2015 (11) TMI 632 - AT - Income Tax

Application of provisions of rule 7B of the Income-tax Rules, 1962 - CIT (Appeals) found that the assessee is not marketing any coffee product and the assessee is only an agriculturist observing that the provisions of rule 7B are not applicable - Held that - If the assessee derives income from sale of coffee grown, cured, roasted and ground with or without mixing chicory or other flavouring ingredients, then 40 per cent. of income shall be treated as from business for the purpose of taxation under the Income-tax Act. The balance 60 per cent. has to be treated as income from business. The Commissioner of Income-tax (Appeals) found that the assessee is not engaged in coffee processing activity and the assessee is only selling the sun dried coffee seeds. In other words, the assessee is selling cured coffee seeds. If the assessee is selling only cured coffee seeds, the provisions of rule 7B(1) would come into operation. Therefore, the Commissioner of Income-tax (Appeals) may not be correct in observing that the provisions of rule 7B are not applicable in case the assessee is selling only the sun dried coffee seeds and not engaged in other processing activity. Therefore, this Tribunal is of the considered opinion that income from coffee estate has to be computed by applying rule 7B of the Income- tax Rules, 1962. Therefore, the order of the Commissioner of Income-tax (Appeals) is set aside and the entire issue is remitted back to the file of the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) shall apply the provisions of rule 7B and thereafter compute the income from coffee estate. Disallowance of expenditure for earning the agricultural income - Held that - While considering the claim of the assessee for computation of income from coffee estate, this Tribunal remitted back the matter to the file of the Commissioner of Income-tax (Appeals) to compute the income by applying rule 7B of the Income-tax Rules, 1962. Therefore, this issue also needs to be reconsidered by the Commissioner of Income-tax (Appeals). Accordingly, the disallowance is also set aside and remitted back to the file of the Commissioner of Income-tax (Appeals). - Decided in favour of revenue for statistical purposes.

Summary

Issues:
1. Addition of income from coffee estate under "Income from other sources".
2. Disallowance of expenditure related to interest income and agricultural income.

Analysis:

Issue 1: Addition of income from coffee estate under "Income from other sources"
The appeal pertains to the assessment year 2006-07, where the Revenue challenged the order of the Commissioner of Income-tax (Appeals) regarding the addition of income from a coffee estate under the head "Income from other sources". The Assessing Officer estimated the income from agriculture and business based on the yield per hectare, resulting in a significant amount being brought to taxation. The appellant claimed ownership of a larger coffee estate than assessed and argued against the disallowance. The Commissioner of Income-tax (Appeals) found the appellant's claim reasonable, emphasizing that the appellant was primarily an agriculturist. However, the Tribunal noted the applicability of rule 7B of the Income-tax Rules, 1962, in determining income from a coffee estate. As the appellant was selling only sun-dried coffee seeds, the Tribunal concluded that the entire issue should be reconsidered by the Commissioner of Income-tax (Appeals) applying rule 7B for accurate computation of income.

Issue 2: Disallowance of expenditure related to interest income and agricultural income
The second ground of appeal concerned the disallowance of expenditure amounting to a significant sum. The Assessing Officer questioned the expenditure incurred in earning interest income from deposits, while the Commissioner of Income-tax (Appeals) acknowledged expenditure related to agricultural income. The Tribunal highlighted the need for a reassessment of this disallowance in light of the pending reconsideration of the income computation from the coffee estate. The Tribunal set aside the disallowance and remitted the issue back to the Commissioner of Income-tax (Appeals) for a fresh review, ensuring a reasonable opportunity for the appellant to present their case.

In conclusion, the appeal filed by the Revenue was allowed for statistical purposes, and the entire matter was directed to be re-examined by the Commissioner of Income-tax (Appeals) to ensure accurate computation of income from the coffee estate and reconsideration of the disallowed expenditure.