DELHI E BENCH (THIRD MEMBER) DEPUTY WIMCO SEEDLINGS v. COMMISSIONER OF LTD. INCOME TAX December 21, 2006 JUDGMENT Order: Per K.C. Singhal, Judicial Member. - issue arising out of this appeal relates to addition of Rs. 5,84,113 on account of inflated agricultural income which was further enhanced to Rs. 16,78,905 by CIT(A). 2. assessee-company is engaged mainly in business of providing consultancy in field of agriculture, forestry plants and services provided to M/s. Wimco Ltd. under terms of agreement dated 1-9-1984. main object of assessee-company is to provide research and development facility to Wimco Ltd. However, it is also carrying on agricultural operations in field of agriculture and derives income therefrom. gross receipts during year under consideration aggregated to Rs. 1,27,46,012 which included agricultural receipts of Rs. 16,78,905. Against agricultural receipts, assessee had shown direct operational expenditure of Rs. 4,47,187. balance amount of Rs. 12,31,718 was declared as agricultural income not liable to tax. 3. In course of assessment proceedings, Assessing Officer noticed that expenses pertaining to agricultural activity for assessment year 1993-94 were to extent of Rs. 7,58,273 against agricultural receipts of Rs. 15,58,062 while for assessment year 1994-95, agricultural expenses were to extent of Rs. 4,47,187 against total receipts of Rs. 16,78,905. Thus assessee was asked to explain reasons for increase in gross receipts and abnormal decrease in agricultural expenses. In response to same, assessee furnished details of agricultural land and expenses incurred in respect of agricultural activity. Assessing Officer noted that assessee had only shown direct expenses but had not declared any direct expenses in respect of agricultural income. Therefore, assessee was again asked to show cause as to why not portion of indirect expenses may be treated on pro rata basis relating to agricultural income. explanation was furnished by assessee vide letter dated 24-1-1996 stating therein that company was incorporated primarily for carrying out research and development activity in field of agriculture. According to assessee, agricultural activities were undertaken either as inter-cropping or on land not currently being used for research and development purposes. Therefore, no indirect expenses were incurred on agricultural activities. direct expenses whenever incurred were booked as agricultural expenses. However, Assessing Officer was not satisfied with explanation of assessee. According to him, it was not correct to say that officials sitting either at Delhi or at branch office were not indirectly involved in agricultural activities. Accordingly, he estimated direct and indirect expenses as under: (Rs.) "1. Total receipts inclusive of Agr. receipts as shown by assessee 1,27,46,012 2. Gross agricultural receipts as shown by assessee 16,78,905 3. Total expenses inclusive of direct agrl. expensees 1,19,69,657 Less: Rs (i) Depreciation (being statutory deduction 2,85,025 (ii) Provision for bad debts 1,28,462 (iii) Direct business exp which may not be connected with Agri. activities at all on estimate basis 40,00,000 ------------- 4413487 ------------- 75,56,170" ------------- 4. Thus, expenses of Rs. 75,56,170 is inclusive of direct and indirect agricultural expenses as well as indirect business expenses, hence net agricultural expenses (direct and indirect) work out as below: "Agri. receipts Direct & Indirect Agri. exp. and Indirect business expenses ------------------------------------------------------------------- Gross receipts inclusive of Agri. receipts 16,78,905 75,56,170 = --------------------------- = 9,95.300." 1,27,46,012 In view of above calculation, he determined net agricultural income at Rs. 6,83,605 (Rs. 16,78,905 - Rs. 9,95,300). Since assessee had shown agricultural income of Rs. 12,31,718 he made addition of Rs. 5,48,113 towards business income (Rs. 12,31,718 - Rs. 6,83,605) . 5. matter was carried before CIT(A). In course of appellate proceedings, CIT(A) issued notice of enhancement dated 12-3-1997 for reasons given therein, copy of which is reproduced by CIT(A) in his order at internal pages 5 to 8. contents of same need not be repeated since relevant portion, whenever needed will be referred to. reply of such notice was given by assessee by its letter dated 26-3-1997, copy of which is enclosed in paper book on pages 93 to 106. relevant contents of this letter will also be referred to as and when needed. On basis of statement of Chandan Singh, employee of assessee and contents of letter of assessee dated 9-10-1996, it was observed by CIT(A) at internal page 10 of its order as under: "16.3 From above it is clear that land measuring 150 acres is being used for purposes of developing such inter-cropping. entire effect and activity of company is devoted towards such inter-cropping and it is this inter-cropping which results in output of crops such as wheat, sugarcane, etc. This output of crop is direct result of efforts put in on 150 acres land by entire R&D staff and establishment at Baghwala. 16.4 Since such inter-cropping is directly related to R&D activity of company, it is totally intertwined with those activities." Proceeding further, he noticed in para 16.7 that no evidence was available to effect that separate accounts were maintained in respect of expenditure at Chandian Farm. Further, he formed view that entire expenditure incurred on Baghwala Farm related to R&D activity as well as agricultural activity. In absence of separate accounts vis-a-vis different activity, he estimated 50 per cent of expenses attributable to agricultural activity. Accordingly he determined sum of Rs. 12,89,389 towards agricultural expenses at Baghwala, being 50 per cent of Rs. 25,78,779. 6. Regarding indirect expenses, it was noticed by him that Delhi Office expenses related to Baghwala and Chandian Farms and, therefore, he estimated 50 per cent of expenses relating to each farm. Out of same, he directed 50 per cent towards agricultural expenses in respect of Baghwala Farm. total expenses of Delhi was noted at Rs. 13,18,965 out of which Rs. 6,90,482 was treated as expenses towards Baghwala Farm. Fifty per cent of this amount was considered towards agricultural activity at Baghwala Farm. Thus indirect expenses towards agricultural activity were taken at Rs. 3,45,241. 7. In view of above, he deducted above expenses from agricultural receipts of Rs. 16,78,905. balance amount was taken at Rs. 44,274 (Rs. 16,78,905 - 12,89,389 - 3,45,241). Since, according to CIT(A), Chandan Singh was looking after entire activity of R&D and agriculture, he was of view that sum of Rs. 44,274 be also treated towards remuneration vis- a-vis agricultural activity. Hence, he determined nil income from agricultural activity. 8. learned counsel for assessee Mr. Aggarwal has vehemently assailed order of CIT(A) as well as Assessing Officer by raising various submissions. He also took us through sequence of events which took place in course of assessment as well as appellate proceedings. He also took considerable time of Bench in challenging validity of remand proceedings under section 250(4) and validity of statement of Mr. Chauhan, employee of assessee, recorded by ADI in remand proceedings. Since CIT(A) has not taken into consideration these factors, it is not necessary for us to refer to detailed arguments of learned counsel for assessee. So we will refer only to those arguments which are necessary for disposal of appeal. 9. fist contention of Mr. Aggarwal was that statement of Mr. Chandan Singh recorded by Assessing Officer cannot be considered as admissible evidence in view of Supreme Court judgment in case of Kishinchand Chaellaram v. CIT [1980] 125 ITR 713 inasmuch as his statement was recorded at back of assessee and copy of said statement has never been supplied till today. In this connection, he invited our attention to para 2 of notice of enhancement wherein it has been observed by CIT(A) that evidence proposed to be used against person has to be disclosed to him before it can be used. Further, he says that copy of statement shall be supplied to assessee at appropriate time. Despite these observations, contends Mr. Aggarwal, copy of statement of Mr. Chandan Singh has not been supplied to assessee even though such statement has been used against assessee as is apparent from para 16.1 of appellate order. He also invited our attention to letters of assessee addressed to CIT(A) dated 10-2-1997 and 5-3-1997 appearing at pages 87 and 88 of paper book to point out that repeated requests were made by assessee for supply of copy of statement. In view of these factual aspects it was contended by him that there was gross violation of principles of natural justice and, therefore, such statement cannot be admitted as evidence against assessee in view of aforesaid Supreme Court judgment. 