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TMI Blog2017 (2) TMI 516X X X X Extracts X X X X X X X X Extracts X X X X ..... of land. Sometimes apart from growing agricultural produce, certain other processes (other than usual minimum processes to render produce marketable) are carried out by an Assessee. The income derived from sale of such produce i.e., from sale of such manufactured produce is considered partially agricultural income and partially business income. For example a grower of tea in his tea gardens carries out the process of manufacturing tea powder from tea leaves grown in his garden. In such case the income from sale of tea powder will be partly agricultural income and partly non-agricultural income chargeable to tax. This is referred to as Composite Income because it composes of both Agricultural and non- Agricultural income. When some extra processes are carried out for selling the produce, there is combination of manufacturing activities, in which case income from sale of manufactured agricultural produce is computed as if it is business income and certain percentage is considered as chargeable under Act. Part II under Sub-Part D of the Rules prescribes the rules for the manner of determination of income chargeable to tax from and out of the Composite Income. Rule 7, 7A, 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings the assessee had furnished details of incomes credited in the profit & loss account under different nomenclatures such as income from investments, profit on sale of investments miscellaneous income, liabilities no longer required written back etc. In the return filed for the AY 1999-00 the appellant had claimed deduction u/s 33AB of the I T Act. In arriving at the deduction permissible u/s 33AB the assessee had taken into account income by way of Misc. income and Liabilities no longer required written back both amounting to Rs. 108.07 lacs. 20% of such income was considered to be part of the qualifying amount for the claim of deduction u/s 33A.B of the Act. In para 13 of the assessment order dated 27.03.2002 the AO recorded the following finding. "13. Calculation of deduction under Section 33AB : The deduction under Sec 33AB is allowable only on the composite income earned by growing and manufacturing of tea. Hence, for the purpose of calculation of admissible deduction all the income not incidental to growing and manufacturing of tea have been deducted from the composite income of the tea business. The calculation is annexed with the order." 5. The deduction permissible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dule-12 of the P&L a/c. Subsequently, in the computation the assessee had not offered the Misc. income @ 100% for taxation. The assessee had subjected only 40% of the aforesaid Misc. income of Rs. 108.07Iakhs for Income tax. Obviously, the rule- 8 regarding apportionment of income applies only to the income from tea growing and manufacturing, the entire amount of Rs. 108.07 lakhs was required to be subjected to tax instead of restricting it to 40%. In view of the above, there was reason to believe that there had been an escapement of income for the failure on the part of the assessee for offering entire Miscellaneous income for Income tax in the computation within the meaning of Section-147 of the I.T.Act,1961." 8. As can be seen from the above reasons recorded by the AO before issue of notice u/s.148 of the Act, the AO has referred to two items of income viz., Miscellaneous Income of Rs. 97.39 Lakhs and liability no longer required and hence written back of Rs. 108.07 lakhs. According to the AO these items of income ought not to have been considered as part of the composite income when Rule 8(1) of the Rules was applied in the assessment concluded u/s.143(3) of the Act and ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority duly made enquiry & inspection in the gardens before. The acceded to the claim of the assessee for losses. You will agree that, as the losses are revenue in nature incurred in course of growing and manufacturing of tea, these receipts being part of the income of the Assessee from growing and manufacturing of tea is the part of the composite income as well. The recoveries from insurance claim is part of the composite income of growing and manufacturing is being entitled to be apportioned in the ratio of 40 : 60 as provided under rule-8 of the Income Tax Rules, 1962. B) Regarding receipts of income from guest house at Rs. 34, 88, 000/-, we are to submit that this is the amount of realization of actual expenditure incurred by the assessee for maintenance and repairing of the assets of the guest house. These realizations were made from the persons and group companies who use the guest house from time to time. Against the above realization of Rs. 34,88,000/-, the assessee incurred an expenditure of Rs. 34, 92, 080/- which are debited in the respectively heads of accounts. It is evident that out of the realization from guest