TaxTMI 
TaxTMI 
2013 (11) TMI 894
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....he case of Ramchandra & Company Vs CIT(1987)168 ITR 375. 3. On the facts and in the circumstances of the case, the learned CIT(A) has erred in allowing relief on the issues related to the disallowance/addition in respect of excessive payment for purchase of seeds from directors u/s. 40A(2)(b), disallowance of live stock expenses and treating of agricultural income in respect of sale breeder and foundation seeds as non agricultural income on the ground that such additions were conceded by the assessee due to misconception and misunderstanding of law and fact. 4. On the facts and in the circumstances of the case, the learned CIT(A) erred in deleting the addition of Rs.10,14,138/- on account of sale of breeder and foundation seeds, as non agricultural income. 5. On the facts and in the circumstances of the case, the learned CIT(A) erred in relying on the ratio of the decision of the Hon'ble ITAT. Bangalore in the case of Advante India Ltd. Vs D.C.I.T. [2010] 5 ITR 57 (Bangalore Tribunal), which is distinguishable on the facts of the case. 6. On the facts and in the circumstances of the case, the learned CIT(A) erred in tr....
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....undation seeds 1014138 3325158 1111945 553070 553166 970272 779837 Disallowance of interest u/s 36(1)(iii) 450000 450000 450000 450000 450000 450000 450000 Agricultural expenses estimated at higher figure by the A.O. 1354916 428843 660226 - - - Disallowance of technical knowhow being capital exp. - 5375000 - - - Disallowance of donation - 9250 - - - Agricultural exp. disallowed irregular assessment u/s 143{3) dated 23/03/06 - 3017478 - - Commission being capital expenditure disallowed in regular assessment u/s 143(3) dated 23/03/06 - 540000 - - Expenditure pertaining to preceding year disallowed in regular assessment u/s 143(3) dated 23/03/06 - 80770 - - Income from sale of breeder & - foundation seeds as per order u/s 143(3) dtd.31/03/06 - - 699190 - - - - Unrecorded/ unexplained expenditure - - - 672486 - 218968 Unexplained cash - - ....
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....ses @ 35% instead of actual expenditure incurred by the company. AY 2002-03 Rs.1354916/- AY 2003-04 Rs. 428843/- AY 2004-05 Rs. 666226/- AY 2005-06 -- AY 2006-07 -- AY 2007-08 -- AY 2008-09 -- 3.2. The CIT(A) observed from the assessment order that out of 5 additions contested in appeal, additions on 3 accounts were agreed during the assessment proceedings. However, assessee has contested the same as assessee was of the opinion that said additions were agreed under mistaken belief of fact and law and also due to misunderstanding. The assessee claimed that on fact of the case, he is entitled to contest the said 3 additions as well. The assessee raised following arguments in support of its contentions before the CIT(A) which are reproduced as under: (1) It is settled law that if an admission or surrender made by an assessee is shown to have been impelled by mistaken belief or misunderstanding etc., the same cannot act as an estoppel. This proposition of law is supported by the decision of Hon'ble Supreme Court in the case of Narayanan Vs. Gopal AIR 1960 SC 235. (2) The admission made is only a piec....
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....f appeal nor did he approach the Assessing Officer with the plea that the addition needed rectification as the surrender was made under a mistaken belief of facts. At the hearing of appeal, no one appeared on behalf of the Assessing Officer and "taking advantage of this fact" the assessee raised additional ground objecting to the addition of surrendered amount. 3.3. The assessee has raised the said ground challenging the addition agreed under mistaken belief. Accordingly, the statement of facts and grounds of appeal were forwarded to the Assessing Officer for contesting the same on behalf of the Revenue if necessary. According to the CIT(A), the assessee has contested agreed additions on 3 accounts and has not contested agreed additions on 12 accounts as is evident from the tabular chart discussed above. The said additions are (i) u/s.40A(2)(b) for purchase of seeds from Directors and their relatives on estimate basis at 7% of the purchase cost, the addition as per assessee is against the provisions of Circular No.6P dated 6th July, 1968 (ii) disallowance of live stock expenses ignoring the fact that the live stock has also been used for producing milk, sale of which has been ta....
