Transparent Agro Pvt Ltd vs ITO Ward-25(3) – Agricultural Income Dispute – ITA No. 6277/DEL/2019 (Assessment Year 2016-17)

Case Analysis: Transparent Agro Pvt Ltd vs ITO Ward-25(3) – ITA No. 6277/DEL/2019

Case Number: ITA 6277/DEL/2019

Appellant: Transparent Agro Pvt Ltd, New Delhi

Respondent: ITO Ward-25(3), New Delhi

Assessment Year: 2016-17

Order Type: Final Tribunal Order

Date of Order: 26th November 2021

Case Filed On: 25th July 2019

Introduction

The case of Transparent Agro Pvt Ltd vs ITO Ward-25(3) (ITA No. 6277/DEL/2019) revolves around the classification of rental income as agricultural income by Transparent Agro Pvt Ltd, a company engaged in agricultural activities. The company had declared rental income received from M/s. Asian Hotels (North) Ltd. as agricultural income, claiming it as exempt under Section 10(1) of the Income Tax Act, 1961. However, the Assessing Officer (AO) disagreed with this classification and treated the income as ‘Income from Other Sources,’ leading to an addition to the total income of the company. The appeal was filed before the Income Tax Appellate Tribunal (ITAT) Delhi, challenging the assessment order.

Background of the Case

Transparent Agro Pvt Ltd is engaged in the business of farming and agriculture, including the cultivation of seeds, flowers, plants, nursery, floriculture, and sericulture. The company filed its return of income for the assessment year 2016-17, declaring a total income of ₹3,98,300/-. The case was selected for limited scrutiny under the Centralized Processing of Returns (CASS) to examine the large agricultural income declared by the company and the classification of rental income as agricultural income.

The company had shown total revenue of ₹1,96,47,872/- from its agricultural operations, which included ₹21,60,000/- received as rent from M/s. Asian Hotels (North) Ltd. for the use of space for nursery plants. This rental income was claimed as exempt under agricultural income.

Reason for Filing the Case

The appeal was filed by Transparent Agro Pvt Ltd due to the following reasons:

• Rejection of Agricultural Income Claim: The primary reason for the appeal was the Assessing Officer’s rejection of the company’s claim that the rental income of ₹21,60,000/- constituted agricultural income. The AO reclassified this income as ‘Income from Other Sources,’ leading to an increased tax liability.
• Disagreement with the Assessment Order: The company disagreed with the AO’s assessment and subsequent addition to its taxable income. The company believed that the rental income was intrinsically linked to its agricultural operations and should be exempt under Section 10(1) of the Income Tax Act.
• Seeking Tax Relief: By challenging the assessment order, the company sought relief from the additional tax burden imposed due to the reclassification of its income.

The appellant aimed to have the rental income reinstated as agricultural income and the additional tax demand quashed.

Proceedings at the ITAT

The appeal was scheduled for hearing on 18th November 2021 before the ITAT Delhi Bench “SMC-1,” presided over by Shri R.K. Panda, Accountant Member. However, none appeared on behalf of the appellant, and no petition for adjournment was filed. The tribunal noted that the case had been scheduled for hearing multiple times, with notices sent to the appellant, but the postal authorities returned the notices with remarks stating “Left.” The appellant had not informed the tribunal of any change in address.

Given the absence of representation and the history of non-compliance, the tribunal decided to proceed with the hearing based on the material available on record and the submissions made by the Senior Departmental Representative (DR), Shri Om Parkash, representing the revenue.

Assessment Proceedings

During the assessment proceedings, the AO observed that the company had received ₹21,60,000/- as rent from M/s. Asian Hotels (North) Ltd. for the use of space at its agricultural land located at Farm No.1, Sultanpur Farms, Village Gadaipur, Mehrauli, New Delhi. The company had classified this income as agricultural income and claimed it as exempt under Section 10(1) of the Income Tax Act.

To verify the claim, the AO conducted field inquiries and gathered a report from the inspector, which indicated that M/s. Asian Hotels (North) Ltd. used the space for storing and maintaining flower pots rather than engaging in any agricultural operations. The report suggested that the land was not used for farming activities, which would qualify the income as agricultural income.

Additionally, the AO issued a notice under Section 133(6) to M/s. Asian Hotels (North) Ltd. to provide details of the rental agreement and the activities conducted on the rented land. The response from the company confirmed that the space was used primarily for maintaining nursery plants, which further supported the AO’s stance that the income could not be classified as agricultural income.

Tribunal’s Findings and Conclusion

After reviewing the material on record, the tribunal upheld the findings of the AO and the Commissioner of Income Tax (Appeals) [CIT(A)], who had previously upheld the AO’s decision. The tribunal agreed that the rental income of ₹21,60,000/- received by Transparent Agro Pvt Ltd from M/s. Asian Hotels (North) Ltd. did not qualify as agricultural income and should be taxed under the head ‘Income from Other Sources.’ The tribunal noted that the Ld. CIT(A) had provided detailed reasoning for rejecting the appellant’s claim, and the tribunal found no reason to interfere with the decision.

The tribunal dismissed the appeal, upholding the addition of ₹21,60,000/- to the appellant’s income and the reclassification of the rental income as ‘Income from Other Sources.’

Significance of the Decision

The case of Transparent Agro Pvt Ltd vs ITO Ward-25(3) highlights the importance of accurately classifying income for tax purposes. The tribunal’s decision underscores the principle that not all income derived from activities on agricultural land can be classified as agricultural income. The nature of the activity and the use of the land play a crucial role in determining whether the income qualifies for exemption under Section 10(1) of the Income Tax Act.

This decision also serves as a reminder to taxpayers to maintain clear and accurate records of all transactions and to ensure compliance with tax laws, particularly when claiming exemptions.

Final Judgment

The final judgment in the case of Transparent Agro Pvt Ltd vs ITO Ward-25(3) (ITA No. 6277/DEL/2019) resulted in the dismissal of the appeal. The tribunal confirmed the reclassification of the rental income of ₹21,60,000/- as ‘Income from Other Sources,’ rejecting the appellant’s claim that it should be treated as agricultural income exempt under Section 10(1) of the Income Tax Act.

Bench: Shri R.K. Panda, Accountant Member

Order Pronounced On: 26th November 2021

Result: The appeal was dismissed, and the addition of ₹21,60,000/- to the appellant’s income was upheld.

Transparent Agro Pvt Ltd vs ITO Ward-25(3) – Agricultural Income Dispute – ITA No. 6277/DEL/2019 (Assessment Year 2016-17)