SUPER CROP SAFE LTD.,AHMEDABAD V. THE ACIT, CIRCLE-4(1)(1), AHMEDABAD

ITA 1552/AHD/2024

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Super Crop Safe Limited appealed against the order of the National Faceless Appeal Centre which upheld the addition of Rs.66,55,696 as excess expenses claimed against exempt agricultural income and the disallowance of Rs.12,30,554 claimed under Section 80JJA of the Income Tax Act. The Tribunal found that the Assessing Officer had correctly reallocated certain indirect expenses based on the ratio of agricultural revenue to total revenue but directed a re-examination of the allocation of other expenses and the verification of assets used in agricultural activities. The matter of the deduction under Section 80JJA was set aside for the Assessing Officer to verify if the conditions for the deduction were met within the prescribed period.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 315514 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2018-2019
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B.P. SRIVASTAVA
• Assessee Lawyers: S.N. DIVATIA
• Keywords: Set aside; Corroborative evidences; Depreciation; Principle of natural justice; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH, AHMEDABAD BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER ITA No.1552/Ahd/2024 Assessment Year: 2018-19 Super Crop Safe Limited, C-1/290, GIDC Estate, Naroda, Ahmedabad – 382 330. [PAN – AACCS 9983 R] Vs. A.C.I.T., Circle – 4(1)(1), Pratyaksh Kar Bhavan, Ambawadi, Ahmedabad – 380 014. (Appellant) (Respondent) Assessee by Shri S.N. Divatia, Advocate Revenue by Shri B.P. Srivastava, Sr. DR Date of Hearing 30.04.2025 Date of Pronouncement 14.05.2025 O R D E R PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER: The present appeal is filed by the assessee against the order of National Faceless Appeal Centre (in short ‘the CIT(A)’) dated 29.07.2024 for the Assessment Year (A.Y.) 2018-19. 2. The brief facts of the case are that the assessee filed its return of income for the A.Y. 2018-19 on 30.03.2019 declaring income of Rs.1,98,72,520/-. The case was selected for limited scrutiny to examine large agricultural income. The assessee is engaged in the manufacturing of bio-fertilizers and pesticides. It is also cultivating ‘Mycorrhizal Fungal Infected Root’ which is used for manufacturing bio-fertilizers. The assessee sells this specialised agricultural product to other customers. In the course of assessment, the Assessing Officer noticed that the ITA No.1552/Ahd/2024 Assessment Year: 2018-19 Super Crop Safe Limited vs. ACIT Page 2 of 12 assesses had disclosed revenue of Rs.4,18,84,350/- from agricultural operation and the total expense relating to agricultural activity was shown at Rs.50,53,607/- only. Thus, the ratio of total expense to total revenue related to agricultural operation was 12.06% only, whereas the ratio of total expense to total revenue for the entire operation of the assessee was 92.06%. In the course of assessment, the Assessing Officer examined allocation of various expenses to the agricultural and non-agricultural activities and found that the allocation as made by the assessee was not on any rational basis. The Assessing Officer, therefore, reworked the allocation of the following common/indirect expenses to the agricultural activity on the basis of revenue from agricultural operations to total revenue: - (a) Employee benefit expenses Rs.2,58,39,481/- (b) Finance Costs Rs.1,22,44,626/- (c) Depreciation and amortization expenses Rs.75,64,035/- (d) Other Expenses Rs.8,29,23,452/- Total Rs.12,85,71,594/- 2.1 The Assessing Officer allocated total expense of Rs.1,17,09,303/-, out of above four heads, towards agricultural expense and the agricultural income was accordingly reworked and excess agricultural income of Rs.66,55,696/- was added to the total income. Further, the assessee had claimed deduction of Rs.12,30,554/- under Section 80JJA of the Act which was disallowed by the Assessing Officer for the reason that the return of income was not filed within the due date as stipulated under section 139(1) of the Act. The assessment was completed under Section 143(3) of the Act on 06.04.2021 at a total income of Rs.2,77,58,770/-. ITA No.1552/Ahd/2024 Assessment Year: 2018-19 Super Crop Safe Limited vs. ACIT Page 3 of 12 3. Aggrieved with the order of the Assessing Officer, the assessee had filed an appeal before the First Appellate Authority which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was dismissed. 4. Now the Assessee is in 2nd appeal before us. The following grounds have been taken in this appeal: - 1.1 The order passed on 29.07.2024 by NFAC [CIT(A)), Delhi. (for short CIT(A)\" for AY 2018-19 upholding the addition of Rs.66,55,606/- as excess expenses claimed against exempt income is wholly illegal, unlawful and against the principles of natural justice. 2.1 The Id. CIT(A), has grievously erred in law and or on facts in not considering fully and properly the submissions made and evidence produced by the appellant with regard to the allocation of indirect expenses. The Id. CIT(A) has passed a cryptic order mechanically following the reasoning given by AO in total disregard to the explanation and evidence produced by the appellant. 