10. second contention was that observations of CIT(A) in para 16.7 that no evidence was available regarding maintenance of separate accounts in respect of expenditure at Chandian Farm is factually wrong. It was kly submitted by him that account of expenditure relating to agricultural and non- agricultural activities were duly maintained though in same books of account and all such expenses were duly vouched. It is on this basis that full details of agricultural expenses were supplied before Assessing Officer and no defect has been pointed out in this respect. He drew our attention to page 24 of paper book which contains full details of all direct expenses relating to agricultural activity amounting to Rs. 4,47,187. 11. Proceeding further, it was submitted that there was no justification for CIT(A) for coming to conclusion that 50 per cent of expenses at Baghwala Farm related to agricultural activity and further, there was no basis for holding that 25 per cent of expenses of Delhi office were attributable to activity of agriculture at Baghwala Farm. According to him, action of CIT(A) regarding such estimation was totally arbitrary and based on surmises and conjectures. He further submitted that entire staff at Delhi was employed for business activity of assessee and no part of such expenses could be attributed to agricultural activity in absence of any material on record. To support his contention, he relied on Supreme Court judgment in case of State of Orissa v. Maharaja Shri B.P. Singh Deo [1970] 76 ITR 690. 12. Proceeding further, it was also submitted that accounts of assessee were being maintained in similar fashion right from inception and same were being accepted by department in past. According to him, rule of consistency must be continued to be followed in absence of any adverse material. If agricultural receipts could be accepted by revenue on basis of accounts maintained by it then there was no justification for not accepting expenses relating to agricultural activity. He also pointed out factual error in order of CIT(A) by stating that 150 acres farm was of Chandian Farm exclusively carrying on R&D activity and only 15 acres at Baghwala were used for agricultural activity. That is why only 10 per cent of total receipts related to agriculture. 13. He also assailed order of Assessing Officer by submitting that action of Assessing Officer in estimating direct business expenditure at Rs. 40 lakhs was arbitrary and without any basis whatsoever. Again he relied on Supreme Court decision in State of Orissa v. Maharaja Shri B.P. Singh Deo [1970] 76 ITR 690. According to him, total operation expenditure as per Schedule I of balance-sheet were Rs. 73,62,689 and if Rs. 40 lakhs related to business expenses then balance of Rs. 33,62,689 should have been considered by Assessing Officer as agricultural expenses and allowed same against agricultural receipts. If so, then why he calculated direct and indirect of expenses relating to agriculture at Rs. 9,95,300 is beyond imagination. According to him stand of Assessing Officer was contradictory. 14. It was also contended by him that unless expenditure is shown directly connected with agricultural activity, no expenditure can be apportioned merely because assessee carries on business as well as non-business activities. Reliance was placed on various decisions in CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452 (SC), CIT v. Indian Bank Ltd. [1965] 56 ITR 77 (SC), Indian Explosives Ltd. v. CIT [1984] 147 ITR 392 (Cal.), Punjab State Co-operative Supply & Marketing Federation Ltd. v. CIT [1981] 128 ITR 189 (Punj. & Har.), CIT v. Kanoria Investments (P.) Ltd. [1998] 232 ITR 7 (Cal.) and Rajasthan State Warehousing Corpn. v. CIT [2000] 242 ITR 450 (SC). 15. It was also submitted by him that agricultural receipts were of 13.17 per cent of total receipts as noted by CIT(A) in his order in para 16.17 and, therefore, even if any apportionment was required, then there was no justification for estimating expenditure attributable to agricultural activity at 50 per cent of total expenditure. 16. In view of above submissions, he also stated that action of CIT(A) was biased one. Finally, he concluded by praying that addition directed to be made by CIT(A) be quashed. 17. On other hand, ld. DR has kly relied on findings and reasonings given by CIT(A) and Assessing Officer which have already been referred to by us while narrating facts of case and, therefore, need not be repeated. 18. After considering rival submissions of parties and material placed before us, we find sufficient force in submission of ld. counsel for assessee. According to well accelerated judgment of Hon'ble Supreme Court in case of Kishinchand Chellaram (supra), no material in possession of Assessing Officer can he considered as admissible evidence unless it is confronted to assessee and its copy is supplied to assessee so that assessee may rebut such material. Admittedly, in present case, assessee had been repeatedly asking for copy of statement of Mr. Chandan Singh recorded by CIT(A) on 19-12-1996. It is apparent from letters dated 10-2-1997 and 5-3-1997 appearing at pages 87 and 88 of paper book. At this stage, it would be useful to quote para 2 of notice of enhancement issued by CIT(A) as under: "2. Kindly note that in accordance with principles of natural justice any evidence proposed to be used against person has to be disclosed to him before it can be so used. However, time and occasion when such evidence is to be disclosed is not matter to be decided by such person. copy of statement recorded will be given to you at appropriate time. However, non-furnishing of this statement to you at present does not constitute adequate reasons on your part for not attending proceedings or for not furnishing any information called for." perusal of above clearly shows that CIT(A) also recognised principle of natural justice as laid down by Hon'ble Supreme Court. Further it was specifically stated that copy of statement shall be provided at appropriate time. In reply dated 26-3-1997 in response to notice of enhancement, assessee again asked for supply of copy of statement of Chandan Singh. relevant portion of reply at internal page 5 (page 97 of paper book) is quoted as under: "Without prejudice to above, now in reply to your notice dated 12-3-1997, assessee submits that if you are not proceeding to use statement recorded by you of deponent Shri Chandan Singh then certainly to best of appellant's understanding proceeding were concluded on 19-12-1996. However, without prejudice to above, it is submitted that since on your record, statement has come, it is necessary in best interest of natural justice, said statement may be made available to assessee-company." Despite above request such statement was never made available to assessee. Surprisingly enough, such statement has not been brought on record till hearing of appeal before us. In view of above facts, we are of considered view that CIT(A) had grossly violated principle of natural justice by not supplying copy of statement of Mr. Chandan Singh. Accordingly, we further hold that such statement cannot be considered as admissible evidence in view of Supreme Court judgment in case of Kishinchand Chellaram (supra). 19. Having excluded statement of Shri Chandan Singh from consideration, only materials remaining on record are books of account and details furnished by assessee. There is no dispute that agricultural receipts were only to extent of Rs. 16,70,903 against total receipts of Rs. 1,27,46,012. If accounts of assessee can be accepted in respect of receipts, we do not find any reason for not accepting books with reference to expenditure. Page 24 of paper book shows that assessee had been maintaining record with res-pect to direct expenses relating to agricultural activity such as fertilizer, irrigation, high speed diesel, repair and maintenance, tractor expenses, wages, transportation etc. etc. According to ld. counsel for assessee, all these expenses are fully vouched and are still available. No specific defect has been found either by Assessing Officer or by CIT(A) in this regard. It is not case of department that these expenses are not vouched, as contended by assessee. Therefore, we are unable to uphold finding of CIT(A) that no separate accounts of expenses were maintained by assessee. Rather assessee has been showing such expenses in uniform manner in last ten years and such accounts were being accepted as such by Department. Therefore, there is no reason to depart from such system maintained by assessee. Consequently, books of account maintained by assessee are to be accepted. As result thereof, direct expenses attributable to agricultural activity as shown by assessee are hereby accepted. 