TMI Blog2022 (6) TMI 231X X X X Extracts X X X X X X X X Extracts X X X X ..... against the action of the CIT(A) in deleting the disallowance of exemption claimed by the assessee u/s 10(1) of the Act are treated as allowed for statistical purposes. Disallowance u/s 14A - HELD THAT:- As submitted by the ld. DR that whether the nature of the business of the assessee is agricultural or not to be decided by the AO and, therefore, the outcome of the result will have bearing on the application of section 14A. Therefore, we remit the issue to the file of the AO with a direction to compute the disallowance u/s 14A based on the outcome of the nature of the business of the assessee. Thus, the ground raised by the assessee is treated as allowed for statistical purposes. - ITA Nos. 1456 & 1457/HYD/2017 And ITA Nos. 1463 & 1464/HYD/2017 - - - Dated:- 31-5-2022 - Shri R.K. Panda, Accountant Member And Shri Laliet Kumar, Judicial Member For the Assessee : Shri Sriram Seshadri For the Revenue : Shri Y.V.S.T. Sai ORDER PER BENCH : These are the cross appeals filed by the assessee and revenue against the orders of CIT(A) 4, Hyderabad for the AYs 2012-13 2013-14. As the facts and grounds are identical in these appeals, the same were clubbed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble CIT(A) erred in not appreciating the fact that the assessee itself did not undertake any agricultural operations but procured hybrid seeds from farmers and as such the activities carried by farmers can only be said to the agricultural activities and not that of the assessee. 4. The Hon'ble CIT(A) erred in ignoring the fact that Revenue's appeal on identical issue in assessee's own case for AY 2011-12 is pending before Hon'ble High Court. 5. Any other ground that may be urged at the time of hearing. 6. The facts with regard to claim of exemption u/s 10(1) in respect of the agricultural income of Rs. 50,94,74,053/-, the AO observed from the statement of computation that the assessee has made a claim of Rs. 39.26 crores as exempt u/s 10(1) of the Act. The assessee has been asked to furnish information in support of its claim. In the said reply the assessee AR filed a note on activity carried out by the assessee company, break up for income and expenditure in respect of agriculture as well as business income, details of research and development and expenditure thereof, details of processing expenses etc. The AO concluded that it is evident that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractual obligation by the assessee company, are carrying out the multiplication of the parent seeds and the assessee only procures the agriculture produce through this contract. Hence, the claim made by the assessee company is hereby rejected and added to the income returned. 8. The CIT(A) after considering the submissions of the assessee and the remand report of the AO, deleted the disallowance made by the AO following the decision of ITAT in assessee s case for AY 2011-12 in ITA No. 1594/Hyd/2014 dated 20/03/2015. Submissions of Revenue 9. Before us, the Ld. departmental representative relied upon the order passed by the assessing officer, it was the contention the Ld. DR that the agriculture land was not taken on lease by the assessee, further the assessee has not carried out any agriculture activities, which per say can be termed as agricultural activities and assessee has made false and incorrect statement before the assessing officer and also before the Ld. CIT(A) in support of its case wrongly claiming benefit of section 10(1) of the Act . The ld. DR submitted that the Revenue had also filed an application for admission of the additional evidence dated 01.10.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of the material available on record and also by exercising its power under section 131/ 133 of the Act. 9.3 Further, before us, the ld. DR also filed written submissions in support of revenue s case, which are as under: 2. It is humbly submitted that the assessee is engaged in the following activities: (i) Research Development on germplasm leading to development of hybridd seeds, which consists of two stages viz., (a) fixation of desired traits in the seeds (say cotton seeds) to breed pure lines and (b) then hybridize them to develop a high yielding plant variety; (ii) Development of foundation seeds leading to development of certified seeds; (iii) Supply of these foundation seeds to farmers who enter into production contract agreements with the assessee to produce the seeds meant for sale. This activity involves payment of advances, providing inputs and also supervision to ensure the right quality; (iv) Purchase of the seeds from farmers and selling them to farmers in market under the brand of the assessee through the sales and distribution network; 3. Out of the above, only the second stage of the item (i) above and (ii) stage are the areas i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that as per section 6 of the Andhra Pradesh (Telangana Area) Tenancy Agricultural Lands Act, 1950, no lease of agricultural land is permitted except as per the conditions/situations specified in section 7 of the said Act, which reads as under: 7. Special cases in which leases are permitted:. - (1)(0) Notwithstanding anything contained in Section 6, a landholder holding land the area of which is equal to or less than three times the area of the family holding for the local area