THE HONOURABLE SRI JUSTICE P.SAM KOSHY AND THE HON’BLE SRI JUSTICE NARSING RAO NANDIKONDA INCOME TAX TRIBUNAL APPEAL NO.288 OF 2016 JUDGMENT: (per Hon’ble Sri Justice Narsing Rao Nandikonda)

This appeal is filed under Section 260A of the Income Tax Act 1961 (for short, ‘the Act’) against the order dated 20.03.2015 in ITA No.1594/Hyd/2014 passed by the learned Income Tax Appellate Tribunal, Hyderabad Bench ‘B’, Hyderabad, for the Assessment Year 2011-2012.

2. The assessee is a company engaged in the business of production of Hybrid seeds and it claimed for an exemption of Rs.39.26 crores under Section 10 (1) of the Act and also Rs.1.53 crores under Section 14A of the Act,1961andaccordingly filed returns for the Assessment Year 2011-2012, for total amount of Rs.5,78,67,231/-. The Assessing Officer after considering the entire material on record, passed an order opining that the assessee is not directly involved in any agricultural activity and the income earned by it from the production of seeds was not in the nature of agricultural income. Therefore, the Assessing Officer required the assessee company to explain as to why its claim for exemption under Section 10 (1) Act should not be disallowed and after receiving the explanation offered by the assessee, Assessing Officer has held that the Assessee company could not be said to be either cultivating the seeds or deriving any agricultural income.

3. Accordingly, the Assessing Officer required the assessee to explain as to why its claim for exemption under Section 10 (1) of the Act should not be disallowed and directed the assessee to furnish reply. The assessee submitted its explanation on 26.03.2014, which was not found acceptable by the Assessing Officer and accordingly it was held that production of hybrid seeds was markedly different from normal agricultural crop production i.e., it involved elaborate scientific operations etc, by the assessee company. The assessee company used to yield hybrid seeds finally produced to undergo series of physical and chemical treatments before they sold in the open market as commercial hybrid seeds. Further, production of hybrid seeds on the land owned by other farmers could not be treated as agricultural operations carried on by the assessee company, going by the terms and conditions of the relevant agreements entered with the farmers. Therefore, the claim of the assessee for exemption of income earned from production and sale of seeds under Section 10 (1) of the Act was disallowed by the Assessing Officer vide order, dated

30.03.2014 under Section 143 (3) of the Act.

4. Against the order passed by the Assessing Officer, an appeal was preferred by the assessee before the learned Commissioner of Income Tax (Appeals) seeking exemption under Section 10 (1) in respect of income earned from production of sale of seeds. The learned CIT(A) found merit in the submissions made by the assessee relying on the decision of the Tribunal in the case of Prabhat Agri-Biotech Ltd rendered vide order, dated 14.01.2013 passed in ITA No.1288 and 1289/Hyd/2010 for the assessment years 2008-09 and 2009-2010, as affirmed by the High Court of Andhra Pradesh, which was held that the operations of the assessee of the company involved in production of seeds was in the nature of agricultural activity and the income earned from such activity was in the nature of agricultural income and eligible for exemption under Section 10 (1) of the Act.

5. Being aggrieved by allowing of the appeal by the CIT (A), the Revenue preferred an appeal on the ground that the learned Commissioner Income Tax (Appeals) did not appreciate that the assessee has departed from the basic agricultural operation and indulged in production of parent seeds by planned scientific and specialized procedure. It has also raised one of the grounds that the assessee itself is not carrying on any agriculture operations, but only procuring the multiplied hybrid parent seed from the farmers, as such, the activity of a