20. Now only issue that survives for our consideration is whether there can be any apportionment of indirect expenses incurred by assessee at head office. learned counsel for assessee has cited various decisions which have already been mentioned by us in earlier paragraphs for proposition that, if both activities are part of business activity then there cannot be any apportionment, merely on ground that income from one of activity is exempt from taxation. However, new section i.e. section 14A has been inserted by Finance Act, 2001 retrospectively which provides as under: "Section 14A: For purpose of computing total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by assessee in relation to income which does not form part of total income under this Act." According to learned DR, this retrospective amendment has nullified ratio laid down by various Courts including Apex Court in this regard and, therefore, all expenses incurred, whether direct or indirect, should be apportioned between business income and non-business income. On other hand, ld. counsel for assessee has kly opposed such contention of ld. DR by arguing that according to this retrospective amendment only those expenditure would be disallowed which is in relation to income which does not form part of total income. So there must be direct connection or association between expenditure incurred and income, which is not taxable. 21. Rival submissions of parties have been considered carefully. We have gone through retrospective amendment made by Legislature by inserting section 14A. words "relation to" used by Legislature is to vital importance. word "relation" has been defined in Webster's Encyclopaedic Unabridged Dictionary as under: "To bring into or establish association, connection or relation; to have reference; to have some relation; to establish social or sympathetic relationship with person or thing." In view of above definition, we are of view that there must be some association or connection between expenditure incurred and activity of income which does not form part of total income. That means where expenditure is directly related to activity whose income is tax free then such expen-diture cannot be allowed as deduction. But this definition cannot be extended further. Therefore, in our view, head office expenses which are not directly related to agricultural operations cannot be apportioned between business activity and agricultural activity. It is apparent from facts of case that 87 per cent of income is derived from business activity. Further activity of research and development as well as activity of agriculture are part of same business. expenditure incurred at head office are primarily for carrying on business activity and they had to be incurred irrespective of agricultural operations. main object of assessee-company is research and development activity whose income is taxable. expenses at head office like rent of premises, electricity and telephone expenses, staff expenses have no direct connection with agricultural operations. remote connection is not enough for disallowing such expenses. decision of Supreme Court in case of CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452 would still be applicable to indirect expenses since section 14A, in our opinion, is restricted to direct expenses attributable to agricultural activity or any other activity whose income does not form part of total income. 22. In course of our study, we have also come across two recent decisions of Supreme Court. First is in case of Rajasthan State Warehousing Corpn. v. CIT [2000] 242 ITR 450. In that case also question was whether in computing business income, expenses relating to tax free income could be disallowed. Their Lordships, after considering earlier decision in case of Maharashtra Sugar Mills Ltd. (supra) held as under: "The following principles may be laid down: (i) if income of assessee is derived from various heads of income, he is entitled to claim deduction permissible under respective head, whether or not computation under each head results in taxable income; (ii) if income of assessee arises under any of heads of income but from different items, e.g., different house properties or different securities, etc. and income from one or more items alone is taxable whereas income from other item is exempt under Act, entire permissible expenditure in earning income from that head is deductible; and (iii) in computing 'profits and gains of business or profession' when assessee is carrying on business in various ventures and some among them yield taxable income and other do not, question of allowability of expenditure under section 37 of Income-tax Act, 1961, will depend on: (a) fulfilment of requirements of that provision, namely, that (i) expenditure should not be in nature of capital expenditure of personal expenses of assessee; (ii) it should have been laid out or expended wholly and exclusively for purposes of business or profession; and (iii) it should have been expended in previous year; and (b) on fact whether all ventures carried on by him constituted one indivisible business or not; if they do entire expenditure will be permissible deduction, but if they do not, principle of apportionment of expenditure will apply, because there will be no nexus between expenditure attributable to venture not forming integral part of business and expenditure sought to be deducted as business expenditure of assessee." perusal of above observations clearly shows that rule of apportionment would apply only where two activities under same head do not constitute one indivisible business. Since in present case, both activities are inter-connected, no apportionment can be made except in circumstances falling under section 14A. 23. other decision of Supreme Court is in case of Consolidated Coffee Ltd. v. State of Karnataka [2001] 248 ITR 432. In that case, assessment was under Karnataka Agricultural Income-tax Act, 1957. Rule 7 of Rules made thereunder provided that deduction admissible under Act shall be actual amount related to income derived from agricultural operations and proved by accounts or other evidence, where no such accounts or evidence is produced, Assessing Officer shall proceed to assess income to best of his judgment. Since books of account were maintained by assessee in manner that expenses related to agricultural income and non-agricultural income could not be identified, Assessing Officer proceeded to assess income on best judgment basis and accordingly apportioned expenses on pro rata basis. This view of Assessing Officer was upheld by appellate authority as well as High Court and Supreme Court. In our considered view, this judgment is quite distinguishable. Firstly, there is difference in scheme of two Acts. It is because of specific Rule 7 that such apportionment was upheld while under Income-tax Act, 1961, there is no such provision. On other hand, Supreme Court in two decisions mentioned above have specifically held that under section 37 of 1961 Act and section 10(2)(xv) of 1922 Act, no such apportionment is possible. Secondly, in High Court judgment in case of Consolidated Coffee Ltd. (supra) itself (at page 434), decision of Supreme Court in case of Maharashtra Sugar Mills Ltd. (supra) has been distinguished in following manner: "Shri Sarangan further relied upon decisions in CIT v. City of Ahmedabad Spg. & Mfg. Co. Ltd. [1981] 129 ITR 507 (Guj.); CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452 (SC) and CIT v. Sabarkantha Zilla Kharid Vechan Sangh Ltd. [1977] 107 ITR 447 (Guj.). In these decisions, question which fell for consideration where all were cases arising under Income-tax Act, was as to modes of bifurcation of business expenditure in relation to income from different heads and in what manner expenditure had to be apportioned head-wise and not question with which we are concerned in present case. Therefore, any principle stated therein will be of no relevance to present case and those decisions cannot be of any assistance to petitioner." Thirdly, there was finding in that case that expenditure incurred by assessee at head office were essential one and were actually laid out and incurred to derive both types of income - agricultural and non-agricultural, whereas in present case there is no such finding. On contrary, business in present case is indivisible one. Accordingly, in our view, ratio of judgment of Supreme Court in case of Consolidated Coffee Ltd. (supra) cannot be applied to present case. 24. In view of above discussion, we are unable to uphold order of CIT(A) on this issue. order of CIT(A) is, therefore, set aside on this issue and disallowance made or sustained by him is hereby deleted. 