Daftari agro Biotech Pvt. Ltd. Vs Ward 9(3)(1) (ITAT Mumbai)
The ITAT Mumbai allowed the assessee’s claim of agricultural income exemption under Section 10(1), holding that production and sale of foundation seeds constitutes agricultural activity.
The Assessing Officer had denied exemption of about ₹70.99 lakhs, treating the activity as commercial/business income, citing the assessee’s earlier status as an R&D company and its linkage with hybrid seed production. The CIT(A) upheld this view.
However, the Tribunal observed that:
- The assessee carried out basic agricultural operations such as sowing, breeding, watering, and cultivation on its own/leased land,
- Approval as an R&D company had already expired, and
- The earlier MoU with sister concern had also ceased, indicating a shift to pure agricultural operations.
The ITAT relied on the jurisdictional Bombay High Court ruling in CIT vs. Ajeet Seeds Ltd., which held that seed production involving human skill, labour, and land-based operations qualifies as agricultural activity, even if scientific inputs are involved.
It further clarified that:
- Presence of scientific techniques does not negate agricultural character, and
- As long as basic agricultural operations exist, income falls within Section 2(1A).
Accordingly, the Tribunal:
- Allowed exemption under Section 10(1), and
- Deleted the addition, allowing the appeal in full.
The ruling reinforces that seed production activities, when rooted in land-based operations, qualify as agricultural income despite commercial or scientific elements.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The present appeal has been filed by the assessee challenging the impugned order 15.09.2025 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi (NFAC) for the assessment year 2016-17. The following grounds are reproduced below:
“Ground 1. On the facts and circumstances of the case and the law, the learned commissioner of income tax appeals erred in. 1 confirming the order of the assessing officer who disallowed claim of exempted income (agricultural income) from sale of foundation seeds of Rs. 7099900.
Ground 2. On the facts and circumstances of the case and the law, the learned commissioner of income tax appeals erred in holding that assessee claim of agricultural activity is not borne out of the facts even when same is not doubted anywhere by the assessing officer.
Ground 3. On the facts and circumstances of the case and the law, the learned commissioner of income tax appeals erred in denying exemption holding that essential character of assesses operation is that of business entity engaged in commercial exploitation of research derived seeds disregarding the provisions of Article 366(1) of the constitution of India.
Ground 4. On the facts and circumstances of the case and the law, the learned commissioner of income tax appeals erred in holding that assessee has been recognized as Research and 4 Development company earlier and hence operations are commercial in characters disregarding the fact that income in instant case is derived from the land and thus falls within definition of Section 2(1A) of the Act.
Ground 5. On the facts and circumstances of the case and the law, the learned commissioner of income tax appeals erred in 5 dismissing jurisdictional high court decisions in Ajanta Seeds Ltd which interalia held that seed production is agricultural activity.
Ground 6. On the facts and circumstances of the case and the law, the learned commissioner of income tax appeals erred in concluding that entire arrangement is designed to recharacterize business income as agricultural income to avail exemption us 10(1) even when nothing of this sort is alleged by the assessing officer and there is nothing on record to indicate so.
Ground 7. On the facts and circumstances of the case and the law, the learned commissioner of income tax appeals erred in holding that agricultural income under S 2(1A) does not extend to activities that are predominantly scientific and commercial in nature even though they may involve cultivation at certain stages.
Ground 8.On the facts and circumstances of the case and the law, the learned commissioner of income tax appeals erred in holding and applying aforementioned reasoning ignoring the facts that assessee is no more carrying out research activities during the year has utilized the seeds to produce foundation seeds which were sold to other for production of hybrid seeds for ultimate utilization by the farmers and assessee has no licensing OR expertise to produce and sell hybrid seeds and all activities are land related and thus qualify for exemption under the Act.”
2. All the grounds raised by the assessee are interrelated and interconnected and relate to challenging the order of the Ld. CIT(A) in upholding the order of the AO in disallowing the claim of exempt income from the sale of foundation seeds. Therefore, we have decided to adjudicate these grounds through the present consolidated order.
