These are cross appeals filed by the assessee and the revenue against the order dated 9-1-2001 passed by CIT(A), New Delhi for the assessment year 1997-98.
The effective ground of appeal states that on the facts and circumstances of the case, the learned CIT(A) erred in law in sustaining addition of Rs. 2,16,193 as income from other sources under section 68 of the Income Tax Act, 1961. Briefly stated the facts are that the assessee had shown agricultural income of 21,02,193, therefore, the assessee was asked to substantiate the agricultural income. The assessee has submitted that the land in question were purchased in the years 1982 to 1985 and the land were located at Village Gitroni, Teh. Mehrauli. The assessee vide its letter dated 1-12-1999 submitted that the assessee had produced various types of flowers like Chrysanthemums, Pink Replex, Crimson Charlie, Sunflower, Jasmine, Chadni etc. Further, it was submitted that the assessee sold various buds of flowers produced at various mandies and also participated in various flower shows. Vide its letter dated 15-1 -2000 the assessee informed that the total area of cultivation of flowers were approximately 10 to 12 bighas. The assessee was further asked to furnish following details : (3) To whom were the flowers sold daily. Confirmations from parties to be filed; (4) Was there any agreement with the parties to whom the flowers were sold; "The flowers were sold by the assessee through its outlets at Karol Bagh, Defence Colony, Farm House site, mandi at Mehrauli. The assessee had also supplied flowers to M/s. Ashoka Florist, Classic Florist, Saroj Farms, Sparesh Florist. The payments from these florist shops were received by cheques also. The assessee had also participated in various flowers show/ exhibition and also sold flowers in these exhibitions. Your honour will be aware that agricultural trade is mainly done in cash. As per the report published in Times of India dated 16-12-1996, the flower trade in the capital touched an estimated 300 crores. A copy of the said report is enclosed herewith for your kind perusal. A substantial portion of the said trade done in cash.
Considering such magnitude volume of trade in capital only, the cultivation done by the assessee is not at all substantial.
The assessee did not enter into any agreement in writing with any party in connection with the sale of flowers. However, the payments from some of the florists were received through a/c. payee cheque, which can be verified. The majority sale was done on immediate cash payment basis by the assessee.
The assessee did not maintain records for yield per acre of land.
However, in one square meter are about 30 to 40 plants can be grown.
The assessee has grown cut flowers on about 2 acres of land besides this assessee was having green house for cutting and maintenance of flowers. The assessee director Mrs. Rekha Rathi along with agriculturist also visited Israel (Jerusalem) for getting advanced technology for growing of flowers in preceding year. The assessee was growing value-added flowers; the photographs of some of the flowers grown by the assessee are produced herewith." The assessing officer observed that since the assessee was not having information regarding queries raised but only supplied general information which was normally supplied by the assessee having agricultural activities, information was sought from National Horticulture Board, Ministry of Agriculture, Government of India, asking to provide information on the following points: (2) How many flowerpots can normally be grown in a Sq. Mtr. Area under green house.
The National Horticulture Board (NHB) replied that usually 6-7 flowerpots could be placed in a square meter area under the green house. As regards the point Nos. I & 3, the Board furnished a chart along with the said reply. The assessing officer noted that the information as furnished by the NHB was provided to the assessee for its comments. The assessee replied that the statistics were not much relevant for chrysanthemum cultivation that was being undertaken by the assessee. The details furnished by the NHB appeared to be mainly pertaining to chrysanthemum which was sold loose for the purpose of Pooja and Garland whereas the assessee was cultivating much better quality of said flowers which were sold on pcs. Rate/doz. Rate. The assessee further relied upon the study conducted by P. vanderkam v. of Holland in support of its yield of 60,000 cutting in an acre.
The assessing officer after having considered the submissions of the assessee observed that it was not denied that during the relevant previous year, the assessee had cultivated flowers. Even according to the assessee, the higher area of cultivation was around 2 acres. Even in the succeeding assessment year, i.e., 1998-99 no income had been shown from agriculture. The land where the flowers were grown was situated far beyond the Airport and there was no outlet nearby where the flowers could be sold on daily basis. Details of agricultural income filed showed that on a number of occasions, the amount had been shown as received on sale of flowers at farmhouse. Admittedly, the assessee had not given any information about the yield per acre, the names of persons to whom the flowers were sold nor any other supporting documents. The flowers sold to the florist were only to the tune of roughly six lakhs. The books produced at the time of hearing show that pucca vouchers were not available for advertisement expenses. Further all expenditure had been incurred in cash. Even on agricultural expenses excluding monthwise labour charges, no vouchers/bills were available. Even according to the learned authorised representative, the income could only be on estimate basis. In such a situation, the report of NHB was considered by assessing officer as relevant. As per exhibit 1.1 of the NHB (production ratio-cost & income/ hectare /year) even total cultivation of rose family, gladiolus family, chrysanthemum and other seasonal of 2500 sq. m. each and also taking crop cycle the total sales can be around Rs. 13 lakhs and gross profit Rs. 5.96 lakhs and as per exhibit 1.2 the domestic sales income per hectare is Rs. 18 lakhs for rose family, Rs. 14.18 lakhs for gladiolus family and Rs. 4.44 lakhs for chrysanthemum family. Admittedly, the assessee had not exported the flowers. if the rose had been grown then no other crop could have been grown in the land during the year. Again, the above was the sale price and not the net income. Expenses had further to be reduced from this. Further, even in green house, the assessee had submitted that 30 to 40 pots could be grown in sq. meter. Whereas the NHB has opined that usually six to seven flowers pots could be grown in a square meter under green house. The flowers were normally perishable and they have to be sold without waiting for a prospective buyer. There was no contract with any party for purchase of flowers. Thus, the assessing officer held that in the above background, the net income shown by the assessee from agricultural operation on a hectare of land was very much on the higher side. Considering all these facts into consideration and also the facts that the assessee had in fact carried out floriculture during the relevant previous year, only an estimate of agricultural income could be made. The assessee had submitted that it had grown chrysanthemum, gladiolus and other seasonal flowers during the year. Even according to the Director's note attached to the assessee's letter, if estimate was to be done, then rose or gladiolus should be taken as approximate standards for the assessments. According to crop cycle given by NHB, rose family is one crop/year gladiolus family is one crop/ year chrysanthemum is two crop/year and seasonal three crop/year. According to this total gross profit was worked at Rs 5.96 lakhs. The assessing officer further mentioned that the assessee had also grown pots in green house. Further, the area for each crop has not been given by the assessee. Considering the plea of the assessee that majority of the flowers grown acre chrysanthemum, the assessing officer estimated the income as under : Further, the assessing officer estimated the income from sale of flowers grown on pots in green house and flower shows at Rs. 1.5 lakhs.
Thus, the assessing officer estimated total income of the assessee at Rs. 9.92 lakhs as against Rs. 21,02,193. Hence, he made an addition of Rs. 11,10,193 as income from other sources under section 68 of the Income Tax Act, 196 1.
"I have considered the facts of the case and submission of the AR of the appellant and I have also perused the assessment record. It is an accepted fact that the assessee has cultivated flowers on large scale which is evident from the inspector's report who has reported that on his local enquiry he found that some 40 to 45 persons were deployed for cultivation of flowers and these flowers were sold at various places and were supplied to various hotels. It is also accepted fact that at the fagment of the financial year when the case was to be barred by limitation, the report from National Horticulture Board was received by the assessing officer and utilised for the purpose of computation of income without making any cpmment or without assigning any reason for rejecting the various submissions and facts brought before the assessing officer. Therefore, I find that there is lot of force in the submission of the assessee that's there was denial of proper opportunity to the assessee to analyse the report of National Horticulture Board and make it submission as to why this should not be taken into consideration. At the earliest opportunity available the Director of the assessee company had submitted a written note as to why the NHB. report should not be taken into consideration for estimating agricultural income. This has been also overlooked by the assessing officer. Further, the assessing officer has also overlooked the facts that the area of land on which flowers were grown was 14.9 bighas and not 10 to 12 bighas as taken by the assessing officer. In view of these facts and discussion above, the estimate of agricultural income made by the assessing officer cannot be accepted entirely. Since the assessee has grown superior quality of chrysanthemum on maximum area of land covered under flower cultivation, the selling price of chrysanthemum taken by the assessing officer appears to be not correct. In my considered opinion the best course would be to take selling price of rose flowers by taking two crops per year (as mentioned in the NHB report). On these basis the estimated income from agriculture comes to Rs. 17.36 lakhs in one hectare of agricultural land which is worked out as under:- Further, the assessing officer has estimated profit from sale of flowers grown in pot in green house at Rs. 1,50,000 if the same is added then the total income will come to Rs. 18,86,000 as against Rs. 9,92,000 estimated by the assessing officer. Accordingly, in my considered opinion, the estimated agricultural income will be Rs. 18,86,000 and the difference between the income estimated as above and income shown by the assessee will remain at Rs. 2,16,193. The assessing officer is directed to take Rs. 2,16,193 as income from other sources as against Rs. 11, 10, 193. The assessee will get relief of Rs. 8,94,000.
