The ACIT, 1 (1), Bhopal v. M/s Enbee Plantation Ltd,, Bhopal

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER AND SHRI R.C.SHARMA ACCOUNTANT MEMBER PAN NO. : - I.T.A.NO. 480/IND/2005 A.YS. : 1998-99 ACIT ENBEE PLANTATION LIMITED 1(1) VS 131/6 KIRAN COMPLEX BHOPAL. ZONE II M.P.NAGAR BHOPAL. (APPELLANT) (RESPONDENT) I.T.A.NO. 385/IND/2005 A.YS. : 1998-99 ENBEE PLANTATION LTD. ACIT 131/6 KIRAN COMPLEX VS 1(1) ZONE II M.P.NAGAR BHOPAL. BHOPAL. (APPELLANT) (RESPONDENT) PAN NO. : AAYPM3483D I.T.A.NO. 334/IND/2007 A.YS. : 1997-98 ACIT SHRI SANDEEP MAHESHWARI 1(1) VS E - 3/22 ARERA COLONY BHOPAL. BHOPAL. (APPELLANT) (RESPONDENT) 2 DEPARTMENT BY : SHRI K.K.SINGH CIT DR ASSESSEE BY : SHRI S.S.DESHPANDE C.A. O R D E R PER R. C. SHARMA A.M. I.T.A.NOS.480 & 385/IND/2005 : THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE A ND REVENUE BOTH AGAINST THE ORDER OF CIT(A) DATED 1 ST MARCH 2005 FOR THE ASSESSMENT YEAR 1998-99 IN THE MATTER OF OR DER PASSED U/S 143(3) READ WITH SECTION 263 OF THE INCOME-TAX ACT 1961. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUS ED. 3. FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY IS ENG AGED IN AGRO-FORESTRY BUSINESS. DURING THE YEAR UNDER CO NSIDERATION THE ASSESSEE HAD SHOWN NET AGRICULTURAL INCOME OF R S. 25.26 CRORES AND TAXABLE INCOME OF RS. 32.34 LAKHS. 4. IT WAS EXPLAINED IN THE RETURN THAT AGRICULTURAL IN COME WAS COMPUTED AS UNDER :- (A) SALE OF AGRICULTURAL PRODUCTS RS. 51968215 (B) PLANTATION IN PROGRESS GROSS AGRICULTURAL INOME RS.208800000 RS. 260768215 3 LESS: - (A) ADMINISTRATIVE EXPENSES SALARY & OTHER EXPENSE RS.3276125 (B) FINANCE CHARGES RS.105994 (C) DEPRECIATION RS.4688780 (D) PRIOR YEAR EXPENSES RS.80702 RS.8151601 (C) NET AGRICULTURAL INCOME RS.25 26 16 614 5. ORIGINAL ASSESSMENT WAS FRAMED U/S 143(3) ON 30 TH MARCH 2001. HOWEVER THIS ORDER WAS SET-ASIDE BY T HE CIT BY INVOKING HIS POWERS U/S 263 ON 24.3.2003 FOR ACCEPT ANCE OF AGRICULTURAL INCOME WITHOUT PROPERLY VERIFYING THE BONAFIDES OF SALES OF AGRICULTURAL PRODUCES AND EXPENSES. THE AO WHILE REFRAMING THE ASSESSMENT BROUGHT ON RECORD THE BACK GROUND OF THE APPELLANT COMPANY CONDUCTED INQUIRIES ABOUT THE SALE OF SHORT TERM CROPS AT RS. 5 19 68 215/- & CONCLUDED T HAT BONAFIDES OF SALES TRANSACTIONS/PARTIES TO WHOM THE ALLEGED SALES WERE EFFECTED WAS NOT ESTABLISHED AND SO THEREAFTER ASSESSED THE SALE AMOUNT OF RS. 5 19 68 215/- AS INCOME FROM OTH ER SOURCES U/S 56. 4 6. IN APPEAL FILED BEFORE THE LD. CIT(A) THE ASSESSEE HAD CLAIMED TO HAVE ACQUIRED 3957.53 ACRES OF LAND DURI NG FINANCIAL YEAR 1995-96 1996-97 & 1997-98 WHICH INCLUDED 3905. 79 ACRES OF LAND ON LEASE & 54.74 ACRES OF LAND PURCHASED. T HE BREAK-UP IS AS UNDER :- F.Y. LAND TAKEN ON LEASE (IN ACRES) LAND PURCHASED (IN ACRES) TOTAL LAND ACQUIRED (IN ACRES) 1 2 3(1+2) 1995 - 96 30.4 0 30.4 1996 - 97 1464.36 0 1464.36 1997 - 98 2410.03 52.74 2462.77 1998 - 99 0 0 0 1999 - 00 0 0 0 TOTAL 3905.79 54.74 3954.53 7. AS PER THE AO AS PER THE DIRECTION OF THE HON'BLE C IT BHOPAL CONDUCTED INQUIRY ABOUT THE BONAFIDES OF THE SALES OF AGRICULTURAL PRODUCE MADE BY THE APPELLANT TO VARIO US PARTIES DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMEN T YEAR 1998- 99. THE SALES REPORTED BY THE APPELLANT IN THE RETU RN WERE AS UNDER :- 5 S.NO. NAME OF THE PARTY TOTAL SALES MADE DURING THE YEAR (IN RS.) 1. M/S. ABC CONSULTANTS N EWDELHI 1 03 95 000/ - 2. M/S. TIRUIPATI AGENCY ITARSI 3 66 08 100/ - 3. M/S. SURYA AGROILS RAISEN 30 30 027/ - 4. PROGRESS EXTRACTION & EXPORTS LIMITED BHOPAL. 15 15 173/ - 5. GOVIND TRADERS BHOPAL 54 263/ - 6. M/S. ENBEE IMPEX PVT.LTD. BHOPAL 4 580/ - 7. M/S. S.G.PLAST PVT.LTD. BHOPAL 3 60 547/ - TOTAL 5 19 68 215/ - THE AO DISBELIEVED THE ABOVE SALES REPORTED BY THE APPELLANT. 8. THE AO STATED THAT THE ASSESSEE COMPANY HAD NEITHER GROWN NOR SOLD ANY SHORT TERM CROPS TO M/S. TIRUPAT I AGENCIES AND OTHER PARTIES. ACCORDINGLY HE REJECTED THE BOO K RESULTS BY INVOKING THE PROVISIONS U8/S 145(3) AND ASSESSED AG RICULTURAL INCOME OF RS. 5.19 CRORES AND ASSESSED THE SAME AS INCOME FROM OTHER SOURCES U/S 56. THUS ALL THE EXPENDITURE CLA IMED IN THE PROFIT AND LOSS ACCOUNT WERE IGNORED. THE LD. CIT(A ) ALLOWED RELIEF OF RS. 19.68 LAKHS OUT OF TOTAL AGRICULTURAL INCOME SHOWN BY THE ASSESSEE AND TREATED RS. 19.68 LAKHS AS HAVING BEEN EARNED OUT OF AGRICULTURAL ACTIVITIES. 6 9. AGAINST THE ABOVE ORDER OF LD. CIT(A) BOTH THE ASS ESSEE AND REVENUE ARE IN FURTHER APPEAL BEFORE US. 10. IT WAS ARGUED BY THE LD. AUTHORIZED REPRESENTATIVE THAT EXACTLY SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNA L IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1997-98 IN I.T.A.N O. 622/IND/05 WHEREIN THE ASSESSEES CLAIM FOR EARNIN G AGRICULTURAL INCOME WAS DULY ACCEPTED BY THE TRIBUN AL. HE THEREFORE REQUESTED THAT SINCE FACTS OF THE INSTAN T YEAR ARE SAME THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE SH OULD BE FOLLOWED. 