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Income Tax Appellate Tribunal, “ SMC ” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED & MS. MADHUMITA ROY
आदेश / O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeals have been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)–II, Baroda [CIT(A) in short] vide appeal no.CAB/II-300/10-11 dated 02/08/2013 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961(hereinafter referred to as "the Act") dated 24/12/2010 relevant to Assessment Year (AY) 2008-09.
First, we take up the assessee’s appeal in ITA No.2660/Ahd/2013.
ITA Nos.2660/Ahd/2013 & 2759/Ahd/2014 Pramilaben Natvarbhai Patel vs. ITO Asst.Year - 2008-09 - 2 - 3. The assessee has raised the following grounds of appeal:-
1.0 1 On the facts and circumstances of your appellant case and in law, the ld. CIT(A) has erred in confirming view of ld. Assessing Officer of treating Rs.2,75,640/- as income from Undisclosed Sources as against Agricultural income.
1.02. While doing so, ld. CIT(A) has erred in confirming view of ld. Assessing Officer that to earn agricultural income, the appellant must not only own the land but also carry out the agricultural activities right from sowing of seed to cutting of harvest and selling the same into market on her own.
2.01 On the facts ad circumstances of your appellant’s case as well as in law, the ld. CIT(A) erred in not appreciating that nature of income does not change based on factors surrounding to it irrespective of fact whether person earning agricultural income is agriculturist or not.
The only issue raised by the assessee is that the Ld. CIT(A) erred in treating the agriculture income of Rs. 2,75,640/- as income from undisclosed sources.
Briefly stated facts are that the assessee is an individual and declared income under the heads “house property” and “other sources.” The agricultural income was also declared which was claimed as exempt from tax. However, the Assessing Officer found that the assessee is not the owner of the land in respect of which she derived the agricultural income. As such, the land belonged to the daughters of the assessee namely Jyotiben N. Patel and Sonalben N. Patel. The assessee claimed to have taken such land on rental basis from her daughter but the
ITA Nos.2660/Ahd/2013 & 2759/Ahd/2014 Pramilaben Natvarbhai Patel vs. ITO Asst.Year - 2008-09 - 3 - Assessing Officer found that the rent agreement not signed by the assessee.
5.1. The Assessing Officer to verify the genuineness of the agricultural income deputed the Inspector of the Income-tax to make spot inquiries. The Inspector of income-tax in turn submitted that one of the laborer/worker namely Shri Kantibhai submitted that the agricultural activities and the payment to the staff are carried out by Shri Natvarbhai but who is the husband of the assessee. As such, Shri Natvarbhai Patel uses to give instruction for all kinds of work and use to make necessary payments either in his individual capacity or through the Accountant.
5.2. The name of the assessee was not appearing as agriculturists in the extract of the Form No.7/12 in respect of the impugned agricultural land filed by the assessee. As such, the name of Smt. Jyotiben and Natvarbhai along with others were appearing in the extract of Form No.7/12.
5.3 The assessee in the statement recorded u/s 131(1) of the Act failed to provide the details of the agricultural activity carried out by her. As such, the Assessing Officer found that there was no active role of the assessee in the agricultural activities.
5.4. On a question by the Assessing Officer, on his observations as discussed above, the assessee submitted that the ownership of the land is not necessary to carry out the agricultural activity. As such, the nature of the activity performed defines the agricultural income and the ownership of land for the agricultural income has nothing to do. As per the
ITA Nos.2660/Ahd/2013 & 2759/Ahd/2014 Pramilaben Natvarbhai Patel vs. ITO Asst.Year - 2008-09 - 4 - definition given u/s 2(1A) of the act, the agricultural income should be derived from land situated in India. Thus, the ownership of the land is not required under the said provisions of the Act. It is not necessary that the assessee should actively participate in agricultural activity. As such, the agricultural activity is carried out through the involvement of the laborers. The businessman is not supposed to look after every activity of the business rather it delegates’ supervisory function to the managers.
5.4. The assessee in support of his claim also submitted various documents including the confirmation of the party to whom the agricultural produce was sold, bank statement, etc. The assessee also claimed to have declared its agricultural income in the earlier and subsequent assessment years, and its income from the source of agricultural activity was not disturbed.
