IN THE ITAT CHENNAI BENCH ‘B’
Smt. Anandhi Akilan
Income-tax Officer, Business ward-III(1),
IT APPEAL NO. 574 (MDS.) OF 2012
[ASSESSMENT YEAR 2009-10]
MAY 25, 2012
Vikas Awasthy, Judicial Member – The present appeal has been filed by the assessee impugning the order dated 11.01.2012 passed by the CIT(A)-VIII, Chennai.
2. The assessee filed her return of income for the assessment year 2009-10 admitting total income of Rs. 2,89,605/- and agricultural income of Rs. 13,75,874/- on 30.07.2009. The return of the assessee was processed under section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). The case of the assessee was selected for scrutiny and notice under section 143(2) was issued to the assessee on 31.08.2010. During the course of examination by income-tax authorities, the Assessing Officer raised certain objections regarding certain elements in agricultural income. The agricultural income of the assessee included income from poultry, dairy farming, cultivation of crops and coconut trees. The elements of agricultural income as claimed by the assessee include:-
|Poultry farming- Net income from sale of Emu birds||:||Rs. 5,38,510|
|Dairy farming – Net income from Sale of milk & goat||:||Rs. 3,07,690|
|Income from coconut trees||:||Rs. 66,820|
|Income from sale of turmeric||:||Rs. 3,52,235|
The Assessing Officer disallowed the income from dairy farming, sale of milk & goat, income from sale of turmeric and income from sale of coconut trees as agricultural income. The Assessing Officer assessed income from sale of Emu Birds and income from sale of milk & goat as “Income from Business. Income from sale of turmeric and income from coconut trees as “Income from Other Sources”. Thus, the Assessing Officer disallowed income to the tune of Rs. 12,08,800/- under the head agricultural income’. The Assessing Officer further initiated penalty proceedings under section 271(1)(c).
3. Aggrieved against the order dated 30.08.2011 passed by the Assessing Officer, the assessee preferred appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee vide order dated 11.1.2012 . As a result, assessee is in second appeal before the Tribunal assailing the order of the CIT(A). The assessee has raised six grounds of appeal before the Tribunal. Out of six grounds, ground nos. 1,5 and 6 are general in nature and thus requires no adjudication. Ground no.2 relates to disallowance of expenditure in respect of poultry farming (Emu Birds) . Ground no.3 relates to disallowance of income from sale of coconuts. Ground no.4 relates to disallowance of income from sale of turmeric under the head ‘Agricultural Income’.
4. Mr. Philip George, counsel appearing for the assessee submitted that the assessee has treated income from poultry farming, dairy farming, coconut trees and cultivation & sale of turmeric as agricultural income. The Assessing Officer has disallowed income from all the above sources as agricultural income and treated the income from sale of Emu Birds as income from business. He submitted that the Assessing Officer and CIT(A) have erred in not allowing expenditure incurred by the appellant assessee towards purchase of birds, feeding expenses of the earlier years etc. The assessee has not claimed expenditure towards feeding and maintenance cost of Emu birds in the earlier years.
5. As regards the income from sale of coconuts, the A.R. submitted that there were about 275 coconut trees out of which 200 coconut trees were seedling and non-yield producing stage. It was during the relevant previous year only that 200 coconut trees have started yielding. The gestation period of coconut trees is approximately three years. It is, thereafter, that the trees start bearing fruit. He submitted that no inspection was conducted by the Assessing Officer to ascertain this fact. The land on which trees were planted was purchased by the assessee in the assessment year 2004-05. He further submitted that the income-tax authorities below have erred in not treating the sale of coconuts under the head ‘agricultural income’.
The counsel for the assessee further submitted that the tax authorities have grossly erred in treating the income from sale of turmeric under the head ‘Income from Other Sources’. The cycle for cultivation of turmeric is six to seven months and there is a gap between the harvest and sale of crop. The assessee used to hold the harvest so that he can get the best price of his produce and he use to sell the same when he got highest sale price of produce. He contended that the total land under cultivation of coconut and turmeric is approximately 3.9 acres. The Assessing Officer and the CIT(A) have grossly erred in treating the income from sale of turmeric as ‘Income from Other Sources’ instead of agricultural income.
6. On the other hand, Mr. Jayanagayan, CIT DR representing the department submitted that the Assessing Officer and CIT(A) have passed speaking orders and have given detailed reasons for not treating the income from sale of Emu birds, income from sale of coconuts and sale of turmeric as agricultural income. He submitted that in respect of sale of turmeric no bills were produced and only some writings on letterheads from the market were produced before the Assessing Officer. Even the dates of such letters did not coincide with the harvesting season of turmeric crop. As regards other disallowances, the DR relied upon the orders passed by the lower authorities.
