2018 (7) TMI 68 - AT - Income Tax

Penalty u/s 271(1)(c) - claim of agricultural income - concealment of particulars of income - Held that - In the instant case the real activity of purchase of the seeds has been planned and arranged in such a way as it look like the agricultural activity but the assessee has not succeeded in camouflaging its real activity. One of the strange features in the kind of arrangement or documentation of the assessee is that in case of no yield or damage of crop, the expenses on labour or service or fertilizer etc. has to be borne by the farmer because in absence of no crop, there would be no procurement price to the farmer and the farmer will get nothing. In such circumstances, how the assessee could explain that the cultivation has been done by the company. Another strange feature is that how the assessee can claim as cultivator as its name is not appearing in the revenue land records maintained either as lessee of the land or the cultivator. If the logic of the assessee of the claim of agricultural income in the hands of the assessee is accepted as one of the opinion, then every businessman in the India, who buys crops from farmer, would become eligible for earning agriculture income by way of getting same lease agreements signed from the farmers and making accounting entries in their books of account to bifurcate the part of procurement price paid to farmer towards lease rent, fertilizer & chemical, labour & service charges. The assessee has made claim of agricultural income in malafide manner and in gross abuse of the provisions of the Act. We hold the assessee liable for concealment of particulars of income. Accordingly, we reverse the finding of the Ld. CIT(A) and uphold the finding of the Assessing Officer on the issue in dispute. - Decided in favour of revenue.

Summary

Issues Involved:
1. Deletion of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Whether the income from the sale of hybrid seeds qualifies as agricultural income exempt under section 10(1) of the Act.
3. Validity of the penalty notice under Rule 27 of the ITAT Rules.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c) of the Income-tax Act, 1961:
The Revenue appealed against the deletion of the penalty imposed under section 271(1)(c) of the Act. The Assessing Officer (AO) had levied the penalty for the assessee's false claim of business income as agricultural income and wrongful claim of deduction under section 10(1). The Ld. CIT(A) deleted the penalty, holding that there was no concealment of particulars of income or furnishing of inaccurate particulars. The Tribunal, however, reversed this finding, holding that the assessee used a "colorable device" to camouflage business income as agricultural income, which was not a bona fide claim. The Tribunal emphasized that the assessee's claim was fraudulent and aimed at evading taxes, thus upholding the AO's penalty.

2. Whether the Income from the Sale of Hybrid Seeds Qualifies as Agricultural Income Exempt under Section 10(1) of the Act:
The assessee argued that their income from the sale of hybrid seeds should be considered agricultural income, relying on various judicial precedents, including the Supreme Court decision in CIT Vs Raja Benoy Kumar Sahas Roy. The AO and the Tribunal found that the assessee did not conduct the necessary agricultural operations themselves but procured seeds from farmers and bifurcated the procurement price into lease charges, fertilizers, and labor costs to falsely claim it as agricultural income. The Tribunal noted that the actual cultivation was done by the farmers and not the assessee, thus rejecting the claim of agricultural income.

3. Validity of the Penalty Notice under Rule 27 of the ITAT Rules:
The assessee's counsel made an oral plea under Rule 27 of the ITAT Rules, arguing that the penalty notice did not clearly specify the charge of concealment or furnishing inaccurate particulars. The Tribunal rejected this plea, stating that it should have been made through a written application with advance notice. Additionally, the issue was not raised before the Ld. CIT(A), and the Ld. CIT(A) had not decided against the assessee on any point. Therefore, the oral plea was deemed not maintainable.

Conclusion:
The Tribunal allowed the Revenue's appeals, reversing the Ld. CIT(A)'s decision and upholding the penalty imposed by the AO. The Tribunal found that the assessee's claim of agricultural income was fraudulent and aimed at evading taxes, thus justifying the penalty under section 271(1)(c) of the Act. The oral plea under Rule 27 of the ITAT Rules was rejected due to procedural deficiencies.