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2022 (12) TMI 213 - AT - Income TaxExemption u/s 10 (1) - description of agriculture as contemplated in section 2 (1A) - As per revenue assessee is engaged in the production of foundation seeds as well as the hybrid seeds, as against the submission of the assessee that they are in the business of producing foundation seeds only by conducting agricultural operations on the agricultural lands and selling such seeds to the seed Companies like Godrej seeds, Nath Seeds, Super Agri Seeds etc. - HELD THAT - As referred to the terms of the agreement between the assessee and the farmers who let out their lands to the assessee, and having noticed that during the period of lease the assessee shall have all the rights to possession, cultivation and harvesting of hybrid seeds on the land and during such period the farmers shall not have any rights to lease, license, mortgage or sell the land to the others etc., learned Assessing Officer erroneously jumped to the conclusion that the nature of work conducted by the assessee falls under the category of contract. We do not know the basis for reaching this conclusion by the learned Assessing Officer. There is no dispute that the assessee took the agricultural lands on lease and conducting normal agricultural operations to produce the hybrid variety of foundation seeds in order to sell them in the open market to the seed industries, and in that pursuit they engaged the labour, supervisors etc. Assessee produced voluminous record to show the engagement of labour and the payment of salaries to the supervisors apart from producing the agreements with the landowners. We have already referred to the contents of the agreements with the landowners which the learned Assessing Officer failed to appreciate in proper perspective. Merely because the assessee took the land on lease for conducting their research operations to produce the foundation seeds of the hybrid varieties, such a lease cannot ipso facto make the operations of the assessee as contract farming. Contract farming in the context of this case would be that if the assessee outsources the agricultural operations which they are doing for themselves now, to some other third party. As could be seen from the record that vide letter dated 30/3/2016 the assessee, while explaining the modus operandi of their agricultural operations, invited the learned AO to visit their farm and look at their activities so that the learned Assessing Officer can get the clarity on the issue and differentiate the operations conducted by the assessee with those conducted by other seed companies in the industry. AO does not think it fit to accept this request of the assessee to get the things clarified - assessment order in its entirety is an academic exercise, without any material on record to connect such things with the operations conducted by the assessee on the lands took by them on lease. Having regard to the circumstances in their entirety and appreciating the facts in the light of the decision of the Hon ble High Court in assessee s own case for the assessment year 2008-09 2014 (2) TMI 1197 - ANDHRA PRADESH HIGH COURT relied upon by the Ld. CIT(A), we do not find anything illegality or irregularity in the conclusions reached by the Ld. CIT(A) and accordingly uphold the same. Grounds of appeal of the Revenue are accordingly dismissed. Addition towards delay in remittance of provident fund - AO noted the due date for payment and the actual date of payment and thereby demonstrated that the remittance was beyond the due date specified in the Provident Fund Act - HELD THAT - What all the Ld. AR said is that all the payments were made before the due date of filing of return of income under section 139(1) of the Act. This issue is, however, squarely covered by the decision of the Hon'ble Apex Court in the case of Checkmate Services Pvt. Ltd., 2022 (10) TMI 617 - SUPREME COURT against the assessee. Respectfully following the same, dismiss ground No. 3 of appeal of assessee. Addition u/s 40(a)(ia) - Director s remuneration and audit fee - TDS was effected beyond the due date, learned Assessing Officer disallowed both - HELD THAT - In view of the fact that prior to 1/4/2015 the amount payable towards the salaries is not covered by the provisions of section 40(a)(ia) of the Act, the addition of Rs. 24 lakhs on account of non-deduction of TDS on the remuneration paid to the Director cannot be sustained. Learned Assessing Officer is, therefore, directed to delete the same. The addition on account of audit fee is justified by the provisions of section 40(a)(ia) of the Act and, therefore, does not warrant any interference.
Issues Involved:
1. Exemption under Section 10(1) of the Income Tax Act. 2. Addition of Rs. 25.75 lakhs under Section 40(a)(ia) of the Income Tax Act. 3. Addition of Rs. 4,33,892/- towards delay in remittance of provident fund. Issue-wise Detailed Analysis: 1. Exemption under Section 10(1) of the Income Tax Act: The primary issue was whether the income from producing foundation seeds and hybrid seeds qualifies for exemption under Section 10(1) of the Income Tax Act. The assessee claimed that they were engaged in agricultural operations on leased agricultural lands, producing foundation seeds, and selling them to seed companies. The Assessing Officer argued that the assessee was also involved in producing hybrid seeds through research and development activities, which are scientific processes, not agricultural operations. The CIT(A) sided with the assessee, noting that the production of foundation seeds involved agricultural activities, and thus, the income was exempt under Section 10(1). The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee's activities were agricultural, as they involved cultivating and harvesting seeds on leased lands, and the Assessing Officer failed to provide evidence to the contrary. 2. Addition of Rs. 25.75 lakhs under Section 40(a)(ia) of the Income Tax Act: This issue involved the disallowance of Rs. 25.75 lakhs, comprising Rs. 24 lakhs towards Director's remuneration and Rs. 1.75 lakhs towards audit fees, due to delayed TDS payment. The CIT(A) confirmed the addition based on the decision in the case of Marilyn Shipping & Transports. The Tribunal noted that prior to the assessment year 2015-16, Section 40(a)(ia) did not apply to salaries. Therefore, the addition of Rs. 24 lakhs for Director's remuneration was not sustainable and was directed to be deleted. However, the addition of Rs. 1.75 lakhs for audit fees was upheld as it was justified under the provisions of Section 40(a)(ia). 3. Addition of Rs. 4,33,892/- towards delay in remittance of provident fund: The Assessing Officer added Rs. 4,33,892/- to the income due to delayed payment of employees' provident fund contributions. The assessee argued that the payments were made before the due date for filing the return under Section 139(1). The Tribunal referred to the Supreme Court decision in Checkmate Services Pvt. Ltd. vs. CIT, which held against the assessee, confirming that the addition was justified as the payments were made beyond the due date specified in the Provident Fund Act. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition of Rs. 2,39,14,201/- under Section 10(1). The assessee's appeal was allowed in part, with the deletion of Rs. 24 lakhs for Director's remuneration and the confirmation of Rs. 1.75 lakhs for audit fees and Rs. 4,33,892/- for delayed provident fund payments. The order was pronounced on October 26, 2022.
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