BHEEKCHAND SHANTILAL JAIN,HAGARIBOMMANAHALLI vs. INCOME TAX OFFICER, HOSPET

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ITA 16/BANG/2026Status: DisposedITAT Bangalore10 August 2026AY 2017-1812 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the rejection of cash sales solely based on the statement of one purchaser, without providing the assessee an opportunity for cross-examination, was a violation of natural justice. The issue of cash sales was remitted back to the AO for fresh adjudication.

What were the facts?

The assessee declared a significant increase in agricultural income for AY 2017-18 compared to previous years. The Assessing Officer (AO) re-calculated the income based on local inquiries and treated cash sales of Rs. 33,77,747/- as unexplained income, while accepting bank receipts.

What were the issues?

Whether cash receipts from agricultural sales can be treated as unexplained cash credits under Section 68 without proper opportunity for cross-examination and verification. Whether the AO exceeded jurisdiction by invoking Section 68 in a limited scrutiny case.

Which sections of the Income-tax Act were involved?

Section 68,Section 115BBE,Section 250,Section 133(6),Section 234A,Section 234B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC’’BENCH: BANGALORE

Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY

For Appellant: CA Suman Lunkar, A.R
For Respondent: Shri Ganesh R. Ghale, Standing counsel for the department
Hearing: 02.06.2026Pronounced: 10.08.2026

PER KESHAV DUBEY, JUDICIAL MEMBER:

This appeal at the instance of the assessee is directed against the order of the ld.CIT(A)/NFAC dated 27/11/2025 vide DIN & Order No. ITBA/NFAC/S/250/2025-26/1083061540(1) passed u/s 250 of the Income Tax Act, 1961 (in short “the Act”) for the assessment year 2017-18.

2.

The assessee has raised the following grounds of appeal:-

I. The Order of Commissioner of Income Tax (Appeals) and learned ITO is opposed to the facts of the case and law applicable to it. The order passed is bad in law, against the principles of natural justice and is liable to be quashed.

ITA No.16/Bang/2026 Bheekchand Shantilal Jain, Hospet Page 2 of 12 2. The learned CIT (A) has erred in law and on facts in upholding the addition of INR 33,77,747/- u/s 68 and taxing it u/s 115BBE, without properly appreciating the evidence placed on record, factual circumstances and the nature of agricultural operations carried out by the appellant.

3.

The learned CIT (A) has failed to appreciate that the assessment was made in a Limited Scrutiny for verification of agricultural income and the Assessing Officer exceeded jurisdiction by invoking Section 68 without converting the case into a Complete Scrutiny as mandated under CBDT Instructions (F No.225/402/2018/1TA.II). The order is therefore bad in law and liable to be quashed.

4.

The learned CIT (A) has erred in upholding additions based on the alleged statement of Shri U. Suban Sab without granting the appellant the opportunity of cross-examination, despite repeated reliance on such statement. This violates the principles of natural justice and renders the addition void-ab-initio.

5.

The learned CIT (A) has erred in upholding the conclusion that agricultural cash sales were bogus merely because certain notices u/s 133(6) returned un-served and without considering the following information / evidence submitted by the Appellant following: • Cash sales are common in agricultural commodity markets; • APMC receipts, cash bills, and crop-wise sale details; • AO never issued a show cause notice pointing out alleged defects; and • AO never provided an opportunity to furnish fresh/updated addresses. The finding is therefore arbitrary, perverse and unsustainable.

6.

The learned CIT (A) has erred in law by placing excessive reliance on presumptions, estimates, and unverified "local enquiries", while ignoring the following documentary corroborative evidence Of agricultural activities: • Land records; • Past crop cycles; • Confirmation letter from Tahsildar's office Hagaribommanahalli; • Yield potential of pomegranate orchards, and • APMC tax-paid transactions.

ITA No.16/Bang/2026 Bheekchand Shantilal Jain, Hospet Page 3 of 12 7. The learned CIT (A) has erred in confirming the AO's estimation of yield at 8—10 tons per acre without any scientific material, whereas mature pomegranate orchards in Karnataka regularly yield 12—18 tons per acre depending on rainfall and irrigation. The rejection of the appellant's yield claim is therefore based on conjectures and contrary to agricultural norms.

8.

The learned CIT (A) has erred in treating cash receipts from agricultural sales as unexplained cash credits u/s 68, although Section 68 applies only to "books of account" and agricultural income is exempt and outside the scope of Section 68. The addition is therefore without jurisdiction and illegal.

9.

The learned CIT (A) has failed to appreciate that there was no cash deposit during demonetization period, which supports the genuineness of agricultural cash inflows and contradicts the allegation that the assessee introduced unaccounted cash.

10.

