Income from Mushroom Cultivation Qualifies as Agricultural Income, Exempt u/s 10(1): ITAT Dismisses Revenue’s Appeal [Read Order]

The Nagpur Bench of Income Tax Appellate Tribunal(ITAT)  dismissed the Revenue’s appeal, affirming that income from mushroom cultivation qualifies as agricultural income exempt under Section 10(1) of the Income Tax Act,1961.

The Revenue-appellant appealed against the order passed by Commissioner of Income Tax(Appeals)[CIT(A)] dated  07/12/2023, for the Assessment Year(AY) 2020–21. In this case,Sonu Monu Agro Pvt. Ltd.,respondent-assessee,filed its income tax return on March 31, 2021, declaring an income of ₹1.91 crore. The company was engaged in dal processing, cold storage, and mushroom cultivation. The case was selected for scrutiny, and a notice was issued under Section 143(2) of the Act.

Want a deeper insight into the Income Tax Bill, 2025? Click here

During assessment, the Assessing Officer (AO) noted a total turnover of ₹51.07 crore and high liabilities of ₹48.51 crore, including unsecured loans of ₹13.52 crore from directors and their families. Most loans were interest-free, though confirmations were provided.

The main issue was the claim of ₹7.25 crore as agricultural income from mushroom farming. The AO ruled that mushroom cultivation did not qualify as agricultural income since it involved factory setups, controlled conditions, and compost instead of soil. Relying on judicial precedents, the AO treated it as business income and added ₹7.25 crore to taxable income.

Penalty proceedings were also initiated, and the respondent-assessee challenged the assessment before the appellate authority.

During the appeal, before the CIT(A) the assessee argued that the assessment order was passed without properly considering the evidence. Documents, photographs, and government records were submitted to prove that mushroom farming is an agricultural activity, but the AO ignored them.

The assessee cited an ITAT Hyderabad ruling that recognized mushroom farming as agricultural, while the AO relied on an ITAT Chandigarh decision. The CIT(A) found the Hyderabad ruling more relevant, as it had already considered the Chandigarh decision.

The CIT(A) ruled that mushrooms grow in soil like other crops and qualify as agricultural produce. The addition of ₹7.25 crore as business income was deleted, and the appeal was allowed. The Revenue  later challenged this before the tribunal.

Read More: Income from Sale of White Button Mushroom Cultivated Indoors is still “Agricultural Income”, not “Business Income”: ITAT

The two member bench comprising V.Durga Rao(Judicial Member) and K.M.Roy (Accountant Member) reviewed the matter and considered the arguments and records. The main issue was whether mushroom cultivation qualified as agriculture. A Special Bench of the ITAT Hyderabad DCIT v/s Inventaa Industries Pvt. Ltd. (Earlier known as M/s. Inventaa Chemicals Ltd.), ITA no.1015/Hyd./ 2015, had already settled this matter.

How to Audit Public Charitable Trusts under the Income Tax Act Click Here

The Special bench held that.“Hence as basic operations are performed by expenditure of human skill and labour on land by the assessee, which results in the raising of the „product‟ called “Edible white button mushroom” on the land and as this product has utility for consumption, trade and commerce, the income arising from the sale of this product is agricultural income and hence exempt u/s 10(1) of the Act”.

Since the case was covered by this ruling, the tribunal upheld the CIT(A)’s order and dismissed the Revenue’s appeal.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates