We grow coffee, cure it in our own concern and also buy coffee from other planters. The Assessing Officer has applied Rule 7B and taxed forty per cent. We say Rule 7 applies. Who is right?
The Assessing Officer and the Commissioner (Appeals) were right that Rule 7B applies and the general Rule 7 does not. The Tribunal held that Rule 7 of the Income-tax Rules, 1962 provides for general agricultural income other than coffee and rubber, that Rule 7B is the specific provision for income from the manufacture of coffee, and that the assessee's case fell under Rule 7B(1A), so that forty per cent of the income is business income and sixty per cent is exempt as agricultural income. But it also held that coffee PURCHASED from other planters and processed and sold by the assessee's proprietary concern has no element of agricultural income at all and could not get the benefit of exemption, and it restored the whole issue to the Assessing Officer for the assessee to segregate the two streams.
Decided by the ITAT (Shri Prashant Maharishi, Vice-President and Shri Soundararajan K., Judicial Member (Income Tax Appellate Tribunal, 'A' Bench, Bangalore); order per Prashant Maharishi, Vice-President) on 2026-04-15, reported as ITA Nos. 1883-1885/Bang/2025; assessment years 2016-17, 2017-18 and 2020-21; date of hearing 11 March 2026; no law-report citation printed on the document. It bears on section Rule 7B, section Rule 7, section Rule 7A, section Rule 8, section 10(1), section 147, section 148, section 144B, section 143(3), section 142(1) of the Income Tax Act 1961, in Capital Gains Exemptions, Assessment & Scrutiny and Reassessment & Reopening matters.
This is the practical shape of a very common coffee-country assessment, and it cuts both ways. The rule point goes against the assessee: where a special rule covers the produce, the general Rule 7 with its market-value computation is simply not available, and an assessee who runs a Rule 7 computation on coffee will lose it. The Tribunal's arithmetic is worth copying — twenty-five per cent business and seventy-five per cent agricultural under Rule 7B(1), forty per cent business and sixty per cent agricultural under Rule 7B(1A). The segregation point cuts the other way and is where the case is won or lost on the facts: Rule 7B operates only on coffee grown by the seller, so a curer who processes both his own crop and bought-in crop must be able to identify the two lots, and the assessee's own plea that it was "not possible to determine and identify the lot which was purchased from the estate of the assessee, and which was purchased from other parties" is exactly the plea that produces a remand rather than a deletion. Note also the procedural setting: this was a reassessment under section 147 read with section 144B, opened because the assessee had shown almost the whole of a large receipt as agricultural income and returned no business income at all.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
Read aloud by your device. Press again to stop.
The assessee was an agricultural producer growing coffee and also carried on the business of purchasing and curing coffee through his proprietary concern, M/s. Mudramane Coffee Curers. The coffee he grew was transferred to that proprietary concern, which also bought coffee from other planters, and the concern sold the coffee after processing. The assessee showed no business income and claimed all the income as agricultural income. For assessment year 2016-17 the case was reopened by a notice under section 148 because the assessee had shown agricultural income of Rs 1,46,13,970 out of a total of Rs 1,57,45,860. Notices under sections 148 and 142(1) were served but no reply was received. The reason for reopening was that under Rule 7B(1A) forty per cent of the income from coffee grown, cured, roasted and grounded is deemed to be income liable to tax, so that forty per cent of the coffee production should be treated as business income; an addition of Rs 28,91,906 was made by a reassessment order dated 16 March 2022 passed under section 147 read with section 144B. The assessee contended before the Commissioner (Appeals) that Rule 7 applied because he had sold produce grown on his own land to his proprietary concern at market price, and that Rule 7B applied only where a grower sells coffee grown and cured by him, so that it was not possible to identify which lot came from his estate and which was purchased. The Commissioner (Appeals) held Rule 7B to be the specific rule and confirmed the assessment by order dated 2 July 2025. The facts of the appeals for assessment years 2017-18 and 2020-21 were similar.
The appeals were allowed for statistical purposes and the whole issue was restored to the Assessing Officer. The Tribunal held that Rule 7 provides for general agricultural income other than coffee and rubber and does not apply where the assessee deals in coffee (paragraph 14); that Rule 7B specifically provides for income from the manufacture of coffee grown and cured by the seller in a particular manner, so that the general rule under Rule 7 could not have been applied (paragraph 17); that the assessee's case falls under Rule 7B(1A), so that forty per cent of the income is business income and the assessee gets an exemption to the extent of sixty per cent as agricultural income (paragraph 18); and that income earned by processing coffee purchased from outside planters and not from the estate of the assessee has no element of agricultural income and could not get the benefit of tax exemption as agricultural income (paragraph 19). The matter was restored with a direction to the assessee to furnish details of the coffee grown on his own estate and sold by the proprietary concern, and to reconcile the income earned by the concern on the sale of coffee purchased from other planters (paragraph 20).
The Tribunal set out Rule 7B in full at paragraph 15 and read it at paragraph 16 as meaning that twenty-five per cent of the income from coffee grown and cured is deemed business income and seventy-five per cent agricultural income, and that forty per cent of the income from coffee grown, cured, roasted and grounded, with or without mixing chicory or other flavouring ingredients, is liable to tax with sixty per cent treated as agricultural income. It reasoned at paragraph 14 that since the assessee admittedly deals with coffee, growing it and carrying on activities on that product, the general Rule 7 does not apply to the facts; and at paragraph 17 that in view of the provision for determination of income from the manufacture of coffee, the general rule could not have been applied to the assessee's activity as a coffee curer and processor with a plantation in Karnataka. On the bought-in coffee it reasoned at paragraph 19 that such a transaction does not have any element of agricultural income, so that Rule 7B does not apply to it and the income from processing coffee purchased from outside planters is chargeable to tax.
Admittedly in the case of the assessee falls under rule 7B (1A) of the act. Thus, the 40% of the income in such cases would be considered as business income of the assessee and assessee will get an exemption to the extent of 60% of such income as agricultural income.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppThe Assessing Officer and the Commissioner (Appeals) were right that Rule 7B applies and the general Rule 7 does not. The Tribunal held that Rule 7 of the Income-tax Rules, 1962 provides for general agricultural income other than coffee and rubber, that Rule 7B is the specific provision for income from the manufacture of coffee, and that the assessee's case fell under Rule 7B(1A), so that forty per cent of the income is business income and sixty per cent is exempt as agricultural income. But it also held that coffee PURCHASED from other planters and processed and sold by the assessee's proprietary concern has no element of agricultural income at all and could not get the benefit of exemption, and it restored the whole issue to the Assessing Officer for the assessee to segregate the two streams. This was decided by the ITAT (Shri Prashant Maharishi, Vice-President and Shri Soundararajan K., Judicial Member (Income Tax Appellate Tribunal, 'A' Bench, Bangalore); order per Prashant Maharishi, Vice-President) and bears on section Rule 7B, section Rule 7, section Rule 7A, section Rule 8, section 10(1), section 147, section 148, section 144B, section 143(3), section 142(1) of the Income Tax Act 1961. It is reported as ITA Nos. 1883-1885/Bang/2025; assessment years 2016-17, 2017-18 and 2020-21; date of hearing 11 March 2026; no law-report citation printed on the document. This is the practical shape of a very common coffee-country assessment, and it cuts both ways. The rule point goes against the assessee: where a special rule covers the produce, the general Rule 7 with its market-value computation is simply not available, and an assessee who runs a Rule 7 computation on coffee will lose it. The Tribunal's arithmetic is worth copying — twenty-five per cent business and seventy-five per cent agricultural under Rule 7B(1), forty per cent business and sixty per cent agricultural under Rule 7B(1A). The segregation point cuts the other way and is where the case is won or lost on the facts: Rule 7B operates only on coffee grown by the seller, so a curer who processes both his own crop and bought-in crop must be able to identify the two lots, and the assessee's own plea that it was "not possible to determine and identify the lot which was purchased from the estate of the assessee, and which was purchased from other parties" is exactly the plea that produces a remand rather than a deletion. Note also the procedural setting: this was a reassessment under section 147 read with section 144B, opened because the assessee had shown almost the whole of a large receipt as agricultural income and returned no business income at all. If it applies to you, the first step is this: Where the produce is coffee, rubber or tea, apply Rule 7B, Rule 7A or Rule 8 respectively and do not argue for Rule 7; the Tribunal treated Rule 7 as the general rule displaced by the specific one.
The assessee was an agricultural producer growing coffee and also carried on the business of purchasing and curing coffee through his proprietary concern, M/s. Mudramane Coffee Curers. The coffee he grew was transferred to that proprietary concern, which also bought coffee from other planters, and the concern sold the coffee after processing. The assessee showed no business income and claimed all the income as agricultural income. For assessment year 2016-17 the case was reopened by a notice under section 148 because the assessee had shown agricultural income of Rs 1,46,13,970 out of a total of Rs 1,57,45,860. Notices under sections 148 and 142(1) were served but no reply was received. The reason for reopening was that under Rule 7B(1A) forty per cent of the income from coffee grown, cured, roasted and grounded is deemed to be income liable to tax, so that forty per cent of the coffee production should be treated as business income; an addition of Rs 28,91,906 was made by a reassessment order dated 16 March 2022 passed under section 147 read with section 144B. The assessee contended before the Commissioner (Appeals) that Rule 7 applied because he had sold produce grown on his own land to his proprietary concern at market price, and that Rule 7B applied only where a grower sells coffee grown and cured by him, so that it was not possible to identify which lot came from his estate and which was purchased. The Commissioner (Appeals) held Rule 7B to be the specific rule and confirmed the assessment by order dated 2 July 2025. The facts of the appeals for assessment years 2017-18 and 2020-21 were similar. The matter was decided on 2026-04-15 by the ITAT (Shri Prashant Maharishi, Vice-President and Shri Soundararajan K., Judicial Member (Income Tax Appellate Tribunal, 'A' Bench, Bangalore); order per Prashant Maharishi, Vice-President). On those facts the ITAT held as follows. The appeals were allowed for statistical purposes and the whole issue was restored to the Assessing Officer. The Tribunal held that Rule 7 provides for general agricultural income other than coffee and rubber and does not apply where the assessee deals in coffee (paragraph 14); that Rule 7B specifically provides for income from the manufacture of coffee grown and cured by the seller in a particular manner, so that the general rule under Rule 7 could not have been applied (paragraph 17); that the assessee's case falls under Rule 7B(1A), so that forty per cent of the income is business income and the assessee gets an exemption to the extent of sixty per cent as agricultural income (paragraph 18); and that income earned by processing coffee purchased from outside planters and not from the estate of the assessee has no element of agricultural income and could not get the benefit of tax exemption as agricultural income (paragraph 19). The matter was restored with a direction to the assessee to furnish details of the coffee grown on his own estate and sold by the proprietary concern, and to reconcile the income earned by the concern on the sale of coffee purchased from other planters (paragraph 20).
The Tribunal set out Rule 7B in full at paragraph 15 and read it at paragraph 16 as meaning that twenty-five per cent of the income from coffee grown and cured is deemed business income and seventy-five per cent agricultural income, and that forty per cent of the income from coffee grown, cured, roasted and grounded, with or without mixing chicory or other flavouring ingredients, is liable to tax with sixty per cent treated as agricultural income. It reasoned at paragraph 14 that since the assessee admittedly deals with coffee, growing it and carrying on activities on that product, the general Rule 7 does not apply to the facts; and at paragraph 17 that in view of the provision for determination of income from the manufacture of coffee, the general rule could not have been applied to the assessee's activity as a coffee curer and processor with a plantation in Karnataka. On the bought-in coffee it reasoned at paragraph 19 that such a transaction does not have any element of agricultural income, so that Rule 7B does not apply to it and the income from processing coffee purchased from outside planters is chargeable to tax. In the words reproduced by the source cited on this page: "Admittedly in the case of the assessee falls under rule 7B (1A) of the act. Thus, the 40% of the income in such cases would be considered as business income of the assessee and assessee will get an exemption to the extent of 60% of such income as agricultural income."
