Charoen Pokphand Seeds India Pvt. Ltd. Vs PCIT (ITAT Bangalore)
ITAT Bangalore held that AO completed the assessment completed without verification of exemption claimed by the assessee u/s 10(1) and hence Pr. CIT validly initiated proceedings under section 263 of the Income Tax Act.
Facts-
Pr.CIT called for the assessment records of the assessee and examined that the exemptions claimed on agricultural income of Rs.14,50,17,783/- by the assessee that was allowed by the Ld.AO in the order passed u/s. 143 (3) of the Act. He also noted that a sum of Rs.46,44,792/-was deposited in the bank account of assessee during the demonetization period.
Pr.CIT was of the opinion that, the assessing officer did not make sufficient enquiries to understand the facts behind the agricultural income declared by the assessee. Pr.CIT, accordingly issued notice u/s. 263 of the Act.
Pr.CIT, after considering the submissions of the assessee passed the order by setting aside the assessment order passed by AO, with a direction, to carry out fresh examination of the claim of agricultural income claimed to be exempt by the assessee under section 10 (1) of the Act. Aggrieved by the order of Pr.CIT, the assessee is in appeal before this Tribunal.
Conclusion-
Held that it is prima facie inferred that the no details are filed by the assessee and AO has not verified the exemption claimed by the assessee under section 10(1) of the Act. Thus, in our view, the original assessment is completed without proper enquiries, that necessitated Pr.CIT to issue section 263 of the Act.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
Present appeal arises out of the order u/s. 263 dated 15.03.2022 passed by the Ld.Pr.CIT, Bengaluru – 2, Bengaluru for assessment year 2017-18 on following grounds of appeal:
“The Appellant objects to the Revision Order passed u/s. 263 on the following grounds in so far as it is prejudicial to the as it is opposed to law and circumstances of the case: – Originally the Appellant has taken only one ground relating to deduction u/s.35(2AB). The following grounds were not taken by oversight. Hence the Appellant is filing Revised Grounds of Appeal as mentioned below.
1. The Pr. CIT erred in invoking the provisions of section 263 of the Act ignoring the fact that the Appellant company’s activities falls under Agricultural activities and the said agricultural income is exempt from tax u/s.10(1) of the Act and the same was examined by the A.O. during the course of assessment.
2. The Pr. CIT was not correct in not appreciating the facts that the A.O. has verified the Agricultural income claimed as exempt and allowed the same as exemption from ta, based on the Appellant company’s activities, during u/s.143(3) proceedings by calling detailed information in this regard.
3. The Pr. CIT erred in invoking the provisions of section 263 of the Act ignoring the facts that the AO has made detailed enquiry about the allowability of Agricultural income as exempt by issuing specific show cause notice dated 16.12.2019.
4. The Pr. CIT was not correct in directing AO to revise the assessment by invoking he provisions of section 263 relying on the decision of Hon’ble High court in the case of Namdhari Seeds Pvt Ltd without appreciating the facts that the Appellants company activities falls under Agricultural activities and the same is exempt u/s.10(1) of the Act.
5. The Appellant craves leave to add, to alter, to amend or to delete any of the grounds that may be urged at the time of hearing of the Appeal
Wherefore on the above grounds and on such other grounds the prays the Appellate Authority to set aside the Revision order passed u/s.263 as above and may pass such other as the Appellate Authority deems fit.”
2. Brief facts of the case are as under:
2.1 The assessee is a company and is into the business of R&D of germ plasm, production of foundation seeds from germ plasm, processing and marketing of commercial seeds in India and abroad. For the year under consideration, the assessee filed its return of income on 29/11/2017 declaring loss of ₹ 6,46,24,711/-after claiming agricultural income of Rs.14,50,17,783/- and deduction u/s. 35(2AB) of Rs.7,52,26,133/-. The case was selected for a complete scrutiny under CASS.
2.2 The assessment was completed under section 143 (3) of the Act on 23/12/2019. In the assessment order the Ld.AO disallowed ₹ 7,52,26,133/- claimed as weighted deduction under section 35(2AB) of the act in absence of Form 3CL issued by DSIR thereby determining the total taxable income at ₹ 1,06,01,422/- in the hands of assessee.
2.3 The Ld.Pr.CIT, called for the assessment records and examined the exemptions claimed on agricultural income of Rs.14,50,17,783/- by the assessee that was allowed by the Ld.AO in the order passed under section 143 (3) of the Act. He also noted that a sum of Rs.46,44,792/-was deposited in the bank account of assessee during the demonetisation period.
2.4 The Ld.Pr.CIT was of the opinion that, the assessing officer did not make sufficient enquiries to understand the facts behind the agricultural income declared by the assessee.
The Ld.Pr.CIT, accordingly issued notice under section 263 of the Act, on 18/03/2021, reproduced as under:
“On perusal of your Income Tax assessment records, it is noticed that the assessment concluded by Dy. Commissioner of Income Tax, Circle-2(2)(1) Bengaluru for the assessment year 2017-18 on 23-12-2019 is erroneous and prejudicial to the interest of revenue for the following reason(s);
2. It is seen that scrutiny assessment u/s 143(3) in your case was concluded on 23-12-2019 by assessing the total income at Rs.. 1,06„01,422/- after making addition of Rs.7,52,26,133/- as unexplained deduction u/s 35(2AB) of the Act.
3. Further it is noticed from the financials that you had claimed exemption of agricultural income u/s 10(1) amounting to Rs.14,50,17,783 /- and the same has been allowed in the order passed u/s 143(3). The company is into the R & D of Germ plasm, production of foundation seeds from germ plasm, processing and marketing of commercial seeds in India and abroad. The basic operation of agriculture is not carried on by the assessee and assessee enters into agreement with farmers and agricultural operations are conducted by farmers.
4. In decision of Hon’ble Karnataka High Court in CIT V. Namdhari Seeds P. Ltd., it was held that the such income of agri-business firms come under the purview of business income which attracts tax under the provisions of IT Act, 1961. Therefore, the income derived there from does not qualify as agricultural income and has to be treated as business income.
5. Therefore, you are required to show cause why the income derived by company from sale of commercial seeds amounting to Rs.14,50,17,783 /- should not be treated as business income as it does not qualify as agricultural income.
6. As such, action u/s 263 of IT Act is warranted and the assessment for the assessment year 2017-18 is proposed to be revised accordingly.
7. In this connection, you are hereby given an opportunity of being heard by the undersigned on 23.03.2021 at 3.30 PM at Room No.516, BMTC Building, 5th Floor, 80 Feet Road, Koramangala 6th Block. BENGALURU- 560095. You may appear in person or through your Authorised representative as per Section 288 of the Income-tax Act or furnish your written submission on the above proposal on or before the said date, failing which the proceedings u/s 263 of IT Act will be concluded based on the materials available on record.”
2.5 In response to the show cause notice, assessee filed its objections vide letter dated 23/03/2021 justifying the agricultural income to be exempt as contemplated under section 10 (1) of the Act.
2.6 The Ld.Pr.CIT, after considering the submissions of the assessee passed the 263 order by setting aside the assessment order passed by the Ld.AO, with a direction, to carry out fresh examination of the claim of agricultural income claimed to be exempt by the assessee under section 10 (1) of the Act.
2.7 Aggrieved by the order of the Ld.Pr.CIT, the assessee is in appeal before this Tribunal.
3. All the grounds raised by assessee are in respect of the validity of the proceedings initiated under section 263 of the Act by Ld.Pr.CIT.
4. The Ld.AR submitted that, the activity carried on by the assessee falls under agricultural operation and is eligible for claim under section 10 (1) of the Act. He submitted that, before the Ld.AO, during the course of assessment proceedings, under section 143(3) of the Act, the assessee filed various details/documents in respect of the claim. Referring to the show cause notice issued by the Ld.AO during the original assessment proceedings dated 16/12/2019, the Ld.AR submitted that, the assessing officer had raised a specific query in respect of the exempt income and the letter filed by assessee dated 19/12/2019 furnishing all the relevant details in respect of the claim. He submitted that, all material facts necessary for completing the assessment was available before the Ld.AO and therefore no prejudice is caused to the revenue.
5. It is the argument of the Ld.AR that, merely because issue was not elaborately discussed in the original assessment order, could not be a ground to invoke revisionary jurisdiction, particularly when, the details were called for by the Ld.AO during the original assessment proceedings. In support of his contention, he placed reliance on the following decisions:
