS OF THE PLACES VISITED BY THEM FOR CONTROL AND MANAGEMENT OF THE GROWING GROUPS FOR PRODUCTION OF SEEDS, COPIES OF THE LOG B OOKS DEMONSTRATING THE TRAVEL UNDERTAKEN BY SUCH EMPLOYEES ARE ALSO ENCLOS ED IN THIS PAPER BOOK. FURTHER, LD. COUNSEL FOR THE ASSESSEE FILED WRITTEN SUBMISSIONS ALONG WITH COMPILATION OF JUDGMENTS ON 27-04-2018 AND SUBMITTED THAT THE AO DID NOT REJECT THE GENUINENESS OF THE EXPENDITURE ON AGRICU LTURAL ACTIVITIES, PRODUCTION OF SEEDS BY THE GROWERS (ASSESSEES CONTRA CTORS FOR PRODUCTION OF SEEDS), SALES OF THE CERTIFIED SEEDS. THE FACT THAT ASSESSE E INCURRED RS.36.19 CRORES (ROUNDED OFF) ON ACCOUNT OF AGRICULTURAL ACTIVITIES AND THE SAME WAS NOT DISTURBED BY THE AOS. THIS AMOUNT WAS INCURRED DIRE CTLY ON AGRICULTURAL ACTIVITIES SUCH AS LAND PREPARATION EXPENDITURE. DETAILS ARE GIVEN ON PAGE 3 OF THE ASSESSMENT ORDER FOR A.Y. 2011-12 AND THE SAME ARE REPRODUCED BELOW : SL.NO. EXPENSES DIRECTLY RELATED TO THE ACTIVITIES AMOUNT I. LAND PREPARATION EXPENSES 25909610 II. FERTILIZER & PESTICIDES 47621370 III. LABOUR WAGES 71045020 IV. INCENTIVES TO GROWERS 13890456 V. LEASE RENT FOR AGRICULTURAL LAND 62135400 VI. OTHER FARM EXPENSES 33146970 VII. STORES AND PROCESSING MATERIALS CONSUMED (INDIGENOUS) 52604307 VIII. TRADING PURCHASES 0 IX. CHANGE IN INVENTORY 55530229 TOTAL 361883362 FURTHER, IT IS THE CLAIM OF THE ASSESSEE THAT SUM OF RS.3 3.45 CRORES (ROUNDED OFF) WAS INCURRED ON ACCOUNT OF COMPOSITE ACTIVI TIES BOTH FOR (1) 14 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 AGRICULTURAL ACTIVITIES; AND (2) TRADING ACTIVITIES. RS.30.94 CROR ES (ROUNDED OFF) CLAIMED TO BE PERTAINING TO THE AGRICULTURAL ACTIVITIES. THE NATURE OF THESE EXPENSES INCLUDE POWER AND FUEL, REPAIRS & MAINTENANCE, RES EARCH EXPENSES ETC. DETAILS ARE REPRODUCED BELOW: SL.NO. EXPENSES NOT DIRECTLY RELATED TO THE ACTIVIT IES AMOUNT I. POWER & FUEL 2580892 II. REPAIRS & MAINTENANCE (MACHINERY) 748332 III. REPAIRS & MAINTENANCE (FACTORY BUILDING) 10208 7 IV. OTHER MANUFACTURING EXPENSES 10172658 V. RESEARCH EXPENSES 56906116 VI. FREIGHT INWARD, HAMALI & CARTAGE 13754678 VII. PAYMENTS & PROVISIONS FOR EMPLOYEE 62473088 VIII. ADMINISTRATIVE & SELLING EXPENSES, DEPRECIATION/AMORTIZATION EXCEPT AMORTIZATION OF BRANDS AND MARKETING RIGHT 47465745 IX. INTEREST AND OTHER FARM EXPENSES 18753582 TOTAL 334548897 REFERRING TO THE AFORESAID EVIDENCE FROM A GROWER OF SEED S, ELABORATING THE SAME, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT BA RRING A LETTER FROM A SOLITARY FARMER GATHERED BY THE AO DURING THE LATER ASSE SSMENT YEARS U/S.133(6) OF THE ACT, ALL THE OTHER FARMERS CONFIRMED THE AG RICULTURAL ACTIVITY OF THE ASSESSEE. OTHERWISE, NO ADVERSE INFORMATION WAS A VAILABLE WITH THE AO ON THE GENUINENESS OF THE CLAIM OF AGRICULTURAL INCOME. OTHER SPECIFIC ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE ARE SPECIFIC ALLY DISCUSSED IN THE FOLLOWING PARAGRAPHS. CROSS EXAMINATION : REFERRING TO THE SAID STRAY AND A SOLITARY CASE OF A LETT ER BY SHRI BHUMA BALA NARASIMHA REDDY, (THE FARMER-CUM-LANDLOR D) AND REFERRING TO THE PRINCIPLES OF CROSS EXAMINATION, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT AO FAILED TO PUT THE SAID SHRI BHUMA BALA NARASIMHA REDDY BEFORE THE ASSESSEE FOR CROSS EXAMINATION. LD. COUNSEL FO R THE ASSESSEE SUBMITTED THAT THE AO INVOKED THE PROVISIONS OF SECTION 1 33(6) OF THE ACT FOR THE A.Y. 2012-13 IN RESPECT OF 3 FARMERS NAMELY MENTIONE D ABOUT THE FACT OF 15 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 RECEIVING OF ADVANCES FOR SEED GROWING AND PRODUCTION IN R ESPECT OF THEIR LANDS. GIVING REFERENCE TO A LETTER FROM ONE OF THE FARMERS (BHUMA BALA NARASIMHA REDDY), LD. COUNSEL SUBMITTED THAT THE PAYMENTS ARE RECEIVED BY HIM IN RESPECT OF SALE OF JAWAR CROP CULTIVATED IN HIS FARM. LD. COUNSEL SUBMITTED THAT THE SAME CONSTITUTES MISTAKEN CONFIRMATION OF BHUMA BALA NARASIMHA REDDY. REFERRING TO THE PRINCIPLES OF NATURAL JUS TICE, LD. COUNSEL SUBMITTED THAT THE AO COLLECTED THESE EVIDENCES AT THE BACK OF THE ASSESSEE AND THE SAME ARE NOT PUT TO THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS. NO CROSS EXAMINATION BENEFITS WERE OFFERED TO THE ASSESSEE. THESE ASPECTS ARE RELEVANT FOR THE A.Y. 2011-12. RELYING ON VARIOUS DECISION S, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT WHEN THE ASSESSEE WAS NO T CONFRONTED WITH THE ADVERSE INFORMATION AND THE SAME VIOLATES THE PRINCIPLES OF NATURAL JUSTICE. LD. AR SUBMITTED THAT IT IS A CASE OF USE OF EVIDENCE AGA INST THE ASSESSEE AND MAKING THE ASSESSMENT AT THE BACK OF THE ASSESSEE. TH EREFORE, SUCH EVIDENCE SHOULD BE TREATED AS NONEST . FOR THIS PROPOSITION, HE RELIED ON THE JUDGMENT OF GUJARAT HIGH COURT IN THE CASE OF CIT VS. D.M. JOSHI & OT HERS 239 ITR 0315. DR NOT EMPOWERED TO IMPROVE THE CASE OF THE REVEN UE : REFERRING TO OTHER ARGUMENTS MADE BY THE LD. DR FOR THE REVENUE A S WELL THE ADDITIONAL GROUNDS RAISED BY THE REVENUE, LD. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE SAME CONSTITUTES MAKING A NEW CASE BY THE REVENUE WHICH IS NOT PERMITTED IN VIEW OF THE JUDGMENT OF HONBLE JURISDICTIONAL HIG H COURT IN THE CASE OF ASBESTOS CEMENT LTD. VS. CIT REPORTED IN 203 IT R 358, THE SPECIAL BENCH MUMBAI BENCH DECISION IN THE CASE OF ACIT VS. DHL OPERATIONS REPORTED IN 108 TTJ 151. DRS REQUEST FOR REMANDING : FURTHER, REFERRING TO THE REQUEST FOR REMANDING THE ENTIRE ISSUE TO THE FILE OF AO, LD. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT 16 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 IN THE ABSENCE OF ANY FACTUAL OMISSIONS NO SECOND INNINGS C AN BE GRANTED TO THE AO. FOR THIS PROPOSITION, HE RELIED ON THE ORDER OF TRIBUNAL IN THE CASE OF SMT. SUDHADEVI MODY VS. ACIT REPORTED IN 81 ITD 604 (MUM.). RULE OF CONSISTENCY AO NOT FOLLOWED : REFERRING TO THE ADVERSE COMMENTS OF THE AO ON THE ISSUE OF AGRICULTURAL ACTIVITY AND MANUFACT URING ACTIVITY OF SEEDS, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE P RESENT AO DID NOT APPRECIATE THE FACT THAT OVER THE YEARS, THE ASSESSEE IS INTO BOTH ACTIVITIES OF AGRICULTURE AS WELL AS TRADING ACTIVITY OF SEEDS. THE EARLIER AOS ACCEPTED THE CLAIMS OF THE ASSESSEE OVER THE YEARS. THEREFORE, ON THIS PRINCIPLE OF CONSISTENCY, THE CLAIM NEEDS TO BE ACCEPTED IN THESE ASSESSMENT Y EARS TOO. ACTIVITIES OF ASSESSEE CONSTITUTES AGRICULTURAL ACT IVITIES A DECIDED ISSUE IN FAVOUR OF THE ASSESSEE: FURTHER, HE SUBMITTED THAT AO FAILED TO APPRECIATE THAT THE CERTIFIED SEEDS PRODUCED BY THE GROWER OF THE ASSESSEE ON CONTRACTUAL BASIS ARE OF SUPERIOR QUALITY INVOLVING HIGH LEVELS OF INNOVAT ION AND TECHNOLOGICAL INPUTS AND THEY ARE DIFFERENT FROM THE NATURA L SEEDS AVAILABLE IN THE MARKET. FOR GETTING THE CERTIFIED SEEDS PRODUCED, T HERE IS REQUIREMENT OF TREATING THE SEEDS PROCURED FROM THE GROWERS WITH INSE CTICIDES AND CHEMICALS BY THE SCIENTIFIC PROCESSES. REFERRING TO THE MANNER OF G ENERATION OF SUCH HYBRID/BREEDER, LD. COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THESE SEEDS ARE GENERATED OUT OF CROSS POLLINATION AND THE SAID SEEDS BEIN G NAMED AS FOUNDATION SEEDS AND THE SAME ARE SUPPLIED FOR MASS PROD UCTION. ACCORDING TO LD. COUNSEL, IT IS NOT THE CASE OF PRODUCING SEEDS ORDIN ARILY FOR USE. FURTHER, EXPLAINING THE PROCESS OF GROWTH OF THE PLANTS, VE GETABLES ETC., LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT AFTER RECEIVING T HE HARVEST FROM THE FARMERS, THE SAID SEEDS ARE DRIED, WEEDED, CLEANED, GRADED TO REMOVE THE UNWARRANTED ONES. EVENTUALLY, THE FOUNDATION SEEDS ARE CERTIFIED AS CERTIFIED SEEDS BEFORE THEY ARE SUPPLIED FOR SALE IN THE MARKET. TH IS PROCESS APPLIED TO 17 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 VARIOUS CROPS INVOLVING MANGO, APPLE, VAX, BANANA ETC. THIS ISSUE IS ALREADY A SETTLED ISSUE BY THE COORDINATE BENCH OF PUNE IN THE C ASE OF M/S.AJEET SEEDS LTD. (SUPRA) AFTER DISTINGUISHING THE JUDGMENT IN THE CASE OF NAMDHARI SEEDS PVT. LTD. (SUPRA). VALIDITY OF THE LAND LEASE DOCUMENTS ACTED UPON B Y THE ASSESSEE AND THE LANDLORDS : REFERRING THE LAND OWNERS-CUM-CONTRACTORS, LD. COUNSEL FO R THE ASSESSEE SUBMITTED THAT THE LAND OWNERS ARE INTO A CONTRACTUAL ARRANGEMENT WITH THE ASSESSEE BY VIRTUE OF THE AFORESAID LEASEHOLD AGREEMENTS. BOTH THE PARTIES ACTED UPON THE CONTENTS OF THE SAME. IN THAT CASE, THE MERE NON-REGISTRATION IS A PROCEDURAL DEFICIENCY AND THAT DOES NOT MAKE THE ARRANGEMENT INVALID. EVENTUALLY, IN VIEW OF THE SAID AGREEMENT, THE ASSESSEE OBTAINED THE RIGHT ON THE LAND FOR GROWING THE CROPS IN THOSE LANDS. ASSESSEE PAID THE REMUNERATION UNDISPUTEDLY AND DIRECTL Y TO THE GROWERS/LAND OWNERS FOR LEASING OUT THE SAME. AO DID NOT DOUBT THE GENUINENESS OF THE PAYMENTS. REFERRING TO THE AOS ALLEG ATION ABOUT THE UNREGISTERED/UNSTAMPED LEASE AGREEMENTS, LD. COUNSEL SUB MITTED THAT THE SAID LEASE AGREEMENTS ARE COMPLETELY VALID AS THEY ARE A CTED UPON BY BOTH THE SIGNATORIES OF THE AGREEMENTS. WHILE THE ASSESSEE PAID TH E RENT TO THE LANDLORD, THE LANDLORD HAS ALLOWED HIS LAND FOR GROWING THE S EEDS AS PER THE CHOICE OF THE ASSESSEE AND HANDED OVER THE HARVEST TO THE ASSESSEE AS PER THE TERMS OF THE AGREEMENT. LD. COUNSEL RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF D. VENKATA SURYANARAANA RAJU IN ITA NOS. 6 8 & 69/VIZAG/2014. ELABORATING THE SAME, LD. COUNSEL FOR THE ASSESSEE SUBMITT ED THAT THE SAID DECISION OF VISHAKAPATNAM BENCH IS INAPPLICABLE TO THE PRESE NT CASE ON ACTS AND IN THE ABSENCE OF REGISTRATION OF THE LEASE DEEDS, TH E VERY LEASE TRANSACTION DOES NOT CEASE TO EXIST. IN CASE OF ANY LITIG ATION ON THE ISSUE OF REGISTRATION, SUCH RENTAL ADVANCES ARE COMPOUNDED BY PA YMENT OF 18 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 INTEREST/PENALTIES IN THE COURT OF LAW. FURTHER, HE SUBMITTE D THAT THERE CAN BE ORAL LEASE AGREEMENTS WHICH ARE VERY MUCH VALID AND LEGAL. REFERRING TO THE KARNATAKA HIGH COURT IN THE CASE OF NAMDHARI SEEDS PVT. LTD. REPORTED IN 341 ITR 342 (KAR.), LD. COUNSEL SUBMITTED THAT THE SAME IS DISTINGUISHABLE IN VIEW OF THE FACT THAT IN THE PRESENT CASE THE PAYMENT O F RENT IS UNDOUBTED. THE DISTINGUISHABLE FEATURES ARE ENLISTED AS UNDER : SL. NO. NATH BIO GENES INDIA LTD. NAMDHARI SEEDS PVT. LTD. 1. LAND TAKEN ON LEASE AND PAID LEASE RS.6,21,35,400/- DOES NOT TAKE ON LEASE 2. ENGAGES FARMERS FOR CULTIVATION OF LAND & FOR PRODUCTION/AGRICULTURAL ACTIVITY ENGAGES FARMERS FOR PRODUCTION OF HYBRID SEEDS 3. TAKES ENTIRE PRODUCE FROM FARMERS PURCHASES HYBR ID SEEDS, IF ONLY AS PER SPECIFICATION FROM FARMERS 4. REIMBURSED ENTIRE CULTIVATION EXPENSES, LAND PREPARATION-RS.2,59,09,610 FERTILIZER & PESTICIDERS.4,76,21,370/- FARM EXPENSES-RS.3,31,46,970/- LABOUR CHARGES RS.7,10,45,020/- NOT CONCERNED WITH EXPENDITURE 5. ENTIRE RISK OF CROP FAILURE IS WITH ASSESSEE RISK OF QUANTITY, QUALITY, FAILURE & COST REMAINS WITH FARMERS FURTHER, HEAVILY RELYING ON THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF ACIT VS. AJEET SEEDS LTD. (SUPRA), LD. COUNS EL SUBMITTED THAT THE SAID JUDGMENT IS, BEING FAVOURABLE TO THE ASSESSEE, WAS DE LIVERED AFTER DISTINGUISHING THE JUDGMENT OF KARNATAKA HIGH COURT IN THE CASE OF N AMDHARI SEEDS PVT. LTD. REFERRING TO THE AOS ALLEGATION THAT THE SEEDS WERE PU RCHASED BY THE ASSESSEE FROM THE GROWERS, LD. COUNSEL SUBMITTED THAT TH E SAME IS INCORRECT. ASSESSEE NEVER PURCHASED THE SEEDS AS THE SAID GROWE RS/LANDLORDS ARE UNDER CONTRACTUAL OBLIGATION TO GROW THE SEEDS FOR THE ASSESSE E. REFERRING TO THE HUGE EXPENDITURE INCURRED BY THE ASSESSEE ON LAND REN T/DEVELOPMENT, FERTILIZERS, OTHER OVERHEADS ETC., LD. AR SUBMITTED THE SAME IS GENUINE AND AO NEVER DISTURBED THE CLAIMS IN THIS REGARD. ASSESSEE P AID ADVANCES TO THE GROWERS/LANDLORDS FOR MEETING ALL THE AGRICULTURAL EXPENSES INCURRED BY THEM. 19 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 THEREFORE, THE GROWERS CONSTITUTE CONTRACT LABOURERS/EM PLOYEES OF THE ASSESSEE FOR THIS PURPOSE. AOS CASE LAWS DISTINGUISHABLE ON FACTS : REFERRING TO THE JUDGMENT IN THE CASE OF PRO-AGRO SEEDS COMPANY LTD. (SUPRA), LD. COUNSEL