Income Tax Appellate Tribunal - Indore
Enbee Resourts Ltd, vs Department Of Income Tax
1
IN THE INCOME TAX APPELLATE TRIBUNAL,
INDORE BENCH, INDORE
BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER
AND
SHRI R.C. SHARMA, ACCOUNTANT MEMBER
ITA Nos.215 to 222/Ind/2008
AY: 1998-99
ACIT-1(2), Bhopal .....Appellant
V/s.
1. M/s. Enbee Realtors Pvt. Ltd., Bhopal
PAN - AAACE 7981 K
2. M/s. Amarkantak Gardens P. Ltd., Bhopal
PAN - AACCA 8850 F
3. M/s. Enbee Impex P. Ltd., Bhopal
PAN - AAACE 3353 K
4. M/s Enbee Finlease Ltd., Bhopal
PAN - AAACE 3428 P
5. M/s. Enbee Industries Ltd., Bhopal
PAN - AAACE 7982 L
6. M/s. Enbee Technologies Ltd., Bhopal
PAN - AAACE 7901 R
7. M/s. Enbee Resorts Ltd., Bhopal
PAN - AAACE 8671 Q
2
8. M/s. Enbee Plantation Ltd., Bhopal
PAN - AAACE 3353 K .....Respondents
Department by : Shri Keshave Saxena, CIT(DR)
Assessees by : Shri S.S. Deshpande, CA
ORDER
PER SHRI JOGINDER SINGH, JUDICIAL MEMBER
This group of eight appeals is by the Revenue in the cases of different assessees as above for Assessment Year 1998-99 against the different orders dated 11.2.2008 wherein deletion of penalty u/s 271(1)(c) has been challenged. At the outset, the Ld. Counsel for assessees contended that the Tribunal while deciding the quantum appeals vide order dated 30.11.2010 decided the issue in favour of the first seven assessees and in the case of M/s. Enbee Plantation Ltd., the Tribunal vide order passed in ITA No.385/Ind/2005 restored the matter to the file of the Assessing Officer. It was further contended that since the quantum appeals have been decided in favour of the assessees, therefore, no penalty survives. However, for ITA No.222/Ind/2008, it was pleaded that pursuant to order in ITA No.385/Ind/2005 (copy filed), this file may be restored to the file of the Assessing Officer. This factual matrix was consented to be correct by the ld.
CIT(DR).
32. We have considered the rival submissions and perused the material available on file. It is seen that the Tribunal on quantum appeals (first seven assessees) vide an elaborated order dated 30.11.2010 held as under:
" This group of seven appeals is by different assessees of the same group for Assessment Year 1998-99 wherein following common grounds have been raised:
1. That the ld. first appellate authority is not justified in enhancing the assessed income which is neither sustainable in law nor on facts.
2. That the ld. first appellate authority grossly erred in holding that the receipts of Rs.1,43,08,020/- (Enbee Industries Ltd.), Rs.1,93,90,995/- (Enbee Finlease Ltd.), Rs.62,64,000/-
(Amarkantak Gardens P. Ltd.), Rs.20,38,410/- (Enbee Technology P. Ltd.), Rs.22,43,295/- (Enbee Realtors P. Ltd.), Rs.61,13,925/- (Enbee Impex P. Ltd.), and Rs.1,12,19,085/- (Enbee Resorts Ltd.), respectively, towards lease rent of agricultural rent as "income from business" on the premise that rent was received in advance before procurement of land and the acquiring the land at a later date was only application of receipt and had no impact of the applicability of the receipt, therefore, the impugned additions deserve to be deleted.
3. That the ld. first appellate authority erred in wrongly interpretating the order of the ld. CIT u/s 263 dated 24.3.2003 as setting aside the whole of the original assessment and not restricted only to the point of the verification of accumulated profits in the hands of the lessee to check the applicability of the deeming provisions of sec. 2(22)(e) of the Act.
4. That the ld. first appellate authority erred in not dealing with the ground of addition of Rs.1,72,22,095/- made on merit by the Assessing Officer by substituting his own finding over the finding and, consequently, enhancement of the assessment. The additions of Rs.1,14,11,883/-, Rs.1,72,22,095/-, Rs.47,28,000/-, Rs.15,71,530/-, Rs.17,97,782/-, Rs.42,60,257/- and Rs.95,17,710/- respectively deserve to be deleted.
45. That the ld. first appellate authority has exceeded the powers conferred on him by sec. 251 in introducing a fresh source of income in the hands of the respective assessee.
6. That the respective assessee craves leave to add, amend, modify or delete any of the grounds at the time of the hearing.
