2021 (8) TMI 961 - AT - Income Tax

Penalty u/s 271(1)(c) - Assessee wrongly claimed the income as agricultural income - Entitled for exemption u/s 10(1) denied - HELD THAT - The present assessment years also are not the simple case of disallowance of expenditure as in the case of Reliance Petro Products Private Limited 2010 (3) TMI 80 - SUPREME COURT . The facts remains unchanged that 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. Since the Tribunal in preceding Assessment Years have already given a finding that the assessee made claim of agricultural income in mala fide manner in gross abuse of the provisions of the Income Tax Act and since the facts of the impugned year are identical, therefore, respectfully following the order of the Tribunal in assessee s own case in preceding year, 2017 (12) TMI 1058 - ITAT DELHI we uphold the penalty imposed by the AO. Thus, the order of the CIT(A) is reversed and we uphold the findings of the Assessing Officer. - Decided in favour of revenue.

Issues Involved:
1. Deletion of penalty levied by the Assessing Officer for the assessment years 2008-09 and 2009-10.
2. Nature of income from the sale of hybrid seeds and its classification as agricultural income.
3. Validity of the penalty notice under section 271(1)(c) of the Income Tax Act.
4. Argument regarding the debatable nature of the issue and its impact on penalty imposition.

Issue-wise Detailed Analysis:

1. Deletion of Penalty Levied by the Assessing Officer:
The primary issue revolves around the deletion of penalties amounting to ?20,33,93,765/- for A.Y. 2008-09 and ?32,23,29,904/- for A.Y. 2009-10, which were initially levied by the Assessing Officer. The CIT(A) had deleted these penalties, but the Revenue appealed against this deletion, arguing that the assessee made a wrong claim for deduction under the provisions of the Income Tax Act, 1961.

2. Nature of Income from Sale of Hybrid Seeds:
The assessee claimed its income from the production/manufacturing of hybrid seeds as agricultural income, thereby claiming exemption under Section 10(1) of the Income Tax Act. The Assessing Officer, however, treated this income as business income, leading to a significant tax liability. The CIT(A) initially confirmed the Assessing Officer's order, but later allowed the assessee's appeal, which led to the present appeal by the Revenue.

3. Validity of the Penalty Notice under Section 271(1)(c):
The assessee argued that the penalty notice did not specify whether the penalty was for concealment of income or for furnishing inaccurate particulars, making the notice invalid. The assessee cited several judicial precedents to support this argument, including cases like Glory Lifesciences, Mohd Farhan A. Shaikh, and others, where courts held that non-specific penalty notices are invalid.

4. Argument Regarding the Debatable Nature of the Issue:
The assessee contended that the issue of whether income from the sale of hybrid seeds qualifies as agricultural income is debatable. They supported this argument by referencing various judgments and reports, including the Delhi High Court judgment in the case of Nalwa Sons, which held that no penalty can be levied on debatable issues. The assessee also pointed out that their claim had been accepted in scrutiny assessments for earlier years, further indicating the contentious nature of the issue.

Tribunal's Findings:

1. Nature of Income:
The Tribunal noted that the quantum appeal for the assessment years in question had already been decided against the assessee, confirming that the income from the sale of hybrid seeds did not qualify as agricultural income. The Tribunal observed that the assessee's activities were planned and documented to appear as agricultural activities, but in reality, they were business activities.

2. Validity of Penalty Notice:
The Tribunal found that the penalty notices issued were valid, as the assessee had indeed concealed particulars of income and made a fraudulent claim of agricultural income to evade taxes. The Tribunal emphasized that the assessee's claim was not a simple case of disallowance of expenditure but a deliberate attempt to evade taxes.

3. Debatable Nature of the Issue:
The Tribunal rejected the argument that the issue was debatable, stating that the assessee's claim was made in a mala fide manner and constituted a gross abuse of the provisions of the Income Tax Act. The Tribunal held that if penalties were not imposed in such cases, the penalty provisions in the statute would become ineffective.

Conclusion:
The Tribunal upheld the penalties imposed by the Assessing Officer for both assessment years, reversing the CIT(A)'s order. The Tribunal concluded that the assessee had concealed particulars of income and wrongly claimed agricultural income in a fraudulent manner, justifying the imposition of penalties under Section 271(1)(c) of the Income Tax Act. Both appeals of the Revenue were allowed, and the penalties were reinstated.

Order Pronouncement:
The order was pronounced in the Open Court on the 23rd Day of August, 2021.

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