SUBMITTED THAT AO RELIED HEAVILY ON THIS JUDGMENT FOR THE PROPOSITION THAT P RODUCTION OF HYBRID SEEDS DO NOT CONSTITUTE AGRICULTURAL ACTIVITY. DISTINGUISHIN G THE SAME, LD. COUNSEL SUBMITTED THAT THE FACTS OF THE CASE ARE ENTIRE LY DIFFERENT WHERE THE ASSESSEE LEASED THE LANDS, EMPLOYED THE LABOURERS TO CULT IVATE THE LAND TAKEN KEEPING THE ENTIRE RISK WITH THE ASSESSEE. FURTHER, REFER RING TO ANOTHER DECISION RELIED ON BY THE AO IN THE CASE OF PIONEER OVERSE AS CORPORATION REPORTED IN 35 SOT 467, LD. COUNSEL SUBMITTED THAT THE FA CTS ARE DISTINGUISHABLE. REFERRING TO ANOTHER DECISION IN THE CASE O F TARAI DEVELOPMENT CORPORATION VS. CIT (SUPRA) AS WELL AS DECISION IN THE CASE OF NAVBHARAT SEEDS PVT. LTD., LD. COUNSEL SUBMITTED THAT TH E SAME ARE AGAIN DISTINGUISHABLE ON FACTS. MENTIONING THAT THE ASSESSEE IS ALSO ENGAGED IN THE TRAD ING ACTIVITY, LD. COUNSEL SUBMITTED THAT THE ASSESSEE PURCHASED SEEDS FR OM THE OPEN MARKET TO THE TUNE OF RS.8,01,51,000/- AND EARNED THE PROFIT OF RS .3,57,78,285/- AFTER NETTING OFF THE DIRECTING EXPENSES. CONSIDERING THE IN DIRECT EXPENSES OF RS.2,51,55,781/- THE TRADE PROFIT RESULTED THE LOSS OF RS.7.40 CRORES (ROUNDED OFF). FURTHER, LD. COUNSEL SUBMITTED THAT THE AO IS NOT COR RECT IN HIS OBSERVATION THAT THE SUBSEQUENT OPERATIONS WERE NOT C ARRIED OUT BY THE ASSESSEE BUT DONE BY THE RESPECTIVE GROWERS. REITERAT ING THE SAME, LD. COUNSEL FILED THE FOLLOWING ARGUMENTS : (I) GROWERS ARE CONTRACT EMPLOYEES OF THE ASSESSEE FOR WHICH THEY ARE PAID WAGES. 20 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 (II) APPELLANT SIMPLY GROWS CROPS WHICH IS IN ITSEL F THE SEED. THEN THE SEEDS ARE TREATED AND NOT USED AS RAW MATERIAL FOR SEED B UT ARE SOLD AS IT IS. IT IS SUBMITTED THAT TREATING THE SEED AND THEN SELLING I S NOT A SEPARATE ACTIVITY. THE APPELLANT ULTIMATELY SELLS THE SEEDS AS IT IS. IT IS SUBMITTED THAT SUBSEQUENT PROCESSES DONE BY THE APPELLANT DOES NOT ALTER THE CHARACTER OF SEED. III. IT IS LIKE REMOVING MUD FROM WHEAT AND THEN SE LLING THE SAME; OR RIPENING OF MANGO, OR BANANA, OR LIKE KEEPING THE PRODUCT IN COLD STORAGE AND SELLING AT HIGHER PRICE; OR SELLING THE CROP BY PACKING THEM A ND SELLING THROUGH RETAIL CHAINS AT HIGHER MARGINS. ALL ARE CASES OF AGRICUL TURAL INCOME. IV. THE APPELLANT HAS ENSURED QUALITY OF PRODUCT BY JUST SORTING THEM OUT AND HAS NOT DONE ANY MATERIAL SUBSEQUENT OPERATION ON THE PRODUCE. DETAILS OF FURTHER OPERATION AFTER SEEDS ARE RECEIVED, PERFORM ED BY COMPANY ARE EXPLAINED. V. DECISION OF HONBLE SC IN THE CASE OF STATE OF M ADRAS VS. RAMAN & CO. AND OTHERS 93 STC 185 IS IMPORTANT FOR THIS ISSUE. IN THAT CASE, THE ASSESSEE HAD PURCHASED UNUSABLE RAILWAY WAGONS FOR SCRAPING AND SELLING AND HONBLE SC HAD HELD THAT UNUSABLE WAGON WAS NOTHING BUT SCR AP AND SALE IS ALSO OF SCRAP. HENCE THERE WAS NO NEW PRODUCT SINCE BOTH I NPUT AND OUTPUT ARE SEEDS; SIMILARLY THE PRODUCE OF AGRICULTURE IS SEED AND AFT ER CERTIFICATION ALSO THE PRODUCE IS SEED. HENCE THERE IS NO NEW PRODUCT. H ENCE ENTIRE INCOME IS AGRICULTURAL INCOME. VI. THEN THE LD. AO HAS ARGUED THAT SUBSEQUENT OPER ATIONS HAVE MADE THE INCOME AS NON-AGRICULTURAL INCOME IN RELATION TO IN COME FROM SUBSEQUENT OPERATION. IT IS SUBMITTED THAT SUBSEQUENT OPERATI ONS ARE NOT MATERIAL AND THEY DO NOT ALTER THE NATURE OF THE PRODUCE. IT IS ONLY SORTING QUALITY WISE, DOING CHEMICAL TREATMENT FOR LONGER LIFE ETC. HENCE ENTIR E INCOME IS AGRICULTURAL INCOME. VII. SEEDS AFTER GOING THROUGH CLEANING, PRESERVATI ON PROCESS ETC. ARE STILL FIR FOR HUMAN CONSUMPTION AFTER WASHING. HENCE DO NOT CHANGE NATURE & NO NEW COMMODITY CAME INTO EXISTENCE. FOR EXAMPLE MANGOES ARE APPLIED VAX BEFORE SELLING. THEY ARE TO BE WASHED BEFORE CONSUMPTION. SUBSEQUENT OPERATIONS AFTER BASIS OPERATION SHOULD BE UNDERSTOOD IN CONJU NCTION WITH BASIC OPERATION. SETTLED ISSUE LEGALLY : FINALLY, RELYING ON THE JUDGMENT IN THE CASE OF M/S. ADVANTA INDIA LTD. VS. DCIT 5 ITR 57 (BANG.) AS WELL AS W ELL AS M/S. MONSANTO INDIA LTD. VS. ACIT IN ITA NO.6093/MUM/2007, LD. COUNSEL SUBMITTED THAT GROWING SEEDS ON LEASEHOLD LAND CONSTITUTE AGRICULTURAL ACTIVITY AND THE INCOME EARNED FROM SUCH ACTIVITY IS EXEMP T U/S.10(1) OF THE ACT. REFERRING TO THE JURISDICTIONAL DECISION O THE TRIBUNA L IN THE CASE OF M/S. AJEET SEEDS LTD. (SUPRA) AS WELL AS THE JUDGMENT OF ANDHR A PRADESH HIGH COURT IN THE CASE OF VIBHA AGROTECH LIMITED VS. INCOME-T AX OFFICER (2009) 120 ITD 182 AND PRASHANT AGRO REPORTED IN 42 ITR 319 (H YD.) LD. COUNSEL SUBMITTED THAT GROWING OF AGRICULTURAL SEEDS AND MARKETING THEM CONSTITUTE 21 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 AGRICULTURAL ACTIVITY AND THEREFORE, EXEMPT FROM TAXATION. L D. COUNSEL ALSO RELIED ON VARIOUS OTHER DECISIONS TO DEMONSTRATE THAT TH E ACTIVITY OF TAKING LEASEHOLD LANDS FROM THE LANDLORDS AND HAVING CONTRACTUAL A RRANGEMENT WITH SUCH LANDLORDS TO GROW THE SEEDS SUPPLIED BY THE ASSESS EE AND HAND OVER THE AGRICULTURAL SEEDS TO THE ASSESSEE AFTER HARVESTING CONS TITUTES AGRICULTURAL ACTIVITY. NARRATING THE SUBSEQUENT OPERATIONS OF TREATING THE SEEDS AS NARRATED ABOVE, LD. COUNSEL SUBMITTED THAT THE INCOME E ARNED ON SALE OF SUCH CERTIFIED SEEDS CONSTITUTE EXEMPT AGRICULTURAL INCOME. MERELY DRAWING THE LEASEHOLD AGREEMENT AND NOT REGISTERING THEM AS PER THE PROVISIONS OF SECTION 17(1)(D) OF THE REGISTRATION ACT, 1908 DOES NOT TAKE AWAY THE BENEFITS GIVEN BY THE STATUTE TO THE ASSESSEE. THE GROUNDS C REATED BY THE AO CONSTITUTE FRIVOLOUS AND UNSUSTAINABLE LEGALLY. REFERRING TH E ORDERS OF THE CIT(A) IN ALL THESE ASSESSMENT YEARS, LD. COUNSEL SUBMITTED THAT THE SAID ORDERS ARE FAIR AND REASONABLE AND THE SAME SHOULD BE C ONFIRMED WITHOUT AMENDING THE SAME FOR ALL THE 4 YEARS. DECISION OF THE TRIBUNAL 17. THERE ARE COUPLE OF COMMON ISSUES FOR ADJUDICATION BEFORE US IN T HESE 4 APPEALS BY THE REVENUE INVOLVING A.YRS. 2011-12 TO 2014-1 5. THEY ARE : (1) ISSUE OF GRANTING EXEMPTION U/S.10(1) OF THE ACT IN RESPECT OF THE INCOME EARNED BY THE ASSESSEE OUT OF PRODUCTION OF CERTIFIED SEE DS AND RELATED ACTIVITIES. THIS IS COMMON ISSUE FOR ALL THE 4 ASSESSMENT YE ARS UNDER CONSIDERATION AND; (2) THE ISSUE OF MAKING DISALLOWANCE U/S.1 4A R.W. RULE 8D(2) OF THE I.T. RULES, 1962. THIS ISSUE IS RELEVANT FOR A.YRS . 