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TMI Blog2023 (2) TMI 1011X X X X Extracts X X X X X X X X Extracts X X X X ..... on 14/09/2005 in the name of Oodnap Agritech Ltd with the objects of carrying on agricultural and related activities. The Memorandum of Association of the company empowers such activities. Later the name of the said company was changed to "Goodyield Farming Ltd" effective from 09/01/2012. As per the provisions of Maharashtra Tenancy and Agricultural Lands Act, 1948, the assessee company is not entitled to own or acquire agricultural lands. But it can take on license or have conducting agreement or in association with the owners of agricultural lands, carry on agricultural activities. This activity is not prohibited or barred under the Maharashtra Tenancy and Agricultural Lands Act, 1948. The assessee submitted that its promoters formed the company with the philosophy of taking agricultural lands on contract for cultivation and carry on irrigation activities on its own or in association with the land owners or tenants holding agricultural lands. With the vision that agriculture has great future, it located the areas which were prone to draught and the farmers were finding it difficult to carry on agricultural activities, so that they will be ready and willing to enter into associat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing fertilizers and pesticides to a minimum; (vii) Produced crops and horticultural produce namely, Jawar, bajara, cotton, arhar, cucumber, green chillies, tomato, harbhara, water melon etc as above stated; (vii) Sold the produce in lots and at site. This avoided hamali and transportation and exertions of sale. It also avoided brokerage and commission at different stages if they were to be sold in the organized market. It also avoided competition in prices due to syndicating and cartels of brokers and traders which does not allow the farmers to get reasonable price. It may also be noted that the trucks have to wait long days before the produce is sold and trucks emptied, burdening the company with extra expenses. 2.3. All expenses were to be made in cash and all revenues were realized in cash. Generally, the traders approach for purchasing the produce and under write such purchases. Then, it will be the obligation of such traders to have security, harvesting and buying it against payment of consideration agreed. They in turn will have contracts with others or sell privately or in the organized market as may be feasible. But, the assessee avoided such competitive sales, sold i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clude clause mentioned in the agreement for share of crop with the land owner. It implies that there was no involvement by the assessee in cultivation activity. v. As such the assessee has not kept the unused funds in the bank therefore huge Cash in hand is not justified. vi. The assessee has legally not entered into any land related agreements and also the name of the assessee has nowhere been mentioned in the 7/12 records as "Pattedar to be eligible to carry out any agri, activities on the leased land. It is also worth to mention that no agreement has been notarized so also registered before any authority to prove that any genuine activity has been carried out by the assessee. vii. It also appears from the records filed by the assessee that assessee has claimed various expenses pertaining to the carrying of agri related operations which are all in cash however certain activities like purchase of seeds, Fertilizers and pesticides cannot be purchased from the open market without bill as it has been mandated by the Govt Of Maharashtra that all such bills needs to be supplied to the buyer of agri goods to maintain the quality of products and to prevent adulterations. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of expenses incurred by the assessee for the agricultural activities were allowed by the learned AO. 2.7. With regard to various observations made by the learned AO, the assessee submitted before the ld. CIT(A) that the purchasers are regular traders, their names were not reflected in the invoices made by the assessee. It was submitted that no law requires that in case of purchases, names and other details of such purchasers should be written. The traders and agents buy the goods in cash and sell the same in cash, making their cut or commission in the deal and not willing to disclose their names and identities on papers. In fact the assessee volunteered to produce the traders before the learned AO for personal examination. The learned AO chose to examine Mr Pandoo Naig, Director of the assessee company, who explained the modus operandi adopted by him with regard to purchase of agricultural produce from the assessee. With regard to other parties / traders, the learned AO chose not to examine them. The assessee pleaded that in the modus operandi adopted by it, the assessee could achieve its