11. ON THE OTHER HAND IT WAS CONTENDED BY THE LD. CIT DR THAT DURING THE YEAR UNDER CONSIDERATION DETAILED INQUIRY HAS BEEN MADE BY THE ASSESSING OFFICER WHEN THE MATTER WAS RESTORED BACK BY THE CIT BY PASSING ORDER U/S 263 WHEREIN T HE AO HAS EXAMINED ALL THE PARTIES TO WHOM THE ASSESSEE WAS A LLEGING TO SELL THE AGRICULTURAL PRODUCE. AS PER THE INQUIRY CONDUC TED IT WAS FOUND BY THE DEPARTMENT THAT THE SALES OF RS. 3 66 68 215/- WHICH WAS ABOUT 70 % OF THE TOTAL SALES WAS MADE TO M/S. TIRUPATI AGENCIES ASHIRWAD PUNJABI MOHALLA ITARS I. THIS CONCERN WAS A PROPRIETARY CONCERN OF SHRI VIKAS MOL ASARIA AND WAS BEING OPERATED FROM HIS RESIDENCE. AN INQUIRY A BOUT THE SAID 7 PROPRIETARY CONCERNS OF SHRI VIKAS MOLASARIA SUGGES TED THAT THE BONAFIDES OF THE PURCHASES MADE BY M/S. TIRUPATI AG ENCY WERE NOT ABOVE BOARD. AS PER THE AO THERE WERE FOLLOWIN G PECULIARITIES :- (A) M/S. TIRUPATI AGENCY ITARSI HAD NO PAST HISTORY OF PURCHASING OR SELLING OF AGRICULTURAL PRODUCE. IT I S ONLY DURING THE FINANCIAL YEAR 1996-97 M/S.TIRUPATI AGEN CY MADE PURCHASES FROM THE APPELLANT COMPANY WHICH WAS CONTINUED IN THE ACCOUNTING YEAR RELEVANT TO TH E ASSESSMENT YEAR UNDER APPEAL ALSO. THEREAFTER ONLY WHEN THE AGRICULTURAL INCOME WAS EARNED BY THE APPELLANT COMPANY ONLY IN THAT YEAR M/S. TIRUPATI AGENCY DID BUSINESS. (B) M/S.TIRUPATI AGENCY DID NOT PURCHASE ANY GOODS FROM ANY OTHER PARTY EXCEPT FROM THE APPELLANT COMPANY. (C) ON EXAMINATION OF THE SALE BILLS IT WAS SEEN THAT NEITHER THE COMPLETE NAMES NOR COMPLETE POSTAL ADDRESS OF THE PERSONS TO WHOM CASH SALES WERE MADE BY M/S. TIRUPATI AGENCY WERE MENTIONED. MOST OF THE SALE BILLS WERE NOT SIGNED BY THE ALLEGED PURCHASER S. 8 (D) M/S. TIRUPATI AGENCY CLAIMED TO HAVE SOLD GOODS ON CREDIT TO FEW PARTIES IN BHOPAL & INDORE AND INQUIR Y U/S 131 ABOUT THE GENUINENESS OF TRANSACTION REVEAL ED THAT THESE PARTIES HAVE DEPOSITED AMOUNT IN CASH IN THE BANK ACCOUNT AFTER WHICH CHEQUES/DDS WERE PREPARED IN THE NAME OF M/S. TIRUIPATI AGENCY. (E) M/S. TIRUPATI AGENCY SOLD THE AGRICULTURAL PRODUCE IN THE SAME PACKING AS IT WAS RECEIVED FROM M/S. ENBEE PLANTATION LTD. WHICH WAS UNUSUAL BECAUSE THE APPELLANT COMPANY HAD SOLD THE GOODS IN A PACKING O F 50 KGS. AND M/S. TIRUPATI AGENCY HAD CLAIMED THAT I TS PURCHASERS WERE LOCAL PHYSICIANS FOR MANUFACTURING MEDICINES AND IT WAS UNLIKELY THAT THESE PHYSICIANS WOULD HAVE BROUGHT THE MEDICINES PACKING OF 50 KGS. 12. ON INQUIRY THE AO ALSO FOUND THAT APART FROM M/S. TIRUPATI AGENCY ABOUT 20 % OF THE TOTAL SALES WERE MADE TO M/S. ABS CONSULTANT NEW DELHI BUT IT WAS SEEN THAT THE APPELLANT DID NOT FURNISH THE BILLS NO. DATE OF BILLING AMOUNT OF BILL & THE ITEMS SOLD AND WHEN THE APPELLANT COMPANY WAS ASKED TO FURNISH THE DETAILS DETAILS REGARDING TRANSPORTATION OF GO ODS DETAILS OF DATE-WISE SALES QUANTITY OF ITEM SOLD WERE NOT SUB MITTED. THE AO 9 THEREAFTER SOUGHT TO CONFIRM THE PURCHASES VIDE NOT ICE DATED 14.01.2004 U/S 133(6) AT THE POSTAL ADDRESS GIVEN B Y THE APPELLANT COMPANY BUT THE NOTICES WERE RETURNED BY THE POSTAL AUTHORITIES WITH THE REMARK NO SUCH PARTY AVAILABL E AT THIS ADDRESS. WHEN THIS INFORMATION WAS CONFRONTED TO T HE APPELLANT COMPANY IT WAS SUBMITTED BY THE APPELLANT COMPANY THAT THE SAID PARTY APPROACHED THE APPELLANT COMPANY WITH DD S/CHEQUES AGAINST THE MATERIAL ON THE RESPECTIVE DATES AND GO ODS WERE SUPPLIED AGAINST SAID PAYMENTS. THE APPELLANT COMPA NY EXPRESSED ITS INABILITY TO PRODUCE THE SAID PURCHAS ER POINTING OUT THAT TRANSACTIONS WERE MADE THROUGH ACCOUNT PAYEE C HEQUES AND THE SALE PROCEEDS OF THE MATERIAL WAS DEPOSITED IN APPELLANTS CURRENT ACCOUNT WITH STATE BANK OF INDIA M.P. NAGA R BHOPAL. AS IN THE CASE OF M/S. TIRUPATI AGENCY THE APPELLANT C OMPANY DID NOT ENTER INTO ANY TRANSACTION EITHER BEFORE OR AFT ER FINANCIAL YEAR 1997-98. 13. ACCORDINGLY CONTENTION OF THE LD. CIT DR WAS THAT FACTS OF THE YEAR UNDER CONSIDERATION ARE DISTINGUISHABLE FR OM THE FACTS IN ASSESSMENT YEAR 1997-98 WHEREIN THE ISSUE WAS DECI DED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL. THUS IN TH E INSTANT APPEAL FILED BY THE DEPARTMENT AND ASSESSEE FOR THE ASSESSMENT 10 YEAR 1998-99 UNDER CONSIDERATION SHOULD BE DECIDED ON ITS OWN FACT RATHER THAN RELYING ON THE FACTS PREVAILING IN PREVIOUS YEAR. 14. WE HAVE CONSIDERED THE RIVAL CONTENTIONS CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE HAD ALSO GONE THROUGH HE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR IMMEDIATELY PRECEDING YEAR 1997-98 WHEREIN FOLLOWI NG WAS THE CONCLUSION OF THE TRIBUNAL :- 27. A FTER HEARING THE RIVAL CONTENTIONS WE NOTED THAT THE ASSESSEE WAS IN THE BUSINESS OF PLANTING AND GROWING TEA AND SAWAN PLANT. SUCH GROWTH IS ACHIEVE D BY PLANTING PLANTS OF THE SAID CROP WHICH GROW INT O COMPLETE TREE IN A PERIOD OF 17 18 YEARS. FURTHER LARGE SPACE ARE LEFT BETWEEN IN TWO PLANTS TO ACCOMMODATE THE INCREASE IN SIZE OF THE PLANT WHILE GROWING FROM PL ANT TO TREE. SUCH SPACES IN THE INITIAL YEAR OF PLANTATION CAN BE USED TO GROW SHORT CROPS IN THE INITIAL YEARS. ONCE THE PLANT GROW IN SIZE THEY START PROVIDING SHED AND CONSEQUENTLY STOP SUN RAYS REACHING THE LAND. THERE FORE IN SUBSEQUENT YEARS SHORT CROP IS NOT POSSIBLE. TH EN THE A.O.HAS DOUBTED THE EARNING OF RS. 30 916/- PER ACR E OF LAND. HOWEVER THE ASSESSEE HAS GROWN MEDICINAL CRO PS WHICH ARE SPECIAL CROPS AND GET VERY HIGH RATE IN T HE MARKET WHICH CAN EVEN RANGE FROM RS. 2 LAKHS TO RS . 3 LAKHS PER ACRE. IN SUPPORT OF THE ABOVE CONTENTION THE ASSESSEE HAS FILED PAPER CUTTING OF NEWS ARTICLES PUBLISHED IN A REPUTED DAILY NEWS PAPER NAI DUNIA IN AUGUST 2001 ACCORDING TO WHICH PER ACRE PROFIT OF SUCH CROP RANGES FROM RS. 2 LAKHS TO RS. 3 LAKHS. THUS THE ASSESSEE ACHIEVED AN INCOME OF RS. 30 000/- PER ACR E WHICH CANNOT BE DISBELIEVED. MOREOVER THE A.O. HAS NOT OBTAINED EXPERTS REPORT IN THIS REGARD. FURTHER T HE SITE WAS ALSO PHYSICALLY VERIFIED BY THE ASSESSING OFFIC ER DURING THE ASSESSMENT PROCEEDINGS AND VERIFIED FROM 11 PERSON FROM WHOM THE ASSESSEE HAS TAKEN LAND ON LEA SE WHO ALSO AFTER PHYSICAL VERIFICATION OF LAND AND VERIFICATION OF PATWARIS RECORDS ACCEPTED AGRICULT URAL INCOME. ANOTHER A.O. SHRI SALIL KHARE HAD ALSO VIS ITED THE SITE ALONGWITH HIS TEAMS OF INCOME TAX INSPECTO RS AND PATWARI AND FOUND EXISTENCE OF SUCH CROP. FURTHER ALL SUCH CROPS WERE VIDEO TAPED AND PHOTOGRAPHED BY THE DEPARTMENTAL AUTHORITIES. SHRI SALIL HAS ALSO ISSUE D SUMMONS U/S 131 TO THE TAHSILDAR/PATWARI INCHARGE O F VILLAGE WHO PRODUCED THE LAND RECORDS NAMELY KHA SRA KHATONI AND MAP BEFORE HIM. THUS AFTER SO MANY SID E VERIFICATION AND VERIFICATION OF OTHER RECORDS INCL UDING SUMMONS U/S 131 TO TAHSILDAR THE FACT OF AGRICULTU RAL OPERATION WAS VERIFIED BY THREE DIFFERENT A.OS. OF THE DEPARTMENT. THE ORDER PASSED BY SALES TAX AUTHORITI ES WERE ALSO FURNISHED BEFORE THE A.O. TO PROVE THAT T HE ASSESSEE IS ENGAGED IN AGRICULTURAL ACTIVITIES. THE ASSESSEE MADE SALES OF AGRICULTURAL PRODUCE TO TRIP TI AGENCIES AND THE A.O. HAS ISSUED SUMMONS U/S 131 AN D IMPOUNDED ITS BOOKS OF ACCOUNT. M/S. TRIPTI AGENCY HAS CONFIRMED THAT THE SALES TAX AUTHORITIES HAS ACCEPT ED THE SALES TO M/S. TRIPTI AGENCY AND M/S. TRIPTI AGENCY HAS CONFIRMED TO HAVE MADE 80 % SALES IN CASH AND 20 % OF ITS SALES WAS IN CREDIT. EXAMINATION OF SUCH CREDIT SALES WAS ALSO DONE BY THE ASSESSING OFFICER AFTER ISSUIN G SUMMONS U/S 131 OF THE INCOME-TAX ACT 1961. ALL PURCHASERS HAVE CONFIRMED THE FACT OF PURCHASE OF G OODS. THE ASSESSEE HAD PURCHASED LAND WHICH WAS HAVING SUFFICIENT AVAILABILITY OF WATER AND FURTHER BORING WAS DONE TO SIMPLY MEET OUT FUTURE DEMAND. THE ASSESSEE HAS PURCHASED LAND IN MARCH APRIL 1996 AND THE PLANTS GENERALLY TAKE SIX MONTHS TO GROW AS CERTIFI ED BY CEDMAP WHICH IS AN OPINION OF AN EXPERT. THE ASSE SSEE HAS DECLARED TOTAL EXPENDITURE IN CULTIVATION OF TH E AGRICULTURAL LAND AT RS. 35 27 99 230/- AS IT IS AP PARENT FROM PAGE 38 PLACED IN THE PAPER BOOK. IT IS ALSO PERTINENT TO NOTE THAT THE ASSESSEE HAD DECLARED IN COME ONLY FROM AGRICULTURAL ACTIVITY AND BANK INTEREST. NO SUCH INCOME FROM ANY OTHER SOURCE HAS BEEN DECLARED. 12 HOWEVER THE A.O. CONSIDERED THE SAME INCOME FROM OTHER SOURCES. THE A.O. FAILED TO EXPLORE OTHER SOU RCE. THEREFORE IN SUCH CIRCUMSTANCES THE INCOME DECLAR ED AS AGRICULTURAL INCOME CANNOT BE CONSIDERED AS INCOME FROM UNDISCLOSED SOURCES. THIS VIEW IS SUPPORTED BY THE ORDER OF THE I.T.A.T. SMC BENCH IN THE CASE OF ITO VS. SH EHNAZ BANO IN I.T.A.NO. 443/IND/2004 DATED 7.1.2005 HELD IN PARA 8 AS UNDER :- AS REGARDS INVESTMENT IN FLAT THE A.O. HAS NOT BROUGHT ON RECORD ANY SOURCE OF INCOME EXCEPT THE INCOME FROM AGRICULTURE CLAIMED BY THE ASSESSEE. IF A PERSON HAS ONLY AGRICULTURAL INCOME AND NO OTHER INCOME THEN NO ADDITION CAN BE MADE TO THE TOTAL INCOME UNLESS AND UNTIL THE A.O. PROVES THAT THE ASSESSEE HAS ANY OTHER SOURCE OF INCOME WHICH IS TAXABLE UNDER THE INCOME TAX ACT. THE A.O. HAS NOT BROUGHT ON RECORD ANY MATERIAL OR EVIDENCE TO SHOW THAT THE ASSESSEE WAS HAVING ANY OTHER SOURCE OF INCOME EXCEPT AGRICULTURAL INCOME WHICH IS NOT TAXABLE. CIT(A) WAS THEREFORE JUSTIFIED IN DELETING THE ADDITION OF RS. 3 43 356/- TO THE TOTAL INCOME MADE BY THE ASSESSING OFFICER BECAUSE THE ASSESSEE HAS NO INCOME TAXABLE AND AGRICULTURAL INCOME IS NOT TAXABLE. 