TaxTMI 
TaxTMI 
2017 (2) TMI 516
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.... agricultural produce raised by cultivation of land. Sometimes apart from growing agricultural produce, certain other processes (other than usual minimum processes to render produce marketable) are carried out by an Assessee. The income derived from sale of such produce i.e., from sale of such manufactured produce is considered partially agricultural income and partially business income. For example a grower of tea in his tea gardens carries out the process of manufacturing tea powder from tea leaves grown in his garden. In such case the income from sale of tea powder will be partly agricultural income and partly non-agricultural income chargeable to tax. This is referred to as Composite Income because it composes of both Agricultural and non- Agricultural income. When some extra processes are carried out for selling the produce, there is combination of manufacturing activities, in which case income from sale of manufactured agricultural produce is computed as if it is business income and certain percentage is considered as chargeable under Act. Part II under Sub-Part D of the Rules prescribes the rules for the manner of determination of income chargeable to tax from an....
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....ction under this section), whichever is less :" 4. In the course of the said assessment proceedings the assessee had furnished details of incomes credited in the profit & loss account under different nomenclatures such as income from investments, profit on sale of investments miscellaneous income, liabilities no longer required written back etc. In the return filed for the AY 1999-00 the appellant had claimed deduction u/s 33AB of the I T Act. In arriving at the deduction permissible u/s 33AB the assessee had taken into account income by way of Misc. income and Liabilities no longer required written back both amounting to Rs. 108.07 lacs. 20% of such income was considered to be part of the qualifying amount for the claim of deduction u/s 33A.B of the Act. In para 13 of the assessment order dated 27.03.2002 the AO recorded the following finding. "13. Calculation of deduction under Section 33AB : The deduction under Sec 33AB is allowable only on the composite income earned by growing and manufacturing of tea. Hence, for the purpose of calculation of admissible deduction all the income not incidental to growing and manufacturing of tea have been deducted from the ....
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....and manufacturing. This consists of two items, namely Miscellaneous income of Rs. 97.39 lakhs & Liability no longer required, written back amounting to Rs. 10.68 lakhs as apparent from Schedule-12 of the P&L a/c. Subsequently, in the computation the assessee had not offered the Misc. income @ 100% for taxation. The assessee had subjected only 40% of the aforesaid Misc. income of Rs. 108.07Iakhs for Income tax. Obviously, the rule- 8 regarding apportionment of income applies only to the income from tea growing and manufacturing, the entire amount of Rs. 108.07 lakhs was required to be subjected to tax instead of restricting it to 40%. In view of the above, there was reason to believe that there had been an escapement of income for the failure on the part of the assessee for offering entire Miscellaneous income for Income tax in the computation within the meaning of Section-147 of the I.T.Act,1961." 8. As can be seen from the above reasons recorded by the AO before issue of notice u/s.148 of the Act, the AO has referred to two items of income viz., Miscellaneous Income of Rs. 97.39 Lakhs and liability no longer required and hence written back of Rs. 108.07 lakhs. Accordin....
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....occurs in the garden area. These losses are revenue in nature, which were duly debited in the accounts of the Assessee in the earlier year. Against these losses, the Assessee lodged claim before the insurance authority who allowed the claim to the extent of Rs. 53,45,786/- only. The Insurance Authority duly made enquiry & inspection in the gardens before. The acceded to the claim of the assessee for losses. You will agree that, as the losses are revenue in nature incurred in course of growing and manufacturing of tea, these receipts being part of the income of the Assessee from growing and manufacturing of tea is the part of the composite income as well. The recoveries from insurance claim is part of the composite income of growing and manufacturing is being entitled to be apportioned in the ratio of 40 : 60 as provided under rule-8 of the Income Tax Rules, 1962. B) Regarding receipts of income from guest house at Rs. 34, 88, 000/-, we are to submit that this is the amount of realization of actual expenditure incurred by the assessee for maintenance and repairing of the assets of the guest house. These realizations were made from the persons and group companies who u....
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....nd manufacturer of tea. Evidently, this income from the part of the composite income from growing and manufacturing of tea. " 11. The AO was however observed in the order of assessment u/s.147 of the Act that the Assessee was asked to produce ledger a/cs and supporting documents but the Assessee produced only ledger a/cs. According to the AO the assessee has not conclusively proved that the aforesaid items of incomes relate to income from growing and manufacturing of tea. Therefore, he concluded that the Misc. income of Rs.I08.07 lacs is not incidental to income from tea growing and manufacturing. The AO has not made any reference to the miscellaneous income of Rs. 97.39 in his order. The AO finally concluded the Assessment u/s.147 of the Act as follows: "As per discussion above, the total income of the assessee-company is re- computed as follows : 100 % Composite Income as per order u/s.254/251/143(3),dt.l3.03.06 Rs.22,46,23,244/- Less : Income from business( as discussed above) Rs. 1,08,70,000/- Rs.21,37,53,244/- Applying Rule-S (40% of above) Rs. 8,55,01,298/- Add: Profit attributable to sale of tea manufactured out of green le....
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....ncome by way of Misc. income and Liabilities no longer required written back both amounting to Rs. 108.07 lacs. 20% of such income was considered to be part of the qualifying amount for the claim of deduction u/s 33AB of the Act. The AO in para 13 of the original assessment order dated 27.03.2002 which we have extracted in the earlier part of this order, has recorded the claim of the Assessee in this regard and had computed admissible deduction under sec. 33AB of the Act. It was therefore submitted that reassessment proceedings were initiated by the AO purely on the same set of facts which existed when the original assessment proceedings were concluded and without any fresh material coming to his possession. In other words it was submitted that the reassessment proceedings have been initiated by the Assessing Officer, upon change of opinion that 100% of the Misc. income was liable to be excluded from the Composite income. It was contended that reopening on such change of opinion was legally unjustified because such reopening did not satisfy the conditions enshrined in the Sec 147 of the I.T. Act viz., reason to believe that income chargeable to tax has escaped assessment. Reliance ....
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....omposite income from growing and manufacturing of tea. 16. Aggrieved by the order of CIT(A) the revenue has filed the present appeal before the Tribunal. The revenue has filed the revised grounds of appeal before the Tribunal and the same reads as follows :- "(i) That on the facts and in the circumstances of the case and as per law Id. CIT(A) erred in giving the judgement that the re-assessment proceeding u/s 147 is invalid because no notice u/s 143(2) was issued before completion of assessment u/s 147/143(3). (ii) That on the facts and in the circumstances of the case and as per law Id. CIT(A) erred in giving the judgement the re-assessment proceedings u/s 147 is invalid because re-assessment proceeding has been started after expiry of 4 years and no fresh material on record to believe that escapement of income has occurred." (iii) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in observing that the recovery of Insurance claim of Rs. 53,45,786/- is part of the income derived from the assessee business of growing and manufacturing of tea for the purpose of computation of composite income for application of Rule 8. (iv....