The learned CIT (A) has erred in relying on the allegation that sale bills were "fabricated" without issuing any show cause notice or granting the appellant an opportunity to rebut such allegation or produce the concerned parties. Any finding made behind the appellant's back cannot be sustained.

Further, the appellant has submitted the Bank Account Statement and Bank confirmation letter as on 6th May 2019 as additional evidence wherein it is evident that Mr U Suban Sab name is clearly visible and he is well known to the Appellant.

11.

The learned CIT (A) has erred in ignoring the fact that the appellant has been engaged in pomegranate farming for 5—6 years and the land was fully matured and capable of high yield, which the AO failed to consider while rejecting the appellant's explanation.

12.

The learned CIT (A) has erred in appreciating evidence selectively and confirming additions based on suspicion, surmises, and conjecture, rather than on objective evidence.

13.

Without prejudice, the quantum of agricultural income estimated by the AO and confirmed by the CIT (A) is arbitrary, excessive, and requires substantial reduction.

14.

The learned CIT (A) has erred in upholding levy of interest u/s 234A and 234B, which are consequential and not leviable once the impugned additions are deleted.

ITA No.16/Bang/2026 Bheekchand Shantilal Jain, Hospet Page 4 of 12 15. The order of the learned CIT (A) is contrary to law, facts, and binding judicial precedents, and therefore liable to be set aside.

16.

The appellant craves leave to add, alter, amend, or withdraw any of the above grounds at the time of hearing.

Prayer The appellant request the Hon'ble Tribunal to kindly delete the addition of Rs.33,77,747/- made under the provisions of section 68 ofthe Act.

3.

The brief facts of the case are that the assessee is trading in pump sets & parts under his proprietorship concern running under the name and style of M/s. DG Enterprises & regularly assessed to Income Tax. The assessee filed his return of income for AY 2017-18 on 28/10/2017 by declaring his regular income of Rs.6,47,620/- and net agriculture income of Rs.73,71,137/-. Thereafter, the case of the assessee was selected for scrutiny under CASS to verify the genuineness of the agricultural income shown in the income tax return for AY 2017-18. During the course of assessment proceeding, it was also seen that the agricultural income shown during the year was quiet high as compared to the earlier years ITRs as detailed below:-

Assessment Year Agricultural Income 2017-18 73,71,137 2016-17 14,10,828 2015-16 2,02,014 2014-15 5,41,755

The AO noted that the above income shown by the assessee was out of his 8.50 acres of agricultural land only. It is also verified that there is no additional land purchased by the assessee during the year under consideration, however there was abnormal increase in the agricultural income of the assessee. In response to the notices,

ITA No.16/Bang/2026 Bheekchand Shantilal Jain, Hospet Page 5 of 12 the assessee explained that the assessee grows pomegranate fruits in his lands and on account of sale proceeds he received a sum of Rs.81,24,296/- as his gross agricultural income and after deducting for expenses of Rs.7,53,159/-, the assessee claimed to have earned net agricultural income of Rs.73,71,137/-. Further, the assessee claimed that he grows 02 crops in a year and for each crop season, he received money from the purchasers. The assessee also filed self made vouchers for labour payments and purchase bills of fertilizers and pesticides. The AO in the absence of valid sale bills and considering the facts that the claim of agricultural income in the ITR are on a higher side proceeded to re-calculate the agriculture income of the assessee based on local enquiry conducted and also on the basis of information furnished by the farmers who are in the same line of agricultural activity as below: -

No. of acres owned 8.50 acres Nature of produce Pomegranate Quantum of yield per acre per 8 to 10 tons year (02 crops) Total produce 85,000 Kgs (10 tons per acre x 8.5 acres) Average rate per KG during FY Rs.53 per Kg 2016-17 Average amount of sale proceeds Rs.45,05,000/- Gross agricultural proceeds for Rs.45,05,000/- whole year Less: expenditure claimed Rs.7,53,000/- Net agriculture income Rs.37,52,000/-

Thus, as per the above analysis, the AO estimated the agricultural income of the assessee at Rs.37,52,000/- and accordingly the excess claim of agricultural income of Rs.36,19,137/- [Rs.73,71,137/- (-) Rs.37,52,000/-] held to be brought to tax as unexplained source of income and accordingly issued show cause notice for offering explanation of the assessee. In response, the

