TMI Blog2011 (2) TMI 1291X X X X Extracts X X X X X X X X Extracts X X X X ..... allowing cultivation expenses of Rs. 90.64 lakhs on the ground that those expenses were in fact agricultural expenses and were in the nature of losses from agricultural operation which were to be carried forward for set off; and alternatively, if the disallowance of cultivation expenses were to be sustained, proportionate higher deduction under section 10B of the Act ought to have to be allowed." 3. Briefly, the assessee being in the business of manufacture and export of standardized herbal extracts and manufacture of fine chemicals, cosmeceuticals etc., had furnished its income, admitting a loss of Rs. 3.43 crores after claiming exemption under section 10-B of the Act at Rs. 7.10 crores. 3.1 While concluding the assessment, the Assessing Officer had disallowed the exemption claim of Rs. 3.44 crores made under section 10B of the Act in respect of Kunigal Unit and also cultivation expenses of Rs. 90.64 lakhs for the reasons recorded in his impugned order under challenge. 4. Aggrieved, the assessee took up the issues with the CIT(A) for redressal. After considering the assessee s contentions as well as the reasoning of the Assessing Officer, the ld. CIT(A) had observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 10-B on the ground that it had not satisfied one of the basic conditions set out in section 10B(2)( iii ) as the plant and machinery acquired to the tune of Rs. 5.2 crores were old machineries which were already put to use; -in the case of the assessee, a new undertaking had come into existence with more than 80 per cent newly acquired plant and machinery and, thus, satisfies the test prescribed by the Hon ble Madras High Court in the case of CIT v. Gopal Plastics Private Limited - [1995] 215 ITR 136 ; -the authorities below erred in disallowing the cultivation expenses of Rs. 90.64 lakhs which were in fact agricultural expenses and were in the nature of losses from agricultural operations, if any, in future; -that the assessee was engaged in the business of manufacture and export of herbal products and, thus cultivation expenses were incurred as an integral part of the business; that the main purpose of cultivation was to induce farmers to grow medicinal plants and for assessee s own research and development activities for finding new varieties of medicinal plants and arriving at acceptable stands of cultivation by adopting different combination of methods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gible under section 10B in respect of Nelamangala Unit for which deduction was allowed." 5.1 To reinforce his argument, the ld. AR had furnished a paper book containing 1 - 35 pages which consists of inter alia copies of ( i ) Tribunal s orders; ( ii ) sample lease agreement; ( iii ) Board s Circular No. 6/2007 etc. 5.2 On her part, the ld. DR was emphatic in her urge that the Assessing Officer had analyzed the issues in depth and also extensively quoting various judicial pronouncements including that of the Hon ble Tribunal s findings in the assessee s own case for the earlier years and came to the conclusion in a judicious manner which has been rightly ratified by the first appellate authority. It was, therefore, advocated that the findings of the ld. CIT(A) require to be sustained in toto . 6. We have duly considered the rival submissions, attentively perused the relevant case records and also the evidences produced during the course of hearing by the ld. AR in the shape of a paper book. 6.1 With regard to the assessee s canvassing for claim of deduction under section 10B of the Act in respect of Kunigal Unit, we would like to recall that an identical issue ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore requires no further interference .." 6.3 In conformity with the findings of the Hon ble Bench cited supra on an identical issue, we are of the considered view that the authorities below were justified in denying the assessee s claim on this score. 7. In respect of the assessee s claim for allowance of cultivation expenses of Rs. 90.64 lakhs which has been denied by the first appellate authority, we have scrupulously perused the submission of the assessee as well as the reasoning of the authorities below for having turned down the assessee s plea. 7.1 The pleading before the Assessing Officer was that it had to incur expenses for cultivation of the farmers on trial basis and on its completion, the assessee will procure the produces from the farmers on payments. On a perusal of the lease deeds [the assessee had entered into with farmers for rising of herbal plants], the Assessing Officer recorded that the farmers were required to sell their herbal plants to the assessee and the assessee had undertaken to purchase the same on cost. Thus, the Assessing Officer s was of the view that the farmers, without incurring any expenditure on cultivation, were selling their pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into agreements and supplied coleus seedlings to the farmers with a condition to recover the cost of coleus seedling at 10ps per seedling at the harvest time. In reality, the assessee could not be able to achieve its desire of generating sufficient quantities of coleus, instead; it had rather gone in purchase spree of coleus seedlings in a large scale from other farmers. 7.4 Considering the submission of the assessee and also looking into the facts of the issue, we are of the considered view that there is force in the contention of the assessee that it had not generated any agricultural income out of this venture and as a matter of fact, the assessee had not engaged any agricultural activity, but, for cultivation of coleus plants to facilitate its business and due to commercial expediency, it had incurred cultivation expenses to the tune of Rs. 90.64 lakhs. We have also perused the details of direct expenses incurred by the assessee under cultivation expenses. 7.5 In this connection, we would like to impress that the concept of Circular No. 6/2007 dated 11-10-2007 of the Board is very much applicable to the facts of the issue on hand. It has been clarified by the Board in i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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