Itta/495/2010 Of M/S. Shankar Dairy Pvt. Ltd v. Deputy Commissioner Of Income Tax

THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI RAMESH RANGANATHAN INCOME TAX TRIBUNAL APPEAL Nos.495 AND 508 OF 2010 08.09.2010 Between: M/s.Shankar Dairy Private Limited AND …. Appellan Deputy Commissioner of Income Tax,Circle-3(1), Aayakar Bhavan, Hyderabad. … Responden THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI RAMESH RANGANATHAN INCOME TAX TRIBUNAL APPEAL Nos.495 AND 508 OF 2010 COMMON JUDGMENT: (Per Hon’ble Sri Justice V.V.S.Rao) These two appeals under Section 260A of the Income Tax Act1961 (the Act) are against the same order. One is filed against the ordeof Income Tax Appellate Tribunal dismissing the assessee’s appeal andthe other is filed against the order of the learned Tribunal partly allowingthe appeal filed by Revenue. For the assessment year 2003-2004, the appellant company filedits return declaring “nil” income. The same was taken up for scrutiny, anda notice under Section 143(2) of the Act was issued. The assessee hadshown net agricultural income of Rs.19,62,467/-, and had claimedexemption under Section 10(1) of the Act. After receiving notice undeSection 143(2), the Managing Director of the company and its CharteredAccountant appeared. After considering the matter, the assessing officedetermined Rs.3,30,000/- as exempted agricultural income, and treatedthe balance amount of Rs.16,32,467/- as income from undisclosedsources. Accordingly, the assessment was completed under Section143(3) of the Act requiring the appellant to pay an amount oRs.8,24,897/- towards tax including surcharge and interest thereon Aggrieved by the same, the appellant preferred an appeal under Section246A of the Act before the Commissioner of Income Tax (Appeals) (CIT)By an order dated 30.06.2008, the CIT estimated an amount oRs.11,00,000/- towards agricultural income as exempt, and theremaining amount of Rs.8,62,467/- was treated as income fromundisclosed sources for the purpose of income tax. Aggrieved therebythe revenue as well as assessee preferred separate appeals before theIncome Tax Appellate Tribunal. As noticed supra, the revenue’s appeawas partly allowed, and the assessee’s appeal was dismissed, holdingthat agricultural income to an extent of Rs.5,50,000/- can be consideredas exempt as against Rs.11,00,000/- allowed by CIT (Appeals). The senior counsel for the appellant submits that the finding of theTribunal is perverse and, therefore, a substantial question of law wouldarise; the Tribunal erred in following the principle of approximation; thereis no proper appreciation by Tribunal and there is no finding recorded bythe Tribunal with reference to any of the findings favourable to theassessee. Relying on the decision of Supreme Court in C.I.T. v Managing Trustee, Jalakhabai Trust[[1]], he would submit that whenthere is a question of law which can be supported by reasonablegrounds, High Court may intervene under 260A of the Act. We have carefully perused the order of the assessing officer andCIT as well as the impugned order of the learned Tribunal. The questionbefore the assessing officer was essentially a question of fact beingwhether Rs.19,62,467/- claimed as exempt under Section 10(1) of theAct was substantiated by the assessee or not. Needless to mention thaif the income tax of any person exceeds the exempted limit, all suchincome, subject to certain allowances, is liable to tax. If any personclaims any income as exempt being agricultural income, it is for him tosatisfy the assessing officer is the requirement under law. Section 2(1A)to the extent relevant, defines ‘agricultural income’. The same reads asunder. 2 (1-A). “agricultural income” means— (a) any rent or revenue derived from land which is situated inIndia and is used for agricultural purposes; (b) any income derived from such land by— (i) agriculture; or 2 (1-A). “agricultural income” means— (a) any rent or revenue derived from land which is situated inIndia and is used for agricultural purposes; (b) any income derived from such land by— (i) agriculture; or (ii) the performance by a cultivator or receiver of rent-in-kind ofany process ordinarily employed by a cultivator or receiver ofrent-in-kind to render the produce raised or received by him fitto be taken to market; orany process ordinarily employed by a cultivator or receiver ofrent-in-kind to render the produce raised or received by him fitto be taken to market; or (iii) the sale by a cultivator or receiver of rent-in-kind of theproduce raised or received by him, in respect of which noprocess has been performed other than a process of thenature described in paragraph (ii) of this sub-clause;produce raised or received by him, in respect of which noprocess has been performed other than a process of thenature described in paragraph (ii) of this sub-clause; (c) any income derived from any building owned and occupiedby the receiver of the rent or revenue of any such land, oroccupied by the cultivator or the receiver of rent-in-kind, of anyland with respect to which, or the produce of which, anyprocess mentioned in paragraphs (ii) and (iii) of sub-clause (b)is carried on:by the receiver of the rent or revenue of any such land, oroccupied by the cultivator or the receiver of rent-in-kind, of anyland with respect to which, or the produce of which, anyprocess mentioned in paragraphs (ii) and (iii) of sub-clause (b)is carried on: It is incumbent on the assessee to show that the agriculturaincome claimed as exempt is income derived by sale of the produceraised on the land in the market. A mere statement that an assesseeowns agricultural land with all modern agricultural friendly facilitiesincluding drip irrigation facility itself does not suffice nor is the assessingofficer bound to accept the version of the assessee with regard to theamount claimed as exempt being agricultural income. Agriculturaincome is neither an imaginary figure nor a matter of conjecture. Giventhe nature of land, the probable input costs, labour costs and the markeconditions, it is possible to give an estimate of agricultural income even ia person does not meticulously maintain accounts in relation toagricultural operations. The appellant was asked to produce evidence relating toagricultural activities during 2002-2003. By letter dated 25.12.2005, theappellant explained the nature of business activity, and stated that he israising inter alia crops like rice, mango, maize, jowar, red gram, blackgram, bengal gram, green gram, ladyfingers, tomato and othevegetables. The appellant further stated that total extent of Acs.22.00 oland situated in Masaniguda village of Ranga Reddy District, was beingirrigated with the help of two bore wells; the farm is well equippedmodern horticulture and oleri-culture (growing vegetables) operations areundertaken; and they follow crop rotation for maximum yield. Theassessing officer relied on statistics released by organizations likeDirectorate of Economics and Statistics, Department of Agriculture andCooperation, Ministry of Agriculture, Government of India, National Bankfor Agriculture and Rural Development, Department of AgricultureGovernment of Andhra Pradesh, and came to the conclusion that it wouldbe difficult to accept the yield shown by the assessee. He also observedthat though they have grown 24 crops during 2002-2003, they could noproduce any evidence except some bills in respect of purchase of seedsand fertilizers. He then relied on Gopiram Lila v Commissioner of Income Tax[[2]]and Ridhkarandas Punamchand Bhura vCommissioner of Income Tax[[3]]and came to the conclusion that thereasonable estimate of Rs.15,000/- per acre would be proper fodetermining the agricultural income exempt from tax. Accordingly heallowed Rs.3,30,000/- as exempt and treated the balance amount asundisclosed income. Income Tax[[2]]and Ridhkarandas Punamchand Bhura vCommissioner of Income Tax[[3]]and came to the conclusion that thereasonable estimate of Rs.15,000/- per acre would be proper fodetermining the agricultural income exempt from tax. Accordingly heallowed Rs.3,30,000/- as exempt and treated the balance amount asundisclosed income. The appeal by the assessee was partly allowed by the CIT. Whileobserving that the appellant did not file comparable case of agriculturaincome during the course of appellate proceedings, and that theassessing officer did not give any logic for considering income aRs.15,000/- per acre as reasonable, the CIT opined that Rs.50,000/-would be reasonable income and, accordingly, allowed an amount oRs.11,00,000/- as agricultural income exempt from tax. In the departmental second appeal before the learned Tribunal, theonly question was whether the CIT ought to have upheld the decision oassessing officer in restricting the agricultural income as Rs.15,000/- peacre, in the absence of any proof in support of the claim by theassessee. Considering the rival submissions, the learned Tribunaobserved as below. The assessing officer rightly noticed that due to severedrought conditions that prevailed during the year underconsideration; the assessee