Inventaa Chemicals Limited, Hyderabad V. Dy.CIT, Circle-2(1), Hyderabad

ITA 850/HYD/2014

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 4262 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 06-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K SRINIVAS REDDY
• Assessee Lawyers: S RAMA RAO
• Keywords: Depreciation; Assessment record
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A , HYDERABAD BEFORE S MT . P. MADHAVI DEVI , JUDICIAL MEMBER AND SHRI S . RIFAUR RAHMAN , ACCOUNTANT MEMBER ITA NO. 850 /HYD/201 4 ASSESSMENT YEAR: 20 09 - 10 INVENTAA CHEMICALS LTD., HYDERABAD. PAN AAACI4539B VS. DY. COMMISSIONER OF INCOME - TAX, CIRCLE 2 ( 1 ), HYDERABAD. ( APPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI S. RAMA RAO REVENUE BY : SHRI K. SRINIVAS REDDY DATE OF HEARING : 14 / 0 9 /2018 DATE OF PRONOUNCEMENT : 10 / 1 0 / 201 8 O R D E R PER S . RIFAUR RAHMAN , A .M. : T H IS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT II , DATED 29 / 03 /201 4 HYDERABAD FOR AY 20 09 - 10, PASSED U/S 263 OF THE INCOME - TAX ACT, 1961 (IN SHORT THE ACT). 2. BRIEF FACTS OF THE CASE ARE, T HE A SSESSEE COMPANY FILED ITS RETURN OF INCOME FOR THE A.Y. 20 09 - 10 ON 2 3 . 12 .201 1 ADMITTING TOTAL INCOME OF RS. 2,45,60,132/ - . ASS ESSMENT U/S 143(3) OF THE ACT WAS COMPLETED ON 23/12/2011 BY DETERMINING THE TOTAL INCOME AT RS. 2,63,37,400/ - BY MAKING A DISALLOWANCE OF EXPENDITURE AMOUNTING TO RS. 17,77,267/ - . 3. THEREAFTER, BY VIRTUE OF POWERS VESTED U/S 263 OF THE ACT, THE CIT I I HAD CALLED FOR ASSESSMENT RECORDS OF ASSESSEE COMPANY FOR THE AY 2009 - 10. ON PERUSAL OF THE ASSESSMENT RECORDS AND THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT, THE CIT WAS OF THE VIEW THAT THE ASSESSMENT ORDER IS ERRONEOUS IN SO FAR IT IS PREJUDICI AL TO THE INTERESTS OF REVENUE. 2 ITA NO. 850 /HYD/1 4 INVENTAA CHEMICALS LTD., HYD. 3.1 ACCORDINGLY, A NOTICE DATED 20/02/2014 U/S 263 WAS ISSUED TO THE ASSESSEE POINTING OUT THE ERRORS IN THE ASSESSMENT ORDER, WHICH ARE AS UNDER: '3. THE ASSESSEE COMPANY IS IN THE BUSINESS OF MANUFACTURING OF BULK DRUGS , DRUG INTER ME DIARIES AND GROWING MUSHROOMS. IT IS OBSERVED THAT THE ASSESSEE COMPANY IS DECLARING THE INCOME EARNED FROM GROWING MUSHROOMS AS AGRICULTURAL INCOME AND CLAIMING THE SAME AS EXEMPT. THE MUSHROOMS ARE GROWN BY THE ASSESSEE COMPANY IN GROWING R OOMS UNDER CONTROLLED CONDITIONS. THEY ARE GROWN IN RACKS AND SHELVES LOADS WITH COMPOST (MANURE) WHICH IS PREPARED WITH PADDY STRAW, HORSE MANURE, CHICKEN MANURE AND GYPSUM AND UREA. THERE IS NO BASIC OPERATION ON LAND WAS CARRIED BY THE ASSESSEE COMPANY AT ANY POINT OF TIME. 4. FURTHER, AS PER EXPLANATORY NOTE TO THE FINANCE ACT, 1979, 'MUSHROOMS ARE GENERALLY GROWN IN A CLOSED CHAMBER AND NOT NECESSARILY IN AN OPEN FIELD. ITS RAW MATERIAL IS A COMPOSITE MADE OF WHEAT STRAW, POULTRY MANURE, CALCIUM CARBONATE, GYPSUM AND OTHER FERTILIZERS. DIFFERENT LAYERS OF ARTIFICIAL SOIL ARE PREPARED IN WOODEN TRAYS AND TEMPERATURE IS CONTROLLED T O A SPECIFIED DEGREE BY CLOSING THE INLETS AND OUTLETS OF AIR TO PROVIDE THE NECESSARY HUMIDITY FOR CULTIVATION OF MUS HROOMS. THE PROCESS IS KNOWN AS 'MUSHROOMS GROWING UNDER CONTROLLED CONDITIONS'. INCOME DERIVED FROM A BUSINESS OF GROWING MUSHROOMS UNDER CONTROLLED CONDITIONS CANNOT BE REGARDED AS AGRICULTURAL INCOME AND IS, THEREFORE, CHARGEABLE TO INCOME - TAX.' FURTHER , WITH A VIEW TO ENCOURAGING CULTIVATION OF MUSHROOMS UNDER CONTROLLED CONDITIONS, THE FINANCE ACT, 1979 HAS INSERTED A NEW SECTION 80JJA IN ORDER TO PROVIDE THAT IN COMPUTING THE TOTAL INCOME OF A TAXPAYER DERIVING PROFITS AND GAINS FROM THE BUSINESS OF G ROWING MUSHROOMS UNDER CONTROLLED CONDITIONS A DEDUCTION WILL BE ALLOWED IN AN AMOUNT EQUAL TO ONE - THIRD OF SUCH PROFITS AND GAINS, OR RS. 10,000, WHICHEVER IS LESS. THIS DEDUCTION WAS WITHDRAWN FROM A.Y 1984 - 95 ONWARDS. 4. IN RESPONSE TO THE SAID NOTIC E, THE AR OF THE ASSESSEE FILED WRITTEN SUBMISSIONS BEFORE THE CIT, WHICH WERE EXTRACTED BY THE CIT IN HIS ORDER AT PAGES 2 TO 10. THE CIT SUMMARIZED THE SUBMISSIONS OF THE AR OF THE ASSESSEE, WHICH ARE AS UNDER: A. THE ASSESSEE DISCLOSED ALL THE 'FACTS I N THE COMPUTATION OF INCOME AND ALSO FILED A DETAILED NOTE IN THE ASSESSMENT PROCEEDINGS. THE AO EXAMINED THE DETAILS AND WAS CONVINCED THAT THE INCOME FROM MUSHROOM CULTIVATION IS AGRICULTURAL 3 ITA NO. 850 /HYD/1 4 INVENTAA CHEMICALS LTD., HYD. INCOME. WHETHER CULTIVATION OF MUSHROOMS IS AGRICULTURE OR NOT IS A QUESTION OF FACT AND THE AO TOOK A CONSCIOUS DECISION. B. OPERATIONS ARE CONDUCTED ON LAND WHICH IS AGRICULTURAL LAND AND THE OPERATIONS ARE AGRICULTURE. MUSHROOM IS A NUTRITIOUS VEGETABLE. THE SPAWN IS GROWN ON SOIL. C. THE OPERATIONS ARE AKIN TO NURSERY WHICH HAS BEEN RECOGNIZED IN THE ACT AS AGRICULTURE BY INSERTION OF EXPLANATION 3 TO SECTION 2( 1 A). D. VARIOUS GOVERNMENT AUTHORITIES, BANKS/FIS, WORLD ORGANIZATIONS AND FOOD ORGANIZATIONS, EXCISE DEPARTMENT AND OTHERS TREAT MUSHROOMS AS VEGETABLES. E. MUSHROOM GROWTH IS NATURAL AGRICULTURAL ACTIVITY AND ASSESSEE IS ONLY A FACILITATOR. THEREFORE THE DECISION OF THE APEX COURT IN THE CASE OF M/S VENKATESWARA HATCHERIE S PVT LTD (237 ITR 174 APPLIES. IN THE SAID DECISION, THE SUPREME COURT HELD THAT A NATURAL PRODUCT CAN BE PRODUCED ONLY THROUGH NATURAL PROCESS AND THE FACILITIES PROVIDED BY HUMAN EFFORT IS NOT RELEVANT AND HE PRODUCTION WOULD ALWAYS REMAIN AS NATURAL PR ODUCT AND CANNOT BE ATTRIBUTED TO ANY OTHER PROCESS OR ACTIVITY ASSOCIATED OR UNDERTAKEN BY HUMAN EFFORT. F. THE TERM 'LAND' AND 'SOIL' ARE INTERCHANGEABLE AND SOIL IS NOTHING BUT LAND. THE ASSESSEE ALSO QUOTES DICTIONARY DEFINITIONS OF LAND AND SOIL. G. RELIANCE ON SECTION 80JJA IS OF NO USE AS THE SECTION IS REPEALED AND PERHAPS.IT WAS THE INTENTION OF LEGISLATURE TO TREAT MUSHROOM CULTIVATION AS AGRICULTURE AND HENCE THE SECTION WAS REPEALED. 5. THE CIT AFTER ANALYSING THE ISSUE ELABORATELY WITH V ARIOUS CASE LAW, HELD THAT THE ACTIVITY OF THE MUSHROOM GROWING AS UNDERTAKEN BY THE ASSESSEE IS NOT AN AGRICULTURAL ACTIVITY AND THE RELEVANT INCOME IS ASSESSABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSION AND HE ACCORDINGLY, DIRECTED TH E AO TO COMPUTE THE INCOME. 6. AGGRIEVED BY THE ORDER OF CIT, THE ASSESSEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 4 ITA NO. 850 /HYD/1 4 INVENTAA CHEMICALS LTD., HYD. 1) THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2) THE LEARNED CO MMISSIONER OF INCOME - TAX ERRED IN HOLDING THAT THERE IS ANY ERROR IN THE ASSESSMENT MADE BY THE ASSESSING OFFICER U/S 143(3) OF THE I.T ACT ON 23.12.2011. 3) THE LEARNED COMMISSIONER OF INCOME - TAX OUGHT TO HAVE SEEN THE FACT THAT THE ASSESSING OFFICER CO NDUCTED A DETAILED SURVEY IN THE MATTER AND ARRIVED AT A POSSIBLE CONCLUSION THAT THE MUSHROOM PRODUCTION IS A PROCESS OF AGRICULTURE AND SALE OF MUSHROOMS AS AGRICULTURAL INCOME. 4) THE LEARNED COMMISSIONER OF INCOME - TAX OUGHT TO HAVE ACCEPTED THE FACT THAT THE MUSHROOM PRODUCTION IS AN AGRICULTURAL PRODUCTION AND THE INCOME DERIVED FROM PRODUCTION AND SALE OF MUSHROOM AS THE AGRICULTURAL INCOME. 5) THE LEARNED COMMISSIONER OF INCOME - TAX OUGHT TO HAVE SEEN THAT THERE IS NO ERROR WHICH CAN BE REVISED BY APPLYING THE PROVISIONS OF 263 OF THE I.T ACT AS THE ASSESSING OFFICER EXAMINED THE ISSUE AND ARRIVED AT A POSSIBLE CONCLUSION. 6) THE LEARNED COMMISSIONER OF INCOME - TAX ERRED IN HOLDING THAT THE ACTIV ITY OF MUSHROOM GROWING IS NOT AN AGRICULTURAL ACTIVITY AND THE INCOME IS ASSESSABLE AS INCOME FROM BUSINESS. 7) WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED COMMISSIONER OF INCOME - TAX ERRED IN DIRECTING THE ASSESSING OFFICER TO INCLUDE INCOME OF RS. 4,92 ,34,719/ - REPRESENTING THE INCOME FROM PRODUCTION OF MUSHROOM. THE LEARNED COMMISSIONER OF INCOME - TAX OUGHT TO HAVE CONSIDERED THE FACT THAT THE ASSESSEE CLAIMED DEPRECIATION OF RS. 1,94,32,904/ - AS PER THE COMPANIES ACT AS AGAINST RS. 3,43,35,051/ - ALLOWA BLE UNDER I.T ACT. 8) THE LEARNED COMMISSIONER OF INCOME - TAX OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO CONSIDER THE GROSS INCOME AS REDUCED BY DEPRECIATION FOR THE PURPOSE OF DETERMINING THE TOTAL INCOME. 9) ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 7. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE SPECIAL BENCH DECISION OF THE ITAT, HYDERABAD IN ASSESSEES OWN CASE FOR AYS 2008 - 09 AND 2010 - 11 TO 2012 - 13 IN ITA NOS. 1015 TO 1018/HYD/2015, FILED BY THE REVENUE AND COS. 53 TO 56/HYD/15 BY THE 5 ITA NO. 850 /HYD/1 4 INVENTAA CHEMICALS LTD., HYD. ASSESSEE, VIDE CONSOLIDATED ORDER DATED 09/07/2018. IN THE SAID ORDER, THE SPECIAL BENCH, AFTER DISCUSSING THE ISSUE EXHAUSTIVELY, HELD AS UNDER: 16.6 HENCE, AS BA SIC OPERATIONS ARE PERFORMED BY EXPENDITURE OF HUMAN SKILL AND LABOUR ON LAND BY THE ASSESSEE, WHICH RESULTS IN THE RAISING OF THE PRODUCT CALLED EDIBLE WHITE BUTTON MUSHROOM ON THE LAND AND AS THIS PRODUCT HAS UTILITY FOR CONSUMPTION, TRADE AND COMMER CE, THE INCOME ARISING FROM THE SALE OF THIS PRODUCT IS AGRICULTURAL INCOME AND HENCE EXEMPT U/S 10(1) OF THE ACT. ACCORDINGLY, THE SPECIAL BENCH DISMISSED THE APPEALS OF THE REVENUE AS WELL AS COS FILED BY THE ASSESSEE. 7.1 AS THE ISSUE UNDER CONSIDERATION IS MATERIALLY IDENTICAL TO THAT OF THE ABOVE, WE SET ASIDE THE ORDER PASSED BY THE CIT U/S 263 OF THE ACT AND RESTORE THE ORDER OF AO PASSED U/S 143(3) OF THE ACT. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. PRO NOUNCED IN THE OPEN COURT ON 10 TH OCTOBE R , 2018 . SD/ - SD/ - ( P. MADHAVI DEVI ) (S . RIFAUR RAHMAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 10 TH OCTOBER , 2018 KV C OPY TO: - 1) INVENTAA INDUSTRIES PVT. LTD., C/O SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, 3 - 6 - 643, STREET NO. 9, HIMAYATNAGAR, HYDERABAD 500 029. 2) A CIT, CIRCLE 2 ( 1 ), SIGNATURE TOWERS, KONDAPUR, HYDERABAD. 3) CIT II , HYDERABAD. 4) ADDL. CIT 2 , HYD. 5 ) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 6 ) GUARD FILE