desired objective and the farmers also could earn their share. The labour at the respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here are no items which are mandatory to sell through the regulated market committee. The assessee adopted a method to dispose the produce at site and before the harvest itself, the traders buying the same for price ex site. This helped the assessee to save lot of expenses by way of hamali, transport, storage, preservation, brokerage and commission apart from being a prey to the cartel and syndicates of traders who compel original growers of the produce to sell at distressed prices. It followed what could be called a forward trading principle with traders who would buy ex site with agreed rates for the produce at the date of sale. 2.10 Before us, the ld. DR argued that the main grievance of the revenue is that the assessee was not cultivating any agricultural produce. There was no evidence produced by the assessee for even possessing the agricultural lands. The assessee had claimed that it had merely reimbursed the expenses to the farmers in view of the fact that the farmers had purchased the seeds and fertilisers from their own sources and thereafter the said expenses were reimbursed by the assessee to the farmers. Accordingly, the ld. DR argued that there is no evidence to prove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30 Bull pull labour 232183 Crop Cultivation Chgs 139431 Herro Rotta 48015 Kakariya 33316 Labour Charges 1256822 Ploughing 130849 Water flow charges 362964 Khad expenses 47790 iii. Arhar sale realization 3873904 Arhar Expenses Seed 89150 Bull pull labour 138690 Crop Cultivation 123820 Hero Rotta 52196 Labour Charges 913150 Land Cultivation Chgs 411548 Ploughing 131250 Water flow charges 218149 Khad expenses 42421 iv. Cuccumber sale realization 5261064 Cuccumber Expenses Seed 91250 Bull pull labour 35330 Crop Cultivation Chgs 71050 Herro Rotta 62150 Kakariya 13740 Labour Charges 115197 Land Cultivation Chgs 336270 Ploughing 78120 Water flow charges 102860 Khad expenses 86990 v. Bajara sale realization 1874903 Bajara Expenses Seed 75160 Bull pull labour 118750 Crop Cultivation Chgs 116510 Herro Rotta 62150 Labour Charges 282492 Land Cultivation Chgs 362205 Ploughing 128180 Water flow charges 175120 Khad expenses 78340 vi. Green chilly sale realization 2711246 Green chilly Expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illage in which the lands are situated; the land revenue extracts to exhibit the lands owned by the farmers which were ultimately used for cultivation by the assessee; copies of all agreements; vouchers in respect of sales, receipts and expenses. With regard to the examination carried out by the ld. AO on the farmers, we find that the ld. AO had chosen to issue summons to the farmers at the fag end of the assessment proceedings and since the farmers were located at an distant location from Mumbai, they found it difficult to travel and present themselves before the ld. AO proving their ownership of land and genuineness of agreements entered into with the assessee. We find that assessee had duly met each and every averment of the ld. AO in his assessment order by way of written submissions filed before the ld. CIT(A). One more important point addressed by the ld. AO was that the area in which the lands were situated were draught hit, draught prone and it could not have grown the crops as claimed. This has been disproved by the report submitted by the District Superintendent Agricultural Officer, Pune from whom the ld. AO had sought to obtain information directly u/s.133(6) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Registration Certificate of the Escort Tractor purchased during the year 2005-06 for the purpose of agricultural activities; copies of insurance certificate for insuring Escort Tractor with United India Insurance Co. Ltd. together with the details of premium paid during the year under consideration and also stating that summons issued by the ld. AO to five farmers (land owners of agricultural lands) situated at Akkalkot could not respond before the ld.AO as the notices were received by them very late on 28/03/2016, but however, they had sent their reply by speed post on 30/03/2016, confirming that they had entered into agreement for cultivating of land with the assessee company. It is not in dispute that the documents were received from the said farmers post completion of assessment proceedings by the ld. AO and they are forming part of the records of the lower authorities. We find that the ld. CIT(A) while granting relief to the assessee had taken due cognizance of the report of the Tahsildar, Akkalkot vide his letter dated 02/04/2016 which was received by the ld. AO after completion of assessment proceedings wherein he had mentioned the average production per acre for the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act treating the same as income from other sources. 4.1. We have heard rival submissions and perused the materials available on record. The assessee issued 138400 shares of Rs.10 each at a premium of Rs.115 to its holding company M/s. Onelife Gas Energy and Infrastructure Ltd. Thus, capital contribution of Rs.13,84,000/- (138400 x 10) and premium of Rs.1,59,16,000/- (138400 x 115) totaling to Rs.1,73,00,000/- collected during the year. The ld. AO during the course of assessment proceedings showcaused the assessee to justify the premium charged together with the valuation report under Rule 11UA of the Income Tax Rules. The ld. AO observed that assessee did not furnish the valuation report. The ld. AO observed that assessee could not provide sufficient documentary evidences to justify the premium charged by it in the sum of Rs.1,59,16,000/- thereby failing to prove the genuineness of the same. The ld. AO also observed that Section 78 of the Companies Act, 1956 provides for utilization of share premium for specified purposes and that the assessee in the instant case had not utilized the share premium received for those specified purposes. Instead these funds i.e. the share p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 31/03/2012 of Rs.1368.37 which was much more than the value arrived under the DCF method. Hence, the shares issued by the assessee company to its holding company @Rs.125/- per share using DCF method is very much on a conservative basis. The ld. CIT(A) had taken cognizance of the fact that assessee company is having a free reserve of Rs.10.05 Crores as against its paid up capital of Rs.5 lakh as on 31/03/2012. We have gone through the audited financial statements of the assessee company and the profit before tax for the various years are as under:- As on 31/03/2013 - Rs.1.21 Crores As on 31/03/2014 - Rs.1.25 Crores As on 31/03/2015 - Rs.1.23 Crores 4.4. When the above figures are compared with the projections in the DCF method, the same does not have much variance. The profit before tax estimated by the independent valuer in his valuation report are as under:- As on 31/03/2013 - Rs.1.21 Crores As on 31/03/2014 - Rs.1.27 Crores As on 31/03/2015 - Rs.1.34 Crores 4.5. Hence, the figures that were estimated in the valuation report using DCF method had tallied more or less with the actual audited figures thereby leading to lesser variance between the projected and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 013, (hence, applicable from A.Y.2013-14 onwards), the assessee is bound to justify the receipt of share premium by way of valuation report. In the instant case, the assessee had duly justified the charging of premium on its holding company by way of an independent valuation report using discounted cash flow method which is one of the recognised valuation method prescribed under Rule 11UA of the Income Tax Rules. Hence, the decision rendered by the Hon"ble Jurisdictional High Court referred to supra would hold the field even in the facts of this case and even for the year under consideration. It is also pertinent to note that this decision of the Hon"ble Jurisdictional High Court has been accepted by the department and no further appeal to Hon"ble Supreme Court has been preferred. In fact there is also a Board Instruction No.2/2015 in FNo.500/15/2014-APA-I dated 29/01/2015, wherein the Central Board of Direct Taxes (CBDT) had categorically stated that the aforesaid decision of the Hon"ble Bombay High Court has been accepted by the Board. 4.8. In view of the aforesaid observations and respectfully following the aforesaid judicial precedents, we do not find any infirmity in the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh regular banking channels by the assessee company out of accounted sources of the lender company. The assessee had duly furnished the bank statements of both lender company as well as the assessee company to prove this point. The entire audited financial statements of the lender company was duly furnished by the assessee company before the ld. AO to prove the creditworthiness of the lender company. On perusal of the financial statements of the lender company, we find that it has own funds of Rs.59.97 Crores and Rs.59.66 Crores as on 31/03/2012 and 31/03/2013 respectively. Confirmation for receipt of loan was also placed on record by the assessee before the ld. AO from the lender company. The lender company is duly assessed to Income Tax and the Income Tax assessment particulars were also furnished before the ld. AO. The monies invested by the lender company in the assessee company is duly reflected in the books of accounts of the lender company and the same has been paid out of accounted sources of the lender company. Sufficient creditworthiness is proved for advancing loan by the lender company to the assessee company as is evident from the bank statements of the lender company ..... X X X X Extracts X X X X X X X X Extracts X X X X
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