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TMI Blog2023 (2) TMI 1011X X X X Extracts X X X X X X X X Extracts X X X X ..... the sum of Rs.3,65,09,908 was accepted as genuine and agricultural expenses debited by the assessee in its profit and loss account were also accepted as genuine. We do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee in the facts and circumstances of the instant case. Accordingly, the ground Nos. 1 2 raised by the Revenue are dismissed. Addition on account of share premium u/s.56(2)(viib) treating the same as income from other sources - shares issued by the assessee company to its holding company @Rs.125/- per share using DCF method - CIT-A deleted addition - HELD THAT:- We find that assessee company admittedly had used the share premium amounts for the purpose of its business, which fact has been admitted by the ld. AO in his assessment order. Hence, the observations made by the ld. AO in this regard are totally baseless, devoid of merits and deserves to be dismissed in limine. CIT(A) had rightly placed reliance on the decision of Vodafone India Services Pvt. Ltd [ 2014 (10) TMI 278 - BOMBAY HIGH COURT ] wherein it has been held that receipt of share capital and share premium is capital in nature and cannot be brought to tax. Purs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Dated:- 22-2-2023 - Shri Amit Shukla, Judicial Member And Shri, M.Balaganesh, Accountant Member For the Assessee : Shri Rashmikant Modi Ms.Ketki Rajeshirke For the Revenue : Shri Kishor Dhule ORDER PER M. BALAGANESH (A.M): This appeal in ITA No.2357/Mum/2017 for A.Y.2013-14 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-2, Mumbai in appeal No.CIT(A)-2/IT/109/2016-17 dated 23/12/2016 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 31/03/2016 by the ld. Income Tax Officer 1(1)(4) Mumbai (hereinafter referred to as ld. AO). 2. The Ground Nos. 1 and 2 raised by the revenue are challenging the deletion of addition of Rs.3,65,09,908/- made by the ld. AO u/s 68 of the Act disbelieving the same to be agricultural receipts. The interconnected issue involved therein is with regard to allowability of agricultural expenses incurred by the assessee. 2.1. The assessee company was incorporated on 14/09/2005 in the name of Oodnap Agritech Ltd with the objects of carrying on agricultural and related activities. The Memorandum of Association of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned AO on 04/03/2016 together with details of expenditure incurred on seeds, bull and labour, crop cultivation charges, Hero rotta , Kakariya, ploughing, water charges, manure etc. The crops grown were Jawar, Bajara, Cotton, Arhar, Cucumber, Green Chillies, Tomato, Harbhara, Watermelon etc. The assessee furnished the books of accounts together with the audited financial statements before the learned AO in support of all its contentions. 2.2. The modus operandi adopted by the assessee with regard to its agricultural activities are as under: (i) Involved the farmer owners in the operations on the land paying them and their team the labour charges; (ii) Reimbursed all costs of seeds, fertilizers bought through the farmer owners; (iii) Owned a tractor for tilling but also used the labour; (iv) The land had adequate water bodies. It also outsourced the same from the nearby area whenever needed; (v) It planned the produce based on the climatic situation and the soil. (vi) Used organic fertilizers for the produce, using fertilizers and pesticides to a minimum; (vii) Produced crops and horticultural produce namely, Jawar, bajara, cotton, arhar, cucumber, gre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of carrying out the business of agriculture, however, it is seen from the conduct of the business there is no corporate discipline. ii. During the year under reference, the assessee has claimed that land was acquired by him executing tenancy agreement with the land owners, however not received any confirmation for receipt of rent in cash. From the said transaction it is abundantly clear that there does not exist reliable tenancy agreement with land owners. iii. The land owners have purchased seeds under various Government schemes at subsidised rates and used for crop cultivation by themselves, who have offered their labour in agricultural activity of the company. Since the assessee has incurred expenses for procurement seeds by reimbursing it to the land owners, the bills for purchase of seeds have not been included in the vouchers for purchase of needs. iv. It is crucial to restate that the assessee has also shared crop with the land owner, however the value of the agricultural produce have not been accounted adequately. There does not include clause mentioned in the agreement for share of crop with the land owner. It implies that there was no involvement by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of such a huge crop yield when in not at all possible given the drought conditions prevailing the region like that of Solapur and Beed where the Farmers Suicides are so rampant and the drought a regular phenomenon. x. The assessee has sold its entire produce to the so called traders who are not trading in the APMC and other recognized trading houses and has sold the entire produce in cash only. The fact to note that the assessee has sold the jowar on lot basis which become the absolute bogus kind of transaction on the part of assessee which cannot be proved by any stretch of imagination. 