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TMI Blog2018 (7) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... e appeal having ITA No. 6622/Del/2013 for assessment year 2004-05 , wherein the grounds raised are reproduced as under: 1. "On the facts & in the circumstances of the case, the Ld. CIT(A) has erred in deleting the penalty by Rs. 1,64,80,374/- imposed by the assessing officer u/s 271(1)(C) of the Act on account of false claim of business income as 'agriculture income' and also false claim of deduction u/s 10(1) of the Act. 2. On the facts 8b in the circumstances of the case, the Ld. CIT(A) has erred in not appreciating the fact that the action of the assessing officer was confirmed by the first appellate authority at the time of quantum appealed by the assessee company. 3. The appellant craves to be allowed to add any fresh grounds of appeal and/or delete or amend any of the ground of appeal. 3. Briefly stated facts of the case are that the assessee company was established in June, 1998. As in the preceding years, the company procured seeds from farmers. In preceding years, the assessee claimed that it had taken the land on lease from the farmers and paid them advance for fertilizers, chemicals and labour and service charges etc. For the purpose of accounting, it apportioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings, the Tribunal has upheld the orders of the lower authorities and the claim of assessee of the activities of purchase and sale of the hybrid seeds has been held as business income. She submitted that in reality, the assessee only procured seeds from the farmers at a particular procurement price, however to claim the activity as agriculture income, it accounted part of the procurement price paid as towards lease charges of land, fertilizers and chemical expenditure, labour and other services etc. According to her, the assessee by way of employing colourable device attempted to camouflage the business income as agriculture income and thus ,the assessee is liable for penalty under section 271(1)(c) of the Act. 4.1 In support of her contention, she relied on following judicial pronouncements: "1. Union of India v. Dharamendra Textile Processors f(2007) 295 ITR 2441 Where Hon'ble Supreme Court held that Penalty under section 271(1)(c) is a civil liability for which willful concealment is not an essential ingredient for attracting the civil liability as is the case in the matter of proceedings under section 276C 2. CIT Vs Atul Mohan Binal (2009) 225 CTR 248 (SC) Where the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee makes a claim which Is not only incorrect that would give a license to unscrupulous assessee to make wholly untenable and unsustainable claims without there being any basis for making them, In the hope that their return would not be picked for scrutiny and they would be assessed on the basis of self-assessment under section 143(1) of the Act and even if their case is selected for scrutiny, they can get away merely by paying the tax, which in any case, was payable by them. The consequence would be that the persons who make claims of this nature, actuated by a mala-fide intention to evade tax otherwise payable by them would get away without paying the tax legally payable by them, if their cases are not picked up for scrutiny. This would take away the deterrent effect, which these penalty provisions in the Act have. " 4.2 The Ld. DR further submitted that the assessee is guilty of making false claim by way of defrauding the Revenue and thus the ratio of the decision of the Hon'ble Supreme Court in the case of KP Madhusudan (supra) is squarely applicable out the facts of the instant case. 4.3 In view of the arguments, the Ld. DR submitted that decision of the Ld. CIT(A) might be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in view of the decisions of the Hon'ble Delhi High Court in the case of CIT Vs Nalwa Sons investment limited reported in 327 ITR 543(Delhi), CIT Vs. Proagro Seeds Ltd., 296 ITR 235 (Delhi), CIT Vs. Mahabaleshwar Gas & Chemicals (P) Ltd., 170 Taxman 38(Del.). He submitted that SLP filed in the case of Nalwa Sons (supra) has been dismissed by the Hon'ble Supreme Court vide order dated 04/05/2012 in SLP (C) No. 18564/2009. 5.6 The Ld. Senior Counsel also distinguished the decisions relied upon by the Ld DR and submitted that no fraud or neglect while making claim of agriculture income has been established by the lower authorities and thus the ratio of the Hon'ble Supreme Court in the case of KP Madhusudan (supra) would not apply over the facts of the instant case. 5.7 Towards the end of the hearing, the Ld. senior counsel made oral plea for application under rule 27 of the ITAT Rules for raising the ground that in the notice for penalty initiated, charges are not clearly specified. He submitted that in the notice specific charge of concealment of particulars of the income or filing inaccurate particulars of income was not clearly marked. According to him, in view of the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed." 7.1 In view of the Explanation, penalty under section 27(1)(c) of the Act shall be levied for deemed concealment of particulars of income if, (A) the person fails to offer an explanation to the Assessing Officer or the explanation given is found to be false "OR" (B) person fails to substantiate the explanation and fails to prove that such explanation is bonafide and all material facts have been disclosed by him. 7.2 In the case of the Dharmenrdra Textile processors (supra) , the Hon'ble Supreme Court held that the penalty under section 27(1)(c) of the Act is a civil liability and for which willful concealment is not an essential ingredient. In the case of Atul Mohan Bindal (supra), the Hon'ble Supreme Court held that "mens rea" is not essential for levy of civil nature of penalty under section 271(1)(c) of the Act and Explanation appended to section 271(1)(c ) indicates element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return. 