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TaxTMI 
TaxTMI 
TaxTMI 
2023 (2) TMI 1011
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.... 2.1. The assessee company was incorporated on 14/09/2005 in the name of Oodnap Agritech Ltd with the objects of carrying on agricultural and related activities. The Memorandum of Association of the company empowers such activities. Later the name of the said company was changed to "Goodyield Farming Ltd" effective from 09/01/2012. As per the provisions of Maharashtra Tenancy and Agricultural Lands Act, 1948, the assessee company is not entitled to own or acquire agricultural lands. But it can take on license or have conducting agreement or in association with the owners of agricultural lands, carry on agricultural activities. This activity is not prohibited or barred under the Maharashtra Tenancy and Agricultural Lands Act, 1948. The assessee submitted that its promoters formed the company with the philosophy of taking agricultural lands on contract for cultivation and carry on irrigation activities on its own or in association with the land owners or tenants holding agricultural lands. With the vision that agriculture has great future, it located the areas which were prone to draught and the farmers were finding it difficult to carry on agricultural activities, so that they wi....
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....climatic situation and the soil. (vi) Used organic fertilizers for the produce, using fertilizers and pesticides to a minimum; (vii) Produced crops and horticultural produce namely, Jawar, bajara, cotton, arhar, cucumber, green chillies, tomato, harbhara, water melon etc as above stated; (vii) Sold the produce in lots and at site. This avoided hamali and transportation and exertions of sale. It also avoided brokerage and commission at different stages if they were to be sold in the organized market. It also avoided competition in prices due to syndicating and cartels of brokers and traders which does not allow the farmers to get reasonable price. It may also be noted that the trucks have to wait long days before the produce is sold and trucks emptied, burdening the company with extra expenses. 2.3. All expenses were to be made in cash and all revenues were realized in cash. Generally, the traders approach for purchasing the produce and under write such purchases. Then, it will be the obligation of such traders to have security, harvesting and buying it against payment of consideration agreed. They in turn will have contracts with others or sell private....
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.... also shared crop with the land owner, however the value of the agricultural produce have not been accounted adequately. There does not include clause mentioned in the agreement for share of crop with the land owner. It implies that there was no involvement by the assessee in cultivation activity. v. As such the assessee has not kept the unused funds in the bank therefore huge Cash in hand is not justified. vi. The assessee has legally not entered into any land related agreements and also the name of the assessee has nowhere been mentioned in the 7/12 records as "Pattedar to be eligible to carry out any agri, activities on the leased land. It is also worth to mention that no agreement has been notarized so also registered before any authority to prove that any genuine activity has been carried out by the assessee. vii. It also appears from the records filed by the assessee that assessee has claimed various expenses pertaining to the carrying of agri related operations which are all in cash however certain activities like purchase of seeds, Fertilizers and pesticides cannot be purchased from the open market without bill as it has been mandated by the Govt ....
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....s of agricultural produce of Rs.3,65,09,908/- was treated as unexplained cash credit u/s. 68 of the Act and added in the assessment as income from other sources. Consequently, no deduction of expenses incurred by the assessee for the agricultural activities were allowed by the learned AO. 2.7. With regard to various observations made by the learned AO, the assessee submitted before the ld. CIT(A) that the purchasers are regular traders, their names were not reflected in the invoices made by the assessee. It was submitted that no law requires that in case of purchases, names and other details of such purchasers should be written. The traders and agents buy the goods in cash and sell the same in cash, making their cut or commission in the deal and not willing to disclose their names and identities on papers. In fact the assessee volunteered to produce the traders before the learned AO for personal examination. The learned AO chose to examine Mr Pandoo Naig, Director of the assessee company, who explained the modus operandi adopted by him with regard to purchase of agricultural produce from the assessee. With regard to other parties / traders, the learned AO chose not to examine th....
