RANGARAO TALASILA,MOSRA vs. INCOME TAX OFFICER ,WARD-1, NIZAMABAD

For the assessment year 2017-18, the assessee filed the return of income admitting an income of Rs.10,98,650/-. While doing so the assessee admitted pension income of Rs.3,92,045/-., income from other sources of Rs. 7,16,604/- and claimed deductions under section 80TTA of the Income Tax Act, 1961 (‘the Act’) towards interest on savings bank account of Rs.10,000/. Assessee also admitted agricultural income of Rs.31,86,221/-.

Case of the assessee, as could be culled out from the orders of the authorities below, is that he is an individual deriving income from agriculture. He also receives pension from the Education Department, Government of Telangana. He holds agricultural land of Ac. 22.36 gts. at Kosli Village and Ac. 21.15 gts. at Tadbiloli village. In addition to his own cultivation, he also cultivates the agricultural lands of his granddaughter, grand son and son in law. The agricultural produce is mainly paddy. In support of his contention as to deriving income from agriculture, the assessee submitted the account copy of M/S. Mahadan Agro, to whom the paddy was sold by him.

Learned Assessing Officer, after considering the case of the assessee, completed the assessment and passed order on 15/12/2019, making an addition of Rs.13,90,000/- towards unexplained money under section 69A of the Act, and Rs.31,86,221/-, as income from other sources.

Assessee pleaded before the learned Assessing Officer as well as the learned CIT(A) that the withdrawals made on 30/07/2016 and 31/08/2016 of Rs.9,00,000/- and Rs.5,00,000/- respectively from his bank account were redeposited into the bank account due to demonetization. Further plea of the assessee was that while filing return of income, he admitted an agricultural income of Rs.31,86,221/- and furnished all the details of the agricultural land cultivated by him.

Assessee’s grievance before us is that both the authorities below failed to consider his explanations and the material furnished by him. Learned AR submitted that though the learned CIT(A) allowed Rs. 2.5 lakhs out of the amount of Rs. 14 lakhs that was withdrawn on 30/07/2016 and 31/08/2016, there is no reason as to why it should be restricted to such amount alone. He further submitted that in his order, the learned CIT(A) referred to only Ac. 21-15 gts. land at Tadbilolo village for computing the agricultural income and gave relief in proportion of Ac. 21-15 gts. to Ac. 106-85 gts. Learned AR submitted that in the very written submissions on page No. 2, another extent of Rs. Ac. 22-36 gts. at Kosli village on the name of the assessee was also mentioned, but inadvertently, learned CIT(A) missed this extent. Learned AR submitted that there is sufficient evidence on this aspect, but the authorities below ignored the same.

Yet another point argued by the learned AR is that Meghana and Meena are the granddaughters on whose name, an extent of Ac. 21-06 gts. and Ac. 24-20 gts. stands, apart from the extents of Ac. 30-32 gts. and Ac. 30-11 gts. standing on the name of the grandson and son in law of the assessee. The deposits on the name of the assessee include the agricultural income relatable to these extents also, and while observing that such amount belonging to the other family members amounts to gift from relatives, learned CIT(A) missed the exempt gifts in view of the blood relationship between the parties.

According to him, out of the total extent of Ac. 131-01 gts. of land cultivated by the assessee, a total amount of Rs. 73.9 lakhs is derivable for both the crops and the yield for one crop would be around Rs. 74 lakhs. He brough to our notice that the ledger extract relating to the paddy sales and agricultural expenses. He submitted that when the authorities found that within a period of 3 or 4 months immediately preceding the demonetization, the assessee withdrew a sum of Rs. 14 lakhs as is evidenced by the bank accounts, there is no reason for them not to believe the assessee that the assessee deposited the said amount into the bank because of demonetization.

Per contra, learned DR placed reliance on the orders of the authorities below and submitted that the assessee failed to substantiate his claim with reference to documents, and as a matter of fact, learned CIT(A) allowed a sum of Rs. 2.5 lakhs on account of withdrawal of Rs. 14 lakhs. According to the learned DR, since the assessee failed to produce the documentary evidence, the authorities are justified in making and sustaining the addition.

