M/s. Bafna Agro Farm, Sangali V. Assistant Commissioner of Income-tax, (Central) Circle, Kolhapur

ITSSA 29/PUN/2018

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The case involves M/s. Bafna Agro Farm, a partnership firm engaged in agricultural activities and the business of buying and selling raisins. For the assessment year 2013-14, the firm filed a return declaring agricultural income from the sale of raisins. The Assessing Officer reclassified this income as business income, applying Rule 7 of the Income Tax Rules, 1962, due to the processing involved in converting grapes to raisins. The CIT(A) upheld this reclassification, leading to the appeal before the Income Tax Appellate Tribunal. The Tribunal agreed with the lower authorities, emphasizing that the processing of grapes into raisins is not an ordinary agricultural practice and results in a new, distinct product.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 137438 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 09-02-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 23-01-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 04-09-2018
• Other Referred Cases: CIT vs. S. G. Bhate, CIT vs. P.K. Veeran, CIT vs. H.G. Date, CIT vs. Kirloskar Bros. Ltd., Mohamed Hanif Rasul Patel vs. ITO, CIT vs. R. Venkataswamy Naidu
• Laws Referred To: Income Tax Act, 1961, Income Tax Rules, 1962
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income
• Section: 143(3); 48

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “B”, PUNE BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER आयकर अपील सं. / IT(SS)A No.29/PUN/2018 िनधाᭅरण वषᭅ / Assessment Year : 2013-14 M/s. Bafna Agro Farm, Plot No.20, Pushpak Saraswatinagar, Behind TATA Petro Pump, Sangali- 416146. PAN : AANFB5436C Vs. ACIT, (Central) Circle, Kolhapur. Appellant Respondent आदेश / ORDER PER INTURI RAMA RAO, AM: This is an appeal filed by the assessee directed against the order of ld. Commissioner of Income Tax (Appeals)-11, Pune [‘the CIT(A)’] dated 07.06.2018 for the assessment year 2013-14. 2. The assessee raised the following revised ground of appeal :- “1. On the facts and in the circumstances of the case and in the law the lower authorities have erred in applying the provisions of Rule of 7 of Income Tax Rules, 1962, thereby treating the income earned from sale of raisins as business income of the Appellant. Your appellant’s Contentions is that provisions of Rule 7, do not apply as process of making dry grapes (raisins) from grapes is ordinarily employed process by farmers and therefore such dry Grapes (Raisins) is agricultural Produce and therefore consequential profit is not liable for tax. Accordingly, it is prayed that addition of Rs. 10,03,721/- may kindly be deleted.” Assessee by : Shri Pramod Shingte Revenue by : Shri M. G. Jasnani Date of hearing : 24.01.2023 Date of pronouncement : 10.02.2023 IT(SS)A No.29/PUN/2018 2 3. Briefly, the facts of the case are as under :- The appellant is a partnership firm formed for the purpose of carry out agricultural activity on its own lands. The assessee group is also engaged in the business of purchase and sale of raisins. The Return of Income for the assessment year 2013-14 was filed on 17.02.2014 declaring Rs.Nil income after claiming agricultural income of Rs.82,64,307/-. Against the said return of income, the assessment was completed by the Asstt. Commissioner of Income Tax, (Central) Circle, Kolhapur (‘the Assessing Officer’) vide order dated 30.03.2015 passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) at a total income of Rs.10,03,721/- by reducing the agricultural income to Rs.72,60,586/-. The brief facts of the case is as under :- During the course of assessment proceedings, the Assessing Officer observed that the appellant had shown sale proceeds of raisins at Rs.1,73,94,076/- after claiming of direct expenses of Rs.91,29,769/- claimed agricultural income of Rs.82,64,307/- u/s 10(1) of the Act. The Assessing Officer was of the opinion that the process of conversion of grapes into raisins by drying and processing turns out to be different product which is distinct product the raisin is subject to VAT and, therefore, the said process cannot be said to be process an ordinarily employed, as the grapes have IT(SS)A No.29/PUN/2018 3 market its ones. The process of conversion of grapes into raisin is set out by the Assessing Officer vide para 12 of the assessment order. Therefore, applying Rule 7 of the Income Tax Rules, 1962 (‘the Rules), the Assessing Officer had determined the business income of Rs.10,03,721/-. 4. Being aggrieved by the above assessment order, an appeal was filed before the ld. CIT(A), who vide impugned order confirmed the action of the Assessing Officer by holding that the decision relied upon by the appellant in the cases of CIT vs. S. G. Bhate, 62 ITR 71 (Bom.) and CIT vs. P.K. Veeran, 54 ITR 393 (Kerala) were not applicable to the facts of the present case. 5. Being aggrieved, the appellant is in appeal before us in the present appeal. 6. It is submitted that the process undertaken by the appellant for conversion of grapes into raisins is an ordinarily employed by the cultivator to render the products fit to market and, therefore, Rule 7 of the Rules has no application to the facts of the present case. In this regard, he also placed reliance on the decision of the Hon’ble Bombay High Court in the case of CIT vs. H.G. Date, 82 ITR 71 (Bom.), wherein, it was held that in case where the assessee cultivated sugarcane on his own land and converted into jiggery for sale in the market. Since the sugarcane could not be storied for long IT(SS)A No.29/PUN/2018 4 time and in the absence of purchaser, the cultivators had converted into jiggery by employing ordinarily process. He also placed reliance on the decision of the Hon’ble Bombay High Court in the case of CIT vs. Kirloskar Bros. Ltd., 48 Taxman 146 (Bombay). 7. On the other hand, ld. Sr. DR submits that the process undertaken by the assessee is not an ordinarily process employed to render the agricultural produce fit to market and, therefore, the Assessing Officer, as well as, the ld. CIT(A) rightly applied the provisions of Rule 7 for the purpose of determination of non- agricultural income. He also placed reliance on the decision of the Co-ordinate Bench of this Tribunal in the case of Mohamed Hanif Rasul Patel vs. ITO in ITA Nos.1474 to 1477/PUN/2018 for A.Ys. 2010-11 to 2013-14 decided on 20.03.2019. 8. We heard the rival submissions and perused the material on record. The solitary issue in the present appeal is with regard to the applicability of provisions of Rule 7 of the Income Tax Rules, 1962 for the purpose of determination of non-agricultural income. Admittedly, the appellant is engaged in the business of growing grapes on its own lands. The grapes so grown were subject to further processing to convert the grapes into raisins. It is also an admitted fact that the appellant is also engaged in the business of purchase and sale of raisins and agency commission business. The IT(SS)A No.29/PUN/2018 5 Assessing Officer was of the opinion that the process undertaken by the appellant for the purpose of converting the grapes into raisins is not an ordinarily process employed by any cultivator to render the produce fit to be taken into the market. The Assessing Officer also set out the process undertaken by the appellant to convert the grapes into raisins vide para 12 of the assessment order, from which it would be clear that the process involves dipping in solutions containing chemicals and then drying such fruits in the temperature ranging from 35 o C to 41 o C and also requiring land and buildings, machineries, furniture, electrical power, man power etc. The Assessing Officer also further noted that the raisins product is subject to VAT observed that the grapes converted into raisins produces altogether commercial a new distinct product liable to tax under the provisions of VAT @ 1%. Based on these findings, the Assessing Officer applied Rule 7(1) of the Rules, computed the non-agricultural income. The methodology of the computation of non-agricultural income is not under challenge before us. Even on appeal before the ld. CIT(A), the findings of the Assessing Officer were confirmed. 9. The core issue which is requires to be determined in the present appeal is whether the process undertaken by the appellant for conversion of grapes into the raisins is an ordinarily process IT(SS)A No.29/PUN/2018 6 employed by the cultivator to render the grapes fit to be taken into the market. In our considered opinion, the answer is “No” in view of the fact that even the fresh grapes can be sold in the market in its raw stage, without application of any process to the grapes to make the grapes marketable. The decisions relied upon by the ld. AR have no application to the facts of the present case, inasmuch as, it is an admitted fact that in those cases there was no market readily available for sale of sugarcane. As held by the Hon’ble Kerala High Court in the case of CIT vs. P.K. Veeran, 54 ITR 393 (Kerala), the question as to the process employed by an assessee was a process ordinarily employed by the cultivator to render the produce fit to be taken into the market was essential question of fact. The Hon’ble Supreme Court in the case of CIT vs. R. Venkataswamy Naidu, 291 ITR 529 (SC) held that the onus lies upon the assessee claiming exemption to prove that the claim of the assessee falls within the exemption condition. Though in the written submission filed before us, the appellant made a bald submission that there was no ready market for the grapes grown, this fact was not proved by adducing the necessary evidence. More particular, in view of the fact that the appellant firm also engaged in trading of raisins, the submission made by the assessee cannot be given any credence. Further, the process undertaken by the appellant for conversion of grapes into IT(SS)A No.29/PUN/2018 7 raisins is not a manual process, but a process employed involving man power, electrical power, buildings, furniture and application of chemicals etc, which is not a process ordinarily employed by the cultivator to render the agricultural produce fit to be taken into the market. Therefore, having due regard to facts of case, we are of considered opinion that the Assessing Officer had correctly invoked the provisions of Rule 7 of Income Tax Rules, 1962 for the purpose of determination of business income of tax. In these circumstances, we do not find any merit in the ground of appeal filed by the assessee. 10. In the result, the appeal filed by the assessee stands dismissed. Order pronounced on this 10 th day of February, 2023. Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 10 th February, 2023. Sujeet आदेश कᳱ ᮧितिलिप अᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A)-11, Pune. 4. The Pr. CIT (Central), Pune. 5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, “B” बᱶच, पुणे / DR, ITAT, “B” Bench, Pune. 6. गाडᭅ फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.