TaxTMI 
TaxTMI 
2018 (11) TMI 267
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....inion that allthese appeals should be heard together for passing a composite order. Forthe sake of reference, the grounds for A.Y. 2011-12 are extracted here asunder : "(a) Whether on the facts and in the circumstances of this case, assessee'sincome from its seed production activity is exempt under section 10(1) of theIncome Tax Act, 1961. (b) Whether on the facts and in the circumstances of this case, the landutilized for production of seeds can be termed as assessee's "leased land"; (c) Whether on the facts and in the circumstances of this case, grower canbe termed as representative of assessee company; (d) Whether on the fact and in the circumstances of this case, assessee'sseeds procurement from grower is its agricultural activity; (e) Whether on the facts and in the circumstances of this case, converting ofseeds into certified seeds is an agriculture activity; (f) The Appellant craves leave to amend, alter, modify, add, submitadditional ground;" 2. Revenue revised grounds during the proceedings before us and thesame are extracted as follows : "1. Whether on the facts & in the circumstances of the case, the Ld.CIT(A),Aurangabad was correct in deleting the additio....
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....the assessee from the growersconstitute the trading activity of purchase of seeds. Further, the series ofprocessing activities in order to make certified seeds ready for trading,constitutes a manufacturing/business activity and when the same are sold,the income earned by the assessee become taxable. In this regard, AO alsoanalysed the land lease agreements signed by the assessee and the landowners and found that they are unregistered ones. Further, the AO foundthat certain expenses to the tune of Rs. 30.94 crores (rounded off) unrelated tothe agricultural activity were also claimed. AO held that these expenditureconstitute manufacturing expenses, research expenses, power and fuel,freight inward, Hamali & Cartage, etc., and not agricultural expenditureincurred for earning exempt agricultural income. AO came to the conclusionthat the entire activity is not agricultural activity and the same constitutes"business activity". Therefore, AO show caused the assessee as to why theincome of Rs. 6.90 crores earned by the assessee for A.Y. 2011-12 on sale ofthe certified seeds, should not be treated as "income from business" and notexempt as an agricultural income. In addition, the assessee o....
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....of DelhiBench of the Tribunal in the case of M/s.Pro-agro Seeds Company Ltd. reported in 126 Taxmann 37 to support his conclusions against the claims ofthe assessee. As per the AO, these decisions advocate for treating suchactivities not as agricultural activities but they constitute the business ofmanufacturing and production of seeds. AO held that most of the seedsprocured are from the lands not owned by the assessee. Further, AO rejected the arguments of the assessee and considered thefollowing decisions relied upon by the assessee : i. Raja Binoy Kumar Sahas Roy 32 ITR 460 ii. CIT Vs. Soundarya Nursery (2000) 241 ITR 530 iii. Monsanto India Limited Vs. DCIT - ITA No.6093/Mum/2007 Eventually, AO taxed the entire claim of Agricultural income in all the seassessment years under consideration. 7. During the subsequent assessment years, AO proceeded to invoke theprovisions of section 133(6) of the Act in few select cases of growers toestablish that the assessee involved in growth of the said seeds and the modeof procuring of the seeds, i.e., if they are purchased or otherwise. Barring asolitary case, other growers confirmed that the seeds are grown by them atthe instance of....
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....ints arising out of the assessmentorder in Para No.5 of his order. CIT(A) also extracted the submissions givenby the assessee in Para No.6 of his order and proceeded to give his conclusionfrom Para No.7 onwards. In his order, CIT(A) examined couple of issues; namely (1) whether the income derived from the use of leasehold land whichis cultivated by the farmers under the supervisions of employees of the assessee to give rise to the hybrid seeds constitutes 'an agricultural activity'or not; and (2) subsequent activities of processing of the hybrid seeds to makethe seeds to be marketable as certified seeds amounts to business activity ornot. The CIT(A) considered the fact that the assessee engaged the landlordsand their lands through the written contracts and held that such activityconstitutes agricultural activity. Relying on the decision of Bangalore Benchof the Tribunal in the case of M/s.Advanta India Ltd. Vs. DCIT 5 ITR 57(Bang. Trib.), the CIT(A) observed that assessee is engaged in seeds relatedresearch, production of quality seeds, sale of hybrid seeds following themethod of contract farming and basic seeds sown in leasehold land andtherefore, the same constitutes agricultural....
