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TMI Blog2013 (9) TMI 361X X X X Extracts X X X X X X X X Extracts X X X X ..... finding by adopting percentage method for segregating "business" activity for generating agricultural income - The books of account of the assessee were audited and the financial statements were certified as per the audit report in Form 3CB - Maintenance of records was not disputed and the expenditure incurred for the agricultural operation carried out were 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. The denial made by both the authorities in not accepting the actual version of the assessee in spite of finding from spot verification which the Inspector of Income-tax Department in earlier years had noted that agricultural operations were being carried out by the assessee could not be changed to earning of income from trading of seeds, when the assessee was able to maintain three crops in a year dealing in vegetable seeds alone - the assessee has submitted the copies of the orders of the authorities below for the assessment years 2003-04 and 2007-08 passed under section 143(3) when exemption under section 10(1) has been granted to the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but 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 for earlier years have been completed accepting the income of the firm as "agricultural income" and exempt under section 10(1) of the Income-tax Act, 1961. It has been held, in the assessment order under section 143(3) for the assessment years 2003-04 and 2007-08 that the assessee-firm derives income from production of seeds of various vegetables. Necessary enquiries through the Income-tax Inspector have been conducted and on verification of facts and on examination of accounts produced, it has been concluded by the Assessing Officer for the earlier years that the firm is mainly engaged in agricultural activities by producing "hybrid seeds" and derives income by selling those seeds. All ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 consideration so as to take a different view. In support of the above, learned counsel furnished copies of the assessment order dated December 24, 2004 under section 143(3) for the assessment year 2003-04 and the assessment order under section 143(3) dated September 2, 2009 for the assessment year 2007-08. He further contended that the other years of assessment have been completed under section 143(1) accepting the return. The relevant portion from the order is quoted as under : Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing 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 account audited by qualified chartered accountants as per law. No adverse comment has been made by the auditors. But the Assessing Officer has raised certain objections like cash payment of expenditure, vouchers are self made, etc., which are of general in nature just to justify that the expenses are not genuine. With regard to the first grounds of appeal, learned counsel submitted that the Assessing Officer has nowh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reema 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 business practice. There is no legal bar. This business practice is accepted year after year for the last more than a decade. It is not a new fact. No instance of purchase of goods by the firms to sell as it is without the process of agriculture has been brought on record or pointed out by the Assessing Officer, so as to say that it is "trading business". The Assessing Officer has accepted all the figures with rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sold. One of the partners Sri Biswanath Behera, is highly experienced and expert in agricultural science. He is a visiting professor in Orissa University of Agriculture and Technology (OUAT) and he is invited to give lectures in national level seminar. The seeds produced have been registered and certified by the Government. The product is world class seeds which are in high demand in the market. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see 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 the Assessing Officer be perused as submitted in the paper book as they have not been analysed or reasoned out by the learned Commissioner of Income-tax (Appeals) in his order. The learned Departmental representative supported the orders of the authorities below. He submitted that it was not the case of the Assessing Officer suddenly finding that the assessee's business of agricultural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purpose of germinating seeds which are certified seeds not fit for human consumption. Learned counsel for the assessee before us contended that the Government patronises the assessee encouraging development of genetically modified seeds and also production of high yield variety seeds on the basis of various compositions of different varieties which the Assessing Officer himself has obs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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