2016 (5) TMI 956 - AT - Income Tax

Inflation of agricultural income - artificial boosting of income by the assessee - Held that - When an assessee asserts that the income raised by it is on account of sale of agricultural produces, onus is on the assessee to prove such agricultural income. In our opinion, assessee before us has failed to discharge this onus. Despite number of opportunities given by the AO assessee was unable to establish how it could raise so much plants and saplings from five hectares of green house area. As for the claim of the Ld. AR that even if the agricultural income is found to be incorrect, it would not warrant addition since there was no real income, we are afraid we cannot accept. This for the reason that a sum of ₹ 12 crores out of the dues shown by the assessee as receivable from its subsidiary has been converted by the assessee to share capital or treated as share application money. Whether converted to share capital or to transferred to share application money, there is an infusion of capital which is not a fictitious, but a real one. CIT (A) in our opinion was oblivious to the date of accounting of the supplementary invoice by the assessee which was on the very same day when it had raised original invoice. He was also oblivious to the ALP of the goods relating to the supplementary invoice fixed by the auditors at zero. He considered the raising of bogus invoices to inflate the agricultural income as mere non-compliance with procedures of the RBI or Customs. What we observe is that assessee had claimed agricultural income which was not possible from the type of holding it had, and had adopted dubious methods for this. Nothing was brought on record to show that there was any industrial practice in floriculture where two invoices were raised on the same day, on purportedly for a notional value and other purportedly based on subsequent realization. To be precise there cannot be any industrial practice of that sort at all. We are of the opinion that CIT (A) fell in error in deleting the addition made by the AO. We reverse the order of CIT (A) and reinstate the addition. - Decided in favour of Revenue.

Summary

Issues:
1. Disputed agricultural income exemption claim.
2. Validity of supplementary invoices.
3. Compliance with transfer pricing regulations.
4. Alleged inflation of agricultural income.
5. Jurisdiction of assessing officer in determining agricultural income.
6. Treatment of converted dues as share capital.

Analysis:
1. The appeal involved a dispute regarding the agricultural income exemption claim made by the assessee. The Revenue contested the deletion of an addition of ?17,84,37,105 by the CIT (A) against the order of the CIT (A)-I, Bangalore. The Revenue raised various grounds challenging the deletion of the addition.

2. The facts revealed that the assessee, engaged in various businesses, had filed its return of income declaring nil income after claiming exemption for agricultural income. The Revenue contested the validity of the supplementary invoices raised by the assessee, especially concerning sales to its subsidiary in Ethiopia. The AO questioned the authenticity of the agricultural income claimed by the assessee and made an addition based on discrepancies in the invoices.

3. The AO found that the supplementary invoices had zero ALP certified by the auditors, indicating no underlying goods to support them. The Revenue argued that the assessee had inflated its agricultural income through dubious practices. The dispute also involved compliance with transfer pricing regulations and the authenticity of the claimed agricultural income.

4. The CIT (A) accepted the assessee's contentions, ruling that the agricultural income exemption could not be denied for procedural irregularities or minor errors in documentation. The CIT (A) held that the agricultural income, whether from domestic or international transactions, was eligible for exemption, and consequently, deleted the addition made by the AO.

5. However, the ITAT reversed the CIT (A)'s decision, reinstating the addition made by the AO. The ITAT found that the assessee failed to prove the legitimacy of the agricultural income claimed, especially in light of discrepancies in the invoices and lack of evidence supporting the claimed sales volume. The ITAT concluded that the CIT (A) erred in deleting the addition and allowed the Revenue's appeal.

6. The ITAT also addressed the treatment of converted dues as share capital, emphasizing that the infusion of capital was real and not fictitious. The ITAT's decision highlighted the importance of substantiating agricultural income claims and complying with regulatory requirements to avoid artificial inflation of income.

This comprehensive analysis covers the key issues and the progression of arguments and decisions in the legal judgment delivered by the ITAT Bangalore.