"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, ‘I’: NEW DELHI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER AND SHRI BRAJESH KUMAR SINGH, ACCOUNTANT MEMBER ITA No.1575 /DEL/2018 [Assessment Year: 2013-14] Corteva Agriscience Seeds Private Limited (Formerly known as PHI Seeds Private Limited), V-Ascends, Atria Block, 12th Floor, Plot No.17, Software Units Layout, Madhapur, Hyderabad Telangana, 500081 Vs Additional Commissioner of Income Tax, Special Range-7, Room No.211, C.R. Building, Delhi-110002 PAN-AACCP3920F Assessee Revenue ITA No. 7375/DEL/2018 [Assessment Year: 2014-15] Corteva Agriscience Seeds Private Limited (Formerly known as PHI Seeds Private Limited), V-Ascends, Atria Block, 12th Floor, Plot No.17, Software Units Layout, Madhapur, Hyderabad Telangana, 500081 Vs Additional Commissioner of Income Tax, Special Range-7, Room No.211, C.R. Building, Delhi-110002 PAN-AACCP3920F Assessee Revenue ITA No.9205/DEL/2019 [Assessment Year: 2015-16] Corteva Agriscience Seeds Private Limited (Formerly known as PHI Seeds Private Limited), V-Ascends, Atria Block, 12th Floor, Plot No.17, Software Units Layout, Madhapur, Hyderabad Telangana, 500081 Vs Additional Commissioner of Income Tax, Special Range-7, Room No.211, C.R. Building, Delhi-110002 PAN-AACCP3920F Assessee Revenue Printed from counselvise.com 2 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 Assessee by Shri Ajay Vohra, Sr. Adv. MR. Aditya Vohra, Adv. Mr. Ramit Katyal, AR, Mr. Arpit Goyal, AR & Ms Mansha Bhalla, AR Revenue by Shri Rajesh Kumar, CIT(DR) Shri Sanjay Kumar, Sr. DR Date of Hearing 09.05.2025 Date of Pronouncement 06.08.2025 ORDER PER BRAJESH KUMAR SINGH, AM, This is a bunch of three appeals filed by the assessee, pertaining to assessment years 2013-14, 2014-15 and 2015-16, respectively. Since identical and similar issues are involved in all these appeals and were heard together, these are being disposed of by this common order for the sake of convenience and brevity. The details of the appeals are as under:- Sl. No. ITA No. Assessment Year Against/Arising out of 1 1575/Del/2018 2013-14 Order dated 17.11.2017 of the Ld. CIT(A) arising out of Assessment order u/s 143(3)/144C(3) of the Act dated 28.02.2017, relevant TPO order u/s 92CA(3) is dated 27.10.2016 2 7375/Del/2018 2014-15 Order dated 28.08.2018 of the Ld. CIT(A) arising out of order u/s 143(3)/92CA/144C(3) of the Act, TPO order dated 25.10.2017 3 9205/Del/2019 2015-16 Assessing Officer’s order dated 30.09.2019 u/s 144C(13) r.w.s. 143(3) of the Act arising out of Dispute Resolution Panel’s Printed from counselvise.com 3 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 direction dated 25.07.2019 u/s 144C(5) of the Act. ITA No. 1575/DEL/2018 [AY 2013-14] 2. First of all, we take up the appeal for assessment year 2013-14. The assessee is in appeal against the order dated 17.11.2017 passed by the Ld. CIT(A)-38, New Delhi arising out of assessment order passed under section 143(3)/144C(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’), dated 28.02.2017 passed by the Addl. CIT, Special Range-7, Delhi. 3. Brief facts of the case: The assessee is a company incorporated under the Companies Act, 1956 and is a 100% subsidiary of Pioneeer Overseas Corpn. USA (POC). In the relevant AY 2013-14, the assessee filed its return of income on 30.11.2013 declaring total income of Rs.40,03,75,727/- after claiming exemption under section 2(1A) r.w.s. 10(1) of the Income-tax Act, 1961 in respect of agricultural income amounting to Rs.124,59,41,832/-. According to the assessee- company, the main activity of the company is to procure various varieties of seeds from growers, processing and packing, and subsequent sale. The procurement of seeds from growers is at a Printed from counselvise.com 4 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 fixed rate. The procurement cost is bifurcated in the books of account under the following heads: a) Land Lease Rent b) Fertilizers & Chemicals c) Labour& Service Charges The case of the assessee was selected for complete scrutiny assessment under section 143(2) of the Act. The AO show issued the assessee a show-cause notice dated 07.12.2016 asking the assessee to explain as to why the income of Rs.124,59,41,832/- claimed to be exempt u/s 2(1A) r.w.s. 10(1) of the Act be treated as business income and thus taxed accordingly. 3.1. The assessee submitted that its claim of business activities being agricultural in nature, is entitled for exemption under section 10 (1) of the Act. The AO rejected the contention raised by the assessee and held that the charges for supervision and guidance cannot be said to be agricultural activities within the meaning of the Act. It was further held that the assessee does not indulge in agricultural operations in accordance with tests laid in the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Raja Benoy Kumar Sahas Roy 32 ITR 460. In view of the above, the claim of exemption under section 10 (1) of the Act amounting to Rs.124,59,41,832/- was denied to be assessee. Further, Transfer Pricing Adjustment u/s 92CA of the Printed from counselvise.com 5 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 Act amounting to Rs.67,17,965/- was also made on account of receivables received from its Associate Enterprises (in short ‘AEs’) beyond the period of more than 30 days being not received. Further additions on account of disallowance u/s 37(1) of the Act (Rs.54,91,340/-) being capital in nature and disallowance u/s 43B of the Act (Rs.2,84,85,605/-) on account of unpaid gratuity of Rs.95,74,986/- compensated advances of Rs.76,56,292/- and Bonus of Rs.1,12,54,327/- were also made. The total income of the assessee was assessed at Rs.168,70,12,470/- 4. Aggrieved by the assessment order dated 28.02.2017, the assessee preferred an appeal before the ld. CIT(A). The ld. CIT(A) vide impugned order dated 17.11.2017 dismissed the appeal of the assessee on the issue of claim of deduction u/s 10(1) of the Act and on the issue of receivables u/s 92CA of the Act. It appears from the grounds of appeal by the assessee before the Ld. CIT(A) that the assessee has not challenged the disallowances u/s 37(1) of the Act and u/s 43B of the Act. 5. The Ld. CIT(A) observed that the assessee company is not engaged in the performance of agricultural operations because Printed from counselvise.com 6 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 the basic operations like tilling, sowing etc. are being performed by the farmer. 5.1. The discussion about the findings of the Assessing Officer and the ld. CIT(A) in more details are dealt later in this order. 6. Aggrieved by the order passed by the ld. CIT(A), the assessee is in appeal before us. Grounds No. 1 to 3 pertain to the addition on account of denial of claim of exemption under section 10 (1) of the Act. The said grounds of appeal are reproduced as under:- “1. That on the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in law in upholding the order passed by the assessing officer rejecting the assessee's claim of deduction u/s 10(1) of the Act. 2. That the CIT(A) has passed the order without application of mind and without considering the evidence on record by merely relying upon the findings of the CIT(A) for the earlier years. 3. That the orders passed by the Ld. Assessing Officer and the CIT(A) are illegal as these orders have been passed without application of mind and in gross violation of principles of natural justice. 7 The facts relating to the disallowance of assessee’s claim of exemption u/s 2(1A) r.w.s. 10(1) of the Act amounting to Rs.124,59,41,832/- is identical to the facts and the claim of the agricultural operations as has been considered by the Co- Printed from counselvise.com 7 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 ordinate Bench of the Tribunal in assessee’s own case vide its order dated 18.12.2017 in ITA Nos.1988/Del/2006, 4383/Del/2006, 443/Del/2010, 5285/Del /2012, 3670/Del/2013, 1903/Del/2014 and 4269/Del/2014 for Assessment Years 2002-03, 2003-04, 2005-06, 2007-08, 2008- 09, 2009-10 and 2010-11 respectively. The AO for the present assessment year, issued a show-cause notice dated 07.12.2016 as referred to on page-3 and 4 of the assessment order. The said show-cause notice of the Assessing Officer is reproduced as under:- “During the course of assessment proceedings it has been observed assessee has claimed exemption us 2(14) r.w.s. section 10(1) of the Income Tax Act, 1961, of Rs. 124,59,41,832. From the perusal of the submissions/ reply of the assessee and the documents annexure/papers and details filed by the assessee following facts/details have been gathered that: * Assessee does not own any agricultural land anywhere in India. The land has been taken on lease and license basis for a short period of six months i.e. for seasonal crops. During this period the assessee company has not performed any basic agricultural operations of filling of land, sowing of seeds, planting and watering of plants, use of pesticides. insecticides and fertilizers and even harvesting was not done by the assessee company. Instead the assessee company only made payments to land owners/farmers who in turn have done all the activities on their own lands which were allegedly licensed to the assessee. Assessee is neither owner of land nor is doing any agricultural operations as detailed above. Just by entering into lease agreements for taking land on lease for a crop season, it has tried to give a colour to the arrangement the assessee company is engaged in the agricultural activities and generating income on account of agriculture produce. Printed from counselvise.com 8 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 The land is actually cultivated by the land owner/farmers themselves. All the basic agricultural operation form tilling to harvesting is done by the farmers themselves. * The Lease & Service Agreement entered into by the company with the farmers does not amount to lease also. * Assessee does not undertake any basic agricultural activity viz, tilling. cultivating. sowing the seed, growing, irrigation and harvesting etc. * Its name is not entered in any land record as cultivator. * A close scrutiny of the no agreements ie. Leave & License Agreement and Service Provider's Agreement, reveals that these are the devices created by the assessee to make an impression that it was doing agricultural operation. First it enters into a lease & license agreement with a farmer then enters into a service provider's agreement with the same farmer to grow crop on his own land. The strangest part of this arrangement is that by entering into these agreements the farmer becomes laborer on his own land having no right on his produce but bears all risks. He will be compensated for all his labour and other inputs but will bear all the risks regarding downfall in production, quality etc. Though, as per these agreements, cultivation will be done under the guidance and supervision of the assessee company, but it will not be responsible for anything wrong happens with the crop. No prudent person will enter into such kind of agreement. * Though assessee claimed to have borne all expenses on account of seeds, fertilizers. pesticides etc. on the basis of some standard formula (and not on actual basis), but all these were adjusted against the sale proceeds of crop and the farmers were paid only the balance amount after adjusting the foresaid expenses: The standard amount specified in the agreement for fertilizers, pesticides ere. were neither of the nature of expenses nor reimbursement, but were more of the nature of advances to be adjusted against the sale proceeds of crop yield; * The crop yield was procured by the company from the farmers at a price pre-determined by the company itself * Though there was restriction on the farmers against parting with or selling any part of the yield to any person other than the company, but it is also a fact that the farmer was obliged to sell the entire crop yield to the company only, at some price fixed by the company: Printed from counselvise.com 9 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 * The crop yield would generally comprise of some standard seeds and some sub-standards ones also. The company was obliged to procure/buy the standard seeds at pre-fixed price from the farmers; * If there was some crop failure or low weld or the equality was below standard for any reason, any loss or risk arising from it was to be borne by the farmers as per the contract: * Assessee does not bear any risk relating to quantity or quality of product * Assessee only pays to farmers the cost of their products plus mark up in the garb of lease and license fee and labour cost who bear all risk relating to product. Assessee receives seed/crop produced by farmers on the basis of its quality though it claims that it is its own produce Perusal of description of activities performed by assessee itself reveals that these are not activities normally performed by farmers for making their agricultural produce fit for marketing. Activities performed by the assessee are highly sophisticated and automated operations which not only make value addition to the row seeds but also change their basic nature by chemical treatment. After such kind of processing seeds become deferent from seeds originally produced. These processed and treated seeds were packaged and marketed by the assessee under its brand name \"Pioneer' through its various marketing offices situated throughout country in Hyderabad. Hubli, Aurangabad. Ahmadabad. Jaipur, Chandigarh, Lucknow, Ranchi and Raipur etc. Thus, contrary to its claim. activities of the assessee company can easily be termed as manufacturing activity. Assessee Company is in a business of manufacturing and marketing of hybrid seeds of high yielding verity. After purchasing seeds from farmers (grown from parent seeds supplied by it), assessee company is doing processing of these seeds. * In the Form CD submitted by the assessee the nature of business is given as Manufacturing Industry-Agro Based Industry. 1.2 In view of the above, why not the income of Rs.124,59,41,832/- claimed to be exempt u/s 2(1A) r.w. section 10(1) of the Income Tax Act. 1961 be treated as business income and thus, is taxed accordingly.” Printed from counselvise.com 10 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 7.1. The AO after considering the reply/explanation of the assessee disallowed the claim as discussed in para no.4.4 to 4.18 of its order appearing on page no.54 to 59 of the assessment order and assessed the income amounting to Rs.1,24,59,41,832/- claimed as agricultural income and exempt u/s 10(1) of the Act as income from business activities. The important findings of the Assessing Officer in the assessment order are reproduced as under:- “4.4. From the discussion in foregoing paras following conclusion is drawn: i. Assessee does not own any agricultural land anywhere. ii. Assessee is not permitted by law to enter into agricultural activities in India being 100% subsidiary of a foreign company. iii. The Lease & Service Agreement entered into by the company with the farmers did not amount to lease also. iv. Assessee does not undertake any basic agricultural activity viz…, tilling. cultivating, sowing the seed. growing. irrigation and harvesting etc. v. Its name is not entered in any land record as cultivator. vi. Though assessee claimed to have borne all expenses on account of seeds, fertilizers, pesticides etc., on the basis of some standard formula (and not on actual basis), but all these were adjusted against the sale proceeds of crop and the farmers were paid only the balance amount after adjusting the foresaid expenses; vii. The standard amount specified in the agreement for fertilizers, pesticides etc. were neither of the nature of expenses nor reimbursement, but were more of the nature of advances to be adjusted against the sale proceeds of crop yield: viii. The crop yield was procured by the company from the farmers at a price pre-determined by the company itself: Printed from counselvise.com 11 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 ix. Though there was restriction on the farmers against parting with or selling any part of the yield to any person other than the company, but it is also a fact that the farmer was obliged to sell the entire crop yield to the company only, at some price fixed by the company; x. The crop yield would generally comprise of some standard seeds and some sub-standards ones also. The company was obliged to procure/buy the standard seeds at pre-fixed price from the farmers; xi. If there was some crop failure or low yield or the equality was below standard for any reason, any loss or risk arising from it was to be borne by the farmers as per the contract; xii. Assessee does not bear any risk relating to quantity or quality of product. xiii. Assessee only pays to farmers the cost of their products plus mark up in the garb of lease and license fee and labour cost who bear all risk relating to product. xiv. Assessee receives seed/crop produced by farmers on the basis of its quality though it claims that it is its own produce. xv. In view of findings of Hon'ble Karnatka High Court the activities are not of agricultural nature and the assessee company is not eligible for exemption under section 10(1) of the Act. 4.5. Thus, the assessee has not carried out any basic agricultural operations and from the secondary operations also the assessee cannot be said to have derived any agricultural income. As stated by the assessee in its reply, the assessee carries on the following post harvest operations to process seeds- I. Receiving & Sorting II. Drying III. Cooling IV. Precleaning V. Shelling VI. Grading VII. Destoner VIII. Sizing IX. Specific Gravity Seperator X. Treator XI. Bagging XII. Cold Storage Printed from counselvise.com 12 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 4.6 Perusal of description of these activities given by the assessee itself reveals that these are not activities normally performed by farmers for making their agricultural produce fit for marketing. Activities performed by the assessee are highly sophisticated and automated operations which not only make value addition to the raw seeds but also change their basic nature by chemical treatment. After such kind of processing seeds become deferent from seeds originally produced, 4.7. These processed and treated seeds were packaged and marketed by the assessee under its brand name 'Pioneer' through its various marketing offices situated throughout country in Hyderabad, Hubli, Aurangabad, Ahmedabad, Jaipur, Chandigarh, Lucknow, Ranchi and Raipur etc. 4.8 From the above, it is clear that agricultural produce obtained from contract farmers is processed through various machines devices and treated with various chemicals/ pesticides/ insecticides/ fungicides and marketed through a sophisticated marketing network under international brand name i.e. 'Pioneer' by the assessee company. Thus, it is concluded that Assessee Company is doing a well organized business of development and marketing of hybrid seeds through contract farming. 4.9 Contrary to its claim, activities of the assessee company can easily be termed as manufacturing activity, Assessee Company is in a business of manufacturing and marketing of hybrid seeds of high yielding verity. After purchasing seeds from farmers (grown from parent seeds supplied by it, assessee company is doing processing of these seeds. This process is highly sophisticated activity and requires specialized knowledge. These activities cannot be called normal activities undertaken by farmers. xxxxxxxxxx 4.16. It is also pertinent to note that assessee itself has claimed part of its activities as manufacturing activity and has claimed deduction u/s 80l of the Act on that income in A.Ys. 1996-97 to 2000-01 before the CIT (Appeals) and afterwards before the Assessing Officer, Therefore, it is clear that assessee has claimed its income as agricultural income only to take benefit of exemption given under the Act. When it comes to take other benefits, assesse claims its income from manufacturing activity as is evident from its claim of deduction us 801 of the Act as well as its claim before the Hon'ble Andhra Pradesh High Court in the writ petition filed by it. 4.17. In the Form CD submitted by the assessee the nature of business is given as Manufacturing Industry-Agro Based Industry. Printed from counselvise.com 13 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 4.18 In view of the above discussion/detailed examination of the issue and various judgments of various judicial authorities mentioned therein, it is concluded that assessee is not pursuing agricultural operations and is deriving income from manufacturing/processing and sale/ purchase of hybrid seeds. Thus income amounting to Rs. 124,59,41,832/- claimed as agricultural income is assessed as income from the business activities. ……………..” (Emphasis supplied) 8. The Ld. CIT(A) vide her order dated 17.11.2017 confirmed the action of the AO by stating that the facts are similar in the case of the assessee for earlier years. She relied upon the orders of her predecessors for AY 2007-08, 2008-09, 2009-10 and 2010-11 and discussed in para no.3.3 to 3.4 appearing on page no.39 to 43 of her order. The same is reproduced as under:- 3.3. I have carefully considered the order passed by the AO and the submissions filed by the Ld. AR. The Ld. AR in appellate proceedings stated that the issue and facts for the year under appeal are identical for all preceding years. Since the facts are similar, I am relying on the order of my predecessor CIT(Appeals) for the A. Y. 2007-08, 2008-09, 2009-10 & 2010-11 which was followed by me in Appeal for A.Y. 2011- 12. The CIT(Appeals) for the A. Y. 2009-10 has held as under: \"Since the facts are identical the relevant portion of my earlier order for A. Y. 2007-08 is as under: “5.14. The fact which emerges is that the appellant company is not even compensating the farmers for the basic agricultural operations' specified in the Hon'ble Supreme Court decision in the case of Raja Binoy Kumar Sahas Roy reported in 32 ITR 460. In view of the above, the AO's finding that the appellant company is not undertaking any basic agricultural activity like tilling, cultivating, sowing the seed, growing, irrigation and harvesting etc. is correct. There is no clear cut evidence available with the appellant to indicate that the appellant had incurred any expenses towards basic agricultural operations like tilling, cultivating, sowing the seed, growing, irrigation and harvesting etc. The evidence now submitted only indicates that the appellant company had supplied parent seeds to the farmers and paid the farmers a fixed rate per kg of good quality seeds obtained after harvesting of the parent seeds supplied. There is no evidence available with the appellant to indicate that they had carried out Printed from counselvise.com 14 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 any agricultural operation or actually paid the farmers for the basic agricultural operations' carried out by the farmer to claim exemption u/s 10(1) of the I. T. Act, 1961. In view of the above, the appellant's claim that they had income from agriculture is not acceptable in view of the Hon'ble Supreme Court's decision in the case of Raja Binoy Kumar Sahas Roy reported in 32 ITR 460 as the appellant had not carried out any basic agricultural operation or paid for the basic agricultural operations carried out by the farmers during the relevant assessment year. 5.15. During the appellate proceedings, the AR was specifically asked whether there is any change of facts compared to the earlier assessment years and the AR replied that the facts are identical to the earlier assessment years. The CIT(A)'s had consistently sustained the disallowance of agricultural income in the earlier predecessor CIT(A) in his order Appeal No: 203/CIT(A)X VII/Del/09-10 dated 18.08.2010 for the A. Y. 2006- 07 has held as under: “2.1. However, I find that the submissions of AR are similar to his submissions in A.Y. 2004-05 and assessment year 2005-06. I further find that my Id. predecessor vide Appeal Order dated 20.3.2009 for assessment year 2004-05 has decided this issue against the appellant with the following observations: \"It is noted that the issue in dispute is a recurring issue during last several years. The AO has also mentioned in his order that in CIT(A)'s order for assessment year 1996-97 to 2001-02 this issue was decided against the assessee and it was categorically held that the income of the appellant is not agricultural income exempt u/s 10(1) of the I T Act and the same has correctly been held by the AO as business income. I have also carefully gone through the said order. Relevant para of the order of my predecessor dealing with identical issue is reproduced hereunder: In view of the above discussion, conclusions drawn in different paragraphs, facts and circumstances of the case it is held that the appellant company is not a cultivator of lands or producer of the crops and the appellant is only a purchaser/procurer of the seeds produced by the growers/farmers at a pre fixed per k.g. price. Therefore, it is concluded that the appellant is only a purchaser of the hybrid/commercial seeds produced by the farmers and then indulged in doing some post harvesting operations on such seeds to make a value addition before actual sale of the seeds in the market. The AO was justified in disallowing the claim of the appellant for exemption u/s 10(1) of the Income Tax Act, 1961 and accordingly the action of the AO in treating the income of the appellant on a/c of sale of seeds for all the assessment years under appeal as business income, is confirmed.\" Since there is no change in facts and circumstances, I also do not find any reasons for deviating from the order of my predecessor in earlier years as / also concur with the detailed finding of my predecessor that the appellant company's claim of exemption u/s Printed from counselvise.com 15 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 10(1) for agricultural income is not allowable. Accordingly, this ground of appeal is dismissed.\" 2.2. I have carefully considered the facts of the case, order of the A0 and submissions made by the id. AR. It is seen that there is no change in facts and circumstances in this year compared to the assessment year 2004-05. I, therefore, do not find any reasons to deviate from the findings of my ld predecessor. Hence, with a view to maintain consistency with the appellate order of earlier years, I uphold the order of AO that the appellant company's claim of exemption u/s 10(1) for agricultural income is not allowable. Accordingly, ground No. 1 to 12 are rejected.\" 5.16. Respectfully following the above decisions of my predecessors, I sustain the order of the AO disallowing the appellant's claim of Rs. 26,93,65,409/- as the appellant company had not carried out any agricultural operations to claim exemption u/s 10(1) of the I. T. Act, 1961. The appellant company had not produced any evidence during assessment proceedings or during appellate proceedings to substantiate that the appellant company had carried out any agricultural operations in the relevant assessment year. The company only presented a legal argument that they are carrying out agricultural operations based on a few leave and license agreements and service provider contracts. But even these legal documents fails to substantiate that the appellant company had carried out any agricultural operations as the appellant company had not even adequately compensated the farmer for his agricultural labour or adequate rent was paid to the farmer for the land taken from them on lease. The payments made to the farmers are only post harvest and after procuring the seeds from them. The nature of payments clearly indicated that this was in lieu of the seeds purchased from them and the price paid was on a per kg rate. As a result, ground No. 1, 4 to 14 & 19 and ground No. 1 of the summary of the grounds of appeal are here by rejected and based on the evidence available on record the addition of Rs. 26,93,65,409/- made by the AO is sustained.\" 6.1. During the appellant proceedings, the appellant relied on the decision of the Hon'ble ITAT, Mumbai in the case of M/s Monsanto India Ltd. in ITA Nos. 286 & 287/Bang/03 dated 28.01.2011. The relevant portion of the above ITAT decision is as follows: “14. All other cases relied upon by the AR have already taken into consideration by the Tribunal while deciding the appeal in case of M/s Namdhari Seeds (supra), therefore, without going into detail further, we hold that the receipts shown by the assessee are agricultural receipts and the CIT(A) was justified in allowing the claim of the assessee. 6.2. In the above decision, the Hon'ble ITAT had held that the appellant had agricultural receipts and therefore justified the claim of exemption u/s 10(1) of the I. T. Act, 1961. However, the exemption u/s 10(1) is for agricultural income and not for agricultural receipts. The definition of agricultural income in Printed from counselvise.com 16 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 section 2 (1A) of the I. T. Act, 1961 mentions only income derived from land and the appellant had not received any income from land. Further, in view of the fact that the AO had relied on the Hon'ble Supreme Court's decision in the case of Raja Binoy Kumar Sahas Roy reported in 32 ITR 460 the expenditure incurred by the appellant for obtaining the agricultural receipts also needs to be examined. The relevant head note of the above Supreme Court decision is as follows: \"Agriculture\" in its primary sense denotes the cultivation of the field and is restricted to cultivation 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. Those operations which the agriculturist had to resort to and which are absolutely necessary for the purpose of effectively raising produce from the land, operations which are to be performed after the produce sprouts from the land, e.g., weeding, digging the soil around the growth, removal of undesirable undergrowth, and all operations which foster the growth and preservation of the same not only from insects and pests but also from depredation from outside, tending, pruning, cutting, harvesting and rendering the produce fit for the market, would all be agricultural operations when taken in conjunction with the basic operations. The human labour and skill spent in the performance of these subsequent operations cannot be said to have been spent on the land itself. The mere performance of these subsequent operations on the products of the land, where such products have not been raised on the land by the performance of the basic operations, would not be enough to characterize them as agricultural operations; in order to invest them with the character of agricultural operations these subsequent operations must necessarily be in conjunction with and in continuation of the basic operations which are the effective cause of the products being raised from the land. The subsequent operations divorced from the basic operations cannot constitute by themselves agricultural operations. Only if this integrated activity which constitutes agriculture is undertaken and performed in regard to any land can that land be said to have been agricultural purposes\" and the income derived there from be said to be agricultural income\" derived from the land by agriculture, under section 2(1) of the Indian Income-tax Act, 1922.\" 6.3. The Ld. CIT(A) in the order for A. Y. 2008-09 had observed as under on this aspect: “5.3. The above decision of Hon'ble Supreme Court and definition of agricultural income in section 2 (1A) of the I. T. Act, 1961 makes it amply clear that agricultural income had to be derived from land and that too by carrying out agricultural operations on land. In the case of the appellant, there is no dispute that the appellant does not own any land. The appellant claims that it had taken land on lease. The evidence submitted during the appellate proceedings in this regard are few confirmation letters Printed from counselvise.com 17 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 and all these confirmations are identical with similar wordings and the sample one is as under:- “CONFIRMATION” I Darepally Malaiah son of Shri Narasaiah resident of Mamidalapally do hereby confirm as under:- 1) I am a farmer having agricultural land situated at village Mamidalapally district Warangal and measuring 2 acres. 2) I have on the 28h day of Dec 1999 entered into a Grower Agreement (Lease) with SPIC PHI Seeds Limited, now named PHI Seeds Limited, (PSL) presently having their registered office at B-4, Greater Kailash Enclave, Part-Il, New Delhi-110048 in respect of the above mentioned land for a period of six months at a rent of Rs. 1440/- per acre. 3) In terms of the agreement, I gave the above land on lease to PSL for the duration to carry out agricultural activities to grow a hybrid seed crop. After the expiry of the period PSL vacated the land and the land received to me. 4) In terms of the agreement, I was provided seeds for planting by PSL and on the directions and guidance of and for and on behalf of PSL, including tilling and ploughing, sowing of seeds, irrigation, weeding, application of fertilizer and chemicals, crop protection, harvesting etc. Fertilizer, chemicals and manure and labour was applied by me for which / was reimbursed by PSL. 5) For the lease rent, the labour and service charges and the reimbursement for fertilizer as chemicals. I have received from PSL a composite sum calculated at the rate of Rs.6.75 per kilogram of good seed. The details of the payment received are as given below:- Cheque No. Date Drawn on Amount (Rs.) 312620 Karim Nagar 01.06.2000 Canara Bank 8911/- 312994 20.07.2000 Do 5304/- I was also paid a sum of Rs. 1542/- towards substandard quality seed. I make this confirmation voluntarily and without any coercion or undue influence from any person and verify that the facts stated in this confirmation are true and correct to the best of my knowledge and no part thereof is false. Signed at Manidalapally on this 4th day of Sept. 2004 in the presence of witness who confirm that the contents of the confirmation were read out to the confirming party in Telugu, the local language understood by him Printed from counselvise.com 18 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 and that he has signed this confirmation voluntarily and without any coercion or undue influence. (Sign) (Sign) Confirming Party Witness” 5.4. None of the confirmations submitted are for the relevant assessment year and the lease is for a period of six months from October-November, 1999. Though, the confirmations mentions about the rent of Rs. 1440/- per acre, the extent of land taken on lease or the amount of rent paid to the farmers are not mentioned in the confirmation. The only payment made to the farmer mentioned in the confirmation letter is about a composite sum of Rs.6.75/- per kg of good seeds of corn and it is pertinent to note that the rent is not paid at per acre rate but at per kg rate of seeds. The other payment mentioned as paid to the farmers is towards substandard quality seeds and both these payments cannot be considered as payment of rent to the farmer. Therefore, from the evidence available, it is not possible to conclude that the appellant had taken any land on lease as there is no evidence of any payment of lease rent to the farmers. In this regard my finding in my earlier appellate order for A. Y. 2007-08 was as under: “5.3. Few of such leave and license agreements were filed in the paper book submitted during the appellant proceedings. The appellant's AR during the appellant proceedings was specifically asked as to how the license fee was paid to the owners of land and he had intimated that the license fee was paid post harvest only and at the time of purchase of seeds or at the end of the contract period. In this connection, it is pertinent to mention clause 5 of the agreement which is as under: “5. The said license fee shall be paid by the licenses to the licensor at such intervals or times as may be determined by the licensee provided however that the same shall, in any case, be paid within 6 months from the end of the period of license.\" 5.4. It is strange that as per leave or license agreements the poor farmers who gave the land on lease, is at the mercy of the appellant company to get the license fee and may even have to wait for 6 months after termination of the agreement to receive the license fee. There is no provision in leave and license agreement for advance payment of license fee and the AR admits that the license fee is paid post harvest only, at the time of purchase of seeds or at the end of the contract period. Therefore, the appellant's AR was specifically asked whether these agreements were entered into in local language or only in English and the appellant's AR was not clear about the language in which these agreements were entered into with the farmers/land owners. No prudent farmers/land owners would part with this land even if it is for a season without receiving the license fee in advance or up front. Therefore, the AO's conclusion that no prudent person will enter in such kind of agreements, appears to be correct.” 5.5. The first condition for earning agricultural income is the possession of agricultural land as per the definition of agricultural income in section Printed from counselvise.com 19 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 2 (IA) of the I. T. Act, 1961 and as per the Hon'ble Supreme Court's decision in the case of Raja Binoy Kumar Sahas Roy reported in 32 ITR 460 mentioned above. In this case, the appellant is even unable to prove that they had taken land on lease to carry out agricultural operations. The only payment mentioned in the confirmation is the amounts paid for purchase of seeds either for good seeds or substandard seeds and there is no mention of any lease rent paid for land in these confirmations. Therefore, the appellant's claim that they had taken land on lease from the farmers is without any evidence and thus not acceptable. Even in the appellate proceedings for A. Y. 2007-08, the appellant could show only composite payments to farmers and that too at a fixed rate per kg of seeds purchased from the farmers. The appellant is unable to furnish any evidence of any lease rent paid to farmers in the appellate proceedings and therefore, I am of the view that the AO's decision to disallow the appellant's claim of agricultural income of Rs. 55,07,79, 154/- requires to be sustained. 5.6. The next important aspect to be verified is whether the appellant had carried out any agricultural operations. The confirmations mentioned above though it does not pertain to the relevant assessment year mentions only purchase of seeds under two categories i.e. good seeds and substandard seeds. Therefore, it is clear that the appellant had not carried out any agricultural operations as required for claiming agricultural income as per the definition of agricultural income in section 2 (1A) of the I. T. Act, 1961 and as per the decision of the Hon'ble Supreme Court in the case of Raja Binoy Kumar Sahas Roy reported in 32 TR 460 relied by the AO in his assessment order. 5.7. As per the above affidavit the farmers are only \"adequately compensated\" by the appellant for their work. There is no mention of any payments made to the farmers towards basic agricultural operations carried out by them. The finding of the CIT(A)s right from the A. Y. 1996-97 was that the appellant is not a cultivator but only a purchaser of hybrid seeds produced by the farmers. In view of the above and based on the evidence submitted during the appellate proceedings, it is clear that the appellant is only purchasing seeds from farmers and various agreements with the farmers produced before me is not adequate to camouflage these purchases as agricultural receipts. The Hon'ble ITAT's decision in the case of Monsanto India Ltd. relied by the appellant also is of no help the appellant's case as the appellant had not received any agricultural receipts but received income from the sale of seeds only and this do not qualify for exemption as agricultural income u/s 10(1) read with section 2 (1A) of the I. T. Act, 1961. The facts of the case clearly indicate that the appellant only purchased seeds from the farmers after supplying them with parent seeds initially. The purchase and sale of seeds made by the appellant can by no stretch of imagination be considered as agricultural income exempted u/s 10(1) in view of definition of agricultural income in section 2 (1A) of the I. T. Act, 1961. Therefore, the addition of Rs.55,07,79, 154/- made by the A0 is sustained as there is no evidence on records to come to the conclusion that the appellant had agricultural income during the relevant assessment year. Thus, ground No. 1 to 3 stands rejected. Printed from counselvise.com 20 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 \"6. The alternative plea of the appellant company for application of Rule 7 of I. T. Rules, 1962. The appellant company in this alternative plea requests that a portion of its income needs to be treated as agricultural income as per Rule 7 on the ground that the AO had failed to consider their plea in the assessment order. In this connection, I have already held that the appellant company had not taken any land on lease or carried out any agricultural operations during the relevant assessment year. In view of the above, Rule 7 is not at all applicable in the case of the appellant. Provisions of Rule 7 are as follows: \"Income which is partially agricultural and partially from business. 7.(1) In the case of income which is partially agricultural income as defined in section 2 and partially income chargeable to income tax under the head \"Profits an gains of business\", in determining that part which is chargeable to income tax the market value of any agricultural produce which has been raised by the assessee or received by him as rent-in-kind and which has been utilized as a raw material in such business or the sale receipts of which are included in the accounts of the business shall be deducted, and no further deduction shall be made in respect of any expenditure incurred by the assessee as a cultivator or receiver of rent-in-kind.\" 6.1. The appellant has not made out a case during the appellate proceedings to consider that its income was partially agricultural and therefore Rule 7 is not applicable at all to the appellant's case. From the facts mentioned in the earlier paragraphs with regard to Ground No. 1, 2 & 3 it is clear that the appellant has no agricultural income in view of definition of agricultural income in section 2 (IA) and therefore the question of considering the appellant's income partly as agricultural income do not arise at all. As a result, ground No. 4 of the summary of the grounds of appeal stands rejected.\" 5.3. I have carefully considered the facts of the case, order of the AO and submissions made by the la. AR. It is seen that there is no material change in facts and circumstances and therefore, I do not find any reasons for deviating from the order of my predecessors in earlier years and I also concur with the detailed finding of my predecessors that the appellant company's claim of exemption u/s 10(1) for agricultural income is not allowable. The appellant is deriving income from manufacturing/processing and sale/purchase of hybrid Rs.100,87,51, 183/- which is claimed as agricultural income is liable to be assessed as income from business activities. The action of the AO is accordingly confirmed. These grounds of appeal are ruled against the appellant.\" 3.4. I have carefully considered the facts of the case, order of the AO and submissions made by the ld. AR. It is seen that there is no material change in facts and circumstances and therefore, I do not find any reasons for deviating from the order of my predecessors in earlier years and I also concur with the detailed finding of my predecessors that the appellant company's claim of exemption u/s 10(1) for agricultural income is not allowable. The appellant is deriving income from manufacturing/processing and sale/purchase of hybrid seeds and therefore, income of Rs.1,24,59,41,832/- which is claimed as agricultural income is liable to be assessed as income from business Printed from counselvise.com 21 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 activities. The action of the is accordingly confirmed. These grounds of appeal are ruled against the appellant.” 9. On similar facts, the Co-ordinate Bench of the Tribunal in assessee’s own case vide its order dated 18.12.2017 in ITA Nos.1988/Del/2006, 4383/Del/2006, 443/Del/2010, 5285/Del /2012, 3670/Del/2013, 1903/Del/2014 and 4269/Del/2014 for Assessment Years 2002-03, 2003-04, 2005- 06, 2007-08, 2008-09, 2009-10 and 2010-11 respectively confirmed the action of the Assessing Officer rejecting the claim of the assessee for exemption u/s 10(1) of the Act in respect of the agricultural income for the respective assessment years and endorsed the action of the Assessing Officer to treat the same as business income. The relevant findings of the Tribunal as appearing in para no.15 to 23 of the order are reproduced as under:- “15. We have heard the rival submissions and perused the relevant material on record. The principles regarding the scope of agricultural activities and agricultural income has been laid down by the Hon’ble Supreme Court in the case of CIT Vs. Raja Benoy Kumar Sahas Roy(supra), wherein it was held as under: “The primary sense in which the term agriculture is understood is agar-field and cultra-cultivation, i.e., the cultivation of the field, and if the term is understood only in that sense agriculture would be restricted only to cultivation 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. They would be the basic operations and would require the expenditure of human skill and labour upon the land itself. There are however other operations which have got to be resorted to by the agriculturist and which are absolutely necessary for Printed from counselvise.com 22 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 the purpose of effectively raising the produce from the land. They are operations to be performed after the produce sprouts from the land, e.g., weeding, digging the soil around the growth, removal of undesirable undergrowths and all operations which foster the growth and preserve the same not only from insects and pests but also from depredation from outside, tending, pruning, cutting, harvesting, and rendering the produce fit for the market. The latter would all be agricultural operations when taken in conjunction with the basic operations above described, and it would be futile to urge that they are not agricultural operations at all……….. …….We are of opinion that the mere performance of these subsequent operations on the products of the land, where such products have not been raised on the land by the performance of the basic operations which we have described above would not be enough to characterize them as agricultural operations. In order to invest them with the character of agricultural operations, these subsequent operations must necessarily be in conjunction with and a continuation of the basic operations which are the effective cause of the products being raised from the land. It is only if the products are raised from the land by the performance of these basic operations that the subsequent operations attach themselves to the products of the land and acquire the characteristic of agricultural operations. The cultivation of the land does not comprise merely of raising the products of land in the narrower sense of the term like tilling of the land, sowing of the seeds, planting, and similar work done on the land but also includes the subsequent operations set out above all of which operations, basic as well as subsequent, from one integrated activity of the agriculturist and the term “ agriculture” has got to be understood as connoting this integrated activity of the agriculturist. One cannot dissociate the basic operations from the subsequent operations and say that the subsequent operations, even though they are divorced from the basic operations can constitute agricultural operations by themselves. If this integrated activity which constitutes agriculture is undertaken and performed in regard to any land that land can be said to have been used for “agricultural purposes” and the income derived there from can be said to be “agricultural income” derived from the land by agriculture. If the term “agriculture” is thus understood as comprising within its scope the basic as well as subsequent operations in the process of agriculture and the raising on the land of products which have some utility Printed from counselvise.com 23 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 either for consumption or for trade and commerce, it will be seen that the term “agriculture” receives a wider interpretation both in regard to its operations as well as the results of the same. Nevertheless, there is present all throughout the basic idea that there must be at the bottom of it cultivation of land in the sense of tilling of the land, sowing of the seeds, planting, and similar work done on the land itself. This basic conception is the essential sine qua non of any operation performed on the land constituting agricultural operation. If the basic operations are there, the rest of the operations found themselves upon the same. But if these basic operations are wanting the subsequent operations do not acquire the characteristic of agricultural operations. All these operations no doubt require the expenditure of human labour and skill but the human labour and skill spent upon the land. The human labour and skill spent in the performance of subsequent operations cannot be said to have been spent on the land itself, though it may have the effect of preserving, fostering and regenerating the products of the land.” 16. The Hon’ble Supreme Court in the aforesaid judgment has clearly held that agricultural income will arise when basic operations such as cultivation of land like tilling of the land, sowing of seeds, planting and other similar operations are carried out. The said basic operations should be on the land itself and it cannot be outside the land. Section 2(1A)(b)(i) refers to income derived from such land by agriculture. Sec. 2(1A)(b)(ii) refers to any income derived from such land by the performance of a cultivator or receiver of rent –in-kind to render the produce raised or received by him fit to be taken to the market. 17. The factual matrix of the present case reveals that the farmer had entered into lease agreement with the assessee company and the farmer is the lawful owner of the land. The said farmers had leased the farm land to the assessee company which has handed it back to the farmer to carry out cultivation of seeds on behalf of the assessee company. The parent seeds are provided free of cost to the farmer by the assessee company. The farmer is paid, amount for procurement of seeds by the assessee at fixed rate, which is bifurcated under the heads, land lease rent, fertilizers & chemicals and labour & services charges. 18. We find from the arrangement between the farmer and the assessee that the assessee is not carrying any agricultural operations required in terms of tests laid in the judgment of the Hon’ble Supreme Court in the case of CIT Vs Raja Benoy Kumar Sahas Roy (supra). The actual cultivation on the land is done by the farmer like tilling, sowing, etc. The mere supervision by the Printed from counselvise.com 24 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 assessee without the carrying of the basic operations would leave no manner of doubt that no agricultural income arose in the hands of the assessee. The argument of the assessee that the company is an artificial person and could not have conducted the agricultural operations by itself and, therefore, required such kind of an arrangement with the farmers for earning agricultural income does not have any merit. The farmers are not the employees of the assessee company. Had it been the case where the actual agricultural operations were carried out by the employees of the assessee company, it would have been a different case altogether. 19. The features of the agreement relied upon by the assessee like composite payment, giving parent seeds free of cost to the farmer, not carrying out any agricultural operations by itself clearly shows that the assessee company is only earning business income from the activity and not agricultural income. It is the farmer in the present case, who has to ensure the watering of the land, fertility and the suitability of the land. Without carrying out the basic operations alongwith the subsequent operations on the agricultural field, the assessee cannot claim agricultural income. The facts of the present case though represent a legal business model preferred by the assessee and the farmer but the said arrangement only gives rise to business income in the hands of the assessee and not agricultural income. The leave and license agreement as well as the service provider agreement read alongwith the statements of the farmers also show that the agricultural operations are carried out by the farmers only. 20. The reliance placed by the Ld. AR upon the judgment in the case of CIT vs. Monsanto India Ltd. passed by the Hon’ble Bombay High Court is misplaced in as much as even in the said judgment the Hon’ble High Court in para 3 has clearly observed that agricultural operations ought to have been actually carried out by the assessee. 21. The judgment of the Hon’ble Karnataka High Court rendered in the case of CIT Vs. Namdhari Seeds Pvt. Ltd. is applicable to the facts of the present case. The submission of the Ld. AR that the present case is different from Namdhari Seeds (supra) case and, therefore, the ratio of the said judgment is not applicable does not appeal to us. It has been submitted by the Ld. AR that the aforesaid was a case where the agreement was contrary to the Karnataka Land Reforms Act, however, in the present case, the agreement is not in contravention with any law. We find that the said ground was only an additional factor for denying the claim of agricultural income to the assessee therein. The principle ground for rejection of the claim of the assessee was that no actual agricultural operations were carried out by the assessee therein. The facts are similar to the present case and the ratio of Printed from counselvise.com 25 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 the aforesaid judgment is squarely applicable to the present case. In the aforesaid judgment of Namdhari Seeds, the Hon’ble High Court held as under: - “54. From different terms and conditions of arrangement, what we notice is except supplying the foundation seeds and giving scientific advice from time to time, either at the time of sowing or pollination or harvesting, none of the normal activities of agriculture are undertaken by the assessee company. Except sowing the foundation seeds belonging to the assessee, farmer is not entitled to grow any other seeds in the land earmarked for the purpose of growing hybrid seeds and is not allowed to part with the seeds supplied to him to anyone else and so far as unused seeds, he had to give back the same to the company. Farmer conducts the cultivation and assessee-company only allots machinery and personnel for the purpose of achievement of better results in producing the quality hybrid seeds. Preparation of bed, sowing of the seeds, cultivation and harvesting of hybrid seeds is done by the farmer. He is entitled for the price fixed by the assessee per quintal for all such seeds which would qualify the specification indicated by the assessee. The seeds which do not qualify the specification” are also not sold by the farmer, but by the company and the sale consideration, if any is given to the farmer. The farmer while multiplying foundation seeds, uses his land and labour. The input given by the assessee is only technical supervision of the company. Whatever seeds grown by the farmer whether qualifies the specification indicated by the assessee or not has to be given to the assessee and the assessee will pay a fixed price so far as the seeds which quality the specification and other seeds will be sold in the open market by the assessee and there is no fixation of any price for the seeds which do not meet the specification. The farmer has to ensure fertility of the land, suitability of the land, cultivation of the land, watering of the land, use of the seeds supplied by the assessee and also had to sell the hybrid seeds at a price fixed by the assessee…… ….If the farmer has to arrange the labour and pay the labour charges and also spend money for other operations either basic or subsequent operations, he can only take advance amount from the assessee and such amount paid by the assessee would be deducted from the so called compensation to be paid for the qualified foundation seeds at the end by the assessee. The entire terms of agreement would only indicate that the foundation seeds grown by the farmer would be purchased by the assessee at the end for a certain price provided seeds qualify the specifications as per the agreement. It is nothing short of a fertile womb being offered by a surrogate mother for the growth of child of someone else. The assessee supervises and oversees the sowing cultivation right from the process of Printed from counselvise.com 26 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 sowing till the end in order to get the qualified foundation seeds as per the specifications so as to carry on his trade in selling certified seeds. The main interest of the assessee is to see that good and healthy seeds are produced by the farmer meeting the requirement specified by it. Such input or scientific method in giving advice to the farmer cannot be termed as either basic agricultural operation or subsequent operations ordinarily employed by the farmer or agriculturist. If the basic operations of agriculture are not carried on by the assessee–company, then the harvested foundation seeds purchased by him and converting them to certification seeds cannot be termed as integrated part of the foundation activity of agriculture. Therefore, even if we agree that the mechanical process of agricultural operations either basic operations or subsequent operations would not be an impediment to make such operations as agricultural operations, the question is whether such operations are conducted by the assessee or the farmer or someone else. The entire reading of the terms of the agreement would only indicate that assessee-company was interested only to have healthy foundation seeds grown for the process of converting the same as certified seeds. 58. Therefore the view of first appellate authority that 100 per cent of the operations upto conversion of the foundation seeds as agricultural activity conducted by the assessee company and therefore income deserves to be exempted from tax under s. 10(1) of the Act is erroneous. Similarly exemption given by the Tribunal for 90 per cent of the income is also erroneous. We opine that the Tribunal was justified in treating 10 per cent of the income as business income which involved processing of foundation seeds to certified seeds. In that view of the matter, we hold that the entire income amounts to business income. As a matter of fact for some of the assessment years based on the opinion of one of the senior counsel on taxation Mr. K.R. Prasad, the assessee – company offered its income as business income and even claimed deduction under s. 80HHC of the Act. 22. In view of the aforesaid, we affirm the reasoning given by the AO and the CIT(A) and dismiss grounds No. 1 to 12 raised by the assessee. 23. As a result, the appeal of the assessee stands dismissed.” 10. Against this order, the assessee has filed an appeal u/s 260A of the Act before the Hon’ble Delhi High Court. The Hon’ble Delhi High Court has admitted the appeal of the assessee by observing as under:- Printed from counselvise.com 27 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 “ITA Nos.1051/2018, 1052/2018, 1053/2018 and 1054/2018 Notice. Mr. Deepak Anand, Junior Standing Counsel accepts notice on behalf of respondent. It is pointed out that there are conflicting judgments of the Bombay High Court and the Karnataka High Court, against which SLPs are pending. Admit. The following question of law is framed: (1) Whether the assessee's income from \"cultivation\" and sale of hybrid seeds is agricultural income exempt under Section 10(1) read with Section 2(1)(a) of the Income Tax Act, 1961. No other issue arises or is pressed To be listed along with ITA No. 698/2018 and other connected appeals filed by the appellant.” 11. During the course of hearing before us, the ld. AR made similar arguments as considered by the Tribunal in the case of the assessee for the earlier years as referred above. It was submitted that the assessee company manufactured parent seeds, which is used to produce hybrid seeds. The assessee company submitted that it had entered into a Leave and License Agreement (sample copy appearing on page no.400 to 406 of the paper book) and service provider agreement (sample copy appearing on page no.407 to 415 of the paper book) with the land owners to contend that the assessee company was carrying out the agricultural activity by itself and that the farmers were divested the possession and the enjoyment of the land. According to the ld. AR, the farmer/land owner was a permissive Printed from counselvise.com 28 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 licensee and not the owner of the land. It was submitted that it was the assessee who knew the produce and therefore for uniformity produced the seeds and supervised the whole operation. According to him the short point was whether the farmers were enjoying the leased land as its owner or were only a permissive licensee. 11.1. The ld. AR also relied upon the decision of Hon’ble Bombay High Court in the case of CIT vs Monsanto India Ltd. in ITA No.633 of 2010 (Bom.). The Ld. AR distinguished the decision of Hon’ble Karnataka High Court in the case of CIT vs Namdhari Seeds Pvt. Ltd. 341 ITR 342 (Karn.) relied by the AO stating that in the said decision, the Hon’ble Karnataka High Court denied the exemption of the agricultural income on the ground that no lease of the land was created in terms of the agreement entered by M/s Namdhari Seeds Pvt. Ltd. and the farmers as no leasing was permitted under the Karnataka Land Reforms Act. The Ld. AR further relied upon the decision of Hon’ble Karnataka High Court in the case of M/s Namdhari Seeds and ACIT, Circle-2(1), Bangalore in ITA No.346/2012 and Ors, wherein, the Hon’ble Court in para no.12 observed that in case, where the law permits taking agricultural leases of land Printed from counselvise.com 29 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 and if the assessee cultivates the land, raises the crops and seeds and hence income derived therefrom will fall within the definition of agricultural income and the assessee would be entitled to the benefit of section 10(1) of the Act. It was submitted that the assessee had entered into valid ‘Leave and License Agreement’ with the farmers and had carried out the agricultural activities under its supervision and therefore, the assessee was entitled to the benefit of exemption u/s 10(1) of the Act. It was further submitted that the claim of all expenses on lease rent and labour charges for carrying out agri-operations have been fully allowed and the accounts have been accepted in toto in all the years. Further, it was submitted that the assessee, being in lawful possession of the impugned lands taken on lease for the cropping season for raising crops has derivative interest in the land and there was no contrary finding by AO/CIT)(A). The Ld. AR further submitted that the possession of the agricultural land by the assessee company for a cultivation season creates a derivative and beneficial interest in the land and it is the derivative interest that matters in the claim u/s 10 (1) of the Act and it is immaterial if such a person carries out cultivation on the land itself or by others contracted by him. Printed from counselvise.com 30 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 11.2. The ld. AR also submitted that the order of the Tribunal, Pune Bench in the case of ITO vs Nath Bio Genes (I) Ltd. in ITA No. 398 & 1505/Del/20016 was in favour of the assessee on similar facts and relying upon the decision of the Hon’ble Apex Court in the case of CIT vs M/s. Vegetables Products Ltd. 88 ITR 192 (SC) submitted that when two views are possible, the view preferable to the assessee should be preferred. The Ld. AR also referred to the decision of the Hon’ble Supreme Court in the case of Commissioner of Customs (import) vs in the case of Dilip Kumar & Company, AIR 2018 Supreme Court 3606 to submit that the provision of exemption is to be strictly implemented and the onus is on the assessee to satisfy that it was entitled to the exemption claimed by it. But, however, if the assessee is able to satisfy that it was the eligible for exemption claimed then the exemption provisions should be liberally interpreted. It was further submitted that the claim of deduction u/s 80I of the Act was a without prejudice claim when the ld. CIT(A) had rejected its claim for exemption u/s 10(1) of the Act for AY 1996-97 to AY 2000-01. It was further informed by him that the ld. CIT(A) had directed to allow the claim of deduction under section 80I of the Act for these years as a without prejudice claim made by the assessee company, but till Printed from counselvise.com 31 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 date the Department has not given the alternate claim u/s 80I of the Act. It was also submitted that the assessee company was Indian company being 100% subsidiary of a foreign company and there was no bar in its claim for exemption u/s 2(1A) r.w.s 10(1) of the Act. He also referred to the decision of the Hon’ble Bombay High Court in the case of HA Shah & co. vs CIT & Excess 30 ITR 618 to submit that no res-judicata applies to the Tribunal and the Tribunal was justified in law in departing from its previous findings of the circumstances. 12. On the other hand, the ld. CIT-DR supported the orders of the authorities below. It was submitted by him that the ld. AR could not bring any point or any submission which the Tribunal had not considered in the earlier years when deciding the matter against the assessee on this issue. It was submitted that the DIT(Inv.), Hyderabad, had conducted a survey, wherein the Investigation Wing concluded that the ‘Leave and License Agreement’ were make believe arrangements, which was supported by statement of farmers as recorded placed at page no.610 of the paper book. It was further submitted that the purchase of seeds was by the farmers and all other expenses and efforts are incurred by the assessee. It was submitted that Printed from counselvise.com 32 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 the agriculture activity considered as exempt as per the provisions of section 2(1A) of the Act is an activity which is considered below the land and after it comes out of land. It was further submitted that all the judgments relied upon by the ld. AR are prior to the matter heard and considered by the Tribunal in assessee’s own case for the earlier years as referred earlier in this order. As regards the order dated 18.07.2014 of the Hon’ble Karnataka High Court in the case of M/s Namdhari Seeds and ACIT, Circle-2(1), Bangalore in ITA No.346/2012 and Ors., it was submitted that the decision in the case of Namdhari Seeds in favour of the Revenue was delivered by Hon’ble Karnataka High Court on 24.10.2011, whereas the subsequent decision in the case of Namdhari Seeds do not apply to the facts of the case of the assessee as the assessee has not carried out the basic agricultural activity as per the tests laid down in the case of CIT vs Raja Benoy Kumar Sahas Roy (supra). 13. In rejoinder, the ld. AR submitted that the farmers/land owners were the permissive licensee and their ownership was no longer there. In this regard, the ld. AR drew our attention to the affidavit of the land owner/farmer on a sample basis at page no.566 of the paper book, wherein, it was Printed from counselvise.com 33 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 stated by the farmer that the land was given on lease to the assessee company for particular cropping season and though the possession of the land was given to the company for the lease period but the company engaged him to cultivate and grow hybrid seeds on its behalf and was adequately compensated by the assessee company for his work in accordance with providing local customs. The said affidavit on page-566 of the paper book is reproduced hereunder:- . Printed from counselvise.com 34 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 13.1. The Ld. AR also drew our attention to the Leave and License Agreement placed at page 400 to 406 and the service provider agreement placed at page 407 to 415 on sample basis to support his contentions. He further relied upon the judgement of the Hon’ble Apex Court in the case of CIT vs Sun Engineering 198 ITR 320 (SC) to contend that if a fact has not been considered by any judicial authority, then it is not a valid judgment. 14. We have considered the rival submissions and perused the material available on record. As discussed above, we have noted that the Tribunal in assessee’s own case vide order dated 18.12.2017 in ITA Nos.1988/Del/2006, 4383/Del/2006, 443/Del/2010, 5285/Del /2012, 3670/Del/2013, 1903/Del/2014 and 4269/Del/2014 for Assessment Years 2002-03, 2003-04, 2005-06, 2007-08, 2008- 09, 2009-10 and 2010-11 respectively, had confirmed the disallowance of the claim by the assessee u/s 2(1A) r.w.s. 10(1) of the Act in respect of its agricultural income and its treatment as business income by the AO. In coming to the said conclusion, the Tribunal gave a finding of fact in para no.18 of its order that the assessee was not carrying any agricultural operations Printed from counselvise.com 35 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 required in the terms of tests laid in the judgement of the Hon’ble Supreme Court in the case of CIT vs Raja Benoy Kumar Sahas Roy (supra). It further recorded that the actual cultivation on the land is done by the farmer like tilling, sowing etc. and the mere supervision by the assessee without carrying of the basic operations would leave no manner of doubt that no agricultural income arose in the hands of the assessee. During the year also, there is no change in the position in the carrying out of the agricultural activity for the present year as noted by the Tribunal in the case of the assessee for the earlier years. Further, on perusal of the ‘Leave and License Agreement’ dated 01.11.2011 between the farmer/land owner and the assessee (sample copy placed at page no.400 to 404 of the paper book) and the service provider contract between the assessee and the farmer/land owner (sample copy placed at page no.407 to 415 of the paper book), it is seen that in the said agreement/contract, the assessee has not undertaken the responsibility of carrying out the basic agricultural operations as per the tests laid down by the Hon’ble Apex Court in the case of CIT vs Raja Benoy Kumar Sahas Roy (Supra). Thus, its claim as referred in para no.11 and 11.1 of this order that the possession of the agricultural land by the assessee company for a cultivation Printed from counselvise.com 36 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 season creates a derivative and beneficial interest in the land and it is the derivative interest that matters in the claim u/s 10 (1) of the Act and it is immaterial if such a person carries out cultivation on the land itself or by others contracted by him is not acceptable. 14.1. The Tribunal in its order in the case of the assessee as referred above, also negated the arguments of the assessee that the company is in artificial person and could not have conducted the agricultural operation by itself and therefore such kind of an arrangement with the farmers for earning agricultural income does not have any merit. It was also held that the farmers are not the employees of the assessee company. 14.2. In this regard, the reliance placed by the assessee on the decision of the Hon’ble Supreme Court in the case of Dharangadhara Chemical Works Ltd. vs State of Saurashtra 1957 AIR 264 (SC) to contend that in its case, employer- employee/master servant relationship existed between the assessee and the farmers has been perused very carefully by us. This judgment cannot be relied upon the facts of the present case, firstly on the ground that in the cited case, the Hon’ble Apex Court was dealing with the issue of the Agarias as Printed from counselvise.com 37 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 workmen within the meaning of the Industrial Disputes Act, whereas, in the present case, the assessee is trying to claim employer/employee relations with the farmers who were also the land owners of the said land on which they were working. Further, had they been the employees of the assessee then there was no necessity for entering into ‘Leave and License Agreement’ and ‘Service Provider Agreement’ as referred by the assessee earlier in its contentions. Moreover, no other compliance as required under the various other Acts for the welfare of the employees has been shown by the assessee company. Therefore, the contention of the assessee that employer-employee/master servant relationship existed between the assessee and the farmers is not acceptable and the same is rejected. 14.3. Further, the submission made by the Ld. AR relying upon the decision of the Pune Bench of the Tribunal in the case of ITO vs Nath Genes (I) Ltd. (supra) has been carefully perused but not found to be acceptable. In this case, the Tribunal noted in para no.18A on page no.22 of its order that as part of the agricultural activity the assessee had incurred a sum of Rs.2.59 crores for preparation of the lands owned by the landlords, whereas, no details or any evidence has been submitted by the Printed from counselvise.com 38 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 present assessee towards incurring of any expenditure for preparation of the lands owned by the landlords, which constitutes basic agricultural operations as held by Hon’ble Supreme Court in the case of CIT Vs. Raja Benoy Kumar Sahas Roy (supra). In the same para, the Tribunal observed that it is a case wherein the assessee supplied all the needs required for agricultural activities. i.e. money, seeds lease lands and met all the expenditure and collected the seeds grown in the said lands using the services of the land owners-cum-growers. Another important fact noted by the Tribunal in that case was, that it is not a case of buying of seeds from the landlords. Further, it was noted by the Tribunal that the assessee paid to the landlords for the services as well as the rent of the lands. The same findings were also noted by the Tribunal in the cited case in its concluding para no.18 and 23, which is reproduced as below “18. We heard both the sides and perused the orders of the Revenue. We have also perused the paper book filed by both the sides and the decision relied on by them. The objections of the AOs are : A. Absence of the registered deeds of leased lands on stamp papers makes the claim of the assessee u/s.10(1) of the Act unviable. B. a. Letter from Mr.Bhuma Bala Narasimha Reddy conveying the sale of seeds; and b. AO’s failure to put the said letter to the assessee or allowing assessee to cross examine Mr. Reddy. Printed from counselvise.com 39 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 C. Applicability of judgmental laws in general and the jurisdictional High Court judgment in the case of Ajeet Seeds Ltd. D DR’s request for remanding. We shall deal with each of these issues as follows : A. Absence of the registered deeds of leased lands on the stamp paper makes the claim u/s.10(1) of the Act unviable – Acted upon by both parties Undisputedly, the facts relevant to this issue include that the assessee in the A.Y. 2011-12 entered into contractual agreements with land owners/growers, The list is available on pages 1 to 240 of Paper Book No.3. As part of the agricultural activity, assessee incurred Rs.2.59 crores for preparation of the lands owned by the landlords. Assessee used these lands for growing the seeds and provided basic seeds for use by the landlords-cum-growers. In this context, the assessee incurred Rs.4.76 crores in supply of the fertilizers and pesticides. Rs.7.10 crores was spent on the labour wages. Rs.2.21 crores was incurred by the assessee on account of lease rent paid to the landlords. In addition, Rs.3.32 crores was spent on other farm expenses. Rs.5.26 crores was spent on supply of processing material. Thus, the AO never doubted the genuineness of the expenditure on all the heads of expenditure enlisted in the schedules extracted in the tables given in the preceding paragraphs of this order (land preparation expenses, fertilizers and pesticides, labour, wages, incentive growers, land rent, other form expenses, stores and material consumed etc). The genuineness of these expenses were undoubted by the AO. Additionally, Rs.33.45 crores was spent on certain direct expenses, the details of which are discussed in the preceding paragraphs of this order. When these expenses are incurred undisputedly by the assessee on all the basic activities of agriculture, mere absence of registered leasehold land agreement does not disentitle the assessee from the benefits of the agricultural income. In the process, the written lease deeds were acted upon by the parties of the agreement in their true spirit. We find it is a case that that assessee supplied all the needs required for agricultural activities, i.e. money, seeds, lease lands and met all the expenditure and collected the seeds grown in the said lands using the services of the landowners-cum-growers. It is not a case of buying of seeds from the landlords. Assessee paid to the landlords for the services as well as the rent of the lands.” xxxxxxxxxxxxxxx Printed from counselvise.com 40 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 23. To sum up, on the facts of assessee entering into an agreement with the agricultural landlords-cum-growers for growing the foundation and breeder seeds as per the terms and conditions and also the scientific specifications provided by the assessee, when the assessee bears all the expenditure on land development, irrigation, fertilizers, pesticides, transportation etc., when the assessee pays the land rent and also for the labour, when the landlord acts only as a grower and hands over the entire agricultural produce of foundation and breeder seeds to the assessee at the end. Grower never sold the agricultural produce to the assessee etc. Thus, the activity constitutes agricultural activity as the assessee constitutes an agriculturist and the entire activity of production and growing of said seeds becomes an agricultural activity. The solitary evidence gathered by the AO in the solitary case of Shri Bhuma Bala Narasimha Reddy does not hold good considering the fact that the said evidences was not put to the assessee in a settled perspective of legal proceedings. Therefore, procurement of seeds from the landlords-cum- growers is not the transaction of purchase of seeds for trading activity. Further, the judgment of Coordinate Bench of the Tribunal in the case of Ajeet Seeds Ltd. (supra) was confirmed by the Hon’ble Court of judicature Bombay, Aurangabad Bench in the said case. Therefore, we are of the opinion that the claim made by the assessee is proper. The decision of CIT(A) is fair and reasonable and does not call for any interference. The relevant grounds raised by the Revenue are dismissed.” 14.4. However, in the case of our assessee, no expenditure has been incurred by the assessee for the preparation of the lands owned by the farmers. The assessee has claimed Rs.2,80,14,000/- towards cultivation and production expenses in which no such expenses for preparation of the lands has been incurred . The details of the same as provided in schedule 22 of the Profit & loss account is reproduced as under:- Printed from counselvise.com 41 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 14.5. Further, the assessee procured the seeds from the farmers at a price predetermined by the company itself (as per the findings of the Assessing Officer on page no.54 of its order at sr. no.vii and also reproduced in para no.7.1 on page no.6-7 of this order) as distinguished in the case of M/s Nath Genes (I) Ltd. (supra), wherein, the Tribunal in para-23 of its order as reproduced above gave a categorical finding that the ‘Grower never sold the agricultural produce to the assessee etc.” Further, the Assessing Officer also noted that though the assessee claims to have borne all expenses on account of seeds, fertilizers, pesticides, etc. on the basis of some standard formula (and not on actual basis) but all these were adjusted against the sale proceeds of crop and the farmers were paid only the balance amount after adjusting the aforesaid expenses. Therefore, the Printed from counselvise.com 42 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 case law relied by the assessee in the case of ITO vs Nath Bio Genes (I) Ltd. is distinguishable in the case of present assessee and does not support the contention made by the assessee. Therefore, the said reliance by the Ld. AR is rejected 14.6. Further, in view of the specific finding recorded by the Tribunal as discussed in para no.9 of this order as above, the other case laws and the submissions relied by the assessee cannot be accepted. Moreover, the ld. AR has not brought any case law on record in which, it is held that an activity would constitute an agricultural activity withing the meaning of section 2(1A) to become eligible for claiming exemption u/s 10 of the Act without carrying out the basic operations of agriculture as per the tests laid down by the Hon’ble Supreme Court in the case of CIT Vs. Raja Benoy Kumar Sahas Roy (supra). Further, the Ld. AR has not brought out any distinguishing facts to differ about the findings of the Assessing Officer in denying the exemption claimed by the assessee under section 2(1A) r.w.s. 10(1) of the Act and confirmed by the Co-ordinate Bench of the Tribunal in the case of the assessee as discussed above. Moreover, the decision of Hon’ble Apex Court relied by the ld. Sr. AR in the case of Commissioner of Customs (Import), Mumbai vs M/s Dilip Printed from counselvise.com 43 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 Kumar and Company & Ors.(supra) will not support the case of the assessee because the assessee has not carried out the basic agricultural operations, which is the strict requirement to term an activity as an agricultural activity within the meaning of section 2(1A) of the Act to become eligible for exemption u/s 10(1) of the Act. The relevant extract of the decision of Hon’ble Apex Court in the case of CIT Vs. Raja Benoy Kumar Sahas Roy(supra), wherein it was held as under: “The primary sense in which the term agriculture is understood is agar-field and cultra-cultivation, i.e., the cultivation of the field, and if the term is understood only in that sense agriculture would be restricted only to cultivation 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. They would be the basic operations and would require the expenditure of human skill and labour upon the land itself……..” 14.7. The Hon’ble Apex Court in the case of Commissioner of Customs (Import), Mumbai vs M/s Dilip Kumar and Company & Ors.(supra) had summed up its findings in para no.52 of its order, which are reproduced as under:- 2.To sum up, we answer the reference holding as under ¬ (1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. (2) When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue. Printed from counselvise.com 44 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 (3) The ratio in Sun Export case (supra) is not correct and all the decisions which took similar view as in Sun Export Case (supra) stands over-ruled. 14.8. In view of the above discussion, we are of the considered view that the assessee fails to satisfy the condition as per clause-(1) of para 52 of the aforesaid order. In view of the facts as discussed by us earlier in this order, we are of the considered view that the assessee has not carried out the basic operations of agricultural activity as per the tests laid in the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Raja Benoy Kumar Sahas Roy (Supra) and has thus has failed to discharge the burden cast upon it that its case comes within the parameters for seeking exemption of Rs.124,59,41,832/- as claimed u/s 2(1A) r.w.s. 10(1) of the Act. 14.9. Therefore, in view of the above facts and following the order dated 18.12.2017 of the Co-ordinate Bench in the case of the assessee, we confirm the order of the Ld. CIT(A) in confirming the disallowance of agricultural income amounting to Rs.124,59,41,832/- claimed u/s 2(1A) r.w.s. 10(1) of the Act and treating it a business income by the AO. Ground nos.1 to 3 of the appeal are dismissed. Printed from counselvise.com 45 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 14.10. Further, regarding the additional ground filed by the assessee that the Ld. CIT(A) erred in not giving directions to assess the total income of the assessee as per normal provisions of the Act by making necessary adjustments as per section 28 to 43B of the Act filed vide letter dated 26.07.2024 in relation to the above grounds is also dismissed as no submission were made in respect of this additional ground. 15. Ground nos. 4 to 10 of the appeal are against TP adjustment made by the Assessing Officer on account of delayed receipt of receivables from AE's. The Assessing Officer had made an adjustment of Rs.67,17,965/-, which after giving effect to the order of the CIT(A), the adjustment on account of account receivable stood reduced to Rs. 37,03,330/-. 15.1. The Assessing Officer had made the adjustment of Rs.67,17,965/- on the basis of report of the TPO u/s 92CA(3) of the Act dated 27.10.2016. In this regard, the TPO had issued a show-cause notice to the assessee after noting the major international transactions undertaken by the assessee with its AE during the FY 2012-13. According to the TPO, the assessee failed to submit any reply even after due date and therefore he had no other option left but to calculate the interest on all the Printed from counselvise.com 46 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 receivables for the whole year by giving a grace period of 30 days. Thereafter, the Assessing Officer relied upon various case laws and in support of his action and applied the interest rate of LIBOR plus 400 basis points to be the most appropriate CUP. The details of the transactions noted by the Assessing Officer and the show-cause and the comments regarding non-receipt of reply of the assessee is reproduced as under:- “4. The major international transactions undertaken by assessee with its ASSESSEE, and during the F.Y. 2012-13 are as under:- S. No. Nature of transaction Method used by Assessee Amount in Rs. 1 Purchase of Parent seeds TNMM 1,10,19,86,129/- 2 Provision of seeds conditioning and storage services 1,51,23,609/- 3 Sale of seeds 12,96,45,761/- 4 Reimbursement expenses from AEs Other Method 3,98,70,234/- 5 Reimbursement expenses to AEs 23,57,642/- 5. Receivables A show cause dated 18.10.2016 was issued to the taxpayer as per details below: [QUOTE] \"2. Examination of the balance sheet reveals receivables thereby implying that the payment for the invoices raised by you have not been received within the stipulated time as provided in your service agreement with your AE. In this regard, you are requested to furnish the time period for payment as per your service agreement with your AE. However, to be reasonable and fair to you (the assessee), instead of charging penal interest, the Printed from counselvise.com 47 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 delayed payments are being treated as unsecured loans advanced to the AEs for the period of delay in receipt of payment beyond the time stipulated in the services agreement. You are requested to furnish details as to whether the invoices were raised in INR(Domestic currency) or in foreign currency. In case of the invoices raised in domestic currency, the interest rate is proposed to be charged on the basis of mark-up on prevailing average SBI base rate(300 basis points) during the year. Whereas in case the invoices have been raised in foreign currency, the interest rate is proposed to be charged on the basis of Mark-up on prevailing LIBOR rate(400 basis points) during the year.\" [UNQUOTE) The taxpayer failed to submit any reply, even after the due date. TPO contacted the taxpayer via all possible communication means like email, telephone call, speed post etc. As TPO had no other option left, so the interest was calculated on all the receivables, for the whole year by giving a grace period of 30 days.” 15.2. Aggrieved with the said order, the assessee filed an appeal before the ld. CIT(A), where inter-alia the assessee submitted that it is a debt free company and therefore receiving of any interest on receivable was not justified in its case. In this regard, the assessee relied upon the decision of Co-ordinate Bench of the Tribunal in the case of Bechtel India Pvt. Ltd., vs DCIT, Circle 4(2), New Delhi (ITA no 1478/Del/2015) which was subsequently confirmed by the Hon’ble Delhi High Court and the SLP against the same was dismissed by Hon’ble Supreme Court. The relevant submission of the assessee before the Ld. CIT(A) in this regard is reproduced as under:- Printed from counselvise.com 48 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 Principal Commissioner of Income Tax Vs M/s Bechtel India Private Limited - Supreme Court of India -(TS-591-SC-2017-TP) - July 21,2017 (Copy enclosed vide Annexure 2) We are in agreement with the High Court that as far as Question-B concerning adjustment for interest on receivables is concerned the Tribunal has returned a finding of fact. Consequently, no substantial question of law therefore, arises, on the facts of this case. The special leave petition is dismissed\" Principal Commissioner of Income Tax vs M/s Bechtel India Private Limited - Delhi High Court :TS-508-HC-2016(DEL)-TP) - July 21,2016 / Copy enclosed vide Annexure 3) “4. As far as question (B) concerning the adjustment for interest no receivables, the Court finds that the ITAT has returned a detailed finding of fact that the Assesse is a debt free company and the question of receiving any interest on receivables did not arise. Consequently, no substantial question of law arises for consideration as far as this issue is concerned.\" Bechtel India Pvt. Ltd., vs DCIT, Circle 4(2), New Delhi (ITA no 1478/Del/2015) dated December 21,2015 - Delhi ITAT( Copy enclosed vide Annexure 4) “15.1. It is brought to our notice that the assessee is a debt free company. In such circumstances it is not justifiable to presume that, borrowed funds have been utilized to pass on the facility to its AE's. The revenue has also not brought on record that the assessee has been found paying interest to its creditors or suppliers on delayed payments.” 16. In lieu of the discussions and the ratio laid down in the case of Kusum Healthcare Pvt. Ltd., we direct that no separate adjustment for interest on receivables are warranted in the hands of the assessee.” 15.3. However, the ld. CIT(A) did not make any comment regarding the above contention of the assessee but relying upon the decision of Co-ordinate Bench in the case of Ameriprise India Pvt. Ltd. in ITA No.2010/Del/2014 AY 2009-10 and of the Mumbai Bench of the Tribunal in the case of Tecnimont ICB Ltd. vs DCIT (2013) 32 taxmann.com 357 (Mum. Trib.) justified the action of the Assessing Officer but reduced the addition by directing the Assessing Officer to apply LIBOR rate plus 200 Printed from counselvise.com 49 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 basis points from 400 basis points as computed by the TPO and the Assessing Officer. The relevant finding of the Ld. CIT(A) in para no.4.3 to 4.5 of her order is reproduced as under:- “4.3. I have carefully gone through the submissions of the appellant, the assessment order and the assessment record. The facts of the case are that the TPO passed order u/s 92CA(3) dated 27.10.2016. The TPO 3(3)(1), New Delhi observed that in view of the receivables from foreign AEs i.e. Pioneer Overseas Corporation, USA of Rs. 12,21,87,074/- and from Pioneer Pakistan Seed Co. Ltd. of Rs. 4,20,43,090/-, interest on the receivables was at international transaction and accordingly computed interest @ of 4.4569% for 11 months amounting to Rs.67,17,965/- and recommended that the assessing officer should make an a TP adjustment for the said international transaction. 4.4 I find that the facts in the case of the appellant can be distinguished from the facts of the above cases referred by Ld. AR of the appellant. The Hon'ble ITAT Delhi in ITA NO. 2010/Del/2014 Assessment Year: 2009-10, in the case of Ameriprise India Pvt. Ltd. (PAN AAFCA3489B) vs. Asstt. Commissioner of Income Tax Circle 1(1), New Delhi lays down the principle of charging interest as International Transaction on delayed payment of receivables from AEs. It has been held that the non-realization of invoice value beyond the stipulated period is a separate international transaction, whose ALP is separately determinable. \"The International transaction of charging interest on late recovery of trade receivable covers the period which starts with the termination of the period of credit allowed under the agreement, which is subject matter of the International Transaction of rending of services...... The TP adjustment on account of interest on delayed realization of invoice value... depends on transaction to transaction basis. To put it differently, suppose an invoice is raised on 1st May; period allowed for realization is two months; and the invoice is actually realized on 31st December; Notwithstanding the fact that interest on such late realization would become chargeable for a period of 6 months (from 1st July to 31st December) but the amount of invoice will not be receivable as at the end of the financial year on 31st March. As such, this receivable would not have an impact on the working capital adjustment in any manner, but would call for addition on account of the late realization of invoice value for a period of six months.\" 4.5 It may further be mentioned that Hon'ble ITAT, Mumbai bench in the case of Tecnimont ICB Ltd. vs. DCIT (2013) 32, taxman.com Printed from counselvise.com 50 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 357 has also held that transfer pricing adjustment can be made on account of interest for period beyond the agreed credit period. In light of the TPO's report, if the appellant did not have sufficient surplus funds to lend, it may borrow such funds from banks or others, then cost of borrowings in India would be relevant. Also if the surplus funds were to be invested in existing business or expansion into new businesses, the return also would be linked with domestic interest rates. So, the entire opportunity cost to the appellant, will be with reference to the interest rates prevailing in India. TPO has applied LIBOR rate + 400 basis points applicable to the ECBs having average maturity period between 3 and 5 years after taking into consideration the foreign exchange risk. The Ld TPO has carried out Interest adjustment for a flat period of 11 months after applying the grace period of 30 days from due date. Hence, I hold that the CUP to be used is the Libor to which 200 basis points is being added to take into account the various factors / risks as already discussed in the order of TPO, reducing the addition above LIBOR rate + 200 basis points from 400 basis points as computed by TPO and AO. Hence, this ground of appeal is partly allowed.” 16. Aggrieved with the order of the ld. CIT(A), the assessee is in appeal before us on the following grounds:- 4. That the CIT(A) has erred in law and on facts in treating receivables from AE as a separate international transaction and benchmarking it separately. 5. That CIT(A) has erred in law in ignoring Trade payable transactions and considering Trade Receivables in isolation when all the transactions belong to a single class of transactions and have been benchmarked accordingly in TP Report. 6. That the CIT(A) has erred in law and on facts by re - characterizing the nature of outstanding receivables as loan advanced to AEs when the same is not permitted under the Act and charging interest on the same. 7. That the CIT(A) has erred in law by determining the Comparable Uncontrolled Price (\"CUP\") method as the most appropriate method without providing and analyzing any comparable uncontrolled transactions). 8. That whether on the facts and circumstances of the case and in law the CIT(A) was justified in upholding the addition made by the Transfer Pricing officer thereby ignoring the fact that Associated Enterprises with whom sales /other Printed from counselvise.com 51 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 transactions were made were treated in similar fashion as the Non AEs and no interest was charged even from Non AEs. 9. That the CIT(A) has erred in law by not following the principles laid down by Honb'le Supreme Court of India in case of M/s Bechtel India Private Limited. 10. That the CIT(A) erred in rejecting the without prejudice claim made by the appellant and upholding the adjustment made for a flat period of 11 months without verifying the actual period of delay if any.” 16.1. Further, with respect to the above issue, the assessee has filed an additional ground of appeal vide letter dated 26.07.2024 and also without prejudice ground in terms of Rule- 11 of the Income Tax (Appellate Tribunal) Rules 1963 as under:- “That on the facts and circumstances of the case and in law, CIT(4) ought to have appreciated that since operating margin of the appellant is higher than the working capital adjusted margin of the comparable companies, no adjustment on account of interest on receivables is warranted. Without prejudice, that on the facts and circumstances of the case and in law, CIT(A) erred in not giving directions to assess the total income of the Appellant as per normal provisions of Act by making necessary adjustments as per sections 28 to 43B of the Act.\" 16.2. We find that all the facts relevant for adjudication of the aforesaid additional grounds are already on record. The additional grounds raised by the assessee are purely legal in nature. Hence, in view of the decision of the Hon’ble Supreme Court in the case of NTPC Limited vs CIT 229 ITR 383(SC), these additional grounds are hereby admitted and taken up for adjudication. Printed from counselvise.com 52 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 16.3. In this regard, the ld. AR filed a written synopsis giving a factual position and contending the various proposition as under:- “The appellant is primarily engaged in the activities of cultivation and sale of commercial hybrid seeds. The company purchases the parent seeds form Pioneer Overseas Corporation India Branch (POC IB) and cultivates them, to grown commercial hybrid seeds on agricultural land situated in India, taken on lease at various locations in Andhra Pradesh, Karnataka, Gujarat and Rajasthan. The commercial hybrid seeds are sold to unrelated parties in India through distributors and retailers across the country. During the year, the appellant entered into the following international transaction with associated enterprise: S. No. Name of the Party Nature of Transactions Amount Received /Receivables 1 Pioneer Overseas Corporation US Sale of Hybrid seeds to AE 8,76,02,672 Reimbursement of Expenses from AE 3,45,84,402 2 Pioneer Pakistan Seeds Co. Ltd. Sale of Hybrid seeds to AE 4,20,43,090 The TPO made an adjustment of Rs. 67,17,965 in respect of outstanding receivables from the associated enterprises. While calculating the adjustment on account of outstanding receivables. the TPO computed interest at the rate of 4.4569% for 11 months on invoices outstanding for a period of more than 30 days. The CIT (A), while principally confirming the adjustment, directed the TPO to compute the adjustment on account of account receivable by taking the LIBOR rate+ 200 basis points as against 400 basis points considered by the TPO. After giving effect to the order of the CIT (A), the adjustment on account of account receivable stands reduced to Rs. 37,03,330. It is submitted that the adjustment made by the TPO in respect of interest on receivables is not sustainable for the reasons submitted as under: Printed from counselvise.com 53 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 The TPO has re-characterized the alleged delay in receipt of receivables from the associated enterprises as unsecured loans advanced to the associated enterprise and sought to impute notional interest on the delay in receipt of receivable, at the rate of LIBOR + 450 basis points. The said delay of remittances cannot be re-characterized as unsecured loans advanced to the associated enterprise and imputing of the notional interest thereon, considering it to be in the nature of unsecured loan, is not in accordance with law and is not sustainable for the following reasons as under: 1. No transaction involved 2. Transaction of accounts receivables cannot be re- characterized as unsecured loans 3. Without prejudice- the interest cost has already been suitably factored in the sale price: 4. Appellant is a debt free company 5. No interest charged from third party customers 6. No interest paid by the appellant on outstanding payables to associated enterprises 7. Without prejudice-Incorrect computation of interest. 16.4. In respect of each such proposition at the sr. No.1 to 7, the assessee relied upon various case laws as referred in the written synopsis filed by the assessee. 16.5. In this regard, the submission of the assessee on its contention at Sr. No.4 that it was a debt free company as above is reproduced as under:- 4. Appellant is a debt free company It is submitted that the appellant is a debt free company and there are no long term or short terms loans in the balance sheet of the appellant. The Hon'ble Delhi Bench of the Tribunal in the case of Bechtel India Pvt. Ltd. vs. DCIT (ITA No. 1478/Del/2015) deleted the adjustment on account Printed from counselvise.com 54 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 of outstanding receivables on the basis that the assessee is a debt free company. The decision of the Hon'ble Tribunal was upheld by the Hon'ble Delhi High Court in ITA No. 379/2016 on the basis that the assessee is a debt free company and therefore, the question of receiving any interest on receivables does not arise. SLP filed by the revenue against the decision of the Hon'ble High Court was dismissed by the Hon'ble Supreme Court. Accordingly, the decision in the case of Bechtel (supra), which has reached finality with the decision of Hon'ble Supreme Court, squarely applies to the case of the appellant and therefore, no adverse inference can be drawn with respect to delay in receipt of receivables in the case of appellant. Similar adjustment on account of alleged delay in realization of receivables was deleted by the Hon'ble Delhi High Court in the case of Pr CIT vs Boeing India Pvt Ltd (ITA No. 71/2022). The SLP filed by the Revenue was dismissed by the Hon’ble Supreme Court in SLP (Civil) Diary No. 49813/2023. Reliance can also be placed on the decision of Hon’ble Tribunal of Delhi Bench in the case of McKinsey Knowledge Centre India (P.) Ltd [163 Taxmann.com 188(Delhi. Trib.) wherein Hon'ble Tribunal deleted the adjustment made on account of outstanding receivables since the company is a debt free company and had not borrowed any funds for its business activity. Following the decision in the case of Bechtel (supra), the Delhi Bench of Tribunal in the following cases too, upon finding that the appellant as a debt free company, deleted the adjustment made in relation to receivable: * Kadimi Tool Manufacturing Co. (P) Ltd. vs. DCIT (87 taxmann.com 42) * McKinsey Knowledge Centre India (P.) Ltd. Vs DCIT [2019] 111 taxmann.com 102 (Delhi - Trib.) * McKinsey Knowledge Centre India (P.) Lid. Vs DCIT (ITA No 5817/Del/2016) * Inductis (India) Private Ltd. vs. ITO (ITA No. 2075/Del/2015)| Printed from counselvise.com 55 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 * Global Logic India Ltd. vs DCIT (ITA No.7621/Del/2017) In view of the aforesaid, since the appellant has not availed any loan and is a debt free company, there could not be any inference of providing benefit to the associated enterprise by not charging interest on delayed receivables. In view of the aforesaid, no adjustment is required to be made in the case of the appellant on account of the alleged delay in realization of receivables. 16.6. The ld. CIT-DR relied upon the findings of the TPO and the order of the Ld. CIT(A) and the case laws relied thereupon to submit that interest on delayed realization of receivables is a separate international transaction and, therefore, requires separate benchmarking. 16.7. We have considered the rival submissions and perused the material available on record. As noted above, the assessee in its submissions has stated that the assessee is a debt free company and therefore no TPO Adjustment on account of interest receivables could be made in its case and has relied upon the order of the Co-ordinate Bench of the Tribunal in the case of Bechtel India Pvt. Ltd.(supra), which has been affirmed by the Hon’ble Delhi High Court and the SLP against the same has been dismissed by the Hon’ble Apex Court. The relevant extract of the said orders are reproduced as under:- Printed from counselvise.com 56 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 ITA No.1478/Del/2015 (AY 2010-11) order dated 21.12.2015 “This is an appeal filed by the assessee against the assessment order dated 30.01.2015, of ld. DCIT Circle 4(2) u/s 143(3) r.w. sec 144C of I.T. Act, 1961 for A.Y. 2010-11. 2. Brief facts of the case are as under: The assessee filed its return of income declaring total income of Rs.33,42,28,149/-. Subsequently the same was revised to Rs.33,39,32,080/-. 3. The assessee is a captive service provider, providing (a) engineering design and related services, (b) financial and accounting support (‘FAS’) services and (c) IT Infrastructure support services (‘IT Infra’) to its Associated Enterprises (‘AEs’), to support the oversea office’s turnkey project execution. The international transactions entered into by the assessee are as under: S. No. International Transaction Amount (in Rs.) 1. Engineering services/Other services 114,37,93,036/- 2. Financial and accounting support services 4,57,02,508/- 3. IT infrastructure support services. 5,50,04,596/- 4. Reimbursement of expenses(paid) 6,70,973/- 5. Reimbursement of expenses(received) 21,97,07,529/- 4. For benchmarking the international transactions, assessee selected TNMM as the most appropriate method (MAM), with Operating Profit to Total Cost(OP/TC) as Profit level Indicator (PLI). The approach followed by the assessee in the TP Study has been encapsulated in the table below: Nature of International Transaction Amount (In INR crores) Most Appropriate Method & Profit Level Indicator (‘PLI’) Results Appella nt’s PLI No. of Comparables Margin of Comparables in TP Study* Provision of engineering design and related services 114.38 Method: TNMM PLI: OP/TC 13.04% 6 11.79% Provision of FAS 4.57 Method: 15.00% 10 14.37% Printed from counselvise.com 57 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 services TNMM PLI: OP/TC Provision of IT infrastructure support services 5.50 Method: TNMM PLI: OP/TC 17.56% 4 17.26% Reimbursement of expenses (paid) 0.07 Method: TNMM PLI: OP/TC Not applicable Reimbursement of expenses (received) 21.97 Method: TNMM PLI: OP/TC 5. The ld. TPO disagreed with the various filters used by the assessee in the TP study. The detailed submissions, workings and evidences provided during the course of the TP assessment proceedings, was considered by the ld. TPO, and thereafter he selected the final set of comparables based on the application of additional/modified filters in all three segments. The final comparable adopted by ld. TPO are as under: I. Engineering design and related services S. No. Company Name OP/Cost (%)* 1. Kirloskar Consultants Ltd. 15.64% 2. Mahindra Consulting Engineers Ltd. 23.50% 3. TCE Consulting Engineers Ltd. 25.88% 4. IBI Chematur Ltd. 52.66% 5. Kitco Ltd. 14.01% 6. Cades Digitech Private Ltd. -5.71% Mean 21.00% II. Financial and accounting support services S. No. Company Name OP/Cost (Forex as operating) (%)* 1. Accentia Technologies Ltd. 43.62% 2. Cosmic Global Ltd. 18.28% 3. E4e Healthcare Ltd. 32.67% 4. Fortune Infotech Ltd. 19.62% 5. iGate Global Solutions Ltd. 18.21% 6. Infosys BPO Ltd. 31.61% 7. TCS E-Serve International Ltd. 51.51% 8. TCS E-Serve Ltd. 66.35% 9. Jindal Intellicom Ltd. 14.19% 10. Microland Ltd. -3.11% Mean 29.30% III. IT Infrastructure support services S. No. Company Name OP/Cost (Forex as operating) (%)* 1. Accentia Technologies Ltd. 43.62% 2. Cosmic Global Ltd. 18.28% 3. E4e Healthcare Ltd. 32.67% 4. Fortune Infotech Ltd. 19.62% 5. iGate Global Solutions Ltd. 18.21% Printed from counselvise.com 58 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 6. Infosys BPO Ltd. 31.61% 7. TCS E-Serve International Ltd. 51.51% 8. TCS E-Serve Ltd. 66.35% 9. Jindal Intellicom Ltd. 14.19% 10. Microland Ltd. -3.11% Mean 29.30% 6. The ld. TPO further observed that the payment received from the AE was not as per the terms of the service agreement. The Ld.TPO therefore held that the assessee has provided benefit to its AE, by way of advancement of interest free loan in the garb of delay of receipt of receivable. The ld.TPO used CUP method by selecting credit period of 30 days and applying the rate of 14.88%. xxxxxxxxxxxxx 14.7 During the course of the proceedings before TPO, he observed that payments on account of sales to the AE, is realized after a significant time period. The ld.TPO ascertained that payment for invoices raised by the assessee has not been paid within the stipulated time as provided in the service agreement and accordingly treated the delayed payments as loan facility advanced to the AE’s. The ld.TPO charged 14.88% interest for the delayed period, beyond a period of 30 days. The ld. DRP upheld the adjustments made by the ld.TPO. 14.8. The ld.AR submitted that during the financial year, the assessee had entered into international transactions pertaining to provision of support services to its AE’s. In this regards, the details of the invoices raised and the payment received with dated were submitted before the TPO/DRP. The ld.AR has submitted that thought there was no credit period that was specified in the service agreement, however the assessee had agreed a credit period of 60 days with its AE’s. The ld.AR submits that it has sufficient cash balance to manage its cash flow requirements. 14.9. He further submitted that the assessee does not earn any interest on the current account maintained with the bank. Except for interest earned from fixed assets, the assessee has not earned any interest, on any advances paid to third parties. The ld.AR further submitted that being a captive undertaking, the assessee does not render similar services to any other concern. He submitted that, excess credit period arises, only when there is a standard credit period for the services sold at the same price to independent enterprises. He submitted that the cost of funds blocked in the credit period was inbuilt in the sale price. 14.10. The ld.AR relies on the judgment of Indo American Jewellery in ITA no. 5872/M/2009, wherein it has been held that the transaction of sale and lending are distinctly set out as per section 92 of the Act. The Tribunal further held that interest Printed from counselvise.com 59 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 income is associated more with lending or borrowing of money and not with sale. The Tribunal further held while determining the ALP of sale transaction, all relevant aspects, including credit period allowed, are taken into consideration and that interest aspect is embedded in the sale price. The Tribunal held that there can be no separate international transaction of interest, on outstanding receivables and that early of late realization of the sale proceeds is incidental to transaction of sale. The l d.AR also places his reliance on the Delhi Tribunal decision in the case of Kusum Healthcare Pvt.Ltd., reported in TS-129-ITAT-2015(Del)- TP. 14.11. The ld. DR relied on the orders of the authorities below. 15. From the submissions of both the parties we observe as under; 15.1. It is brought to our notice that the assessee is a debt free company. In such circumstances it is not justifiable to presume that, borrowed funds have been utilized to pass on the facility to its AE’s. The revenue has also not brought on record that the assessee has been found paying interest to its creditors or suppliers on delayed payments. 16. In lieu of the discussions and the ratio laid down in the case of Kusum Healthcare Pvt. Ltd., we direct that no separate adjustment for interest on receivables are warranted in the hands of the assessee. Ground no. 3 of the assessee’s appeal is there by allowed. Decision of Hon’ble Delhi High Court in ITA No. 379 of 2016 “4. As far as question (B) concerning the adjustment for interest no receivables, the Court finds that the ITAT has returned a detailed finding of fact that the Assessee is a debt free company and the question of receiving any interest on receivables did not arise. Consequently, no substantial question of law arises for consideration as far as this issue is concerned. 5. The appeal is dismissed.” SLP Dismissed by Hon’ble Supreme Court in CC No(s).4596/2017 “We are in agreement with the High Court that as far as Question-B concerning adjustment for interest on receivables is concerned the Tribunal has returned a finding of fact. Consequently, no substantial question of law therefore, arises, on the facts of this case. The special leave petition is dismissed.” 16.8. However, on perusal of the balance sheet of the assessee for FY 2012-13 relevant to AY 2013-14, it is seen that Printed from counselvise.com 60 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 that the assessee has taken a loan of Rs.967 lakhs as ‘Short Term Borrowing’ as against nil in FY 2011-12 relevant to AY 2012-13. The schedule-6 of the balance sheet reflecting ‘Short Term Borrowing’ on page no.1019 is reproduced as under:- 16.9. Thus, the above claim of the assessee that it was a debt free company during the year requires verification and as noted above the assessee did not file the details before the Ld. TPO and the ld. CIT(A) also did not verify the above contention/submission of the assessee. On the issue of interest on receivables the Hon’ble Delhi High Court in the case of PCIT vs Kusum Health Care Pvt. Ltd.(2017) 398 ITR 66(Del.) in para no.10 and 11 has observed as under:- “10. The court is unable to agree with the above submissions. The inclusion in the Explanation to section 92B of the Act of the expression \"receivables\" does not mean that dehors the context every item of \"receivables\" appearing in the accounts of an Printed from counselvise.com 61 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 entity, which may have dealings with foreign associated enterprises would automatically be characterised as an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which will have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the assessee will have to be studied. In other words, there has to be a proper inquiry by the Transfer Pricing Officer by analysing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an associated enterprise, the arrangement reflects an international transaction intended to benefit the associated enterprise in some way. 11. The court finds that the entire focus of the Assessing Officer was on just one assessment year and the figure of receivables in relation to that assessment year can hardly reflect a pattern that would justify a Transfer Pricing Officer concluding that the figure of receivables beyond 180 days constitutes an international transaction by itself. With the assessee having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis-a-vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have distorted the picture and re-characterised the transaction. This was clearly impermissible in law as explained by this court in CIT v. EKL Appliances Ltd. [2012] 209 Taxman 200/345 ITR 241/345 ITR 241 (Delhi).” 16.10. Thus, it is seen that the Hon’ble Delhi High Court has observed iner-alia that in order to justify adjustments on the issue of receivables, the TPO has to establish a pattern wherein, the arrangement reflects an international transaction intended to benefit the associated enterprise in some way. Even though in this case, the Assessing Officer has made said adjustments for AY 2013-14, 2014-15 and 2015-16 but in view of the submissions made by the assessee before us that I. No interest charged from third party customers Printed from counselvise.com 62 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 II. No interest paid by the appellant on outstanding payables to associated enterprises III. Without prejudice-Incorrect computation of interest the TPO will have to verify as to whether there is any pattern in not charging interest on the receivables from its AEs so as to benefit the associated enterprise in some way, which has not been done by the TPO in this case. 16.11. Further, the Assessing Officer is also required to examine in view of the above observations of the Hon’ble Court regarding the factoring of the impact of the receivables on the working capital of the assessee and whether in such a situation further adjustment on the basis of outstanding receivables would be required in the case of the assessee or not. This has also been raised by the assessee by way of additional ground of appeal as referred in para no.16.1 as above. 17. Therefore, in view of the above facts and discussion, we deem it fit to restore the entire issue in dispute to the file of the ld. AO/ TPO to consider the applicability of the decision of Hon'ble Delhi High Court rendered in Kusum Healthcare (supra) in its true spirit vis a vis the pattern followed by the assessee and also to consider the alternative argument made by the Id AR Printed from counselvise.com 63 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 with regard to the workings without prejudice incorrect computation of the interest on the outstanding receivables and decide the entire issue in accordance with law. Accordingly, ground Nos. 4 to 10 and the additional ground 1 raised by the assessee are allowed for statistical purposes. 18. The assessee had further filed additional grounds of appeal in terms of Rule-11 of the Income Tax (Appellate Tribunal) Rules 1963 claiming deduction of Education Cess computed on returned income and dividend distribution tax paid by the appellant before the due date of filing of return of income for the subject assessment year. The said additional ground was not pressed by the assessee, hence, the same is dismissed as not pressed. ITA No.7375/Del/2018 19. This is an appeal of the assessee for AY 2014-15. Grounds No. 1 to 2 pertain to claim for exemption agricultural income under section 10 (1) of the Act. Since the facts are identical to the case of the assessee for AY 2013-14, we follow our own decision in ITA No. 1575/DEL /2018 and dismiss the aforesaid grounds. Printed from counselvise.com 64 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 20. Ground no.3 pertain to transfer pricing issue relating to transfer pricing adjustment amounting to Rs.20,37,553/- on account of delayed receipt of receivables from AE's. Since the facts are identical to the case of the assessee for AY 2013-14, we follow our own decision in ITA No. 1575/DEL /2018 and allow the ground of the assessee for statistical purpose. ITA No.9205/Del/2019 21. This is an appeal of the assessee for AY 2015-16. Grounds No. 1 to 2 pertain to claim of agricultural income under section 10 (1) of the Act. Since the facts are identical to the case of the assessee for AY 2013-14, we follow our own decision in ITA No. 1575/DEL /2018 and dismiss the aforesaid grounds. 22. Ground no.3 of the appeal raised by the assessee is reproduced as under:- “3. That the Ld AO has erred in not following the directions given by DRP in its final order with respect to the additions made by AO in its Draft Order on account of Capital Expenditure (Rs. 78 lacs), Provision of Doubtful Debts and CSR (Rs. 19.22 Crores) and Gratuity / Bonus /Compensated Absence (Rs. 3,20,55,753/-) and passed the order without verifying the facts.” 22.1. In this case, draft assessment order (hereinafter referred as DAO) dated 14.12.2018 was passed by the Addl. CIT, Special Range-7, New Delhi. The reasoning given by the Printed from counselvise.com 65 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 Assessing Officer in respect of the above additions in para no.4, 5 and 6 on page no.54 of DAO is reproduced as under:- 4. Addition on account of capital expenditure: Vide notice under section 142(1) dated 15.10.2018, the assessee was required that as per Point no. 21(a) of audit report it has claimed capital expenditure in the Profit and loss account Rs. 78,00,000/-(7778000+22000) but not added to income in the computation of income, so as to why the same may not be disallowed and added to income. The notice was properly served through ITBA portal. The date of compliance was 22.10.2018, but the assessee filed no reply till date. The above facts prove that the assessee has nothing to say therefore, capital expenditure of Rs. 78,00,000/- is added to the income of the assessee. (Addition: Rs. 78,00,000/-) 5. Addition on account of Provision for doubtful debts and responsibility activities: Vide notice under section 142(1) dated 05.11.2018, the assessee was required that it has debited provision for doubtful debts Rs. 11,69,00,000/- and responsibility activities Rs. 7,53,00,000/- which are not of allowable nature, so as to why the same may not be disallowed and added to income. The notice was properly served through ITBA portal. The date of compliance was 09.11.2018, but the assessee filed no reply till date. The above facts prove that the assessee has nothing to say. The expenses claimed by the assessee are not of allowable nature therefore, added to the income of the assessee. (Addition: Rs. 19,22,00,000/-) 6. Addition on account of unexplained gratuity, bonus and compensated absence. Vide notice under section 142(1) dated 15.10.2018, the assessee was required that as per Point no. 26(i)(B)(a) of audit report it has claimed gratuity, bonus and compensated absence in the Profit and loss account Rs. 3,20,55,733/- 12282872+15781974+3990887) but not paid before the due date of filing return under section 139, so as to why the same may not be disallowed and added to income. The notice was properly served through ITBA portal. The date of compliance was 22.10.2018, but the assessee filed no reply till date. The above facts prove that the assessee has nothing to say Printed from counselvise.com 66 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 therefore, gratuity, bonus and compensated absence of Rs. 3,20,55,733/- are disallowed under section 43B and added to the income of the assessee.” 22.2. Against the above disallowances, the assessee filed an appeal before the DRP. The DRP vide it order dated 25.07.2019 gave the following directions in respect of ground no.3 as under:- 2.3 Ground no. 3: 3. That the Ld. AO has erred in law and on facts in making additions on account of Capital Expenditure (Rs.78 lacs), Provision of Doubtful Debts and CSR (Rs.19.22 Crores) and Gratuity/Bonus/Compensated Absence (Rs.3,20,55,753/-) without application of mind. DRP Directions: 2.3.1 The assessee has submitted that \"capital expenditure of INR 78 lacs represents capital goods purchased which has correctly been disallowed but depreciation as per Section 32 of the Income Tax Act amounting to INR 17,76,50,304/- as mentioned in Tax Audit Report should have been allowed\". The AO is directed to allow depreciation as per law. 2.3.2 In respect of Provision of Doubtful Debts and CSR, the assessee has not objected to the disallowance per se but has simply submitted that the La. AO has mistakenly considered the amount of Provision for Doubtful debts as Rs.11.69 Cr. Instead of Rs.7.53 cr. as shown in Note 26 of financials of FY 2014-15 (Refer Pg. No. 1118 of Paper Book 4) and similarly for expenses towards CSR activities taken as Rs. 7.53 cr. Instead of Rs.3.38 Cr. The AO is directed to take the correct figures for disallowance. In respect of Gratuity/Bonus/Compensated Absence, it has been submitted that the Ld. AO has disallowed the amount of gratuity (Rs.1,22,82,872), Bonus (Rs.1,57,81,974) and compensated absences (Rs.39,90,887) which were not paid by the company on or before filing the return of income. However, the Ld. AO has not given the allowances u/s. 43B of the payments (Gratuity of Rs.43,72,643/-, Bonus of Rs.1,50,84,665/- and compensated absences of Rs.17,88,235/-) made during and before filing the return of income which should have been allowed the appellant company and is evident from Clause 26 of the Tax Audit Report. The AO is directed to verify the same and allow the expenses to the extent paid before the due date for filling of return. Printed from counselvise.com 67 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 2.3.4 The assessee has also contended that the deduction of profit on sale of fixed assets of Rs.1,39,58,198/- should have been allowed by the AO since such profit or loss is not to be included in the taxable income and the same should be considered in the block of assets. The AO is directed to verify the same from the fixed asset schedule of the financial accounts and reduce the taxable income accordingly.” 22.3. The Assessing Officer passed the final order u/s 143(3) of the Act r.w.s. 144C(13) of the Act on 30.09.2019. On its perusal, it is seen that the Assessing Officer did not make the necessary verifications as directed by the ld. DRP and simply made the additions without any discussions. 22.4. Against the above order, the assessee is in appeal before us. 22.5. During the course of hearing, both the parties agreed that the matter may be set-aside to the file of the Assessing Officer for verifying the directions of the DRP and pass the necessary order after the said verification as per law. Considering the facts of the case and the request of both the parties, the above three matters as raised in the ground no. 3 of the appeal are set-aside to the file of the Assessing Officer for verifying the directions of the DRP and pass the necessary order after the said verification as per law. Ground no.3 of the appeal is allowed for statistical purpose. Printed from counselvise.com 68 ITA Nos.1575, 7375/Del/2018 ITA No.9205/Del/2019 23. In the result, all appeals of the assessee are partly allowed. Order pronounced in the open court on 06th August, 2025 Sd/- Sd/- [VIKAS AWASTHY] [BRAJESH KUMAR SINGH] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated 06.08.2025. f{x~{tÜ f{x~{tÜ f{x~{tÜ f{x~{tÜ Copy forwarded to: 1. Assessee 2. Respondent 3. PCIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi Printed from counselvise.com "