25. In result, appeal of assessee is allowed. Per R.S. Syal, Accountant Member. - I have meticulously perused draft order of my learned brother in which he has allowed assessee's claim in total by holding that indirect agricultural expenses do not fall within ambit of section 14A. I find myself unable to concur with conclusion regarding allocation of expenses to agricultural activity vis-a-vis res- tricted application of section 14A. Despite discussion I could not convince him on my line of reasoning. As such I am cons-trained to write my dissent note. Facts of case and arguments have been noted by him in paras 1 to 17 of his order, which need not be repeated. However necessary facts and submissions which have not been considered would be discussed at relevant page. 2. Very briefly facts of case are that assessee owned 165 acres of land; 150 acres at Chandian Farm and 15 acres at Baghwala. 15 acres at Baghwala were being used exclusively for Research and Development purposes, Administrative wing and Guest house etc. Field trials of nursery plantations for research purposes were carried out at Chandian Farm in around 20 acres of land by growing full-fledged trees in order to develop plants. It was done in such way that inter-cropping was possible and remaining area of 130 acres was put under agriculture. nursery was not at any fixed place in Chandian Farm but was shifted in rotation to maintain fertility of soil. It is undisputed that income in respect of nursery and R&D activity was subjected to tax whereas income from agricultural activity was claimed to be exempt. claim of assessee for agricultural income was also admitted by revenue authorities but dispute centres only on quantification of expenses for earning agricultural income. Whereas assessee deducted agricultural expenses to tune of Rs. 4,47,187, detail placed at page 24 of Paper Book from gross agricultural receipts of Rs. 16,78,905, Assessing Officer was not satisfied with manner in which net agricultural income was determined by assessee. Assessing Officer enhanced quantum of agricultural expenses to Rs. 9,95,300 on ground that assessee had not included indirect expenses of agriculture in details furnished by it. This course was adopted by Assessing Officer because assessee had not furnished necessary bifurcation of expenses as is pointed out in page 4 of assessment order. On appeal by CIT(A) called for remand report from Assessing Officer on following points:- 1. Expenditure on nursery and R&D activity which is identifiable as exclusively pertaining to such activity. 2. Expenditure debited to R&D and other heads (other than agricultural) but which is clearly identifiable as pertaining to agricultural operations. 3. When Assessing Officer required assessee to give necessary information pertaining to expenditure as desired by CIT(A), assessee refused to furnish necessary details by way of letter dated 12-3-1997 placed at page 119 of paper book on ground that no proceedings were pending before Assessing Officer for relevant assessment year and no order under section 250(4) was passed by CIT(A). Later on CIT(A) issued enhancement notice on assessee stating therein that as assessee had not furnished necessary information to Assessing Officer as desired by him for disposal of appeal, therefore, he was proceeding to draw adverse inference against assessee. In response to this notice, assessee filed reply on 26-3-1997 placed at pages 93 to 106 of paper book and also furnished details of expenses by way of Annexures A, B and C. assessee conceded before CIT(A) through its letter dated 7-11- 1996 placed at pages 83 to 86 of paper book that agricultural operations were being looked after by one Supervisor named Shri Chandan Singh to whom total salary paid was to tune of Rs. 41,091 and such salary was not included in agricultural expenses shown by it. further letter dated 26-3-1997, relevant portion at page 105 of paper book is admission that amount of salary paid to Shri Chandan Singh may also be included in agricultural expenses. learned CIT(A), taking into consideration various factors enhanced quantum of agricultural expenses equal to amount of gross agricultural receipts. 4. controversy in present appeal relates to determining quantum of expenses relatable to agricultural operations which would be deducted from gross agricultural receipts for determining net agricultural income. It was contended by learned counsel for assessee that all expenses were duly vouched and complete books of account were maintained by assessee and further as Assessing Officer had accepted gross income from agriculture, he was under obligation to accept expenses of agriculture as well. 5. It is seen from order of Assessing Officer that he had not disputed deductibility or genuineness of expenses which had been claimed by assessee. Rather attempt of Assessing Officer was to determine share of expenses in relation to agricultural activities out of common expenses so as to determine correct amount of net agricultural income. This was refused assessable because assessee had not itself shown all agricultural direct and indirect expenses separately and necessary information as called for by Assessing Officer during course of assessment proceedings was not furnished by assessee. Similarly when Assessing Officer, for purpose of sending remand report to CIT(A) required assessee to furnish necessary details of expenses, assessee refused to submit such information on ground that no proceedings were pending before him for relevant assessment year and also no order under section 250(4) was passed by CIT(A). In contrast it is obvious from notice of Assessing Officer dated 7-2-1997 placed at page 115 of paper book calling for required information, that information/details were required in connection with appellate proceeding for assessment year 1994- 95. It is not understandable as to why assessee did not furnish necessary information, when notice was very clear in its content to effect that information was required in connection with appellate proceeding for relevant assessment year. sequence of events shows that assessee had not at any stage allowed Assessing Officer to examine details of expenses so as to determine total expenses relatable to agricultural activity. At same time it is also palpable that detail of agricultural expenses submitted by assessee was not correct inasmuch as some expenses directly relatable to agriclutural operations were not finding place in such detail as is evident from assessee's admission Officer. CIT(A) to effect that salary to Shri Chandan Singh was not included in detail of agricultural expense and further fact that no indirect expenses were included by assessee in agricultural expenses. It was under these circumstances that revenue authorities proceeded to determine net agricultural income by estimating amount of agricultural expenses included in total expenses. 6. claim of assessee is that higher research officers of company were not engaged in agricultural operations in any manner and it was left for labourers to decide as to which crop should be grown in particular season. It is clear from facts that nursery was in area of 20 acres of land at Chandian Farm which was shifted in rotation from one place to another but within same farm and remaining area of 130 acres was put under agriculture. 