2.6. The ld. AO while making the aforesaid observations concluded that the assessee company had not carried out any single agricultural related activity and it is nothing but siphoning the own money of the assessee company to introduce in the garb of agricultural activities. Accordingly, the sale proceeds of agricultural produce of Rs.3,65,09,908/- was treated as unexplained cash credit u/s. 68 of the Act and added in the assessment as income from other sources. Consequently, no deduction of expenses incurred by the assessee for the agricultural activities were allowed by the learned AO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat Bullock cart, tractor, trolley or trucks were used for movement; that fertilisers and pesticides are not sold with only cash memo. 2.9. The assessee submitted that the above reports from the authorities of the state government in fact supports the case of the assessee. The above reports clearly show that the relevant area had received good and sufficient rains; the area had water bodies from which the assessee had drawn waters; labour has been paid for lifting water; for tilling apart from bullocks, tractors has been used. The assessee had given the purchase details of the tractors before the learned AO. As regards fertilisers and pesticides, the assessee submitted that it had gone organic and not used much of fertilisers and pesticides. Wherever they have been bought, the same has been bought by the farmers on the assessee had merely reimbursed the cost against their claims. These are supported by the cash vouchers produced by the assessee before the learned AO. As regards the sale of produce, the assessee did not follow the mode of getting to the regulated market. In fact there are no items which are mandatory to sell through the regulated market committee. The assessee ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken for cultivation of agricultural produce from various parties and the details of the same in the form of survey number, Hisar number, taluk, district and name of the party together with the extent of agricultural land in hectares taken for cultivation, before the learned AO together with the copy of relevant agreements entered into by the assessee. We further find that the assessee had indeed furnished the details of expenditure incurred for raising the agricultural produce as under: Rs. i. Jawar sale realization 9356494 Jawar Expenses Seed 291200 Bull pull labour 295250 Crop Cultivation Chgs 304210 Herro Rotta 115395 Kakariya 231440 Labour Charges 2834332 Land Cultivation Chgs 1587685 Ploughing 662893 Water flow charges 690536 Khad expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Bajara sale realization 1874903 Bajara Expenses Seed 75160 Bull pull labour 118750 Crop Cultivation Chgs 116510 Herro Rotta 62150 Labour Charges 282492 Land Cultivation Chgs 362205 Ploughing 128180 Water flow charges 175120 Khad expenses 78340 vi. Green chilly sale realization 2711246 Green chilly Expenses Seed 56002 Bull pull labour 40567 Crop Cultivation Chgs 68767 Herro Rotta 26100 Kakariya 22800 Labour Charges 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93313 Khad expenses 67200 3.2. Further the assessee had completely given the extent of acres of land under cultivation before the learned AO as under: Details of Land under cultivation- Acres Cotton 52 Jawar 313 Bajara 96 Cucumber 39 Green Chilli 18 Harabara 14 Tomato 6 Tur 76 Watermelon 28 Total 642 3.3. The assessee had also furnished the Ledger account of agricultural expenses with supporting vouchers before the learned AO. We find that the assessee had also further furnished the Ledger account of agricultural sales of agricultural produce together with supporting sale bills before the learned AO. The evidence is in respect of the aforesaid facts are enclosed in pages 10 to 17 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y audited were never rejected by the Revenue. Admittedly, the entire expenses were incurred in cash and sale proceeds were received in cash, being transacted with agriculturists and agricultural produce. This does not make the transactions ingenuine so as to make any addition u/s.68 of the Act. As stated earlier, it is a fact that assessee had duly reflected leasehold agricultural land in its books in the sum of Rs.7,05,70,000/- in its fixed assets schedule. 3.5. It would not be out of place to mention that the ld. AO in the scrutiny assessment proceedings for A.Yrs. 2014-15 and 2015-16 in the case of the assessee had indeed accepted the transactions of the assessee as genuine vide orders u/s.143(3) of the Act dated 30/12/2016 and 29/12/2017 respectively. In fact in the said assessment order for A.Y.2014-15, the ld. AO had even mentioned that assessee had grown the following products i.e. Cotton, Bajara, Watermelon, Chilli, Cucumber, Tomato, Watermelon etc., and during the Rabbi season company has grown the following products i.e. Jawar, Cotton, Tur, Tomato, Chilli and Cucumber etc. This goes to prove that in immediately succeeding two assessment years, the ld. AO had indeed acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsons accepted the summons and three persons refused to accept the summons. However, the ld. AO mentioned in the remand report that compliance to the summons were duly made by the farmers vide letter received on 01/04/2016. We find that the ld. CIT(A) had recorded a categorical finding that the ld. AO in the remand report had conceded that five agriculturists agreed that their lands were given to the assessee company on rent basis. Considering the remand report of the ld. AO, considering the various details furnished by the assessee, as detailed supra, considering 7/12 extracts from the said Revenue authorities furnished by the assessee and considering the independent reports from Superintendent of Agriculture department of Taluk Akkalkot in Solapur District and District Superintendent, Agriculture Officer, Pune, the ld. CIT(A) held that the net agricultural income shown by the assessee at Rs.1,17,31,323/- to be genuine and deleted the addition made by the ld. AO in respect of gross receipts in the sum of Rs.3,65,09,908/- as unexplained cash credit u/s.68 of the Act. By this process, the sale proceeds received by the assessee from agricultural activities in the sum of Rs.3,65,09,90 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustified by the assessee and hence it exceeded the face value of the share of the assessee company warranting making addition thereon. 4.2. The ld. CIT(A) deleted the addition made u/s.56(2)(viib) of the Act by placing reliance on the valuation report submitted by an independent Chartered Accountant which was submitted to the ld. AO on 31/03/2016. By appreciating the financial statements of the assessee company as on 31/03/2012 and 31/03/2013 and also placing reliance on various decisions of Mumbai Tribunal, the Hon ble Jurisdictional High Court, Hon ble Madras High Court and Hon ble Supreme Court. 4.3. At the outset, we find that the valuation report from an independent Chartered Accountant dated 30/08/2012 valuing the equity share of the assessee company at Rs.124.16 per share under Rule 11UA of the Income Tax Rules was duly filed by the assessee before the ld. AO on 31/03/2016. This fact has been duly admitted by the ld. DR before us that the said valuation report was indeed filed before the ld. AO on 31/03/2016. The main grievance of the ld. DR was that the ld. AO did not have sufficient time to examine the said valuation report as it was submitted on the last date of com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholding pattern of the assessee company, we find that 99.99% of the shares of the assessee company are held by the following persons:- i. Mr. Pandoo Naig, Director - 12.07% ii. Mr. T.K.P Naig - 14.46% iii. Onelife Gas Energy and Infrastructure Ltd.(Holding Company) - 73.46% 4.6. Hence, no outsider had even entered the company as a shareholder. Moreover, the other observations made by the ld. AO that assessee company had violated the provisions of Section 78 of the Companies Act, 1956 is absolutely irrelevant for the purpose of Indian Income Tax Act, 1961. In fact Section 78 of the Companies Act, 1956 only stipulates the situation whenever any company proposes to utilize the share premium, then the said company could utilize only for specified purposes. In other words, any debits that are to be made in the share premium account in the books of any limited company would be governed by provisions of Section 78 of the Companies Act, 1956. Nowhere there is a prohibitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und Nos. 3,4 5 raised by the Revenue are dismissed. 5. The ground Nos. 6 7 raised by the Revenue are challenging the deletion of addition of Rs.15,93,20,000/- made u/s.68 of the Act in respect of loan received by the assessee company from its holding company. 5.1. We have heard rival submissions and perused the materials available on record. During the year under consideration, the assessee has availed unsecured loan from M/s. Onelife Gas Energy and Infrastructure Ltd. (Holding Company of the assessee) in the sum of Rs.15,93,20,000/-. The ld. AO on the perusal of the financial statements of the lender company observed that it had reserves and surplus in the form of share premium of Rs.54 Crores carried forward from the earlier years. The loss shown for the year was Rs.10,90,549/- by the said lender company. Accordingly, the ld. AO concluded that the lender company is not a genuine company and held that creditworthiness of the company is not proved and accordingly, proceeded to treat the receipt of loan by the assessee company as unexplained cash credit u/s.68 of the Act. 5.2. The ld. CIT(A) deleted the addition on the ground that the money is received from the Holding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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