Addition unsustainable as genuineness of agricultural operations accepted

ACIT Vs Enbee Plantation Ltd (ITAT Indore)

ITAT Indore held that addition unsustainable as genuineness of the agricultural operations of the assesse and sales made by the assesse duly accepted.

Facts- Notice was issued to the official liquidator for representing the assesse in the present proceedings. This is second round of litigation as the dispute in the present appeal of the revenue was also carried to this Tribunal by the assessee. This issue was set aside by the Tribunal to the record of the AO to reconsider the same in the light of the directions and observations of the Tribunal. AO repeated the addition while passing the assessment order in pursuant to the directions of this Tribunal. On further appeal, CIT(A) has deleted the addition made by the AO while passing the impugned order.

Being aggrieved by the impugned order of CIT(A), revenue has filed the present appeal.

Conclusion- It is clear that the AO has not complied with the directions of the Tribunal while passing the impugned order and just repeated the addition on the ground that the assesse has not produced any new facts or explanation with supporting evidence. It is pertinent to note that when the assesse has already produced the record at the time of original assessment and Tribunal has already given a finding so far as the genuine agricultural activity and produce of the assesse as well as sales made to M/s Tirupathi Agency then what was to be examined in the set aside proceedings by the AO to segregate the details of the sales made to M/s Tirupathi Agency and other parties if any. Instead of doing any verification in compliance of the direction of the Tribunal, the AO has made straight away the addition as it was made in the original assessment order.

Thus, the Ld. CIT(A) has considered the fact that all the details were produced by the assessee in the preceding assessment year regarding the genuineness of the agricultural activities and sale of agricultural produce by the assesse which were examined and found to be genuine by the Tribunal and consequently to the extent of the issue which is common for the year under consideration with the assessment year 1997-98. The Tribunal has accepted the genuineness of the agricultural operations of the assesse and sales made by the assesse. Accordingly, in the facts and circumstances of the case we do not find any error or illegality in the impugned order of Ld. CIT(A) qua this issue.

FULL TEXT OF THE ORDER OF ITAT INDORE

This appeal by the Revenue is directed against the order dated 29.01.2013 of Commissioner of Income Tax(Appeal), for Assessment Year 1998-99. The revenue has raised following grounds of appeal:

“On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting the addition of Rs. 3,89.76.161/- made by the AO on account of Income from other source as per section 56 of the IT. Act, 1961.”

2. Notice was issued to the official liquidator for representing the assesse in the present proceedings, however official liquidator chose to not appear before the Tribunal despite the notices and send reply dated 2nd May 2023. Accordingly the Bench proposes to hear and disposed of this appeal filed by the revenue ex-parte. The assesse has gone into liquidation and the official liquidator has been appointed as per the judgment of Hon’ble jurisdictional High Court in Company Petition No.03/2003.

3. This is second round of litigation as the dispute in the present appeal of the revenue was also carried to this Tribunal by the assesse in ITANo.385/Ind/2005 and Cross appeal by the Revenue in ITANo.480/Ind/2005. This issue was set aside by the Tribunal to the record of the AO to reconsider the same in the light of the directions and observations of the Tribunal. The AO repeated the addition while passing the assessment order in pursuant to the directions of this Tribunal dated 28.02.2011. On further appeal the Ld. CIT(A) has deleted the addition made by the AO while passing the impugned order. Aggrieved by the impugned order of Ld. CIT(A) the revenue has filed the present appeal.

4. DR has submitted that the assesse has not filed any evidence for verification and examination of the AO and therefore, the AO has made addition in respect of the sales of agricultural produce claimed by the assessee. He has referred to the assessment order and submitted that in absence of any supporting evidence the AO has reiterated the addition as made in the original assessment order.

5. We have considered the submission of the Ld. DR and carefully perused the impugned order of the assessing officer as well as the Ld. CIT(A). At the outset, we note that in the earlier round of litigation this tribunal vide order dated 28.02.2011 has considered this issue as under:

“15. We have considered the rival contentions and gone through the orders of the authorities below as well as the order of the Tribunal quoted hereinabove. With regard to the agricultural income of the assessee in the immediately preceding assessment year which has been accepted by the Tribunal after giving detailed finding with regard to the agricultural produce and its sales, we find that the Tribunal has also considered the fact of the assessee having been engaged in agricultural produce and also selling the same to various parties including M/s Tirupathi Agency. The Tribunal has considered all the aspects and the objections noted by the Assessing Officer and thereafter reached to the conclusion that the assessee company has genuinely sold its agricultural produce to M/s Tirupathi Agency. The Tribunal has also observed that the sales of the assessee were also examined by the Assessing Officer by issuing summons u/s 131 of the Act and all the purchasers have confirmed the fact of purchase of goods. It was also observed that the assessee had purchased sufficient agricultural land which was having sufficient availability of water and further boring was done to simply meet out the future demand. All these findings have been given with respect to the assessment year 1997-98. Present assessment year under consideration is 1998-99. We find that similar observation was made by the Assessing Officer in A.Y. 1997-98 which has been met by the assessee and the same has been reproduced by the Tribunal at pages 38 to 40 of its order which reads as under:

During the year, under consideration, similar objections were raised by the Assessing Officer and the learned Commissioner of Income tax (Appeals) for disbelieving the agricultural sale to M/s Tirupathi Agency. As the issue with regard to production of agricultural produce and its sale to M/s Tirupathi Agency has already been considered by the Tribunal in the immediately preceding assessment year and the same was found to be genuine by considering the facts of that assessment year. Keeping in view this, the decision of the Tribunal in the assessee’s own case for immediately preceding year, we direct the Assessing Officer to re-examine the sales effected by assessee to various parties including M/s Tirupathi Agency in the light of facts of the assessment year 1998-99. Accordingly, we restore the matter back to the file of the Assessing Officer for deciding it afresh after considering the assessee’s submissions and the observation made by the Tribunal with regard to the genuineness of the assessee being engaged in agricultural produce and holding huge agricultural land. We direct accordingly.”

6. The tribunal has given a concluded finding that so far as the sale to M/s Tirupathi Agency, the same was found to be genuine in the case of the assesse in the immediately preceding assessment year and therefore, the same was also considered by the tribunal as genuine for year under consideration. The AO was directed to re-examine the sale effected by assessee to various parties including M/s Tirupathi Agency in the light of facts of the assessment year under consideration. It is specifically made clear by the Tribunal that the AO to decide the matter afresh after considering assesse’s submission and observation made by the Tribunal with regard to the genuineness of the assesse being engaged in agricultural produce and holding huge agricultural land.

7. In the set aside proceedings the AO has repeat the addition in para 3 to 5 as under:

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8. Thus, it is clear that the AO has not complied with the directions of the Tribunal while passing the impugned order and just repeated the addition on the ground that the assesse has not produced any new facts or explanation with supporting evidence. It is pertinent to note that when the assesse has already produced the record at the time of original assessment and Tribunal has already given a finding so far as the genuine agricultural activity and produce of the assesse as well as sales made to M/s Tirupathi Agency then what was to be examined in the set aside proceedings by the AO to segregate the details of the sales made to M/s Tirupathi Agency and other parties if any. Instead of doing any verification in compliance of the direction of the Tribunal, the AO has made straight away the addition as it was made in the original assessment order. On appeal the Ld. CIT(A) has deleted the addition by considering the order of this Tribunal in para 3 as under:

“3. Ground No 3: That on the facts and in the circumstances of the case, the learned Assessing Officer was not justified in treating a sum of Rs.5,19,68,215/- being the agricultural income as income from other sources.

3.1 The AO has treated the agriculture income of Rs. 5,19,68,215/-shown by the assessee as “income from other sources”. The addition was made by the AO after making the following observations:

a. The assessee has produced information and facts which were produced beforethe predecessor AO and no fresh facts/explanation was furnished.

b. The assessee has failed to establish the genuineness of the sale of agriculture produce made to various persons.

c. The facts and circumstances of the case for A.Y 1998-99 are different from the facts and circumstances of the case for A.Y 1997­98 and hence, the order of the ITAT in the case of the assessee for A.Y 1997-98 is not applicable to the facts of A.Y 1998-99.

3.2 The learned AR submitted that the matter was sent back to the AO by the tribunal to reexamine the sales affected by the assessee to various parties. Thus, no new facts were required to be produced before the AO and the AO was expected to reexamine the sales. The assessee had produced filed before the AO all the facts necessary for verifying the sales made by the assessee which included: Complete details of 3904 acres of land available with him for its activities, Details of expenses incurred on agriculture operations aggregating to Rs.4,59,93,797/-

Details of Khasra-

Letter issued by CEDMAP which was a technical opinion for growth of short term growth.

ii.Particulars of all sales made by the assessee including the date of sale, name of the customer, name and quantitative details of the commodity sold and the sale value.

iii.Copy of the assessment order made by the sales tax authorities under the Sales Tax and Central Sales Tax Act accepting the sales of the assessee.

iv.All the copies of bills raised along with books of accounts were produced for verification.

It was further submitted by the AR that the Learned AO did not inform the assessee of any further information which he might have desired for getting satisfied about the genuineness of the sales made by the assessee. The AO has also failed to bring on record any specific reasons for disbelieving the sales of the assessee which he may have observed during the course of his re-examination

It was further submitted that the facts of assessment year 1998-99 were similar to the facts of the case of the assessee in A.Y1997-98 and the AO has simply stated that the facts are different without mentioning any specific difference in the facts and circumstances of the two cases. Accordingly, it was requested that the income of the assessee be held as income from agriculture.

3.3 I have carefully gone through the assessment order, and various assessment and appeal orders passed in the case of the assessee as also the order of the CIT(A) Bhopal & ITAT Indore in the case of the assessee for A.Y 1997-98, and the submissions of the appellant. It is observed that the AO has not brought on record any specific material to disbelieve the sales of the assessee which may have been observed by him during the course of his reexamination of sale and have also not brought on record any difference in the facts and circumstances of the case of the assessee when compared to the facts and circumstances of the case of the assessee for A.Y 1997-98 to justify non-applicability of the judgment of the Hon’ble Tribunal in that case to the present proceedings. The AO under such circumstances was not justified in treating the income shown as agriculture as income from other sources.

It is however observed that the agriculture income shown by the assessee in A.Y 37-98 was only Rs. 2,68,63,430/- as against the agriculture sales shown during the year at Rs. 5,19,68,215/-. The Learned AR was during the course of appeal proceedings asked to justify such quantum increase in sales. It is further observed that in the order of the ITAT dated 07.11.2008 for A.Y 1997-98, various facts distinguishing the facts of the case for A.Y 1997-98 from the facts of the case for A.Y 1998-99 are mentioned in Para 6.2.10 page 60 to 63. The Learned AR was directed to explain that in view of such differences, how the facts of the two years can be said to be the same.

iii. Detailed submissions were made by the Learned AR in this regards which are reproduced herein below:

1. “Regarding Increase in Sale of Agriculture Product

a. The sale of agriculture crop of the assessee during A.Y 1997-98 was Rs. 2,68,63,430/- as against the agriculture sales shown during the year at Rs. 51968215/-

b. The assessee up till 31.3.1997 was holding 1494.59 acres of land and during the year it acquired further 2409.94 acre of land and the total land holding as on 31.3.1998 was 3904.53 acres of land. The land holding of the assessee during the year accordingly increased to over two and a half time. Thus the land availability was much more during the year and as the assessee was already in the business of plantation the entire land acquired was immediately put to use. Details of the land have been filed before the AO and a copy of the same is enclosed here with for your ready reference.

c. The assessee has planted 10 lakh sapling in A.Y 1997-98 and additional 13 lakh sapling during the year. Thus total available saplings as at the yearend was 23 lakhs and the space utilised for growth of soft term crop amongst such plant was also increased to over 2.3 times compared to previous year. Reference in this regards can be made to the order of the CIT (A) Bhopal dated 01.03.2005 for A.Y 1998-99 page 24.

d. Thus it would be appreciated that compared to an increase of land availability to 2.6 time and sapling to 2.3 times the increase in sale of short term agriculture crop has increased to only 1.93 times. It may be mentioned that the sale of short term crop works out to Rs. 17973/- and Rs. 13309/- per acre of available land in A.Y 1997-98 and 1998-99 respectively. Thus though the sale value has gone up during the year the sale of short term crop per acre has substantially reduced during the year.

2. Regarding difference in facts of the case as mentioned in the order of ITAT for A.Y 1997-98

a. The AO has applied the provisions of section 145(3) and has rejected the books of accounts, which was not challenged by the AR at that time.

It may be mentioned that the AO in the present assessment order has not rejected the books of accounts and have not applied the provisions of section 145(3). Further even if it is held that the provisions of section 145(3) applied by the previous AO will also be applicable to the present order, the income of the assessee needs to be estimated and the best basis for such estimation is the past record of the assessee. Thus the income finally assessed in the A.Y 1997-98 is the best basis for making any estimation.

Thus this difference does not constitute any difference in the facts and circumstances of the case of the assessee for the two years.

b. No supporting entries in the records of patwari evidencing growth of crops shown to have been grown were produced.