concerned may lease the land held by him: Provided that every such lease notwithstanding any agreement to the contrary shall be for a period of five years and at the end of the said period and thereafter at the end of each period of five years in succession, the tenancy shall, subject to the provisions of Clauses (b) and (c) be deemed to be in force for a further period of five years on the same terms and conditions except to the extent that a modification therefor consistently with this Act is agreed to by both parties. (b) The landholder may by giving the tenant at least one year's notice in writing before the end of each of the periods referred to in Clause (a) terminate, subject to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The assessee provides hybrid seeds and 10 kg Zinc per acre and recover the cost in final payment. All the expenses for water, fertilizers, pesticides etc are met by the farmers only. The risk of production is also borne by the farmer only. The assessee does not pay ar.y compensation for loss of crop or loss of quality. It is stated by one farmer K. Govindu that years ago (most likely in 2013-14) he lost the crop due to lack of yield but the assessee c,;:: not make any compensation. The statements clearly indicate that the recitals in the said agreements are not implemented in reality. Some of the farmers also stated that they did not sign any such agreement with the company. It is also stated that the payment for the procure is made per packet. 11. The minutes of the meeting with the Collector, Jogulamba Gadwal District. indicate similar facts. In the meeting the representatives of the farmers demanded that wastage losses of 8% presently borne by the seed grower (farmer) should be stooped, the labour cost to the farmer has increased, the seed companies should waive interest in advance payments as heavy rains occurred in October, 2017 and the organizers should not take margi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s operations of regenerating seeds or grains by way of repeated cultivation after seeds produced by the assessee at the first stage were crossed to obtain a hybrid germplasmas or seeds of desired quality, which operation were being carried out over a number of years until a desired result or trait is obtained, are not at all essential to make seeds or grains or produce originally produced or raised by the assessee fit to be taken to market though such operations were carried about on a land to produce or develop breeder seeds or hybrid germ plasm with desired traits concentrated therein. Therefore, the income attributable to these operations of developing/producing breeder seeds or hybrid germplasm or parent hybrid seed containing desired traits cannot be treated as agricultural income and should be treated as business income. In the light of the provisions contained in rule 7(l)(a), the 10 per cent of the income shown by the assessee can be treated to be the price at which the grains or seeds originally produced in first crop would have been sold during the relevant previous year would be treated as agricultural income . 16. The case of taking land on lease and employing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all such seeds which would qualify the specification indicated by the assessee. The seeds which do not qualify the specification are also not sold by the farmer, but by the company and the sale consideration, if any is given to the farmer. The farmer while multiplying foundation seeds, uses his land and labour. The input given by the assessee is only technical supervision of the company. Whatever seeds grown by the farmer whether qualifies the specification indicated by the assessee or not has to be given to the assessee and the assessee will pay a fixed price so far as the seeds which quality the specification and other seeds will be sold in the open market by the assessee and there is no fixation of any price for the seeds which do not meet the specification. The farmer has to ensure fertility of the land, suitability of the land, cultivation of the land, watering of the land, use of the seeds supplied by the assessee and also had to sell the hybrid seeds at a price fixed by the assessee If the farmer has to arrange the labour and pay the labour charges and also spend money for other operations either basic or subsequent operations, he can only take advance amount from the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that view of the matter, we hold that the entire income amounts to business income. As a matter of fact for some of the assessment years based on the opinion of one of the senior counsel on taxation Mr. K.R. Prasad, the assessee - company offered its income as business income and even claimed deduction under s. 80HHC of the Act . 