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2013 (9) TMI 361 - AT - Income TaxNature of Income - Dealing in vegetable seeds - Agricultural Income OR Business Income - The solitary issue that the AO exceeded his jurisdiction to convert the total agricultural income rendered by the assessee proportionately as business income - without indicating as to how the adoption of percentage for business and agriculture separately could be held when the past history of the assessee's case had been acceptance of the entire income from agricultural operation being seeds producing farm maintained by the partners in the firm – Held that:- The Assessing Officer himself misdirected that purchases ought to have been accounted for which was never the case of the assessee - the Assessing Officer had tried to invoke his own method of carrying out the agricultural operation to compute the income from business separately but on the basis of the same facts that the activities were carried out for the purpose of germinating seeds which were certified seeds not fit for human consumption. The Assessing Officer in his enthusiasm had tried to dilute his own finding by adopting percentage method for segregating "business" activity for generating agricultural income - The books of account of the assessee were audited and the financial statements were certified as per the audit report in Form 3CB - Maintenance of records was not disputed and the expenditure incurred for the agricultural operation carried out were also not doubted - Determination of gross margin and net margin therefore do not appear to be a requirement of agricultural operation when the assessee is reaping the nature's bounty. The denial made by both the authorities in not accepting the actual version of the assessee in spite of finding from spot verification which the Inspector of Income-tax Department in earlier years had noted that agricultural operations were being carried out by the assessee could not be changed to earning of income from trading of seeds, when the assessee was able to maintain three crops in a year dealing in vegetable seeds alone - the assessee has submitted the copies of the orders of the authorities below for the assessment years 2003-04 and 2007-08 passed under section 143(3) when exemption under section 10(1) has been granted to the assessee. No specific defects have been found out in the books of account therefore could not be a material for determining correct income involving the provisions of section 145(3) by changing the nature of the very income claimed exempted under section 10(1) - The expenditure incurred for carrying out agricultural activity would yield agricultural produce and the percentage of margin earned on sale of agricultural produce cannot be the basis for bifurcating margin from business activity and margin from agricultural activity when whole of the expenditure is allowable by the Assessing Officer as for carrying out agricultural operations – Decided in favour of Assessee.
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