5.5. However, the Assessing Officer disregarded the contention of the assessee by observing that she does not know anything about the farming. The assessee must know about the activity carried on the agricultural land. The assessee being the owner of agricultural activity must know about the details of the crops, expenses incurred and sales of agricultural produce. The Assessing Officer also noted that the assessee did not sign the copy of the land agreement. The name of the assessee was also not appearing s agriculturist in the extract of Form No.7/12.
5.6. The Assessing Officer also found that the husband and the son of the assessee were engaged in the tobacco business. Therefore, the
ITA Nos.2660/Ahd/2013 & 2759/Ahd/2014 Pramilaben Natvarbhai Patel vs. ITO Asst.Year - 2008-09 - 5 - Assessing Officer was having apprehension that the income from the tobacco business has been diverted in the hands of the assessee in the form of agricultural income. The Assessing Officer also observed that the issue in the AY 2004-05 concerned excess production claimed by the assessee in her income-tax return. Therefore, no reference can be made to the order of the ITAT pertaining to the AY 2004-05.
5.7. In view of the above, the Assessing Officer treated the agricultural income as income from undisclosed sources and added to the total income of the assessee.
The aggrieved assessee preferred an appeal before the Ld. CIT(A).
The assessee before the Ld. CIT(A) submitted that she had filed the necessary details in support of her agricultural income. These details include the confirmation of sales, expenses claimed for agricultural activity and bank statements.
7.1. The agricultural income cannot be treated as income from “undisclosed sources” merely on the statement recorded u/s 131 of the Act. The non-appearing of the assessee’s name as an agriculturist in the form No.7/12 does not prove that the assessee cannot have agricultural income. However, the Ld. CIT(A) disregarded the contention of the assessee by observing that the assessee has not filed the agricultural receipt as well as expenses such as seed, fertilizers pesticides, and transportation expenses before him. The Ld. CIT(A) also observed that
ITA Nos.2660/Ahd/2013 & 2759/Ahd/2014 Pramilaben Natvarbhai Patel vs. ITO Asst.Year - 2008-09 - 6 - all the family members of the assessee carrying out the activity other than the agricultural activity which strongly indicates that the assessee is not doing any agricultural activity. Therefore, the Ld. CIT(A) confirmed the order of the Assessing Officer.
Being aggrieved by the order of the Ld. CIT(A) now the assessee is in appeal before us.
The Ld.AR before us filed paper-book running from pages 1 to 35 and submitted as under:-
“Assessee has earned agricultural income out of agricultural land owned by her daughters namely Jyotiben N. Patel and Sonalben M. Patel (Pg.2 of Asst. Order). Area of such agricultural land is around 6 hectres as is evident from 7/12 extract placed at Annexure A to the Assessment Order. Assessee has taken such agricultural1 land on rental basis from daughters and assessee's husband and son are carrying out agricultural activities on behalf of assessee consequent to which assessee has earned agricultural income as is evident from assessee's statement recorded by AO and placed at Annexure B to the Assessment Order. Assessee has placed before AO details such as sales bills towards sale of agricultural produce, confirmations form persons to whom agricultural produce was sold, necessary documents towards agricultural expenditure, documents in respect of ownership of agricultural land owned by daughters of assessee, bank accounts and such other details in order to prove that income earned by assessee was agricultural income (Pgs.4-5 of CIT(A)'s order). AO and CIT(A) got carried away by certain facts such as assessee was not the owner of concerned agricultural land, assessee did not herself carry out the agricultural activities, assessee did not know about agricultural activities, etc. AO failed to appreciate that in order to claim that given income is agricultural income, what is important is that such income is derived from agricultural land in India. It is neither essential to own such agricultural land, nor is it essential for an assessee to carry out agricultural activities on his/her own. Reliance is
ITA Nos.2660/Ahd/2013 & 2759/Ahd/2014 Pramilaben Natvarbhai Patel vs. ITO Asst.Year - 2008-09 - 7 - placed on "ITO vs. Gajanan Agro Farm - (2013) 33 taxmann.com 149 (Pune - Trib)" (Annexure "A"). AO and CIT(A) failed to appreciate that assessee has been earning agricultural income since AY 2001-02. Thus, as per principles of consistency, AO ought to have accepted agricultural income during the year under consideration as well. Further, neither AO nor CIT(A) has brought any material on records which could prove that assessee had any source of income other than agriculture from which he could have earned the concerned income. If a person has earns only agricultural income, then no addition can be made to the total income unless AO or CIT(A) proves that an assessee has any other source of income which is taxable under the Act. On this count as well, impugned addition doesn't hold any water. In light of the above stated factual backdrop, it transpires that the impugned addition has been made purely on the basis of presumption, surmises and conjectures. Hence, such addition is not tenable in the eye of law. In light of the above, the impugned be deleted and agricultural income declared by the assessee may be accepted as it is.”
On the other hand, Ld. DR submitted that the agricultural activity carried out by the assessee is doubtful as she has not submitted necessary details such as labor expenses, seed expenses, and fertilizer expenses. Therefore, the same cannot be treated as agricultural income. The Ld. DR vehemently supported the orders of the authorities below.
We have heard the rival contention and perused the materials available on record. The issue in the instant case relates to the income offered by the assessee as agricultural income, but the AO treated the
ITA Nos.2660/Ahd/2013 & 2759/Ahd/2014 Pramilaben Natvarbhai Patel vs. ITO Asst.Year - 2008-09 - 8 - same as income from other sources. The statement under section 131 of the Act of the assessee was recorded wherein the assessee could not provide the details of the agricultural activity and the nature of crop produced on such land. Besides the rent agreement in respect of agricultural land was not signed by the assessee. The name of the assessee was not shown as an agriculturist in the records of the land.
The Ld CIT-A subsequently confirmed the view taken by the assessing officer. The reason for treating the agriculture income shown by the assessee as income from other sources has already been explained in the order of the Ld. CIT(A).
Now the controversy arises for our adjudication whether the income shown by the assessee under the head agriculture represents the income from other sources in the given facts and circumstances.
12.1. In this regard, we note that the assessee nowhere in the statement recorded under section 131 of the Act, denied to have not carried out any agricultural activity. Even in the spot inquiries made by the inspector of the income tax revealed that the agricultural activities were carried out with the assistance of the husband of the assessee. As such there was no adverse information regarding the claim of the assessee for the activities carried out on the agricultural land. Thus non-awareness of the activities and crop produced on such land cannot the basis to conclude that the income declared by the assessee is from undisclosed sources. Similarly, non-active participation in the agricultural activities by the assessee
ITA Nos.2660/Ahd/2013 & 2759/Ahd/2014 Pramilaben Natvarbhai Patel vs. ITO Asst.Year - 2008-09 - 9 - cannot adversely affect the assessee. It was revealed that the husband of the assessee was regularly visiting to check the crops and ensuring the payment for such agricultural activities.
The assessee before the AO has furnished the necessary details showing the agricultural expenses and income along with bank statement and confirmation from the party to whom the products were sold. The submission of the assessee before the AO is extracted below:
“3.02 Your assessee further submits that during the year under consideration, your assessee submitted vide submission dated 21st June, 2010 all the documents like confirmation in respect of sale made to M/s.Vallabh Tobocco Co, bank book for sale proceeds received for the Agricultural Income as well as documents relating to agricultural expenses vide submission dated 29th June, 2010. It was also contented that all the receipts are through cheques only and through proper banking channel only. Now, if you have any doubt about the genuineness of the activities of your assessee then you can always cross verify with the said persons to establish that the income is not agricultural income in nature.”
13.1. Thus, the allegation of the Ld. CIT(A) that the assessee has not furnished the details of the expenses and receipts from the operation of agricultural activities does not hold good. In case of any doubt by the Ld. CIT(A) then he should have called assessment records from the office of the AO. Thus the addition cannot be sustained in the hands of the assessee merely on the ground that the assessee has failed to furnish the requisite details showing the income and expense from the agricultural activities.
ITA Nos.2660/Ahd/2013 & 2759/Ahd/2014 Pramilaben Natvarbhai Patel vs. ITO Asst.Year - 2008-09 - 10 -
13.2. The necessary details of the party to whom the assessee sold the agricultural produce were available with the AO. Thus in case of any doubt, the lower authorities should have verified the same from the party by issuing notice under section 131/133(6) of the Act. But the authorities below have not exercised their powers by taking the confirmation from the parties.
