Income-tax Officer, V. M/s. Kisan Biotech, Pune

ITA 428/PUN/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1206 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 05-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR SHEERAJ; DHEERAJ JAIN
• Assessee Lawyers: B; PRAMOD SHINGTE JAIN
• Keywords: Retrospective amendment

Judgement Text

] IQ.KS ] IQ.KS ] IQ.KS ] IQ.KS IQ.KS IQ.KSIQ.KS IQ.KS IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE . . , , ! ' BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NOS.428 & 429/PN/2014 !$ $ / ASSESSMENT YEARS : 2007-08 & 2008-09 ITO, WARD-5(4), PUNE . / APPELLANT V/S M/S. KISAN BIOTECH, PUNE-SOLAPUR ROAD, GALANDE WADI NO.1, AT POST INDAPUR, DIST PUNE. PAN NO.AAIFK6539L . / RESPONDENT / APPELLANT BY : SHRI DHEERAJ JAIN & SHRI B.C. MALAKAR SHEERAJ / RESPONDENT BY : SHRI PRAMOD SHINGTE JAIN & B / ORDER PER R.K. PANDA, AM : THE ABOVE 2 APPEALS FILED BY THE REVENUE ARE DIRECTED A GAINST THE COMMON ORDER DATED 09-12-2013 OF THE CIT(A)-III, P UNE RELATING TO ASSESSMENT YEARS 2007-08 & 2008-09 RESPECTIVELY. SINC E IDENTICAL GROUNDS HAVE BEEN TAKEN BY THE REVENUE IN BOTH THESE APPEALS, THEREFORE, THESE WERE HEARD TOGETHER AND ARE BEING DISP OSED OF BY THIS COMMON ORDER. / DATE OF HEARING :30.07.2015 / DATE OF PRONOUNCEMENT:28.08.2015 2 ITA NOS.428 & 429/PN/2014 ITA NO.428/PN/2014 (A.Y. 2007-08) : 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND IS ENGAGED IN THE BUSINESS OF PRODUCTION OF NURSER Y PLANTS AND BANANA PLANTS, TISSUE CULTURE ACTIVITIES ETC. THE INCOM E DERIVED FROM THE SAID ACTIVITY WAS CLAIMED EXEMPT U/S.10(1) OF THE IT . ACT IN THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, CLAIMING THE SAME TO BE AGRICULTURAL INCOME. HO WEVER, THE ASSESSING OFFICER WAS OF THE VIEW THAT IN VIEW OF THE PR OVISIONS OF SEC.2(1A) OF THE I.T. ACT, UNLESS AN ASSESSEE CARRIES OUT T HE BASIS OPERATIONS UPON THE LAND I.E. TILLING OF THE LAND, SOWING OF SEED S, PLANTING ETC., REQUIRING EXPLOITATION OF HUMAN SKILL AND LABOUR U PON THE LAND, IT CANNOT BE SAID THAT THE INCOME EARNED BY TH E ASSESSEE WAS AGRICULTURAL INCOME. ACCORDING TO HIM, THE SUBSEQUENT OPERA TIONS TO THE ABOVE OPERATIONS CARRIED OUT WOULD ALSO BE AGRICULTUR AL ACTIVITIES ONLY IF TAKEN IN CONJUNCTION WITH THE BASIC OPERATIONS BUT THE SUBSEQUENT OPERATIONS BY THEMSELVES CANNOT BE CONSIDER ED AS AGRICULTURAL OPERATIONS AND THEREFORE, ANY INCOME DERIVED FROM CARRYING ON ONLY SUCH SUBSEQUENT OPERATIONS WITHOUT CA RRYING THE BASIC OPERATIONS COULD NOT BE TREATED AS AGRICULTURAL INCO ME. THE ASSESSING OFFICER FURTHER NOTED THAT IN THE CASE OF THE AS SESSEE, THE ASSESSEE WAS NOT CARRYING ON ANY BASIC AGRICULTURAL OPER ATIONS ON THE LAND BUT WAS ENGAGED IN THE BUSINESS OF PRODUCTION OF TISSUE CULTUR E OF BANANA AND OTHER PLANTS WHICH INVOLVED INDOOR ACTIVITIES IN CONTROLLED AND ARTIFICIAL ATMOSPHERE AND SURROUNDING. THE ASSESSING OFFIC ER POINTED OUT THAT EVEN THE PARTNERSHIP DEED OF THE ASSESSEE CLEAR LY SPELT OUT THE INTENTION OF THE ASSESSEE TO CARRY OUT THE BU SINESS ACTIVITY OF TISSUE CULTURE. AS PER THE ASSESSING OFFICER, THE ASSESSEE COULD NOT BE SAID TO BE EVEN INVOLVED IN THE NURSERY ACTIVITIES WHICH IN VOLVES SOME 3 ITA NOS.428 & 429/PN/2014 KIND OF AGRICULTURAL OPERATIONS. THUS, THE ASSESSING OFFICER C AME TO THE CONCLUSION THAT THE ASSESSEE COULD NOT BE SAID TO B E ENGAGED IN AGRICULTURAL ACTIVITIES AND THEREFORE, THE INCOME EARNED BY THE ASSE SSEE FIRM COULD NOT BE TREATED AS AGRICULTURAL INCOME WITHIN THE MEANING OF SEC.2(1A) OF THE I.T. ACT. ACCORDINGLY, THE INCOME OF RS.10,51 ,560/- CLAIMED AS EXEMPT U/S.10(1) WAS HELD TO BE INCOME FROM BUSIN ESS AND ASSESSED ACCORDINGLY. 