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.... 8,26,388 4.1. Accordingly additions were made for all above years by invoking provisions of section 40A(2)(b) of the Act. Matter was carried before the CIT(A) for all the years. Before the CIT(A), it was submitted on behalf of the assessee that in case of Directors of the company, the addition of 7% of the agricultural produce sold i.e. seeds sold to the appellant company has been agreed only to avoid protracted litigation and buy peace of mind. It was submitted on behalf of the assessee before the CIT(A) that he agreed due to misconception and misunderstanding of law. On merit, Ld. Authorised Representative contested before the CIT(A) in view of the provisions of section 40A(2)(b) and also explanatory notes on the provisions of the said section in CBDT Circular dated 6th July, 1968. The submissions of the assessee in support of Ground No.1 before the CIT(A) are extracted as under: (i) The CBDT has interalia laid down in the explanatory notes on the previsions of sec. 40A(2) in the Circular No. 6P(LXXVI-66) OF 1968 DATED 6TH JULY, 1968 THAT, "The reasonableness of any expenditure is to be judged having regard to the fair market value of the goods, se....
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....g decision. 1. The Hon'ble Supreme Court has observed in the case of CIT vs Gangadhar Banergee & Co. (P) Ltd. (1965) 57 ITR 176 (SC) that. "Though he object of the section is to prevent evasion of tax, the provision must be worked not from the stand point of tax collector but from that of a businessman.... The ITO must take an overall picture of the financial position of the business. He should put himself in the position of the prudent businessman or the director of the company and deal with a sympathetic and objective approach." 2. The Hon'ble Jurisdictional Bombay High Court has held in the case of CIT vs Indo Saudi Services (Travel) P. Ltd. (2009) 310 (Bom), that: The sister concern was assessed to tax and assessment orders had been placed on the record. Under Board circular No.6-P dated July 6, 1968 no disallowance was to be made under section 40A(2) in respect to the payments made to the relatives and sister concern where there was no attempt to evade the tax. 3. Voltamp Transformers (P) Ltd. Vs CIT (1981) 129 ITR 105 Guj has observed that: Reasonableness is to be decided on the basis of fair market value of the goods, services ....
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....ny at excessive price. It was also noticed from the assessment order that the assessee has agreed for the addition u/s.40A(2). However, it was noticed that the addition has been agreed to due to misunderstanding/misconception of provisions of law and is against the clarification given by the CBDT vide Circular dated 6th July, 1968. In view of the above, the CIT(A) was justified in observing that the assessee is entitled to contest the addition. In view of above legal and factual discussion, the CIT(A) observed that the addition made by the Assessing Officer u/s.40A(2)(b) is without bringing on record any evidence of fair market value of goods purchased by the assessee company and without proving that the purchase price paid is excessive. In view of this, additions were not justified. Accordingly, additions u/s.40A(2) amounting to Rs.85,68,883/-, Rs.7,16,263/-, Rs.6,26,933/-, Rs.5,79,990/-, Rs.3,45,442/-, Rs.7,72,229/- and Rs.8,26,388/- for A.Ys. 2002-03 to 2008-09 respectively, were rightly deleted. This factual and legal finding needs no interference from our side because the Assessing Officer has not established that fair market value of seeds purchased by assessee company was le....
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....e facts and circumstances of the case, it is requested that, the addition made by the A.O. may kindly be deleted." 5.2. The CIT(A) having observed that the Assessing Officer has taxed receipt from sale of milk as income in all the years under consideration. The milk which has been sold has been produced by cows and buffalos i.e., live stock. The live stock expenses related to the income earned from sale of milk was allowable expenditure. The live stock have been used for both agricultural as well as dairy farming activities. Accordingly, the Authorised Representative requested 50% expenses for maintaining live stock to be allowed. The said contention of the Authorised Representative was accepted by the CIT(A) and the Assessing Officer was rightly directed to allow 50% of the live stock expenses disallowed by him. Accordingly, disallowance to the extent of Rs.15,172/-, Rs.14,655/-, Rs.16,659/-, Rs.10,612/-, Rs.13,321/-, Rs.3,840/- in A.Ys. 2002-03 to 2007-08 respectively were rightly deleted by the CIT(A). This factual finding needs no interference from our side. We uphold the same because once income on sale of milk has been taxed, corresponding expenses thereof have to be allow....
