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2020 (9) TMI 73 - AT - Income TaxCharacterization of income - agricultural income or business income - HELD THAT - Tribunal has considered the nature of activity carried out by the assessee and after taking into account Explanation 3 to section 2 (1A), inserted by the Finance Act, 2009, has held that the income derived by the assessee from such activity as agriculture inasmuch as the Explanation 3 states that income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income . Tribunal further relied on CBDT Circular No.01/2009 dated 27-03-2009 explaining the rationale of Explanation 3. It is seen that similar issue once again came up for consideration before the Tribunal in assessee s own case for A.Y. 2013-14. A copy of such order has also been placed on record in which the earlier view has been reiterated. The ld. DR fairly conceded that the facts and circumstances of the instant case are mutatis mutandis similar to those of the earlier years. Since the issue under consideration is fully covered by the orders passed by the Tribunal for the preceding years, respectfully following the precedent, we countenance the view taken by the ld. CIT(A). This issue is, therefore, decided in favour of the assessee. Disallowance of depreciation - AO treated the so-claimed agricultural income as business income, he, therefore, disallowed differential depreciation - HELD THAT - Since we have approved the opinion of the ld. CIT(A), reversing the view of the AO on this issue, the reason for disallowance of depreciation to the above extent, ceases to exist. Since the entire income from operations has been held by us as agricultural income, the fortiori is that the full amount of depreciation at ₹ 1.64 crore should get reduced from the computation of agricultural income and consequently value of assets for carrying forward written down value to the subsequent years. Be that as it may, there can be no addition on account of disallowance of depreciation for the year under consideration. Claim of Foreign Exchange Gain held to be taxable - HELD THAT - Tribunal made the bifurcation of Foreign Exchange Fluctuation Gain into four parts, namely, relating to Capital Expenditure; Revenue Creditors, Revenue Debtors; and Revaluation at the year-end (unrealised gain). It held that the Foreign Exchange Fluctuation Gain in relation to the Capital expenditure; Revenue creditors; and Revaluation at the year-end was chargeable to tax. Only Foreign Exchange Fluctuation Gain from Revenue debtors was held to be in the nature of agricultural income and hence, not taxable. The ld. AR has placed on record similar details for the year under consideration. Since such classification of the Foreign Exchange Fluctuation Gain under four categories by the assessee, as placed on record at page 160 of the paper book, have been examined neither by the AO nor by the CIT(A), we set-aside the impugned order and direct the AO to consider taxability of Foreign Exchange Fluctuation Gain from these four items in accordance with the view canvassed by the Tribunal in assessee s own for the A.Y. 2011-12 as discussed above.
Issues:
1. Determination of income as agricultural income or business income. 2. Disallowance of depreciation claimed. 3. Taxability of Foreign Exchange Fluctuation Gain. Issue 1: Determination of income as agricultural income or business income: The Revenue challenged the CIT(A)'s decision to treat income of ?5,66,86,518 as agricultural income instead of business income. The assessee engaged in agricultural activities of growing and selling flower plants for export. The AO considered the income as business income, but the assessee claimed it to be agricultural income. The CIT(A) allowed the claim based on precedent orders from prior years. The Tribunal upheld the CIT(A)'s decision, citing Explanation 3 to section 2(1A) and a CBDT Circular, stating that income derived from such activities is agricultural income. The issue was decided in favor of the assessee based on precedence. Issue 2: Disallowance of depreciation claimed: The AO disallowed differential depreciation amounting to ?22,87,776 due to treating the income as business income. However, since the Tribunal upheld the income as agricultural, the disallowance of depreciation was deemed unnecessary. The full amount of depreciation should be reduced from the computation of agricultural income, and no addition was made for disallowance of depreciation. Issue 3: Taxability of Foreign Exchange Fluctuation Gain: The assessee credited ?54,84,571 as Foreign Exchange Fluctuation Gain, which the AO considered as business income. The CIT(A) upheld this view, but the Tribunal for A.Y. 2011-12 classified such gains into four categories. Only gains from Revenue debtors were considered agricultural income and not taxable. As similar details were presented for the current year, the Tribunal directed the AO to assess the taxability of Foreign Exchange Fluctuation Gain from the four categories as per the classification made for the A.Y. 2011-12. The appeal of the Revenue was dismissed, and the Cross Objection of the assessee was partly allowed for statistical purposes. The judgment concluded on August 31, 2020, with the Tribunal ruling in favor of the assessee on the issue of income classification and directing a reassessment of taxability of Foreign Exchange Fluctuation Gain based on previous categorization.
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