It was decided by the ITAT on 2026-04-15 and is reported as ITA Nos. 1883-1885/Bang/2025; assessment years 2016-17, 2017-18 and 2020-21; date of hearing 11 March 2026; no law-report citation printed on the document. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section Rule 7B, section Rule 7, section Rule 7A, section Rule 8, section 10(1), section 147, section 148, section 144B, section 143(3), section 142(1), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The appeals were allowed for statistical purposes and the whole issue was restored to the Assessing Officer. The Tribunal held that Rule 7 provides for general agricultural income other than coffee and rubber and does not apply where the assessee deals in coffee (paragraph 14); that Rule 7B specifically provides for income from the manufacture of coffee grown and cured by the seller in a particular manner, so that the general rule under Rule 7 could not have been applied (paragraph 17); that the assessee's case falls under Rule 7B(1A), so that forty per cent of the income is business income and the assessee gets an exemption to the extent of sixty per cent as agricultural income (paragraph 18); and that income earned by processing coffee purchased from outside planters and not from the estate of the assessee has no element of agricultural income and could not get the benefit of tax exemption as agricultural income (paragraph 19). The matter was restored with a direction to the assessee to furnish details of the coffee grown on his own estate and sold by the proprietary concern, and to reconcile the income earned by the concern on the sale of coffee purchased from other planters (paragraph 20). It arises in Capital Gains Exemptions, Assessment & Scrutiny and Reassessment & Reopening matters, on section Rule 7B, section Rule 7, section Rule 7A, section Rule 8, section 10(1), section 147, section 148, section 144B, section 143(3), section 142(1) of the Income Tax Act 1961, and was decided by Shri Prashant Maharishi, Vice-President and Shri Soundararajan K., Judicial Member (Income Tax Appellate Tribunal, 'A' Bench, Bangalore); order per Prashant Maharishi, Vice-President. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Decide which sub-rule of Rule 7B you are in — grown and cured (twenty-five per cent) or grown, cured, roasted and grounded (forty per cent) — and put the basis in the computation. Keep lot-wise records separating own-estate produce from coffee bought in from other planters, from the point of receipt onwards. Without them the exemption on the own-estate portion is at risk and the best outcome is a remand. Treat the entire income from processing and selling bought-in coffee as business income; the Tribunal held there is no agricultural element in it. Respond to section 142(1) notices in a reassessment. The assessment here was completed after notices were served and no reply was received, which is how the addition came to be made in the first place.
Validity check could not be completed. Validity check could not be completed. This is a Tribunal order of 15 April 2026 and I did not search for any appeal against it, for any High Court consideration of it, or for any coordinate-bench order taking a different view. It is also an order restoring the issue to the Assessing Officer, so the quantum outcome is still open. What is established on this pass is the Tribunal's own reasoning and directions, read in full from the header to the disposal, with the key paragraph confirmed on a second retrieval. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The plain indiankanoon document at /doc/171086548/ returned a model-written summary rather than raw text on this pass, so the order was read from the raw ?type=print text at a second document id for the same order, /doc/8817621/, which returned the full text from the header to the signature block. A third document id, /doc/198208975/, exists for the same order and was used for an independent sentence scan. The order runs to 23 numbered paragraphs and ends with the disposal at paragraph 23; that count was established by transcribing the whole order, not by asking. Paragraphs 11 and 12 are the submissions of the authorised representative and the departmental representative respectively and are not holdings; paragraph 15 is the text of Rule 7B; the Tribunal's own reasoning is at paragraphs 13, 14 and 16 to 20. The order carries some loose drafting — paragraph 18 reads "Admittedly in the case of the assessee falls under rule 7B (1A) of the act", and paragraph 5 sets out the reopening arithmetic in a way that does not reconcile on its face (agricultural receipts of Rs 73,84,150 out of total agricultural produce of Rs 1,46,13,917, with forty per cent of Rs 72,29,767 stated as Rs 28,91,906). I reproduce the figures as printed and do not attempt to reconcile them. Note also paragraph 4, which records the original return as filed on 22 September 2020 and assessed under section 143(3) on 7 December 2018 — an impossible sequence as printed; the assessment year is 2016-17 and the reassessment order is dated 16 March 2022. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were allowed for statistical purposes and the whole issue was restored to the Assessing Officer. The Tribunal held that Rule 7 provides for general agricultural income other than coffee and rubber and does not apply where the assessee deals in coffee (paragraph 14); that Rule 7B specifically provides for income from the manufacture of coffee grown and cured by the seller in a particular manner, so that the general rule under Rule 7 could not have been applied (paragraph 17); that the assessee's case falls under Rule 7B(1A), so that forty per cent of the income is business income and the assessee gets an exemption to the extent of sixty per cent as agricultural income (paragraph 18); and that income earned by processing coffee purchased from outside planters and not from the estate of the assessee has no element of agricultural income and could not get the benefit of tax exemption as agricultural income (paragraph 19). The matter was restored with a direction to the assessee to furnish details of the coffee grown on his own estate and sold by the proprietary concern, and to reconcile the income earned by the concern on the sale of coffee purchased from other planters (paragraph 20).
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
We charge fees for our public utility work. Does that cost us charitable status under s.2(15)?
My return was only processed under 143(1). Does that stop the department reopening it later?
How much am I actually required to disclose — and can they reopen because the officer drew the wrong conclusion?
The sanctioning authority just wrote 'yes' and signed. Is that a sanction?