3.1 The Id. CIT(A) has grievously erred in law and or on facts in upholding the addition of Rs.66,55,696/- as excess expenses claimed against exempt income. 3.2 That in the facts and circumstances of the Id. CIT(A), ought not to have upheld the addition of Rs.66,55,696/- as excess expenses claimed against exempt income. 3.3 The Id. CIT(A) has grievously erred in law and or on facts in upholding the allocation of common/indirect expenses between the agricultural and non-agricultural activities, 3.4 The observations made and conclusion reached by CIT(A) in para-6.4.1 to 6.5 are not admitted by the appellant to the extent the same are contrary to the evidence on record. 4.1 The Ld. AO has erred in disallowing deduction u/s.80JJA of Rs.12,30,554/- on the ground that ITR was filed late, though it was a procedural condition. It is, therefore, prayed that the addition of Rs.66,55,696/- upheld by the CIT(A) may kindly be deleted.” ITA No.1552/Ahd/2024 Assessment Year: 2018-19 Super Crop Safe Limited vs. ACIT Page 4 of 12 Allocation of agricultural expense 5. The ground nos.1 to 3 pertain to addition of Rs.66,55,696/- on account of excess expenses claimed in respect of exempt agricultural income. 6. Shri S.N. Divetia, Ld. AR of the assessee submitted that inadmissible expense under section 14A of the Act, in respect of exempt agricultural income, was Rs.50,53,608/- which was duly reported in the Tax Audit Report. He submitted that the assessee was maintaining separate set of books of account in respect of agricultural activities which was neither disputed nor rejected by the Assessing Officer. The Ld. AR explained that the Assessing Officer had re-allocated the expenses under four heads in the ratio of revenue from agricultural operation to total revenue, which was not correct. As regards employee benefit expenses, the Ld. AR explained that only eight employees were engaged for agricultural operations whereas there were about 81 employees in Bio Division. With regard to finance cost, he submitted that no additional finance was required for agricultural activities and the assessee had its own surplus funds out of agricultural operations itself. With respect to depreciation of amortization expenses, he explained that out of total depreciation claim of Rs.75,64,035/-, the assessee had already debited depreciation of Rs.6,23,991/- towards agricultural activities, which was disallowed in the computation of income. And with respect of other expenses of Rs.8,29,23,452/-, the Ld. AR explained that this included packing material expense which was in respect of non-agricultural product only as it was sold in liquid formulation or granule or dust. Similarly, the entire freight and forwarding expenses pertained to manufactured product only as majority of the agricultural produce was consumed for in-house ITA No.1552/Ahd/2024 Assessment Year: 2018-19 Super Crop Safe Limited vs. ACIT Page 5 of 12 production. Similarly, the selling and distribution expenses was also in respect of manufactured products of the assessee only and it did not pertain to agricultural produce. The Ld. AR further submitted that the legal and professional expenses pertained to arbitrator fees, consultant fees, laboratory calibration etc. and was not required to be allocated towards agricultural operation. Similarly, the Directors’ remuneration was also not required to be allocated to agricultural expense as the Directors did not have any expert technical knowledge regarding agricultural activities. 7. Per contra, Shri B.P. Srivastava, Ld. Sr. DR submitted that the assessee had not explained the basis on which agricultural expenses of Rs.50,53,607/- was worked out by it. He submitted that no separate accounts in respect of agricultural activities nor any books of account for the agricultural operation was produced before the Assessing Officer. He further submitted that the assessee had not allocated the entire direct expenses as identified and which were incurred for agricultural activities. Similarly, the basis of allocation of administrative and selling expenses to agricultural operation was also not explained. The Ld. Sr. DR submitted that in the absence of any basis for allocation of expense to the agricultural activity as done by the assessee, the Assessing Officer had no other option but to allocate the indirect expenses on the basis of ratio of revenue from agricultural operation to total revenue. He, therefore, strongly supported the order of the lower authorities. 8. We have carefully considered the rival submissions. The assessee had shown revenue of Rs.4,18,84,350/- from agricultural operation against which direct expense of Rs.40,27,224/- and indirect expense of Rs.10,26,383/- was shown to have been incurred. The details of these expenditures have been brought on record. It is found that the total direct ITA No.1552/Ahd/2024 Assessment Year: 2018-19 Super Crop Safe Limited vs. ACIT Page 6 of 12 expense pertaining to agricultural activity was Rs.41,61,778/- against which proportionate expense of Rs.40,27,228/- @ 96.67% was allocated to agricultural activity, the rationale for which was not explained. The assessee had also allocated ‘administrative and selling expense’ and ‘depreciation expense’ towards indirect agricultural expense but out of total expense of Rs.10,60,676/- pertaining to agriculture, only a sum