2. During hearing of these appeals, we have heard Shri S.S. Deshpande, ld. Counsel for assessee and Shri K.K. Singh, ld. CIT, DR, for the revenue. At the outset, it was pointed out that identical issues are involved in all the appeals, therefore, these can be heard together. The argument advanced on behalf of the respective assessee is that the respective assessee filed their return of income for relevant Assessment Year declaring net agricultural income received on account of lease rent and claimed the same as exempt, apart from other incomes. The assessee co. purchased certain agricultural land which was given on lease for agricultural operation to M/s. Enbee Plantation Ltd. for a period of 18 years. The lease rent was received in advance in full for 18 years which was offered as agricultural income in the previous year, under consideration. It was pleaded that the details of contract with Enbee Plantation, details of land purchased along with rate of purchase, khasra no. and name of seller and the area of land were duly filed before the Assessing Officer. It was strongly pleaded that khasra of respective land showing details of agricultural crops grown like soybean, chana, wheat were also furnished. It was pointed out that in some cases, the Assessing Officer and the directors of the group co. also visited some of the sites for physical verification and they took photographs of the crops grown/standing on the land. The Tehsildar and the Patwari also produced land records pursuant to summons issued to them. Subsequently, the ld. Commissioner vide his order dated 24.3.2003 u/s 263 set aside the assessment holding that the claim of the assessee co. as regards income was accepted without making proper inquiries/investigation resulting into under assessment of income causing loss of revenue. To give effect to the order of CIT passed u/s 263 of the Act, proceedings were initiated with the issue of notice u/s 143(2) dated 13.10.2003. The Assessing Officer was argued to be wrong in estimating that 80% of the amount of the purchase price of land is reasonable as lease rent. The ld. Counsel for assessee invited our attention to various pages of paper book.
5Our attention was also invited to the order of the Tribunal in the case of Enbee Finlease Ltd. (ITA No.622/Ind/2005). The crux of argument is that agricultural land was purchased and agricultural operation was done thereupon.
3. On the other hand, the ld. CIT DR strongly defended the impugned order by inviting our attention to para 46.1 of the impugned order, page 18 mentioning main objects. It was pleaded that the assessee was unreasonably in hurry in entering into an agreement, the total money was borrowed as debentures, the debenture holders had their own rights and the whole transaction is guided by abnormal consideration. The ld. DR strongly contended that agreement is so worded that it can be challenged under the contract act. It was pointed out that unsuitable land has been purchased by the parties, quality of the land is in dispute and so is the position of the consideration. Strong plea was raised that the agreement for 18 years should have been registered under the Registration Act. The agreement was argued to be opposed to public policy. Plea was also raised that the amounts were diverted in undue haste. The activities were argued to be seen as a whole, therefore, one assessment cannot be picked up for entire group. The crux of the argument is that the intention of the assessee has to be seen before taking any decision as there is a diversion of large scale fund. Reliance was placed in CIT vs. Kamal Biharilal Singha (82 ITR 460) (SC) and CIT vs. Troilakya Chandra Bohra (261 ITR 299) (Gau). In response, the ld. Counsel for assessee contended that the cases relied upon by the revenue are not applicable to the present appeals, land was taken after due inspection which cannot be said against the public policy. It was strongly pleaded by the ld. Counsel for assessee that there is no diversion of funds for non-business purposes, therefore, there is no avoidance of tax because it was purely an lease agreement of agricultural land. It was also pointed out that ITA No.333/Ind/2007, the Tribunal deleted the similar addition. The ld. Counsel for assessee on the powers of the ld. CIT(A) did not press the grounds, however, he challenged the enhancement of income.
4. We have considered the rival submissions of ld. representatives of both sides and perused the material available 6 on the file. Brief facts in the case of Enbee Industries Ltd. are that the assessee is a limited co. engaged in the business of investment and real estate declared agricultural income of Rs.1,43,08,020/- and also interest income of Rs.1,20,000/-. The assessment was originally completed u/s 143(3) on 30.3.2001 at a total income of Rs.1,20,000/-, being income from other sources and Rs.7,94,890/- being agricultural income.
In the case of Enbee Finlease Ltd., the assessment was originally completed on 30.3.2001, u/s 143(3) at a total income of Rs.37,10,080/- and Rs.43,65,771/-, being agricultural income. In the case of Amarkantak Gardens P. Ltd., the assessee declared income of Rs.68,543/-, and net agricultural income of Rs.52,52,616/- which was claimed exempt. The assessment was originally assessed u/s 143(3) on 30.3.2001. In the case of M/s. Enbee Technology, the assessee declared total income of Rs.2,41,892/- and net agricultural income of Rs.62,43,928/- and claimed exemption thereon. In a revised return filed on 31.3.2000, the assessee declared income at Rs.2,41,892/- and net agricultural income at Rs.20,17,033/-. The assessee also filed audit report u/s 44AB of the Act and also audit report as per Company Act along with return. The original assessment u/s 143(3) was completed on 30.3.2001 after deep scrutiny accepting the taxable income of Rs.2,41,892/-. The lease rent of Rs.20,38,410/-, pertained to a period of 18 years, declared in the very first year was restricted to 1/18th of the total lease rent. Thus, lease rent of Rs.20,38,410/- was restricted to Rs.1,13,245/- and after allowing expenses of Rs.21,377/-, the agricultural income was considered at Rs.91,868/- and the balance 17/18th i.e. Rs.19,25,165/- was ordered to be considered from year to year subsequently.