2013-14 AND 2014-15 ONLY. 22 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 18. WE HEARD BOTH THE SIDES AND PERUSED THE ORDERS OF THE REVENUE. WE HAVE ALSO PERUSED THE PAPER BOOK FILED BY BOTH THE SIDES AND THE DECISION RELIED ON BY THEM. THE OBJECTIONS OF THE AOS ARE : A. ABSENCE OF THE REGISTERED DEEDS OF LEASED LANDS ON ST AMP PAPERS MAKES THE CLAIM OF THE ASSESSEE U/S.10(1) OF THE ACT UNVIABLE. B. A. LETTER FROM MR.BHUMA BALA NARASIMHA REDDY CONVEYIN G THE SALE OF SEEDS; AND B. AOS FAILURE TO PUT THE SAID LETTER TO THE ASSESSEE OR ALLOWING ASSESSEE TO CROSS EXAMINE MR. REDDY. C. APPLICABILITY OF JUDGMENTAL LAWS IN GENERAL AND THE JURISDIC TIONAL HIGH COURT JUDGMENT IN THE CASE OF AJEET SEEDS LTD. D DRS REQUEST FOR REMANDING . WE SHALL DEAL WITH EACH OF THESE ISSUES AS FOLLOWS : A. ABSENCE OF THE REGISTERED DEEDS OF LEASED LANDS ON THE STAMP PAPER MAKES THE CLAIM U/S.10(1) OF THE ACT UNVIABLE ACTED UPON BY BOTH PARTIES UNDISPUTEDLY, THE FACTS RELEVANT TO THIS ISSUE INCLUDE THA T THE ASSESSEE IN THE A.Y. 2011-12 ENTERED INTO CONTRACTUAL AGREEMENTS WITH LAN D OWNERS/GROWERS, THE LIST IS AVAILABLE ON PAGES 1 TO 240 OF PAPER BOOK NO.3 . AS PART OF THE AGRICULTURAL ACTIVITY, ASSESSEE INCURRED RS.2.59 CRORES FOR P REPARATION OF THE LANDS OWNED BY THE LANDLORDS. ASSESSEE USED THESE LANDS FOR GROWING THE SEEDS AND PROVIDED BASIC SEEDS FOR USE BY THE LANDLORDS- CUM-GROWERS. IN THIS CONTEXT, THE ASSESSEE INCURRED RS.4.76 CRORES IN SUPPLY OF THE FERTILIZERS AND PESTICIDES. RS.7.10 CRORES WAS SPENT ON THE LABOUR WAGES . RS.2.21 CRORES WAS INCURRED BY THE ASSESSEE ON ACCOUNT OF LEASE RENT PAID TO THE LANDLORDS. IN ADDITION, RS.3.32 CRORES WAS SPENT ON OTHER FARM EXPE NSES. RS.5.26 CRORES WAS SPENT ON SUPPLY OF PROCESSING MATERIAL. THUS, THE AO NEVER DOUBTED THE GENUINENESS OF THE EXPENDITURE ON ALL THE HEADS OF EXPEND ITURE ENLISTED IN THE 23 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 SCHEDULES EXTRACTED IN THE TABLES GIVEN IN THE PRECEDING PARAGRAPHS OF THIS ORDER (LAND PREPARATION EXPENSES, FERTILIZERS AND PESTICIDES , LABOUR, WAGES, INCENTIVE GROWERS, LAND RENT, OTHER FORM EXPENSES, STORES AND MATERIAL CONSUMED ETC). THE GENUINENESS OF THESE EXPENSES WERE UNDOUBTED BY THE AO. ADDITIONALLY, RS.33.45 CRORES WAS SPENT ON CERTAIN DIRE CT EXPENSES, THE DETAILS OF WHICH ARE DISCUSSED IN THE PRECEDING PARAGRAPHS OF THIS ORDER. WHEN THESE EXPENSES ARE INCURRED UNDISPUTEDLY BY THE ASSESSEE ON ALL THE BASIC ACTIVITIES OF AGRICULTURE, MERE ABSENCE OF REGISTERED LE ASEHOLD LAND AGREEMENT DOES NOT DISENTITLE THE ASSESSEE FROM THE BEN EFITS OF THE AGRICULTURAL INCOME. IN THE PROCESS, THE WRITTEN LEASE DE EDS WERE ACTED UPON BY THE PARTIES OF THE AGREEMENT IN THEIR TRUE SPIRIT. WE FIND IT IS A CASE THAT THAT ASSESSEE SUPPLIED ALL THE NEEDS REQUIRED FOR AGRICULTU RAL ACTIVITIES, I.E. MONEY, SEEDS, LEASE LANDS AND MET ALL THE EXPENDITURE AND COLLECTED THE SEEDS GROWN IN THE SAID LANDS USING THE SERVICES OF THE LANDOWNE RS-CUM-GROWERS. IT IS NOT A CASE OF BUYING OF SEEDS FROM THE LANDLORDS. ASSES SEE PAID TO THE LANDLORDS FOR THE SERVICES AS WELL AS THE RENT OF THE LANDS. 18.1 FURTHER, REGARDING THE RULE OF CONSISTENCY, WE FIND THA T OTHER UNDISPUTED FACTS INCLUDE THAT THE ASSESSEES CLAIM OF AGRIC ULTURAL INCOME ON SIMILAR FACTS WERE ACCEPTED BY THE REVENUE OVER THE YEARS. THIS IS FO R THE FIRST TIME THE REVENUE DISTURBED THE CLAIM OF THE ASSESSEE FROM THE A.Y. 20-11-12 ONWARDS. FURTHER ALSO, ON THE SALES UNDOUBTED, THE VARI OUS PROCESSES IN PREPARATION OF THE CERTIFIED SEEDS AND SALE OF THE SAME TH ROUGH RETAIL OUTLETS ARE ALSO UNDISPUTED BY THE REVENUE. THE OBJECTION OF TH E REVENUE IS THAT THE SAID LEASE DOCUMENTS WERE NOT REGISTERED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 17(1A) OF THE REGISTRATION ACT, 1908. CONSIDERING TH E ABOVE, THE OBJECTIONS OF THE AO ARE MERE PROCEDURAL ONES AND WHEN ACTED UPON, THEY ARE NOT ADEQUATE ENOUGH TO TREAT THE LEASE DEEDS AS BOGUS OR SHAM ET C. 24 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 18.2 FURTHER ON THIS, WE FIND THAT THE LAND OWNERS-CUM-GR OWERS RUN INTO THOUSANDS OF GROWERS SPREAD ACROSS MANY STATES IN IND IA. THE ASSESSEE FURNISHED THE COPIES OF 7/12 EXTRACTS IN THE FORM OF THE P APER BOOK. ON PERUSAL OF THE SAID EXTRACTS, WE FIND THE OWNERSHIP OF THE LAND BY THE RESPECTIVE LANDLORDS IS UNDISPUTED FACT. THE SURVEY NUMBER S MENTIONED THEREIN WERE ALSO NOT FOUND BOGUS. THESE EXTRACTS ARE IN PUBLIC DOMAIN AND ARE BORNE OUT OF GOVT. RECORDS. AT THE RELEVANT POINT O F TIME AND AS PER THE SAID DOCUMENTS, THE SAID LANDS WERE IN USE FOR AGRICULTURA L ACTIVITIES. THE LAND RENTS PAID BY THE ASSESSEE TO THE RESPECTIVE LANDLO RDS-CUM-GROWERS IS UNDISPUTED. OF COURSE, THE 7/12 EXTRACTS DO NOT BEAR T HE NAME OF THE ASSESSEE AS LESSOR. ON THIS ASSESSEE SUBMITS THAT IT IS A CUMBERSO ME PROCESS CONSIDERING THE HUGE LANDS QUANTITATIVELY AND ALSO LARGE NUMBER OF THE LANDLORDS. REGARDING THE GENUINENESS OF THE PAYMENTS, AO ACCEPTS THE FACT THAT THE PAYMENTS WERE MADE SUBSTANTIALLY THROUGH THE BANKING CHANNELS. IT IS ALSO UNDISPUTED THAT THE SAID LAND LEASE DOCUMENTS WER E ACTED UPON IN ITS SPIRIT BY BOTH THE ASSESSEE AS WELL AS THE LAND OWNERS-C UM-GROWERS. ALL THESE FACTS DEMONSTRATE THE GENUINENESS OF THE LAND LEASE DOCU MENTS. THEREFORE, WE ARE OF THE OPINION THAT IT IS NOT APPROPRIATE TO DESCR IBE THE SAID LAND LEASE DOCUMENTS AS NOT RELIABLE AND DISALLOW THE CLAIM OF THE ASS ESSEE RELATING TO TAXABILITY OF AGRICULTURAL INCOME. 