house, the assessee incurred loss and there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the AO the assessee has not conclusively proved that the aforesaid items of incomes relate to income from growing and manufacturing of tea. Therefore, he concluded that the Misc. income of Rs.I08.07 lacs is not incidental to income from tea growing and manufacturing. The AO has not made any reference to the miscellaneous income of Rs. 97.39 in his order. The AO finally concluded the Assessment u/s.147 of the Act as follows: "As per discussion above, the total income of the assessee-company is re- computed as follows : 100 % Composite Income as per order u/s.254/251/143(3),dt.l3.03.06 Rs.22,46,23,244/- Less : Income from business( as discussed above) Rs. 1,08,70,000/- Rs.21,37,53,244/- Applying Rule-S (40% of above) Rs. 8,55,01,298/- Add: Profit attributable to sale of tea manufactured out of green leave purchased Rs. 52,13,889/- Add: Income from business (as discussed above) Rs. 1,08,70,000/- Total Business income Rs.10, 15,85, 187/- Add : Income from other source as per computationin the order u/s.143(3) Rs. 5,17,02,569/- Gross Total income Rs.15,32,87,756/-" 12. Aggrieved by the order of the AO the assessee preferred an app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim of the Assessee in this regard and had computed admissible deduction under sec. 33AB of the Act. It was therefore submitted that reassessment proceedings were initiated by the AO purely on the same set of facts which existed when the original assessment proceedings were concluded and without any fresh material coming to his possession. In other words it was submitted that the reassessment proceedings have been initiated by the Assessing Officer, upon change of opinion that 100% of the Misc. income was liable to be excluded from the Composite income. It was contended that reopening on such change of opinion was legally unjustified because such reopening did not satisfy the conditions enshrined in the Sec 147 of the I.T. Act viz., reason to believe that income chargeable to tax has escaped assessment. Reliance was placed by the Assessee on the ratio laid down in the following decisions: (i) Rajesh Jhaveri Stock Broking Pvt. Ltd Vs. CIT (291 ITR 500)(SC) (ii) CIT Vs. Foramers France (264 ITR 566) (SC) (iii) Kelvinators of India Ltd (256 ITR 1) (Del) affirmed in (320 ITR 561) (iv) CIT vs Usha International Ltd. (348 ITR 485) (Del) The CIT(A) held that the re-assessment pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing u/s 147 is invalid because no notice u/s 143(2) was issued before completion of assessment u/s 147/143(3). (ii) That on the facts and in the circumstances of the case and as per law Id. CIT(A) erred in giving the judgement the re-assessment proceedings u/s 147 is invalid because re-assessment proceeding has been started after expiry of 4 years and no fresh material on record to believe that escapement of income has occurred." (iii) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in observing that the recovery of Insurance claim of Rs. 53,45,786/- is part of the income derived from the assessee business of growing and manufacturing of tea for the purpose of computation of composite income for application of Rule 8. (iv) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in observing that the sale of scrap of Rs. 9,04,998/- is part of the income derived from the assessee business of growing and manufacturing of tea for the purpose of computation of composite income for application of Rule 8. (v) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in observing that the Guest House Receipts of Rs. 34,88,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edly beyond the period of four years from the end of the relevant assessment year. In these circumstances for valid initiation of re- assessment proceedings u/s 147 of the Act the conditions laid down in the proviso to section 147 of the Act had to be satisfied, viz., escapement of income should be as a result of the assessee's failure to disclose truly and fully material facts necessary for assessment/income for the relevant assessment year. Since this condition has not been satisfied in the present case, the CIT(A) was fully justified in concluding that re- assessment proceedings were not validly initiated. Since the initiation of re- assessment proceedings have been held to be invalid and therefore the reassessment order is liable to annulled, we do not wish to deal with other grounds with regard to the re-assessment proceedings having been initiated on a change of opinion and the arguments that no notice u/s 143(2) of the Act in the re-assessment proceedings were issued and therefore re-assessment proceedings are invalid. We also do not wish to go into the question as to whether the disputed items of income could form part of the composite income of the assessee or not for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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