In the case of M/s. Enbee Realtors, the assessee declared interest income of Rs.1,58,019/- and agricultural income of Rs.22,17,225/-, being licence fee received on letting out/leasing out agricultural lands. The original assessment u/s 143(3) was completed on 30.3.2001, after deep scrutiny, accepting the taxable income at Rs.1,58,019/-, however, the lease rent of Rs.22,43,295/- was restricted to Rs.1,24,628/- after allowing the expenses of Rs.26,070/-, the agricultural income was considered at Rs.98,558/- and the remaining amount i.e. 17/18th (Rs.21,18,667/-) was to be considered from year to year proportionately. In the case of Enbee Impex, the assessee declared loss of Rs.2,99,094/- and agricultural income of 7 Rs.61,13,925/-, being the licence fee received on letting the agricultural land. The original assessment was completed on 30.3.2001, after deep scrutiny, accepting the taxable income of Rs.(-)2,99,094/-. The lease rent of Rs.61,13,925/- was restricted to Rs.3,39,662/- (i.e. 1/18th x 61,13,925). The agricultural income was considered at Rs.3,39,662/- and the balance 17th/18th i.e. Rs.57,74,262/- was to be considered from year to year subsequently.
In the case of Enbee Resorts, the assessee declared income of Rs.1,25,719/- and net agricultural income of Rs.1,12,19,085/- in its return filed on 30.11.1998. The agricultural income was claimed exempt from taxation. The assessee also filed audit report along with the return.
5. However, subsequently, it was observed by the ld. CIT, Bhopal that the original assessment made on 30.3.2001, the ld. Assessing Officer has failed to consider the facts properly as whether the advance lease rent was given out of accumulated profits attracting the deeming provisions to sec. 2(22)(e), consequently, vide order dated 24.3.2003 passed u/s 263, he set aside the assessment by holding that the claim of the assessee co. as regards income was accepted without carrying out proper inquires and investigation resulting into loss of revenue. It was further held that the advance lease rent paid by M/s. Enbee Plantation, Bhopal to the respective assessee is far in excess of the cost paid by the assessee co. for purchase of land. The excess lease rent paid to the co. was opined to be assessed as deemed dividend in the hands of the assessee co. The concluding portion from the order dated 24.3.2003 u/s 263 (as a test case in the case of M/s. Enbee Finlease Ltd.) is reproduced hereunder:
"I have given a careful consideration to the submission put forth on behalf of the assessee company and I have also perused the material on record. I am afraid the contention of the ld. Manager (Taxation) of the assessee company are not correct. From the records, it is seen that the assessee company purchased 146.23 acres agricultural land and it gave it on lease to M/s. Enbee Plantation Ltd., Bhopal, the main company of the group, for a period of 18 years. M/s. Enbee Plantation Ltd. paid lease rent of Rs.1,93,90,995/- to the assessee company during the year out of which the amount of Rs.10,77,278/- was 8 assessed as agricultural income in the year under consideration and the balance amount of Rs.1,83,13,717/- was treated as advance lease rent to be assessed in future years depending on the user of the agricultural land by the lease company i.e. M/s. Enbee Plantation Ltd., Bhopal in those years. The advance lease rent paid by M/s. Enbee Plantation Ltd., Bhopal to the assessee company is far in excess of the cost paid by the assessee company for purchase of this land. The excess lease rent paid to the assessee company could be assessed as deemed dividend in the hands of the assessee company as per provisions of Section 2(22)(e) provided M/s. Enbee Plantation Ltd., Bhopal had the accumulated commercial profits at the time of making such payment. The Assessing Officer does not appear to have applied his mind to this appeal at all. At this stage, I am also not in a position to record any conclusive finding on this issue because whether M/s. Enbee Plantation Ltd., Bhopal, had any accumulated profits for making such huge payment of lease rent in advance to the assessee company during the year under consideration, is a question which is yet to be finally decided as the assessment order dated 30.3.2001 u/s 143(3) in the case of M/s. Enbee Plantation Ltd., Bhopal for the A.Y. 1998-99 has been set aside for being made afresh from the return stage vide my order of even date in F.No.CIT/BPL/Tech/263/23/2002-03. Taking into account the totality of facts and circumstances of the case, it is considered fair and reasonable to set-aside the assessment and restore the matter back to the file of the Assessing Officer for fresh enquiry, examination and adjudication. Accordingly, the assessment made vide order dated 30.3.2001 u/s 143(3) for the Assessment Year 1998-99 is set aside for being made afresh from the return stage. The Assessing Officer is directed to make the fresh assessment as per law after carrying out proper enquiries and investigation and after giving reasonable opportunity to the assessee company to explain its case. In order to ensure justice and fair play to both the sides; revenue as well as the assessee company, the Assessing Officer shall complete the fresh assessment in this case under the guidance and with the approval of his Range JCIT. "
Before coming to any conclusion, the relevant portion from the assessment order is reproduced hereunder:
"The assessee's case is clearly distinguishable on facts from the various Court decisions relied upon by the assessee. The assessee's claim cannot be accepted at its face value because in 9 assessee's case, the agricultural lands have been given on lease to another party for 18 years. As per assessee's own statement and also as per the provisions of Section 2(1A)(a) of the I.T. Act, two conditions which qualify the rent from land as agricultural income are that the income should be derived from land and the land must be used for agricultural operations. In the assessee's case, how can it be assumed that agricultural operations will be performed on the entire land and that too, for the entire period of 18 years. It is quite possible that in future the licencee mayor may not carry out agricultural operations on the land taken on lease from the assessee company. It is also quite possible that in future the land may be used for non agricultural purposes for carrying out certain business activities. Therefore, to treat the entire lease rent for 18 years as income in the first year and treat the entire amount of least rent for 18 years as agricultural income is not justified and cannot said to be reasonable.
In view of the foregoing discussion, out of the gross lease rent for 18 years totalling to Rs.1,93,90,995/-, a sum of Rs.10,77,278/- only, being 1/18th of the total lease rent is hereby treated as income for the previous year under consideration and the balance amount of Rs.1,83,13,717/- is hereby treated as Advance Lease Rent.
...............
"A....... Following the principles laid down by the Hon'ble Gujarat High Court in case of CIT vs. Manilal Somnath [ 106 ITR 917 ], after considering the totality of the facts and circumstances of the case, it can be said that by a reasonable estimate, at the time of taking possession of the land by the assessee company and during the year under consideration, 30% of the total land was either demarcated as padat or was unused or was not being used for agricultural operations. Therefore, out of the total lease rent of Rs.32,88,492/-, a sum of Rs.9,86,548/- being 30% of the total lease rent for the first year is hereby estimated as lease rent pertaining to that portion of land which was not being used for agricultural operations during F.Y. 96-97 as per the land records and which cannot be treated as covered u/s 2(1A)(a) of the I.T. Act. Therefore, the same is hereby treated as income from other sources. ........."
"..........B) The balance amount of Rs.23,01,944/- is hereby treated as income from rent derived from land used for 10 agricultural operations within the meaning of section 2(1A)(a) of the I.T. Act......."
After considering all facts of the case, it was found that the whole area of land was used for the purpose of agricultural activities during the year under consideration. Therefore, above both the amounts are treated as Agricultural Income."
6. Under the aforementioned facts, now question arises whether the lease rent received in advance for 18 years is agricultural income or not. The conclusion drawn in the assessment order as well as in the impugned order is that the lease rental income was proportionately allowed. Under the facts stated above, the agreement between the parties dated 27.4.1996 needs to be analysed which clearly says that Enbee Finlease Ltd. intends to acquire agricultural land to derive income from agricultural activities whereas Enbee Plantation Ltd. is a plantation company having sufficient expertise in the field of agriculture, agro-forestry, horticulture including cultivation, plantation and scientific management and growth various timbers, fruits, vegetables, flowers and medicinal plants etc. The company intended to take agriculture land on lease to earn agricultural income. As per clause 1, the agriculturalists agreed to procure land at different sides for leasing out to the company. The lease agreement was for 18 years. As per clause 5 (page 3), the company was permitted to use the land for agriculture operation only and even as per clause 9, it was mutually agreed that the land was leased out for carrying out agricultural activities only and in turn, the company agreed to use the land for agricultural activities only. As per clause 15, upon the expiry of the lease period, the company shall cease to have any right, title or interest and the agriculturists shall be under obligation to repossess the land together with crops, plantation etc. The relevant portion from the assessment order and the observation of the ld. Assessing Officer are reproduced hereunder:
"8. In this case after acquiring the lands, the assessee company gave the same lands on an eighteen years lease to Enbee Plantation Ltd. As discussed elaborately above, this is a colourable and collusive device devised for avoidance of tax due to the government. It is also important to note that after the 11 expiry of lease period the assessee company shall again get absolute rights for the lands leased to Enbee Plantations Ltd. Also the value of land appreciates faster than any other asset. Hence, considering the facts and circumstances of the case and other cases of the same group in totality, I estimate that an amount of 80% of the purchase price of the land would be reasonable lease rent for the land given on lease by the assessee company to Enbee Plantations Ltd..................."
"9.1 The assessee company received an amount of Rs.21,68,900/- on account of lease rent of agricultural lands. Since the period of lease is 18 years and assessee company has received the lease rent for the whole period, during this year itself, only 1/18th of this amount shall be taken as agricultural income of the assessee company. Thus, for the year under consideration, the agricultural income of the assessee company shall be taken at Rs.1,20,494/- (1/18th of Rs.21,68,900)."
The ld. Assessing Officer against the declared income of Rs.37,10,084/- allowed Rs.1,20,494/- as agricultural income and added Rs.1,72,22,095/- as income from other sources. In the instant case, lease rent was received by 25 persons under similar contracts and at similar rates in Assessment Years 1997- 98 & 1998-99. There was no separate contract for Assessment Year 1998-99 and the amounts were paid under the same contract executed for Assessment Year 1997-98. Out of these receipts in case of 12 Lessors, such income was accepted as agricultural income u/s 143(1) for Assessment Years 1997-98 & 1998-99. Out of these receipts, in case of 5 Lessors, such income was accepted as agricultural income in proceedings u/s 143(3) for Assessment Year 1997-98 & 1998-99 and in case of 4 Lessors, such income was accepted as agricultural income in proceedings u/s 264 by the ld. Commissioner for Assessment Year 1997-98.
7. There is no dispute that the lands belong to various lessor companies, purchase in the respective names and in the land record, it stands in the respective names. The agreement between the assessee and the lessee company is in respect of the agricultural land for agricultural operation. Even the ld. Assessing Officer has verified that agricultural operation was carried out on the said land, therefore, such income cannot be treated as business income. The ld. first appellate authority has 12 ignored the fact that land was purchased by the lessor companies and then handed over to the lessee. He merely on the basis of objects of the companies held that land in question was merely acquired by the lessor companies during the course of business ignoring the fact that land was purchased as agricultural land and stands in the name of the lessor companies as agricultural lands, therefore, it can be said that it is a pure transaction of lease of agricultural land. Even otherwise, the ld. Assessing Officer has not challenged the transaction on the ground of business income of the lessor company and similar is the situation in proceedings u/s 263 rather in some cases, the ld. CIT has accepted the agricultural income in proceedings u/s 264. The Tribunal in the case of Enbee Finlease Ltd. (ITA No.622/Ind/2005 for Assessment Year 1997-98) held that income in the hands of lessor companies is an agricultural income on the same set of facts. The relevant portion of the order dated 7.11.2008 is reproduced hereunder:
" This order shall dispose of the above appeal of assessee filed against the order of the ld. CIT(A)-Gwalior dated 24.2.2005 for the AY 1997-98.
2. We have heard ld. representatives of both the parties and gone through the material available on record.
3. At the outset of hearing, ld. Counsel for assessee did not press ground no.1, 2 & 3, therefore, same are dismissed.
4. The only ground left reads as under:
"That even considering the facts before the CIT(A), the addition of 30% of the agricultural income viz., Rs.9,86,547/- was unjustified when the AO while accepting that the land in question was agricultural and was being used for agricultural purposes made the addition solely on arbitrary grounds that the revenue records showed some portion of the land as grassland and the said addition needs to be deleted."
5. Facts of the case are that the assessee co. was incorporated on 14.2.96 with the main objects of carrying on business of non-banking finance co. as well as agricultural and trading of all kinds of goods. The assessee co. belongs to the Enbee group of companies and main co. is M/s. Enbee Plantation Ltd. During the year, the appellant co. made investment in the agricultural land and the same were given on licence to M/s. Enbee Plantation Ltd. The issue has further being discussed by the AO are reproduced as under:
"2.LEASE RENT CLAIMED TO BE AGRICULTURAL INCOME:
As per the discussion made in para 1 above, out of the gross lease rent for 18 years totaling to Rs.5,91,92,865/-, a sum of Rs.32,88,492/- only, being 1/18th of the total lease rent has been treated as income for the previous year under consideration and the balance amount of Rs.5,59,04,373/- has been treated as Advance Lease Rent. Now comes the question as to whether the lease rent of Rs.32,88,492/- should be treated as agricultural 13 income within the meaning of Section 2(1A)(a) of the IT Act or not. In case of CIT vs. Manilal Somnath [(1977) 106 ITR 917], the Hon'ble Gujarat High Court has laid down the principles for determining whether a particular piece of land is agricultural or not. The Hon'ble High Court has observed that, "First, find out whether the land in question is being put to any use or not.
If it is being put to agricultural use, ordinarily, it would be agricultural land unless there are factors which dislodge that presumption. Similarly, if the land is being put to non-agricultural use, it would be non-agricultural land." To verify the genuineness and extent of agricultural operations being carried out at the lands in question, the undersigned alongwith Income-tax Inspector and directors and representatives of the assessee Company, visited one of the two sites of the assessee company namely the site at village Tumra. The Settlement Officer, Settlement Office, Govt. of M.P. was requested to depute the Revenue Inspector and Patwari of Village Tumra for the purpose of identifying the various Khasra Nos. owned by the assessee company at village Tumra. With the help of the land maps and revenue records, the Revenue Inspector and Patwari identified each and every khasra no. comprised in the 160 acres of land owned at village Tumra by the assessee company. Photographs of the land and the crop standing thereupon or otherwise were taken. A copy of these photographs was given to the assessee for comments. The assessee in turn got the entire land re-photographed khasra-wise and submitted those photographs which are placed on record. The assessee also got the entire land video graphed and a copy of the C.D.ROM was also submitted by the assessee which are placed on record. The assessee also submitted a detailed reply which is placed on record.
From the inspection of the sites of the assessee, only the fact and extent of agricultural activities being carried out on the lands today can be determined. However, the ascertainment of the extent of agricultural operations being carried out as on today is not material for the financial year 96-97 i.e. the previous year relevant to the assessment year under consideration. The only reference which can be relied upon in this regard are the land records of village Tumra and Village Berkhera. Summons u/s 131 were issued to the Tehsildar/Patwari - Incharge of these villages who produced the land record namely Khasra, Khatoni and maps before me for examination. On an examination of the above mentioned land records, it was found that the various khasra nos. comprised in the lands purchased by the assessee were having different status. On some of these lands agricultural crops like soyabeen, channa, wheat, were being grown regularly over the years. On some portion of the land, beed was being grown which is mentioned in the col. of crops grown in the respective khasra. However, it is pertinent to mention that a part of the land was clearly mentioned as Padat (Berren, unused and cultivable) in the land records during the relevant period.
A) Following the principles laid down by the Hon'ble Gujarat High Court in the case of CIT vs. Manilal Somnath [106 ITR 917], after considering the totality of the facts and circumstances of the case, it can be said that by a reasonable estimate, at the time of taking possession of the land by the 14 assessee company and during the year under consideration, 30% of the total land was either demarcated as padat or was unused or was not being used for agricultural operations. Therefore, out of the total lease rent of Rs.32,88,492/-, a sum of Rs.9,86,548/- being 30% of the total lease rent for the first year is hereby estimated as lease rent pertaining to that portion of land which was not being used for agricultural operations during F.Y. 96- 97 as per the land records and which cannot be treated as covered u/s 2(1A)(a) of the I.T. Act. Therefore, the same is hereby treated as income from other sources. Penalty proceedings u/s 271(1)(c) are initiated."
6. During course of hearing before us, the ld. AR invited out attention to page 21 to 28 of the paper book which is a copy of letter dated 24th March, 2000 of the assessee co. addressed to the AO wherein it is submitted that the assessee has, during the year under assessment, derived income by way of licence fee on agricultural land given on lease for agro-forestry operations to M/s. Enbee Plantation Ltd. Sec. 2(1A)(a) of the Act defines "agricultural income" to include "rent or revenue derived from land which is situated in India and is used for agricultural purposes." The said sec. therefore, postulates three requisites, viz., (i) rent or revenue derived from land; (ii) the land is situated in India and (iii) the land is used for agricultural purposes. IT is further explained that the said sec. requires a nexus between the income, land and agricultural operations which is well established in the case of the assessee. Thereafter, discussing the judgment of Gujarat High Court referred by the AO in the assessment order, the AR argued that that the principles that emerges from the decisions rendered by various courts in different cases viz. CIT vs. Kamakhaya Narayan Singh, 17 ITR 202 (Pat.); Bacha F. Guzdaar vs. CIT, 27 ITR 1 (SC), Pydah Suryanarayan Murthi vs. CIT, 42 ITR 83 (AP); CIT vs. KS Imam Sahib, 71 ITR 742 (Mad.); CIT vs. Kunwar Trivikaram Narayan Singh, 57 ITR 29 (SC) are broadly as under:
(i) Rent or revenue which directly derived from any land which is used for agricultural purposes will be agricultural income.
(ii) Revenue which is derived must also be directly, and not indirectly, associated with the land which is used for agricultural purposes before it can be said to be agricultural income.
(iii) The effective source of the receipt being from agricultural land is the decisive factor.
7. It is submitted that in the case of assessee, all the above principles are satisfied. The land in question is being used for agricultural purposes and no part of it used for any purpose other than agricultural. It is further submitted that during course of inspection undertaken by AO, it was seen that the potential use to which the land has been put to by the assessee's tenant is agricultural and no portion of the land, not even an inch has been used for any other purpose. On the other hand, the ld. DR placed reliance on the order of the ld. CIT(A) and the assessment order. However, it is noted that the ld. CIT(A) decided the appeal exparte and after summarily discussing the case, confirmed the addition.
8. After hearing rival contentions, we noted that the land was given on lease to M/s. Enbee Plantation Ltd. The main object of the said co. is agricultural activity. We have also seen that during the year under consideration, M/s. Enbee Plantation Ltd. has declared main source of income from agricultural activities and some income earned on bank 15 interest have been declared. The assessee has produced photographs and videographs of the land before the AO during assessment proceedings which show that only agricultural activity has been carried out from the land given on lease by the assessee. We have further seen that at page 53, there is a certificate issued by the Patwari of Village Tumba wherein it is certified that the said land of the village has completely been used for agricultural activities by producing medicine plantations and sagwan and sawl trees. Similarly, at page 55 there is copy of certificate issued by the village Patwari of Village Barkheda, Halka no.58, Teh. and Dist. Sehore wherein it is certified that out of total 279.58 acres, 166.74 acres of land has been used for growing medicine plants and remaining 279.50 acres of land used for growing sagone, pipal, more and sewan trees as on 31st March, 1997. These details are placed at page 53 to 55 of the paper book.
9. After considering above facts and going through the order of the AO, we noted that the AO on presumptions and assumptions assumed that 30% of total land was not used for agricultural activities. No evidence has been brought on record to prove the use of agricultural land other than the agricultural activity. As per sec. 2(1A)(a) and considering the various decisions cited above, it is held that the entire land is used for agricultural purposes thus, the entire lease rent is agricultural income. Consequently, the addition of Rs.9,86,547/- is deleted. Thus, this ground of appeal is allowed.