28 .CONSIDERING ALL THE ABOVE FACTS AND CIRCUMSTANCE S WE FIND THAT THE A.O. HAS NOT BROUGHT ANY MATERIAL ON RECORD TO REBUT THE CLAIM OF THE AGRICULTURAL INCOME DECLA RED IN THE RETURNED INCOME. THEREFORE IN VIEW OF THE ABOV E FACTS AND CIRCUMSTANCES WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). THUS THIS GROUND OF APPEAL IS DISMISSED. 15. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GO NE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE ORDER OF THE TRIBUNAL QUOTED HEREINABOVE. WITH REGARD TO THE AG RICULTURAL INCOME OF THE ASSESSEE IN THE IMMEDIATELY PRECEDING ASSESSMENT 13 YEAR WHICH HAS BEEN ACCEPTED BY THE TRIBUNAL AFTER GIVING DETAILED FINDING WITH REGARD TO THE AGRICULTURAL PR ODUCE AND ITS SALES WE FIND THAT THE TRIBUNAL HAS ALSO CONSIDERE D THE FACT OF THE ASSESSEE HAVING BEEN ENGAGED IN AGRICULTURAL PR ODUCE AND ALSO SELLINGTHE SAME TO VARIOUS PARTIES INCLUDING M /S TIRUPATHI AGENCY. THE TRIBUNAL HAS CONSIDERED ALL THE ASPECTS AND THE OBJECTIONS NOTED BY THE ASSESSING OFFICER AND THERE AFTER REACHED TO THE CONCLUSION THAT THE ASSESSEE COMPANY HAS GEN UINELY SOLD ITS AGRICULTURAL PRODUCE TO M/S TIRUPATHI AGENCY. T HE TRIBUNAL HAS ALSO OBSERVED THAT THE SALES OF THE ASSESSEE WE RE ALSO EXAMINED BY THE ASSESSING OFFICER BY ISSUING SUMMON S U/S 131 OF THE ACT AND ALL THE PURCHASERS HAVE CONFIRMED TH E FACT OF PURCHASE OF GOODS. IT WAS ALSO OBSERVED THAT THE A SSESSEE HAD PURCHASED SUFFICIENT AGRICULTURAL LAND WHICH WAS HA VING SUFFICIENT AVAILABILITY OF WATER AND FURTHER BORING WAS DONE TO SIMPLY MEET OUT THE FUTURE DEMAND. ALL THESE FINDI NGS HAVE BEEN GIVEN WITH RESPECT TO THE ASSESSMENT YEAR 1997-98. PRESENT ASSESSMENT YEAR UNDER CONSIDERATION IS 1998-99. WE FIND THAT SIMILAR OBSERVATION WAS MADE BY THE ASSESSING OFFIC ER IN A.Y. 1997-98 WHICH HAS BEEN MET BY THE ASSESSEE AND THE SAME HAS 14 BEEN REPRODUCED BY THE TRIBUNAL AT PAGES 38 TO 40 O F ITS ORDER WHICH READS AS UNDER :- 7 14.3.7 M/S TIRPUTI AGENCY ASHARWAD PUNJABI MOHALLA ITARSI THE PARTY TO WHOM SALES HAVE BEEN CLAIMED TO HAVE BEEN MADE BY THE ASSESSEE COMPANY IS A PROPRIETORSHIP CONCERN OF SHRI VIKAS MOLSARIA. THIS CONCERN WAS BEING OPERATED FROM THE RESIDENCE OF SHRI VAKAS MOLSARIA. ALSO THIS CONCERN HAD NO PAST HISTORY OF PURCHASING OR SELLING OF AGRICULTURAL PRODUCE. IN FACT THIS CONCERN DID THIS BUSINESS ONLY AS LONG AS THE ASSESSEE COMPANY EARNED AGRICULTURAL INCOME BY GROWING SHORT-TERM CROPS. SRI VIVEK MOLASARIYA IS IN NO WAY RELATED TO ASSESSEE. HIS PAST OR FUTURE EXPERIENCE IN SUCH TRADING WAS TOTALLY IRRELEVANT. 8 14.3.8 IN RESPONSE TO THE SUMMONS U/S 131 OF THE I.T. ACT 1961 THE BOOKS OF ACCOUNTS OF M/S TIRUPATI AGENCY. ASHIRWAD PUNJABI MOHALLA ITARSI WERE PRODUCED AND IMPOUNDED BY THIS OFFICE VIDE ORDER U/S 131 (3) OF THE I.T.ACT 1961 DATED4.03.2003. ON EXAMINATION OF THESE BOOKS IT IS SEEN THAT M/S TIRUPATI AGENCY DID NOT BUY ANY GOODS FROM ANY OTHER PARTY EXCEPT FROM THE ASSESSEE COMPANY. THE TOTAL PURCHASES OF M/S TIRUPATI AGENCY DURING THE YEAR ARE RS. 2 68 63 430/- INCLUSIVE OF SALES TAX. IT HAS MADE TOTAL SALES OF RS.2 71 55 892/-OUT OF WHICH ABOUT MORE THAN 80% WAS IN CASH AND THE REST WAS STATED TO BE CREDIT SALE. 1. SHRI MOLASARIA IN PROCEEDING U/S 131 HAS ACCEPTED THE FACTS OF PURCHASE/SALE. 2. SUCH TRANSACTIONS WERE FOUND DULY RECORDED IN BOOKS OF ACCOUNTS OF TIRUPATI AGENCY. 3. SALES TAX RETURNS WERE FILED AND TAX DUE WAS PAID BY TIRUPATI AGENCY. COPY OF THE SALES TAX ASSESSMENT FOR RELEVANT FINANCIAL YEAR IS ALSO ENCLOSED. (ANNEXURE A PAGE NO. 57 TO PAGE 15 NO.60) 4. TIRUPATI AGENCY IS SAID TO HAVE MADE 80% SALE IN CASH & 20% OF ITS SALE WAS ON CREDIT. THE DEPARTMENT ALSO DID EXAMINING OF SUCH CREDIT SALES. ALL SUCH PURCHASERS HAVE ALSO CONFIRMED THE FACT OF PURCHASE OF GOODS. MORE OVER IN THE BUSINESS OF AGRICULTURE COMMODITY TRANSACTION IN CASH IS A VERY NORMAL PHENOMENON WHICH IS RECOGNIZED BY THE INCOME TAX LAWS ALSO (BECAUSE OF WHICH PROVISION OF SECTION 40 A(3) ARE MADE NOT APPLICABLE TO AGRICULTURISTS). THUS SALE OF AGRICULTURAL PRODUCE IN CASH COULD NOT HAVE FORMED REASON FOR DISBELIEVING THE EXISTENCE OF CROP. IT IS A WELL-RECOGNIZED PARAMETER THAT IN CASH SALES THE SELLER HAS NO INTEREST IN THE NAME & ADDRESS OF THE PURCHASERS & PROVIDING OF SUCH 16 INFORMATION IS NEVER INSISTED IN ANY LINE OF BUSINESS. DURING THE YEAR UNDER CONSIDERATION SIMILAR OBJEC TIONS WERE RAISED BY THE ASSESSING OFFICER AND THE LEARNED COM MISSIONER OF INCOMETAX (APPEALS) FOR DISBELIEVING THE AGRICULTUR AL SALE TO