7. It is important to bear in mind that company was mainly brought into existence, inter alia, for development of few trees species etc. and not for doing agricultural activity. Even though earning of agricultural income is one of main object of company, but in reality it is only subservient to main object of development of poplar trees. It is evident from object clause of memorandum of association and facts of case that company was doing inter-cropping. Inter-cropping has been defined in New Sporter Oxford Dictionary to mean 'Raise crop among plants of different kind'. As company was basically engaged in developing varieties of poplar trees and its simultaneous growing of wheat etc. in same field was meant at determining/studying impact of different crops on growth of poplar trees. Both activities, viz., development of different kind of trees and crops were intertwined in such way that one could not be separated from other. Senior staff, being researchers of company were obviously planning nature and pattern of crops to be grown and its timing so as to study its influence on growth of poplar trees and hence were partly involved in agricultural operations directly. lower staff being labourers were implementing plans of senior officers by ploughing, sowing and cutting etc. Although wages of labourers etc. had been included by assessee in agricultural expenses, but share of senior staff's salary relatable to agricultural activity was not so included. 8. In addition to direct agricultural expenses incurring of indirect expenses is also involved. These may include administrative expenses. simple case for such expenses is recording of transactions of agriculture in common account books. For this purpose stationery and books of account are required. Similarly services of accountant are also needed. assessee has not included share of agriculture in indirect expenses in total agricultural expenses shown at Rs. 4,47,187. 9. It is admitted position that no separate books of account in relation to agricultural activities were maintained by assessee. Rather common set of books was kept in which both transactions relating to agriculture and taxable business were recorded. From above discussion it is clear that share of agriculture in common expenses was not adequately reflected by assessee in its list of agricultural expenses. Under these circumstances it is necessary to make bifurcation of total expenses and determine amount of direct and indirect expenses relatable to agricultural activity. 10. Although my learned brother agrees in principle that direct agricultural expenses are deductible to compute net agricultural income but he has proceeded to allow assessee's claim in total by allowing deduction of only such expenses as have been declared by assessee at Rs. 4.47 lakhs from gross agricultural receipts. Assessee's admission before CIT(A) as regards non-inclusion of certain direct agricultural expenses in expenses shown by it and also share of agriculture expenses in common direct expenses, which have been claimed as deduction from taxable income in entirety have not been found to be deductable by him. Now question arises as regards deductibility of indirect agricultural expenses from gross agricultural receipts. My senior colleague while relying on meaning of word "relation" in context of section 14A has held that this section is restricted to direct expenses attributable to agricultural activity and not indirect expenses. 11. There is no dearth of case law on point that when assessee is carrying on indivisible business, one part of which is producing exempt income and other taxable part of expenses relatable to exempt source of income are deductible from taxable source of income. Hon'ble Supreme Court in case of CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452 held that entire managing agency commission was laid out for purpose of business carried on by assessee and was allowable and further effect that income from part of business was not exigible to tax under Act was not relevant circumstance. Similarly in Rajasthan State Warehousing Corpn. v. CIT [2000] 242 ITR 450 (SC) it has been held as under:- "If exempted income and taxable income are earned from one and indivisible business then apportionment of expenditure cannot be sustained. plain reading of question itself shows that it embodies 'the business of assessee being one and indivisible'. This being position, it is not open to revenue to contend that business is not one and indivisible. In view of fact that perusal of question itself discloses that income from various ventures is earned in course of one and indivisible business, impugned order upholding apportionment of expenditure and allowing deduction of only that proportion of it which is referable to taxable income; is unsustainable." 12. It is with view to nullify effect of such judgments that Finance Act, 2001 has introduced new section 14A with retrospective effect from 1-4-1962, which has been reproduced by my learned brother in his proposed order. However, I consider it expedient to note down rationale behind insertion of this section, which has been explained in Memorandum explaining provisions in Finance Bill at [2001] 248 ITR 195 (St.) as under:- "Certain incomes are not includible while computing total income as these are exempt under various provisions of Act. There have been cases where deduction have been claimed in respect of such exempt income. This in effect means that tax incentive given by way of exemptions to certain categories of income is being used to reduce, allow tax payable on non-exempt income by debiting expenses incurred to earn exempt income against taxable income. This is against basic principles of taxation whereby only net income, i.e., gross income minus expenditure, is taxed. On same analogy, exemption is also in respect of net income. Expenses incurred can be allowed only to extent they are relatable to earning of taxable income. It is proposed to insert new section 14A so as to clarify intention of Legislature since inception of Income- tax Act, 1961, that no deduction shall be made in respect of any expenditure incurred by assessee in relation to income which does not form part of total income under Income-tax Act." [Emphasis supplied] 13. bare perusal of it reveals that only those expenses can be claimed as deduction from taxable income which are incurred in relation to earning taxable income. use of expression "only to extent" in memorandum is clear indicator that only that part of expenses can be allowed as deduction which is related to earning of taxable income and no deduction can be allowed for "extent" which is ralatable to exempt source of income. purpose behind insertion of section 14A, as gathered from Memorandum, in my opinion is that when income is exempt and does not form part of total income, no expenditure whether direct or indirect in relation to that income can be claimed as deduction while computing total income of assessee, as only this interpretation would satisfy intent of section 14A as explained in Memorandum that "expenses incurred can be allowed only to extent they are relatable to earning of taxable income". To put it differently expenses which are directly related to taxable sources of income are to be allowed as deduction but expenses which are directly related to exempt sources of income are not deductible. As far as indirect expenses are concerned, such expenses are deductible one to 'extent', to which they have link or relation with taxable sources of income. 14. next question is determination of total expenses relatable to exempt source of income. Insofar as separate expenses in relation to both taxable and exempt sources are concerned, there is no difficulty in allocation. Problem may arise with reference to common expenses spent in as indivisible business whose income from one source is exempt and other is taxable. In order to comply with provisions of section 14A, it is necessary to bifurcate such common expenses in two parts, viz., relatable to exempt and taxable source of income. deduction from total income is to be allowed insofar as expenses relating to only taxable sources are concerned. There may be different yardsticks for bifurcating these common expenses. One method of distribution may be ratio of net profit from both sources, other method may be apportionment on basis of total direct costs of both sources and still another method may be apportionment on basis of gross receipts from both sources. method of distribution of common expenses would vary depending upon facts of each case. Recently Apex Court in case of Consolidated Coffee Ltd. v. State of Karnataka [2001] 248 ITR 432, in context of agricultural income, tax has approved method of apportionment of expenses on basis of gross receipts of agricultural and non-agricultural activities where account books did not clearly supply bifurcation of such expenses. This judgment, though not rendered in context of section 14A of IT Act, 1961, but has approved method of apportionment of common expenses between exempt and taxable sources of income on basis of gross receipts of these two sources. In my opinion this judgment gives guidance for adoption of method for apportioning common expenses. 