2008 (8) TMI 434 - AT - Income Tax

Addition of agricultural income - Income From Tea Plantation - HELD THAT - In the present case, the assessee's holding company has carried out the basic operations. The land was leased out to assessee company. The assessee company has also carried out certain activities in the nature of basic operations plus secondary operations including maintaining and harvesting of the crops. The holding company has not claimed any agricultural income from the said property leased out to the assessee company. The assessee company as a lessee has carried out all the necessary activities to run the tea estate. The assessee company has carried out certain basic operations like filling and pruning. It has applied manure; it has applied pesticides; it has taken all measures to protect the crop. It is after these processes, it becomes ripe for harvesting. Therefore, it is crystal clear that income earned by the assessee is agricultural income. Therefore, we hold that the sum declared by the assessee company as agricultural income has to be accepted. The consequential disallowance and addition are deleted. This issue is decided in favour of the assessee. Disallowance of provident fund and ESI contributions - Even though the payments were not made before the due dates under the respective Acts, the payments were in fact made before the due date of filing of return of income. Therefore, the claim of the assessee has to be accepted. The disallowance is deleted. The AO is directed to deduct those amounts while computing the taxable income. This issue is decided in favour of the assessee. Levy of interest u/s 234D - the levy is applicable only from AY 2004-05 onwards as held by Special Bench in the case of ITO vs. Ekta Promoters (P) Ltd. 2008 (7) TMI 452 - ITAT DELHI-E . In the present case. the AY is 2002-03. Therefore, s. 234D will not apply and the levy is not sustainable. It is deleted. This issue is also decided in favour of the assessee. The assessee is successful in its appeal filed before us. Written off liability - Existence/genuineness of liabilities - There is no doubt that the assessee has not written off any liability in its books of account. Therefore, irrespective of the question when in future the said amount was written off by the assessee, the question is whether the said amount could be treated as income of the impugned AY 2002-03. The simple answer is no because the AO has not brought anything on record to prove that those liabilities cease to exist as on 31st March, 2002. In such circumstances, the said liability does not partake the character of income for the impugned assessment year. Therefore, the ground raised by the Revenue is liable to be dismissed. In result, the appeal filed by the assessee is allowed and the appeal filed by the Revenue is dismissed.

Issues:
1. Treatment of agricultural income
2. Disallowance of provident fund and ESI contributions
3. Taxation of outstanding liabilities in the balance sheet
4. Levy of interest under sections 234B and 234D

Analysis:

Issue 1: Treatment of Agricultural Income
The case involved the question of whether the income declared by the assessee company as agricultural income should be accepted. The lower authorities had rejected the claim, stating that the basic agricultural operations were not carried out by the assessee. However, the Tribunal disagreed, emphasizing that the holding company had already conducted the basic operations. The Tribunal highlighted the necessary operations involved in tea plantation management, such as pruning, filling, pest management, and weed control, which were essential for cultivation. It concluded that the income derived from the tea plantation was indeed agricultural income, and the decision of the Supreme Court cited by the lower authorities was not applicable in this context. Therefore, the Tribunal ruled in favor of the assessee, deleting the consequential disallowance and addition.

Issue 2: Disallowance of Provident Fund and ESI Contributions
The Tribunal considered the disallowance of provident fund and ESI contributions claimed by the assessee. Although the payments were not made within the due dates under the respective Acts, they were made before the due date of filing the income tax return. The Tribunal accepted the claim of the assessee, stating that the payments were made timely in relation to the income tax return filing deadline. Consequently, the disallowance was deleted, and the Assessing Officer was directed to consider these amounts while computing the taxable income.

Issue 3: Taxation of Outstanding Liabilities in the Balance Sheet
Regarding the outstanding liabilities shown in the balance sheet, the Tribunal noted that in a running business, expenses incurred at the end of the accounting year might result in bills being raised after the accounts' closure. The Tribunal emphasized that treating such liabilities as income without considering the nature of individual items was not permissible. It remitted the issue back to the Assessing Officer for verification and instructed to dispose of the matter in accordance with the law.

Issue 4: Levy of Interest under Sections 234B and 234D
The Tribunal clarified that the levy of interest under section 234B was consequential and applicable to the residual income, requiring no further adjudication. However, regarding the levy of interest under section 234D, the Tribunal held that it was not applicable for the assessment year 2002-03 based on a Special Bench decision. Consequently, the levy was deemed unsustainable and deleted in favor of the assessee.

In conclusion, the Tribunal allowed the appeal filed by the assessee and dismissed the appeal filed by the Revenue, addressing various issues related to agricultural income treatment, disallowance of contributions, taxation of liabilities, and interest levy under sections 234B and 234D.

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