ITA No.16/Bang/2026 Bheekchand Shantilal Jain, Hospet Page 6 of 12 assessee thereafter furnished sale bills, mode of payments, certain bills and vouchers, bank statements and also a ledger account showing the receipts of agricultural sale proceeds. The AO after verifying the details found that the assessee claimed to have received his sale proceeds in cash to the extent of Rs.33,77,746/- and the balance amount of Rs.47,46,550/- in bank through RTGS and other electronic mode. The assessee had also enclosed certain sale bills claiming that the sale proceeds were received in cash. The AO thereafter issued the letters to 6 purchasers in order to get confirmation from them however, the most of the letters were returned back by the postal authorities stating no such addressee. Even some of them returned without any conformation. Further in order to verify the genuineness of the cash sales, letters were issued to the 4 purchasers and out of them in 03 cases, letters were returned back. However, in one case i.e. U. Suban Sab, Harappanahalli, the assessee appeared and stated that the bills were not signed by him and the signature found to be bogus and also clearly stated that he did not have any dealings with the assessee. The AO concluded that the assessee had produced bogus bills to the extent of Rs.21,28,380/- only in respect of this purchaser. Likewise, as other purchasers in whose case the letters were returned back are also to be held as if as they are all bogus. Therefore, all the receipts claim to have been received in cash treated as baseless and total cash receipts of Rs.33,77,747/- was found to be unrealistic and accordingly treated as income from unexplained sources. Therefore, out of the agricultural income of Rs.73,71,137/- claimed, Rs.47,46,550/- being received through bank was considered to be genuine and the balance amount of Rs.33,77,747/- was treated as unexplained income and brought to tax u/s. 68 r.w.s 115BBE of the Act.

ITA No.16/Bang/2026 Bheekchand Shantilal Jain, Hospet Page 7 of 12

4.

Aggrieved by the assessment order passed u/s. 143(3) of the Act dated 19/12/2019, the assessee preferred an appeal before the ld. CIT(A)/NFAC.

5.

The ld. CIT(A)/NFAC dismissed the appeal of the assessee by holding that the assessee’s agricultural income exhibited an abnormal and unsubstantiated increase from Rs.14,00,000/- in the preceeding year to Rs.73,00,000/- during the year without any expansion of landholdings, irrigation, investment or inputs. This disproportionate increase unsupported by evidence shifted the entire burden of proof on the assessee as mandated u/s.68 of the Act. Further, the assessee failed to establish identity, genuineness and creditworthiness of the buyers for the cash component of Rs.33.77 lakhs as the cash sale bills lacked basic commercial particulars and the untraceable and unverifiable nature of purchasers renders the transactions unreliable.

5.1 Further, the ld. CIT(A)/NFAC held that one key purchaser Sri. U.Suban Sab had appeared and categorically denied any transaction with the assessee. He also demonstrated that the invoices produced by the assessee were forged with mismatch signatures and unused duplicate copies thereby conclusively establishing fabrication. The assessee also failed to maintain basic agricultural records such as books of accounts, weighment slips, transport bills, mandi receipts (beyond Rs.2.91 lakhs), or packing and labour documentation. The AO’s yield estimation was based on local enquires, horticulture department inputs and comparative farmer data, whereas the assessee’s claim of 15 tons per acre is unsupported and excessive and accordingly the AO rightly accepted only the bank verifiable agricultural receipt and correctly treated the balance of Rs.33,77,747/- as unexplained cash credit.

ITA No.16/Bang/2026 Bheekchand Shantilal Jain, Hospet Page 8 of 12

6.

Again, aggrieved by the order of ld. CIT(A)/NFAC dated 27/11/2025, the assessee has filed the present appeal before this Tribunal. Before us, the assessee has also filed party wise sale invoices amounting to RS.33,77,746/- claimed to have received in cash. Further, as per the direction of the Bench, the assessee has also produced copy of IT return for AY 2018-19, computation of income as well as audited trading and profit and loss account and balance sheet along with capital account of the assessee.

7.

Before us, the ld. AR of the assessee vehemently submitted that the assessee owned 8.50 acres of agricultural land in which the pomegranate fruits were grown. The AO accepted the partial agricultural income amounting to Rs.47,46,550/- received through bank account, however rejected the agricultural income which were claimed to have been received in cash amounting to Rs.33,77,747/- based on a statement of one purchaser without affording cross examination and without providing the statement recorded by the AO. Further, the ld. A.R. of the assessee submitted that the assessee in subsequent assessment year 2018-19 had also declared net agricultural income of Rs.92,56,728/- which is also accepted by the department. Lastly the ld. A.R. submitted that the entire claim of sale invoices received through cash was rejected based on AO’s own surmises and assumption and without bringing any adverse material on record and accordingly prayed that the appeal of the assessee may be allowed.

8.

The ld. D.R. on the other hand heavily relied on the order of the authorities below and vehemently submitted that the assessee exhibited an abnormal and unsubstantiated increase from Rs.14,00,000/- in the preceeding year to Rs.73,00,000/- during the year without any expansion of landholding. Further, the ld.D.R.