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....rted by the cash vouchers produced by the assessee before the learned AO. As regards the sale of produce, the assessee did not follow the mode of getting to the regulated market. In fact there are no items which are mandatory to sell through the regulated market committee. The assessee adopted a method to dispose the produce at site and before the harvest itself, the traders buying the same for price ex site. This helped the assessee to save lot of expenses by way of hamali, transport, storage, preservation, brokerage and commission apart from being a prey to the cartel and syndicates of traders who compel original growers of the produce to sell at distressed prices. It followed what could be called a forward trading principle with traders who would buy ex site with agreed rates for the produce at the date of sale. 2.10 Before us, the ld. DR argued that the main grievance of the revenue is that the assessee was not cultivating any agricultural produce. There was no evidence produced by the assessee for even possessing the agricultural lands. The assessee had claimed that it had merely reimbursed the expenses to the farmers in view of the fact that the farmers had purchased the s....
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....hed the 7/12 extracts before the learned AO. The assessee also furnished the Ledger account of expenses with supporting vouchers before the learned AO for the following items: - ii. Cotton sale realization 4280151 Cotton Expenses Seed 92030 Bull pull labour 232183 Crop Cultivation Chgs 139431 Herro Rotta 48015 Kakariya 33316 Labour Charges 1256822 Ploughing 130849 Water flow charges 362964 Khad expenses 47790 iii. Arhar sale realization 3873904 Arhar Expenses Seed 89150 Bull pull labour 138690 Crop Cultivation 123820 Hero Rotta 52196 Labour Charges 913150 Land Cultivation Chgs 411548 Ploughing 131250 Water flow charges 218149 Khad expenses 42421 iv. Cuccumber sale realization 5261064 Cuccumber Expenses Seed 91250 Bull pull labour 35330 Crop Cultivation Chgs 71050 Herro Rotta 62150 Kakariya 13740 Labour Charges 115197 Land Cultivation Chgs 336270 Ploughing 78120 Water flow charges 102860 Khad expenses 86990 &....
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....porting sale bills before the learned AO. The evidence is in respect of the aforesaid facts are enclosed in pages 10 to 17 of the paper book filed before us. Further we find that the objection made by the learned DR before us that as per Maharashtra Tenancy and Agricultural Lands Act, 1948, a corporate entity cannot be owner of agricultural lands and cannot engage itself in agricultural activities, was also addressed by the assessee before the learned AO vide letter dated 21.03.2016. 3.4. From the perusal of the various papers in the paper book, we find that assessee had given the identity of land owners with whom it entered into agreements; the extent of lands involved; village in which the lands are situated; the land revenue extracts to exhibit the lands owned by the farmers which were ultimately used for cultivation by the assessee; copies of all agreements; vouchers in respect of sales, receipts and expenses. With regard to the examination carried out by the ld. AO on the farmers, we find that the ld. AO had chosen to issue summons to the farmers at the fag end of the assessment proceedings and since the farmers were located at an distant location from Mumbai, they found it....
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....omato, Chilli and Cucumber etc. This goes to prove that in immediately succeeding two assessment years, the ld. AO had indeed accepted the claim of the assessee in the scrutiny assessment proceedings. The ld. AR made a statement from the Bar that the said assessment were not disturbed by the Revenue either by reopening u/s.147 of the Act or the ld. PCIT invoking revision jurisdiction u/s.263 of the Act. Further we find that the assessee had been making payment of land revenue tax on the said lands and details of the said receipts were also submitted by the assessee before the ld. AO vide letter dated 30/03/2016. In the said letter, we also find that the assessee had furnished the Registration Certificate of the Escort Tractor purchased during the year 2005-06 for the purpose of agricultural activities; copies of insurance certificate for insuring Escort Tractor with United India Insurance Co. Ltd. together with the details of premium paid during the year under consideration and also stating that summons issued by the ld. AO to five farmers (land owners of agricultural lands) situated at Akkalkot could not respond before the ld.AO as the notices were received by them very late on 28....
