2023 (6) TMI 256 - AT - Income Tax

Inflated agricultural production of grapes - CIT(A) deleted addition - whether CIT-A has failed to consider the draft plan which showed that there was inflation of agricultural income by the assessee? - HELD THAT - As during the course of search proceedings a list of 30 parties were found from M/s Nana Shelke (General manager of Vineyard operation) wherein it was alleged that the grapes were purchased at inflated rates from these 30 parties. Assessee s name has not been mentioned anywhere in the list. The assessee explained during the course of assessment proceedings that he had cultivated high quality of grapes where were used in manufacturing of high premium wines. In their respective statement the both the employees as discussed supra had provided the data available with them without considering the fact that the new plantation of grapes were planted every year and at the same time there was certain grapes plantation which gets old or infected due to some disease or pest attacks and this leads to uprooting of the infected plantation after which new plantation was done. The assessee has cultivated high quality grapes and sold the entire grapes to the company which has been verified from the record of raw material and consumption and no discrepancy was found in the stock of the company during the search and seizure action carried on the company. During the course of appellate proceeding before us the Counsel has also referred the copy of Income Tax Settlement Commission order dated 27.09.2019 adjudicated in the case of M/s Sula Vineyard Pvt. Ltd. wherein they had finally come to the conclusion that inflation was to be restricted to approximately 6% and the company had accordingly offered the same to tax. The Settlement Commission has treated the statement of Mr. Raman Bhawar and Vinayak Nehe as not reliable for the purpose of calculating inflating grapes purchases. Further in the list of parties from whom the company used to purchase grapes at inflated rate, the assessee s name was not at all present there. - Decided against revenue.

Summary

Issues Involved:
1. Evidentiary value of statements given by farm managers.
2. Appreciation of incriminating material regarding inflation of grape purchases.

Issue-wise Detailed Analysis:

1. Evidentiary Value of Statements Given by Farm Managers:

The primary issue was whether the statements given by Shri Raman Bhawar and Shri Vinayak Nehe, who managed the farms for the assessee, held any evidentiary value. The Assessing Officer (A.O) relied on these statements to claim that the agricultural receipts from the farms were inflated. However, the Income Tax Settlement Commission (ITSC) found these statements unreliable for calculating inflated purchases. The ITSC noted that the statements did not account for factors such as new plantation and disease-infected crops, which could affect grape yield. Furthermore, the statements were not retracted, but the ITSC's order indicated that these were not considered factual pieces of evidence.

2. Appreciation of Incriminating Material Regarding Inflation of Grape Purchases:

The A.O also used a draft plan unearthed during a search action to argue that there was an inflation in the purchases of grapes. The draft plan indicated a proposal for inflating grape purchases to generate cash. However, the ITSC found that the actual inflation in grape purchases was around 6.6%, not the higher percentages initially suggested. The ITSC's findings were based on various pieces of evidence, including katcha slips, Farmer Vehicle Register, and data from the accounts department. The ITSC concluded that the inflation was used for non-business purposes and accepted a 6.6% inflation rate for the fiscal year 2016-17.

The assessee argued that the entire grapes grown were sold to M/s Sula Vineyards Pvt. Ltd., and there was no inflation as alleged. The assessee provided detailed records of grape sales and expenses, which were verified against the company's records. The ITSC also noted that the assessee's name did not appear in the list of parties involved in inflated transactions.

Conclusion:

The CIT(A) deleted the addition made by the A.O, concluding that the entire sale of grapes by the assessee to Sula Vineyards Pvt. Ltd. could not be considered inflated. The ITSC's findings supported this conclusion, showing that the inflation in grape purchases was significantly lower than initially claimed by the A.O. Consequently, the appeals filed by the revenue were dismissed, and the CIT(A)'s order was upheld.

Additional Appeals (ITA Nos. 2543/Mum/2021, 2544/Mum/2021, 2545/Mum/2021):

The facts and issues in these appeals were identical to those in ITA No. 2541/Mum/2021. Applying the same findings, these appeals were also dismissed.

Final Judgment:

All appeals by the revenue were dismissed, and the order was pronounced in the open court on 09.02.2023.