7.3 The Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature." 7.4 In the case of KP Madhusudhanan (supra) the Hon'ble Supreme Court held that if the assessee does not prove, in the circumstances stated in explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articularly when all the particulars in respect of the said claim were fully furnished by the assessee in its return of income." 7.9 The Ld. Senior Counsel, has argued before us that in quantum proceeding before the Tribunal the assessee claimed that claim of the agriculture income in the case of the assessee was made correctly in view of the decision of the Hon'ble Bombay High Court in the case of CIT Vs Monsanto India Ltd (supra). the Ld. Counsel further submitted that, the Tribunal in quantum proceeding has relied on the decision of the Karnataka High Court in the case of Namdhari Seeds P Ltd (supra). The Ld. Counsel submitted that, the addition has been sustained by the Tribunal in quantum proceedings mainly due to difference of opinions. According to him, in view of the difference of opinion on the issue of the activity as agriculture income, no penalty under section 271(1)(c) of the Act could be levied. 8. On the contrary, the Ld. DR argued that in reality the assessee provided seeds to the farmers and they have grown the crops in their fields and sold the crops to the assessee. She submitted that the assessee for the purpose of accounting and claiming the agriculture incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We find from the arrangement between the farmer and the assessee that the assessee is not carrying any agricultural operations required in terms of tests laid in the judgment of the Hon'ble Supreme Court in the case of CIT Vs Raja Benoy Kumar Sahas Roy (supra). The actual cultivation on the land is done by the farmer like tilling, sowing, etc. The mere supervision by the assessee without carrying of the basic operations would leave no manner of doubt that no agricultural income arose in the hands of the assessee. The argument of the assessee that the company is an artificial person could not have conducted the agricultural operations by itself and, therefore, required such kind of an arrangement with the farmers for earning agricultural income does not have any merit. The farmers are not the employees of the assessee company. Had it been the case where the actual agricultural operations were carried out by the employees of the assessee company, it would have been a different case altogether. 19. The features of the agreement relied upon by the assessee like composite payment, giving parent seeds free of cost to the farmer,' not carrying out any agricultural operations by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fertilizers & chemical charges are supposed to be basically in the nature of reimbursement. Even if the farmer/land owner chose not to toil in the field, there would not have been any impact on these two charges. The question remains, under these circumstances, why would he prefer to work in the field to get a deduction in his income as lease charges/reimbursement. Clearly the assessee's method of accounting is not depicting the true picture and it is put to use only to divide the procurement price of the good seed into these three specific charges so as create impression that it's the assessee who is actually carrying out the agricultural operations. (Pg. -5 of the Assessment Order ) (vi) For the reasons spelled out above, none of the arguments of the assessee is v/ convincing. The assertion that the most critical item, i.e. parent seed belongs to the assessee does not in itself allow the assessee to claim its income to be agricultural in nature. All the basic & subsequent operations are performed by the farmers only and the assessee is in no wav involved with day to day agricultural practices. Further, this is the standard practice of all the corporations dealing in hybri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epted as one of the opinion, then every businessman in the India, who buys crops from farmer, would become eligible for earning agriculture income by way of getting same lease agreements signed from the farmers and making accounting entries in their books of account to bifurcate the part of procurement price paid to farmer towards lease rent, fertilizer & chemical, labour & service charges. In our opinion, the assessee has made claim of agricultural income in mala fide manner and in gross abuse of the provisions of the Act. 14. In view of the aforesaid discussion, we hold the assessee liable for concealment of particulars of income. Accordingly, we reverse the finding of the Ld. CIT(A) and uphold the finding of the Assessing Officer on the issue in dispute. The grounds of the appeal of the Revenue are accordingly allowed. 15. On the issue of oral plea of application under Rule 27 of the ITAT Rules is concerned, we are of the opinion that Ld. Senior Counsel should have filed a written application rather than putting the opposite party at surprise. Even the said oral plea was not made at the beginning of the hearing. It is in the interest of Justice that opposite party should be ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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