19. THEREFORE, IT IS A CASE THAT THE LEASED LANDS ARE USE D FOR AGRICULTURAL ACTIVITY OF THE ASSESSEE, HUGE EXPENDITURE WAS INCURRED B Y THE ASSESSEE FOR THE SAID ACTIVITY, SALES OF THE AGRICULTURAL PRODUCE WAS UND OUBTED, CLAIM OF THE ASSESSEE WAS ALLOWED UPTO THE A.Y. 2010-11 ON SIMILAR FACTS ETC. THUS, WE ARE OF THE OPINION THAT THE ASSESSEES FAILURE TO GET THE LAND LEASE DOCUMENTS REGISTERED U/S.17(1A) OF THE ACT (SUPRA) CANNOT BE A GR OUND FOR THE REVENUE TO WITHDRAW THE CLAIM OF AGRICULTURAL INCOME VIOLATING THE PRINCIPLE 25 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 OF CONSISTENCY. RELIANCE PLACED BY THE LD. DR FOR THE REV ENUE IN THE CASE OF D. VENKATA SURYANARAYANA RAJU VS. ITO IN ITA NOS. 68 & 69/VIZ/2014, DATED 28-04-2017 IS OF NO USE AS THE SAID DECISION IS DELIV ERED IN THE CONTEXT OF ACCRUAL OF CAPITAL GAINS QUA THE DATES MENTIONED IN AN U NREGISTERED AGREEMENT DATED 24-08-2005 WHEREAS, WE DEAL WITH A CAS E ON HAND WHERE THE ASSESSEE LEASED THE LANDS FOR AGRICULTURAL ACTIVITY AT A LARGER SCALE AND BOTH THE ASSESSEE AND THE LANDLORDS-CUM-GROWERS ACTED EACH OF TERMS OF THE AGREEMENT IN BONAFIDE BELIEF. ACCORDINGLY, THIS PART OF ARGUMENTS OF LD. DR IS DISMISSED. 20.B. DECISION ON SAID CONFIRMATION LETTER FROM MR. BHUM A BALA NARASIMHA REDDY FAILED TO PROVIDE COPY OF THE SAM E TO ASSESSEE AND ALLOW THE BENEFIT OF CROSS EXAMINATION IF DESIRED : RELEVANT FACTS ARE DISCUSSED IN THE PRECEDING PARAGRAPHS OF THIS ORDER. DUR ING THE ASSESSMENT PROCEEDINGS FOR THE A.Y.2012-13, FOR THE FIRST TIME, AO CONDU CTED THE ENQUIRIES BY INVOKING THE PROVISIONS OF SECTION 133(6) OF THE ACT IN RESPECT OF THE SELECT CASES OF LAND OWNERS-CUM-GROWERS ON SAMPLE B ASIS. BARRING A SOLITARY CASE IN RESPECT OF MR. BHUMA BALA NARASIMHA REDDY , ALL OTHER CASES CONFIRMED THE GENUINE CLAIM OF AGRICULTURAL ACTIVITIES AND ALSO THE CONTENTS OF THE SAID LAND-LEASE AGREEMENTS. IN THE SOLITARY CASE OF M R. BHUMA BALA NARASIMHA REDDY, THERE IS NO POSITIVE CONFIRMATION IN FAVOUR OF THE ASSESSEE. IT INDICATED THE SALE OF SEEDS GROWN IN HIS LAND. THE QUAN TITY OF SEEDS IS VERY SMALL AND NEGLIGIBLE VIS--VIS THE TURNOVER OF THE ASSESSEE. IN ANY CASE, WHEN SUCH ADVERSE EVIDENCE IS FATHERED BY THE AO, IT IS THE DU TY OF THE AO TO PUT THE SAME TO THE ASSESSEE FOR COMMENTS. IT IS A SETTLED LEGAL PRINCIPLES OF NATURAL JUSTICE AND ALLOWED THE BENEFIT OF CROSS EXAMINATION IF REQUIRED. AO NEEDS TO CONSIDER THE REPLY OF THE ASSESSEE BEFORE MAK ING ANY ADDITION IN THE ASSESSMENT. ADMITTEDLY, IN THE INSTANT CASE, THE AO SKIPP ED ALL THE SETTLED 26 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 LEGAL PROCEDURES AND PROCEEDED TO MAKE ADDITION AT THE BACK OF THE ASSESSEE. AO EXTRAPOLATED THIS ADVERSE FINDING TO THE ENTIRE AGRICU LTURAL PRODUCE AND THE SAME IS UNSUSTAINABLE. IN OUR VIEW, THIS MANNER OF MA KING ADDITIONS IS A SUBSTANTIAL DEVIATION FROM THE SETTLED LEGAL PROPOSITIONS. THEREFORE, THIS LINE OF APPROACH OF THE AO IS NOT APPROVED. FOR THE SAKE OF COMPLETENESS, WE PROCEED TO EXTRACT T HE RELEVANT LINES FROM THE LETTER OF MR.BHUMA BALA NARASIMHA REDDY DATED 27 -03-2015 (TRANSLATED IN ENGLISH) AND THE SAME READS AS UNDER : . .. WE HAVE RECEIVED PAYMENT FOR SELLING THE JOWAR CROP , WHICH WE HAVE CULTIVATED IN OUR FARM, TO THE ABOVE MENTIONED COMPANY. ... FROM THE ABOVE, IT IS EVIDENT THAT MR.BHUMA BALA NARASIM HA REDDY CLAIMED THE TRANSACTION BETWEEN THE ASSESSEE AND HIM AS SALES OF THE SEEDS. WITH DUE RESPECT TO THE PROCEDURAL LAPSES DISCUSSED IN T HE PRECEDING PARAS OF THIS ORDER, WE FIND THE ABOVE PIECE OF EVIDENCE COULD HAVE BEEN HANDLED BY THE AO IN A DIFFERENT FASHION. IT IS BORNE ON RECORDS THA T THE ASSESSEE IS CERTAINLY ENGAGED IN TRADING ACTIVITY OF THE SEEDS ALSO. HARMONY WITH THE SAME, AO COULD HAVE IDENTIFIED THE PROFITS OF THIS TRANSACTION AND TAXED THE SAME AS INCOME OF THE ASSESSEE IN THAT A.Y. 2012-13, THE YEAR OF RECEIPT OF SALE OF SEEDS INSTEAD OF USING THE SAME FOR EXTRAPOLATIONS TO THE ENTIRE GENUINE TRANSACTIONS OF THE FOUR ASSESSMENT YEARS UNDER CONSIDERATION. THEREFORE, AO IS DIRECTED TO TAKE NECESSARY ACTION & TAX THE RELEVANT PROFITS ATTRIBUTABLE TO THE SAID PURCHASE OF SEEDS FROM MR.BHUMA BALA NARASIMHA REDDY ONLY AFTER GRANTING REASONABLE OPPORTUNITY OF BEIN G HEARD TO THE ASSESSEE. WITH THESE OBSERVATIONS AND DIRECTIONS, WE PAR TLY ALLOW THE ARGUMENTS RAISED BY THE ASSESSEE IN THIS REGARD. 27 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 21.C. APPLICABILITY OF JUDGMENTAL LAWS JUDGMENT OF HIGH COURT OF BOMBAY IN THE CASE OF AJEET SEEDS LTD. - GROWING OF BREEDER &FOUNDATION SEEDS AMOUNTS TO AGRICULTURE: WE HAVE PERUSED THE DECISIONS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE ON THE ISSUE OF AGRICULTU RE NATURE OF THE ACTIVITIES OF GROWING BREEDER/FOUNDATION/CERTIFIED SEEDS AND THE EXEMPT NATURE OF THE INCOME U/S.10(1) OF THE ACT. 21.1 THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V S. AJEET SEEDS LTD. IN ITA NOS. 90 TO 115/PN/2012, DATED 22-03-2013 FOR THE A.YRS. 2002-03 TO 2008-09 ADJUDICATED SIMILAR ISSUE AND HELD THAT GROWING OF BREEDER AND FOUNDATION SEEDS AND FINALLY MAKING OF THE CERTIFIED SEEDS ON THE LANDS OWNED BY THE LANDLORDS-CUM-GROWERS AMOUNTS TO AGRICULTURAL ACT IVITY. OPERATIONAL PARA NO.6.2 OF THE SAID ORDER OF THE TRIBUNAL IS RELEVANT AN D THE SAME IS EXTRACTED HERE AS UNDER : 6.2. THE CIT(A) HAVING CONSIDERED THE SAME, OBSERV ED THAT FOUNDATION SEEDS, BREEDER HYBRID SEEDS PRODUCED BY THE ASSESSEE HIMSE LF RESULTS INTO AGRICULTURAL INCOME OR NON-AGRICULTURAL INCOME HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT BANGALORE BENCH IN THE CASE OF ADVANTA INDIA LTD. VS. DCIT (2010) 5 ITR 57 (BANG.TRIB). IN THE SAID CASE, REASONS POI NTED OUT BY THE ASSESSING OFFICER TO DENY THE CLAIM OF EXEMPTION MADE BY THE ASSESSEE WERE THAT ASSESSEE WAS FOLLOWING INTERNATIONAL TECHNOLOGY, MA RKETING EXPERTISE, INTEGRATED SCIENTIFIC AND COMMERCIAL ACTIVITY ETC. THE TRIBUNAL IN THE CASE OF ADVANTA INDIA LTD. (SUPRA) HELD THAT ALL THESE REAS ONS/MATTERS WERE STRANGE TO THE STRICT CODE OF INCOME TAX ACT. THE ITAT, BANGAL ORE BENCH HAS CONCLUDED THAT FOUNDATION SEEDS OR HYBRID SEEDS PRODUCED IN O WN LAND OR LANDS TAKEN ON LEASE WILL BE THE RESULT OF AGRICULTURAL O PERATIONS AND THE PROFITS ARISING OUT OF SUCH