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....ertified seeds at its farms which does not require specialized process which are basically the seeds required by the farmers for crops. The A.O, has, therefore, disallowed 40% of the net income derived from the sale of breeder and foundation seeds treating the same as non-agricultural commercial income The A.O. has worked out the said disallowance as under - A.Y. Sale of Breeder & Foundation Seed Expenses @ 1/3rd Net Income 40% of Col.4 1 2 3 4 5 2002-03 37,88,017 12,62,672 25,25,345 10,14,138 2005-06 20,76,262 6,92,088 13,64,176 5,53,670 2006-07 20,74,372 6,91,457 13,82,915 5,53,166 2007-08 36,38,518 12,12,839 24,25,679 9,70,272 2008-09 32,39,387 10,79,795 21,59,592 7,79,837 6.1. Matter was carried before the First Appellate Authority wherein it was submitted that the Assessing Officer was not justified in making addition. The submissions of assessee made before the CIT(A) are extracted as under: "Where contract of farming is engaged in the Business of Research in production and sale of hybrid seeds undertakes agricultural operations form the stage ....
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....d ITA.No.3102/Bang/2004 wherein similar issue was in favour of assessee. Thus the CIT(A) following the ratio laid down in the case of Advanta India Ltd., Indo American Exports and Namdhari Seeds Pvt. Ltd. (supra) held that the Assessing Officer was not justified in treating agricultural income in respect of sale of breeder seeds and foundation seeds as non-agricultural income. Nothing contrary was brought to our knowledge on behalf of the Revenue. Under the facts and circumstances, the CIT(A) has rightly deleted the addition of Rs.10,14,138/-, Rs.33,25,158/-, Rs.26,99,190/-, Rs.5,53,670/-, Rs.5,53,166/-, Rs.4,70,272/-, Rs.7,79,837/- for A.Ys. 2002-03 to 2008-09, respectively. This factual and legal finding needs no interference from our side. We up hold the same. 7. The next issue pertains to A.Ys. 2002-03 to 2008-09 in respect of disallowance of interest u/s.36(1)(iii) on loan given to sister concern. The Assessing Officer has disallowed Rs.4,50,000/- in each year under appeal on account of interest free loan given to Vikrant Malleables Pvt. Ltd. The Assessing Officer has stated that the addition made in A.Ys. 2002-03 and 2004-05 in regular assessments already made prior to sea....
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....Officer, addition was correctly made. The assessee has pointed out that Vikrant Malleables Pvt. Ltd. is declared sick by BIFR as per RBI instructions and interest could not be charged to such unit and hence the principal itself is doubtful of recovery and there was no question of recovering interest. As per the provisions of section 153A, it is evident that assessee has to file return of income as per the applicable provisions of the Income Tax Act and as if the return is filed u/s.139 of the Act. It is nowhere stated that in the above provisions that the deduction u/s.24 to which assessee is entitled could not be claimed in the return to be filed in response to notice u/s.153A, which has not been allowed in the original assessment and which has not been contested in appeal. It is settled law that the provisions of the Income Tax Act and the machinery of the Income Tax Department is for assessing and taxing correct income of the assessee as per the provisions of the Act. In view of the above, the Assessing Officer was not justified in disallowing interest u/s.36(1)(iii) amounting to Rs.4,50,000/- in each year under appeal and he was rightly directed to delete the same in all these ....
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....ing less agricultural expenditure particularly as the assessee has not made any unexplained investment. The addition has been agreed due to misconception/ misunderstanding of the provisions of the Income Tax Act and the addition made by the Assessing Officer was legally not justified. Hence, same could be contested in appeal. The submissions of the assessee before the CIT(A) in this regard are extracted below: "The learned A.O. has estimated 35% as expenses on agricultural activities. Sir, in this regard it is submitted that, there is no hard and fast rules for considering the expenses at 35% of sale proceeds. Expenses on agricultural produce depend on various items to be grown. Company is maintaining the books of account and actual expenses on agricultural activity is duly recorded in the books of accounts. Hence, expenses are less than 35% of agricultural income considered as unrecorded expenses was not justified and therefore, it is requested that the addition made may kindly be deleted. Section 68 to 69 A are not mandatory provisions but they are discretionary, since words used are "may" and not "shall". At the instance of the sel....