10. Consequently, the appeal of the assessee is partly allowed.
11. This order has been pronounced in the open Court on 7.11.2008."
8. In the light of the above, it can be said that the assessee is having a strong case in its favour especially when no contrary decision was brought to our notice by either side. It can be said that the aforesaid order of the Tribunal had attained finality as the revenue has not brought to our notice any order from the Hon'ble Higher Forum that aforesaid order either reversed or stayed. Even if this issue is analysed with the angle of consistency, the department is not permitted to take a contrary stand. Our view finds support from the decisions in CWT vs. Allied Finance P. Ltd. (2007) (289 ITR 318) (Del), Berger Paints India Ltd. vs. CIT (266 ITR 99), Union of India vs. Satish Pannalal Shah (249 ITR 221) (SC), and Union of India & others vs. Kaumudini Narayan Dalal & Others (249 ITR 219) (SC). In view of this fact and judicial pronouncements, we have found that no evidence has been brought on record to prove that agricultural land was used other than agricultural activity. As per sub-clause (a) to sec. 2(1A) of the Act, it says any rental revenue derived from land which is situated in India and is used for agricultural purposes. In the present appeals, admittedly, the impugned land is agricultural land only, therefore, in our humble opinion, the intention of the legislature is that firstly, 16 the land should be agricultural land and the rent should be received/derived from such land. The process of cultivation and the income derived therefrom has been elaborated in sub- clause (b)(i), (ii) & (iii) to sec. 2(1A), otherwise, there was no need to mention sub-clause (b) separately, therefore, considering sec. 2(1A)(a) and decisions cited/considered, it is held that the entire land was used for agricultural purposes. Even otherwise, the word "rent" means payment of money in cash or in kind to any person to the owner in respect of grant of right to use land. The expression "revenue" is however, used in the broad sense of return, yield or income and not in the sense of land revenue only. This view finds support from the decisions in Raza Buland Sugar Co. Ltd. (123 ITR 24) (All), CIT vs. Haroo Charai Tea Co. (111 ITR 495) (Gau), wherein, it was clearly held that income from lease of Estate is agricultural income. The relevant portion of the order is reproduced hereunder:
".............. So, under this definition, if a tea estate engaged in agricultural produce is leased out, the rent or share of profit derived from it will certainly be included under agricultural income and normally, agricultural income is excluded in computing total income u/s 10(1) of the Act........"
9. In view of the above discussion, the fact of the assessee having received lease rent of agricultural land for current year and future 17 years is not denied. At the very same time, income can be brought to tax when right to receive accrues in the assessee's hands. Merely advance receipt of amount cannot be brought to tax unless necessary services, for which such income was to be received, have been rendered. In the instant case, the assessee has received lease rental of 18 years. However, during the year, under consideration, i.e. 1998-99, it has got only right to receive 1/18th of the total lease rent credited in the books of account. Mere making of entry in the books of accounts is not sufficient for bringing any income for tax purposes under the Income tax Act, nor any expenditure can be allowed merely because entry has been passed in the books of account unless such expenditure is allowable under the provisions of the Income Tax Act. For this purpose, Hon'ble Supreme Court in the case of Kedar Nath Jute Mfg. Co. Limited; 67 ITR 56 held that mere passing of entry in the books of account is not sufficient for claiming any deduction unless the 17 same is eligible under the provisions of the Income Tax Act. Merely the assessee's offer to tax certain receipts is not sufficient to bring the same within the ambit of taxation unless lawfully the same is liable to tax. In this regard, the following observations of the Hon'ble Gujarat High Court in the case of S.R. Kausti; 276 ITR 175 are very much pertinent :-
"A word of caution. The authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, misconception or on not being properly instructed, is over-assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. This court, in an unreported decision in the case of Vinay Chandulal Satia Vs N.O. Parekh, CIT, Special Civil Application No.622 of 1981, rendered on August 20, 1981, has laid down the approach that the authorities must adopt in such matters in the following terms:
The Supreme Court has observed in numerous decisions, including Ramlal Vs Rewa Coalfields Ltd., AIR 1962 SC 361; State of West Bengal V.Administrator, Howrah Municipality, AIR 1972 SC 749, and Babhutmal Raichand Oswal V Laxmibal R Tarte AIRR 1975 SC 1297, that the State authorities should not raise technical pleas if the citizens have a lawful right and the lawful right is being denied to them merely on technical grounds. The State authorities cannot adopt the attitude which private litigants might adopt".
Furthermore, the status of the assessee is that of a limited company, which is under the statutory obligation to follow mercantile system of accounting while accounting for its income and expenditure in the books of accounts. It is not open to a limited company to follow cash system of accounting. Even considering that the assessee, being a company, it is not open to it to account for its income on cash basis. Accordingly, the advance lease rent received for future 17 years cannot be treated as income of the year of receipt on the basis of cash system of accounting wrongly followed by the assessee. Such advance rent for future 17 years is to be considered only on accrual basis in the respective years to which uch rent actually pertains. We, therefore, do not find any justification on the assessee's part for accounting the advance lease rent as income for the year under consideration. It is also not open to the department to give cognizance to such wrong accounting of 18 receipt in its books of accounts by the assessee and to treat such advance payment as income of the year under consideration. Only the lease rent, which accrues in its hands during the year under consideration, is liable to be brought to tax net on the mercantile system of accounting which the assessee company is statutorily required to follow. Thus, neither under the provisions of the Income tax Act nor under the provisions of the Companies Act, the assessee is at liberty to deviate from the statutory requirement and claim income or expenditure which is not allowable under the Income tax Act merely by making book entry.
In the instant case, learned Commissioner of Income Tax (Appeals) himself has observed that even though lease 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 cannot be treated as income of the one year i.e. AY 1998-99 under consideration either under the head "agriculture" or "ioncome from other sources" till the services are rendered for earning such income. Such advance payment will be liability on the company and will turn to be income in the respective years to which it pertains only after the assessee gets the right to receive such income after rendering of necessary services for which such income accrues in favour of the assessee. We, therefore, do not find any merit in the assessee's claim for treating the entire advance leasae rent received for 18 years as income of the current year under the head agriculture and exempt from tax. At the very same time, it will also not be justified to bring advance payment of lease rent of further years as income from other sources. Accordingly, we direct the Assessing Officer to treat 1/18th of the total lease rental as agricultural income of the year, under consideration. The balance of lease rental is neither agricultural income nor income from other sources but is a liability in the assessee's hands accrual of which may be examined in the subsequent years to which it actually pertains, that too after ascertaining the rendering of necessary services and complying with the terms and conditions of the lease agreement so executed.