15. Coming back to facts of present case it is noted that in absence of necessary details furnished before Assessing Officer, he determined total agricultural expenses by holding sum of Rs. 40 lakhs out of total direct operational cost at Rs. 73.62 lakhs as exclusively relatable to taxable income and then computed share of agriculture in common expenses on basis of gross receipts of both sources. On other hand CIT(A) determined net agricultural income at Nil. action of assessee in not furnishing necessary details of total agricultural expenses, both direct and indirect to reve-nue authorities resulted into miscarriage of justice. I am therefore, of considered opinion that order of CIT(A) deserves to be set aside and fresh adjudication is required at Assessing Officer's end. I order accordingly and direct Assessing Officer to examine books of account and other necessary material to determine net agricultural income afresh. After giving reasonable opportunity of being heard to assessee, by deducting following expenses from gross agricultural receipts shown by assesse: (i) Agricultural expenses shown by assessee at Rs. 4.47 lakhs. (ii) Other exclusive direct agricultural expenses, if any, not included in (i) above. (iii) Share of agriculture in common indirect expenses in proportion of gross receipts of agricultural and taxable business. (iv) Share of agriculture in common direct expenses in proportion of gross receipts of agricultural and taxable business. 16. It is, however, made clear that exclusive direct and indirect expenses which are relatable to taxable business income would be altogether excluded and apportionment of only those common expenses would be made which have link both with agriculture and taxable income. My view is in consonance with order of Delhi Bench of Tribunal in case of Doon Valley Distillers v. Dy. CIT [IT Appeal No. 4154 (Delhi) of 2000 passed on 13-11-2001], wherein one of issues was on similar point. No contrary decision has been brought to notice of Bench. 17. I, therefore, allow appeal for statistical purposes. REFERENCE UNDER SECTION 255(4) OF INCOME-TAX ACT, 1961 Since there is difference of opinion between Members in captioned appeal, following question is referred to Hon'ble President of Tribunal under section 255(4) of Income-tax Act, 1961: "Whether on facts and in law, Head Office expenses or any other common indirect expenses can be apportioned vis-a-vis business activity and agricultural activity carried on by assessee." THIRD MEMBER ORDER Per R.V. Easwar, Vice President. - This case has come up before me on difference of opinion between learned Members and following point of difference, as refrained by Members on 30-1-2003, has been referred to me under section 255(4) of Income-tax Act, 1961: "Whether on facts and in law, any expenditure (other than expenditure apportioned by assessee itself against agricultural receipts) incurred by assessee could be apportioned against agricultural receipts? If yes, to what extent?" 2. brief facts as can be gathered from orders passed by learned Members are as follows: 2.1 assessee is company engaged in business of providing consultancy services in field of agricultural forestry plants. services were provided to M/s. Wimco Limited in terms of agreement dated 1-9- 1984. assessee owned 150 acres of land at Chandian Farm and 15 acres at Baghwala. land at Baghwala was being exclusively used for research and development activities, administrative functions and also housed guest house. Field trials of nursery plants for research purposes were carried out at Chandian Farm in about 20 acres by growing trees in order to develop plants. It was done in such way that inter-cropping was possible. remaining 130 acres of land in Chandian was used for agricultural activity. nursery plantation carried out in 20 acres of land in Chandian were not carried out at fixed place but were shifted in rotation to maintain fertility of soil. 2.2 income from nursery and research and development activities was subjected to income-tax, whereas income from agricultural activity was claimed to be exempt. In year under consideration, gross receipts of assessee amounted to Rs. 1,27,46,012 including agricultural receipts of Rs. 16,78,905. Against agricultural receipts, assessee claimed direct expenditure of Rs. 4,47,187 and balance of Rs. 12,31,718 was claimed to be agricultural income exempt from tax. 2.3 In assessment proceedings, Assessing Officer noticed that in assessment year 1993-94, assessee had derived agricultural receipts of Rs. 15,58,062 and claimed agricultural expenses of Rs. 7,58,273 and in light of this, he considered claim for agricultural expenses of Rs. 4,47,187 against agricultural receipts of Rs. 16,78,905 to be quite low. He, therefore, called upon assessee to explain abnormal decrease in agricultural expenditure. assessee furnished details from which Assessing Officer noted that assessee had only claimed direct expenses against agricultural receipts and had not claimed any indirect expenses. He, therefore, asked assessee to explain why part of indirect expenses cannot be deducted against agricultural receipts. assessee submitted that no indirect expenses can be attributed to earning of agricultural receipts and that agricultural activities were undertaken either as inter-cropping or on land not used for research and development purposes. Assessing Officer was not convinced by assessee's explanation. He was of view that officials sitting either at Delhi (head office) or at branch office were indirectly involved in agricultural activities and expenditure incurred on them will have to be treated as indirect or common expenditure, part of which has to be apportioned to agricultural activity (receipts). He accordingly reworked expenses, both direct and indirect, relating to agricultural activities at Rs. 9,95,300 and after setting of same against agricultural receipts of Rs. 16,78,905 determined net agricultural income at Rs. 6,83,605. How this figure has been arrived at has been explained in paragraphs 3 and 4 of order of ld. JM. As assessee had shown net agricultural income of Rs. 12,31,718, this resulted in addition of Rs. 5,48,113 to business income of assessee, figure being difference between net agricultural income of Rs. 12,31,718 shown by assessee and Rs. 6,83,605 determined by Assessing Officer. 2.4 assessee carried matter in appeal before CIT (Appeals) who issued notice of enhancement proposing to enhance addition by reducing agricultural expenses to be adjusted against agricultural receipts. basis of enhancement notice issued by CIT (Appeals) was view taken by him that entire research and development staff and establishment at Baghwala did put in efforts in relation to inter-cropping carried out in 150 acres in Baghwala and, therefore, part of expenditure on staff of R&D and establishment has to be adjusted against agricultural receipts. He further found that there was no evidence to effect that separate accounts were maintained in respect of expenditure at Chandian Farm and that entire expenditure incurred at Baghwala Farm related both to R&D as well as agricultural activity. In absence of separate accounts, he estimated 50 per cent of expenses to be attributable to agricultural activity. expenses incurred at Baghwala were Rs. 25,78,779 and 50 per cent thereof amounting to Rs. 12,89,389 was estimated to be expenses attributable to agricultural receipts. This was with regard to direct expenses. With regard to indirect expenses, he adopted following procedure. He noticed that Delhi office expenses related both to Chandian and Baghwala. He estimated 50 per cent of expenses to each farm. Out of this, he directed 50 per cent as attributable to agricultural expenses in Baghwala Farm, or in other words, 25 per cent of aggregate of expenses incurred in Chandian and Baghwala. This amounted to Rs. 3,45,241. CIT (Appeals), therefore, reworked net agricultural income as follows: Total agricultural receipts Rs. 16,78,905 Less: Direct agricultural expenses at Baghwala Rs. 12,89,389 Indirect expenses at Baghwala Rs. 3,45,241 Rs. 16,34,630 ---------------- ---------------------------------------------------------------------- -------------- Balance agricultural income Rs. 44,274 ------------------------------------------------------------------------------------ CIT (Appeals) also held that one Chandan Singh was looking after R&D activity relating to agriculture and, therefore, aforesaid amount of Rs. 44,274 may be treated at remuneration to him for looking after agricultural activity. CIT (Appeals) ultimately held that net agricultural income was Rs. nil. Thus, CIT (Appeals) held that agricultural expenses, both direct and indirect, off set entire agricultural receipts. 