2021 (4) TMI 844 - AT - Income Tax

Agricultural income OR Business income - AO has noted that the assessee is exporting mangoes from his own garden and purchasing and selling the same and showing it as his agricultural income - CIT(A) after considering the detailed explanation given by the assessee stated that the entire sale proceeds by the assessee cannot be treated as a business income and allowed the appeal filed by the assessee - HELD THAT - The assessee is having 15 acres of mango garden and he is cultivating the same and the yield from the mango garden exported to Singapore and Malaysia. Accordingly to the AO, the assessee purchasing the mangoes apart from the production from his own mango garden exporting the same to Singapore and Malaysia, therefore he is of the opinion that the exporting activity carried by the assessee is a business activity and he estimated the agricultural income for acre is ₹ 35,000/- and remaining amount treated as a business income. In the assessment order, the AO has not established that the assessee is purchasing mangoes and exporting. We find that it is an assumption of the AO to come to the above conclusion without any material. AO further came to the conclusion that the yielding from the assessee s mango garden cannot be more than 90 tons as against 168.3 tons, based on the report of the District Collector, Thiruvallur. This fact is examined by the Ld. CIT(A) at length and he gave a finding that the yielding of the mangoes depend upon the soil, maintenance, variety of mangoes and other aspects and the report of the District Collector is not a conclusive proof. We are fully agreeing with the Ld. CIT(A) on this count. We are also of the opinion that the report of the District Collect, Thiruvallur is not a conclusive proof. The Ld. CIT(A) has considered all the facts and came to the conclusion that the activity carried by the assessee is an agricultural activity and directed the AO to delete the addition. We find no reason to interfere with the order passed by the Ld. CIT(A). - Decided against revenue.

Summary

Issues Involved:
1. Whether the income from the sale of mangoes exported by the assessee constitutes agricultural income or business income.
2. The correctness of the yield estimation by the Assessing Officer (AO) based on the District Collector's report.
3. The validity of the AO's assumption that the assessee purchased mangoes from the market for export.

Issue-wise Detailed Analysis:

1. Agricultural Income vs. Business Income:
The primary issue was whether the income derived by the assessee from exporting mangoes should be classified as agricultural income or business income. The assessee, a Hindu Undivided Family (HUF), claimed that the entire income from the sale of mangoes grown in his own garden and exported to South East Asian countries constituted agricultural income. The AO, however, contended that the activities related to grading, packing, and exporting mangoes were commercial in nature and thus should be treated as business income. The CIT(A) and the Tribunal found that the agricultural activity does not cease once the crop is harvested and continues until the produce is sold, provided it remains in its original form. They concluded that the assessee’s activities of grading, packing, and exporting mangoes were part of agricultural activity, and the income derived therefrom was agricultural income exempt from tax under Section 10(1) of the Income Tax Act.

2. Yield Estimation by AO:
The AO estimated the yield from the assessee’s 15-acre mango garden based on a report from the District Collector, Thiruvallur, which suggested an average yield of 6 tons per acre, totaling 90 tons. The assessee reported a yield of 168.3 tons. The CIT(A) and the Tribunal disagreed with the AO’s reliance on the report, noting that yield can vary significantly based on factors such as soil quality, maintenance, and mango variety. They acknowledged that the assessee’s garden was well-maintained and scientifically managed, which justified a higher yield. The Tribunal upheld the CIT(A)’s finding that the AO’s yield estimation was not conclusive proof and that the actual yield reported by the assessee was realistic and achievable.

3. Assumption of Mango Purchases:
The AO assumed that the assessee purchased mangoes from the market to supplement his own production for export, based on a document submitted to a bank for a loan, which included an estimation of purchases and sales. The assessee clarified that this document was merely an estimation for obtaining a higher loan facility and did not reflect actual purchases. The CIT(A) and the Tribunal found no concrete evidence to support the AO’s assumption that the assessee purchased mangoes from the market. They noted that the AO had not provided any corroborative evidence to substantiate this claim and thus dismissed it as speculative.

Conclusion:
The Tribunal upheld the CIT(A)’s decision, concluding that the entire income from the sale of mangoes exported by the assessee constituted agricultural income, exempt from tax. The AO’s assumptions regarding yield estimation and mango purchases were found to be without sufficient evidence. Consequently, all six appeals filed by the Revenue were dismissed.