9911796707
TMI Blog2013 (9) TMI 361X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the expenditure incurred in cash and verifying the purchases and sales and stock of seeds concluded that the turnover of the assessee being Rs. 74,97,335 was to be segregated as business income in view of the high gross margin generated when the residual amount of turnover therein amounting to Rs.10,14,390 could only be treated as income from agriculture. He held that Rs.42,30,530 was income from business and Rs. 2,36,760 was the agricultural income when he levied tax accordingly. Aggrieved, the assessee appealed before the first appellate authority, who confirmed the action of the Assessing Officer without reasoning out the assessee's contention before the Assessing Officer and to rebut undisputed facts indicating the reasons for denying the contention of the assessee in so far as hitherto the same activity was acceptable generating income to the Department as from agricultural operation. Initiating his argument, learned counsel for the assessee submitted that the assessee-firm carries on business of cultivation, agricultural research and development of seeds production since the assessment year 1993-94. The year under appeal is not the first year of business. The assessments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a record growth in the last three years." The above observations of the Assessing Officer indicate that there has been no change in the nature of operations. The last sentence with observation that "the income of the assessee shows a record growth in the last three years" is wrong. It would be evident from the table given below: Financial year Sale (Rs.) Profit (Rs.) Profit ratio 2004-05 53,90,175.00 29,47,128.00 54.67% 2005-06 42,33,749.00 24,60,314.00 58.11% 2006-07 41,61,594.00 22,91,755.00 55.07% 2007-08 74,97,335.00 40,24,318.00 53.67% But the learned Assessing Officer has disputed and differed with the present assessment. In the past assessment years the status of firm and activities of agriculture has been accepted, after due investigation and enquiry through the Departmental inspector into the facts. There was no dispute regarding the genuineness of the firm. It was also held that the firm is engaged in agricultural operation activities. The same having been accepted, the income has been considered as exempt under section 10(1) of the Income-tax Act, 1961. No new facts have come to the possession of the Assessing Officer during the year under conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rid seeds and derives income by selling these seeds. After verification of facts, the return of income of the assessee is treated as the assessed income. Net profit as per profit and loss account shown Rs. 22,61,755 Less : Exemption under section 10(1) of the Income-tax Act Rs. 22,61,755 Net taxable income Rs. Nil Learned counsel for the assessee submitted that in the assessment order under consideration, the Assessing Officer has almost quoted the object of the partnership deed that "is to carry on business of cultivation, agricultural research and development of seed production and any other business as may be conducive in the interest of the firm". Accordingly the object of the firm is carrying on its business. Since the Assessing Officer has been biased against the assessee, he has made certain adverse observation while framing the order. Those observations have no bearing or impact/relevance on the facts in issue and while computing the assessed income those are not taken into consideration. Those are regarding ownership of land, area of land, overdrawal of partners from their capital account, interest payment on crop loan, etc. The assessee maintains regular books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he entire assessment has become illegal, null and void and liable to be quashed. According to the judgment of the hon'ble Orissa High Court "An order passed without following the principles of natural justice is a nullity (CIT v. Gangaram Chapolia and Co. [1991] 187 ITR 594 (Orissa)). The Assessing Officer has made adverse remarks and biased because the entire sale is made to a private limited company, i.e., M/s. Sreema Seeds P. Ltd. managed by some of the family members of the partners. It may kindly be noted that the said firm is a limited company and has separate legal entity in the eye of law. The company is separately assessed since last several years having its permanent account number, etc. the law does not prevent having business transaction with such limited company even though it is managed by the relative of the partners. Rather "Saffa Seeds" the partnership firm is looking after the agricultural research and production of the company managed by a partnership firm under the name "Saffa Seeds Producing Farm". The entire seeds scientifically produced are sold to the company at the market rate and in turn the limited company sells it in the open market. This is an accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollection of seeds from the farmers and others to the sale, the seeds undergo several process of cultivation or agriculture. The above processes are carefully and scientifically done, which requires technical expertise, skill and is also time consuming. The seeds as it is are purchased at lesser price and after incurring a lot of expenses for undergoing various process of scientific cultivation as narrated above for converting to hybrid seed are sold at a higher price. It is not a case as if it is just purchased and sold like that. The seeds are purchased at lower price and sold at a higher price because it is made into high yielding variety of vegetables after undergoing various processes of cultivation and incurring a lot of expenses thereon with regard to field labourers, etc., as detailed above. Out of bad seeds, quality seeds are taken out after insecticides, medicines, high technicalities and time consuming factors etc. are also involved. These different processing cannot be termed as or presumed as simple business ignoring the actual fact of the above agricultural operational activities for converting ordinary seeds to "hybrid" quality. It is not just purchase of stock and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e law cited on behalf of the assessee as factually different which is not correct rather on the contrary the case law cited by the learned Commissioner of Income-tax (Appeals) are not at all applicable to the facts of the present case. Regarding the point raised by the learned Assessing Officer that there was less stock and how could the assessee sell more, learned counsel for the assessee explained that they raise 3 (three) crops during the year, the third crop is harvested after March and around April and May, hence there was no question of shortage of stock. The books of account are properly maintained by the appellant which are duly audited by the qualified auditors and no adverse observation was pointed out by the auditors. The objections regarding the assessee's own voucher are general in nature. Therefore, the same should have been accepted by the authorities below in view of several case laws on the point. Few of them are given separately with the ratio analysis. Therefore, the authorities below are not justified in rejecting the accounts and resorting to estimate of income. He further submitted that the written submissions and explanation in compliance with the notice of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r generating agricultural income. The books of account of the assessee are audited and the financial statements are certified as per the audit report in Form 3CB. Maintenance of records is not disputed and the expenditure incurred for the agricultural operation carried out are also not doubted. Determination of gross margin and net margin therefore do not appear to be a requirement of agricultural operation when the assessee is reaping the nature's bounty. Therefore, the Assessing Officer himself misdirected that purchases ought to have been accounted for which was never the case of the assessee. The assessee produced seeds to sow which is the undisputed fact acceptable to the Assessing Officer. He has carried out fertilisation, research for hybrid seeds, insecticides, tilling of land and also obtained crop loans from banks which interest was sought to be disallowed by the Assessing Officer. Therefore, on our perusal of the assessment order it transpires that the Assessing Officer has tried to invoke his own method of carrying out the agricultural operation to compute the income from business separately but on the basis of the same facts that the activities are carried out for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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