7. We have heard the submissions made by the parties and have gone through the orders passed by the authorities below. With regard to the first issue i.e. expenditure in respect of poultry farming (sale of Emu birds), the assessee has only assailed that the authorities below have not allowed expenditure claimed by the assessee towards purchase of Emu birds, feeding expenses etc. in the earlier years. A perusal of the assessment order shows that the sale proceeds of Emu birds is Rs. 7,02,000/-. The assessee has claimed Rs. 6,17,790/- as cost of purchase incurred during the year 2007-08 and feeding expenses (incurred during assessment year 2007-08 Rs. 92,300/-; and assessment year 2008-09 Rs. 1,63,490/-). Thus, the net profit as claimed by the assessee on sale of Emu birds is Rs. 84,210/-. The Assessing Officer has added back the cost of purchase of Emu birds as well as expenses incurred during the year 2007-08 (Rs. 92,300/-) towards feeing of the birds. In our considered opinion, the cost of purchase of Emu birds and the expenditure on the maintenance /feeding of birds should have been allowed by the Assessing Officer. The Assessing Officer has failed to appreciate the fact that without purchase of Emu birds, sale would not have been possible, so the cost of acquisition of Emu birds and the maintenance/feeding cost which the assessee has alleged not to have claimed during the assessment year 2007-08 deserves to be allowed as business expenditure. We, therefore, allow ground No.2 of the assessee.
8. With regard to second issue i.e. income from sale of coconuts, the Assessing Officer has disallowed the entire amount as agricultural income from sale of coconuts. The Assessing Officer while treating the income from sale of coconut trees as income from other sources has observed that it is not acceptable that Rs. 2,400/- worth of trees would have yielded an amount of Rs. 66,820/-. The assessee, on the other hand, has categorically stated that he has about 275 coconut trees out of which he has planted 200 coconut trees in the year 2004-05. The coconut trees start yielding fruit in three years time and it was during the relevant assessment year that for the first time, the trees planted by the assessee gave fruits and the assessee was able to earn Rs. 66,820/- from the sale of coconuts. The assessee has alleged to have purchased the land on which coconuts trees were planted in the assessment year 2004-05. This fact has not been rebutted by the D.R. The Assessing Officer has disallowed the entire income from coconut trees. No valid rationale has been given by the Assessing Officer in disallowing the income from sale of coconut trees as agricultural income during the relevant assessment year. The Assessing Officer has only mentioned that the assessee has failed to produce any documents on record to show that the trees were planted after the purchase of the land or that they existed at the time of purchase. On the basis of this presumption alone, the assessee cannot be denied the benefit of income earned by him from the sale of coconuts during the year under consideration.
As per the provisions of section 2(1A) of the Act, agricultural income means –
(a) Any rent or revenue derived from land which is situated in India and used for agricultural purposes;
(b) Any income derived from such land by agriculture or performance by cultivator or rent in kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market.
The term ‘agriculture’ has not been defined in the Act. One must necessarily fall back upon the sense in which it is understood in common parlance. ‘Agriculture’ in its root sense means ‘Agar’ a field and ‘culture’, cultivation of a field which of course implies expenditure on human skills and labour upon land. For growing coconut trees one has to perform basic essential operations which involve expenditure of human skill and labour upon the land. The assessee must have performed the basic operations required for growing coconut trees viz tilling of the land, planting etc. The assessee must have taken good care of the coconut trees for the period of three years before they start yielding fruit. We are, therefore of the considered opinion that growing of coconut trees require basic minimum of skill, labour etc. Therefore, the income earned from coconut trees deserves to be treated as agricultural income. However, as per the documents on record, the assessee has not produced any concrete evidence to show that it has earned income from sale of coconuts. A perusal of records shows that the assessee is a small time farmer. He may not have maintained record of sale of coconuts. However, in view of un-rebutted fact that the assessee had purchased land in the assessment year 2004-05, and that he had planted coconut trees on the same, to meet the ends of justice, it would be just and appropriate if 50% of the amount claimed by the assessee is allowed as income from sale of coconuts and is treated as Agricultural Income. Therefore, this ground of the assessee is partly allowed and the addition made by the Assessing Officer is deleted to that extent. The 50% income from sale of coconut is directed to be considered as Agricultural Income.
9. The third issue raised by the assessee in this appeal is regarding income from sale of turmeric . The Assessing Officer has made addition of Rs. 2,95,780/-, the amount alleged to have been earned by the assessee from sale of turmeric. The contention of the Assessing Officer that there is no correlation between the date of alleged sale of turmeric and the harvesting season of the produce is not tenable. The stand of the assessee throughout has been that the assessee use to sell the produce only during the time when he used to get maximum price for the crop. It is a well known fact and prudent knowledge that the farmers those who could afford to hold the produce and wait for the right time when they can get maximum price for the crop would sell the same, when they get best/maximum price of their produce. In the case of the assessee, the Assessing Officer made the addition only on the basis of presumption that since the harvesting season and sale of crop do not coincide, the income cannot be considered as agricultural income. The authorities below turned down the stand of the assessee that once the turmeric is harvested after making certain process, it is stored and when the prices are high the same is sold. The counsel appearing for the assessee has categorically stated that the total land under cultivation of coconuts and turmeric is approximately 3.9 acres and the cycle of cultivation and harvesting of turmeric crop is from 6 to 7 months. It seems that the Assessing Officer without taking into consideration the above facts has made the addition of Rs. 2,95,780/- as ‘Income from Other Sources’ on account of sale of turmeric and the same has been upheld by the CIT(A) in a mechanical manner. We therefore delete the addition made by the Assessing Officer and allow this ground of appeal as well.
10. In view of our above findings on the three issues, we set aside the impugned order passed by the CIT(A) dated 11.01.2012 and partly allow the appeal of the assessee in above terms.