2014 (7) TMI 873 - HC - Income Tax

Agriculture income - Bogus capital formation through shares - Rule 7 of the Income Tax Rules, 1962 Held that - Following Commissioner of Income Tax-I, Chandigarh Versus Rana Gurjit Singh 2011 (2) TMI 241 - PUNJAB AND HARYANA HIGH COURT - Calculation made by the AO while working out non-agricultural income in the hands of the assessee, addition/disallowance in the hands of the assessee on account of non-agricultural income is not justified, as the conversion of raw seeds into pea seeds cannot be held as non-agricultural merely on the ground that there was a complete change from raw seeds into pea seeds which was not justified that the assessee changed such raw seeds into pea seeds, observing that the same was a highly perishable item which would have resulted in prospective loss in absence of marketability for the same Decided against Revenue.

Summary

Issues:
1. Interpretation of Section 2(1A)(b)(ii) and 2(1A)(b)(iii) of the Income Tax Act, 1961 regarding processing of raw peas into pea seeds by a cultivator.
2. Determining whether the conversion of raw peas into pea seeds by the assessee constitutes an ordinary procedure despite the availability of a ready market for raw peas.
3. Assessing the existence of incremental profit to be taxed as non-agricultural income under Rule 7(1) and 7(2) based on the prevailing market rate of raw peas.

Analysis:
1. The appeal was filed by the revenue challenging the order of the Income Tax Appellate Tribunal regarding the assessment year 2002-03. The substantial questions of law raised by the revenue pertained to the interpretation of Section 2(1A)(b)(ii) and 2(1A)(b)(iii) of the Income Tax Act, 1961 in relation to the processing of raw peas into pea seeds by a cultivator. The revenue contended that the conversion process did not qualify as an ordinary procedure employed by the cultivator. However, the learned counsel for the revenue acknowledged that the issue was identical to a previous case where the Tribunal had ruled against the revenue. Consequently, the High Court dismissed the appeal, upholding the Tribunal's decision.

2. The second issue revolved around whether the conversion of raw peas into pea seeds by the assessee constituted an ordinary procedure, considering the availability of a ready market for raw peas at the Hindustan Lever Canning Plant. Despite the assessee's admission regarding the existence of a ready market, the Hon'ble ITAT held that the conversion process was ordinary, involving uprooting, thrashing, and winnowing the plant to make it market-ready. The revenue contested this finding, but as the Tribunal had already ruled on a similar matter in a previous case, the High Court dismissed the appeal on the same grounds.

3. The final issue addressed whether there was incremental profit to be taxed as non-agricultural income under Rule 7(1) and 7(2) based on the prevailing market rate of raw peas. The assessee had calculated incremental profits in his submissions to the Assessing Officer, while the Tribunal concluded that no incremental profit should be taxed when considering the prevailing market rate of raw peas. The revenue challenged this decision, but since the Tribunal had previously ruled against the revenue on a similar matter, the High Court upheld the Tribunal's decision and dismissed the appeal.

In conclusion, the High Court dismissed the revenue's appeal on all grounds, as the issues raised had already been decided against the revenue in previous cases. The judgment reaffirmed the Tribunal's findings regarding the interpretation of relevant provisions of the Income Tax Act, 1961 and the assessment of incremental profits in the context of agricultural income.