3. IN APPEAL THE LD.CIT(A) DECIDED THE ISSUE IN FAVOUR OF T HE ASSESSEE BY OBSERVING AS UNDER : 5. THE SUBMISSIONS OF THE APPELLANT ARE CAREFULLY EXA MINED WITH REFERENCE TO THE FACTS OF THE CASE, MATERIAL PLACED ON RECORD AND THE RELEVANT PROVISIONS OF LAW AS APPLICABLE FOR THE YEAR UNDER CONSIDERATION. THE BASIC ISSUE THAT IS TO BE DECIDED IN THIS CASE IS WHET HER THE INCOME DERIVED FROM THE APPELLANT FROM SALE OF PLANTS FROM A NURSERY CONSTITUTES AGRICULTURAL INCOME OR NOT. BEFORE DEALING WITH THE ISSUE, IT: IS NECESSARY TO SEE AS TO WHAT CONSTITUTES AGRICULTURAL ACTIVITY. THE T ERM 'AGRICULTURAL' AS USED IN SEC.2(1A)(B)(I) HAS NOT BEEN DEFINED IN THE A CT. THE HON'BLE SUPREME COURT IN ITS LANDMARK JUDGMENT IN THE CASE OF RAJA BENOY SAHAS RAY (32 ITR 466) HAS HELD THAT AGRICULTURAL ACTIVIT IES WOULD INVOLVE TWO SET OF ACTIVITIES, THE BASIC OPERATIONS AND SUBSEQUENT O PERATIONS. THE BASIC OPERATIONS WOULD INVOLVE TILLING OF THE LAND, SOWING OF THE SEEDS, PLANTING AND SIMILAR OPERATIONS ON THE LAND REQUIRING EXPENDI TURE OF HUMAN SKILL AND LABOUR ON THE LAND ITSELF. THUS, THESE ARE ESSENTIAL LY ACTIVITIES WHICH INITIATE: AND FACILITATE THE PROCESS OF GROWTH OF AGR ICULTURAL PRODUCE. THE SUBSEQUENT OPERATIONS ARE THOSE WHICH ARE TO BE PERFOR MED AFTER THE PRODUCE SPROUTS FROM THE LAND, E.G., WEEDING, DIGGIN G THE SOIL AROUND THE GROWTH, REMOVAL OF UNDESIRABLE UNDERGROWTHS AND ALL O PERATIONS WHICH FOSTER THE GROWTH AND PRESERVE THE SAME TILL THE PRODU CE IS FIT FOR THE MARKET/CONSUMPTION. THE HON'BLE SUPREME COURT HELD T HAT SUCH SUBSEQUENT OPERATIONS WOULD ALSO BE AGRICULTURAL OPERA TIONS WHEN TAKEN IN CONJUNCTION WITH THE BASIC OPERATIONS ABOVE DESCRI BED. THUS, IT WOULD FOLLOW FROM THE ABOVE DECISION THAT IN ORDER TO BE T ERMED AS AGRICULTURAL ACTIVITIES; THERE MUST BE INVOLVEMENT OF THE BASIC AGR ICULTURAL OPERATIONS AS DESCRIBED ABOVE, IN THE PRESENT CASE, THE ASSESSING OFFI CER WHILE CONCLUDING THAT THE INCOME DERIVED BY THE APPELLANT WAS NOT IN THE NATURE OF AGRICULTURAL INCOME, HAS HELD THAT THE APPELLANT WAS NOT CARRYING OUT ANY BASIC OPERATIONS ON THE LAND BUT IT ITS ACTIVITY W AS CONFINED TO PRODUCTION OF TISSUE CULTURE OF BANANA AND OTHER PLAN TS INVOLVING INDOOR ACTIVITIES IN CONTROLLED AND ARTIFICIAL: ATMOSPHERE, THEREFORE, WHAT WE HAVE TO EXAMINE IS WHETHER THE BASIC AGRICULTURAL OPERATI ONS ARE CARRIED OUT BY THE APPELLANT IN PREPARATION OF THE SAPLINGS/SEEDLING S AS BEING CLAIMED. 4 ITA NOS.428 & 429/PN/2014 5.1 THE VARIOUS STAGES THAT ARE INVOLVED IN TISSUE CUL TURE CARRIED OUT BY THE APPELLANT ARE STATED TO BE AS UNDER:- A. FIRST STEP: AFTER SOWING THE SEEDS OF VARIOUS PLAN TS, PRODUCTION OF SMALL MOTHER PLANTS, SELECTING APPROPRIATE PLANT AND K EEPING THEM DISEASE FREE. B. SECOND STEP: ISOLATION OF BIOLOGICAL PARTS OF P LANT TO ENABLE THESE PARTS TO HAVE UNCONTAMINATED AND DISEASE FREE DEVELOPMENT. C. THIRD STEP: THIS STEP COVERS ACTUAL TISSUE CULTURE WHERE MANY PLANTS CAN BE OBTAINED. THIS IS CALLED 'PROPAGATION PHASE'. I T INVOLVES OBTAINING MANY MICRO SEGMENTS THROUGH TISSUE CULTURE FROM THE MOT HER PLANT AND EACH OF WHICH IS CAPABLE OF DEVELOPING INTO AN INDEP ENDENT PLANT. F. FOURTH STEP: IN THIS STEP THE PLANTS OBTAINED IN ABOVE MENTIONED STEPS ARE TRANSFERRED BACK TO SOIL AND ROOT FORMATION IS IND UCED. STEPS ARE TAKEN TO CUT DOWN UNNECESSARY GROWTH OF PLANTS THROUGH AUXI LIARY SHOOT FORMATION ETC. G. FIFTH STEP: THIS CONTAINS GROWTH OF THE PLANT I N THE SOIL TILL IT ATTAINS SUSTAINABILITY AND CAPABILITY TO SURVIVE WHEN TRANSFERR ED, TO THE MAIN FIELD. 