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....3 gave hisconclusion on page 11 of the assessment order and the same is extractedhere as under : "Therefore, seed and grain both are different type of produce and seedsproduction activity is not similar that of production of grain. Seeds areproduced by scientific method any by investing huge money and skilledmanpower, whereas grain is produced on conventional method and by lowerinvestment and average skilled manpower. Further, agricultural produce suchas grain are fit for human consumption, whereas when seeds are processedthey are chemically treated and coated with pesticides, fungicides to protect itand if seeds are not sold for germination they are sold for animal foods only, asit is not fit for human consumption. Hence, seed production activity cannot betreated as agriculture activity. In the light of above facts and judicial pronouncement, assessee company hasneither performed the basic agricultural operation or subsequent operationsordinarily employed by the farmer or agriculturist, as the assessee companyneither has derivative interest in the land nor it has actually cultivate the land. On scrutiny of total activity of assessee company in seeds production, itappears tha....
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....the A.Yrs. 2013-14 and 2014-15), the Revenue filed all the four appealsunder consideration before the Tribunal. BEFORE THE TRIBUNAL 15. Revenue Contentions : Shri Rajiv Kumar, Ld. CIT-DR for the Revenuerelied heavily on the orders of the AO in all these 4 assessment years. Ld. DRread out the contents of the assessment orders in all these appeals andsubmitted that conclusions of the AO needs to be confirmed by reversing thedecisions of the CIT(A)s. Further, Ld. DR made various submissions and thesaid submissions are summarized in the following paragraphs : (a) When the assessee made a claim of exemption u/s.10(1) of theAct, the onus is on the assessee and the assessee failed to demonstratethat there is an agricultural activity or there is any expert supervisionin the agricultural activities undertaken by the assessee on theleasehold lands. (b) Referring to the imperfect land-lease agreement, unregisteredones, the leasehold lands in question are in force for 4 years and thesaid lease agreements are invalid as they are not in tune with theprovisions of section 17(1)(d) of the Registration Act, 1908. Therefore,considering the fact that there are no valid agreements, the activitie....
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....s on one hand and on account of direct and indirectexpenditure on the other. Further, Ld. AR for the assessee filed 3 paper books. Paper Book No.1contains the financial statements, returns of income and the copies of theleasehold agreement for production of the seeds and the copies of theconfirmation of the rejected seeds which are used as Fodder to the cattle. Paper Book No.2 contains the correspondence between the AO and the assessee, details of agricultural expenditure, copies of the agreements withthe farmers etc. Finally the Paper book No.3 contains the compiles the copiesof the 7/12 extracts of the leasehold lands taken by the assessee forproduction of seeds. He also furnished the compilation of the said 7/12extracts showing the extent of land utilized, details of crops grown in the saidland, details of the growers, crop price etc. Further, the conveyance andtransport details of the employees, incharge of production of variety of cropsgiving details of the places visited by them for control and management of thegrowing groups for production of seeds, copies of the log books demonstratingthe travel undertaken by such employees are also enclosed in this paperbook. Further, Ld....
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....tural activityof the assessee. Otherwise, no adverse information was available with theAO on the genuineness of the claim of agricultural income. Other specificarguments of the Ld. Counsel for the assessee are specifically discussed inthe following paragraphs. Cross Examination : Referring to the said stray and a solitary case of a letterby Shri Bhuma Bala Narasimha Reddy, (the farmer-cum-landlord) andreferring to the principles of cross examination, Ld. Counsel for the assesseesubmitted that AO failed to put the said Shri Bhuma Bala Narasimha Reddybefore the assessee for cross examination. Ld. Counsel for the assesseesubmitted that the AO invoked the provisions of section 133(6) of the Act forthe A.Y. 2012-13 in respect of 3 farmers namely mentioned about the fact ofreceiving of advances for seed growing and production in respect of theirlands. Giving reference to a letter from one of the farmers (Bhuma BalaNarasimha Reddy), Ld. Counsel submitted that the payments are received byhim in respect of sale of Jawar Crop cultivated in his farm. Ld. Counselsubmitted that the same constitutes mistaken confirmation of Bhuma BalaNarasimha Reddy. Referring to the principles of natural justi....
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....f the assessee on contractualbasis are of superior quality involving high levels of innovation andtechnological inputs and they are different from the natural seeds available inthe market. For getting the certified seeds produced, there is requirement oftreating the seeds procured from the growers with insecticides and chemicalsby the scientific processes. Referring to the manner of generation of suchhybrid/breeder, Ld. Counsel for the assessee submitted that these seeds aregenerated out of cross pollination and the said seeds being named asfoundation seeds and the same are supplied for mass production. Accordingto Ld. Counsel, it is not the case of producing seeds ordinarily for use. Further, explaining the process of growth of the plants, vegetables etc., Ld. Counsel for the assessee submitted that after receiving the harvest from thefarmers, the said seeds are dried, weeded, cleaned, graded to remove theunwarranted ones. Eventually, the foundation seeds are certified as certifiedseeds before they are supplied for sale in the market. This process applied tovarious crops involving Mango, Apple, Vax, Banana etc. This issue is alreadya settled issue by the Coordinate Bench of Pune ....
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....ion of land & for production/agricultural activity Engages farmers for production of hybrid seeds 3. Takes entire produce from farmers Purchases hybrid seeds, if only as per specification from farmers 4. Reimbursed entire cultivation expenses, Land Preparation-Rs.2,59,09,610 Fertilizer & Pesticide-Rs.4,76,21,370/- Farm Expenses-Rs.3,31,46,970/- Labour Charges - Rs. 7,10,45,020/- Not concerned with expenditure 5. Entire risk of crop failure is with assessee Risk of quantity, quality, failure & cost remains with farmers Further, heavily relying on the jurisdictional High Court judgment inthe case of ACIT Vs. Ajeet Seeds Ltd. (supra), Ld. Counsel submitted that thesaid judgment is, being favourable to the assessee, was delivered afterdistinguishing the judgment of Karnataka High Court in the case of NamdhariSeeds Pvt. Ltd. Referring to the AO's allegation that the seeds were purchased by the assessee from the growers, Ld. Counsel submitted that the same is incorrect. Assessee never purchased the seeds as the said growers/landlords are undercontractual obligation to grow the seeds for the assessee. Referring to thehuge expenditure incurred by the assessee on land re....
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....selling the same; or ripeningof Mango, or Banana, or like keeping the product in cold storage and selling athigher price; or selling the crop by packing them and selling through retailchains at higher margins. All are cases of agricultural income. iv. The appellant has ensured quality of product by just sorting them outand has not done any material subsequent operation on the produce. Details offurther operation after seeds are received, performed by company areexplained. v. Decision of Hon'ble SC in the case of State of Madras Vs. Raman & Co. and others 93 STC 185 is important for this issue. In that case, the assesseehad purchased unusable railway wagons for scraping and selling and Hon'bleSC had held that unusable wagon was nothing but scrap and sale is also ofscrap. Hence there was no new product since both input and output are seeds; Similarly the produce of agriculture is seed and after certification also theproduce is seed. Hence there is no new product. Hence entire income isagricultural income. vi. Then the Ld. AO has argued that subsequent operations have made theincome as non-agricultural income in relation to income from subsequentoperation. It is submitted that....
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.... TRIBUNAL 17. There are couple of common issues for adjudication before us in these 4appeals by the Revenue involving . They are : (1)issue of granting exemption u/s.10(1) of the Act in respect of the incomeearned by the assessee out of production of certified seeds and relatedactivities. This is common issue for all the 4 assessment years underconsideration and; (2) the issue of making disallowance u/s.14A r.w. Rule8D(2) of the I.T. Rules, 1962. This issue is relevant for A.Yrs. 2013-14 and2014-15 only. 18. We heard both the sides and perused the orders of the Revenue. Wehave also perused the paper book filed by both the sides and the decisionrelied on by them. The objections of the AOs are : A. Absence of the registered deeds of leased lands on stamp papersmakes the claim of the assessee u/s.10(1) of the Act unviable. B. a. Letter from Mr.Bhuma Bala Narasimha Reddy conveying thesale of seeds; andb. AO's failure to put the said letter to the assessee or allowingassessee to cross examine Mr. Reddy. C. Applicability of judgmental laws in general and the jurisdictionalHigh Court judgment in the case of Ajeet Seeds Ltd. D DR's request for remanding . We shall deal with each ....
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....income onsimilar facts were accepted by the Revenue over the years. This is for the firsttime the Revenue disturbed the claim of the assessee from the A.Y. 20-11-12onwards. Further also, on the sales undoubted, the various processes inpreparation of the certified seeds and sale of the same through retail outletsare also undisputed by the Revenue. The objection of the Revenue is that thesaid lease documents were not registered in accordance with the provisions ofsection 17(1A) of the Registration Act, 1908. Considering the above, theobjections of the AO are mere procedural ones and when acted upon, they arenot adequate enough to treat the lease deeds as bogus or sham etc. 18.2 Further on this, we find that the land owners-cum-growers run intothousands of growers spread across many states in India. The assesseefurnished the copies of 7/12 extracts in the form of the paper book. Onperusal of the said extracts, we find the ownership of the land by therespective landlords is undisputed fact. The survey numbers mentionedtherein were also not found bogus. These extracts are in public domain andare borne out of Govt. records. At the relevant point of time and as per thesaid documents, the....
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....the provisions of section 133(6) of the Act in respect ofthe select cases of land owners-cum-growers on sample basis. Barring asolitary case in respect of Mr. Bhuma Bala Narasimha Reddy, all other casesconfirmed the genuine claim of agricultural activities and also the contents ofthe said land-lease Agreements. In the solitary case of Mr. Bhuma BalaNarasimha Reddy, there is no positive confirmation in favour of the assessee. It indicated the sale of seeds grown in his land. The quantity of seeds is verysmall and negligible vis-à-vis the turnover of the assessee. In any case, whensuch adverse evidence is fathered by the AO, it is the duty of the AO to putthe same to the assessee for comments. It is a settled legal principles ofnatural justice and allowed the benefit of cross examination if required. AOneeds to consider the reply of the assessee before making any addition in theassessment. Admittedly, in the instant case, the AO skipped all the settledlegal procedures and proceeded to make addition at the back of the assessee. AO extrapolated this adverse finding to the entire Agricultural produce andthe same is unsustainable. In our view, this manner of making additions isa....
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.... isextracted here as under : "6.2. The CIT(A) having considered the same, observed that foundation seeds,breeder hybrid seeds produced by the assessee himself results into agriculturalincome or non-agricultural income has been decided in favour of the assesseeby the ITAT Bangalore Bench in the case of Advanta India Ltd. vs. DCIT (2010)5 ITR 57 (Bang.Trib). In the said case, reasons pointed out by the AssessingOfficer to deny the claim of exemption made by the assessee were thatassessee was following international technology, marketing expertise,integrated scientific and commercial activity etc. The Tribunal in the case ofAdvanta India Ltd. (supra) held that all these reasons/matters were strange tothe strict code of Income Tax Act. The ITAT, Bangalore Bench has concludedthat foundation seeds or hybrid seeds produced in own land or landstaken on lease will be the result of agricultural operations and theprofits arising out of such activities shall be treated as agriculturalincome. In view of above, the CIT(A) was justified in following the decision ofITAT, Bangalore Bench, in favour of the assessee also following the case of IndoAmerican Exports and Namdhari Seeds Pvt. Ltd. (sic) ....
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....h of the Tribunal in the case of Advanta India Ltd. (supra) and Karnataka High Court judgment in the case of CIT Vs. NamdhariSeeds Pvt. Ltd. 341 ITR 342 (Kar.), the Hon'ble High Court distinguished thesaid judgment in the case of Namdhari Seeds Pvt. Ltd. (supra). Relevant ParaNos. 5 and 6 of the judgment in the case of Ajeet Seeds Ltd. are extractedhere as under : "5. The learned Counsel for the appellant tells us, that the view taken by theauthorities below is erroneous and was based on judgment of Income TaxAppellate Tribunal in the case of Advanta India Ltd. Vs. Dy.CIT (2010) 5 ITR 57(Bangalore Tribunal). According to the learned Counsel for the appellant, thisjudgment is set aside by Karnataka High Court, in the case of Commissioner ofIncome-tax, Central Circle, Bangalore Vs. Namdhari Seeds (P) Ltd. (2011) 341ITR 342 (Karnataka). According to the learned Counsel for the appellant, thiscase should, therefore, give rise to a substantial question of law. 6. We are unable to accept the contention raised by the learned Counsel forthe appellant. We find, that the basic premise on which the appellant's case isbased, is para 12.3(D) of the Assessment Officer's order. The outcome o....
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....ing them to certified seeds and the assessee cannot be held as an agriculturist as the concerned agriculturalactivities are undertaken by the owner of the land. This ratio is entirelyinapplicable to the facts of the present case. In the case on hand, the assessee paid rent to the farmers, bore other expenditure relating to the landdevelopment/ploughing/tilling/cultivation, fertilizers, pesticides, labour,transportation of seeds etc. In the present case, assessee monitored theprocess of agricultural activities from the time of employing the qualifiedAgricultural degree holders/others and monitored from the stage oftilling/land development till the point the produce is transported to thescheduled places bearing the entire expenditure on all events of growth of theseeds to the transportation of the seeds to its godown. It is not at all a case ofbuying of the seeds from the farmers for a fixed price as in the case of NSPL(supra). Thus, these facts makes all the difference so far as the growing ofthe foundation and breeder seeds in the lands leased out by the assesseeunder land-lease agreements. Thus, the facts of the present case are closelyakin to the facts in the case of Ajeet Seeds ....
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....erefore, procurement of seeds from thelandlords-cum-growers is not the transaction of purchase of seeds for tradingactivity. Further, the judgment of Coordinate Bench of the Tribunal in thecase of Ajeet Seeds Ltd. (supra) was confirmed by the Hon'ble Court ofjudicature Bombay, Aurangabad Bench in the said case. Therefore, we are ofthe opinion that the claim made by the assessee is proper. The decision ofCIT(A) is fair and reasonable and does not call for any interference. Therelevant grounds raised by the Revenue are dismissed. 24. Disallowance u/s.14A of the Act r.w. Rule 8D(2) of the I.T. Rules : This issue is relevant for the appeals for A.Ys. 2013-14 and 2014-15 only. Ground No.6 and 7 of the appeals of Revenue are relevant. AO madedisallowance u/s.14A of the Act, as per the discussion given in common ParaNo.5 of the assessment orders for the A.Yrs. 2013-14 and 2014-15 amountingto Rs. 7,71,422/- and Rs. 13,65,554/- respectively. Reasons given by the AOin their order relates to the extent of investments in subsidiary companiesmade by the assessee in the exempt income related activities. However, it isnot the case of the AOs that assessee earned exempt income by way ofdividend....
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.... (1) Daga Global Chemicals Vs. ACIT in ITA No.5592/2012 order dated01-01-2015. (2) Jeevraj Tea Ltd. Vs. DCIT (2014) (AY 2008-09) 41 CCH 047(Ahmedabad Tribunal) (3) ACIT Vs. Punjab Cooperative Marketing Federation in ITANo.548/CHD/2011 (Chandigarh Tribunal) In the case where the assessee has not earned any dividend income oninvestment made in the shares whose dividend is exempt then nodisallowance can be made u/s 14A in respect of expenditure, if any,relating to the investment in respect of which no exempt income hasbeen received/earned. The above proposition of law is supported by followingdecisions - (1) CIT Vs. Shivam Motors P. Ltd. [2014] 89 CCH 059 (Allahabad HighCourt) (2) CIT Vs. Torrent Power Ltd. [2014] 363 ITR 474 (Gujarat HC) (3) CIT-I Vs. Corrtech Energy Pvt. Ltd. (223 Taxman 130) (Gujarat HC) (4) Kalyani Steels Ltd. Vs. ACIT in ITA No.1733/PN/2012 (5) ACIT Vs. M/s. Magarpatta Township Development & ConstructionCo. Ltd. in ITA No.2114/PN/2012 (6) Guradas Mann Vs. DCIT (57 SOT 55) (Chandigarh Tribunal) (7) Shri Goyal Ishwarchand Kishorilal Vs. JCIT, Range-4, Pune in ITANo.422/PN/2013 order dated 26/06/2014 for AY 2009-10 (8) ACIT, Circle-I, Auranga....