In this regard it may be mentioned that the agricultural land taken on lease by the assessee was physically verified by various assessing officers during the course of assessment proceedings of various persons from whom the land was taken on lease. Such crops were also photographed and video graphed by the AO’s. In certain cases patwaris were also summoned and were asked to produce land records. Based on such verification the rents paid by the assessee to these companies were accepted as agriculture income in the case of the recipients. On all such verifications the land was found to be used for agricultural purpose. It may be mentioned that all such verifications were made subsequent to 31.3.1998 and were equally applicable to the facts of the case of current year also. Details of all such verifications are appearing in Para C page 42 and Para 6.2.9 page 57, of the order of the ITAT for A.Y 1997-98. This fact was not brought on records before the CIT (A) at the time of hearing for A.Y 1998-99 and was first brought on record during the appeal proceedings for A.Y 1997-98 which was held subsequently. However once this information was brought on record, it would equally apply to the current year also. Moreover once it is held that the land was used for agriculture during A.Y 1997-98 and was found to be in such use in a subsequent period also, it would be a very natural and probable presumption that the same was used for a similar object in the intervening period also.

Thus this difference does not constitute any difference in the facts and circumstances of the case of the assessee for the two years.

c. The assessee in A.Y 1998-99 was found to have made sales to M/s ABC Consultants New Delhi, amounting to Rs. 1,03,95,000/-. The said party was not traceable at the given address and the assessee failed to produce details of such transportation.

In this regards it may be mentioned that the sale to this party was assessed as non genuine by the AO for the first time in his order dated 29.3.2004. The reasons for holding the same as non genuine was given in para 6.4.2 of the said assessment order wherein it was held that “….there is no evidence to suggest the existence of the party itself, no existence of transportation of goods….to the business premises the party….and also non genuineness of the claim of the assessee with respect to sales made to M/s Tirupati agency……… the assessee’s claim of sales to this party is held to be non genuine”

It may be mentioned that the sale to the party was made during the F.Y 1997-98. The AO issued notice for the first time to the said party on 14.01.2004 u/s 133(6) of the Act which was app. 6 years after the transaction. Non availability of the customer at the given address after 6 years was not a fact from which any negative inference could have been drawn. Further the sales to M/s Tirupati Agency has already been held as genuine in the previous years on the facts and submissions made during appeal hearing for A.Y 1997-98 and all those facts squarely apply to the current year also. The assessee has claimed that the transportation of the goods was got done by the customer itself.

During the course of re-examination of sales by the AO the assessee has produced before the AO the order made by the sales tax authorities in which the sales tax authorities have accepted the interstate sales made to such party and had levied sales tax & interest on such transaction at Rs.260345/-which was also paid by the assessee.

Thus the sales made by the assessee were verifiable during the present proceedings.

Morcover as detailed in Para I above the overall sale of the assessee during the year of Rs. 519 lakh is not very abnormal or unreasonable in comparison to the past performances of the company.

d. That in A.Y 1998-99 growth of 23 lakh saplings was considered by the CIT on the basis of which he was of the opinion that adequate land would not be available to achieve turn over of Rs. 5 Crore.

In this regards it may be mentioned that in the appeal order dated 1.3.2005 passed by the CIT (A) for this year, the Hon’ble CIT made some calculations and at page 21 of the order estimated the land requirement for the saplings planted at 3749 acres. As against this requirement the assessee was holding 3904.53 acre of land. The Hon’ble CIT was of the opinion that as the details of handling over of land was not available, adequate land might not have been available for achieving the sales of Rs. 5 Crore. It is submitted that the availability of land as at the current year end was 2.6 times of the land available as on 31.3.1997. Compared to this the sale of short term crop has only increased to 1.9 times. Moreover per acre yield in A.Y 1997-98 was Rs. 17973/- as against per acre yield of Rs. 13301/- during the year. Thus it cannot be said that the assessee was not having adequate land to achieve the turnover of Rs. 5 Crore.

e. The assessee in assessment year 1998-99 has shown income from sale of teak/ sewan cuttings. The CIT was of the opinion that the plants had not achieved the requisite growth to produce such cuttings.

The total sale of such cuttings was only 40,30,000/- in a total sales of Rs. 519 3h which constituted less than 8% of total sales. The Hon’ble CIT (A) has anade calculation of land requirement on 23 lakh saplings planted. Thus the sales of cutting give an average of Rs. 1.75 per sapling which can hardly be called excessive or unreasonable. f. The exact details of handling over of land were not provided in that case.

As already detailed in Para 2.d above the increase in sales is very normal and probable.

g. The CIT (A) has stated that the assessee has failed to substantiate expenses on purchase and other expenses.

In this regards it may be mentioned that during the year the assessee has incurred expenses of Rs. 4,59,93,797/- on agriculture operations. During the course of re examination of the sales the assessee has produced full details of such expenses which were debited to “Project Deployment Expenses” and shown in the balance sheet. Thus the said finding of the CIT (A) no longer holds good.

As mentioned above the difference in the facts and circumstances between the two years as appearing in the appeal order do not hold good in the present proceedings or are of the nature from which no negative inference can be drawn”.

iv.I have carefully gone through the submissions of the appellate and the orders of the various authorities passed in the case of the assessee,

The Hon’ble ITAT, Indore Bench, Indore while sending the case to the AO for reexamining the sales have held that

Para 15: we have considered…………… with regards to the agriculture income of the assessee in the immediately preceding assessment year which has been accepted by the tribunal after giving detailed finding with regard to the agriculture produce and sales, we find that the tribunal has also considered the fact of the assessee having been engaged in agriculture produce and also selling them to various parties including m/s Tirupati Agency. The tribunal has considered all aspects and the objections noted by the AO and there after reached to the conclusion that the assessee company has genuinely sold its agriculture produce to M/s Tirupati Agency………….. all these findings have been given with respect to A.Y 1997-98………… Present assessment year under consideration is 1998-99. We find that similar observation was made by the Assessing Officer in A.Y 1997- 98 which has been met by the assessee…….. During the year, under consideration, similar objections were raised by the assessing Officer and the learned Commissioner of Income Tax (Appeals) for disbelieving the sales to M/s Tirupati Agency….. “

The Hon’ble bench as detailed above has already held that “……… all these findings have been given with respect to A.Y 1997-98. Present assessment year under consideration is 1998-99. We find that similar observation was made by the Assessing Officer in A.Y 1997­98 which has been met by the assessee”

Thus, it is observed that it has already been observed/held by the Hon’ble tribunal that all the facts mentioned by the AO/CIT (A) in their respective orders for disbelieving the sales of the assessee has already been met.

The AO in the order under appeal has failed to bring on record any fresh material to disbelieve the sales of the assessee which might have been observed by him during the course of reexamination.

All the observation made regarding difference in the facts and circumstances of the case for the two years under reference has been duly explained by the Learned AR. The explanation of the AR, in this regard, are very probable and acceptable and thus, it is held that the facts and circumstances of the two assessment years are not materially different and the differences have otherwise also been satisfactorily explained and accordingly the finding of the Hon’ble bench in the case of the appellant for A.Y 1997- 98 are squarely applicable to the present assessment also.

It is also observed that in the order for A.Y 1997-98, the Hon’ble Bench has placed reliance on the decision in the case of ITO v/s Shehnaz Bano in I.T.A. No. 443/Ind/ 2004 dated 7.1.2005, wherein it was held that, in case, the assessee has only agriculture income and no other income, then, no addition can be made to the total income unless and until, the AO proves that the assessee has any other source of income which is taxable under the Act.

During the current assessment year also, the AO has failed to bring on record any source of income other than agriculture income.

It is however noted that in the appeal order dated 20.02.2007 for A.Y 1997-98 it was observed by the CIT (A) that the expenses incurred by the assessee on agriculture activities including expense on growing of short term crops had been charged to project deployment account which was reduced from the joint venture funds received by the company and was shown as a liability. This accounting treatment was held to be non acceptable as it resulted in gross sale of short term crops being shown as income with corresponding expenses being reduced from the liability. Under the circumstances 25% of the sale proceeds of short term crops were estimated to be expenses on growing short term crop and the AO was directed to reduce the agriculture income by 25% and consequential difference was directed to be reduced from Project Deployment account. order of the CIT(A) has been confirmed by the Hon’ble ITAT, Indore.

The facts of the present year are similar to the facts of the A.Y 1997­98. During this year also the appellant is found to have charged expenses incurred on growing short term crop to project deployment account and showing net sales of short term crop as its income. As per the past history 25% of the net sales of short term crop i.e Rs. 1,29,92,054/- are estimated to be expenses incurred on growing such crop. The net agriculture income of the appellant is held to be Rs. 3,89,76,161/- The consequential difference of Rs. 1,29,92,054/- is directed to be adjusted out of project deployment account.

For the reasons mentioned above this ground of appeal is allowed and the AO is directed to assess Rs. 3,89,76,161/- as income from agriculture and to reduce balance of Rs. 1,29,92,054/- from the project deployment account.”

9. Thus, the Ld. CIT(A) has considered the fact that all the details were produced by the assessee in the preceding assessment year regarding the genuineness of the agricultural activities and sale of agricultural produce by the assesse which were examined and found to be genuine by the Tribunal and consequently to the extent of the issue which is common for the year under consideration with the assessment year 1997-98. The Tribunal has accepted the genuineness of the agricultural operations of the assesse and sales made by the assesse. Accordingly, in the facts and circumstances of the case we do not find any error or illegality in the impugned order of Ld. CIT(A) qua this issue.

10. In the result, appeal of the revenue is dismissed.

The Order is pronounced in the open court on 20.07.2023.