5.2 A CLOSE ANALYSIS OF THE ABOVE SEQUENCES WOULD REVE AL THAT THESE INVOLVE THE BASIC OPERATIONS SUCH AS READYING THE LAND FOR SOWING, SOWING OF SEEDS, WATERING ETC. TO GROW MOTHER PLANTS FROM WHI CH TISSUE CULTURE IS OBTAINED, THE PLANTS GROWN FROM TISSUE CULTURE ARE PUT IN SMALL SOIL-FILLED BAGS AND TRANSFERRED TO GREEN HOUSES WHERE THEY REMAIN TILL GROWTH IS SUSTAINED. THUS, THE PRIMARY SOURCE OF THE PLANT IS THE MOTHER PLANT WHICH IS REARED ON EARTH INVOLVING THE BASIC OPERATIONS. THE REFORE, THE CONCLUSION DRAWN BY THE ASSESSING OFFICER WHILE REJECTIN G THE CLAIM OF THE APPELLANT THAT THE APPELLANT IS MERELY ENGAGED IN TI SSUE CULTURE WITHOUT ACTUALLY CARRYING OUT THE BASIC OPERATIONS ARE FOUND TO BE CONTRARY TO THE FACTS OF THE CASE. 5.3 AT THIS STAGE, IT IS RELEVANT TO REFER TO THE DEC ISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SOUNDARYA NUR SERY (241 ITR 530). IN THE SAID CASE, WHILE ANSWERING THE QUESTION AS TO WHETHER INCOME FROM SALE OF PLANTS GROWN IN POTS IN A NURSERY CAN BE SA ID TO BE AGRICULTURAL INCOME, THE COURT HELD AS UNDER:- ALL THE PRODUCTS OF THE LAND, WHICH HAVE SOME UTILI TY EITHER FOR CONSUMPTION OR FOR TRADE OR COMMERCE, IF THEY ARE BASED ON LAND , WOULD BE AGRICULTURAL PRODUCTS. IF THE PLANTS SOLD BY THE ASSESSEE IN POT S WERE THE RESULT OF THE BASIC OPERATIONS ON THE LAND ON EXPENDING HUMAN SKILL AND LABOUR THEREON AND IT IS ONLY AFTER THE PERFORMANCE OF THE BASIC OPERATIO NS ON THE LAND, THE RESULTANT PRODUCT GROWN OR SUCH PART THEREOF AS WAS SUITABLE FOR BEING NURTURED IN A POT, WAS SEPARATED AND PLACED IN A PO T AND NURTURED WITH WATER AND BY PLACING THEM IN THE GREEN HOUSE OR IN SHADE AND AFTER PERFORMING SEVERAL OPERATIONS, SUCH AS WEEDING, WAT ERING, MANURING, ETC., THEY ARE MADE READY FOR SALE AS PLANTS ALL THESE QU ESTIONS WOULD BE AGRICULTURAL OPERATIONS ALL THIS INVOLVES HUMAN SKI LL AND EFFORT. THUS, THE PLANTS SOLD BY THE ASSESSEE IN POTS WERE THE RESULT OF PRIMARY AS WELL AS SUBSEQUENT OPERATIONS COMPREHENDED WITHIN THE TERM 'AGRICULTURE' AND THEY ARE CLEARLY THE PRODUCTS OF AGRICULTURE. 5 ITA NOS.428 & 429/PN/2014 THE HON'BLE HIGH COURT IN THE ABOVE MENTIONED CASE H ELD THAT INCOME FROM SALE OF PLANTS GROWN IN POT CAN ALSO BE CONSIDERED TO BE AGRICULTURAL INCOME IF SUCH PLANTS WERE THE RESULT OF THE BASIC OPER ATIONS ON THE LAND ON EXPENDING HUMAN SKILL AND LABOUR THEREON. IN THE PRESENT CASE ALSO, AS NOTED HEREINABOVE, THE PRIMARY SOURCE OF THE PLANT G ROWN IN SOIL-FILLED BAGS IN GREEN HOUSE IS THE MOTHER PLANT WHICH IS REARED ON EARTH INVOLVING THE BASIC OPERATIONS. SIMILAR VIEW HAS BEEN TAKEN BY T HE ITAT, PUNE IN THE CASE OF KF BIOPLANTS PVT. LTD IN ITA NO.146/PN/08 FOR THE A.Y. 2004-05. IN THE SAID CASE, THE ITAT HELD THAT SINCE THE ACTIVITIES CARRIED OUT BY THE ASSESSEE INVOLVED BASIC AGRICULTURAL OPERATIONS, INCOME F ROM SALE OF PLANTS, EVEN IF GROWN THROUGH A TISSUE CULTURE LABORAT ORY/GREEN HOUSE, WOULD CONSTITUTE AGRICULTURAL INCOME. 5.4 THE ID. A.R. FOR THE APPELLANT ALSO DREW ATTENT ION TO THE EXPLANATION (3) TO SEC.2(1A) OF THE ACT INSERTED BY FINANCE ACT, 2008 WHEREBY INCOME DERIVED FROM SAPLINGS OR SEEDLINGS GROWN IN A NURSERY IS INCLUDED IN THE DEFINITION OF AGRICULTURAL INCOME. THE ID. A.R. ARG UED THAT THE PLANTLETS PRODUCED BY TISSUE CULTURE ARE LABELED AS SEEDLINGS AND THEREFORE, THE ACTIVITY CARRIED OUT BY THE APPELLANT IS CLEARLY COV ERED BY THE NEWLY INSERTED EXPLANATION (3) TO SEC.2(1A). HE FURTHER AR GUED THAT THIS EXPLANATION IS CLARIFICATORY IN NATURE AND THEREFORE , WILL HAVE TO BE TAKEN TO BE WITH RETROSPECTIVE EFFECT, THEREBY RENDERING T HE INCOME DERIVED BY THE APPELLANT FROM SALE OF SEEDLINGS AS AGRICULTURAL IN COME. HOWEVER, SINCE IT IS ALREADY HELD THAT THE APPELLANT' S ACTIVITIES INVOLVED BASIC AGRICULTURAL OPERATIONS AND THEREFORE, INCOME T HEREOF CONSTITUTES AGRICULTURAL INCOME, IT IS NOT FELT NECESSARY TO DEAL WITH THIS ALTERNATE ARGUMENT OF THE APPELLANT. 