13.3. It is a fact on records that the assessee was not the owner of the land. Therefore the name of the assessee was not shown in the records in form 7/2 as an agriculturist. In this regard, we are of the view that there was no reason to record the name of the assessee in the records as agriculturist because she was not the owner of the land. To our mind, it is not necessary to carry out the agricultural operations for the assessee to be an agriculturist.
13.4. Similarly, we also note that it is not necessary to own the agricultural land for carrying out the agricultural operations. The provisions of section 2(1A) require that the income should be derived from the agricultural activities on land situated in India. In this regard, we find support and guidance from the order of the Hon’ble ITAT bench of Pune in case of ITO Vs. Gajanan Agro Farms reported in 33 taxmann.com 149 wherein it was held as under:
“A plain reading of section 2(1A) makes it clear that all that is necessary that revenue should be derived from a land situated in India and which is used for agricultural purposes. This section does not specify that revenue has to be
ITA Nos.2660/Ahd/2013 & 2759/Ahd/2014 Pramilaben Natvarbhai Patel vs. ITO Asst.Year - 2008-09 - 11 - derived by the owner of the agricultural land only. The term 'revenue', therefore, implies some yield or some income from agricultural operations. Sub-clause (ii) and (iii) also use the terms 'cultivator' and 'receiver of rent-in- kind'. These terms also appear in clause (c) of section 2(1A). Thus, it can be inferred that agricultural income can also be derived by person who is a cultivator or who is the owner of land. It is only the receiver of rent-in-kind who can directly be held to be the owner of land as referred to in this section.”
13.5. There is no dispute that the assessee did not sign the rent agreement. But we find that this is a procedural mistake which cannot be used as the basis to decide the issue against the assessee. The AO should have taken the confirmation from the landlord whether she has received rental income from the assessee. Besides, it should have also verified from the financial statement of the assessee whether any rent expense has been claimed therein and also confirm from the receiver for the same.
13.6. The income shown by the family members of the assessee cannot have any link with the agriculture income shown by the assessee. In case the Revenue had any doubt that the family members have diverted their taxable income as agriculture income in the hands of the assessee to escape from the tax liability, then it should bring tangible material on record. Thus in our considered view, the allegation of the Revenue is based on its surmise and conjecture. It is a fact on record the activities carried out by the assessee on the agricultural land has nowhere been doubted/ challenge by the Revenue.
13.7. We also note that the assessee has been claiming such agriculture income consistently for the last several years which was accepted by the
ITA Nos.2660/Ahd/2013 & 2759/Ahd/2014 Pramilaben Natvarbhai Patel vs. ITO Asst.Year - 2008-09 - 12 - Revenue. Therefore in our considered view, the same cannot be disturbed in the year under consideration until and unless some supporting evidence are brought on record against the claim of the assessee.
13.8. In view of the above, we are not impressed with the finding of the lower authorities. Accordingly, we reverse the order of the lower authorities and direct the AO to delete the addition made by him by treating the agriculture income as income from other sources. Hence the ground of appeal of the assessee is allowed.
It is also pertinent to note that we expressed from the bench at the time of hearing to restore the issue to the file of the AO for fresh adjudication. But later on we find that there was no reason for sending the order to the AO as all the necessary details are available on record to decide the issue on hand. Accordingly, we adjudicated the issue on merit as discussed above.
Coming to the penalty appeal filed by the assessee in ITA No.2759/Ahd/2014
At the outset, we note that we have deleted the quantum addition made by the AO as discussed above. Thus the penalty will not survive under the provisions of section 271(1)(c) of the Act. Accordingly, we hold that the penalty levied in the order passed under section 271(1)(c) of the Act, becomes infructuous. Thus, the ground of appeal raised by the assessee is allowed.
ITA Nos.2660/Ahd/2013 & 2759/Ahd/2014 Pramilaben Natvarbhai Patel vs. ITO Asst.Year - 2008-09
In the result, both the appeals filed by the assessee are allowed.
This Order pronounced in Open Court on 01 /01/2019
Sd/- Sd/- (MS.MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 01/01/2019 ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-II, Baroda �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 24.12.18 (dictation pad 13-pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member 26.12.18 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S … 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S…….4.1.19 7. Date on which the file goes to the Bench Clerk…………………4.1.19 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order……………