would not have made so muchagriculture income. The assessing officer also rightly pointedout that the acreage required to produce the yield shown bythe assessee is 371.28 acres when compared to the land of22 acres as shown by the assessee. Even considering thatsome of the crops have been grown as inter cropping, theminimum area required to get the above yield is at least 150acres of land. We also find that the assessee has notproduced any evidence to show that agricultural operationshave been carried out on the said agricultural land and earnedincome thereon. No bills/vouchers for agricultural receipts aswell as expenditure are produced before the lower authoritiesexcept in the case of seeds and fertilizers. Therefore, thelower authorities are right in rejecting the books of account ofthe assessee. However, the estimation of the assessingofficer at Rs.15,000/- per acre as net agriculture incomeseems to be on lower side. Having come to the conclusion that the estimation of Rs.3,30,000/-as agricultural income was on the lower side, the learned Tribunal tookthe view that the agricultural income to the extent of Rs.5,50,000/- isreasonable and directed the same to be considered as exempt. The fact of learned Tribunal allowing the appeal is to set at naughthe order of the CIT, and restore the order of assessing officer. We areconvinced that the assessing officer followed an objective andreasonable criteria for estimating the agricultural income while rejectingthe claims made by the assessee. When no bills/vouchers foagricultural receipts were produced, the method adopted by theassessing officer cannot be faulted as has been held by the learnedTribunal. It is a question of fact based on various relevant factors andwhen the consideration of these matters by the assessing officereceived the approval of the learned Tribunal, we do not think that asubstantial question of law is involved in the case especially when theappellant failed to produce bills/ vouchers in support of his claim. In Gopiram Lila on which reliance was placed by the assessing officer, it was observed as follows. The assessee has inflated the income under the head“Agricultural income” and deflated the expenses. The income-tax authorities, after consideration of the material available onrecord, came to the conclusion that such inflated income from In Gopiram Lila on which reliance was placed by the assessing officer, it was observed as follows. The assessee has inflated the income under the head“Agricultural income” and deflated the expenses. The income-tax authorities, after consideration of the material available onrecord, came to the conclusion that such inflated income from agriculture was not possible and, therefore, rightly detrminedthe added income as “income from undisclosed sources.” The onus was on the assessee to show the extent of theagricultural income which the assessee failed to do and theexplanation submitted by the assessee was not accepted bythe income-tax authorities and, therefore, the assessee’sadded income was rightly assessed by the assessingauthorities under the head “Income from other sources”. In this view of the matter, we are of the opinion that theincome-tax authorities were right in treating the additionalincome as “income from other sources”. We are in respectful agreement with the principle enunciated by theRajasthan High Court. In view of the acceptance of the order of theassessing officer while reversing the order of CIT, we are sure that thelearned Tribunal was aware of the ratio. The submission in this regardthat insisting upon production of meticulously kept records for thepurpose of allowing exemption of agricultural income is not warrantedand the Court should take broad view, cannot be accepted. It is onething to say that if an assessee claims reasonable amount of agriculturaincome as exempt from tax, strict proof may not be necessary but whenthe agricultural income is inflated so as to go out of the tax bracket, it iscertainly a matter of proof and the burden always lies on the assesseewho claims such exemption. In this case, we are convinced that theappellant did not discharge the burden as per law. The learned Tribunawas right in partly allowing the appeal of the revenue and dismissing theassessee’s appeal. The appeals for the above reasons are dismissed. _______________ (V.V.S.RAO, J) .09.2010YS ______________________________ (RAMESH RANGANATHAN, J) [1](1967) 66 ITR 619(1967) 66 ITR 619 [2](1996) 225 ITR 320 (Raj)(1996) 225 ITR 320 (Raj) [3](1996) 231 ITR 604 (MP)(1996) 231 ITR 604 (MP)