The learned DR has submitted that the assessee has disclosed agricultural income at Rs. 21,02,193 and the assessing officer after having examined the claim of the assessee came to the conclusion that the assessee had shown higher agricultural income than the actual earned income. Therefore, he had estimated the total agricultural income at Rs. 9,92,000 and accordingly after deducting this amount from Rs. 21,02,193 the balance amount of Rs. 11,10,193 was added in the total income of the assessee under section 68 of the Act.
The learned DR has explained that the assessee has purchased the agricultural land in the years 1982 to 1985, which is located at Tehsil Mehrauli. He has pointed out that as per assessee's own letter dated 1-12-1999, the assessee owned about 10-12 bighas land but later on it was claimed to be 14.9 bighas. On the said land the assessee produced various types of flowers like chrysanthemum, rose, gladiolus etc. Since the assessee gave general reply to the queries raised by the assessee vide data sheet dated 31-1-2000, the details of which are mentioned at page I of the assessment order, the assessing officer took up the matter with the NHB, Ministry of Agriculture to ascertain:- (2) How many flowerpots can normally be grown in a Sq. Mtr. Area under green house, The NHB replied that usually 6-7 flower pots can be grown in a sq.m.
area under the green house and regarding point Nos. I and 3 the Board gave a chart. Thus, the assessing officer keeping in view the reply of the NHB, passed the detailed order estimating the income of the assessee on account of the sale of above mentioned flowers at Rs. 8.42 lakhs. The assessing officer further estimated the income from sale of such plants in exhibition and flowerpots at Rs. 1.5 lakhs. Thus, the total estimated receipt came to Rs. 9.2 lakhs as against Rs. 21,02,193.
The Learned DR as submitted that the CIT(A) has caculated agricultural income not based on expert opinion but the same is an estimate by accepting the statement made by the assessee. He has further submitted that the claim of the assessee that one of the Directors Mrs. Rekha Rathi visited Israil, Yerusalam for getting advance technology for growing flowers, is not acceptable as on verification of P & L Account of the assessee for earlier year it can be seen that no amount had been spent on the occasion of any advance technology. Only her travel expenses were debited to the assets side. He has further submitted that P. van der kamp Holland's brochure regarding chrysanthemum cut flowers cultivation was submitted before the assessing officer to prove that 6,000 cuttings could be grown in an acre. However, he pointed out that the assessee had not acquired these cuttings, which are patented varieties. In this regard, he referred to the last line at page 2 of the paper book wherein it is mentioned that: 'P.S. propagation strictly not allowed also varieties are patented varieties", Thus no reliance can be made on the said brochure to claim the higher cuttings of chrysanthemum flower cuttings. He has further submitted that NHB is a nodal agency who is propagating agricultural activities and the report given by it has correctly been made basis by the assessing officer to estimate the income of the assessee from the cultivation of flowers.
He has further argued that the claim of the assessee that it sold flowers to various florists and sale proceeds were received in cash, is incorrect and in reality, it had been found that out of the total sale of Rs. 4,92,082, only 6 lakhs were received by way of cheque and the balance of Rs. 43 lakhs was allegedly received in cash. Since such a large percentage of sale proceeds were claimed to have been received in cash, the assessing officer rightly assumed that this was a case for introduction of its own unexplained income in the guise of agricultural income more so when the assessee has failed to produce confirmation from the so called bank. Thus, he has supported the order passed by the assessing officer.
On the other hand, the learned counsel for the assessee has submitted that the assessee maintained the books of account, which are duly audited. The assessing officer has not rejected the books of account nor any defect was pointed out in the books maintained by the assessee.
He has further submitted that the assessee is not required to maintain the details as required by the assessing officer in the questionnaire vide order sheet entry dated 31-1-2000. He has pointed out that the assessee is a limited company and has no other source of income. The details of sale vouchers are available at page 98 onwards of the paper book. He has further mentioned that the details of expenses incurred day-to-day basis have been given at pages 45-51 of the paper book and vouchers of expenses are available at page 52 onwards of the paper book. All these details were duly filed before the assessing officer.
Thus, it is incorrect to say that the assessee has not given any information about the yield/acre or names of the persons to whom the flowers were sold.The learned counsel for the assessee has further pointed out that the report of NHB merely provided the parameters for chrysanthemum category of flowers including other types of flower cultivation in the open field conditions. However, the said parameters of NHB cannot be applied to the case of the assessee for assessment of higher quality of these flowers. He has further pointed out that reply of NHB at last clearly mentioned "for more enquiry, you can contact us for technical details".
However, the assessing officer since being in hurry to complete the assessment within time, he did not asked for any further technical details to ascertain the yield of the above named flowers. He has further argued that the report of NHB does not show the kind and quality of flowers, which were taken as a base for estimating the sales, income/gross profit. There are over 200 varieties of chrysanthemum cut flowers, which are now the most popular cut flowers in the use. He has mentioned that the assessee was one of the first few to undertake commercial cultivation of the said varieties of chrysanthemum flowers. With the background of over 20 years of experience and knowledge of latest technical know-how obtained from Israil/Yerusalam, the Director of the company Smt. Rekha Rathi, became the pioneer to Indianise the latest growing techniques used to popularize the chrysanthemum as cut flowers in the domestic market.
Thus any statistics from Government institution had no relevance to substantiate such dispute of yield for aforesaid cultivation of farmhouses. Sale of kind, quality flowers grown is given in the report of NHB cannot be applied to the assessee's case. The NHB report only states that only 6-7 flowerpots can be grown in a sq. mtr. Area under green house. Whereas, the assessee had grown plants in plastic bags which usually accommodated 30-40 plants in a sq. mtr. Area. In this connection, he invited our attention to the article of Mr. R.K.Bhandari at page 9 of the paper book. Thus, he has supported the order passed by CIT(A).
We have heard the parties and have perused the material to which our attention has been drawn. It is seen that the assessee initially mentioned that he has 10-12 bighas of land on which he is cultivating flowers and later on he has filed khasra girdwari wherein the land under cultivation has been shown 14.9 bighas including 2.7 bighas shown as nursery. It is also seen that the assessing officer worked out estimated income of the assessee on the basis of land 10- 12 bighas, which appears to be correct as the inspector's report shows that there was a construction on 1/4 of the area. This report finds support from the fact that the assessee itself in its letter dated 15-1-2000 stated the total area under cultivation of flower was 10- 12 bighas approximately. Thus, we hold that the land under cultivation of the assessee was not 14.9 bighas. The basic question that arises for consideration as to what could the agricultural income from cultivation of above named flowers. It may be mentioned that agricultural income depends on various factors such as soil of land, quality of fertilizer used and favourable weather conditions etc. There is no material. on record to establish that the assessee had grown superior quality of chrysanthemum and the yield of such flowers was 60,000 cuttings per acre of the same. The assessee in order to claim high yield of such flower has relied upon the article of Shri R.K. Bhandari and P. van der kamp. B.V. Holland's brochure. It may be mentioned that the said article/ brochure is qualified by various conditions such as expansive green house, cool weather etc. Moreover, much reliance cannot be made on article/ brochure of private person in comparison to the reports of Government nodal agency such as NHB. It would be relevant to mention that in the subsequent year the assessee has not shown any income from agriculture. Therefore, no reference can be made to any Government agency to estimate the yield from the cultivation of flower. The learned CIT(A) has estimated the agricultural income of the assessee taking 14.9 bighas of land and by applying the selling price of rose flower as given by NHB and taking 2 crops of rose flower per year. In our opinion, the learned CIT(A) is incorrect in taking 14.9 bighas of land as land under cultivation of rose flower only and taking 2 crops of rose flower per year. As per report of NHB there can be only one crop of rose flower per year. About the area of land under cultivation, we have already held that it was not 14.9 bighas. In the facts and circumstances of the case, we are of the opinion that agricultural income as estimated by assessing officer appears to be just and reasonable. We, therefore, set aside the order of CIT(A) and restore the order of the assessing officer. Before we part with the matter, we appreciate the assistance rendered by the DR in the matter.