2.5 In further appeal taken by assessee before Tribunal, learned JM referred to section 14A of Income-tax Act and held that having regard to language employed therein, there must be some association or connection between expenditure incurred and income earning activity and that if there is any direct expenditure incurred to earn tax free income then such expenditure cannot be allowed as deduction, but scope of section cannot be extended to hold that head office expenses which are not directly related to agricultural operations can be apportioned between agricultural activity and business activity. He noted that activities of agriculture and research and development are part of same business and that expenditure incurred at head office was primarily for carrying on business and had to be incurred irrespective of agricultural operations. He noted that expenses at head office, such as, rent of premises, electricity and telephone, staff expenses etc. are not connected with agricultural operations and for purpose of section 14A any remote or indirect connection with tax free income is not sufficient to bring it under section. learned JM took view that section 14A is restricted to direct expenses attributable to agricultural activity or any other activity giving rise to tax free income. After referring to judgments of Supreme Court in cases of CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452, Rajasthan State Warehousing Corpn. v. CIT [2000] 242 ITR 450 and Consolidated Coffee Ltd. v. State of Karnataka [2001] 248 ITR 432, learned JM took view that rule of apportionment would apply only where activities under same head do not constitute one indivisible business and since business in present case is indivisible, no apportionment of expenses can be made between agricultural and non- agricultural activities. In this view of matter, learned JM set aside order of CIT (Appeals) and allowed assessee's appeal. 2.6 On other hand, learned AM, who did not dispute factual position adverted to by learned JM, took view that proposition that where assessee is carrying on several activities which amounted to single indivisible business expenditure incurred by him cannot be apportioned against different activities as held by judgments cited above has been nullified by insertion of section 14A by Finance Act, 2001, with retrospective effect from 1-4-1962. He referred to Memorandum explaining provisions of Finance Bill (248 ITR St. 195) and observed that Memorandum made it clear that only that part of expenses can be allowed as deduction which is related to earning of taxable income and no deduction can be allowed to extent expenditure is related to exempt income. He concluded that when income is exempt, no expenditure whether direct or indirect, in relation to that income can be allowed as deduction and only such interpretation would satisfy purpose of section 14A as explained in Memorandum. He summed up position by saying that direct expenditure relating to exempt sources of income cannot be allowed as deduction and so far as indirect expenses are concerned they were deductible only to extent to which they have linked or relation with taxable sources of income. Recognising difficulty in apportioning common expenses incurred in indivisible business which is partly taxable and partly tax free, learned AM observed that in light of section 14A, it is necessary to bifurcate such common expenses on basis of some yardstick. He referred to few of such yardsticks or methods, such as, ratio of net profit from both sources or ratio of direct costs or expenses of both sources or basis of gross receipts from both sources. He referred to judgment in case of Consolidated Coffee Ltd. (supra) in which apportionment of common expenses on basis of gross receipts of agricultural and non-agricultural activities was applied. Having thus approved in principle stand of departmental authorities, learned AM found that necessary details were absent. He, therefore, set aside order of CIT (Appeals) for fresh adjudication by Assessing Officer, directing Assessing Officer to examine books of account and other necessary material to determine net agricultural income afresh after giving reasonable opportunity of being heard to assessee. He gave certain guidelines to Assessing Officer and allowed appeal of assessee for statistical purposes. 3. It is in above background that point of difference has been referred to me for decision. 4. I have heard rival submissions. There was some preliminary discussion as to framing of point of difference. apprehension was that question closes option of sending back case to Assessing Officer which was course adopted by learned AM. learned counsel for assessee, however, submitted that it is not necessary to reframe question and given limited jurisdiction of Third Member, he can only agree with one of two differing Members and having regard to this broad framework, option of sending matter back to Assessing Officer, as was done by learned AM is still available to Third Member if he agrees with learned AM. On consideration of matter, I am of opinion that learned counsel for assessee is right in his submission and even though language in which question is couched seems to justify possible apprehension still having regard to jurisdiction of Third Member, option of sending back case to Assessing Officer as has been done by learned AM is still available if Third Member agrees with learned AM. I, therefore, do not see any need to reframe question. 5. So far merits of decision are concerned, there is no dispute regarding facts found by learned Members who heard matter. While learned counsel for assessee has put forth his submissions before me on basis of decision of learned JM, learned CIT-DR has kly commanded for acceptance order of learned AM. He has further contended that learned JM was wrong in saying that indirect expenses cannot be disallowed under section 14A. 6. In my view, order of learned JM is to be preferred. On construction of section 14A, I am inclined to agree with learned JM that only expenditure which has been proved to have been incurred in relation to earning of tax free income, can be disallowed and section cannot be extended to disallow even expenditure which is assumed to have been incurred for purpose of earning tax free income. word 'incurred' refers to factual spending of expenditure in relation to exempt income and does not refer to deemed spending or assumed spending for purpose. learned AM has referred to Memorandum explaining Finance Bill, 2001. His conclusion is that section has been introduced to nullify certain decisions of Supreme Court (cited supra). proposition laid down in those decisions is that where there is both activity which brings in taxable income and activity which brings in tax free income and both activities constitute indivisible business, then expenditure incurred by assessee for purposes of indivisible business cannot be artificially broken up to identify and disallow expenditure which is supposed to have been incurred for purpose of earning exempted income. It was this proposition that is sought to be nullified by section 14A as rightly held by learned AM. However, while applying section there is no authority conferred by section upon Assessing Officer to deem or assume certain expenditure to have been incurred in relation to tax free income. Common expenditure incurred at head office cannot be broken up artificially to attribute or apportion part thereof to earning of tax free income on assumption that such part of common expenditure was incurred in relation to tax free income. Not only incurring of expenditure but also its relationship to exempted income must be clear and must be capable of being ascertained on face of it without involving any further mental exercise. burden would seem to be on Assessing Officer to not only show that some expenditure was factually incurred but also to show its relationship with income exempt from tax. section may have nullified judgments of Supreme Court cited above but only to extent that even in indivisible business consisting partly of taxable activities and partly of tax free activities, it is open to Assessing Officer to identify expenditure, if any, incurred in relation to earning of non-taxable income and disallow same. But section cannot be taken beyond that and every item of expenditure which has no apparent connection or nexus with earning of tax free income cannot be in