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2015 (3) TMI 938 - AT - Income TaxQualify the income as exempt u/s. 10(1) - whether the assessee does not fall under agricultural operations? - Whether the assessee has departed from the basic agricultural operation and indulged into production of parent seeds by planned scientific and specialized procedures? - Held that:- If we examine the operations carried out by the assessee in the previous year relevant to the assessment year in appeal, we find that the production of basic seeds as well as hybrid seeds are the' results of basic agricultural operations carried on by the assessee-company in its own land as well as in leasehold land. The method of contract farming does not take away the character of the basic operations carried out by the assessee-company which are agricultural in nature. The assessee-company procures germ plasm and sows it in its own fields, and carries on all agricultural operations and produces the basic seeds. The basic seeds so harvested are again put through agricultural operations intimately connected with leasehold land for finally bringing out the hybrid seeds. Only for the reason that the basic seeds are sown in leasehold land and the manpower required is arranged through contract farming, it does not mean that the operations carried out by the assessee-company are not agricultural operations. As a matter of fact, it is to be seen that the assessee-company has carried out basic as well as secondary agricultural operations. Therefore, without any fear of contradiction, it is possible for us to hold that such entire income of the assessee is agricultural in nature which is to be excluded from the nature of total income. A similar issue again was decided by the Bangalore Bench of the Tribunal in favour of the assessee following assessee’s own case for assessment year 2002-03, holding that the income derived by the assessee from the production of foundation/basic seeds as well as hybrid seeds constituted income eligible for exemption under S.10(1) of the Act, being agricultural income. - Decided in favour of assessee. Disallowance under S.14A rwr 8D - CIT(A) deleted the disallowance - Held that:- As held in the case of Reliance Utilities Power Ltd (2009 (1) TMI 4 - HIGH COURT BOMBAY), if it is a case of mixed funds maintained by the assessee, there is a presumption that the own funds of the assessee are utilised for making the investment which has fetched the tax free income. Following this ratio and keeping in view the facts of the assessee, we are of the view that the investment of ₹ 20.30 crores having been presumably made by the assessee out of its own funds, no disallowance on account of interest expenditure under S.14A can justifiably be made. We therefore, uphold the impugned order of the learned CIT(A) deleting the disallowance of ₹ 1,48,00,979 made by the Assessing Officer on account of interest under S.14A read with Rule 8D. As regards the balance disallowance of ₹ 5,07,695 made by the Assessing Officer on account of other common expenses by applying clause (iii) of Rule 8D, we are of the view that the common expenses incurred by the assessee such as office and administrative expenses etc. can reasonably be attributed to some extent to the activity of making investment and the same therefore, are liable to be disallowed by applying the formula given in clause (iii) of Rule 8D. As such, the CIT(A), in our opinion, is not justified in deleting the disallowance made by the Assessing Officer in this behalf. We, therefore, modify the impugned order of the learned CIT(A) on this issue and restore the disallowance made by the Assessing Officer under Rule 14A read with Rule 8D to the extent of ₹ 5,07,695 - Decided partly in favour of revenue.
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