Sobha Jose L/Hr Of Late Sri. Jose Pyloth ... vs Assessee

1 ITA No.374/Coch/2014

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN

Before Shri N.R.S. Ganesan (JM) and Shri Chandra Poojari (AM)

I.T.A No.374/Coch/2014 (Assessment year 2007-08)

Sobha Jose legal heir of (late) vs The ITO, Wd.2 Jose Pyloth Kangappadan Kottayam Kangappadan Orchards, M.C. Road Kodimatha, Kottayam 686 039 PAN : AGVPK7183M (Appellant) (Respondent)

Appellant by : Shri A Gopalakrishnan Respondent by : Shri K.K. Jhn

Date of hearing : 17-11-2014 Date of pronouncement : 09-01-2015

ORDER

Per N.R.S. Ganesan (JM)

This appeal of the assessee is directed against the order of CIT(A)-

V, Kochi dated 27-05-2014 and pertains to assessment year 2007-08.

2. The only issue arises for consideration is whether income of the

assessee is exempt u/s 10(1) of the Act as agricultural income. 2 ITA No.374/Coch/2014

3. Shri A Gopalakrishnan, the ld.representative for the assessee

submitted that the assessee was in possession of 8 acres of land in

Nattakom panchayat. According to the ld.rperesentative, the assessee is

cultivating various types of nursery plants, saplings, seedlings, flower

plants, vegetable plants, fruit plants and its siblings were grown and

cultivated. The assessee is running activity of nursery in the name and

style "Kangapaden Orchards". The ld.counsel further submitted that the

assessee has also availed agricultural term loan of Rs.35 lakhs and a crop

of Rs.5 lakhs from Dena Bank, Kottayam Branch for undertaking the

agricultural operations. According to the ld.representative, the assessee

has undertaken layering, gootying inarching, cutting and developing hybrid

seeds, etc. According to the ld.representative, for the purpose of

producing plants, the assessee selects a mother plant and the branch of

the same is bent on and a seed is made. The assessee carries on

weeding, manuring, watering regularly for development of roots. Seeds

and the plants germinate and grow and it takes on an average six months

to 15 months for transferring the seedlings from the earthen beds to the

pots and plastic bags for the final sale. Grafting of all varieties such as bud

grafting saddle grafting, and side grafting and cleft grafting are undertaken

as per the requirements of the respective plants and seedlings. According

to the ld.representative, the assessee has developed more than 20 to 30

varieties of coconut seedlings, banana seeds, etc. According to the 3 ITA No.374/Coch/2014

ld.representative, the assessee has undertaken basic agricultural

operations such as grafting, manuring, ploughing, transplantation, irrigation

and such other activities necessary for the operation of a nursery. All the

plants meant for sale are developed by systematically carrying out the

primary and basic operations and activities. The assessee produced

necessary evidence before the assessing officer in support of purchase of

pot, top soil, earth worms, mother plants, etc. The vouchers against the

expenses incurred for cultivation, administration and establishment

charges were also produced. However, for purchase of coconut seeds,

the assessee could not produce any voucher since raw coconuts required

for growing coconut seedlings are purchased from illiterate farmers,

therefore, the assessee could not get vouchers from them. According to

the ld.representative, it is not possible to obtain bills and invoices from the

registered dealers for purchase of raw coconut. According to the

ld.representative, the agricultural sector in Kerala is unorganized and

irregulated. Therefore, it is not fair and reasonable to expect from a

person, who runs nursery in a small village panchayat to maintain bills and

other vouchers in support of the expenses incurred for running the nursery.

According to the ld.representative, the assessee had maintained initial

vouchers for all necessary particulars of expenditure incurred for each and

every item and the names of the person to whom the payments were

made. Therefore, according to the ld.representative, the assessee has 4 ITA No.374/Coch/2014

established that she has undertaken basic agricultural operations in the

nursery.

