MUDUBHAGILU KRISHNA MURTHY DIVAKAR,SHIVAMOGGA vs. INCOME TAX ASSESSING OFFICER, SHIMOGA

Per Laxmi Prasad Sahu, Accountant Member : This appeal filed by the assessee is against the Order passed by the ld. CIT(A) vide DIN and Order No.ITBA/NFAC/S/250/2024-25/1072937983(1) dated 05.02.2025, on the following grounds: 1. The impugned order of the learned Commissioner of Income-tax (Appeals), National Faceless Assessment Centre, passed under Section 250 of the Income Tax Act, 1961 is opposed to law, weight of evidence, probabilities, facts and circumstances of the appellant’s case. 2. The appellant denies himself liable to be assessed on a total income of Rs. 21,00,140/- as against the Returned Income of Rs. 14,73,650 under the facts and circumstance of the Case. Page 2 of 7 3. The Learned Commissioner of Income Tax (Appeals) is not justified in upholding the addition of Rs. 6,26,494/- on the facts and circumstances of the Case. 4. The Learned Commissioner of Income Tax (Appeals) is not justified in stating that the appellant has been given adequate opportunity to file reply to the show cause notice when the Learned Assessing officer has given only 5 days to reply to the show cause notice which is in violation of principle of natural justice. 5. The Learned Commissioner of Income Tax (Appeals) failed to appreciate that the appellant has not provided adequate opportunity to file reply to the show cause notice under section 144 of the Act and the same is in violation of the standard operating procedure (SOP) issued for conducting faceless assessment and consequently the assessment order passed is unsustainable in law on the facts and circumstance of the Case. 6. The Learned Commissioner of Income Tax (Appeals) failed to appreciate that the appellant has produced documentary evidence with regard to quantity, rate, variety details and the agricultural expenses incurred by the appellant and consequently it is wrong to state that the appellant had not produced satisfactory evidence on the facts and circumstance of the case. 7. The Learned Commissioner of Income Tax (Appeals) failed to appreciate that the increase in Agricultural income to the extent of 45.78% is on account of rise in the selling price of the Agricultural produce due to cyclical yield variation. 8. The Learned Commissioner Income Tax (Appeals) is not justified in upholding the addition of Rs.6,26,494/- without giving the reasoning and discussing why the addition made by the Assessing officer is correct and consequently non application of mind on the facts and circumstances of the Case. 9. The learned assessing officer erred in understanding the nature of agricultural activity, as an increase in the selling price of agricultural produce does not necessarily result in a corresponding increase in expenses from the same piece of land. 10. The Assessing Officer erred in recognizing an absolute increase in expenses for the same piece of land and incorrectly applied an ad-hoc percentage-based addition without relying on any substantive material or evidence to justify this increase 11. The appellant denies the liability to pay interest under section 234A,234B,234C and 234D of the Act, in view of the fact that there is no liability to additional tax as determined by the assessing officer. Without prejudice, the rate, period and on what quantum the interest has been levied are not in accordance with law and are not discernible from the order and hence deserves to be cancelled on the facts and circumstances of the case. Page 3 of 7 12. The appellant craves for leave of this Hon’ble Tribunal, to add, alter, delete, amend or substitute any or all of the above grounds of appeal as may be necessary at the time of hearing. 13. For these and other grounds that may be urged at the time of hearing of appeal, the Appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity. 2. At the outset of hearing, ground No.4 was not pressed and it was withdrawn by the learned Counsel for the assessee. Therefore, this ground is dismissed as withdrawn. 3. From the above grounds, it is clear that the assessee has challenged the expenditure not allowed by the AO. 4. Briefly stated, the facts of the case are that assessee had declared income from partnership firm, income from other sources and agricultural income. Assessee filed return of income on 30.10.2018 in ITR 3 declaring income of Rs.14,73,650/- and agricultural income of Rs.75,82,492/-. The case was selected for scrutiny and statutory notices were issued to the assessee on different dates through e-assessment scheme, 2019. Assessee submitted online information. After considering the submissions of the assessee, the details were filed for 4 Assessment Years as under: Page 4 of 7 5. The AO noted that the expenditure incurred by the assessee during the year is comparatively less than the previous Assessment Years and the correspondingly increasing in the turnover . The assessee tried to explain the increase in turnover but the AO was not satisfied. The AO asked for the details of expenditure incurring towards agricultural activity. Then the assessee in his reply stated that he does