5.5 IN THE LIGHT OF THE POSITION THAT EMERGES FROM T HE ABOVE DISCUSSION AND JUDICIAL PRECEDENTS CITED, I AM OF THE VIEW THAT THERE IS NO JUSTIFICATION FOR THE ASSESSING OFFICER IN HOLDING THAT THE ACTIVITIE S CARRIED OUT BY THE APPELLANT DID NOT INVOLVE BASIC AGRICULTURAL OPERATI ONS. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO TREAT THE IMPUGNED INCO ME OF THE APPELLANT DERIVED FROM SALE OF PLANTS AS AGRICULTURAL INCOME. TH E GROUNDS RAISED BY THE APPELLANT ON THIS ISSUE IN BOTH; THE ASSESSMENT YEARS UNDER CONSIDERATION ARE DECIDED IN ITS FAVOUR. 4. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. THE ORDER OF THE COMMISSIONER OF INCOME-TAX (AP PEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) GROSSLY ERR ED IN DIRECTING THE ASSESSING OFFICER TO TREAT ASSESSEE'S INCOME AS AGRICULTU RE U/S 2(1A)(B)(I) OF THE INCOME TAX ACT, 1961 AND TO EXCL UDE SAID INCOME U/S 10(1) OF THE ACT. 3. THE COMMISSIONER OF INCOME TAX(APPEALS) GROSSLY ER RED IN IGNORING THE FACTS THAT THERE IS NO BASIC PLACE IN A GREEN HOUSE AND TISSUE CULTURE LABORATORY WHICH CANNOT BE TERMED AS LAND OR NURSERY FOR GROWING PLANTS. 6 ITA NOS.428 & 429/PN/2014 4. THE COMMISSIONER OF INCOME TAX(APPEALS) HAS WRONGL Y PLACED RELIANCE ON THE RATIO OF DECISION IN THE CASE OF K. F. BIOPLANT PRIVATE LIMITED, AS THE SAME HAS NOT BEEN ACCEPTED BY THE DEPA RTMENT. 5. FOR THESE AND SUCH OTHER REASONS AS MAY BE URGED AT THE TIME OF THE HEARING, THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL DURING THE COURSE OF THE APPE LLATE PROCEEDINGS BEFORE THE ITAT. 5. THE LD. DEPARTMENTAL REPRESENTATIVE HEAVILY RELIED ON THE ORDER OF THE AO. REFERRING TO THE DECISION OF THE HONBLE ALLAHAB AD HIGH COURT IN THE CASE OF H.H. MAHARAJA VIBHUTI NARAIN SINGH VS. STATE OF UTTAR PRADESH REPORTED IN 65 ITR 364 HE SUBMITTED THA T THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD THAT EVEN IF THE KEEPING OF A NURSERY NECESSARILY INVOLVES THE USE OF SOME LAND AND E ARTH FOR THE PURPOSES OF REARING PLANTS, THAT WOULD NOT BY ITSELF AMOUNT TO CARRYING ON OF A PRIMARY AGRICULTURE OPERATION IN THE SENSE OF CU LTIVATING THE SOIL. HE SUBMITTED THAT UNLESS AN ASSESSEE CARRIES OUT T HE BASIC OPERATIONS UPON THE LAND, I.E. TILLING OF THE LAND, SOWING OF SEED S, PLANTING ETC. REQUIRING EXPLOITATION OF HUMAN SKILL AND LABOUR UPON THE LAND, IT CANNOT BE SAID THAT THE INCOME EARNED BY THE AS SESSEE WAS AGRICULTURE INCOME. HE ALSO RELIED ON THE DECISION OF THE CO ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. ABHIJIT SUBHASH GAIKWAD VS. DCIT VIDE ITA NO.699/PN/2013 FOR A.Y. 2009-10 AND BAT CH OF OTHER APPEALS ORDER DATED 27-05-2015. 6. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). REFERRING TO THE DECISION OF TH E HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SOUNDARYA NU RSERY REPORTED IN 123 TAXMANN 372 HE SUBMITTED THAT THE HONBLE HIGH C OURT AFTER CONSIDERING THE DECISION OF HONBLE ALLAHABAD HIGH COURT HAS HELD THAT 7 ITA NOS.428 & 429/PN/2014 PLANTS SOLD BY ASSESSEE NURSERY IN POTS COULD BE SAID TO BE RESULT OF PRIMARY AS WELL AS SUBSEQUENT OPERATIONS COMPREHENDED W ITHIN TERM AGRICULTURE AND THEREFORE INCOME FROM PLANTS GROWN IN P OTS AND INCOME FROM SALE OF SEEDS IS AGRICULTURE INCOME. REFERRING TO THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF I TO VS. K.F. BIOPLANT PVT. LTD. WHICH HAS BEEN FOLLOWED BY THE LD.CIT(A) H E SUBMITTED THAT THE TRIBUNAL AFTER CONSIDERING VARIOUS DECI SIONS HAS HELD THAT INCOME FROM FLORICULTURE/TISSUECULTURE IS AGRICULTURE INCOME. MERELY BECAUSE THE REVENUE HAS NOT ACCEPTED THE DEC ISION OF THE TRIBUNAL AND HAS FILED AN APPEAL BEFORE THE HONBLE HIGH CO URT THE SAME CANNOT BE A BASIS FOR NOT FOLLOWING THE DECISION OF TH E TRIBUNAL UNTIL AND UNLESS THE SAME IS REVERSED BY A HIGHER FORUM. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BE U PHELD AND THE GROUNDS RAISED BY THE REVENUE BE DISMISSED. AS REGARD S THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. ABHIJIT SUBHAS GAIKWAD (SUPRA) IS CONCERNED HE SUBMITTED THAT THE SAME IS DISTINGUISHABLE A ND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THAT CAS E, THE ISSUE WAS WHETHER THE LAND SOLD IS AGRICULTURAL LAND FOR CLAIMING EXEMPT ION U/S.54B. HERE THE ISSUE IS WHETHER THE INCOME IS AGRICULTU RE INCOME OR NOT. THEREFORE, THE SAID DECISION IS NOT APPLICABLE TO TH E FACTS OF THE CASE. HE ALSO RELIED ON THE FOLLOWING DECISIONS : 1. ITO VS. DR. SEEMANTINI S. PATHARE ITA NO.263/PN /2011 ORDER DATED 23-01-2013 2. DY.CIT VS. BEST ROSES BIOTECH PVT. LTD. -ITA NO.1975 /AHD/2008 ORDER DATED 30-11-2011 7. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDER OF THE AO AND LD.CIT(A) AND THE PAPE R BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIO US DECISIONS 8 ITA NOS.428 & 429/PN/2014 CITED BEFORE US. WE FIND IN THE INSTANT CASE THE ASSESSE E PARTNERSHIP FIRM IS ENGAGED IN THE BUSINESS OF PRODUCTION OF NURSERY PLA NTS AND BANANA PLANTS AND CLAIMED THE INCOME FROM SUCH ACTIVITY A S AGRICULTURE INCOME WHICH IS EXEMPT FROM INCOME-TAX. WE FIND THE AO DECLINED SUCH INCOME AS AGRICULTURE INCOME ON THE GROUND THAT UNLESS THE ASSESSEE CARRIES OUT THE BASIC OPERATIONS UPON THE LAND, I.E. TILLING OF THE LAND, SOWING OF SEEDS, PLANTING ETC., REQUIRING THE EXP LOITATION OF HUMAN SKILL AND LABOUR UPON THE LAND, IT CANNOT BE SAID TH AT THE INCOME EARNED BY THE ASSESSEE IS AGRICULTURAL INCOME. SINC E IN THE PRESENT CASE ACCORDING TO THE AO THE ASSESSEE IS NOT CARRYING OUT ANY BASIC OPERATIONS ON THE LAND AS THE NATURE OF ACTIVITY ITS ELF OF THE FARM IS TO PRODUCE TISSUECULTURE OF BANANA AND OTHER PLANTS, T HE AO REJECTED THE CLAIM OF THE ASSESSEE THAT THE INCOME IS AG RICULTURAL INCOME. HE ACCORDINGLY BROUGHT THE SAME TO TAX AS BUS INESS INCOME. WE FIND THE LD.CIT(A) FOLLOWING THE DECISION OF HONBLE MADRAS H IGH COURT IN THE CASE OF SOUNDARYA NURSERY (SUPRA), DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF K.F. BIOPLANT PVT. LTD.(S UPRA) AND THE EXPLANATION (3) TO SECTION 2(1A) OF THE FINANCE ACT, 200 8 HELD THAT THE ASESSEES ACTIVITIES INVOLVED BASIC AGRICULTURAL OPERATIO NS AND THEREFORE INCOME THEREOF CONSTITUTES AGRICULTURE INCOME. 8. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF K.F. BIOPLANT PVT. LTD. (SUPRA) WHILE ADJUDICATING THE NATURE OF INCOME FROM FLORICULTU RE, HORTICULTURE AND TISSUE CULTURE ETC., HAS OBSERVED AS UNDER : 2. THE FACTS IN BRIEF ARE AS UNDER. THE ASSESSEE IS PRIM ARILY ENGAGED IN THE BUSINESS OF PLANT FLORICULTURE/TISSUE CULTURE. T HE ASSESSEE HAS CLAIMED EXEMPTION OF THE INCOME FROM THE ABOVE ACTI VITIES U/S.10(1) R.W.S. 2(1A)(B)(I) OF THE ACT AS AGRICULTURE INCOME. THE ASSE SSING OFFICER DECLINED TO ACCEPT THE CLAIM OF THE ASSESSEE THAT INCOM E FROM THE ACTIVITIES OF THE FLORICULTURE/TISSUE CULTURE AND HORTICULTURE I S THE AGRICULTURE INCOME 9 ITA NOS.428 & 429/PN/2014 IN SPITE OF THE FACT THAT THE SAID ISSUE HAS BEEN DECIDE D IN FAVOUR OF THE ASSESSEE BY THE ITAT, 'B' BENCH IN ASSESSEE'S OWN APPEAL FO R THE A.Y. 2004-05 BEING ITA NO. 146/PN/08, ORDER DATED 26.3.2 009. THE ASSESSING OFFICER MADE THE ADDITION OF RS. 4,76,171/- BY GIVIN G THE REASON THAT THE DECISION OF THE ITAT, PUNE IN ASSESSEE'S OWN CASE CANNOT B E FOLLOWED AS THE FURTHER APPEAL IS FILED BEFORE THE HON'BLE BOMBA Y HIGH COURT. THE LD CIT(A) FOLLOWING THE DECISION OF THE ITAT PUNE BENCH IN ASSESSEE'S OWN CASE, ALLOWED THE CLAIM OF THE ASSESSEE. 3. WE FIND THAT THE TRIBUNAL HAS ALLOWED THE IDENTIC AL CLAIM OF THE ASSESSEE ON THE IDENTICAL SET OF FACTS IN THE A. Y. 2004-05. T HE SAID ORDER OF THE TRIBUNAL IS FOLLOWED IN THE OTHER YEARS ALSO BEING A.Y S. 2001-02, 2003-04 AND 2005-06 AND 2006-07 BEING ITA NOS. 1274 TO 1278/ PN/2010, COMMON ORDER DATED 22.2.2012. THE OPERATIVE PART OF THE ORDER OF THE TRIBUNAL IN ITA NOS. 1274 TO 1278/PN/2010 DATED 22 ND FEBRUARY 2012 IS AS UNDER: '7. WE FIND THAT THE TRIBUNAL IN THE CASE OF ASSESSEE FO R THE A. Y. 2004-05 HAS DISCUSSED AN IDENTICAL ISSUE IN DETAIL BEFORE DECIDING THE SAME IN FAVOUR OF THE ASSESSEE. THE TRIBUNAL WHILE D ECIDING THE ISSUE HAS TAKEN STRENGTH FROM SEVERAL DECISIONS INCLUDING DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RAJA BENOY KUMAR SAHAS ROY (SUPRA), HON'BLE MADRASH HIGH COURT IN THE CASE OF CIT VS. SOUNDARYA NURSERY, 241 ITR 530(MAD.) AND OF HON'B LE ALLAHABAD HIGH COURT IN THE CASE OF JUGAL KISHORE ARO RA VS. DCIT, 269 ITR 133 (ALLHAD.). THE RELEVANT PARA NOS. 33 TO 40 OF THE DECISION OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR A. Y. 2004-05 (SUPRA) ARE BEING REPRODUCED HEREUNDER FOR A READY R EFERENCE: '33. IN OUR CONSIDERED VIEW, THEREFORE, THE OPERATIO NS CARRIED OUT ON THE FACTS OF THE CASE BEFORE US ARE AGRICULTURAL OP ERATIONS IN NATURE. THE OBJECTIONS TAKEN BY THE AUTHORITIES BELOW ARE DEVOID OF ANY LEGALLY SUSTAINABLE MERITS/, APPLYING THE RATIO OF THE HON'BLE SUPREME COURT'S JUDGMENT IN THE CASE OF RAJA BENOY KU MAR SA HAS ROY (SUPRA), THE INCOME FROM THESE OPERATIONS HAS TO BE TREATED AS AGRICULTURAL INCOME. 34. WE WOULD ALSO LIKE TO DEAL WITH HON'BLE MADRAS HI GH COURT'S JUDGMENT IN THE CASE OF CIT VS. SOUNDARYA NURSERY (SUPR A) AT THIS STAGE. AS FAR AS THE FACTS OF THE CASE WERE CONCERNED, T HEIR LORDSHIPS, INTER ALIA, NOTED AS FOLLOWS: THE TRIBUNAL, AFTER CONSIDERING ALL THE RELEVANT FAC TS, AS ALSO THE APPLICABLE LAW, CONCLUDED THAT THE ASSESSEE'S ACTIVITIES ARE TO PREPARE SEEDLINGS ON SCIENTIFIC LINES: THAT THE OTHER P LANTS ARE GROWN ON PREPARED BEDS ON LANDS OWNED BY IT AND THE P LANTS ARE THEN GRAFTED OR BUDDED; THAT' THE RESULTING GRAFTS AR E TRANSPLANTED IN SUITABLE CONTAINERS AND ARE REARED IN GREEN HOUSES O R IN SHADE AND AFTER THEY TAKE ROOT, THEY ARE TRANSMITTED TO LA RGE CONTAINERS FILED WITH TOP SOIL AND MANURE, ETC, TILL THEY ESTABL ISH THEMSELVES; AND THEREAFTER THOSE PLANTS ARE SOLD AND THAT THE PRIM ARY SOURCE OF THE PLANT IS THE MOTHER PLANT, WHICH IS REARED ON EAR TH AND FOR WHICH ACTIVITIES, CERTAINLY CONTRIBUTION OF HUMAN LA BOUR AND ENERGY ARE ESSENTIAL. 10 ITA NOS.428 & 429/PN/2014 35. THEIR LORDSHIPS THUS CLEARLY NOTED 'THE PRIMARY SOU RCE OF THE PLANT IN THE ASSESSEE'S ACTIVITIES WAS THE MOTHER PLANT, WHICH IS REARED ON EARTH AND FOR WHICH CERTAINLY CONTRIBUTIO N OF HUMAN LABOUR AND ENERGY WAS ESSENTIAL'. THESE OBSERVATIONS EQUA LLY APPLY TO ASSESSEE'S CASE AS WELL. 36. IN SOUNDARYA NURSERY'S CASE, HON'BLE MADRAS HIGH C OURT, AFTER TAKING NOTE OF THE LAW LAID DOWN BY THE HON'BLE SUP REME COURT IN THE CASE OF RAJA BENOY KUMAR SAHAS ROY (SUPRA) AND THE FACTS OF THE CASE, OBSERVED AS FOLLOWS: ALL THE PRODUCTS OF THE LAND, WHICH HAVE SOME UTILITY EITHER FOR CONSUMPTION OR FOR TRADE OR COMMERCE, IF THEY ARE BA SED ON LAND, WOULD BE AGRICULTURAL PRODUCTS. HERE, IT IS NOT THE C ASE OF THE REVENUE THAT WITHOUT PERFORMING THE BASIC OPERATIONS, ONLY THE SUBSEQUENT OPERATIONS, AS DESCRIBED IN THE DECISION OF T HE APEX COURT HAVE BEEN PERFORMED BY THE ASSESSEE. IF THE PLANT S SOLD BY THE ASSESSEE IN POTS WERE THE RESULT OF THE BASIC OPERATIONS ON THE LAND ON EXPENDING HUMAN SKILL AND LABOUR THEREON AND IT I S ONLY AFTER THE PERFORMANCE OF THE BASIC OPERATIONS ON THE LAND, THE RESULTANT PRODUCT GROWN OR SUCH PART THEREOF AS WAS SUITABLE FOR BEING NURTURED IN A POT WAS SEPARATED AND PLACED IN A POT A ND NURTURED WITH WATER AND BY PLACING THEM IN THE GREEN HOUSE OR IN SHADE AND AFTER PERFORMING SEVERAL OPERATIONS, SUCH AS WEEDING, W ATERING, MANURING, ETC ., THEY ARE MADE READY FOR SALE AS PLAN TS ALL THESE QUESTIONS WOULD BE AGRICULTURAL OPERATIONS ALL THIS INVOLVES HUMAN SKILL AND EFFORT. THUS, THE PLANTS SOLD BY THE ASSESSEE IN POTS WERE THE RESULT OF PRIMARY AS WELL AS SUBSEQUENT OPERATIONS COMPREHENDED WITHIN THE TERM 'AGRICULTURE' AND THEY ARE CLEARLY THE PRODUCTS OF AGRICULTURE. 37. WHEN WE APPLY THE ABOVE TESTS TO THE FACTS OF THE PRESENT CASE, AND WE BEAR IN MIND OUR FINDINGS THAT BASIC OPERATION S ARE CARRIED OUT IN THE PRESENT CASE, WHICH REQUIRE HUMAN SKILL AND LABOUR, AND SUBSEQUENT OPERATIONS, NO MATTER HOW SOPHISTICATED, IF T HAT BE USED AGAINST THE ASSESSEE, ARE ONLY TO FOSTER THE GROWTH AND TO PROTECT THE PRODUCE, WE FIND THAT THE INCOME FROM THESE OPER ATIONS CAN ONLY BE SAID TO BE AGRICULTURAL INCOME. THEIR LORDSHI PS WERE ALSO DEALING WITH A SITUATION IN WHICH OPERATIONS WERE CA RRIED ON IN A GREENHOUSE. THEREFORE, MERELY BECAUSE A GREENHOUSE IN INVOLVED, THE NATURE OF OPERATIONS WOULD NOT CHANGE. LEARNED C IT(A) HAS DISTINGUISHED THIS PRECEDENT ON THE GROUND THAT IN ASSESSE E'S CASE, BASIC OPERATIONS HAVE NOT BEEN CARRIED OUT ON LAND. T HAT PREMISES ITSELF, FOR THE DETAILED REASONS SET OUT EARLIER IN THI S ORDER, RESTS ON A UNSUSTAINABLE LEGAL FOUNDATION. THE BASIC OPERATIONS H AVE BEEN, AND CAN ONLY BE, CARRIED OUT ON THE LAND. THE FACT THAT THIS LAND IS IN A GREENHOUSE DOES NOT CHANGE THE CHARACTER OF OPERATI ONS. THE DISTINCTION WAS THUS WRONGLY MADE OUT BY THE CIT(A), I N OUR CONSIDERED VIEW, THE PRINCIPLES LAID DOWN BY THE HON' BLE MADRAS HIGH COURT'S JUDGMENT IN THE CASE OF SOUNDARAYA NURSER Y (SUPRA) APPLY TO THE FACTS OF THE CASE BEFORE US AS WELL. 38. WE MAY ALSO REFER TO HON'BLE ALLAHABAD HIGH COUR T JUDGMENT IN THE CASE OF JUGAL KISHORE ARORA VS DCIT (269 ITR 133). IN THIS CASE, THEIR LORDSHIPS, AFTER TAKING NOTE OF AND ANALYZING T HE LANDMARK SUPREME COURT JUDGMENT IN THE CASE OF RAJA BENOY KUM AR SAHAS 11 ITA NOS.428 & 429/PN/2014 ROY (SUPRA), ALSO OBSERVED THAT 'THE NATURE OF PRODUCE RAISED HAS NO RELEVANCE TO THE CHARACTER THAT 'THE NATURE OF P RODUCE RAISED HAS NO RELEVANCE TO THE CHARACTER OF AGRICULTURAL OPERA TION'. IT WAS NOTED THAT CULTIVATION OF FLOWERS OF ARTISTIC AND DEC ORATIVE VALUE WOULD ALSO BE INCLUDED IN THE SCOPE OF AGRICULTURAL O PERATIONS. THIS OBSERVATION WILL ALSO APPLY TO THE FACTS OF THE PRESENT CASE. 39. WE MAY MENTION THAT OUR ATTENTION WAS ALSO INVITE D TO EXPLANATION (3) TO SECTION 2(1A) OF THE ACT WHICH H AS BEEN INSERTED BY THE FINANCE ACT, 2008. THIS EXPLANATION PROVIDES T HAT ANY INCOME DERIVED FROM SAPLINGS OR SEEDLINGS GROWN IN A NU RSERY SHALL BE DEEMED TO BE AGRICULTURAL INCOME AND, THEREFORE, IRRESPECTIVE OF WHETHER THE BASIC OPERATIONS HAVE BEEN CARRIED OUT ON LAND, SUCH INCOME WILL BE TREATED AS AGRICULTURAL INCOME QUALIF YING FOR EXEMPTION UNDER SECTION 10(1) OF THE ACT. LEARNED CO UNSEL HAS CONTENDED THAT THIS EXPLANATION IS RETROSPECTIVE IN EF FECT INASMUCH AS IT IS MERELY CLARIFICATORY IN NATURE. WE ARE TAKEN THROUGH THE BUDGET SPEECH BY THE FINANCE MINISTER, EXPLANATORY M EMORANDUM TO THE FINANCE BILL AND OTHER DOCUMENTS TO SUPPORT TH E CONTENTION THAT THIS AMENDMENT IN LAW WAS MERELY CLARIFICATORY. OUR ATTENTION WAS THUS INVITED TO SEVERAL JUDICIAL PRECEDENTS IN WHIC H IT IS NOTED THAT EVEN WHILE AN AMENDMENT IS STATED TO BE PROSPECTI VE IN APPLICATION, BUT HELD TO BE RETROSPECTIVE IN EFFECT. ON THE BASIS OF THESE ELABORATE ARGUMENTS, IT WAS SUBMITTED THAT, IN AN Y EVENT, BASED ON THIS CLARIFICATORY AMENDMENT IN LAW, BASIC OP ERATIONS HAVING BEEN CARRIED OUT ON LAND IS NO LONGER SINE QUA NON FOR TREATING INCOME AS AGRICULTURAL INCOME. THIS PLEA WAS CLEARLY AN ALTERNATIVE PLEA. SINCE WE HAVE ALLOWED THE BASIC P LEA OF THE ASSESSEE AND WE HAVE HELD THAT THE BASIC OPERATIONS WERE CARRIED OUT ON LAND, IT IS NOT REALLY NECESSARY TO DEAL WITH T HIS ALTERNATIVE PLEA WHICH IS ONLY ACADEMIC IN THE PRESENT CONTENT. W E LEAVE IT AT THAT. 40. IN VIEW OF THE ABOVE DISCUSSIONS, AND FOR THE REASON S SET OUT ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE AUTHOR ITIES BELONG INDEED ERRED IN LAW AND ON FACTS OF THIS CASE IN HOLDI NG THAT THE IMPUGNED INCOME IS NOT AGRICULTURAL INCOME. WE, THER EFORE, DIRECT THE ASSESSING OFFICER TO TREAT THE SAID INCOME AS AGRICUL TURAL INCOME UNDER SECTION 2 (1A)(B)(I) OF THE ACT. AS A CO ROLLARY TO THIS DIRECTION, THE ASSESSING OFFICER SHALL ALSO EXCLUDE THE SA ID INCOME FROM THE TOTAL INCOME UNDER SECTION 10(1) OF THE ACT . THE ASSESSEE GETS THE RELIEF ACCORDINGLY.' SINCE THE ISSUE RAISED IS FULLY COVERED BY THE DECISIO N OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ASSESSEE ITSELF FOR THE A . Y. 2004-2005, UNDER SIMILAR SET OF FACTS, WE DO NOT FIND INFIRMITY I N THE FIRST APPELLATE ORDER ON THE ISSUE IN FAVOUR OF THE ASSESSEE BA SED ON THE SAID ORDER OF THE TRIBUNAL UNDER SIMILAR FACTS DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. THE SAME IS UPHELD. T HE GROUNDS INVOLVING THE ISSUE ARE THUS REJECTED.' 4. AS THE ISSUE IS IDENTICAL IN THIS YEAR, WE FIND NO RE ASON TO TAKE DIFFERENT VIEW. WE, THEREFORE, FOLLOWING THE ORDER S OF THE TRIBUNAL IN ASSESSEES OWN CASE REFERRED (SUPRA), CONFIRM THE ORDER O F THE LD.CIT(A) AND DISMISS ALL THE GROUNDS TAKEN BY THE REVENUE. 12 ITA NOS.428 & 429/PN/2014 5. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 9. MERELY BECAUSE THE DEPARTMENT HAS NOT ACCEPTED T HE ABOVE DECISION OF THE TRIBUNAL AND HAS PREFERRED AN APPEAL BEFO RE THE HONBLE HIGH COURT, THE SAME IN OUR OPINION CANNOT BE A GROUND NOT TO FOLLOW THE ORDER OF THE TRIBUNAL UNTIL AND UNLESS THE SAME IS REVERSED BY THE HONBLE HIGH COURT. RESPECTFULLY FOLLOWING THE DECISIO N OF THE COORDINATE BENCH OF THE TRIBUNAL AND IN VIEW OF THE DETAILED REASONING GIVEN BY THE CIT(A) WE DO NOT FIND ANY INFIRMITY IN THE ORDER . ACCORDINGLY, THE ORDER OF THE CIT(A) IS UPHELD AND THE GRO UNDS RAISED BY THE REVENUE ARE DISMISSED. 10. IDENTICAL GROUNDS HAVE BEEN TAKEN BY THE REVENUE IN A.Y. 2008- 09. WE FIND THE LD.CIT(A) HAS ALLOWED THE CLAIM OF AGRICULTURA L INCOME OF RS.30,11,752/- AS EXEMPT FROM TAX. FACTS BEING SIMILAR, S O FOLLOWING THE REASONINGS GIVEN IN THE PRECEDING PARAGRAPHS THE ORDER OF LD.CIT(A) IS UPHELD AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 11. IN THE RESULT, THE BOTH THE APPEALS FILED BY THE REV ENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28-08-2015. SD/- SD/- ( VIKAS AWASTHY ) ( R.K. PANDA ) ! / JUDICIAL MEMBER / ACCOUNTANT MEMBER IQ.KS PUNE ; DATED : 28 TH AUGUST, 2015. LRH'K 13 ITA NOS.428 & 429/PN/2014 ' (!* + / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. % ( ) - III , IQ.KS / THE CIT(A)-III, PUNE 4. % - III , IQ.KS / THE CIT-, III, PUNE 5. 6. ( ++,, ,, IQ.KS / DR, ITAT, A PUNE; 0 / GUARD FILE. / BY ORDER , ( + //TRUE C ( + //TRUE COPY// 23 + , / SR. PRIVATE SECRETARY ,, IQ.KS / ITAT, PUNE