4. The ld.representative further submitted that the assessing officer

claims that the Inspector of Income-tax inspected the nursery and

conducted local enquiries. According to the ld.representative, the local

enquiry said to be conducted by the Inspector attached to the assessing

officer was done behind the back of the assessee. According to the

ld.rperesentative, the assessee was not given any opportunity about the

inspection by the Inspector of Income-tax. Had an opportunity been given,

the assessee could have explained the nature of the activity under by her

properly. Therefore, according to the ld.representative, the conclusion

reached by the Inspector of Income-tax on the basis of the so-called local

enquiry cannot stand in the eye of law. The ld.representative further

submitted that the so-called local enquiry report of the Inspector was

furnished to the assessee subsequent to passing of the assessment order.

The assessee had no occasion to explain the same before the assessing

officer. According to the ld.representative, seedlings and the flower plants

were displayed at the entrance of the nursery facing the main gate. The

assessee was also having a building for the purpose of laboratory. The

assessee is testing the nursery plant in the laboratory set up in the

building. The earthen pots or polythene bags filled in with manure or 5 ITA No.374/Coch/2014

fertilized muddy soil and plants or plant lings embedded therein are seen

displayed over the land. According to the ld.representative, the Inspector

of Income-tax appears to have made a report to the assessing officer that

the plants are grown somewhere and are being brought for trading in the

assessee's premises. According to the ld.representative, it is not the case

of the Inspector that the assessee has not grown any plants. According to

the ld.representative, the observation of the assessing officer as well as

the Inspector of Income-tax is without any basis and evidence. According

to the ld.representative, the Commissioner of Income-tax simply confirmed

the order of the assessing officer. Placing reliance on the judgment of

Madras High Court in CIT vs Soundarya Nursery (2000) 241 ITR 530

(Mad), the ld.representative submitted that when the assessee grew

necessary plants by undertaking basic agricultural operations, according to

the ld.representative, the income generated on sale of such plant cannot

be treated as income from trading. According to the ld.representative,

such income has to be necessarily treated as agricultural income in view of

the judgment of the Madras High Court in Soundarya nursery (supra). The

ld.representative further relied on the decision of the Hyderabad Bench of

this Tribunal in Vicha Agrotech Ltd (2008 DTR (Hyd) (Trib) 281, copy of

which is available at page 9 of the paper book. The ld.representative has

also placed reliance on the judgment of the Uttarakhand High Court 6 ITA No.374/Coch/2014

reported in CIT vs Green Gold Tree Farmers (P) Ltd (208) 299 ITR 262

(Uttarakhand).

5. On the contrary, Shri K.K. John, the ld.DR submitted that the

assessee claims that the assessee is cultivating plants in the land owned

by her. However, the Inspector of Income-tax deputed by the assessing

officer found that the assessee was in possession of 4.25 acres of land.

The assessee is having a nursery in or around 40 cents of land on the

sides of M.C. Road. The rest of the land spreads back side of the main

road over 2.5 acres remained uncultivated during the visit of the Inspector.

According to the ld.DR, the assessee's elder son owns 1.25 acres of land.

In the very same locality 3,000 sq.ft of residential house was constructed.

Near to the house, piling has been done for construction of a building.

According to the ld.DR, the nursery was spread over only 40 cents of land

and the office of the nursery was located in a two storeyed building. The

Inspector further found that several plants, plantlings and orchids were

displayed. The above plants were not grown by the assessee. The plants

which were grown somewhere else in earthen pots or polythene bags were

brought to the nursery for trading. The assessing officer also found that no

basic agricultural operations, like tilling, ploughing, sowing or irrigating

were seen being done there. According to the ld.DR, the assessee has

employed only two labourers. One is an office staff and the other is a 7 ITA No.374/Coch/2014

watering woman for watering the plants. Therefore, according to the

ld.DR, the assessee is engaged herself in trading of plants and orchards

which were grown somewhere else. The assessee is not doing any basic

agricultural operations. Therefore, according to the ld.DR, the CIT(A) has

rightly confirmed the addition made by the assessing officer.