M/S TIRUPATHI AGENCY. AS THE ISSUE WITH REGARD TO PROD UCTION OF AGRICULTURAL PRODUCE AND ITS SALE TO M/S TIRUPATHI AGENCY HAS ALREADY BEEN CONSIDERED BY THE TRIBUNAL IN THE IMME DIATELY PRECEDING ASSESSMENT YEAR AND THE SAME WAS FOUND TO BE GENUINE BY CONSIDERING THE FACTS OF THAT ASSESSMENT YEAR. KEEPING IN VIEW THIS THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR IMMEDIATELY PRECEDING YEAR WE DIRECT THE ASSESSING OFFICER TO RE-EXAMINE THE SALES EFFECTED BY ASSESSEE TO VARIOUS PARTIES INCLUDING M/S TIRUPATHI AGENCY IN T HE LIGHT OF FACTS OF THE ASSESSMENT YEAR 1998-99. ACCORDINGLY WE RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICE R FOR DECIDING IT AFRESH AFTER CONSIDERING THE ASSESSEES SUBMISSIONS AND THE OBSERVATION MADE BY THE TRIBUNAL WITH REGARD TO THE GENUINENESS OF THE ASSESSEE BEING ENGAGED IN AGRICULTURAL PRODU CE AND HOLDING HUGE AGRICULTURAL LAND. WE DIRECT ACCORDIN GLY. 17 16. IN THE APPEAL FIELD BY THE REVENUE ESTIMATION OF AGRICULTURAL INCOME BY THE LEARNED COMMISSIONER OF INCOMETAX (AP PEALS) AT RS. 5 CRORES IN PLACE OF RS.5.19 CRORES ESTIMATED B Y THE ASSESSING OFFICER IS CHALLENGED. 16.1 WE HAVE CONSIDERED THE RIVAL CONTENTIONS CA REFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FIN D FROM RECORD THAT THE ASSESSING OFFICER HAS CONSIDERED THE ENTIR E SALE OF RS. 5.19 LACS AS INCOME FROM OTHER SOURCES BY REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE U/S 145(3) OF THE ACT. HO WEVER BY CONSIDERING THE ASSESSEES ARGUMENT WITH REGARD TO THE EXPENDITURE INCURRED BY THE ASSESSEE AND THE NET IN COME EARNED ON SUCH AGRICULTURAL PRODUCE THE LEARNED COMMISSIO NER OF INCOMETAX (APPEALS) HAS REASONABLY ESTIMATED THE IN COME AT RS. 5 CRORES. WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) WHO HAS RESTRIC TED THE ADDITION TO THE EXTENT OF RS. 5 CRORES BY CONSIDERI NG THAT THE ASSESSEE HAS REASONABLY BEEN ABLE TO DEMONSTRATE SA LE TO SOME OF THE PARTIES IN RESPECT OF AGRICULTURAL PRODUCE AND RESTRICTED THE ADDITION TO THE EXTENT OF RS. 5 CRORES. 17. IN THE RESULT THE APPEAL OF THE REVENUE IS DI SMISSED. 18 18. ITA NO. 334/IND/2007 THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMISSION ER OF INCOMETAX (APPEALS) DATED 20.2.2007 FOR THE ASSESSM ENT YEAR 1997-98 WHEREIN FOLLOWING GROUNDS HAVE BEEN TAKEN B Y THE REVENUE :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN : 1. DELETING THE ADDITION OF RS. 18 LACS MADE BY THE A. O. ON ACCOUNT OF PERQUISITES U/S 17(2) OF THE IT ACT. 2. DELETING THE ADDITION OF RS. 3 29 536/- ON ACCOUNT OF DISALLOWANCE OF INTEREST PAID AND CLAIMED BY THE ASSESSEE AS EXPENSES WHICH WAS RIGHTLY ADDED BY THE A.O. IN ACCORDANCE WITH LAW. 3. DELETING THE ADDITION OF RS.93 55 000/- ON ACCOUNT OF DISALLOWANCE OF AGRICULTURAL INCOME TREATED AS INCO ME FROM OTHER SOURCES WHICH WAS RIGHTLY MADE BY THE A. O. 19. THE FIRST GRIEVANCE OF THE REVENUE RELATES TO DELE TION OF ADDITION OF RS. 18 LACS MADE BY THE ASSESSING OFFIC ER ON ACCOUNT OF PERQUISITES U/S 17(2) OF THE ACT WHICH HAS BEEN DELETED BY THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) AFTER H AVING THE FOLLOWING OBSERVATIONS :- 19 3.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE A.R. ALONG WITH THE ORDER AND REMAND REPORT OF THE A.O. THE RESOLUTION UNDER CONSIDERATION AND THE RELEVANT PROVISIONS OF THE COMPANIES ACT. IT IS OBSERVED THAT THE A.O. HAS MAINLY RELIED ON THE FOLLOWING REASONINGS FOR MAKING THE ADDITION :- A. NO RESOLUTION WAS PASSED FOR REVISING THE REMUNERATION FROM RS.500000/- PM TO RS.100000/- PM AND GENERALLY THERE IS NO PROVISION OF REFUND OF SALARY ONCE PAID. B. EXCESS SALARY RECEIVED BY ASSESSEE IS CLAIMED TO HAVE BEEN REFUNDED TO THE COMPANY. HOWEVER NO SUCH CHEQUE IS CLEARED FROM THE BANK ACCOUNT OF THE ASSESSEE C. THE ASSESSEES EMPLOYER HAS SHOWN RS. 30 LACS AS SALARY PAID TO ASSESSEE IN FORM 3CD FILED WITH THE RETURN. 3.2.1 I HAVE REFERRED THE RELEVANT PORTION OF TH E RESOLUTION PASSED (FIXING SALARY OF THE ASSESSEE) W HICH IS REPRODUCED BELOW :- RESOLVED THAT SUBJECT TO THE APPROVAL OF MEMBERS IN THEIR GENERAL MEETING AND IN ACCORDANCE WITH THE PROVISIONS OF SECTION 198 269 309 310 311 AND SCHEDULE XIII OF THE COMPANIES ACT 1956 3.2.2 THUS IT IS OBSERVED THAT THE SALARY SANC TIONED WAS SUBJECT TO RELEVANT PROVISIONS OF THE COMPANIES ACT. THE PORTIONS OF THE RELEVANT PROVISIONS OF COMPANIE S ACT ARE ALSO PERUSED AND ARE REPRODUCED BELOW : REMUNERATION TO DIRECTORS 309 (1). (2). (3) A DIRECTOR WHO IS EITHER IN THE WHOLE TI ME EMPLOYMENT OF THE COMPANY OR THE MANAGING DIRECTOR OF COMPANY MAY BE PAID REMUNERATION EITHER BY WAY OF 20 MONTHLY PAYMENT OR AT A SPECIFIEID PERCENTAGE OF TH E NET PROFIT OF THE COMPANY