ACTIVITIES SHALL BE TRE ATED AS AGRICULTURAL INCOME. IN VIEW OF ABOVE, THE CIT(A) WAS JUSTIFIED IN FOLL OWING THE DECISION OF ITAT, BANGALORE BENCH, IN FAVOUR OF THE ASSESSEE AL SO FOLLOWING THE CASE OF INDO AMERICAN EXPORTS AND NAMDHARI SEEDS PVT. LTD. (SIC) IN THEIR COMMON ORDER DATED 14.07.2006 BEARING ITA NO.1040/BANG/2002 AND ITA. NO.3102 /BANG /2004 WHEREIN SIMILAR ISSUE WAS IN FAVOUR OF ASSESSE E. THUS THE CIT(A) FOLLOWING THE RATIO LAID DOWN IN THE CASE OF ADVANT A INDIA LTD., INDO AMERICAN EXPORTS AND NAMDHARI SEEDS PVT. LTD. (SUPRA) (SIC) HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN TREATING AGRICULTURAL INCOME IN RESPECT OF SALE OF BREEDER SEEDS AND FOUNDATION SEEDS AS NON-AGRICULTU RAL INCOME. NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE ON BEHALF OF THE REVENUE. UNDER THE FACTS AND CIRCUMSTANCES, THE CIT(A) HAS RIGHTLY DEL ETED THE ADDITION OF RS.10,14,138/-, RS.33,25,158/-, RS.26,99,190/-, RS. 5,53,670/-, RS. 5,53,166/-, RS.4,70,272/-, RS.7,79,837/- FOR A. YS. 2002-03 TO 2008-09, RESPECTIVELY. THIS FACTUAL AND LEGAL FINDING NEEDS NO INTERFERENCE FROM OUR SIDE. WE UP HOLD THE SAME. 28 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 21.2 WHEN THE MATTER TRAVELLED TO THE HONBLE BOMBAY HIG H COURT BY THE REVENUE, THE HONBLE HIGH COURT OF JUDICATURE AT BOMBAY, AURANGABAD BENCH PASSED THE JUDGMENT DATED 18-06-2015 CONFIRMING THE ORDER OF THE TRIBUNAL. PARA NO.7 OF THE SAID JUDGMENT IS RELEVANT AND T HE SAME IS EXTRACTED AS UNDER : 7. COMING BACK TO THE QUESTION, AS TO WHETHER GROW ING BREEDER AND FOUNDATION SEEDS WOULD AMOUNT TO AGRICULTURE, THE ANSWER HAS TO BE AFFIRMATIVE. IT IS NOT DENIED THAT FOR GROWING BRE EDER AND FOUNDATION SEEDS, SEEDS ARE SOWN IN FIELD AND USUAL AGRICULTURAL OPER ATIONS, BASIC AND SUBSEQUENT, ARE UNDERTAKEN UTILIZING HUMAN SKILL. IN ADDITION TO THIS, MEASURES ARE TAKEN FOR RESTRICTING ROLE OF NATURE. SUCH MEA SURES ARE ONLY TAKEN IN ENHANCING THE YIELD. SUCH MEASURES, THUS, HAVE NOT HING TO DO WITH THE BIOLOGICAL GROWTH THAT TAKES PLACE IN THE SOIL OR S UCH OTHER SUBSTRATUM WHERE THE SEEDS ARE SOWN. AN AGRICULTURIST WHILE GROWING HIS CROPS, IS KNOWN TO HAVE USED CONVENTIONAL AS WELL AS SCIENTIFIC METHOD FOR REDUCING HOSTILE INTERPLAY OF NATURAL FORCES ON HIS CROP. WHEN SUCH ACTIVITY IS TAKEN TO HIGHEST STANDARD, IT WOULD STILL NOT MAKE THE GROWING OPERATION, A SYNTH ETIC ONE. THUS, GROWING SEEDS CAN NEVER BE NON AGRICULTURAL. IN VIEW OF TH IS, WE DO NOT SEE ANY SUBSTANTIAL QUESTION OF LAW IN THESE APPEALS. 21.3 IN THE PROCESS, THE HONBLE HIGH COURT CONSIDERED T HE APPLICABILITY OF THE JUDGMENT OF TRIBUNAL IN THE CASE OF ADVANTA INDIA LTD . VS. DY.CIT 5 ITR 57 (BANGALORE TRIBUNAL). REGARDING THE REFERENCE MADE BY T HE LD. COUNSELS TO THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF AD VANTA INDIA LTD. (SUPRA) AND KARNATAKA HIGH COURT JUDGMENT IN THE CASE O F CIT VS. NAMDHARI SEEDS PVT. LTD. 341 ITR 342 (KAR.), THE HONBLE HIGH COUR T DISTINGUISHED THE SAID JUDGMENT IN THE CASE OF NAMDHARI SEEDS PVT. LTD. (SU PRA). RELEVANT PARA NOS. 5 AND 6 OF THE JUDGMENT IN THE CASE OF AJEET SEEDS LTD. ARE EXTRACTED HERE AS UNDER : 5. THE LEARNED COUNSEL FOR THE APPELLANT TELLS US, THAT THE VIEW TAKEN BY THE AUTHORITIES BELOW IS ERRONEOUS AND WAS BASED ON JUD GMENT OF INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF ADVANTA INDIA LTD . VS. DY.CIT (2010) 5 ITR 57 (BANGALORE TRIBUNAL). ACCORDING TO THE LEARNED COU NSEL FOR THE APPELLANT, THIS JUDGMENT IS SET ASIDE BY KARNATAKA HIGH COURT, IN T HE CASE OF COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, BANGALORE VS. NAMDHARI SEEDS (P) LTD. (2011) 341 ITR 342 (KARNATAKA). ACCORDING TO THE LEARNED COUN SEL FOR THE APPELLANT, THIS CASE SHOULD, THEREFORE, GIVE RISE TO A SUBSTANTIAL QUESTION OF LAW. 6. WE ARE UNABLE TO ACCEPT THE CONTENTION RAISED BY THE LEARNED COUNSEL FOR THE APPELLANT. WE FIND, THAT THE BASIC PREMISE ON WHICH THE APPELLANTS CASE IS 29 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 BASED, IS PARA 12.3(D) OF THE ASSESSMENT OFFICERS ORDER. THE OUTCOME OF THIS CASE HAS NO RELATION WHATSOEVER WITH THE JUDGMENT O F KARNATAKA HIGH COURT, IN THE CASE OF COMMISSIONER OF INCOME-TAX, CENTRAL CIR CLE, BANGALORE VS. NAMDHARI SEEDS (P) LTD. (SUPRA). WE HAVE CAREFULLY GONE THR OUGH THE JUDGMENT AND FOUND THIS. PLACING RELIANCE ON THIS JUDGMENT, IS TAKING THE DISCUSSION IN AN INCORRECT DIRECTION. 21.4 THUS, IT IS A SETTLED LEGAL PROPOSITION AT THE LEVEL OF TH E HONBLE HIGH COURT OF JUDICATURE AT BOMBAY, AURANGABAD BENCH THAT TH E GROWING OF BREEDER AND FOUNDATION SEEDS WOULD AMOUNT TO AGRICULTURE . THE SAID RATIO OF THE JUDGMENT IN THE CASE OF AJEET SEEDS LTD. (SUPRA) IS B INDING ON US CONSIDERING THE PRINCIPLES RELATING TO THE JURISDICTION. WE H AVE ALSO CONSIDERED THE FACTS RELATING TO THE CASE OF NAMDHARI SEE DS PVT. LTD. (NSPL) (SUPRA) AND FIND THE SAID DECISION IS DELIVERED ON DIFFERENT FACT S WHICH IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. WE PROCEED TO EXTRACT THE HELD PORTION AS UNDER : HELD, ALLOWING THE APPEALS, THAT THE ASSESSEE NEIT HER HAD DERIVATIVE INTEREST IN THE LAND NOR DID IT ACTUALLY CULTIVATE THE LAND. E VEN IF IT CULTIVATED THE LAND, IT WAS NOT A LESSEE OF THE LAND IN VIEW OF THE TERMS O F THE AGREEMENT ELIMINATING SUCH RELATIONSHIP. THE AGREEMENT SHOWED THAT EXCEP T SUPPLYING THE FOUNDATION SEEDS AND GIVING SCIENTIFIC ADVICE FROM TIME TO TIM E, EITHER AT THE TIME OF SOWING OR POLLINATION OR HARVESTING, NONE OF THE NORMAL AC TIVITIES OF AGRICULTURE WERE UNDERTAKEN BY THE ASSESSEE. THE ASSESSEE WAS NOT P AYING ANY RENT PER ACRE TO THE FARMER NOR GIVING ANYTHING IN KIND LIKE PRODUCE TO THE FARMER. THE ASSESSEE ONLY PAID A FIXED PRICE OF RS.3,200 PER QUINTAL OR ANY OTHER PRICE DEPENDING UPON THE TERMS OF THE AGREEMENT FOR FOUNDATION SEED S GROWN BY THE FARMER. THE ENTIRE READING OF THE TERMS OF THE AGREEMENT WOULD ONLY INDICATE THAT THE ASSESSEE WAS INTERESTED ONLY TO HAVE HEALTHY FOUNDA TION SEEDS GROWN FOR THE PROCESS OF CONVERTING THEM TO CERTIFIED SEEDS. THE ENTIRE INCOME AMOUNTED TO BUSINESS INCOME OF THE ASSESSEE AND THE ASSESSING O FFICER WAS JUSTIFIED IN TREATING THE ENTIRE INCOME AS BUSINESS INCOME. 