6. We have considered the rival submissions on either side and also

perused the material available on record. The assessee is claiming before

this Tribunal that she undertook basic agricultural operation in 8 acres of

land owned by her. The assessee has also availed agricultural term loan

of Rs.35 lakhs and a crop of Rs.5 lakhs from Dena Bank, Kottayam Branch

for undertaking the agricultural operations. However, the copy of the

Inspector's report said to be filed before the assessing officer says that the

assessee was in possession of 4.25 acres of land out of which 40 cents of

and was used for nursery. The assessee claims that she filed bills /

vouchers in support of purchase of pots, top soil, earth worms, mother

plants, etc. The assessee also claims that she is cultivating coconut

saplings by purchasing raw coconut from agriculturists. The Inspector of

Income-tax on inspection found that 2.5 acres of land on the backside of

the road remained uncultivated with wild bushes grown all over. The fact

remains is that during the course of inspection by the Inspector of Income-

tax, no opportunity was given to the assessee. The copy of the report of 8 ITA No.374/Coch/2014

the Inspector of Income-tax was also not furnished to the assessee during

the course of proceedings before the assessing officer. It is not the case

of the revenue that the copy of the report was furnished to the assessee

during the course of assessment proceedings. Therefore, the assessee

had no occasion to explain the nature of the activity undertaken by the

assessee with regard to the basis agricultural operations either before the

Inspector of Income-tax or before the assessing officer. Since the activity

of the assessee is purely agriculture in nature which needs to be

established, this Tribunal is of the considered opinion that the Inspector of

Income-tax should have given an opportunity to the assessee during the

course of inspection. The assessing officer also should furnish the copies

of the report of the Inspector of Income-tax during the course of

assessment proceedings and call for the objection of the assessee. In this

case, no opportunity was given to the assessee during the course of

inspection by the Inspector of Income-tax and the assessee was not given

any opportunity to explain the nature of activities undertaken by the

assessee before the assessing officer either. Therefore, this Tribunal is of

the considered opinion that an opportunity shall be given to the assessee

before placing any reliance on the enquiry report of the Inspector of

Income-tax relied upon by the assessing officer. This Tribunal is of the

considered opinion that the statement, if any, recorded by the Inspector of

Income-tax in the course of local enquiry should also be furnished to the 9 ITA No.374/Coch/2014

assessee. The proceeding before the assessing officer is a judicial

proceeding u/s 136 of the Income-tax Act. The evidence said to be

collected by the assessing officer has to be furnished to the assessee so

that the assessee will have an occasion to explain the same how it is

relevant or not relevant in her case.

7. In view of the above, this Tribunal being a final fact finding authority,

is of the opinion that the assessee should be given an opportunity to

explain the facts before the assessing officer. Accordingly, the order of the

assessing officer is set side and the entire issue is remitted back to the file

of the assessing officer. The assessing officer shall examine the issue

afresh after giving opportunity to the assessee to explain the nature of

activities undertaken by her and thereafter decide the issue in accordance

with law.

8. In the result, the appeal of the assessee is allowed for statistical

purpose.

Order pronounced in the open court on this 09th January, 2015.

Sd/- sd/- (Chandra Poojari) (N.R.S. Ganesan) ACCOUNTANT MEMBER JUDICIAL MEMBER

Cochin, Dt : 09th January, 2015 pk/- 10 ITA No.374/Coch/2014

copy to:

1. Sobha Jose legal heir of (late) Jose Pyloth Kangappadan, Kangappadan Orchards, M.C. Road, Kodimatha, Kottayam 686 039

2. The ITO, Wd.2, Kottayam

3. The Commissioner of Income-tax, Kochi

4. The Commissioner of Income-tax(A)-V, Kochi

5. The DR (True copy) By order

Asstt. Registrar, Income-tax Appellate Tribunal, Cochin Bench