We have gone through the record in the light of the submissions made on either side. In his order, learned CIT(A) noticed that in respect of the deposits made between 9th November, 2016 and January, 2017, though the assessee failed to establish any cash sales, but explained that there was a withdrawal of Rs. 9 lakhs on 30/07/2016 and a sum of Rs. 5 lakhs on 31/08/2016 kept with the assessee for the purpose of meeting any emergency, and because of demonetization, the same was deposited in the bank. Learned CIT(A) not only did not dispute the withdrawal of Rs. 7 lakhs on 30/07/2016 and Rs. 5 lakhs on 31/08/2016, but on the other hand, allowed a sum of Rs. 2.5 lakhs considering the age of the assessee and his wife. When the withdrawal and availability of Rs. 14 lakhs is not in dispute, there is no reason as to why the learned CIT(A) had chosen to accept the genuineness of the deposit of such amount only to the tune of Rs. 2.5 lakhs. According to us, there is nothing suspicious surrounding the same, and it is only under the compulsions of demonetization the assessee deposited the same and in that case, the deposit would be of the entire amount and the reason for acceptance of Rs. 2.5 lakhs equally applies to the entire amount. We believe the version of the assessee and direct the learned Assessing Officer to delete the addition so made on this score.

Insofar as the deposits of Rs. 31,86,221/-, learned Assessing Officer noticed that the assessee declared the same as agricultural income and on the ground that no receipts or bills evidencing the agricultural activity are submitted, learned Assessing Officer disallowed the same. It is pertinent to note that the learned Assessing Officer did not verify whether it is for the first time the assessee is claiming to have been deriving agricultural income for this year. It is only when the learned Assessing Officer verified that fact and found that for the first time the assessee made such a claim in this year, the learned Assessing Officer could have sought evidences as desired by him.

On the other hand, the assessee’s claim is that he is cultivating Ac. 131-01 gts. of land out of which an extent of Ac. 44-10 gts. is his own land, whereas the balance land was owned by his grand children and son in law. Learned CIT(A) considered Ac. 21-15 gts. of land at Tadbiloli village to accept the agricultural income to the tune of Rs. 6.37 lakhs, but though the assessee submitted in his written submissions, an extent of Ac. 22-36 gts. missed the attention of learned CIT(A). Apart from this, the learned CIT(A) did not dispute the assessee cultivating the land of others, but held that the income from the balance land belonging to his relatives would be exempt only in the hands of such relatives, but in the hands of the assessee it would be gift from relatives and, therefore, it will be income from other sources. On this aspect, we are in agreement with the learned AR that the learned CIT(A) missed the aspect to consider the same as exempt gift in view of the blood relationship between the parties.

There is no dispute that this case is selected for limited scrutiny under the CASS, to examine the cash deposits during the demonetization period and, therefore, the examination of agricultural income is beyond the scope of limited scrutiny. Learned CIT(A), however, on this aspect observed that since the assessee had chosen to explain the deposits during the demonetization period with reference to the agricultural proceeds, the verification of agricultural income becomes a part of limited scrutiny exercise and, therefore, the learned Assessing Officer was well within his limits to examine this aspect also.

In the preceding paragraphs, we held that the deposit of Rs. 13.9 lakhs during the demonetization period was properly explained by the assessee with reference to the withdrawals on 30/07/2016 and 31/08/2016. Learned Assessing Officer did not cause any verification of the assessee deriving agricultural income year after year, but merely on the ground that in normal circumstances where agricultural activity was pursued on a continuous basis, a farmer was given receipts for sale of the agricultural produce and bills for purchase of agricultural implements, seeds, fertilizers and pesticides etc. and for want of such receipts or bills, the claim of the assessee that such income was agricultural income was disallowed.

As against such finding of the learned Assessing Officer, the learned CIT(A) is accepting the agricultural income to the tune of Rs. 6.37 lakhs relatable to Ac. 21-15 gnts. of land at Tadbiloli village. As a matter of fact, the total extent of land on the name of the assessee was Ac. 44-10 gnts. of land whereas the learned CIT(A) missed Ac. 22-6 gnts. of land. Having regard to the totality of all these circumstances, we are of the considered opinion that the learned Assessing Officer travelled beyond the scope of limited assessment by disallowing the agricultural income.

For the reasons recorded in the foregoing paragraphs, we are of the considered opinion that the addition made by the learned Assessing Officer cannot be sustained and the same has to be directed to be deleted. We hold and direct so. Grounds of appeal are accordingly allowed.

In the result, appeal of the assessee is allowed.