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.... of the Act. By this process, the sale proceeds received by the assessee from agricultural activities in the sum of Rs.3,65,09,908 was accepted as genuine and agricultural expenses debited by the assessee in its profit and loss account were also accepted as genuine. 3.6. In view of the aforesaid observations, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee in the facts and circumstances of the instant case. Accordingly, the ground Nos. 1 & 2 raised by the Revenue are dismissed. 4. The ground Nos. 3,4 & 5 raised by the Revenue are challenging the deletion of addition of Rs.1,59,16,000/- made on account of share premium u/s.56(2)(viib) of the Act treating the same as income from other sources. 4.1. We have heard rival submissions and perused the materials available on record. The assessee issued 138400 shares of Rs.10 each at a premium of Rs.115 to its holding company M/s. Onelife Gas Energy and Infrastructure Ltd. Thus, capital contribution of Rs.13,84,000/- (138400 x 10) and premium of Rs.1,59,16,000/- (138400 x 115) totaling to Rs.1,73,00,000/- collected during the year. The ld. AO during the course of assessment proceedings sho....
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....was that the ld. AO did not have sufficient time to examine the said valuation report as it was submitted on the last date of completion of assessment. On perusal of the valuation report, we find that an independent valuer had adopted Discounted Cash Flow (DCF) method which is one of the recognized method under Rule 11UA of the Income tax Rules taking into account the projected revenue from operations, projected profitability and free cash flow for the next three years keeping the audited figures as on 31/03/2012 as the base figure. Moreover, the independent valuer had assumed the conservative growth rate of cash flow at 5% per annum. The book value per share by the assessee company as on 31/03/2012 of Rs.1368.37 which was much more than the value arrived under the DCF method. Hence, the shares issued by the assessee company to its holding company @Rs.125/- per share using DCF method is very much on a conservative basis. The ld. CIT(A) had taken cognizance of the fact that assessee company is having a free reserve of Rs.10.05 Crores as against its paid up capital of Rs.5 lakh as on 31/03/2012. We have gone through the audited financial statements of the assessee company and the pro....
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...., we find that assessee company admittedly had used the share premium amounts for the purpose of its business, which fact has been admitted by the ld. AO in his assessment order. Hence, the observations made by the ld. AO in this regard are totally baseless, devoid of merits and deserves to be dismissed in limine. 4.7. We find that the ld. CIT(A) had rightly placed reliance on the decision of the Hon"ble Jurisdictional High Court in the case of Vodafone India Services Pvt. Ltd vs. Union of India and others reported in 368 ITR 1 wherein it has been held that receipt of share capital and share premium is capital in nature and cannot be brought to tax. Pursuant to the amendment made in proviso to Section 56(2)(viib) which has been introduced from 01/04/2013, (hence, applicable from A.Y.2013-14 onwards), the assessee is bound to justify the receipt of share premium by way of valuation report. In the instant case, the assessee had duly justified the charging of premium on its holding company by way of an independent valuation report using discounted cash flow method which is one of the recognised valuation method prescribed under Rule 11UA of the Income Tax Rules. Hence, the decision....
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....sed by the ld. CIT(A) and from perusal of the same, we find that the ld. CIT(A) had not sought for any report as far as this issue is concerned in the remand order. Hence, we hold that the second part of para 6.4 in page 34 of order of the ld. CIT(A) is partially incorrect in respect of ld. CIT(A) stating that the remand report has been obtained from the ld. AO on this issue. Hence the ground No.7 raised by the Revenue is allowed. 5.3. It is not in dispute that assessee has received unsecured loan from M/s. Onelife Gas Energy and Infrastructure Ltd. The said lender company holds 73.46% of equity shares of the assessee company and accordingly, the lender company is a Holding Company of assessee company. It is not in dispute that the funds have been received through regular banking channels by the assessee company out of accounted sources of the lender company. The assessee had duly furnished the bank statements of both lender company as well as the assessee company to prove this point. The entire audited financial statements of the lender company was duly furnished by the assessee company before the ld. AO to prove the creditworthiness of the lender company. On perusal of the fin....