of Rs.10,26,384/-, @ 96.67% was allocated to agricultural activity. This basis of allocating the direct and indirect expense incurred in respect of agricultural operation has not been explained by the assessee. Further, no separate account in respect of agricultural operation was produced before the Assessing Officer or the CIT(A); nor such account has been brought on record before us. In the Tax Audit Report, the Auditor had certified inadmissible expense under section 14A in respect of agricultural operation at Rs.50,53,608/- without mentioning any break-up or the basis thereof. In the absence of any explanation for the basis of the agricultural expenses as disclosed by the assessee, the Assessing Officer had no option but to allocate the indirect expense on proportionate basis. The Assessing Officer had allocated the expenses under four heads proportionately and our finding in this respect are as under: - 8.1 Employee Benefit Expenses The total expenditure in respect of employee benefit expenses debited to Profit & Loss Account was Rs.2,58,39,481/- which pertained to salary, wages, bonus, gratuity provision and staff welfare. According to the assessee, only 8 employees were deployed towards agricultural activities whereas 81 employees were working in bio-division. According to the assessee, salary expense of Rs.22,01,264/- and wages of Rs.8,95,201/- pertaining to agricultural activities was already allocated. ITA No.1552/Ahd/2024 Assessment Year: 2018-19 Super Crop Safe Limited vs. ACIT Page 7 of 12 However, no supporting evidence in this respect was brought on record by the assessee before the lower authorities. The total area under cultivation was 18,512 sq. meters. As explained by the assessee, the agricultural activity included sowing of Sorghum. Afterwards fungal was developed in the root of sorghum and the fungal merged with sorghum and grew inside it. The upper growth known as vegetative growth was then cut off for maximum fungal development in the roots. Thereafter, the root was taken out after two and half months from the agricultural land, which was sold as bio-fertilizer. Further, that the entire agricultural activity was specialised one wherein skilled and qualified persons were engaged for growing/inspection/maintenance etc. From the nature of agricultural activity as explained by the assessee, it is apparent that the process was not only specialized but also labour intensive as the upper growth of each plant had to be cut off and that such activity couldn’t have been carried out with manpower of only 8 employees over an area of 18512 sq. mt. (4.57 acre). With such specialised and labour-intensive deployment of manpower, the salary expenses and daily wages as allocated to agricultural activity is found to be too low, considering the total employee benefit expense incurred by the assessee. Therefore, the allocation of employee benefit expense on proportionate basis, as done by the Assessing Officer, is upheld. 8.2 Finance Costs It is found that the Assessing Officer has not given any reason for allocation of finance cost towards agricultural activities. The assessee already had surplus from agricultural activity and had accumulated funds of past years. Further, a sum of Rs.2.10 Crores was received by the assessee during the year on account of share premium which was also ITA No.1552/Ahd/2024 Assessment Year: 2018-19 Super Crop Safe Limited vs. ACIT Page 8 of 12 available for agricultural operation. The Assessing Officer has not brought any evidence on record that the borrowed funds were utilised for agricultural operations. Considering the fact that the assessee had its own surplus funds, the allocation of finance cost towards agricultural activity was not called for. Accordingly, the allocation of finance cost towards agricultural operation, as done by the AO, is deleted. 8.3 Depreciation and Amortisation Expenses The assessee has contended that it had already disallowed depreciation of Rs.6,23,991/- in respect of the agricultural activities. However, the details of assets deployed for agricultural activities are nowhere appearing in Schedule-3 of audited annual account. The matter is, therefore, set aside to the jurisdictional Assessing Officer to verify the assets deployed for agricultural operation and, thereafter, disallow the depreciation on the assets which were actually utilised for agricultural activities. The assessee is also directed to produce the details of assets deployed for agricultural activities before the AO. 8.4 Other Expenses The assessee has contended that selling and distribution expenses, legal and professional expenses, rent, insurance, packing material expense, freight and forwarding expense, Directors’ renumeration etc. were not at all incurred for agricultural activities and, therefore, the Assessing Officer was not correct in allocating them proportionately towards agricultural expenses. It was submitted that majority of the agricultural produce was utilised in-house. This submission is, however, not found correct. From the details of agriculture products sales as filed by the assessee, it is found that the entire agricultural produce of 97.285 ITA No.1552/Ahd/2024 Assessment Year: 2018-19 Super Crop Safe Limited vs. ACIT Page 9 of 12 kgs. of Mycorrhizal Fungal Infected Root and 50 kgs. of Spirulina Powder was sold to five different parties. Therefore, the packing material expense and freight and forwarding expense were certainly required to be allocated to agricultural activities. Further, the assessee had itself allocated administrative & selling expense towards indirect agricultural expense and, therefore, the contention that no selling and distribution expenses was incurred for agricultural activity, was self- contradictory. Further, the assessee had also allocated factory expense, garden maintenance expense, laboratory expense, electricity expense, repairs & maintenance expense towards agricultural operation, the basis of which was not explained. As regards the contention of the assessee that the Directors didn’t have expert technical knowledge regarding agricultural activities, so Directors’ remuneration shouldn’t be allocated towards agricultural activity, can’t be accepted. The agricultural activity was a more remunerative operation for the company and the involvement of Director’s in the decision-making process was imperative. The Director’s mayn’t have technical knowledge of manufacturing process as well. Therefore, the technical knowledge is not the deciding factor and the action of AO in allocating the Directors remuneration towards agricultural operation can’t be faulted. At the same time, legal and professional expense, rent, insurance and other expenses, which were not at all related to agricultural activities, were not required to be allocated towards agricultural operation. This matter is, therefore, set aside to the file of the jurisdictional Assessing Officer with a direction to verify the expenses which had a connection with the agricultural operation and thereafter allocate only those expenses which had a bearing on agricultural operation of the assessee and also considering our findings as recorded earlier. The expenses, which were not at all ITA No.1552/Ahd/2024 Assessment Year: 2018-19 Super Crop Safe Limited vs. ACIT Page 10 of 12 connected with the agricultural operation should not be allocated. The assessee is also directed to provide a proper justification in this regard before the Assessing Officer. 8.5 The grounds taken by the assessee are partly allowed for statistical purpose. Deduction u/s 80JJA 9. Ground no.-4 pertains to disallowance of deduction under section 80JJA of the Act. The assessee had claimed deduction of Rs.12,30,554/- under section 80JJA of the Act which was disallowed by the Assessing Officer for the reason that the return of income was not filed within the due date as prescribed under section 139(1) of the Act. 9.1 Shri S.N. Divatia, Ld. AR submitted that the assessee had filed its return belatedly under section 139(4) of the Act on 30.03.2019 as against the due date of 31.10.2018 under section 139(1) of the Act. He submitted that this was only a technical requirement and the disallowance made by the Assessing Officer was not correct. 9.2 Per contra, the Ld. Sr. DR supported the orders of the lower authorities. 9.3 We have considered the rival submissions. The assessee had not raised this ground before the CIT(A)The provision of section 80AC of the Act stipulates that for the A.Y. 2018-19 onwards the deduction under any provision of Chapter VIA of the Act under the heading “C- Deductions in respect of certain incomes”, which includes the deduction under section 80JJA, was admissible only if the return of income was filed on or before the due date specified under section 139(1) of the Act. Admittedly, this ITA No.1552/Ahd/2024 Assessment Year: 2018-19 Super Crop Safe Limited vs. ACIT Page 11 of 12 condition was not fulfilled by the assessee. The assessee had submitted before the AO that it was unaware of the introduction of this new provision introduced from this year. Considering the fact that this was only a procedural requirement and the change in the statute was effected from this year only, the AO is directed to take a lenient view in the matter and allow the deduction, if otherwise admissible. The deduction under section 80JJA of the Act is admissible for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which the business commences. It is not evident from the return of income that the claim of deduction under section 80JJA of the Act for this year was within the prescribed period of five years from the date of commencement of bio-fertilizer business of the assessee. In the Tax Audit Report also this detail is not available. Nothing has been brought on record by the assessee in this regard in the course of this appeal proceeding as well. Under the circumstances, we deem it proper to set aside the matter to the file of the AO with a direction to examine the fulfilment of this condition and thereafter re-decide the matter. The ground taken by the assessee is allowed for statistical purpose. 10. In the result, the appeal of the assessee is partly allowed for statistical purpose. Order pronounced in the open Court on this 14th May, 2025. Sd/- Sd/- (SUCHITRA KAMBLE) (NARENDRA PRASAD SINHA) Judicial Member Accountant Member Ahmedabad, the 14th May, 2025 PBN/* ITA No.1552/Ahd/2024 Assessment Year: 2018-19 Super Crop Safe Limited vs. ACIT Page 12 of 12 Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order TRUE COPYE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad "