TMI Blog2013 (11) TMI 894X X X X Extracts X X X X X X X X Extracts X X X X ..... seeds from Directors of the company at excessive price. It was also noticed from the assessment order that the assessee has agreed for the addition u/s.40A(2). However, it was noticed that the addition has been agreed to due to misunderstanding/misconception of provisions of law and is against the clarification given by the CBDT vide Circular dated 6th July, 1968. In view of the above, the CIT(A) was justified in observing that the assessee is entitled to contest the addition - Decided against Revenue. Disallowance of live stock expenses - Held that:- Assessing Officer has taxed receipt from sale of milk as income in all the years under consideration. The milk which has been sold has been produced by cows and buffalos i.e., live stock. The live stock expenses related to the income earned from sale of milk was allowable expenditure. The live stock have been used for both agricultural as well as dairy farming activities. Accordingly, the Authorised Representative requested 50% expenses for maintaining live stock to be allowed. The said contention of the Authorised Representative was accepted by the CIT(A) and the Assessing Officer was rightly directed to allow 50% of the live sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable provisions of the Income Tax Act and as if the return is filed u/s.139 of the Act. It is nowhere stated that in the above provisions that the deduction u/s.24 to which assessee is entitled could not be claimed in the return to be filed in response to notice u/s.153A, which has not been allowed in the original assessment and which has not been contested in appeal. It is settled law that the provisions of the Income Tax Act and the machinery of the Income Tax Department is for assessing and taxing correct income of the assessee as per the provisions of the Act. In view of the above, the Assessing Officer was not justified in disallowing interest u/s.36(1)(iii) amounting to Rs.4,50,000/- in each year under appeal and he was rightly directed to delete the same in all these years. This factual and legal finding needs no interference from our side because Vikrant Malleables Pvt. Ltd. was undisputedly declared sick by BIFR as per RBI instructions, interest could not be charged on such units. Hence, principal itself was doubtful of recovery at relevant point of time. So there is no question of recovery of interest - Decided against Revenue. - ITA Nos.109 to 115/PN/2012 - - - Da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he addition of 8,56,883/- made under section 40A(2)(b) of the Act without appreciating the fact that the payments made to the Directors for procurement of seeds was unreasonable. 8. On the facts and in the circumstances of the case, the learned CIT(A) erred in deleting the addition made of'4,50,000/- on account of disallowance of interest under section 36(1)(iii) of the Act to the extent of advance given without charging of interest thereby relying upon wrong facts that the company to whom advance was given was a BIFR company. 9. On the facts and in the circumstances of the case, the learned CIT(A) erred in deleting the addition made of Rs.13,54,916/- on account of shortage of agricultural expenses added by Assessing Officer as unexplained expenditure. 3. Brief facts of the case are that the assessee is a company engaged in the business of processing and growing of various seeds. A search seizure action u/s. 132 of the Act has been conducted in the case of the assessee on 10.10.2007. The assessee has filed returns of income in response to notices u/s.153A of the Act. The details of income returned, additions made and income assessed by the Assessing Officer u/s.143(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - - - 672486 - 218968 Unexplained cash - - - - - - 340207 Discrepancy in stock - - - - - - 5581000 Total addition 4228652 14156646 6065988 2417319 1475315 2534640 8217045 Loss of earlier year adjusted 4424424 6439438 7716110 - - - Assessed income (-) 18579972 Nil Nil 7618880 (-) 30253159 (-) 24273093 (-) 8280234 3.1. Aggrieved by the same, appeals were preferred before the CIT(A) on all issues. In appeal, the CIT(A) observed that the Assessing Officer has made addition on 17 accounts as detailed in the above tabular chart while assessing the income of the assessee for the years under consideration. The substantial additions on various accounts were fairly accepted by the assessee and it had contested addition on 5 accounts only as mentioned in Grounds of appeal, as under: A.Y. 2002-03 to 2008-09 1. Learned Deputy Commissioner of Income Tax (DCIT) erred in treating ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid 3 additions as well. The assessee raised following arguments in support of its contentions before the CIT(A) which are reproduced as under: (1) It is settled law that if an admission or surrender made by an assessee is shown to have been impelled by mistaken belief or misunderstanding etc., the same cannot act as an estoppel. This proposition of law is supported by the decision of Hon'ble Supreme Court in the case of Narayanan Vs. Gopal AIR 1960 SC 235. (2) The admission made is only a piece of an evidence and cannot by itself be a cause of action. An amount cannot be assessed merely on admission. The worth of an admission has to be considered alongwith other material and its effect depends to a large extent upon the circumstances in which it is made. No amount of admission contrary to law can create estoppel against law. These propositions of law are supported by the decisions in the cases of Asitkumar Ghosh Vs. CIT (1953) 24 ITR 576 (CaL), Mathuraprasad Sons Vs. State of Punjab (1962) 13 STC 180 (SC). (3) Even if an assessee shows income in his return the Income Tax Officer cannot assess it merely on that account and has to consider its taxability de hors the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed additions on 12 accounts as is evident from the tabular chart discussed above. The said additions are (i) u/s.40A(2)(b) for purchase of seeds from Directors and their relatives on estimate basis at 7% of the purchase cost, the addition as per assessee is against the provisions of Circular No.6P dated 6th July, 1968 (ii) disallowance of live stock expenses ignoring the fact that the live stock has also been used for producing milk, sale of which has been taxed by the Assessing Officer (iii) addition towards less agricultural expenses claimed i.e., addition of agricultural expenses to the extent the same is less than 35% of the gross agricultural income. In view of the facts of the case and various decisions relied by the appellant, the CIT(A) was of the considered view that the assessee is entitled to contest the additions on above three accounts which has been agreed under mistaken belief and misunderstanding of facts. This reasoned factual finding of the CIT(A) needs no interference from our side. We find that the Hon'ble Bombay High Court in the case of Ramchandra Company vs. CIT (1987) 168 ITR 375 was not applicable to the facts of the assessee s case. The CIT(A) found tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sted before the CIT(A) in view of the provisions of section 40A(2)(b) and also explanatory notes on the provisions of the said section in CBDT Circular dated 6th July, 1968. The submissions of the assessee in support of Ground No.1 before the CIT(A) are extracted as under: (i) The CBDT has interalia laid down in the explanatory notes on the previsions of sec. 40A(2) in the Circular No. 6P(LXXVI-66) OF 1968 DATED 6TH JULY, 1968 THAT, "The reasonableness of any expenditure is to be judged having regard to the fair market value of the goods, services or facilities for which the payment is made or legitimate needs of the business or profession or the benefit derived by or accruing to, the taxpayer from expenditure. Such portion of the expenditure which, in the opinion of the ITO is excessive of unreasonable according to these criteria is to be disallowed in computing the profit of the business or procession. It is further stated that "The ITO is expected to exercise his judgment in the reasonable and fair manner. It should be borne in mind That the provision is meant to check evasion of tax through excessive or unreasonable payment to relative and associate concerns and shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn was assessed to tax and assessment orders had been placed on the record. Under Board circular No.6-P dated July 6, 1968 no disallowance was to be made under section 40A(2) in respect to the payments made to the relatives and sister concern where there was no attempt to evade the tax. 3. Voltamp Transformers (P) Ltd. Vs CIT (1981) 129 ITR 105 Guj has observed that: Reasonableness is to be decided on the basis of fair market value of the goods, services or facilities. The reasonableness of any expenditure is to be seen from the viewpoint of the businessman and not from the viewpoint of the revenues authorities. (iii) In view of the faces narrated above and in the circumstances of the case, and as there was no attempt to evade the tax and considering the principles laid down in the decision cited supra, justified and hence it is requested to your kind honour that the addition may please be deleted. (iv) Further, both the assess i.e. company and the directors are in higher slab of taxation and therefore there is no reason to apply the provision of section 40A(2)(b). 4.2. The CIT(A) having considered the same, observed that for invoking the provisions of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting to Rs.85,68,883/-, Rs.7,16,263/-, Rs.6,26,933/-, Rs.5,79,990/-, Rs.3,45,442/-, Rs.7,72,229/- and Rs.8,26,388/- for A.Ys. 2002-03 to 2008-09 respectively, were rightly deleted. This factual and legal finding needs no interference from our side because the Assessing Officer has not established that fair market value of seeds purchased by assessee company was less than actual expenditure incurred. We up hold the same. 5. The next issue is with regard to disallowance of live stock expenses. The Assessing Officer has disallowed the said expenses vide para 8 of the assessment order for A.Y. 2002-03. Same has been followed in other years, which is extracted as under: As regards Live Stock expenses, it is seen that live stock expenses are debited as business expenditure the income of which is exempt. As such, relevant expenses debited are not allowable as business expenditure. The position in this regard for all the year being similar to that for A.Y. 2003-04, 2004-05 following disallowance being live stock expenses treated as non business expenses is made to which the party present agreed. Assessment Year Expenses debited 2002-03 Rs.30,343 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock expenses disallowed by him. Accordingly, disallowance to the extent of Rs.15,172/-, Rs.14,655/-, Rs.16,659/-, Rs.10,612/-, Rs.13,321/-, Rs.3,840/- in A.Ys. 2002-03 to 2007-08 respectively were rightly deleted by the CIT(A). This factual finding needs no interference from our side. We uphold the same because once income on sale of milk has been taxed, corresponding expenses thereof have to be allowed, as done by the CIT(A). We uphold the same. 6. The next issue for A.Ys. 2002-03 to 2008-09 is in respect of addition on account of treating agricultural income in respect of sale of breeder and foundation seeds as non-agricultural income. The Assessing Officer has made the said addition vide para 11 of the assessment order for A.Y. 2002-03. Same has been followed in subsequent years. The Assessing Officer has raised following contentions for treating agricultural income in respect of sale of breeder and foundation seeds as non-agricultural income: (1) The issue as to whether the sale of breeder and foundation seeds results into agricultural income or nonagricultural income has been elaborately discussed in the assessment order u/s 143(3) dated 29/03/2006 and. 31/03/2006 for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,25,679 9,70,272 2008-09 32,39,387 10,79,795 21,59,592 7,79,837 6.1. Matter was carried before the First Appellate Authority wherein it was submitted that the Assessing Officer was not justified in making addition. The submissions of assessee made before the CIT(A) are extracted as under: "Where contract of farming is engaged in the Business of Research in production and sale of hybrid seeds undertakes agricultural operations form the stage of sowing the seeds till harvesting the hybrid seeds in the land taken on lease for this purpose, is it his business. Can such income be treated as agricultural income? This issue came up before Tribunal in Advanta India Ltd. Vs. Dy.CIT (2010) 5 ITR (Tri) 37 (Bang). All the law has been laid down in CIT vs Raja Benoy Kumar Sahas Roy (1957) 32 ITR 422 466 (SC) was that basis and further operation should have been carried out in the land of the person, who has interest in such land. The income from such operation could be agricultural income in the hands of contract farmer, who has acquired leasehold interest on such land, which is sufficient for the purpose of requirement of ownership, so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and legal finding needs no interference from our side. We up hold the same. 7. The next issue pertains to A.Ys. 2002-03 to 2008-09 in respect of disallowance of interest u/s.36(1)(iii) on loan given to sister concern. The Assessing Officer has disallowed Rs.4,50,000/- in each year under appeal on account of interest free loan given to Vikrant Malleables Pvt. Ltd. The Assessing Officer has stated that the addition made in A.Ys. 2002-03 and 2004-05 in regular assessments already made prior to search are not contested by the assessee in appeal and the stand now taken to the effect that as Vikrant Malleables Pvt. Ltd. is under BIFR, interest could not be recovered from the said company was not found acceptable. Accordingly, additions were made in all these years which were appealed before the CIT(A) wherein certain contentions were raised. The submissions made before the CIT(A) are reproduced as under: "The. learned A.O. has disallowed proportionate interest on loan given to Vikrant Malliable Pvt. Ltd. Assessee can not charge the interest to Vikrant Malliable Pvt. Ltd. As the same company is declared sick by BIFR as per RBI instructions. Interest can not be charged to such unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd which has not been contested in appeal. It is settled law that the provisions of the Income Tax Act and the machinery of the Income Tax Department is for assessing and taxing correct income of the assessee as per the provisions of the Act. In view of the above, the Assessing Officer was not justified in disallowing interest u/s.36(1)(iii) amounting to Rs.4,50,000/- in each year under appeal and he was rightly directed to delete the same in all these years. This factual and legal finding needs no interference from our side because Vikrant Malleables Pvt. Ltd. was undisputedly declared sick by BIFR as per RBI instructions, interest could not be charged on such units. Hence, principal itself was doubtful of recovery at relevant point of time. So there is no question of recovery of interest. Accordingly, the order of the CIT(A) on the issue is upheld. 8. The next issue is with regard to addition on account of estimation of agricultural expenses at 35% as against actual expenses claimed by the assessee. The Assessing Officer has made addition vide para 13 of the assessment order for A.Y. 2002-03. The Assessing Officer has made similar addition in A.Ys. 2003-04 and 2004-05 by reiter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses on agricultural produce depend on various items to be grown. Company is maintaining the books of account and actual expenses on agricultural activity is duly recorded in the books of accounts. Hence, expenses are less than 35% of agricultural income considered as unrecorded expenses was not justified and therefore, it is requested that the addition made may kindly be deleted. Section 68 to 69 A are not mandatory provisions but they are discretionary, since words used are "may" and not "shall". At the instance of the select committee, the word "may" has been introduced in the place of "shall". The use of world "may" gives discretion to the Income tax Officer to consider all the circumstances and to decide whether or not the amount in question is the income of the assessee. He cannot outright reject the explanation of the assessee, as not believable. For this proposition appellant rely upon the Jurisdictional Pune Tribunal's decisions in the case of J P Sethi vs ITO (1989) 33 TTJ (Pune.) 576 (Para 13) 2. It is held in the case of Lajwanti Sial vs CIT (1956) 30 ITR 228 (Nag) that: the explanation, prima facia, reasonable cannot be rejected on arbitrary ground or on mer ..... 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