OR PARTLY BY ONE WAY AND PART LY BY THE OTHER. PROVIDED THAT EXCEPT WITH THE APPROVAL OF THE CENTR AL GOVERNMENT SUCH REMUNERATION SHALL NOT EXCEED FIVE PER CENT OF THE NET PROFITS FOR ONE SUCH DIRECTOR AND I F THERE IS MORE THAN ONE SUCH DIRECTOR TEN PER CENT FOR AL L OF THEM TOGETHER. (4).. (5).. (5A) IF ANY DIRECTOR DRAWS OR RECEIVED DIRECTLY OR INDIRECTLY BY WAY OF REMUNERATION ANY SUCH SUMS IN EXCESS OF THE LIMITS PRESCRIBED BY THIS SECTION OR WITHOUT THE PRIOR SANCTION OF THE CENTRAL GOVERNMENT WHERE IT IS REQUIRED HE SHALL REFUND SUCH SUMS TO THE COMPANY A ND UNTIL SUCH SUM IS REFUNDED HOLD IT IN TRUST FOR THE COMPANY. (5B) THE COMPANY SHALL NOT WAIVE THE RECOVERY OF ANY SUM REFUNDABLE TO IT UNDER SUB-SECTION (5A) UNL ESS PERMITTED BY THE CENTRAL GOVERNMENT. . 3.3 FROM A COMBINED READING OF ALL THE ABOVE IT IS OBSERVED THAT A. THE REMUNERATION PAID WAS SUBJECT TO PROVISIONS OF COMPANIES ACT AND NO SEPARATE RESOLUTION WAS REQUIR ED FOR RESTRICTING THE SALARY TO SUCH AMOUNT AS PROVID ED IN LAW. B. NO SINGLE DIRECTOR CAN BE PAID SALARY IN EXCESS OF FIVE PER CENT OF PROFIT WHICH IN THE CASE OF THE AS SESSEES EMPLOYER AS PER INFORMATION AVAILABLE ON RECORD IS RS.13.80 LACS C. ANY SALARY RECEIVED IN EXCESS OF THE SPECIFIED L IMITS HAS TO BE REFUNDED BY THE CONCERNED DIRECTOR AND TI LL THE TIME IT IS NOT RETURNED IT HAS TO BE HELD IN TRUST. THUS THE SALARY RECEIVED BY THE ASSESSEE WAS CONDITIONAL 21 AND HE WAS STATUTORILY BOUND TO REFUND THE EXCESS. TILL THE TIME HE HAS NOT REFUNDED THE EXCESS SALARY HE I S TO KEEP THE SAME IN TRUST. THUS WHETHER THE SALARY IS ACTUALLY REFUNDED OR NOT WILL ALSO NOT MAKE ANY DIFFERENCE AND ANY SUCH EXCESS PAYMENT CANNOT BE CONSIDERED AS SALARY. IT IS ALSO OBSERVED THAT EXCE PT FOR THE CENTRAL GOVERNMENT NO PERSON HAS THE RIGHT TO WAIVE SUCH RECOVERY. D. MOREOVER IT IS SEEN THAT AS PER DETAILS OF BANK ACCOUNT FURNISHED BY THE ASSESSEE THE CHEQUE ISSUED TOWARDS SUCH EXCESS SALARY IS CLEARED FROM THE ASSESSEES BANK ACCOUNT ON 7.4.97 AND THE A.O. OBSERVATION IN THIS REGARD ARE FACTUALLY INCORRECT WHICH HAS NOT BEEN DENIED BY THE A.O. IN THE REMAND REPOR T. THUS THE TAX DEDUCTED AT SOURCE WAS A DISCHARGE OF A STATUTORY LIABILITY OF THE EMPLOYER OF THE ASSESSEE . AND AS THE AMOUNT OF EXCESS PAYMENT HAS BEEN ACTUALLY REFUNDED TO THE EMPLOYER AS REQUIRED BY THE PROVISI ONS OF COMPANIES ACT THERE WAS NO QUESTION OF ANY PERQUISITE BEING PAID TO ASSESSEE U/S 17(2). THE OBSERVATION OF THE A.O. IN THE REMAND REPORT REGARD ING NON VERIFICATION OF THE FACT WHETHER THE CHEQUE REF UNDED WAS FOR REFUND OF EXCESS SALARY PAID OR NOT DOES NO T CARRY ANY WEIGHT AS IN ABSENCE OF ANY OTHER REASON FOR SUCH PAYMENT BEING BROUGHT ON RECORD BY THE A.O. TH E ASSESSEES VERSION CANNOT BE DISBELIEVED. SIMILARL Y FAILURE TO VERIFY THE SOURCE OF SUCH REPAYMENT IS N OT RELEVANT FOR APPLICATION OF PROVISIONS OF SECTION 1 7(2). E. REGARDING MENTION OF SALARY AS 30 LACS IN FORM NO. 3CD IT IS NOT RELEVANT TO THE ASSESSEES CASE ASIT IS APPEARING IN THE RECORDS OF THE EMPLOYER. MOREOVER IN VIEW OF THE ABOVE LEGAL POSITION IT WOULD NOT MAKE ANY DIFFERENCE AS EVEN IF 30 LACS IS PAID THE ASSESSEE IS STATUTORILY REQUIRED TO HOLD THE EXCESS IN TRUST AN D IS BOUND TO REFUND THE SAME. EVEN OTHERWISE THE AFORESAID REPORTING OF THE AUDITOR IS ERRONEOUS WHI CH IS OBVIOUS FROM THE FACT THAT THE SAME AUDITOR HAS IN THE MAIN AUDIT REPORT ISSUED UNDER THE COMPANIES ACT ON 22 13.8.97 I.E. MUCH BEFORE THE DATE OF SIGNING OF FOR M 3CD HAS MENTIONED THE DIRECTORS SALARY AS RS.13.80 LAC S. THUS IT IS HELD THAT THE TDS MADE BY THE EMPLOYER W AS TO DISCHARGE ITS STATUTORY LIABILITY AND THE ENTIRE EXCESS SALARY PAID INCLUDING TDS THEREON HAVING BEEN ACTUA LLY REFUNDED TO THE EMPLOYER NO PERQUISITES ACCRUED TO THE ASSESSEE WHICH CAN BE TAXED U/S 17(2). IN VIEW OF THE ABOVE ADDITION OFRS. 1800000/- CANNOT BE SUSTAINED AND IS THEREFORE DELETED. 20. WE HAVE CONSIDERED THE RIVAL CONTENTIONS CARE FULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D FIND FROM RECORD THAT THE LEARNED COMMISSIONER OF INCOMETAX ( APPEALS) WAS JUSTIFIED IN DELETING THE ADDITION BY RECORDING A F INDING TO THE EFFECT THAT AS PER THE DETAILS OF BANK ACCOUNT FURN ISHED BY THE ASSESSEE THE CHEQUE ISSUED TOWARDS EXCESS SALARY W AS CLEARED FROM THE ASSESSEES BANK ACCOUNT ON 7.4.1997 AND TH E OBSERVATION OF THE ASSESSING OFFICER IN THIS REGARD WAS FACTUALLY INCORRECT WHICH HAS NOT BEEN DENIED BY THE ASSESSIN G OFFICER IN THE REMAND REPORT. SINCE THE ENTIRE EXCESS SALARY P AID INCLUDING TDS THEREON HAVING BEEN ACTUALLY REFUNDED TO THE EM PLOYER NO PERQUISITE ACCRUED TO THE ASSESSEE WHICH CAN BE TAX ED U/S 17(2) OF THE ACT. 21. IN THE RESULT THIS GROUND OF THE REVENUE STAND S DISMISSED. 22. THE NEXT GRIEVANCE OF THE REVENUE RELATES TO DE LETION OF INTEREST OF RS.3 29 536/- WHICH WAS CLAIMED BY THE ASSESSEE AS 23 EXPENSES. WE FIND THAT DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER ON THE PLEA OF INTEREST EXPENDITU RE HAVING BEEN INCURRED FOR INVESTMENT IN SHARES WHICH YIELDED TAX FREE INCOME. IN VIEW OF THE PROVISIONS OF SECTION 14A OF THE ACT INTRODUCED BY THE FINANCE ACT 2001 WITH RETROSPECTIVE EFFECT FRO M 1.4.1962 NO EXPENDITURE INCURRED FOR EARNING ANY EXEMPT INCOME CAN BE ALLOWED AS A DEDUCTION. WE ACCORDINGLY RESTORE T HIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE SAME AFRESH IN VIEW OF THE PROVISIONS OF SECTION 14A INTRODUCED WITH RE TROSPECTIVE EFFECT FROM 1.4.1962. 23. WITH REGARD TO THE DELETION OF ADDITION OF RS. 93.55 LACS ON ACCOUNT OF LEASE RENT RECEIVED BY THE ASSESSEE WHICH WAS TREATED AS INCOME FROM UNDISCLOSED SOURCES BY THE A SSESSING OFFICER WE FIND THAT THE LEARNED COMMISSIONER OF I NCOMETAX (APPEALS) HAS DELETED THE ENTIRE ADDITION BY OBSERV ING THAT THE AMOUNT RECEIVED BY THE ASSESSEE WAS TO BE TREATED A S AGRICULTURAL INCOME AS HAVING BEEN RECEIVED TOWARDS RENT FOR AGR ICULTURAL OF THE ASSESSEE GIVEN ON LEASE AND LAND USED FOR AGRIC ULTURAL OPERATIONS. FROM RECORD WE FIND THAT THE ALLEGED R ECEIPT OF RENT WAS NOT FOR ONE YEAR BUT WAS PERTAINING TO 18 YEARS . THUS THE RENT FOR 18 YEARS RECEIVED IN ADVANCE IN RESPECT OF AGRICULTURAL 24 LAND WAS OFFERED BY THE ASSESSEE AS INCOME FROM AGR ICULTURE DURING THE YEAR UNDER CONSIDERATION. THE INCOME CA N BE OFFERED TO TAX EITHER ON THE BASIS OF ACCRUAL OR RECEIPT. S INCE THE INCOME PERTAINING TO 17 YEARS DID NOT ACCRUE TO THE ASSESS EE THE SAME WAS IN THE NATURE OF ADVANCE RECEIPT WHICH CANNOT B E TREATED AS INCOME DURING THE YEAR UNDER CONSIDERATION IRRESP ECTIVE OF THE TREATMENT GIVEN BY THE ASSESSEE HIMSELF IN ITS BOOK S OF ACCOUNTS. THIS ISSUE HAS BEEN DEALT IN DETAIL BY THE COORDINA TE BENCH IN THE CASE OF ASSOCIATE CONCERN OF ASSESSEE NAMELY M/S ENBEE FINLEASE LIMITED; ITA NOS. 389/IND/05 387/IND/05 ETC. ORDER DATED 30.11.2010. RELEVANT OBSERVATIONS OF THE TRIB UNAL IN THE ABOVE CASES ARE REPRODUCED AS UNDER :- IN THE INSTANT CASE LEARNED COMMISSIONER OF INCOM E TAX (APPEALS) HIMSELF HAS OBSERVED THAT EVEN THOUGH LEA SE RENTALS WERE PERTAINING TO 18 YEARS BUT EXCEPT FOR THE YEAR UNDER CONSIDERATION IT IS AN ADVANCE PAYMENT RECEIVED BY THE ASSESSEE. SUCH ADVANCE RENT FOR FURTHER 17 YEARS C ANNOT BE TREATED AS INCOME OF THE ONE YEAR I.E. AY 1998-99 U NDER CONSIDERATION EITHER UNDER THE HEAD AGRICULTURE O R INCOME FROM OTHER SOURCES TILL THE SERVICES ARE RENDERED FOR EARNING SUCH INCOME. SUCH ADVANCE PAYMENT WILL BE LIABILIT Y ON THE COMPANY AND WILL TURN TO BE INCOME IN THE RESPECTIV E YEARS TO WHICH IT PERTAINS ONLY AFTER THE ASSESSEE GETS THE RIGHT TO RECEIVE SUCH INCOME AFTER RENDERING OF NECESSARY S ERVICES FOR WHICH SUCH INCOME ACCRUES IN FAVOUR OF THE ASSESSEE . WE THEREFORE DO NOT FIND ANY MERIT IN THE ASSESSEES CLAIM FOR TREATING THE ENTIRE ADVANCE LEASAE RENT RECEIVED FO R 18 YEARS AS INCOME OF THE CURRENT YEAR UNDER THE HEAD AGRICU LTURE AND EXEMPT FROM TAX. AT THE VERY SAME TIME IT WILL AL SO NOT BE JUSTIFIED TO BRING ADVANCE PAYMENT OF LEASE RENT OF FURTHER YEARS AS INCOME FROM OTHER SOURCES. ACCORDINGLY W E DIRECT 25 THE ASSESSING OFFICER TO TREAT 1/18 TH OF THE TOTAL LEASE RENTAL AS AGRICULTURAL INCOME OF THE YEAR UNDER CONSIDERATIO N. THE BALANCE OF LEASE RENTAL IS NEITHER AGRICULTURAL INC OME NOR INCOME FROM OTHER SOURCES BUT IS A LIABILITY IN THE ASSESSEES HANDS ACCRUAL OF WHICH MAY BE EXAMINED IN THE SUBSE QUENT YEARS TO WHICH IT ACTUALLY PERTAINS THAT TOO AFTER ASCERTAINING THE RENDERING OF NECESSARY SERVICES AND COMPLYING W ITH THE TERMS AND CONDITIONS OF THE LEASE AGREEMENT SO EXEC UTED. 10. AS PER THE MATERIAL PLACED ON RECORD AND AFTER GOING THROUGH THE LEASE RENT AGREEMENT WE FIND THAT THE LEASE RENTAL PERTAINING TO THE YEAR UNDER CONSIDERATION IS AGRICULTURAL INCOME IN THE HANDS OF THE ASSESSEE. THE ADVANCE PAYMENT RECEIVED BY THE ASSESSEE FOR FUTURE YEARS WAS BROUGHT TO TAX BY HOLDING THE SAME AS INCOME FR OM OTHER SOURCES BY THE LEARNED COMMISSIONER OF INCOME TAX ( APPEALS) FOR WHICH WE DO NOT FIND ANY JUSTIFICATION. THE AD VANCE AMOUNT RECEIVED IS NOT AN INCOME IN THE HANDS OF TH E ASSESSEE TILL IT ACCRUES IN THE ASSESSEES FAVOUR B Y RENDERING NECESSARY SERVICES AS AGREED BY THE ASSESSEE IN TE RMS OF THE LEASE DEED. IN THIS CASE DURING THE COURSE OF ASSE SSMENT ITSELF THE ASSESSING OFFICER ALONG WITH TEAM OF HI S OFFICERS VISITED THE SITE EAR-MARKED FOR AGRICULTURAL OPERAT IONS AND FOUND THAT