Cultivation of high quality foundation seeds of peas, wheat, paddy & potato is agricultural activity

Malook Singh Vs PCIT (ITAT Delhi)

CIT(A) held that cultivation of high quality foundation seeds of peas, wheat, paddy and potato is different from normal agricultural activity. Against this, the assessee has submitted all the bills & vouchers for expenses like lease rent, power bills, fertilizer, seeds, labour, wages and details of sale and mandi receipts. Copy of the kashra for the Fasli Varsh for the corresponding year have been produced. Copy of the report of the Tehsildar and the Lekh Pal have been submitted before the authorities to prove the fact of doing agricultural operations. The same have been examined by the AO during the assessment proceedings. The area wise details of each crop, quantity of yield, details of sales have been provided before the AO during the assessment proceedings. Most importantly, the similar income from the same agricultural operations and sale thereof has been considered as agricultural income in the earlier Assessment Years as well as in the subsequent Assessment Years. Hence, in view of the entire facts of the case, the appeal of the assessee is liable to be allowed on procedural technicalities as well as on merits of the issue.

FULL TEXT OF THE ORDER OF ITAT DELHI

The present appeals have been filed by the assessee against the orders of ld. Pr. CIT, Ghaziabad dated 02.03.2021.

2. Since, the issues involved in both the appeals are identical, they were heard together and being adjudicated by a common order.

3. In ITA No. 787/Del/2021, following grounds have been raised by the assessee:

“1. That the ld. PCIT has erred in law as well as on facts in revision of assessment order dated 29.10.2018 passed by the Ld. AO u/s 143(3) of the Act considering the same as erroneous and prejudicial to the interest of revenue.

That the Ld. PCIT vide has erred in law as well as on facts in considering the farming of high quality breeder/foundation/certified seeds of crops as non-agriculture produce in terms of section 2(1A) of the Income Tax Act, 1961 and treating the exempt agriculture income from such produce as income from commercial activity/ business income which ought not to have been made.

3. That the Ld. PCIT has erred in law as well as on facts in considering the cash deposit of Rs. 33,01,910/- made by the assessee minus deposit of Rs. 4,20,000/- sourced out of bank loan obtained from Indian bank, as net income of Rs. 28,54,310/- after deducting farm expenses of Rs. 27,600/- (instead of Rs. 14,19,800/-} as agricultural income as disclosed in return of Income without considering the submission of assessee.

4. That the Ld. PCIT has erred in law as well as on facts by considering the order of Ld. AO as erroneous and prejudicial on the basis of merely alleging that no enquiries were conducted by the Ld. AO and placing reliance on decisions of Apex Court which either pertains to other law or do not deal with matter identical to the facts and circumstances of the present case.

5. That the Ld. PCIT has erred in law as well as on facts in holding that the sale of seeds is made after changing their basic character, thereby holding that the seeds sold by the assessee are consumable products.

6. That the Ld. PCIT has erred in law as well as on facts in treating the impugned income as business income instead of agricultural income, by averring that the assessee is engaged in non-agricultural activities.

7. That the CIT has erred in law as well as on facts by confirming the charging of interest u/s 234B and 234C of the Income Tax Act, 1961.”

4. In ITA No. 788/Del/2021, following grounds have been raised by the assessee:

“1. That the Ld. PCIT has erred in law as well as on facts in revision of assessment order dated 29.10.2018 passed by the Ld. AO u/s 143(3) of the Act considering the same as erroneous and prejudicial to the interest of revenue.

2. That the Ld. PCIT vide has erred in law as well as on facts in considering the farming of high quality breeder/foundation/cert filed seeds of crops as non-agriculture produce in terms of section 2(1A) of the Income Tax Act, 1961 and treating the exempt agriculture income of Rs.55,00,000/- from such produce as income from commercial activity/ business income which ought not to have been made.

3. That the Ld. PCIT has erred in law as well as on facts by considering the order of Ld. AO as erroneous and prejudicial on the basis of merely alleging that no enquiries were conducted by the Ld. AO and placing reliance on decisions of Apex Court which either pertains to other law or do not deal with matter identical to the facts and circumstances of the present case.

4. That the Ld. PCIT has erred in law as well as on facts in holding that the sale of seeds is made after changing their basic character, thereby holding that the seeds sold by the assessee are not consumable products.

5. That the Ld. PCIT has erred in law as well as on facts in treating the impugned income as business income instead of agricultural income, by averring that the assessee is engaged in non-agricultural activities.

6. That the CIT has erred in law as well as on facts by confirming the charging of interest u/s 234B and 234C of the Income Tax Act,1961.”

5. The case of the assessee has been taken up for assessment u/s 148 of the Income Tax Act, 1961 for examination of the cash deposits and completed the assessment determining income of Rs.66,830/- and agricultural income of Rs.14,19,800/-.

6. The ld. PCIT initiated proceedings u/s 263 and at para no. 4.5 of the order held that the net agricultural income of the assessee was Rs.28,54,310/- instead of Rs.14,19,800/- as declared by the assessee and based on the discussion at para 4.2 treated the agricultural income as income from business. The Assessing Officer was directed to re-compute the total income of the assessee and issue demand notice accordingly.

7. Aggrieved the assessee filed appeal before us.

8. Heard the arguments of both the parties and perused the material available on record.

9. The ld. CIT(A) held that the cultivation of high quality foundation seeds of peas, wheat, paddy and potato is different from normal agricultural activity. Against this, the assessee has submitted all the bills & vouchers for expenses like lease rent, power bills, fertilizer, seeds, labour, wages and details of sale and mandi receipts. Copy of the kashra for the Fasli Varsh for the corresponding year have been produced. Copy of the report of the Tehsildar and the Lekh Pal have been submitted before the authorities to prove the fact of doing agricultural operations. The same have been examined by the AO during the assessment proceedings. The area wise details of each crop, quantity of yield, details of sales have been provided before the AO during the assessment proceedings. Most importantly, the similar income from the same agricultural operations and sale thereof has been considered as agricultural income in the earlier Assessment Years as well as in the subsequent Assessment Years. Hence, in view of the entire facts of the case, the appeal of the assessee is liable to be allowed on procedural technicalities as well as on merits of the issue.

10. In the result, the appeals of the assessee are allowed. Order Pronounced in the Open Court on 25/01/2023.