21.5 FROM THE ABOVE, IT IS EVIDENT THAT, UNDER AN AGREEM ENT, THE NAMDHARI SEEDS PVT. LTD. (SUPRA) ASSESSEE PURCHASES THE SEEDS G ROWN BY OTHER LANDLORDS AT A FIXED RATE PER QUINTAL. IN THE LANGUAGE OF THE HONBLE HIGH COURT, THE NSPL IS CONSIDERED INTERESTED ONLY TO HAVE H EALTHY FOUNDATION SEEDS GROWN FOR THE PROCESS OF CONVERTING THEM TO CER TIFIED SEEDS AND THE ASSESSEE CANNOT BE HELD AS AN AGRICULTURIST AS THE CONC ERNED AGRICULTURAL 30 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 ACTIVITIES ARE UNDERTAKEN BY THE OWNER OF THE LAND. THIS RATIO IS ENTIRELY INAPPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THE CAS E ON HAND, THE ASSESSEE PAID RENT TO THE FARMERS, BORE OTHER EXPENDITU RE RELATING TO THE LAND DEVELOPMENT/PLOUGHING/TILLING/CULTIVATION, FERTILIZERS, PESTICIDES, LAB OUR, TRANSPORTATION OF SEEDS ETC. IN THE PRESENT CASE, ASSES SEE MONITORED THE PROCESS OF AGRICULTURAL ACTIVITIES FROM THE TIME OF EMPLOYING THE QUALIFIED AGRICULTURAL DEGREE HOLDERS/OTHERS AND MONITORED FROM THE STAGE OF TILLING/LAND DEVELOPMENT TILL THE POINT THE PRODUCE IS TRANSPO RTED TO THE SCHEDULED PLACES BEARING THE ENTIRE EXPENDITURE ON ALL EVE NTS OF GROWTH OF THE SEEDS TO THE TRANSPORTATION OF THE SEEDS TO ITS GODOWN. IT IS NOT AT ALL A CASE OF BUYING OF THE SEEDS FROM THE FARMERS FOR A FIXED PRICE AS IN THE CASE OF NSPL (SUPRA). THUS, THESE FACTS MAKES ALL THE DIFFERENCE SO FAR AS THE GROWING OF THE FOUNDATION AND BREEDER SEEDS IN THE LANDS LEASED OUT BY THE ASSESSEE UNDER LAND-LEASE AGREEMENTS. THUS, THE FACTS OF THE PRES ENT CASE ARE CLOSELY AKIN TO THE FACTS IN THE CASE OF AJEET SEEDS LTD. (SUPRA). THEREFORE, WE ALLOW THE CLAIM OF THE ASSESSEE IN THE ASSESSMENT YEARS UNDER CONSIDERATION AND IN FAVOUR OF THE ASSESSEE. 22.D. LD. DRS REQUEST FOR REMANDING : FURTHER, THE OTHER ARGUMENT FROM LD. DR FOR THE REVENUE INCLUDE THE ARGUMENT OF REMANDING TO THE FILE OF AO FOR FRESH ADJUDICATION OF THE ISSUE. LD. DR REQUESTS FOR GR ANT OF ONE MORE ROUND TO THE REVENUE FOR MAKING THE ASSESSMENT FOR THE SE ASSESSMENT YEARS UNDER CONSIDERATION. IT IS SETTLED LEGAL PROPOSITION THAT SE TTING ASIDE THE ISSUE TO THE FILE OF AO IS VALID PROVIDED THE FACTS REQUIRED FOR AD JUDICATION OF THE ISSUE ARE NOT BROUGHT ON TO THE RECORDS. DR FAILED TO LIS T OUT OR DEMONSTRATE THE MISSING OF THE SAID FACTS. ON HEARING BOTH THE PARTIES , IN THE INSTANT CASE, NO SUCH CASE IS MADE OUT BY LD. DR BEFORE US. F URTHER, IT IS OTHER SETTLED LEGAL PROPOSITION THAT THE DR CANNOT MAKE OUT A NEW CASE W HICH IS NOT 31 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 RAISED FROM THE SIDE OF AO AND THE CIT(A). IT IS NOT THE CASE OF THE AO THAT T HE INVESTIGATION IN ALL THE ASSESSMENTS IS INCOMPLETE FROM ANY ANGLE. THEREFORE, WE ARE OF THE OPINION THAT, AS PER THE SAID SETTLED PRINC IPLE THE ARGUMENTS RAISED BY THE LD. DR FOR THE REVENUE ARE UNSUSTAINABLE. HENCE, THIS PART OF THE ARGUMENTS ARE DISMISSED. ACCORDINGLY, THE RELEVANT GROUNDS RAISED BY THE REVENUE IN ALL THESE APPEALS OF THE REVENUE STANDS DISMISSED. 23. TO SUM UP, ON THE FACTS OF ASSESSEE ENTERING INTO AN AGREEMENT W ITH THE AGRICULTURAL LANDLORDS-CUM-GROWERS FOR GROWING THE FOUNDATIO N AND BREEDER SEEDS AS PER THE TERMS AND CONDITIONS AND ALSO THE SCIE NTIFIC SPECIFICATIONS PROVIDED BY THE ASSESSEE, WHEN THE ASSESSEE BEARS ALL T HE EXPENDITURE ON LAND DEVELOPMENT, IRRIGATION, FERTILIZERS, PESTICIDES, TRANSPORTAT ION ETC., WHEN THE ASSESSEE PAYS THE LAND RENT AND ALSO FOR THE LABOU R, WHEN THE LANDLORD ACTS ONLY AS A GROWER AND HANDS OVER THE ENTIRE AGRIC ULTURAL PRODUCE OF FOUNDATION AND BREEDER SEEDS TO THE ASSESSEE AT THE E ND. GROWER NEVER SOLD THE AGRICULTURAL PRODUCE TO THE ASSESSEE ETC. THUS, THE ACTIVITY CONSTITUTES AGRICULTURAL ACTIVITY AS THE ASSESSEE CONSTITUTES AN AGRIC ULTURIST AND THE ENTIRE ACTIVITY OF PRODUCTION AND GROWING OF SAID SEEDS BEC OMES AN AGRICULTURAL ACTIVITY. THE SOLITARY EVIDENCE GATHERED BY T HE AO IN THE SOLITARY CASE OF SHRI BHUMA BALA NARASIMHA REDDY DOES NOT HOLD GO OD CONSIDERING THE FACT THAT THE SAID EVIDENCES WAS NOT PUT TO THE AS SESSEE IN A SETTLED PERSPECTIVE OF LEGAL PROCEEDINGS. THEREFORE, PROCUREMENT OF SEEDS FROM THE LANDLORDS-CUM-GROWERS IS NOT THE TRANSACTION OF PURCHASE OF SEEDS FOR TRADING ACTIVITY. FURTHER, THE JUDGMENT OF COORDINATE BENCH OF TH E TRIBUNAL IN THE CASE OF AJEET SEEDS LTD. (SUPRA) WAS CONFIRMED BY THE HON BLE COURT OF JUDICATURE BOMBAY, AURANGABAD BENCH IN THE SAID CASE. TH EREFORE, WE ARE OF THE OPINION THAT THE CLAIM MADE BY THE ASSESSEE IS PROPE R. THE DECISION OF 32 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 CIT(A) IS FAIR AND REASONABLE AND DOES NOT CALL FOR ANY INTER FERENCE. THE RELEVANT GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 24. DISALLOWANCE U/S.14A OF THE ACT R.W. RULE 8D(2) OF TH E I.T. RULES : THIS ISSUE IS RELEVANT FOR THE APPEALS FOR A.YS. 2013-14 AN D 2014-15 ONLY. GROUND NO.6 AND 7 OF THE APPEALS OF REVENUE ARE RELEVANT . AO MADE DISALLOWANCE U/S.14A OF THE ACT, AS PER THE DISCUSSION GIVEN IN COMMON PARA NO.5 OF THE ASSESSMENT ORDERS FOR THE A.YRS. 2013-14 AN D 2014-15 AMOUNTING TO RS.7,71,422/- AND RS.13,65,554/- RESPECTIVELY. REASONS GIVEN BY THE AO IN THEIR ORDER RELATES TO THE EXTENT OF INVESTMENTS IN S UBSIDIARY COMPANIES MADE BY THE ASSESSEE IN THE EXEMPT INCOME RELATED ACTIV ITIES. HOWEVER, IT IS NOT THE CASE OF THE AOS THAT ASSESSEE EARNED EXEMPT INCOME BY WAY OF DIVIDEND DURING THE YEARS AND THE SAME FORMED PART OF TH E TOTAL INCOME OF THE ASSESSEE FOR THE YEARS UNDER CONSIDERATION. FURTHER, C IT(A) CONFIRMED THE SAME. 25. BEFORE US, AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE FACTS AND SUBMITTED THAT THE ASSESSEE NEVER EARNED EXEMPT INCOME BY WAY OF DIVIDEND FROM THE SAID INVESTMENTS AND TH E SAME NEVER FORMED PART OF THE TOTAL INCOMES OF THE ASSESSEE. FURTHER, LD. COUNSEL FOR THE ASSESSEE RELIED ON VARIOUS B INDING DECISIONS TO DEMONSTRATE THAT THE PROVISIONS OF SECTION 1 4A OF THE ACT HAS NO APPLICATION, WHEN THE DIVIDEND INCOME IS NOT EARNED OUT OF T HE SAID INVESTMENTS. 