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 19 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 from other sources by the learned Commissioner of Income Tax (Appeals) for which we do not find any justification. The advance amount received is not an income in the hands of the assessee till it accrues in the assessee's favour by rendering necessary services, as agreed by the assessee in terms of the lease deed. In this case, during the course of assessment itself, the Assessing Officer along with team of his Officers visited the site ear-marked for agricultural operations and found that the agricultural operations were carried on there and there was no adverse finding by the Assessing Officer indicating that the assessee has not given the land for carrying out agricultural operations thereon and the same was 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 treating the lease rent of agricultural land as agricultural income in lessor's (assessee) hands. Similar issue has been dealt with by the Tribunal in the case of the associate concern of the assessee for the assessment year 1997-98 wherein lease rental received by M/s Enbee Finlease Limited was held to be agricultural income. In that case also the land was given on lease and the income was derived by way of advance rent of agricultural land given for agro forestry operations to M/s. Enbee Plantation Limited. In the instant case also, under the similar agreement, the assessee has given its land for agricultural operations to M/s Enbee Plantations Limited. The provisions of section 2(1A)(a) of the Act define agricultural income to include rent or revenue received from the land which is situated in India and is used for agricultural purposes. The Tribunal has discussed all the three requisites of this section and after applying the proposition of law as laid down 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, which 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 is used for agricultural purposes before it can be said to be agricultural income. It was further held that effective sources of the receipt from being agricultural land is the decisive factor. Applying the proposition as discussed hereinabove to the facts of the instant 20 case, we find that the rent was received by the assessee directly from the agricultural land which was used for agricultural purposes and the effective source of the receipt was being from agricultural land, we do not find any 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 authorities including photographs and videographs of the land to 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 the land of village has completely been used for agricultural activities, certificate issue by village Patwari certifying the area of the land used for growing medicinal plants, etc. were produced. After going through all these documentary evidences placed before the lower authorities, we direct the Assessing Officer to treat the rent of agricultural land as income from agriculture not liable to tax, subject to the rider that only 1/18th of the said rent is to be treated as agricultural income for the relevant assessment year 1998-99 under consideration. The advance lease rent received for the future 17 years is to be considered in the respective years to which such lease rent actually pertains and that only after ascertaining that the assessee renders the necessary services for which such lease rental accrues in its favour. There is no justification in the orders of the lower authorities in treating the advance lease rent of further 17 years as income from other sources for the years under consideration i.e. 1998-
99. As the facts in the case of all the assessees are same, following the same conclusion, the Assessing Officer is directed to take income for the year under consideration in terms indicated hereinabove.
11. In the result, all the appeals of the assessee are allowed in part.
Order pronounced in the open Court on 30.11.2010."
3. Against the aforesaid order, no contrary decision was brought to our notice from Hon'ble Higher Forum/Court, therefore, presumably it has attained finality. Since the basis on which the penalty was imposed u/s 21 271(1)(c) is no more in existence, we are of the opinion that the penalty automatically goes. This view is supported by the ratio laid down in CIT vs. SP Viz Construction Co. (176 ITR 47) (Pat) and K.C. Builders vs. ACIT (265 ITR 562/135 Taxman 461) (SC). The Tribunal while deciding the quantum appeals has held that income is liable to be assessed as agricultural income rather than income under head "income from other sources". Moreover, the Tribunal further held that only 1/18th of the total receipt which is attributable to the year under consideration is to be brought to tax net during the year under consideration and that also under the head "agricultural". Since income from agriculture is not liable to tax and is added only for rate purposes, there is no question of levy of any penalty with regard to the tax attributable on such income. Meaning thereby agricultural income does not attract any tax, therefore, levy of penalty has no leg to stand in so for as the penalty is either to equal to tax to be evaded or at the most three times of the tax sought to be evaded. After the decision of the Tribunal, since no tax was leviable on the income treated by the department as income from other sources, there is no question for levy of penalty in respect of the income which has been treated by the Tribunal as income from agriculture. In view of the above, penalty in cases of first seven appeals is not leviable.
4. As far as ITA No.222/Ind/2008 is concerned, since while deciding the quantum appeal (supra), it was restored to the file of the ld. Assessing Officer, therefore, the penalty appeal is also restored to the file of the ld.
22Assessing Officer for fresh adjudication, consequently, this appeal is allowed for statistical purposes only. Needless to mention here that the assessee be provided due opportunity of being heard and further at liberty to furnish any evidence, if any, to substantiate its claim.
Finally, the appeals in ITA Nos.215 to 221/Ind/2008 are dismissed and ITA No.222/Ind/2008 is allowed for statistical purposes only. Order pronounced in the open Court in the presence of ld.
representatives of both sides at the conclusion of the hearing on 19.4.2011.
(R.C. SHARMA) (JOGINDER SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 19.4.2011
Copy to: Appellant/Respondent/CIT/CIT(A)/DR
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