17. In light of the above, it is humbly submitted that the appel1ant appeared assessee is entitled for exemption u/s 10(1) only with regard to the activity of production of foundation seeds and with regard to other activities, there is no merit in seeking exemption. The learned CIT(A) did not consices the true facts of the case and allowed the exemption. It is humbly submitted that the Hon'ble ITAT may kindly confirm the addition made by the AO and also remand the matter back to the AO on the issue of interest income received from farmers as revealed in the subsequent search action in the case of the assessee. Submissions of Assessee 10. Per contra Learned AR for the assessee, on the other hand, opposed the admission of the additional evidence/documents/affidavits filed by the Revenue. Firstly it was the contention of the Learned AR t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3A for the Assessment Years 2012-13 to 2017- 18 without prejudice to above, the assessment for the A Y 2015-16 could not be subject to proceeding under section 153A of the Act, quash the notice dated 24th December, 2018 issued by the 4th Respondent u/s.153A of the Act for the AY 2015-16 and .viii, restrain the Respondents from initiating any further action pursuant to the said searches. The petition coming on for hearing, upon perusing the Petition and the affidavit filed in support thereof and upon hearing the arguments of M/S.DIVYA DATLA Advocate for the Petitioner and Sri.B.NARASIMHA SARMA Advocate for the Respondents I to 5, the Court made the following. ORDER There shall be interim stay as prayed for, for a period of three weeks from today. Post on 11.12.2019. 10.2. AR submitted that if all these additional evidence/documents are admitted, it will have an impinged on the proceedings pending before the Hon ble High Court of Telangana. In so much so these documents formed basis of initiation of proceedings for the search, hence the documents cannot be relied upon by the revenue through backdoor by moving the application of admission of additional document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as claimed by them. Challenging the assessment order dated 30.12.2009, the petitioner filed appeal before the Commissioner of Income Tax (Appeals) and by order dated 21.2.2011, the appellate authority, by accepting the explanation of the petitioner, deleted the addition of RS.25,00,000/- and confirmed the balance amount of Rs.1.17,50,000/-, as unexplained investment, for tax. Aggrieved by order of the Commissioner (Appeals), in confirming the assessment order for RS.1,17,50,000/-, the petitioner filed appeal, before the Income Tax Appellate Tribunal and similarly assailing the deletion of Rs.25,00,000/-, the Revenue filed cross-appeal. The Tribunal by order dated 25.1.2012 allowed the appeal filed by the Revenue and dismissed the appeal of the petitioner and thus, the initial order of the assessment officer was restored. As per the claim of the petitioner, out of the total demand of Rs.68,91,242/-, an amount of RS.58,71,064/- was paid and an amount of RS.10,00,000/- was the balance due to be paid to the Revenue. As the balance amount was not paid within the period stipulated, the assessment officer by an order dated 25.7.2014 levied interest of RS.29,13,413/- under Section 220(2) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the light of explanations subsequently given by the officer making the order of what he meant, or of what he was in his mind, or what he intended to co. Public orders made by public authorities are meant to have public effect and are intended to affect the acting and conduct of those to whom they are addressed and must be construed objectivity with reference to the language used in the order itself. 8. Inasmuch as the impugned order is bereft of any reasons and further the same has not dealt with the contentions raised by the petitioner in his application filed under Section 220(2A) of the Act, and in view of the above facts and circumstances and the law laid down by Apex Court, the impugned order cannot be sustained and the same is hereby set aside. 9 It is made clear that the 1st respondent Principal Commissioner of Income Tax, shall consider the petition filed under Section 220(2A) of the Act, by affording the petitioner an opportunity of being heard and shall pass a reasoned order in accordance with law. 10. The writ petition is accordingly allowed. No order as to costs. 10.6 The ld. AR for the assessee relied on the order of the coordinate bench of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also collected minutes of the meeting of the revenue authorities were obtained. 12.2 We are reproducing one of the statement of farmer , recorded by the revenue after the search , albeit remaining statements were identical to the this statement in material aspect . The statement mentioned as under :- English Version of Statement Recorded in Telugu Sworn statement recorded in the case of K. Govindu s/o, K. Narsappa, Pagunta Village, K.T. Doddi Mandai, Gadwal Dist u/s 131 of the Income Tax Act at the camp office at RDO office, Gadwal on 24/01/2018. Signed Ch. Rajeswara Reddy 24/01/2018 Signed K. Govindu 24/01/2018 (Oath Administered) (Oath taken) 01. Please introduce yourself? Please tell about yourself? My name is K. Govindu. My village is Pagunta, K.T Doddi MandaI. I am a farmer. I have two bulls and 100 sheep. 02. Please state whether oath was administered to you and the penal consequences of furnishing of wrong information on oath were informed to you? I was administered oath. If 1 give wrong information what would be the penal consequences were explained to me. 03. Are you participating in cultivation activities? If you ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ramachandra Reddy provides the seed. After harvesting the cotton, we separate the seeds and the company persons either Lakshman or Prabhakar will come and buy the seeds. They give a chit to us. Shri Ramachandra Reddy pays money as per the chit. Q12. In this agreement copy it is written that you are cultivating your land on behalf of Nuziveedu seed company in the manner informed by them to you? Is it true? If not, what would you like to say? I am cultivating myself. Company person comes and gives advice. We grow the crop as per their advice. (Signatures of the officer and the deponent with date at the end of third page) Q13. Did any seed company contact you for production of seeds? If yes, please specify the method in which seeds are procured through organizer? Shri K. Ramachandra Reddy, the organizer gives foundation seeds to us. We grow the crop upon the advice of the company. We sell the produce back to the company again through organizer. Organizer gives some amount as advance. The remaining amount is paid by the organizer on sale of produce. On the advances, company charges interest of 15%. Q14. Whether the organizer or the seed company provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from any seed company? Yes. We took foundation seed from Nuziveedu Seed company. Q25. Who will pay the money for purchasing the seeds from you and how it is paid? After the seeds are taken by the company person, when testing is passed after two months, the payment would be made in cheque through Shri Ramachandra Reddy. Q26. At the time of growing seeds, do you get any money as loan or in any other form from the seed company or the organizer? At the time of growing crop, we get' 20 to 30 thousand per acre in the form of advance from the company through the organizer. They charge interest @ 15% on the advance. (Signatures of the officer and the deponent with date at the end of fifth page) Q27. If you get money in the form of loan, do they charge any interest? If yes, how much interest would they charge and how do you repay the loan and interest? On the money advanced by the company, they charge interest @ 15%. This interest is recovered from the payment for purchase of crop. Q28. Do you want to say anything more? I am a farmer. As I get more income by growing seeds, I take foundation seed from the company and resell the produce to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y under consideration. 12.6 With respect to scope and ambit of Rule 29 of ITAT Rules, it is fairly settled by the decision of the Hon ble Delhi High Court in the case of The Commissioner Of ... vs Text Hundred India Pvt. Ltd. on 14 January, 2011 vide ITA Nos. ITA Nos.2077, 2061 and 2065/2010 that tribunal is obliged to admit the documents/ evidence even at the appellate stage on the application of the revenue. Hon ble Delhi High Court has held as under: 13. The aforesaid case law clearly lays down a neat principle of law that discretion lies with the Tribunal to admit additional evidence in the interest of justice once the Tribunal affirms the opinion that doing so would be necessary for proper adjudication of the matter. This can be done even when application is filed by one of the parties to the appeal and it need not to be a suo motto action of the Tribunal. The aforesaid rule is made enabling the Tribunal to admit the additional evidence in its discretion if the Tribunal holds the view that such additional evidence would be necessary to do substantial justice in the matter. It is well settled that the procedure is handmade of justice and justice should not be allowed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue test, therefore, is whether the Appellate Court is able to pronounce judgment on the materials before it without taking into consideration the additional evidence sought to be adduced. [See also Netha Singh Vs. Financial Commissioner, AIR 1976 SC 1053] 15. In the present case the reason which was given by the assessee in support of its plea for admission of additional evidence was that the assessee could not produce these records before the lower authorities due to non- retrievability of e-mail on the date because of technological difficulties. This reason was specifically mentioned in the application filed. No reply to this application was filed refuting this averment, though the departmental representative had opposed the admission of the additional evidence. The ground pleaded by the assessee was not confronted. In this backdrop, the Tribunal looked into the entire matter and arrived at a conclusion that the additional evidence was necessary for deciding the issue at hand. It is, thus, clear that the Tribunal found the requirement of the said evidence for proper adjudication of the matter and in the interest of substantial cause. Rule 29 of the Income Tax (Appellat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (Appeals), having noticed want of proper inquiry, could not have closed the chapter simply by allowing the appeal and deleting the additions made. It was also the obligation of the first appellate authority, as indeed of ITAT, to have ensured that effective inquiry was carried out, particularly in the face of the allegations of the Revenue that the account statements reveal a uniform pattern of cash deposits of equal amounts in the respective accounts preceding the transactions in question. This necessitated a detailed scrutiny of the material submitted by the assessee in response to the notice under Section 148 issued by the AO, as also the material submitted at the stage of appeals, if deemed proper by way of making or causing to be made a further inquiry in exercise of the power under Section 250(4). This approach not having been adopted, the impugned order of ITAT, and consequently that of CIT (Appeals), cannot be approved or upheld. 12.8 In fact the above said judgment was confronted to the parties during the course of hearing, however, no response came forthwith from the ld. AR. In fact the lower authorities have failed to examine the farmers during the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, the Tribunal would not be discharged its function within the four corners of the law. It is the settled position in law that the Tribunal is the final fact finding authority , having responsibility to decide the issue on the basis of the facts, documents and evidence conclusively . The powers of the Tribunal are akin to civil court, as per section 255(6) of the Act read with section 131 of the IT Act. 12.10 Moreover, there is no bar in law for the Tribunal to examine the documents/ statements came to it notice either itself or directing the lower authority to examine it. Further the assessment or reassessment in respect of any of the assessment years pending on the date of initiation of the search u/s 153A shall abate, meaning thereby, the Act had only contemplated for abatement of the assessment or reassessment pending before the AO, however no such abetment took place for the pending appeals before the tribunal. In our view if the document/ statements recorded/ found during the course of search had a bearing on the outcome of the case, than those facts/ documents/ evidence can not be rejected merely on the ground that these were subject matter of proceedings under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in fact specially abled and have procured certificates fraudulently from their districts under the Rules of 1996. On the basis of the said complaint Government has issued an order for the purpose of verification of such certificates issued by the Medical Board and certificates of 21% of selected candidates of handicapped category were found to be fraudulent. It is settled proposition of law that fraud vitiates and in such a case when large number of candidates have illegally usurped the reserved seats of the persons suffering from disability the action of State Government did not call for interference. 7. In Bhaurao Dagdu Paralkar v. State of Maharashtra Ors. (2005) 7 SCC 605, it was observed : 16. In Lazarus Estates Ltd. v. Beasley (1956) 1 All ER 341, Lord Denning observed at QB pp. 712 and 713: (All ER p. 345 C) No judgment of a court, no order of a minister, can be allowed to stand if it has been obtained by fraud. Fraud unravels everything. In the same judgment Lord Parker, L.J. observed that fraud vitiates all transactions known to the law of however high a degree of solemnity. (p. 722) These aspects were recently highlighted in State of A.P. v. T. Suryachandr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spapers (P) Ltd. Ors. v. Union of India Ors. (1986) 1 SCC 133 at para 119 has held thus: 119. Fraud on power voids the order if it is not exercised bona fide for the end design. There is a distinction between exercise of power in good faith and misuse in bad faith. The former arises when an authority misuses its power in breach of law, say, by taking into account bona fide, and with best of intentions, some extraneous matters or by ignoring relevant matters. That would render the impugned act or order ultra vires. It would be a case of fraud on powers. The misuse in bad faith arises when the power is exercised for an improper motive, say, to satisfy a private or personal grudge or for wreaking vengeance of a Minister as in S. Partap Singh v. State of Punjab AIR 1964 SC 72. A power is exercised maliciously if its repository is motivated by personal animosity towards those who are directly affected by its exercise. Use of a power for an alien purpose other than the one for which the power is conferred is mala fide use of that power. Same is the position when an order is made for a purpose other than that which finds place in the order. The ulterior or alien purpose clearly s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny had earned dividend income of Rs. 24,90,84,000/- and claimed the same as exempt. Further, he observed that the assessee company incurred net interest expenditure of Rs. 5,97,56,141/-. The AO asked the assessee company to furnish the details of expenditure incurred in relation to the above investments. In this regard, the submission of the assessee company had been considered. From the submissions of the assessee company, the AO noticed that the interest bearing borrowed funds had been invested in the exempt income generating investments. Therefore, not satisfied with the explanation of the assessee company that no expenditure has incurred towards these exempt incomes, the AO disallowed an amount of Rs. 1,48,39,684 u/s 14A rwr 8D and added the same to the income returned, which was confirmed by the CIT(A). 16. The Learned AR drew the attention of the Bench at page 76 of the PB and submitted that Rs.10 crore attributable to interest from other source which has been accepted by the A.O. but still entire interest is taken for the purpose of disallowance. He further drew the attention of the Bench at page-362 of the PB and submitted that agricultural income [4th item] finance expe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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