Sericulture income from sale of cocoons taxed @ 50% being not agricultural income following judgment of the Hon’ble Supreme Court
ABCAUS Case Law Citation:
ABCAUS 2980 (2019) (05) ITAT
Important Case Laws Cited/relied upon by the parties:
L. Basavaraj Vs. ACIT (2015) 61 taxmann.com 67 (Karn)
Lakshmanan & Co. Vs. CIT (1999) 239 ITR 597
CIT Vs. Landmark Innovation (P) Ltd., (2013) 38 taxmann.com 217
The appellant HUF assessee was engaged in agricultural operations, filed its return of income declaring agricultural income. The case was taken up for scrutiny and the assessment was concluded under section 143(3) of the Income Tax Act, 1961 (the Act) wherein addition was made by the Assessing Officer (AO) by treating part of agricultural income declared as income from other sources.
The assessee’s appeal was dismissed by the CIT(A).
Before the Tribunal, the assessee contended that the fact that agricultural operations were carried out by the assessee in the year under consideration was not in dispute and it was only the quantum of agricultural income that was the issue in dispute.
It was submitted that in the preceding two assessment years the claim of the agricultural income was accepted by the Assessing Officer (AO) and as compared there was only a marginal increase in the agricultural income of the year under consideration.
The assessee placing reliance on the judgments of the Hon’ble High Courts contended that the agricultural income declared by the assessee could not be rejected if there is only a marginal increase in the said income during the relevant year as compared to earlier years. Also, where agricultural activities on land was accepted for earlier years, same could not be doubted in the subsequent year in the absence of cogent evidence.
The assessee submitted that the AO conducted enquiries with the Village Accountant by issuing notice under section 133(6) of the Act and as per the Mahazar report it was evident that the assessee derived / earned agricultural income during the year under consideration.
It was submitted that the AO erred in reducing the quantum of agricultural income from bananas and sericulture on the basis of enquiries conducted with the Horticulture and Sericulture Department without providing the assessee opportunity to rebut the statements given by them.
Without prejudice, it was submitted that the AO had treated 50% of the income from sericulture as agricultural income attributable to growing of Mulberry leaves in view of the decision of the Hon’ble Apex Court where it was held that income derived by the assessee from sale of cocoons raised by it by growing and feeding mulberry leaves to silk worms is not agricultural income. It was contended that in these circumstances, 50% of the income from sericulture should be considered as agricultural income and the balance amount may be held chargeable to tax.
The Tribunal observed that undisputed fact was that the assessee was carrying on agricultural operations during the year under consideration as per the reports of the Village Accountant and Revenue Inspector submitted in response to information called for by the AO under section 133(6) of the Act.
Further, it was noted that the agricultural income declared by the assessee during the year was only marginally more than the agricultural income declared by the assessee and accepted by the AO in the scrutiny orders of assessment passed under section 143(3) of the Act for earlier Assessment Years.
The Tribunal opined that in the above factual matrix, the AO was not correct in estimating the agricultural income and expenditure incurred to earn the same; to make the impugned additions.
However in view of the decision of the Hon’ble Supreme Court, the Tribunal held that the income from sericulture as declared by the assessee was to be accepted and 50% thereof attributable to the sale of cocoons, was chargeable to tax.