THE AGRICULTURAL OPERATIONS WERE CARRIED ON THERE AND THERE WAS NO ADVERSE FINDING BY THE ASSESSING O FFICER INDICATING THAT THE ASSESSEE HAS NOT GIVEN THE LAND FOR CARRYING OUT AGRICULTURAL OPERATIONS THEREON AND THE SAME WA S ACTUALLY BEING CARRIED ON THERE. EVEN FOR A MOMENT IF IT IS ASSUMED THAT A PART OF THE LAND THE LESSEE HAS NOT CARRIED AGRICULTURAL OPERATION CANNOT BE MADE THE REASON FOR NOT TREATI NG THE LEASE RENT OF AGRICULTURAL LAND AS AGRICULTURAL INC OME IN LESSORS (ASSESSEE) HANDS. SIMILAR ISSUE HAS BEEN DEALT WIT H BY THE TRIBUNAL IN THE CASE OF THE ASSOCIATE CONCERN OF TH E ASSESSEE FOR THE ASSESSMENT YEAR 1997-98 WHEREIN LEASE RENTA L RECEIVED BY M/S ENBEE FINLEASE LIMITED WAS HELD TO BE AGRICU LTURAL INCOME. IN THAT CASE ALSO THE LAND WAS GIVEN ON LE ASE AND THE INCOME WAS DERIVED BY WAY OF ADVANCE RENT OF AGRICU LTURAL LAND GIVEN FOR AGRO FORESTRY OPERATIONS TO M/S. ENB EE PLANTATION LIMITED. IN THE INSTANT CASE ALSO UNDE R THE SIMILAR AGREEMENT THE ASSESSEE HAS GIVEN ITS LAND FOR AGRI CULTURAL OPERATIONS TO M/S ENBEE PLANTATIONS LIMITED. THE P ROVISIONS OF SECTION 2(1A)(A) OF THE ACT DEFINE AGRICULTURAL INCOME TO INCLUDE RENT OR REVENUE RECEIVED FROM THE LAND WHIC H IS SITUATED IN INDIA AND IS USED FOR AGRICULTURAL PURP OSES. THE TRIBUNAL HAS DISCUSSED ALL THE THREE REQUISITES OF THIS SECTION 26 AND AFTER APPLYING THE PROPOSITION OF LAW AS LAID D OWN BY VARIOUS HIGH COURTS IN THE CASE OF KAMAKHAYA NARAIN SINGH; 17 ITR 202 F. JUZDAAR; 27 ITR 1 (SC) PYDAH SURYA NARAIN; 42 ITR 83 IMAM SAHI; 71 ITR 742 KUNVAR TRIVIKARAM NARAIN SINGH; 57 ITR 29 HELD THAT THE RENT OR REVENUE WH ICH IS DIRECTLY DERIVED FROM AGRICULTURAL LAND WILL BE AGRICULTURAL INCOME. THE REVENUE WHICH IS DERIVED MUST ALSO BE DIRECTLY AND NOT INDIRECTLY ASSOCIATED WITH THE LAND WHICH I S USED FOR AGRICULTURAL PURPOSES BEFORE IT CAN BE SAID TO BE A GRICULTURAL INCOME. IT WAS FURTHER HELD THAT EFFECTIVE SOURCES OF THE RECEIPT FROM BEING AGRICULTURAL LAND IS THE DECISIV E FACTOR. APPLYING THE PROPOSITION AS DISCUSSED HEREINABOVE T O THE FACTS OF THE INSTANT CASE WE FIND THAT THE RENT WAS RECE IVED BY THE ASSESSEE DIRECTLY FROM THE AGRICULTURAL LAND WHICH WAS USED FOR AGRICULTURAL PURPOSES AND THE EFFECTIVE SOURCE OF T HE RECEIPT WAS BEING FROM AGRICULTURAL LAND WE DO NOT FIND AN Y JUSTIFICATION IN THE ORDER OF THE LOWER AUTHORITIES FOR TREATING THE PART OF SUCH RENT AS INCOME FROM OTHER SOURCES. FROM THE RECORD WE FIND THAT ADEQUATE DOCUMENTARY EVIDENCE WAS PRODUCED BY THE ASSESSEE BEFORE THE LOWER AUTHORITI ES INCLUDING PHOTOGRAPHS AND VIDEOGRAPHS OF THE LAND T O SHOW THAT ONLY AGRICULTURAL ACTIVITIES HAVE BEEN CARRIED OUT ON THE LAND GIVEN ON LEASE BY THE ASSESSEE. THE RELEVANT CERTIFICATES ISSUED BY THE PATWARI OF VILLAGE CERTIFYING THAT TH E LAND OF VILLAGE HAS COMPLETELY BEEN USED FOR AGRICULTURAL A CTIVITIES CERTIFICATE ISSUE BY VILLAGE PATWARI CERTIFYING THE AREA OF THE LAND USED FOR GROWING MEDICINAL PLANTS ETC. WERE P RODUCED. AFTER GOING THROUGH ALL THESE DOCUMENTARY EVIDENCES PLACED BEFORE THE LOWER AUTHORITIES WE DIRECT THE ASSESSI NG OFFICER TO TREAT THE RENT OF AGRICULTURAL LAND AS INCOME FROM AGRICULTURE NOT LIABLE TO TAX SUBJECT TO THE RIDER THAT ONLY 1 /18 TH OF THE SAID RENT IS TO BE TREATED AS AGRICULTURAL INCOME F OR THE RELEVANT ASSESSMENT YEAR 1998-99 UNDER CONSIDERATIO N. THE ADVANCE LEASE RENT RECEIVED FOR THE FUTURE 17 YEARS IS TO BE CONSIDERED IN THE RESPECTIVE YEARS TO WHICH SUCH LE ASE RENT ACTUALLY PERTAINS AND THAT ONLY AFTER ASCERTAINING THAT THE ASSESSEE RENDERS THE NECESSARY SERVICES FOR WHICH S UCH LEASE RENTAL ACCRUES IN ITS FAVOUR. THERE IS NO JUSTIFIC ATION IN THE ORDERS OF THE LOWER AUTHORITIES IN TREATING THE ADV ANCE LEASE RENT OF FURTHER 17 YEARS AS INCOME FROM OTHER SOURC ES FOR THE YEARS UNDER CONSIDERATION I.E. 1998-99. AS THE FACT S IN THE CASE OF ALL THE ASSESSEES ARE SAME FOLLOWING THE S AME CONCLUSION THE ASSESSING OFFICER IS DIRECTED TO TA KE INCOME FOR THE YEAR UNDER CONSIDERATION IN TERMS INDICATED HER EINABOVE. 27 24. AS THE FACTS AND CIRCUMSTANCES DURING THE YE AR UNDER CONSIDERATION ARE IN PARA MATERIAL RESPECTFULLY FO LLOWING THE ORDER OF THE COORDINATE BENCH WE DIRECT THE ASSESS ING OFFICER TO TREAT THE RENT RECEIPT FOR THE YEAR UNDER CONSIDER ATION AS ITS AGRICULTURAL INCOME AND THE RENT FOR FURTHER 17 YEA RS AS ADVANCE PAYMENT WHICH IS NOT IN THE NATURE OF INCOME. WE D IRECT ACCORDINGLY. 25. IN THE RESULT THE APPEAL OF THE REVENUE IS AL LOWED IN PART AS INDICATED HEREINABOVE. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COUR T ON 28 FEBRUARY 2011. (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 28 TH FEBRUARY 2011. CPU* 251282