RAJA RAO DEVATHA,KHAMMAM vs. ITO, WARD-1, KHAMMAM

Brief facts of the case are that the assessee is an individual. He has been deriving income from house property, business and other sources. He filed his return of income for the assessment year 2017-18 on 07/07/2017 declaring an income of Rs. 4,17,760/-. Learned Assessing Officer, however, determined the income of the assessee by order dated 01/03/2019, by making addition of Rs. 4 lakhs and Rs. 17,163/-.

Insofar as addition of Rs. 4 lakhs is concerned, the plea of the assessee before the learned Assessing Officer was that it was derived as agricultural income and also from the sale of timber of the trees that were grown on the border of his land. Learned Assessing Officer, however, did not agree with the contention of the assessee on the ground that the land of the assessee is situated in urban area; assessee is, therefore, an urban land holder and accordingly there cannot be any agricultural income nor any exemption under section 10(1) of the Act. Insofar as amount of Rs. 18,702/- is concerned, the assessee had shown it as exempt income towards his share of income in the firm. Learned Assessing Officer, however, found that the assessee had shown only Rs. 290/- and Rs. 1,249/- as his share in the partnership firms. The difference is, therefore, added to the income of the assessee as ‘income from other sources.

Assessee preferred appeal before the learned CIT(A) and submitted that he has been raising chilies and cotton on his land, showing such income as agricultural income in the income tax returns filed for the assessment year 2014-15 to 2016-17. He further stated that there were trees in his land as border which were cut and sold to one Mr. Banoth Thirupal. This fact of cutting and sale of trees could be evidenced by permission received from the office of the Tahsildar, Khammam apart from the fact that his possessing agricultural land is supported by the agricultural pass book received from Government of Telangana. Learned CIT(A) sent the documents for verification and the learned Assessing Officer submitted a remand report, which the learned CIT(A) extracted in his order. In the remand report, the learned Assessing Officer referred to the report of the Inspector, who physically inspected the land and submitted the state of things that were obtaining thereat.

Learned CIT(A) considered the remand report containing the observations of the Inspector, visited the land, but recorded that the acceptance of agricultural income in the earlier years does not ipso facto prove that the assessee had agricultural income this year also. He further observed that there is no evidence to show that assessee sold the timber to make good difference between the alleged agricultural proceeds observed by the ITO and the agricultural income declared by the assessee. Learned CIT(A), accordingly dismissed the plea of the assessee.

Insofar as the other income is concerned, learned CIT(A) allowed the appeal of the assessee and deleted the same.

It is, therefore, clear that what needs to be decided in this appeal is only the issue relating to the agricultural income. It is contended by the learned AR that the authorities below failed to notice that there is a pattern of income shown in the income tax return consistently by the assessee and to insist that the assessee must preserve the evidence of sale of agricultural produce in wiring for many years goes against the practices adopted in the sale of agricultural produce. Learned AR submitted that the learned CIT(A) failed to consider the report of the ITO in its proper perspective having regard to the ordinary course of events.

Per contra, learned DR justified the orders of the authorities below and submitted that in the absence of any evidence, they are justified in making and upholding the addition and no reliance could be placed on the same statement of the assessee.

I have gone through the record in the light of the submissions made on either side. It is pertinent to note that the learned CIT(A) accepted that the assessee has been showing agricultural income in the returns of income of earlier assessment years, the teak wood trees were planted by the assessee on the borders of land, assessee obtained permission from Tahsildar for cutting of the said trees, and the assessee was cultivating his land by harvesting chilies and cotton to derive an income of Rs. 3,32,010/- basing on the land holding of above 11 acres held by him. To this extent, learned CIT(A) accepted the facts borne out of the remand report and also the report of the ITO.

Having accepted to these facts, learned CIT(A) went on to observe that there is no evidence for sale of teak wood trees or sale of the other agricultural produce and, therefore, he does not believe the same. It is strange. When once the assessee produced the commercial crops like chilies and cotton, it is too much to expect that all the chilies and cotton grown on 11 acres of land would be kept by the assessee for his own consumption or that he has given all such produce for charity, without deriving any income what-so-ever. Above all, the assessee is an agriculturist, eking out livelihood from agricultural operations, which would be culminated by realization of the amount by sale of the harvested agricultural produce. Agriculturists are not regular business men, who would keep the books of accounts or the vouchers and bills on a professional basis.

When once the ITO held that the assessee is holding 11 acres of land, was growing chilies and cotton could have realized a sum of Rs. 3,32,100/- from it, it is not a matter to suspect that the assessee actually not received the same. While appreciating these facts, a practical approach is needed and regard being had to the common course of natural events, human conduct and public and private business, in their relation to the facts of the particular case. It would be artificial not to believe that the assessee, who had grown commercial crops on his land of 11 acres would not have sold the same to make a living.

ITO clearly observed that when he visited land, he found around 30 stems of the cut trees and remaining stems he could not observe for the reasons that since three years elapsed, due to irrigation for growing the further crops same stems must have buried, or being covered by bushes and forest trees which he found actually existing on the spot. This fact establishes that there were trees and those were cut.

Assessee produced the tree cutting permission issued by the Tahsildar, Khammam, which shows that there were 120 teak wood trees and 21 bamboo trees planted about 15 years back in the land of assessee and the assessee sought the permission to cut and to sell the same. Annexture to the permission issued by the Tahsildar along with plan shows the same. The cutting of the trees is evidenced by the observations of the ITO. Assessee produced the Aadhar Card of the person said to have purchased the wood. Out of amount of Rs. 4 lakhs claimed as the agricultural income, an amount of about Rs. 3.32 lakhs is covered by the proceeds on the sale of chilies and cotton. What remains is only about Rs. 65,000/-, which assessee claims to have realized on the sale of wood.

There is no reason to suspect the sale of wood, because the assessee obtained permission from the Tahsildar and the ITO observed that there was evidence of cutting of trees. In these circumstances, I am of the considered opinion that the assessee satisfactorily explained the agricultural income of Rs. 4 lakhs and no addition is warranted. Grounds are accordingly allowed.

In the result, appeal of the assessee is allowed.