ITA No.16/Bang/2026 Bheekchand Shantilal Jain, Hospet Page 9 of 12 submitted that the AO has rightly treated the entire cash sales of agricultural produce as unexplained cash credit as the purchasers were untraceable and unverifiable. Lastly, the ld.D.R. submitted that one key purchaser had categorically denied any transaction with the assessee and also demonstrated that invoiced produced by the assessee were forged and accordingly prayed that appeal of the assessee may be dismissed.

9.

We have heard the rival submissions and perused the material available on record. It is an undisputed fact that the assessee owns 8.5 acres of agricultural land and grown Pomegranate fruits. It is also an undisputed fact that the assessee is declaring his agricultural income since past 3 years as observed by the AO himself in the assessment order. The claim of the authorities below are that the assessee’s agricultural income exhibited an abnormal and unsubstantiated increase from Rs.14 lakhs in the preceding year to Rs.73 lakhs during the year without any expansion of holdings, irrigation, investment or inputs. We are of the considered opinion that before us the assessee demonstrated that for the AY 2018-19, the assessee had declared agricultural income of Rs.92,56,728/- which has been accepted by the AO himself. Further, in our opinion the assessee during the course of assessment proceeding has furnished copy of sale bills, mode of payments, certain bills & vouchers, bank statements and also ledger account showing the receipts of agricultural sale proceeds. The AO did not find any fault with any of these documents produced by the assessee. Further, we take a note of the fact that the AO has accepted the partial agricultural income amounting to Rs.47,46,550/- received through the bank account, however, rejected the agricultural income which were claimed to have been received in cash amounting to Rs.33,77,747/- solely based on the statement of one purchaser without affording the statement

ITA No.16/Bang/2026 Bheekchand Shantilal Jain, Hospet Page 10 of 12 recorded to the assessee as well as without affording cross examination which in our opinion is gross violation of principles of natural justice.

9.1 Further, on perusal of the assessment order, we observed that the case of the assessee was selected for scrutiny to verify the genuineness of agricultural income shown in the income tax return for the AY 2017-18. Therefore, the AO based on this selection criteria had first disbelieving the agricultural income declared by the assessee proceeded to recalculate the net agricultural income amounting to Rs.37,52,000/- based on the local enquiry conducted and also on the basis of information furnished by the farmers who are in the same line of agricultural activities. Thereafter, the AO in order to ascertain the genuineness of agricultural sources issued a letter to the Assistant Director of Horticulture, Hagarebommanahalli to get confirmation of average yield and average price for the pomegranate produced during the financial year 2016-17. Accordingly, the said authorities expressed their opinion that normal yield per acre was 4 to 5 tonnes. Surprisingly, the AO did not give the weightage of the opinion of the authorities also by contending that they have not clearly furnished the particulars as required. The AO did not stop here and having no choice, further proceeded to treat the entire cash sale proceeds amounting to Rs.33,77,747/- as unexplained income u/s 68 of the Act and accepted Rs.47,46,550/- received through bank to be genuine. It is needless to say that the amount shown in the cash sale bills have already been deposited in the bank account of the assessee. Before us, the ld. A.R. of the assessee also produced party wise details of cash sales and also produced confirmation letter along with the invoices by way of paper book. Further, the assessee had also produced the declaration letter from the Office of the Tahsildar in which we find that the assessee has grown 3460

ITA No.16/Bang/2026 Bheekchand Shantilal Jain, Hospet Page 11 of 12 pomegranate plants measuring 5.31 & 3.41 acres. In our considered opinion, except for one purchaser namely U Suban Sab, Harapanahalli, who also produced the duplicate bill, the AO cannot treat the entire purchasers as bogus. Since the allegation of the AO is centered around the recording of statement of U Suban Sab and the claim of the assessee is that the AO has not given the copy of the statement recorded as well as not affording reasonable opportunity of being heard, we deem fit and proper to remit the issue of cash sales amounting to Rs.33,77,746/- to the file of the AO to decide afresh in accordance with law. Needless to say, a reasonable opportunity of being heard must be granted to the assessee. The AO is also directed to provide copy of the statement recorded to the assessee and afford the opportunity of cross- examining Mr. U Suban Sab as requested by the ld. A.R. of the assessee. The assessee is also directed to produce the party wise details of sale invoices along with the copy of the confirmation letter produced before us. It is ordered accordingly.

10.

In the result, appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 10th Aug, 2026

Sd/- Sd/- (Waseem Ahmed) (Keshav Dubey) Accountant Member Judicial Member

Bangalore, Dated 10th Aug, 2026. VG/SPS

ITA No.16/Bang/2026 Bheekchand Shantilal Jain, Hospet Page 12 of 12 Copy to:

1.

The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order

Asst. Registrar, ITAT, Bangalore.

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