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2019 (2) TMI 49 - AT - Income TaxRevision u/s 263 - claim of the assessee, on the agricultural activity - Held that - The assessment order need not discuss all the points, but, AO or assessee should bring on record that AO has made enquiry and relevant information was submitted before him. In our view, the claim of the assessee, on the agricultural activity particularly peculiar, as in the case of assessee, AO should have called for the leased agreement with the farmers and evaluated how the activities of the assessee are exactly similar to M/s Prabhat Agri Biotech. No doubt AO asked for the information, but, there is no record that assessee has actually submitted that before the AO. It clearly shows that AO has not made enquiry in this case, but, merely accepted the contention of the assessee. Further, in our view, no doubt, AO has not applied his mind, but, the CIT has not established how the order of AO is prejudicial to the interests of revenue. Looking at the facts submitted before us seeds cannot be produced without basic agricultural activities, in our view, CIT should not stop merely on finding that the order is erroneous but also has to establish that the order of AO is prejudicial to the interests of revenue. Only missing link is the verification of lease agreement with the farmers and activities whether it is similar to the Prabhat Agri Biotech or not. This could also be verified by CIT and established that it is prejudicial to the interests of revenue. CIT has failed in this aspect. This is in line with the decision in the case of Malabar Industrial co. Ltd.(2000 (2) TMI 10 - SUPREME COURT) and CIT Vs. Green World Corporation (2009 (5) TMI 14 - SUPREME COURT OF INDIA). Therefore, no doubt, the assessment order is erroneous but not prejudicial to the revenue considering the case law submitted before us. Seeds cannot be produced without basic agricultural activities. The assessee has sold the seeds and must have carried out the agricultural activities in order to produce the seeds. Hence, we set aside the order of CIT passed u/s 263 of the Act and the order of the AO is restored. Accordingly, ground raised by the assessee are allowed.
Issues Involved:
1. Whether the assessment order passed under section 143(3) of the Income-tax Act, 1961, is erroneous and prejudicial to the interests of revenue. 2. Whether the Assessing Officer (AO) failed to make necessary inquiries or verifications regarding the claim of agricultural relief under section 10(1) of the Income-tax Act, 1961. 3. Whether the activities of the assessee qualify as agricultural activities, thereby making the income eligible for exemption under section 10(1) of the Income-tax Act, 1961. Detailed Analysis: 1. Erroneous and Prejudicial Assessment Order: The CIT exercised powers under section 263 of the Income-tax Act, 1961, and held that the assessment order passed by the AO was erroneous and prejudicial to the interests of revenue. The CIT observed that the AO allowed the agricultural relief under section 10(1) without making necessary inquiries or verification regarding the nature of the assessee's activities. 2. Failure to Make Necessary Inquiries or Verifications: The CIT noted that the AO did not examine whether the production of seeds by the assessee, which involved a planned, scientific, and specialized procedure, could still be classified as agricultural activity. The AO did not call for details of contracts or any other information to verify if the activities undertaken by the assessee were similar to those carried out by a farmer on their land. The CIT directed the AO to redo the assessment after duly examining these issues. 3. Qualification of Activities as Agricultural Activities: The assessee contended that their activities, including selection of fields, issuing foundation seeds, land preparation, sowing, pest and fertilizer application, harvesting, and seed processing, constituted agricultural activities. The assessee argued that since seeds are derived from mother plants grown on land, they are considered agricultural produce. The assessee relied on the decision of the Hon’ble High Court of AP in the case of Prabhat Agri Biotech Ltd., where it was held that income from the sale of seeds is agricultural income. The assessee submitted that the processing of seeds involved ordinary processes employed by cultivators to make the produce marketable, without changing its character or nature. The assessee argued that the activities carried out by the company were in the nature of agricultural activities, and therefore, the income arising from these activities fell within the ambit of "agricultural income," making it eligible for exemption under section 10(1). Tribunal's Findings: The Tribunal considered the rival submissions and perused the material on record. It noted that the AO, after obtaining information from the assessee and relying on the decision of the Hon’ble AP High Court in the case of the assessee’s sister concern, allowed the claim of the assessee under section 10(1). The Tribunal found that the CIT’s findings that the AO allowed relief without making inquiries or verification were not proper. The Tribunal referred to the decision of the Mumbai Benches of ITAT in the case of Shri Anil L. Todarwal Vs. Pr. CIT, which held that the CIT must show how the view taken by the AO was erroneous and what inquiries or verifications should have been made. The Tribunal observed that the CIT had not established how the order of the AO was prejudicial to the interests of revenue, as required by the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. and CIT Vs. Green World Corporation. The Tribunal concluded that although the AO did not apply his mind adequately, the CIT failed to establish that the order was prejudicial to the interests of revenue. The Tribunal noted that the activities of the assessee were similar to those of Prabhat Agri Biotech Ltd., and the seeds could not be produced without basic agricultural activities. Therefore, the Tribunal set aside the order of the CIT passed under section 263 and restored the order of the AO. Conclusion: The appeal of the assessee was allowed, and the order of the CIT was set aside. The Tribunal restored the assessment order passed by the AO, concluding that the assessment order was not prejudicial to the interests of revenue.
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