26. PER CONTRA, LD. DR FOR THE REVENUE RELIED ON THE ORDER OF THE AO. 27. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE OF INVOK ING THE PROVISIONS OF SECTION 14A OF THE ACT R.W. RULE 8D OF THE I.T. RULES WH EN THE EXEMPT 33 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 INCOME IS NOT PART OF THE TOTAL INCOME IN THE ASSESSMENT YEARS UNDER CONSIDERATION. FURTHER, WE PERUSED THE ORDERS OF THE RE VENUE ON THIS ISSUE. ON PERUSAL, WE FIND THAT IT IS A SETTLED ISSUE THAT THE SA ID PROVISIONS ARE NOT APPLICABLE WHEN THE EXEMPT INCOME IS NOT INCLUDES IN THE TO TAL INCOME OF THE ASSESSEE. ACCORDINGLY, RELEVANT GROUNDS IN THE ASSESSM ENT YEARS UNDER CONSIDERATION ARE REQUIRED TO BE ALLOWED IN FAVOUR OF THE ASSESSEE. ON PERUSAL OF THE ORDERS OF THE CIT(A), WE FIND PARA NO.7 IS RE LEVANT AND SELF EXPLANATORY. FOR THE SAKE OF COMPLETENESS, THE SAID PARA IS EXTRACTED AS FOLLOWS : 7. I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPELLANT COMPANY. THE AO OBSERVED THAT INVESTMENT OF RS.2,52,22,000/- WAS MADE BY THE ASSESSEE COMPANY IN THE SHARES OF PAITHAN MEGA FOOD PARK PVT . LTD . TO DERIVE THE EXEMPT INCOME I . E. DIVIDEND INCOME. THE AO HELD THAT THE PROVISIONS OF SECTION 14A R . W.R 8D WERE APPLICABLE TO THE ASSESSEE COMPANY AS I T HAD INCURRED SUBSTANTIAL INTEREST EXPENDITURE OF RS . 3,36,30 , 440 / - IN THE YEAR UNDER REFERENCE. THE AO HAD, THEREFORE, WORKED OUT THE DI SALLOWANCE U/S. 14A R.W.RULE-8D AT RS . 7,71 , 422/-. ON CAREFUL CONSIDERATION OF FACTS & CIRCUMST ANCES IN THE PRESENT CASE, IT IS SEEN THAT THE APPELLANT COMPANY HAS NOT EARNED ANY DIVIDEND INCOME FROM INVESTMENT MADE IN THE SHARES OF PAITHAN MEGA FOOD PARK PVT. LTD. IT HAS BEEN HELD IN MANY JUDICIAL PR ONOUNCEMENTS THAT THE DISALLOWANCE U/S 14A HAS TO BE RESTRICTED TO THE AM OUNT OF EXEMPT INCOME. THE ABOVE PROPOSITION OF LAW IS SUPPORTED BY THE FOLLOW ING DECISIONS : (1) DAGA GLOBAL CHEMICALS VS. ACIT IN ITA NO.5592/2012 ORDER DATED 01-01-2015. (2) JEEVRAJ TEA LTD. VS. DCIT (2014) (AY 2008-09) 41 CC H 047 (AHMEDABAD TRIBUNAL) (3) ACIT VS. PUNJAB COOPERATIVE MARKETING FEDERATION IN ITA NO.548/CHD/2011 (CHANDIGARH TRIBUNAL) IN THE CASE WHERE THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME ON INVESTMENT MADE IN THE SHARES WHOSE DIVIDEND IS EXE MPT THEN NO DISALLOWANCE CAN BE MADE U/S 14A IN RESPECT OF EXPE NDITURE, IF ANY, RELATING TO THE INVESTMENT IN RESPECT OF WHICH NO E XEMPT INCOME HAS BEEN RECEIVED/EARNED. THE ABOVE PROPOSITION OF LAW IS SUPPORTED BY FOLLO WING DECISIONS - (1) CIT VS. SHIVAM MOTORS P. LTD. [2014] 89 CCH 059 (AL LAHABAD HIGH COURT) (2) CIT VS. TORRENT POWER LTD. [2014] 363 ITR 474 (GUJA RAT HC) (3) CIT-I VS. CORRTECH ENERGY PVT. LTD. (223 TAXMAN 130 ) (GUJARAT HC) (4) KALYANI STEELS LTD. VS. ACIT IN ITA NO.1733/PN/2012 34 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 (5) ACIT VS. M/S. MAGARPATTA TOWNSHIP DEVELOPMENT & CON STRUCTION CO. LTD. IN ITA NO.2114/PN/2012 (6) GURADAS MANN VS. DCIT (57 SOT 55) (CHANDIGARH TRIBU NAL) (7) SHRI GOYAL ISHWARCHAND KISHORILAL VS. JCIT, RANGE-4 , PUNE IN ITA NO . 422/PN/2013 ORDER DATED 26/06/2014 FOR AY 2009-10 (8) ACIT, CIRCLE-I, AURANGABAD VS. M/S BADVE ENGINE ERING LTD. IN ITA NOS.1832 & 1833/PN/2013 ORDER DATED 22/01/2015 FOR AYS.2009 - 10 & 2010-11 . THIS VIEW IS ALSO SUPPORTED BY THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. CIT IN ITA NO.749/2014 DATED 02.09.2015 WHEREIN IT WAS HELD THAT NO DISALLOWANCE U'/S 14A C AN BE MADE IN A YEAR IN WHICH NO EXEMPT INCOME HAD BEEN EARNED OR RECEIVED BY THE ASSESSEE. THE EXPRESSION 'DOES NOT FORM PART OF THE TOTAL INCOME' IN SECTION 14A OF THE ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. THUS SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS R ECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. IN THE PRESENT CASE, TH E APPELLANT COMPANY HAS NOT RECEIVED ANY DIVIDEND INCOME IN THE YEAR UNDER REFE RENCE. MOREOVER SECTION 14A OF INCOME TAX ACT, 1961 DOES NOT APPLY TO SHARE S BOUGHT FOR STRATEGIC PURPOSE. THE CHENNAI TRIBUNAL IN THE CASE OF EIH AS SOCIATED HOTELS LTD. VS. DCIT HAS HELD THAT INVESTMENTS MADE BY THE ASSESSEE IN THE SUBSIDIARY COMPANY WERE NOT ON ACCOUNT OF INVESTMENT FOR EARNI NG CAPITAL GAINS OR DIVIDEND INCOME. SUCH INVESTMENTS HAD BEEN MADE BY THE ASSESSEE TO PROMOTE SUBSIDIARY COMPANY INTO THE HOTEL INDUSTRY AND WERE ON ACCOUNT OF BUSINESS EXPEDIENCY AND DIVIDEND THERE FROM WAS PURELY INCID ENTAL. THEREFORE, THE INVESTMENT MADE BY THE ASSESSEE IN ITS SUBSIDIARY W AS NOT TO BE RECKONED FOR DISALLOWANCE U/S I4A R.W. RULE 8D. IN THE CASE OF C IT VS. RPG TRANSMISSIONS LTD (48 TAXMANN.COM 57) , THE MADRAS HIGH COURT HAS HELD THAT INTEREST ON BORROWED FUNDS UTILIZED FOR INVESTMENT IN GROUP COM PANIES FOR STRATEGIC BUSINESS PURPOSE WAS ALLOWABLE. IN THE PRESENT CASE , THE ASSESSEE COMPANY HAD MADE INVESTMENT IN PAITHAN MEGA FOOD PARK PVT. LTD., AN ASSOCIATE COMPANY WHICH WAS LOGICAL EXTENSION OF ITS BUSINESS . FOLLOWING THE ABOVE DECISIONS, I DIRECT THE AO TO DELETE THE ADDITION O F RS.7,71,422/- MADE BY HIM. THIS GROUND OF APPEAL IS ALLOWED. CONSIDERING THE ABOVE AND THE SETTLED LEGAL PROPOSITION, WE ARE OF THE VIEW THAT THE ORDER OF CIT(A) ON THIS ISSUE IS FAIR AND REASONAB LE. WE ORDER ACCORDINGLY. RELEVANT GROUNDS OF THE REVENUE ARE DISMISSED. 28. IN THE RESULT, ALL THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON 2 ND DAY OF NOVEMBER, 2018. SD/- SD/- ( /VIKAS AWASTHY) ( . / D. KARUNAKARA RAO ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; / DATED : 02 ND NOVEMBER, 2018. SATISH 35 M/S. NATH GENES (I) LTD., A.YRS. 2011-12 TO 2014-15 # # # # / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT (APPEALS)-1, AURANGABAD 4. THE CIT-1, AURANGABAD 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE