Dy.CIT, Circle-3(3), Hyderabad V. M/s Vibha Agrotech Limited, Hyderabad

ITA 8/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77910 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 03-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Business income; Opportunity of being heard; Question of law; Competent authority; Right to appeal; Benefit of exemption
• Section: 43B; 14A; 10B; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1799/HYD/2012 ASSESSMENT YEAR 2009-10 M/S. VIBHA AGROTECH LTD. HYDERABAD PAN: AAACV8157A VS. THE DEPUTY CIT CIRCLE-3(3) HYDERABAD APPELLANT RESPONDENT ITA NO. 8/HYD/2013 ASSESSMENT YEAR 2009-10 THE DEPUTY CIT CIRCLE-3(3) HYDERABAD VS. M/S. VIBHA AGROTECH LTD. HYDERABAD PAN: AAACV8157A APPELLANT RESPONDENT ASSESSEE BY: SRI P. MURALI MOHAN RAO REVENUE BY: SRI D. SUDHAKAR RAO DATE OF HEARING: 07.03.2014 DATE OF PRONOUNCEMENT: 28.05.2014 ORDER PER CHANDRA POOJARI, A.M.: THESE ARE CROSS APPEALS DIRECTED AGAINST THE ORDER OF THE CIT(A) DATED 25.10.2012. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS: 1. THE LEARNED CIT(A) ERRED IN DISALLOWING THE APPELLANT'S CLAIM OF R&D EXPENDITURE OF RS. 3,40,22,071. 2 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT R&D EXPENDITURE ATTRIBUTABLE TO AGRICULTURAL INCOME CANNOT BE ALLOWED. 3. THE LEARNED CIT(A) ERRED IN DISALLOWING THE APPELLANT'S CLAIM FOR WEIGHTED DEDUCTION U/S. 32(2AB) OF THE INCOME-TAX ACT, 1961 FOR RS. 18,19,42,296. 4. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE SCIENTIFIC RESEARCH UNIT OF THE ASSESSEE-COMPAN Y HAS BEEN APPROVED BY DSIR AND SUCH APPROVAL IS VALID UP TO 31.03.2016. AS SUCH, THE ASSESSEE- COMPANY IS `ELIGIBLE FOR WEIGHTED DEDUCTION U/S. 35(2AB). 3. THE ASSESSEE RAISED THE FOLLOWING ADDITIONAL GROUND : 1. THE AO OUGHT TO HAVE APPRECIATED THE FACT THAT THE WHOLE INCOME OF THE ASSESSEE-COMPANY AT RS. 79,67,82,429 IS AGRICULTURAL INCOME WHICH IS EXEMPT U/S. 10(1) OF THE IT ACT, 1961. 2. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE PROVISIONS OF SECTION 40(A)(IA) ARE ONLY APPLICABLE TO THE PAYMENTS PAYABLE AT THE END OF TH E YEAR AND NOT TO THE PAYMENTS ALREADY MADE DURING THE YEAR AND THE ADDITION OF RS. 1,47,52,389 OUGHT NOT TO HAVE BEEN CONFIRMED. 4. THE REVENUE RAISED THE FOLLOWING GROUNDS: 1. THE LEARNED CIT(A) ERRED BOTH IN LAW AND FACTS OF THE CASE. 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT R&D EXPENDITURE TO BE APPORTIONED BETWEEN AGRICULTURAL AND COMMERCIAL OPERATIONS. 3. THE LEARNED CIT(A) HAS NOT APPRECIATED THE FACT THA T THE HONBLE ITAT ALREADY HELD THAT THE INCOME FROM BASIC SEED TO BE TREATED AS AGRICULTURAL INCOME EXEMPT U/S. 10(1) AND, THEREFORE, THE R&D EXPENDITURE IS NOT ALLOWABLE EXPENDITURE AS PER THE PROVISIONS OF SECTION 14A. 3 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== 5. IN THIS CASE THE ASSESSEE FILED ITS RETURN OF INCOM E DISCLOSING A TOTAL INCOME OF RS. 7,27,88,088. THE AO, INTER ALIA, DISALLOWED THE CLAIM OF EXEMPTION U/S. 10(1) AND AL SO RESTRICTED THE DEDUCTION U/S. 35(2AB), ASSESSING TH E TOTAL INCOME AT RS. 83,23,35,230. CONTESTING THE ACTION OF THE ASSESSING OFFICER, BEFORE THE CIT(A). THE ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT THE ASSESSING OFFICER HAS ER RED IN DETERMINING THE TOTAL INCOME OF THE COMPANY AS WHIC H IS EARNED FROM COMMERCIAL ACTIVITY, AND TREATING THE I NCOME FROM SALE OF FOUNDATION SEED/BASIC SEED ALSO AS BUSINESS INCOME, CONCLUDING THAT THE ASSESSEE'S ACTIVITIES ARE NOT A GRICULTURAL IN NATURE. THE ASSESSING OFFICER ERRED IN HOLDING THAT THE SCIENTIFIC RESEARCH UNIT HAS NOT BEEN APPROVED BY D SIR, WHEN AS PER THE COPY OF ORDER OF DSIR SUBMITTED DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, THE UNIT WAS APPROVED BY DSIR AND SUCH APPROVAL WAS VALID UP TO 31.3.2016. AS SUC H, THE ASSESSEE IS ELIGIBLE FOR WEIGHTED DEDUCTION U/S. 35 (2AB). THE ASSESSING OFFICER ERRED IN HOLDING THAT NO R&D EXPE NDITURE CAN BE ALLOWED AGAINST BUSINESS INCOME OF THE ASSES SEE AS PER THE PROVISIONS OF SEC. 14A OF THE INCOME TAX ACT, I N VIEW OF THE FACT THAT SCIENTIFIC RESEARCH WAS CARRIED OUT WITH REGARD TO FOUNDATION SEED AS ALSO HYBRID SEEDS OBTAINING AGRI CULTURAL INCOME AS WELL AS BUSINESS INCOME. 6. THE CIT(A) OBSERVED THAT REGARDING THE CLAIM OF EXEMPTION U/S 10(1), THE AR RELIED ON THE DECISIONS OF THE JURISDICTIONAL TRIBUNAL IN ITS OWN CASE FOR A.Y. 20 01-02, REPORTED IN 314 ITR (AT) 231 AND FOR THE A.YS. 2002 -03, 2004- 4 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== 05 AND 2005-06 IN ITA NOS. 469/H/2008, 470/H/2008, 480/H/ 2008, 76/H/2008, 234/H/2009 DT. 18.6.2010 WHERE THE TRIBUNAL HELD THAT THE INCOME FROM THE SALE OF FOUNDATION SE ED WAS AGRICULTURAL INCOME AND EXEMPT U/S. 10(1) OF THE AC T. THE PATTERN OF ACTIVITIES UNDERTAKEN BY THE ASSESSEE DU RING THE RELEVANT PREVIOUS YEAR HAS REMAINED IDENTICAL TO TH OSE PREVAILING IN THE EARLIER YEARS. THE CIT(A), FOLLOW ING THE FINDINGS OF THE JURISDICTIONAL ITAT, DIRECTED THE A O TO TREAT THE INCOME OF RS. 56,27,97,619/- AS AGRICULTURAL INCOME , EXEMPT U/S. 10(1) AND THUS THE CIT(A) ALLOWED THE GROUND T AKEN BY THE ASSESSEE. 7. REGARDING THE GROUNDS IN CONNECTION WITH THE CLAIM OF R & D EXPENDITURE AND THE CLAIM OF WEIGHTED DEDUCTI ON OF RS. 2,93,71,646/- U/S. 35(2AB) OF THE ACT, THE ASSESSEE HAD CLAIMED DEDUCTION TOWARDS R & D EXPENDITURE AMOUNTING TO RS . 18,19,42,296/-, INCLUDING WEIGHTED DEDUCTION U/S. 3 5(2AB) AT RS. 6,06,47,432/-. THE ASSESSING OFFICER HELD THAT THE RESEARCH RELATED TO THE FOUNDATION SEED ALONE AND NOT TO HYB RID SEEDS AND THAT IF THE ASSESSEE'S CLAIM OF AGRICULTURAL IN COME WERE TO BE ACCEPTED, THE EXPENDITURE ON R&D COULD NOT BE AL LOWED. SHE FURTHER HELD THAT THE EXPENSES WERE HIT BY SEC. 14A ALSO, AS THE ASSESSEE HAD INCURRED THE EXPENSES FOR EARNING AN INCOME, WHICH WAS CLAIMED AS EXEMPT U/S. 10(1), AND THEREFO RE, SUCH EXPENSES WERE NOT ALLOWABLE. HOWEVER, SINCE THE ENT IRE INCOME OF THE ASSESSEE WAS CONSIDERED BY HER AS BUS INESS INCOME OF THE ASSESSEE, SHE ALLOWED THE EXPENSES CL AIMED U/S, 35 AND NO DISALLOWANCE WAS MADE ON THIS ISSUE. 5 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== 8. THE FACTS OF THE CASE IN THE PRESENT APPEAL ARE IDE NTICAL TO THE FACTS IN THE EARLIER YEARS. IN ITS ORDER D A T ED 18.6.2010, IN THE ASSESSEE'S CASE FOR A SSESSMENT YEAR 2004-05 AND 2005-06, THE ITAT HELD THAT THE R&D EXPENDITURE INCURRED BY THE ASSESSEE WAS ATTRIBUTABLE TO BOTH THE DIVISIONS AND HAD TO BE ALLOWED TO THE EXTENT ATTRIBUTABLE TO THE COMMERCIA L DIVISION IN PROPORTION TO THE TURNOVER OF THE AGRICULTURAL A ND COMMERCIAL DIVISIONS. F OLLOWING THE ORDER OF THE ITAT, THE CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW EXPENDITURE ATTRIBUTABLE TO THE COMMERCIAL DIVISION IN PROPORTI ON TO THE TURNOVER BETWEEN THE TWO DIVISIONS. THE EXPENDITURE ATTRIBUTABLE TO THE AGRICULTURAL DIVISION IN VIEW O F SUCH WORKING, HOWEVER, SHALL STAND DISALLOWED. THE ASSESSMENT, THEREFORE, IS ENHANCED TO THIS EXTENT AND THE GROUN D WAS PARTLY ALLOWED BY THE CIT(A) . 9. THE CLAIM OF WEIGHTED DEDUCTION U/S. 35(2AB) WAS REJECTED BY THE ASSESSING OFFICER IN THE ABSENCE OF THE NECESSARY APPROVAL OF THE DISR . THE CIT(A) OBSERVED THAT SIMILAR ISSUE HAD CROPPED UP FOR THE PRECEDING YEAR, A.Y. 2008-09. THE CIT(A) IN HIS ORDER IN ITA NO. 407/DC 3( 3 )/CIT(A) - IV /2010-11 DATED 31.1.2012 HAD NOTED THAT THE RESEARCH ACTIVIT Y OF THE ASSESSEE HAD BEEN APPROVED BY THE DISR AND RECOGNIT ION OF THE I N-HOUSE R & D UNIT GRANTED UP TO 31.3.2011 WHICH WAS FURTHER RENEWED UP TO 31.3.2016. HOWEVER, SINCE THE ASSESSEE HAD NOT BEEN ABLE TO FURNISH THE FORM NO. 3CL FROM THE COMPETENT AUTHORITY CERTIFYING THE AMOUNTS SPENT AN D THE AMOUNT ELIGIBLE FOR WEIGHTED DEDUCTION CLAIMED U/S, 35(2AB) OF THE IT ACT, THE CIT(A) HAD DIRECTED THE ASSESSIN G OFFICER THAT 6 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== AS AND WHEN THE REQUISITE FORM NO. 3CL WAS RECEIVED BY THE ASSESSEE FROM THE DSIR, THE WEIGHTED DEDUCTION U/S. 35(2AB) WOULD BE GIVEN TO THE ASSESSEE, SUBJECT TO SUCH WEI GHTED DEDUCTION BEING AVAILABLE ONLY IN RESPECT OF THE R & D EXPENDITURE ATTRIBUTABLE TO THE COMMERCIAL DIVISION . FOLLOWING THE DECISION OF HER PREDECESSOR IN ASSESSEE'S OWN CASE, THE CIT(A) DIRECTED THE ASSESSING OFFICE TO ALLOW THE WEIGHTED DEDUCTIO N U/S. 35(2AB) AS AND WHEN THE REQUISITE FORM NO. 3CL IS RECEIVED BY THE ASSESSEE FROM THE DSIR. HOWEVER, SUCH WEIGHTED DEDUCTION WOULD BE AVAILABLE ONLY IN RESPE CT OF THE R & D EXPENDITURE ATTRIBUTABLE TO THE COMMERCIAL DI VISION, TO BE COMPUTED IN THE MANNER AS SPECIFIED. 10. ON GIVING RELIEF TO THE ASSESSEE BY THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. FOR SUSTAINING A P ORTION OF ADDITION, THE ASSESSEE IS IN APPEAL BEFORE US. 11. IN SUPPORT OF THE SECOND ADDITIONAL GROUND, THE ASSESSEE RELIED ON THE DECISION OF SPECIAL BENCH IN THE CASE OF M/S MERLYN SHIPPING TRANSPORT & OTHERS, 136 ITD 23 (SB) (VIZAG) WHEREIN THE TRIBUNAL HELD THAT WHEN S. 40(A)(IA) WAS PROPOSED TO BE INSERTED BY THE FINANCE BILL 2004, I T APPLIED TO ANY AMOUNT CREDITED OR PAID. HOWEVER, WHEN ENACTE D BY THE FINANCE ACT 2004, IT APPLIED ONLY TO AMOUNT PAYABL E. THE WORDS CREDITED/ PAID AND PAYABLE HAVE DIFFERENT CONNOTATIONS AND THE LATTER REFERS TO AN AMOUNT WHI CH IS UNPAID. THE CHANGE IN LANGUAGE BETWEEN THE BILL AND THE ACT IS CONSCIOUS AND WITH A PURPOSE. THE LEGISLATIVE INTEN T IS CLEAR 7 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== THAT ONLY THE OUTSTANDING AMOUNT OR THE PROVISION F OR EXPENSE (AND NOT THE AMOUNT ALREADY PAID) IS LIABLE FOR DIS ALLOWANCE IF TDS IS NOT DEDUCTED. ALSO, S. 40(A)(IA) CREATES A L EGAL FICTION BY VIRTUE OF WHICH EVEN GENUINE AND ADMISSIBLE EXPENSE S CAN BE DISALLOWED FOR WANT OF TDS. A LEGAL FICTION HAS TO BE LIMITED TO THE AREA FOR WHICH IT IS CREATED. CONSEQUENTLY, S. 40(A)(IA) CAN APPLY ONLY TO EXPENDITURE WHICH IS PAYABLE AS OF 31ST MARCH AND DOES NOT APPLY TO EXPENDITURE WHICH HAS BEEN AL READY PAID DURING THE YEAR. FURTHER, HE SUBMITTED THAT EVEN DISALLOWANCE MADE U/S. 40(A)(IA) THAT INCOME SHOULD BE CONSIDERED AS BUSINESS INCOME OF THE ASSESSEE. IN THIS CASE THE ASSESSEE HAS AGRICULTURAL INCOME WHICH IS EXEMP T FROM TAX. FOR THIS PURPOSE HE RELIED ON THE ORDER OF THE TRIB UNAL IN THE CASE OF PLANET ONLINE PVT. LTD. IN ITA NO. 1016/HYD /2007 DATED 29.8.2008, SPECIFICALLY PARA 11 OF THAT ORDER WHICH IS AS FOLLOWS: '11. AS FOR THE DEDUCTION U/S. 10B IN RELATION TO T HE EXPENSES DISALLOWED U/S. 43B, THE LEARNED CIT(A) HA S DECIDED THIS ISSUE VIDE PARA 6 OF HIS ORDER IN THE FOLLOWING MANNER: '6. ... IN THE SECOND PROVISO TO SECTION 10-B WHI CH HAS BEEN INSERTED BY THE FINANCE ACT, 2002 W.E.F. 01.04.2003, IT HAS BEEN MADE CLEAR THAT THE DEDUCTI ON UNDER SUBSECTION (1) TO SECTION 10B, SHALL BE 90% O F THE PROFITS AND GAINS DERIVED BY AN UNDERTAKING FROM TH E EXPORT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTW ARE. 'PROFITS AND GAINS OF BUSINESS' IS DEFINED IN SECTI ON 28 AND AS PER SECTION 29 INCOME REFERRED TO IN SECTION 28 SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTIONS 30 TO 43D. FROM THE ABOVE PROVISIONS IN T HE STATUTE, IT IS THUS CLEAR THAT THE PROFIT OF THE UN DERTAKING IN THE CASE OF THE APPELLANT HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 30 TO 43 D, I.E., INCLUDING THE PROVISIONS OF SECTION 43B OF TH E ACT. IN VIEW OF THE ABOVE LEGAL POSITIONS, IN MY CONSIDE RED VIEW, EXEMPTION U/S. 10B HAS TO BE COMPUTED ON THE 8 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== PROFITS DETERMINED AFTER TAKING INTO ACCOUNT THE DISALLOWANCES TO BE MADE U/S. 43B OF THE ACT.' 12. THE AR SUBMITTED THAT ASSESSEE'S ADDITIONAL GROUNDS ARE TO BE ADMITTED IN VIEW OF THE JUDGEMENT OF SUPR EME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS. CIT (229 ITR 383) WHEREIN HELD THAT TRIBUNAL HAS JURISDICTION TO EXAMINE A QUESTION OF LAW WHICH ARISES FROM THE FACTS AS FOUN D BY THE INCOME-TAX AUTHORITY AND HAS A BEARING ON THE TAX L IABILITY OF THE ASSESSEE, THE ADDITIONAL GROUNDS TAKEN BY THE A SSESSEE ARE TO BE ADMITTED . 13. THE LEARNED AR SUBMITTED THAT THE ASSESSEE SINCE BEGINNING CLAIMING ITS INCOME AS AGRICULTURAL INCOM E WHICH IS EXEMPT FROM TAX. IT DOES NOT REQUIRE ANY INVESTIGA TION OF THE FACTS SO AS TO ADJUDICATE THE ADDITIONAL GROUND. 14. FURTHER, HE SUBMITTED THAT THERE IS A SUBSTANTIAL J USTICE IS INVOLVED IN THIS CASE. BEING SO, TECHNICALITIES ARE TO BE IGNORED. 15. THE DR HAS SERIOUSLY OBJECTED ADMISSION OF THE ADDITIONAL GROUNDS. 16. REGARDING THE FIRST ADDITIONAL GROUND CLAIMING INCO ME AS AGRICULTURAL INCOME U/S. 10(1), IT WAS STATED TH AT THE ASSESSEE HAS ENGAGED IN PLANT BREEDING RESEARCH, CR EATION OF NOVEL, TRAIT SPECIFIC GENETIC MATERIAL AND HYBRIDS, CULTIVATION OF FOUNDATION SEED AND PRODUCTION AND MARKETING OF HIG H 9 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== YIELDING HYBRID SEED OF VARIOUS COMMERCIAL CROPS. PRODUCTION PROCESS OF THE COMPANY IS DESCRIBED AS FOLLOWS: AT RESEARCH STAGE : THE GERMPLASM IS COLLECTED AND PLANTED IN COMPANY RESEARCH FARMS IN CROP SPECIFIC GROWING SEASONS. THE GERMPLASM LINES ARE EVALUATED FOR QUALITY PARAMETERS. AFTER EVALUATION THE MATERIAL I S MULTIPLIED FOR MORE SEEDS AND IS MOVED TO SPECIFIC USE IN CROP HYBRIDIZATION PROGRAMME. THE WILD SPICES AN D LAND RACES ARE USED IN HYBRIDIZATION FOR GENETIC ENHANCEMENT AND DEVELOPMENT OF NEW VARIETIES. CMS SOURCES AND FOR SPECIFIC TRAITS. HYBRIDS DEVELOPED FROM NEW GERMPLASM ARE TESTED ALONG WITH THE BEST AVAILA BLE COMMERCIAL HYBRIDS/VARIETIES OF OTHER COMPANIES. TH E HYBRIDS THAT PERFORM BETTER THAN THE COMMERCIALLY AVAILABLE HYBRIDS ARE SELECTED. NEARLY 5-10% OF SEL ECTED HYBRIDS ARE RIGOROUSLY TESTED IN REPLICATED TRIALS AT DIFFERENT LOCATIONS AND THE BEST PERFORMING HYBRID IS MOVED TO ON-FARM TESTING. AT FOUNDATION STAGE : FROM THE IDENTIFIED BREEDERS, THE ASSESSEE CULTIVATED FOUNDATION SEEDS ON ITS OWN OR ON LEASED LANDS. THE CULTIVATED FOUNDATION SEEDS ARE S OLD TO THE FARMERS, AFTER NECESSARY SECONDARY OPERATION S FOR FURTHER CULTIVATING HYBRID SEEDS. AT HYBRID SEED PRODUCTION STAGE : THE FOUNDATION SEEDS SOLD BY THE ASSESSEE ARE USED FOR CULTIVATING THEM TO PRODUCE HYBRID SEEDS. THE HYBRID SEEDS SO PRODUCE A RE PURCHASED BY THE ASSESSEE COMPANY, PROCESSED TO MEE T 10 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== THE MARKET CONDITIONS AND PACKED TO SUIT THE TRAITS OF THE SEED. THE ASSESSEE HAS TREATED THE ACTIVITY UP TO THE SAL E OF FOUNDATION SEED AS AGRICULTURAL ACTIVITY. THE FINAL STAGE OF TRADING OF THE HYBRID SEEDS, WAS TREATED AS NOT AN AGRICULTURAL ACTIVITY BY THE ASSESSEE. THE ASSESSEE HAS MAINTAINED A SINGLE ACCOUNT FOR BOTH THE ACTIVITIES . THE NET PROFIT AS PER BOOKS HAS BEEN SHOWN BY THE ASSES SEE, AT RS. 79,67,82,429/-. IN THE STATEMENT OF COMPUTA TION OF TOTAL INCOME, THE ASSESSEE MADE BIFURCATION OF T HE AGRICULTURAL INCOME AND BUSINESS INCOME. THE NET TAXABLE INCOME HAS BEEN REPORTED BY THE ASSESSEE AT RS. 7,27,88,088/-. 17. THUS, AS EVIDENT FROM THE ASSESSMENT ORDER, THE ASSESSEE HAS BEEN CLAIMING ITS INCOME AS EXEMPT U/S . 10(1) OF THE ACT. HOWEVER, THE AO DECLINED TO GRANT EXEMPTI ON U/S. 10(1) OF THE ACT BASED ON THE DECISION OF DELHI BEN CH OF THIS TRIBUNAL IN THE CASE OF PRO-AGRO SEEDS LTD. VS. JCI T DATED 1.11.2012 IN ITA NO. 90/DEL/2000 AND ORS WHEREIN TH E TRIBUNAL HELD AS UNDER : 'AGRICULTURE ON THE OTHER HAND IS THE ART AND SCIEN CE OF CULTIVATING LAND AND GROWING AND HARVESTING CROPS. THERE ARE OPERATIONS LIKE WEEDING, IRRIGATING AND TENDING. THE CROPS, HOWEVER, ARE LEFT TO GROW AND MATURE BY THE FORCES OF THE NATURE. THE FARMER MOST LY GETS THREE TO FOUR CROPS IN A YEAR FROM THE SAME LA ND. HE RETAINS THE SEEDS AND MARKETS THE PRODUCE FOR HUMAN OR ANIMAL CONSUMPTION. THE FANNER CAN ALSO GROW COMMERCIAL PRODUCTS LIKE JUTE, INDIGO, ETC. IT IS DIFFICULT TO ACCEPT THE PROPOSITION THAT THE ACTIVI TIES OF THE APPELLANT IN AGRICULTURAL RESEARCH ARE SIMILAR TO OR IN THE SAME CATEGORY AS AGRICULTURE ACTIVITIES. THE 11 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== APPELLANT MAY BE CARRYING ITS RESEARCH ON THE FIELD THROUGH THE MEDIUM OF PLANTS, BUT THAT IS ALL. THE SUBSEQUENT OPERATIONS ARE ENTIRELY MECHANICAL. THE MALE AND FEMALE PLANTS ARE IDENTIFIED, THEY ARE CRO SSED IN ALL POSSIBLE COMBINATIONS, THE HYBRID PRODUCTS A RE RE- GROWN, THEY ARE OBSERVED, TESTED, SHORTLISTED FOR F URTHER TREATMENT, RETESTED FOR VIABILITY IN DIFFERENT AGRO -CLIMATE CONDITIONS, REPLANTED REPEATEDLY TILL THEY TEST POS ITIVE IN ALL DESIRED TRAITS. THIS ACTIVITY TAKES SIX TO EIGH T YEARS AND 50 TO 60 GENERATIONS OF PLANT GROWTH.' 18. THE AO ALSO RELIED ON THE JUDGEMENT OF THE SUPREME COURT IN CIT V S. RAJA BENOY KU M AR SAHAS ROY (32 ITR 466) HELD THAT THE PRIMARY SENSE IN WHICH THE TERM AGRICULTUR E IS UNDERSTOOD IS CULTIVATION OF THE FIELD. AGRICULTURE IS AN INTEGRATED ACTIVITY OF CULTIVATING, PLANTING, GROWI NG AND HARVESTING. ACCORDING TO THE AO, I N THE CASE OF ASSESSEE , THE INTEGRATED ACTIVITY IS DISTURBED AND BASIC AGRICULT URAL OPERATIONS OF TILLING, CULTIVATING ARE MINIMAL. AS INCOME FROM AGRICULTURE RESEARCH IS NOT COVERED BY THE EXEMPTIO N UNDER SECTION 10 ( 1 ), THUS THE ASSESSING OFFICER HAS INCLUDED IT IN TH E TOTAL INCOME. 19. FURTHER HE OBSERVED THAT WHAT IS MATERIAL IS NOT ME RELY WHETHER SOME OPERATIONS HAVE BEEN CARRIED OUT ON LA ND BUT WHETHER THESE PROCESSES ARE SUCH AS ARE 'ORDINARILY EMPLOYED' BY A CULTIVATOR. IN THE CASE OR PRO - AGRO SEEDS LIMITED IN ITS COMMON ORDER DT. 11 . 11 .2002 , THE ITAT, DELHI D-BENCH ON SIMILAR AND IDENTICAL FACTS HELD THAT THE PARENT SE ED PRODUCTION (FOUNDATION SEED PRODUCTION IN OUR CASE) IS NOT AGR ICULTURE AND SALE PROCEEDS THERE FRORN CANNOT BE TREATED AS AGRI CULTURAL INCOME. RELEVANT EXTRACTS ARE REPRODUCED HEREUNDER: 'NO DOUBT THERE HAS BEEN TECHNOLOGICAL AND SCIENTIF IC ADVANCES OVER THE YEARS, BUT IN EXEMPTING FROM TAX, 12 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== AGRICULTURAL INCOME WHAT HAS BEEN KEPT IN MIND AND CONTEMPLATED IS THAT INCOME WHICH ARISES FROM THE U SE OF LAND FOR AGRICULTURAL PURPOSES, BY CONVENTIONAL METHODS. SECTION 2(IA) HAS DEFINED THE TERM 'AGRICULTURAL INCOME' AND IT MUST BE EMPHASIZED THA T REFERENCE IS TO A 'CULTIVATOR', PRODUCE WHICH IS 'F IT TO BE TAKEN TO MARKET', THE SALE IS OF A 'PRODUCE RAISED OR RECEIVED' BY A CULTIVATOR AND IN RESPECT OF WHICH ' NO PROCESS HAS BEEN PERFORMED OTHER THAN A PROCESS OF THE NATURE DESCRIBED IN PARAGRAPH (I IF OF SUB-CLAUSE 2 (1A) (B)(II). SUB-CLAUSE (II) TALKS OF' ANY PROCESS ORDI NARILY EMPLOYED BY A CULTIVATOR OR RECEIVER OF RENT IN KIN D TO RENDER THE PRODUCE RAISED OR RECEIVED BY HIM FIT TO BE TAKEN TO MARKET'. XXX CAN IT BE SAID ON THE FACTS OF THE PRESENT CAS E THAT THE ASSESSEE HAS EMPLOYED CONVENTIONAL METHODS IN PRODUCING THE SEEDS? THE ANSWER IS AN EMPHATIC 'NO' . THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CA SE OF RAJA BENOY KUMAR SAHAS ROY (SUPRA) IS SQUARELY APPLICABLE IN SPITE OF THE FACT THAT IT WAS RENDERE D IN 1957 AND WE ARE FEW DECADES AWAY AS OF TODAY, BUT N O DECISION TO THE CONTRARY HAS BEEN BROUGHT TO OUR NO TICE ON BEHALF OF THE ASSESSEE AND SOME OF THE DECISIONS CITED ARE NOT AT ALL APPLICABLE HAVING BEEN RENDERED IN DIFFERENT CONTEXTS. THE COMMISSIONER OF INCOME-TAX (APPEALS) IN HER ORD ER HAS VERY RIGHTLY OBSERVED THAT WHEREAS SOME PART OF THE ACTIVITIES OF THE ASSESSEE MAY PERTAIN TO THE 'FIEL D' THE MAJOR OPERATIONS ARE OF A MECHANICAL NATURE RULING OUT THE ROLE OF NATURE. IT HAS BEEN VERY APTLY EMPHASIZ ED THAT AGRICULTURE IS THE 'ART AND SCIENCE OF CULTIVA TING LAND AND GROWING AND HARVESTING CROPS'. IT IS APPAR ENT THAT IN THE ASSESSEE'S CASE THE INITIAL ACTIVITIES MAY BE AKIN TO AGRICULTURE, BUT THE MAJOR PORTION, THEREFO RE, IS NOT AND THEREFORE THE SALE PROCEEDS OF RS. 6.95 CRO RES CANNOT BE TREATED AS AGRICULTURAL INCOME. THE ACTIO N OF THE COMMISSIONER OF INCOME- TAX (APPEALS) IS CONFIRMED'. 20. THUS, RELYING ON THE DECISION OF THE HONBLE DELHI TRIBUNAL IN THE CASE OF PRO AGRO SEEDS LIMITED, IT IS WAS OBSERVED BY THE AO THAT EVEN THOUGH, THE ASSESSEE'S ACTIVITIES MAY BE AKIN TO AGRICULTURE BUT THE INTERRUPTION OF THE NATURAL 13 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== AGRICULTURAL PROCESS BY TECHNOLOGICAL INPUTS INVOLV ED IN SEED PRODUCTION LIKE INBREEDING, ARTIFICIAL SELF-POLLINA TION, ARTIFICIAL CROSSING BETWEEN MALE AND FEMALE LINES AND SALE OF FOUNDATION SEED RENDER IT NON-AGRICULTURAL. THEREFORE, THE INC OME FROM SALE OF FOUNDATION SEED CANNOT BE SAID TO BE ITS AG RICULTURAL INCOME. 21. THE ASSESSEE HAS ARGUED THAT THE NATURE OF PRODUCE HAS NO RELEVANCE IN DECIDING WHETHER A PARTICULAR ACTIV ITY IS AGRICULTURE. IN THIS REGARD, IT RELIED ON THE CASE OF RAJA BENOY KUMAR SAHAS ROY ((32 ITR 466) (SC). ACCORDING TO T HE AO THE OPERATIONS OF THE ASSESSEE ARE NOT SUCH SO AS TO QU ALIFY AS 'CULTIVATION' OR 'AGRICULTURE'. THE ASSESSEE HAS FA ILED TO TAKE NOTE OF THE FOLLOWING OBSERVATIONS OF THE SUPREME C OURT IN THE VERY SAME JUDGMENT REPORTED AT PAGE NO. 467. 'THERE IS NO WARRANT AT ALL FOR EXTENDING THE TERM' AGRICULTURE' TO ALL ACTIVITIES WHICH HAVE SOME RELA TION TO THE LAND OR ARE IN ANY WAY CONNECTED WITH THE LAND, FOR THE TERM AGRICULTURE CANNOT BE DISASSOCIATED FROM T HE PRIMARY SIGNIFICANCE THEREOF, WHICH IS THAT OF CULT IVATION OF THE LAND. THE EXTENSION OR THE TERM 'AGRICULTURE ' TO DENOTE SUCH ACTIVITIES IS BREEDING AND REARING LIVE STOCK, DAIRY FARMING, BUTTER AND CHEESE MAKING AND POULTRY FARMING IS AN UNWARRANTED DISTORTION OF THE TERM'. 22. THE AO OBSERVED THAT EXTENSION OF THE TERM AGRICULT URE AS CONTEMPLATED IN SECTION 2(1A) TO FOUNDATION SEED PRODUCTION SHALL BE AN UNWARRANTED DISTORTION OF TH E TERM 'AGRICULTURE'. 23. THUS, THE AO TREATED THE ENTIRE INCOME AS BUSINESS INCOME OF THE ASSESSEE. HOWEVER, THE CIT(A) WHILE PLACING RELIANCE ON THE EARLIER ORDER OF THE TRIBUNAL IN AS SESSEES OWN 14 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== CASE REPORTED IN 314 ITR 231 (AT) OBSERVED THAT IN COME FROM SALE OF FOUNDATION SEED IS EXEMPTED U/S. 10(1) OF T HE ACT. 24. BEFORE US THE LEARNED AR PLEADED THAT WHOLE INCOME OF THE ASSESSEE IS AGRICULTURAL INCOME IN VIEW OF THE DECISION OF BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF ADVA NTA INDIA LTD. VS. ACIT IN ITA NOS. 819 & 820/BANG/2010 FOR A .YS. 2003- 04 AND 2004-05 DATED 29.6.2012 AND HE DREW OUR ATTE NTION TO PARA NOS. 9 TO 12 WHICH IS AS FOLLOWS: 'HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERE D THE RIVAL CONTENTIONS, WE FIND THAT ACCORDING TO TH E AO, THE ASSESSEE IS UNDERTAKING THE ACTIVITY OF PRODUCI NG THE BASIC SEEDS IN ITS OWN LANDS AND HYBRID SEEDS ON TH E LANDS LEASED BY IT. ACCORDING TO THE AO, THE FOREMO ST OBJECTION IS THAT THE GERMPLASM IS GENERATED OUT OF SCIENTIFIC RESEARCH AND, THEREFORE, IT IS NOT AGRIC ULTURAL ACTIVITY AND FURTHER THAT THE EXPENDITURE INCURRED FOR SUCH SCIENTIFIC RESEARCH HAS NOT BEEN CONSIDERED BY THE ASSESSEE WHILE COMPUTING THE AGRICULTURAL INCOME. A S REGARDS THE PRODUCTION OF BASIC SEEDS IS CONCERNED, THE SECOND OBJECTION OF THE AO IS THAT THE BASIS SEEDS ARE NOT FIT FOR HUMAN CONSUMPTION, AND, THEREFORE, IT C ANNOT BE AGRICULTURAL PRODUCE AND FURTHER THAT THEY ARE N OT ONLY GROWN ON OWN LANDS BUT ALSO ON LEASED LANDS AN D, THEREFORE, LEASE RENTALS SHOULD ALSO BE CONSIDERED FOR COMPUTING THE AGRICULTURAL INCOME AS REGARDS THE PRODUCTION OF HYBRID SEEDS, THE ONLY OBJECTION OF T HE AO IS THAT THE HYBRID SEEDS ARE CULTIVATED BY THE FARM ERS ON A CONTRACT BASIS AND, THEREFORE, THE ASSESSEE CANNO T BE SAID TO HAVE CULTIVATED THE HYBRID SEEDS AND, THERE FORE, THE ENTIRE OPERATION CANNOT BE CONSIDERED AS AGRICULTURAL OPERATIONS. AS REGARDS THE OBJECTION O F THE AO AND THE CIT(A) THAT THE GERMPLASM GENERATED IS O UT OF SCIENTIFIC RESEARCH ACTIVITY, WE FIND THAT THE A O HAS ALREADY HELD THAT THERE IS NO CHANGE IN THE ACTIVIT IES OF THE ASSESSEE AS COMPARED TO THE EARLIER ASSESSMENT YEAR I.E., 2002-03. FOR THE ASSESSMENT YEAR 2002-03, THE TRIBUNAL IN ITS ORDER HAS OBSERVED THAT THE ASSESSE E PROCURES GERMPLASM FROM LABORATORIES AND DOES NOT GENERATE THE SAID GERMPLASM IN ITS OWN LABORATORIES . THEREFORE, THE CONTENTION OF THE AO AND THE CIT(A) THAT 15 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== SOME SCIENTIFIC ACTIVITY IS CARRIED ON BY THE ASSES SEE AND THE EXPENDITURE INCURRED BY THE ASSESSEE ON SUCH SCIENTIFIC ACTIVITY SHOULD BE CONSIDERED WHILE COMP UTING THE AGRICULTURAL INCOME DOES NOT HOLD GOOD. NOW, WHETHER THE CONVERSION OF GERMPLASM INTO BASIC SEED S ALSO INVOLVES ANY SCIENTIFIC ACTIVITY IS THE QUESTI ON BEFORE US. FROM THE MATERIAL FILED BY THE LEARNED D R, WHICH IS PROCURED FROM THE INTERNET, WE FIND THAT GERMPLASM IS LIVING TISSUE FROM WHICH NEW PLANTS CA N BE GROWN AND THAT IT CAN BE A SEED OR PART OF ANOTH ER PLANT, A LEAF, A PIECE OF STEM, POLLEN OR EVEN JUST A FEW CELLS THAT CAN BE TURNED INTO A WHOLE PLANT. IT IS THE CASE OF THE ASSESSEE THAT THIS GERMPLASM IS SOWN INTO LA ND WHICH GROWS INTO PLANTS FOR PRODUCTION OF BASIC SEE DS. FROM THIS SIMPLE OPERATION, IT CAN BE SEEN THAT NO SCIENTIFIC RESEARCH ACTIVITY IS INVOLVED AND ALL TH E ACTIVITIES ARE CARRIED ON BY THE ASSESSEE IN ITS OW N LANDS OR ON THE LANDS TAKEN ON LEASE BY IT. THEREFORE, TH IS ACTIVITY ALSO CANNOT BE CONSIDERED AS NON-AGRICULTU RAL ACTIVITY. SIMPLY BECAUSE THE BASIC SEEDS ARE NOT FI T FOR HUMAN CONSUMPTION, IT CANNOT BE SAID THAT THE PRODU CE IS NOT AGRICULTURAL PRODUCE. THE DEFINITION OF AGRICULTURE GIVEN IN SEC. 2(1A) OF THE INCOME-TAX ACT DOES NOT SPECIFY THAT THE PRODUCE SHOULD BE FIT FOR HUMAN CONSUMPTION. ONLY REQUIREMENT IS THAT THE PRODUCE SHOULD BE OUT OF CULTIVATION BY USAGE OF LA ND. HENCE THIS FINDING OF THE AO IS ALSO NOT CORRECT. C OMING TO THE LAST STAGE I.E., PRODUCTION OF HYBRID SEEDS, THE BONE OF CONTENTION BETWEEN THE REVENUE AND THE ASSESSEE IS THAT THE ASSESSEE IS NOT CARRYING ON TH E AGRICULTURAL ACTIVITY BUT IT IS THE FARMERS WHO ARE CARRYING THE AGRICULTURAL ACTIVITY AND, THEREFORE, THE ASSESSEE CANNOT BE TERMED AS AN AGRICULTURIST. AS RIGHTLY POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE, COMPANY IS AN INANIMATE PERSON AND CANNOT BE EXPECTED TO DO THE CULTIVATION BY ITSELF. THE CULTIVATION CAN BE DONE BY ITS AGENTS OR BY LABOURE RS, TO WHOM THE ASSESSEE PAYS THE WAGES. IN THE CASE BEFOR E US, THE ASSESSEE HAS TAKEN THE LANDS ON LEASE FROM THE FARMERS AND IN TURN THE FARMERS ARE EMPLOYED BY THE ASSESSEE COMPANY TO CULTIVATE AND PRODUCE THE SEEDS . THEREFORE, THE FARMERS CAN BE SAID TO BE THE AGENTS OF THE ASSESSEE COMPANY AND THE PRODUCTION OF HYBRID SEEDS BY THE FARMERS CANNOT BE SAID TO BE NOT ON BE HALF OF THE ASSESSEE COMPANY. THIS ISSUE HAD ARISEN IN T HE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002-03 AND THE TRIBUNAL AFTER CONSIDERING THE ISSUE AT LEN GTH HAS HELD AS UNDER:- 16 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== '3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF PRODUCTION AND SALE OF HYBRID SEEDS. TH E COMPANY IS ENGAGED IN THE RESEARCH, DEVELOPMENT, PROCESSING AND MARKETING OF HYBRID SEEDS. THE ASSESSEE COMPANY CARRIED OUT STUDIES AND RESEARCHES TO FIND OUT THE MOST SUITABLE GENETIC COMPOSITION O F SEEDS IN THE RESPECTIVE LOCAL ENVIRONMENT. THE ASSESSEE PROCURES GERMPLASM PROTOTYPE OF THE HYBRID SEEDS FROM THE LABORATORIES FOR EMPLOYING THE SAME IN ITS SUBSEQUENT OPERATIONS. THE GERMPLASM IS SOWN IN FIELDS WHICH GROWS INTO WHAT I S CALLED THE BASIC SEED. THE BASIC SEEDS ARE AGAIN REPLANTED TO GROW THE HYBRID SEEDS. THE HYBRID SEEDS ARE SOLD BY THE ASSESSEE COMPANY, TO FARMERS AT LARGE. THIS IS THE FRAME OF OPERATION CARRIED ON BY THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO T HE ASSESSMENT YEAR IN APPEAL. IN THE PAST, THE ASSESSE E HAD CARRIED OUT THE BUSINESS IN DIFFERENT FORMULATI ONS LIKE DISTRIBUTING BASIC SEEDS TO FARMERS TO GROW IN TO HYBRID SEEDS AND BUYING IT BACK FROM THE FARMERS, ETC., BUT THOSE BUSINESS DYNAMICS ARE NOT RELEVANT FOR THE IMPUGNED ASSESSMENT YEAR. AS FAR AS THE IMPUGNED ASSESSMENT YEAR IS CONCERNED, ASSESSEE ITSELF IS GROWING BASIC SEEDS AS WELL AS HYBRID SEEDS. 4. UP TO BASIC SEED ACTIVITY, ALL THE PRIMARY OPERATIONS ARE PERFORMED BY THE ASSESSEE IN ITS OWN LANDS OR LANDS LEASED BY IT, UNDER ITS OWN DIRECT SUPERVISION AND GUIDANCE BY ENGAGING CASUAL LABOUR. THE HYBRID SEEDS ARE GROWS BY THE FARMERS IN THEIR OWN LANDS BUT LEASED OUT TO THE ASSESSEE COMPANY. THE ENTIRE COST OF PRODUCTION WAS TO BE REIMBURSED BY THE ASSESSEE TO THE FARMERS. THEREFORE, DE FACTO SPEAKING THE HYBRID SEED OPERATIONS WAS CARRIED ON BY THE ASSESSEE IN ITS LEASEHOLD LANDS. 5. IN THE COMPUTATION OF TOTAL INCOME, THE ASSESSEE CLAIMED DEDUCTION OF RS .1,88,38,838/- UNDER RULE 7 OF THE IT RULES. THE DEDUCTION HAS BEEN CLAIMED BY THE ASSESSEE ON THE GROUND THAT THE INCOME IS PARTL Y AGRICULTURAL AND PARTLY FROM BUSINESS. BUT IN THE N OTE ENCLOSED TO THE COMPUTATION OF INCOME, THE ASSESSEE HAS FURTHER STATED THAT THE COMPANY RESERVES THE RIGHT TO CONTEND AT THE TIME OF HEARING THAT THE EN TIRE 17 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== INCOME OF THE COMPANY IS FULLY EXEMPT SINCE IT IS AGRICULTURAL INCOME AS PER THE INCOME-TAX ACT. 6. THE ASSESSING OFFICER RELYING ON THE DECISION OF THE ITAT, DELHI IN THE CASE OF PROAGRO SEEDS COMPANY LTD., V. JCIT IN ITA NO. 90/DEL/2000, DATED 11.11.2002, NOTICED THE ASSESSEE WHY THE CLAI M FOR PARTIAL DEDUCTION SHOULD NOT BE DENIED. THE ASSESSEE REPLIED THAT THE ENTIRE INCOME WAS IN THE NATURE OF AGRICULTURAL INCOME AND RELIED ON THE JUDGEMENT OF THE HON'BLE SUPREME COURT RENDERED IN THE CASE OF RAJA BENOY KUMAR SAHAS ROY (32 ITR 466) AND OTHER CASES. 7. BUT ANYHOW THE ASSESSING OFFICER DID NOT ACCEPT ANY OF THE CONTENTION OF THE ASSESSEE AND TREATED T HE ENTIRE INCOME AS BUSINESS INCOME MAINLY ON THE FOLLOWING PREMISES: I) THE PROFIT DERIVED BY THE ASSESSEE AROSE MAINLY ON ACCOUNT OF INTERNATIONAL TECHNOLOGY, MARKETING EXPERTISE ASSISTED BY THE AGRICULTURAL OPERATIONS CARRIED ON BY THE GROWERS MAINLY ON THEIR OWN LANDS . II) THE ASSESSEE DOES NOT UNDERTAKE ANY AGRICULTURA L ACTIVITY BY RELYING ON THE DECISION OF THE ITAT, DELHI IN PROAGRO SEEDS COMPANY LTD., V. JCIT IN ITA NO.90/DEL/2000, DATED11.11.2002. 8. ON THE ISSUE OF AGRICULTURAL CHARACTER OF INCOME , THE CIT(A) CONFIRMED THE ORDER OF THE ASSESSING AUTHORITY. THE COMMISSIONER OF INCOME-TAX(A) HELD THAT THE INCOME OF THE ASSESSEE IS NEITHER WHOLLY N OR PARTIALLY AGRICULTURAL INCOME. IT IS AGAINST THE AB OVE, THE ASSESSEE HAS COME IN SECOND APPEAL BEFORE US. 9. EVEN THOUGH THE ASSESSEE HAS RAISED TWENTY TWO GROUNDS OF APPEAL, THE ISSUE IN SHORT IS WHETHER TH E ENTIRE INCOME EARNED BY THE ASSESSEE OUT OF PRODUCTION OF HYBRID SEEDS IS AGRICULTURAL IN CHARACTER OR NOT. THE ALTERNATIVE CONTENTION OF THE ASSESSEE IS THAT AT LEAST INCOME ATTRIBUTABLE TO TH E PRODUCTION OF BASIC SEEDS IS AGRICULTURAL IN NATURE . 10. WE HEARD SHRI. P. J. PARDIWALA, THE SENIOR COUNSEL APPEARING FOR THE ASSESSEE AND SMT. SWATHI S. PATIL, THE LEARNED COUNSEL APPEARING FOR THE REVENUE. 18 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== 11. AN EXACTLY SIMILAR ISSUE WAS CONSIDERED BY ITAT , 'B' BENCH OF BANGALORE IN THE CASE OF INDO AMERICAN EXPORTS AND M/S. NAMDHARI SEEDS PVT. LTD., IN THEIR COMMON ORDER DATED 14.7.2006, PASSED IN ITA NO. 1040/BANG/2002 AND ITA NO. 3102/BANG/2004. AFTER CONSIDERING THE FACTS AND RIVAL CONTENTIONS IN DETA IL, THE TRIBUNAL HELD AS FOLLOWS : '5.4. AFTER HEARING BOTH THE SIDES, WE ARE OF THE V IEW THAT THE ONLY QUESTION TO BE DECIDED BY THE TRIBUNA L IS AS TO WHETHER THE SEEDS PRODUCED BY THE ASSESSEE AND SOLD IN MARKET GENERATES AGRICULTURAL INCOME OR IS IT A BUSINESS INCOME. THE PROVISION OF SECTION 2(1A) OF THE IT ACT IS QUOTED BELOW: (1A) 'AGRICULTURAL INCOME' MEANS :- (A) ANY RENT OR REVENUE DERIVED FROM LAND WHICH IS SITUATED IN INDIA AND IS USED FOR AGRICULTURAL PURPOSES; (B) ANY INCOME DERIVED FROM SUCH LAND BY - (I) AGRICULTURE; OR (II) THE PERFORMANCE BY A CULTIVATOR OR RECEIVER OF RENT-IN-KIND OF ANY PROCESS ORDINARILY EMPLOYED BY A CULTIVATOR OR RECEIVER OF RENT-IN KIND TO RENDER TH E PRODUCE RAISED OR RECEIVED BY HIM FIT TO BE TAKEN T O MARKET; OR (III) THE SALE BY A CULTIVATOR OR RECEIVER OF RENT IN-KIND OF THE PRODUCE RAISED OR RECEIVED BY HIM, IN RESPEC T OF WHICH NO PROCESS HAS BEEN PERFORMED OTHER THAN A PROCESS OF THE NATURE DESCRIBED IN PARAGRAPH (II) O F THIS SUB-CLAUSE; (C) ANY INCOME DERIVED FROM ANY BUILDING OWNED AND OCCUPIED BY THE RECEIVER OF THE RENT OR REVENUE OF ANY SUCH LAND, OR OCCUPIED BY THE CULTIVATOR OF THE RECEIVER OF RENT-IN-KIND, OF ANY LAND WITH RESPECT TO WHICH, OR THE PRODUCE OF WHICH, ANY PROCESS MENTIONED IN PARAGRAPHS (II) AND (III) OF SUB-CLAUS E (B) IS CARRIED ON : PROVIDED THAT - 19 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== (I) THE BUILDING IS ON OR IN THE IMMEDIATE VICINITY OF THE LAND, AND IS A BUILDING WHICH THE RECEIVER OF T HE RENT OR REVENUE OR THE CULTIVATOR, OR THE RECEIVER OF RENT-IN-KIND, BY REASON OF HIS CONNECTION WITH THE (II) LAND REQUIRES AS A DWELLING HOUSE, OR AS A STORE- HOUSE, OR OTHER OUT-BUILDING, AND (III) THE LAND IS EITHER ASSESSED TO LAND REVENUE IN INDIA OR IS SUBJ ECT TO A LOCAL RATE ASSESSED AND COLLECTED BY OFFICERS OF THE GOVERNMENT AS SUCH OR WHERE THE LAND IS NOT SO ASSESSED TO LAND REVENUE OR SUBJECT TO A LOCAL RATE , IT IS NOT SITUATED -- IT MAY BE APPRECIATED THAT AGRICULTURAL INCOME INCLUDES ANY RENT OR REVENUE DERIVED FROM THE LAND WHICH IS USED FOR AGRICULTURAL PURPOSES. THE ISSUE IS WHETHER THE REVENUE DERIVED FROM SUCH LAND BY THE ASSESSEE IS AGRICULTURAL INCOME OR NOT. FOR THE PURPOSE OF DERIVING INCOME FROM AGRICULTURAL LAND THERE IS NO NECESSITY THAT SUCH LAND SHOULD BE OWNE D BY THE ASSESSEE. IF THE ASSESSEE HAS DERIVATIVE INT EREST IN THE LAND FOR THE PURPOSE OF CONDUCTING AGRICULTU RAL OPERATIONS ON THE SAID LAND, THEN THE REVENUE GENERATED FROM SUCH LAND WOULD BE AGRICULTURAL INCOME. THIS HAS BEEN SO HELD BY THE HON'BLE MADRAS HIGH COURT IN 20 ITR 151 (COMMISSIONER OF INCOME-TAX V. MADDI VENKATASUBBAYYA). HERE IT MAY BE APPRECIATED THAT THE ASSESSEE ENTERED INTO LEASE AGREEMENT WITH VARIOUS AGRICULTURE LAND OWNERS FOR THE PURPOSE OF OBTAINING LANDS FOR DOING THE PROCES S OF AGRICULTURAL OPERATIONS. THE GOVERNMENT OF KARNATAKA HAS ALSO GRANTED REGISTRATION TO THE ASSESSEE THEREBY PERMITTING THE ASSESSEE TO TAKE UP PRODUCTION AND DISTRIBUTION OF VARIOUS SEEDS AND CROPS. THE ASSESSEE'S REPRESENTATIVES ARE THERE ON THE LAND TO SUPERVISE THE MANUAL LABOUR OPERATIONS AND TO PROTECT THE ASSESSEE'S INTEREST AND IT MAY BE APPRECIATED THAT THE SOWING, GROWING AND PROTECTING THE CROP AND THE PRODUCE IS ALSO TAKEN BY THE ASSES SEE AND THE ASSESSEE ALONE. HERE THE KIND ATTENTION OF THE HON'BLE TRIBUNAL IS DRAWN TO THE DECISION OF THE ALLAHABAD HIGH COURT REPORTED IN 177 ITR 428 (COMMISSIONER OF INCOME-TAX V. ASSOCIATED METALS CO.) (ALL) WHEREIN IT HAS BEEN HELD THAT THE ASSESS EE COMPANY THEREIN HAD ENTERED INTO AGREEMENT WITH BHUMIDHARS OF LAND FOR SOWING AND GROWING AND PROTECTING CROPS AND THEREAFTER THE MAJOR SHARE OF THE PROFIT WAS TO BE OF THE COMPANY THEREIN. IN THAT CA SE IT WAS HELD THE INCOME OF THE COMPANY WAS 20 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== AGRICULTURAL INCOME. THE ASSESSEE'S CASE HEREIN STANDS ON A MUCH BETTER FOOTING. IT MAY ALSO BE APPRECIATED BY THE HON'BLE TRIBUNAL THE ASSESSING AUTHORITY HIMSELF DOES NOT DISPUTE THE FACT THAT TH E ASSESSEE IS UNDERTAKING THE AGRICULTURAL OPERATIONS . IN FACT THE ASSESSING AUTHORITY HIMSELF HAS ACCEPTED T HE AGRICULTURAL INCOME DECLARED BY THE ASSESSEE ON THE CONTRACT PRODUCTION DONE OUTSIDE THE STATE OF KARNATAKA. IT IS ONLY IN REGARD TO THE STATE OF KARNATAKA THAT THE ASSESSING AUTHORITY HAS HELD THA T AS PER THE LAND REFORMS ACT THE ASSESSEE IS NOT ENTITLED TO THE BENEFIT OF EXEMPTION U/S. 2(1A) OF THE ACT. THE BAR LEVIED BY THE KARNATAKA LAND REFORMS ACT WOULD BE MORE HOLD GOOD IN SO FAR AS THE GOVERNMENT OF KARNATAKA HAS GRANTED CERTIFICATE TO THE ASSESSEE FOR PRODUCTION AND DISTRIBUTION OF THE SPECIFIED HYBRID SEEDS AND PLANTS. HERE IT MAY ALSO BE APPRECIATED THAT THE NEXUS BETWEEN THE INCOME CLAIMED BY THE ASSESSEE AS NOT INCLUDIBLE IN THE TO TAL INCOME AND THE AGRICULTURAL OPERATIONS CONDUCTED BY THE ASSESSEE AND THE LANDS FROM WHICH THE INCOME AS SO GENERATED HAVE NOT BEEN DISPUTED BY THE REVENUE. THE IMMEDIATE SOURCE OF THE INCOME IS THE AGRICULTURAL OPERATIONS CONDUCTED BY THE ASSESSEE O N THE LAND AND LAND ALONE AND CONSEQUENTLY THE SAME I S LIABLE TO BE TREATED ONLY AS AGRICULTURAL INCOME.' 12. FINALLY THE TRIBUNAL IN THE SAID ORDER HAS CONCLUDED AS FOLLOWS : 'IN VIEW OF SUCH DISCUSSION, FOUNDATION SEEDS OR HYBRID SEEDS PRODUCED IN OWN LAND OR LANDS TAKEN ON LEASE I.E., ON CONTRACT FARMING WILL BE THE RESU LT OF AGRICULTURAL OPERATIONS AND THE PROFIT ARISING OUT OF SUCH ACTIVITIES SHALL BE TREATED AS AGRICULTURAL INCOME.' 13. THEREFORE, IT IS TO BE SEEN THAT THE ISSUE RAIS ED IN THE PRESENT APPEAL IS SQUARELY COVERED BY THE ABOVE MENTIONED DECISION OF THE BANGALORE 'B' BENCH IN TH E CASE OF INDO AMERICAN EXPORTS AND M/S. NAMDHARI SEEDS P. LTD., 14. THE HON'BLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. RAJA BENOY KUMAR SAHAS ROY (32 ITR 466) HAS CONSIDERED COMPREHENSIVELY THE CONCEPT OF AGRICULTURAL INCOME FOR THE PURPOSE OF INCOME TAX ACT. THE COURT HELD 21 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== THAT AGRICULTURE IN ITS PRIMARY SENSE DENOTES THE CULTIVATION OF THE FIELD AND IS RESTRICTED TO CULTI VATION OF THE LAND IN THE STRICT SENSE OF THE TERM MEANING THEREBY TILLING OF THE LAND, SOWING OF THE SEEDS, PLANTING AND SIMILAR OPERATIONS ON THE LAND. THESE ARE BASIC OPERATIONS AND REQUIRE THE EXPENDITURE OF HUMAN SKILL AND LABOUR UPON THE LAND ITSELF. THE COURT FURTHER HELD THAT THE PERFORMANCE OF SUBSEQUENT OPERATIONS LIKE TENDING, PRUNING, CUTTIN G, HARVESTING ETC., WOULD NOT BE ENOUGH T O CHARACTERI ZE THEM AS AGRICULTURAL OPERATIONS. IN ORDER TO INVEST THEM WITH THE CHARACTER OF AGRICULTURAL OPERATIONS, SUBSEQUENT OPERATIONS MUST NECESSARILY TAKEN IN CONJUNCTION WITH AND IN CONTINUATION OF THE BASIC OPERATIONS WHICH ARE THE EFFECTIVE COST OF THE PRODUCE BEING RAISED FROM THE LAND. 15. IF WE EXAMINE THE OPERATIONS CARRIED OUT BY THE ASSESSEE IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IN APPEAL, WE FIND THAT THE PRODUCTION OF BASIC SEEDS AS WELL AS HYBRID SEEDS ARE THE RESULTS OF BASIC OF AGRICULTURAL OPERATIONS CARRIED ON BY THE ASSESSEE COMPANY IN ITS OWN LAND AS WELL AS IN LEASEHOLD LAND. THE METHOD OF CONTRAC T FARMING DOES NOT TAKE AWAY THE CHARACTER OF THE BASIC OPERATIONS CARRIED OUT BY THE ASSESSEE COMPANY WHICH ARE AGRICULTURAL IN NATURE. THE ASSESSEE COMPANY PROCURES GERMPLASM AND SOWS IN ITS OWN FIELD, AND CARRIES ON ALL AGRICULTURAL OPERATIONS AND PRODUCES THE BASIC SEEDS. THE BASIC SEEDS SO HARVESTED ARE AGAIN PUT THROUGH AGRICULTURAL OPERATIONS INTIMATELY CONNECTED WITH LEASEHOLD LAND FOR FINALLY BRINGING OUT THE HYBRID SEEDS. ONLY FOR THE REASON THAT THE BASIC SEEDS ARE SOWN IN LEASEHOLD LAND AND THE MANPOWER REQUIRED ARE ARRANGED THROUGH CONTRACT FARMING, IT DOES NOT MEAN THAT THE OPERATIONS CARRIED OUT BY THE ASSESSE E COMPANY ARE NOT AGRICULTURAL OPERATIONS. AS A MATTER OF FACT, IT IS TO BE SEEN THAT THE ASSESSEE COMPANY HAS CARRIED OUT BASIC AS WELL AS SECONDARY AGRICULTURAL OPERATIONS. THEREFORE, WITHOUT ANY FEA R OF CONTRADICTION, IT IS POSSIBLE FOR US TO HOLD THA T ENTIRE SUCH INCOME OF THE ASSESSEE IS AGRICULTURAL IN NATURE WHICH IS TO BE EXCLUDED FROM THE NATURE OF TOTAL INCOME. 16, THE ASSESSEE IS SUCCESSFUL IN ITS APPEAL. 22 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== 17. AS THE MAIN GROUND OF THE ASSESSEE ITSELF IS DECIDED IN ITS FAVOUR, WE HAVE NOT CONSIDERED THE ALTERNATIVE CONTENTION REGARDING APPLICATION OF RUL E 7 AND PROPORTIONATE EXEMPTION OF INCOME. 18. THE REASONS POINTED OUT BY THE ASSESSING AUTHORITY TO DENY THE CLAIM OF EXEMPTION MADE BY TH E ASSESSEE COMPANY ARE THAT THE ASSESSEE IS FOLLOWING INTERNATIONAL TECHNOLOGY, MARKETING EXPERTISE, INTEGRATED SCIENTIFIC AND COMMERCIAL ACTIVITY ETC., THESE ARE ALL MATTERS STRANGE TO THE STRICT CODE OF INCOME-TAX. THOSE PREMISES DO NOT HAVE ANY ROLE IN DECIDING THE NATURE OF INCOME WITHIN THE FRAMEWORK OF INCOME-TAX ACT, 1961. THE REASONS POINTED OUT BY THE ASSESSING OFFICER ARE BY AND LARGE ISSUES TO BE DECIDED BY THE POLICY MAKERS IN THE GOVERNMENT. 10. HOWEVER, NOW WE HAVE TO SEE WHETHER THE CASE OF THE ASSESSEE IS COVERED BY THE DECISION OF THE TRIB UNAL IN THE ASSESSEES OWN CASE OR BY THE DECISION OF TH E HONBLE KARNATAKA HIGH COURT IN THE CASE OF M/S NAMDHARI SEEDS PVT. LTD.. A JUDGMENT OF THE HONBLE HIGH COURT IS APPLICABLE ONLY IF THE FACTS AND CIRCUMSTANCES ARE SIMILAR. THE FOLLOWING DIFFERENCE S IN THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES OWN C ASE AND THE CASE OF M/S NAMDHARI SEEDS ARE WORTH NOTING . M/S NAMDHARI SEEDS PVT. LTD. M/S ADVANTE INDIA LTD. 1. IT DOES NOT TAKE LAND ON LEASE FROM FARMERS IT TAKES LANDS ON LEASE FROM FARMERS 2. IT ENGAGES THE FARMERS FOR PRODUCTION OF HYBRID SEEDS IT ENGAGES SERVICES OF THE FARMERS FOR PRODUCTION OF HYBRID SEEDS 3. IT PURCHASES THE HYBRID SEEDS WHICH CATER TO ITS SPECIFICATIONS AT FIXED PRICES IT TAKES ENTIRE PRODUCE FROM THE FARMERS. 4. IT IS NOT CONCERNED WITH EXPENDITURE INCURRED BY THE FARMERS IT REIMBURSES THE ENTIRE EXPENDITURE OF CULTIVATION TO THE FARMERS. 5. THE SEEDS WHICH DO NOT MEET THE SPECIFICATION SET OUT BY M/S NAMDHARI SEEDS ARE SOLD BY THE COMPANY IN THE OPEN MARKET AND THE CONSIDERATION RECEIVED IS GIVEN TO THE FARMERS. THE FARMERS ARE NOT GIVEN PRICE FOR THE PRODUCE EXCEPT REIMBURSEMENT OF THE ENTIRE CHARGES AND REPAYMENT THE LABOUR CHARGES. 11. TAKING THE ABOVE DIFFERENCES INTO CONSIDERATION, IT CAN BE SEEN THAT THE DECISION OF THE HONBLE HIGH C OURT OF KARNATAKA IN THE CASE OF M/S NAMDHARI SEEDS PVT. LTD., IS BASED ON THE PECULIAR FACTS AND CIRCUMSTAN CES OF ITS CASE. THE HONBLE HIGH COURT HAS HELD THAT THE ASSESSEE THEREIN, I.E M/S NAMDHARI SEEDS PVT. LTD., IS IN 23 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== FACT PURCHASING THE HYBRID SEEDS PRODUCED BY THE FARMERS AND THE CONTRACT IS TO PRODUCE HYBRID SEEDS AS PER THE SPECIFICATIONS. IN THE CASE ON HAND, WE FIN D THAT THE FARMERS THOUGH ARE EMPLOYED TO CULTIVATE THE LANDS ARE ACTING ON BEHALF OF THE ASSESSEE COMPANY UNDER ITS SUPERVISION AND THE ENTIRE PRODUCE IS TAK EN BY THE ASSESSEE ONLY. 12. IN VIEW OF THE SAME, WE ARE OF THE OPINION THAT THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF M/S NAMDHARI SEEDS IS NOT APPLICABLE IN ITS ENTIRETY TO THE FACTS OF THE CASE BEFORE US. THE IS SUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSM ENT YEAR 2002-03. RESPECTFULLY FOLLOWING THE DECISION O F THE CO-ORDINATE BENCH TO WHICH ONE OF US I.E J.M IS A SIGNATORY, THE GROUNDS OF APPEAL RELATING TO THE CL AIM OF EXEMPTION U/S 10 OF THE INCOME-TAX ACT ARE ALLOWED. ' 25. IN OUR OPINION, THE TRIBUNAL WHILE DEALING WITH THE SUBJECT-MATTER OF THE APPEAL IN EXERCISE OF ITS POW ER, IT MAY ALLOW THE PARTY TO TAKE UP A NEW GROUND OF APPEAL. IN OTHER WORDS, THE TRIBUNAL HAS POWER TO PERMIT THE ASSESSE E TO RAISE A NEW GROUND OF APPEAL, NOT SET FORTH IN THE MEMORAND UM OF APPEAL, EVEN WITHOUT FORMAL AMENDMENT OF THE GROUND S SET FORTH IN THE MEMORANDUM OF APPEAL PROVIDED THAT A N EW GROUND DOES NOT INVOLVE A FURTHER INVESTIGATION INT O THE FACTS. THIS POWER OF TRIBUNAL IS SPELT OUT IN RULE 11 OF I TAT RULES, 1963. HON'BLE PUNJAB & HARYANA HIGH COURT HAS HELD IN THE CASE OF VIJAY KUMAI JAIN V. CIT (99 ITR 349) THAT T HE TRIBUNAL MAY ALLOW A PARTY TO PRESS A GROUND WHICH HE DOES N OT PRESS BEFORE THE FIRST APPELLATE AUTHORITY ALTHOUGH HE HA S TAKEN AND INCLUDED IN THE GROUNDS OF THE FIRST APPEAL. THE PR OPOSITION OF LAW ON THE ISSUE OF ADMISSION OF ADDITIONAL OR NEW GROUNDS BY FIRST APPELLATE AUTHORITY WAS LAID DOWN BY THE HON' BLE SUPREME COURT IN THE CASE OF JUTE CORPORATION OF IN DIA LTD. V. 24 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== CIT AND HON'BLE SUPREME COURT IN THE CASE OF NATION AL THERMAL POWER CO. LTD. V. CIT (187 ITR 688) HELD TH AT THE SAME WILL APPLY TO APPEAL BEFORE TRIBUNAL HON'BLE ALLAHA BAD HIGH COURT IN THE CASE OF CIT V. MOHD. AYYUB & SONS AGEN CY (197 ITR 637) HAS HELD THAT THE POWER OF THE TRIBUNAL TO PERMIT ANY PARTY TO THE APPEAL TO RAISE THE QUESTION OF JURISD ICTION, WHICH GOES TO THE ROOT OF THE MATTER AND DOES NOT INVOLVE FURTHER INVESTIGATION INTO FACTS, CANNOT BE DISPUTED ON THE PLAIN READING OF RULE 11 OF THE ITAT RULES, 1963. INDEED ON SUCH A PLEA BEING TAKEN, THE TRIBUNAL IS UNDER A STATUTORY OBLIGATION NOT ONLY TO ENTERTAIN THE PLEA BUT ALSO TO DECIDE T HE SAME AFTER PROVIDING SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE OTHER SIDE. SIMILAR VIEWS HAVE BEEN TAKEN BY HON'BLE DELH I HIGH COURT (I) IN THE CASE OF CIT V. MAHALAKHSHMI SUGAR MILLS CO. LTD., (200 ITR 275), (II) HON'BLE BOMBAY HIGH COURT IN THE CASE OF AHMEDABAD ELECTRICITY CO. LTD. V. CIT (199 ITR 3 51) AND (III) HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF MEWAR S UGAR MILLS LTD. V. CIT (203 ITR 45). HON'BLE BOMBAY HIGH COUR T IN THE CASE OF BABY SAMUEL V. ASSTT. CIT (263 ITR 385) HAS HELD THAT WHEN AN ISSUE WAS NOT SPECIFICALLY TAKEN IN THE MEM ORANDUM AND GROUNDS OF APPEAL BUT MENTIONED IN THE WRITTEN SUBMISSIONS FILED BEFORE THE TRIBUNAL AND SPECIFICA LLY ARGUED AT THE TIME OF THE FINAL HEARING OF THE APPEAL, THE TRIBUNAL CANNOT REFUSE TO ADJUDICATE UPON THAT ISSUE ON THE MERITS OF THE GROUND THAT NO SUCH GROUND HAS BEEN TAKEN SPECI FICALLY IN THE GROUNDS OF APPEAL. HON'BLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. (SUPRA) HAS HELD: '...THE POWER OF THE TRIBUNAL IN DEALING WITH APPEA LS IS THUS EXPRESSED IN THE WIDEST POSSIBLE TERMS. THE 25 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== PURPOSE OF ASSESSMENT PROCEEDINGS BEFORE THE TAXING AUTHORITIES IS TO ASSESS CORRECTLY THE TAX LIABILIT Y OF AN ASSESSEE IN ACCORDANCE WITH LAW. IF, FOR EXAMPLE, A S A RESULT OF A JUDICIAL DECISION GIVEN WHILE THE APPEA L IS PENDING BEFORE THE TRIBUNAL, IT IS FOUND THAT A NON - TAXABLE ITEM IS TAXED OR A PERMISSIBLE DEDUCTION IS DENIED, THERE IS NO REASON WHY THE ASSESSEE SHOULD BE PREVENTED FROM RAISING THAT QUESTION BEFORE THE TRIBUNAL FOR THE FIRST TIME, SO LONG AS THE RELEVAN T FACTS ARE ON RECORD IN RESPECT OF THE ITEM. THERE IS NO R EASON TO RESTRICT THE POWER OF THE TRIBUNAL UNDER SECTION 254 ONLY TO DECIDE THE GROUNDS WHICH ARISE FROM THE ORD ER OF THE CIT(A). BOTH THE ASSESSEE AS WELL AS THE DEPART MENT HAVE A RIGHT TO FILE AN APPEAL/CROSS-OBJECTIONS BEF ORE THE TRIBUNAL. THE TRIBUNAL SHOULD NOT BE PREVENTED FROM CONSIDERING QUESTIONS OF LAW ARISING IN ASSESS MENT PROCEEDINGS, ALTHOUGH NOT RAISED EARLIER. THE VIEW THAT THE TRIBUNAL IS CONFINED ONLY TO ISSUES ARISING OUT OF THE APPEAL BEFORE THE CIT(A) IS TOO NARROW A VIEW TO TA KE OFF THE POWERS OF THE TRIBUNAL.' 26. THUS, THE SETTLED LEGAL POSITION, WHICH EMERGES FRO M THE AFORESAID JUDICIAL PRONOUNCEMENTS, IS THAT THE PURP OSE OF ASSESSMENT PROCEEDING IS TO TAX/ASSESS THE TAXABLE LIABILITY/ INCOME OF THE ASSESSEE CORRECTLY IN ACCORDANCE WITH LAW AND IF THE ASSESSEE IS ENTITLED TO CERTAIN RELIEF, DEDUCTI ON OR BENEFIT, THE ASSESSEE SHOULD NOT BE DENIED OR DEPRIVED OF IT , EVEN IF THE CLAIM PERTAINING TO THE SAME IS MADE FOR THE FIRST TIME BEFORE THE TRIBUNAL DURING PENDENCY OF APPEAL BEFORE IT. I N THE PRESENT CASE, THE ISSUES RAISED IN ADDITIONAL GROUN DS ARE THE LEGAL ISSUES WHICH GO TO THE ROOT OF THE MATTER AND FOR DECIDING THESE LEGAL ISSUES NO NEW FACTS ARE REQUIR ED TO BE CONSIDERED AS ALL THE FACTS ARE ALREADY RECORDED IN THE ORDERS OF THE AUTHORITIES BELOW. IN THIS VIEW OF THE MATTER, WE DO NOT FIND ANY FORCE IN THE CONTENTION OF THE LEARNED DEP ARTMENTAL REPRESENTATIVE THAT THIS ISSUE WAS NOT CHALLENGED B EFORE THE AO, THEREFORE, ASSESSMENT WAS CORRECTLY MADE BY THE AO. WE 26 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== CONCEDE TO THE REQUEST OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE MATTER MAY BE RESTORED FOR RE- VERIFICATION AND FRESH ADJUDICATION ON THE ISSUES I N VIEW OF OUR ABOVE DISCUSSION ON THE ISSUE OF SCOPE AND AMBIT 'O F POWER OF TRIBUNAL TO ADMIT ADDITIONAL GROUND ON THE REASON T HAT THE ASSESSEE IS NOT AWARE OF THE ORDER OF THE TRIBUNAL IN THE CASE OF ADVANTA INDIA LTD. (CITED SUPRA) WHICH WAS DELIVERE D ON 29.6.2012 THOUGH THE ASSESSEE FILED THE APPEAL BEFO RE THIS DATE ON 13.12.2012. IT CANNOT BE EXPECTED THAT EVE RY ASSESSEE IS AWARE OF ALL THE DECISIONS OF THE TRIBUNAL THOUG H IT WAS PRONOUNCED. BEING SO, CONSIDERING THE PLEA OF THE ASSESSEE AND JUDGEMENT OF THE SUPREME COURT IN THE CASE OF N ATIONAL THERMAL POWER CO. LTD. VS. CIT (229 ITR 383), WE AR E INCLINED TO ADMIT THE SECOND ADDITIONAL GROUND ALSO. 27. HOWEVER, SINCE THIS ISSUE HAS BEEN RAISED FOR THE F IRST TIME BY THE ASSESSEE BEFORE US, THE AO HAS NO OCCAS ION TO EXAMINED THIS GROUND OF THE ASSESSEE. BEING SO, IN VIEW OF THIS, IT IS APPROPRIATE TO REMIT THE ISSUE TO THE F ILE OF THE AO TO SEE WHETHER THE ASSESSEE TAKEN LAND ON LEASE FROM F ARMERS, ENGAGED THE SERVICES OF FARMERS FOR PRODUCTION OF H YBRID SEED, TOOK ENTIRE PRODUCE FROM THE FARMERS, REIMBURSED TH E ENTIRE EXPENSES OF CULTIVATION TO THE FARMERS AND IF THE F ARMERS ARE NOT GIVEN FOR THE PRODUCE EXCEPT REIMBURSEMENT OF T HE ENTIRE CHARGES INCURRED BY THEM AND REPAYMENT OF LABOUR CH ARGES THEN ONLY THE ASSESSEE COULD BE CONSIDERED AS IT HA S CARRIED ON AGRICULTURAL OPERATIONS ITSELF SO AS TO TREAT INCOM E OF THE ASSESSEE AS AGRICULTURAL INCOME. ACCORDINGLY, THE AO IS 27 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== DIRECTED TO EXAMINE AFRESH THE CASE OF THE ASSESSEE IN THE LIGHT OF THE ORDER OF THE TRIBUNAL IN THE CASE OF ADVANTA INDIA LTD. (SUPRA) SINCE THE ASSESSEE HAS PLEADED THAT THE ASS ESSEE'S CASE IS SIMILAR TO THE CASE OF M/S. ADVANTA INDIA LTD. AND THE AO SHALL GIVE ADEQUATE OPPORTUNITY OF HEARING TO THE A SSESSEE AND HE SHALL NOT BE PREJUDICED BY THE EARLIER ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE. 28. NOW, COMING TO THE SECOND ADDITIONAL GROUND WHICH I S BASED ON THE ORDER OF SPECIAL BENCH IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS VS. ACIT (2012) 20 TAXMANN. COM 244 (VIZAG.) & ORS. AND ADMITTEDLY THE ASSESSEE HAS NOT CHALLENGED THIS ISSUE BEFORE THE CIT(A) AND FOR THE FIRST TIME IT IS CHALLENGED BEFORE US ON THE BASIS OF SUBSEQUENT DEC ISION OF THE SPECIAL BENCH IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS & ORS. (CITED SUPRA), AS THIS MATTER IS SUBJECT MATTER OF APPEAL BEFORE THE JURISDICTIONAL HIGH COURT WHIC H IS PENDING FOR ADJUDICATION AT THE LEVEL OF HIGH COURT, AND T HE AR PRAYED THAT THIS ADDITIONAL GROUND MAY BE REMITTED TO THE AO TO DECIDE ON THE BASIS OF OUTCOME OF HIGH COURT DECISI ON ON THIS ISSUE. IN OUR OPINION, THIS GROUND DOES NOT REQUIR E ANY ADJUDICATION IN VIEW OF OUR FINDINGS IN EARLIER PAR A ON THE ISSUE OF TREATING THE INCOME OF THE ASSESSEE AS AGRICULTU RAL INCOME AS ARGUED BY THE ASSESSEE IN THE FIRST ADDITIONAL G ROUND. ACCORDINGLY, THIS GROUND IS DISMISSED AS INFRUCTUOU S. 29. COMING TO THE OTHER GROUNDS OF THE ASSESSEE AS WELL AS THE REVENUE WHICH DO NOT REQUIRE ADJUDICATION AT TH IS STAGE AS THE ASSESSEE'S MAIN CLAIM HAS BEEN REMITTED BACK TO THE AO 28 ITA NO. 1799/HYD/2012 & ANR. M/S. VIBHA AGROTECH LTD. ======================== FOR FRESH CONSIDERATION. ACCORDINGLY, THE OTHERS G ROUNDS OF THE ASSESSEE AS WELL AS THE REVENUE ARE DISMISSED A S INFRUCTUOUS. 30. IN THE RESULT, ASSESSEE APPEAL IS PARTLY ALLOWED FO R STATISTICAL PURPOSES AND REVENUE APPEAL IS DISMISSE D. ORDER PRONOUNCED IN OPEN COURT ON 28 TH MAY, 2014 SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 28 TH MAY, 2014 TPRAO COPY TO: 1. M/S. VIBHA AGROTECH LTD., C/O. M/S. P. MURALI & CO. , CHARTERED ACCOUNTANTS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD-82. 2. THE DEPUTY CIT, CIRCLE-3(3), HYDERABAD. 3. THE CIT(A)-IV, HYDERABAD. 4. THE CIT-III, HYDERABAD 5. THE DR, B BENCH, ITAT, HYDERABAD.