part be attributed on some yardstick, whatever may be sanctity behind such yardstick, to earning of tax free income. For such assumption or deeming, there is no authority given in section as it stood for year under appeal. conclusion of learned JM, with which I respectfully agree, seems fortified by amendment made to section 14A by Finance Act, 2006, with effect from 1-4-2007 by introducing following sub-sections: "(2) Assessing Officer shall determine amount of expenditure incurred in relation to such income which does not form part of total income under this Act in accordance with such method as may be prescribed, if Assessing Officer, having regard to accounts of assessee, is not satisfied with correctness of claim of assessee in respect of such expenditure in relation to income which does not form part of total income under this Act. (3) provisions of sub-section (2) shall also apply in relation to case where assessee claims that no expenditure has been incurred by him in relation to income which does not form part total income under this Act." It is by above sub-sections which come into force from assessment year 2007-08 onwards that authority is given to Assessing Officer to determine, on basis prescribed, amount of expenditure incurred in relation to income which is exempt from income-tax. Even here Assessing Officer has to first record finding that he is not satisfied with correctness of assessee's claim regarding such expenditure. Sub-section (3) clinches position by saying that Assessing Officer can determine amount of expenditure incurred in relation to exempted income on prescribed basis even where assessee claims that no such expenditure was incurred by him as matter of fact. 7. In light of above position, which is also view taken by learned JM albeit without reference to sub-sections (2) and (3) of section 14A inserted with effect from 1-4-2007, I will now proceed to examine facts of present case. At page 24 of paper book, assessee has placed details of total agricultural expenses. reference to this is found in paragraph 10 of order of learned JM. total expenses on agricultural activities carried out in Chandian Farm has already been noticed to be Rs. 4,47,187. Details of this figure are available in page 24 of paper book. It is not clear, in light of above details furnished by assessee, as to how learned AM says that necessary details were not furnished before Assessing Officer (para 15 of his order). entire case appears to have proceeded on basis of view taken by income-tax authorities that indirect or common expenses have to be apportioned to activity of earning income exempt from tax. In paragraph 17 of order of JM, he has held that statement of Chandan Singh cannot be admitted in evidence since it was not put to assessee for rebuttal. statement of Chandan Singh assumes importance since it has been relied on by income-tax authorities for purpose of holding that since he was looking after entire R&D and agriculture, his salary must be treated as expenditure incurred in relation to agricultural income. statement was recorded by Assessing Officer from Chandan Singh in which he is alleged to have said that he was looking after agricultural activities in Chandian Farm. statement has been relied on by CIT(Appeals) to apportion Chandan Singh's salary against agricultural receipts. assessee has been asking for copy of statement of Chandan Singh but it was never given. learned JM has recorded finding in paragraph 17 of his order that neither Assessing Officer nor CIT (Appeals) gave copy of statement to assessee. He has also observed that even though CIT (Appeals) issued notice of enhancement he did not deem it fit to give copy of statement to assessee despite assessee's request. learned JM also expressed surprise that statement was not brought on record till hearing of appeal. He has, therefore, excluded statement from evidence relying on judgment of Supreme Court in case of Kishinchand Chellaram v. CIT [1980] 125 ITR 713. In this case, it was held that where statement of person which is relied upon for making addition is not supplied to assessee despite request, statement cannot be admitted in evidence. In present case, learned JM has, applying aforesaid judgment, excluded statement of Chandan Singh from consideration. In absence of any material to show that statement was put to assessee, conclusion of learned JM must be upheld and I do so. 8. learned CIT DR submitted that page 24 of paper book in which details of agricultural expenditure have been given before Assessing Officer is not sacrosanct and pointed out that Chandan Singh's salary which is claimed to be exclusively for agricultural activities does not find place there. I think there is some confusion here. It is view of CIT (Appeals) that Chandan Singh was looking after entire R&D and agriculture activity and, therefore, his remuneration should be deducted from agricultural receipts. This view is based on assessee's claim before CIT (Appeals), made for first time, that agricultural operations were being supervised and managed by Chandan Singh. However, since statement of Chandan Singh is not to be admitted in evidence, view taken by CIT (Appeals), even though based on claim made by assessee that Chandan Singh was directly looking after agricultural activity and his remuneration should be adjusted against agricultural receipt cannot be upheld as has been decided by learned JM. 9. It now remains for me to consider whether there is any other evidence to show that assessee incurred any expenditure in relation to earning of exempted income. assessee has produced all details of expenses before Assessing Officer and I am unable to uphold finding of learned AM that assessee did not furnish necessary details of total agricultural expenses both direct and indirect to revenue authorities. entire evidence which is submitted before Assessing Officer has been compiled at pages 4 to 72 of paper book. further finding that details of agricultural expenses filed by assessee were not correct because salary of Chandan Singh did not find place, there cannot also be upheld because details of agricultural expenses themselves did not include salary paid to Chandan Singh. Therefore, what has been contended by assessee for first time before CIT (Appeals) is contrary to position exhibited by accounts. In this light also, CIT (Appeals) is not justified in basing his finding merely on claim of assessee, unsupported by accounts, that salary paid to Chandan Singh was related to agricultural operations. statement allegedly made by Chandan Singh to contrary has been rightly excluded from evidence on ground of violation of rules of natural justice. result is that there is no evidence, either in accounts or by way of statement made by Chandan Singh, to show that his salary was directly related to agricultural activities. 10. Since all details and evidence relevant to controversy have already been produced before and examined by Assessing Officer as well as CIT (Appeals), no useful purpose will be served by restoring matter to Assessing Officer merely for purpose of finding out whether any part of indirect or common expenses can be apportioned against agricultural receipts on some basis - on basis of gross receipts or ratio of direct expenditure or ratio of net profit. In fact, since I have agreed with conclusion and decision of learned JM, both in law and on facts, question of restoring matter with such directions as have been issued by learned AM does not arise. 11. My answer to point of difference referred to me is that no expenditure, other than expenditure apportioned by assessee itself against agricultural receipts, incurred by assessee could be apportioned against agricultural receipts. Since my answer is in negative, there is no need to answer further question as to what extent can such apportionment be made. 12. case will now go before Bench which heard appeal for passing orders in conformity with majority. ORDER PER DEEPAK R. SHAH, ACCOUNTANT MEMBER. - ON DIFFERENCE OF OPINION AMONGST MEMBERS, WHO ORIGINALLY HEARD THIS APPEAL FILED BY ASSESSEE, PRESIDENT, INCOME-TAX APPELLATE TRIBUNAL, REFERRED FOLLOWING QUESTION FOR OPINION OF THIRD MEMBER: "Whether on facts and in law, any expenditure (other than expenditure apportioned by assessee itself against agricultural receipts) incurred by assessee could be apportioned against agricultural receipts? If yes, to what extent?" 2. Hon'ble Vice President sitting as Third Member has concurred with view expressed by Judicial Member. In consonance with majority view, appeal of assessee is allowed.