not maintain any documentary evidence for the agricultural expenses incurred as claimed. The AO noted that assessee spent an amount of Rs.23.54 lakhs during the year under consideration but does not have documentary evidences to substantiate the same and it is also surprising that assessee’s case is being taken up continuously for scrutiny and assessment has already been completed for Assessment Years 2014-15, 2-015-16 and 2017-188. He is supposed to maintain the documentary evidences of such invoices of agricultural produce as well as invoices of agricultural expenses incurred. It makes clear that the assessee has shown agricultural income in excess of what he has actually earned and has suppressed the agricultural expenses. After analysing the documentary evidences and submission of the assessee, the AO noted that in absence of the documentary evidences with regard to expenses incurred by the assessee for the earning of the agricultural income, the exact expenses incurred cannot be ascertained. From the above table, it is clear that the assessee has incurred expenditure approximately 30% of the total income during the previous year for earning agricultural income which is clear from the above table of agricultural income and expenses. Therefore, in the absence of documentary evidences of expenses incurred, it was held that average expenses incurred by the assessee for earning agricultural income cannot be as low as 23.69% that has been claimed by the assessee during the year under consideration. The assessee has spent much higher amount as agricultural expenses in the earlier years. The expenses has been funded by the income earned by the assessee not offered to tax. Therefore, based on the previous years averages of the agricultural expenses incurred to earn agricultural income and in the absence of any documentary Page 5 of 7 evidences for the agricultural expenses claimed by the assessee, the agricultural expenses incurred for the year under consideration are estimated at 30% of agricultural income of Rs.99,37,140/- as declared by the assessee in the return of income which comes to Rs.29,81,142/-. The difference in the agricultural expenses claimed by the assessee in the return of income and the expenses determined during the course of assessment proceedings comes to Rs.6,26,494/- (Rs.29,81,142 – Rs.23,54,648) and the same difference was added to the income of the assessee as income from other sources treating the same as his undisclosed income earned during the year under consideration and not offered to tax. Accordingly, assessee was issued show cause notice on 22.03.2021 with a copy of the Draft Assessment Order giving an opportunity to the assessee. But there was no reply submitted by the assessee. Accordingly, the difference calculated above at Rs.6,26,494/- is added as income from other sources. 6. Aggrieved from the above Order, assesse filed appeal before the CIT(A) with a delay of 14 days which was condoned by the learned CIT(A). The submissions of the assessee have been incorporated in his Order. After considering the detailed submissions of the assessee, the learned CIT(A) dismissed the appeal of the assessee. 7. Aggrieved from the above Order, assessee filed appeal before the Tribunal. 8. The learned Counsel for the assessee reiterated the submissions made before the lower authorities and further submitted that the AO has not considered the reasons for raise in selling prices. There are various factors contributing to the increase in sale price but the expenditure was same compared to the previous Assessment Years. The entire produce is sold through APMC but not in the open market. Therefore, they cannot be doubted on the sales price. Inflated price was due to the good market environment. The agricultural expenses include labour, Page 6 of 7 manure, pesticides, fungicides, plumbing items, irrigation equipment, transportation, repair and maintenance, etc. The assessee is in the business of arecanuts, banana, cocoa, coconut, copra and pepper. He further submitted that because of good market, assessee got higher price and crops production on the same land. 9. On the other hand, learned DR relied on the Order of the lower authorities and submitted that the assessee had a fair chance to produce the documentary evidence for the expenses incurred, before the learned CIT(A) but he was unable to produce the same before the AO / CIT(A) and before the Hon’ble Tribunal.During the course of assessment proceedings, he submitted in writing that the assessee is not maintaining expenditure details. Therefore, the AO has considered the average expenditure of the assessee for the last 3 Assessment Years which is correct for applying the average basis for making disallowance. Assessee is unable to quantify the quantum of sales in previous year and current year and he is also unable to provide the quantitative rate from the previous years to current year. Therefore, the AO has adopted correct approach for making disallowance. 10. Considering the rival submissions and entire material available on records and the Orders of the authorities below, we noted that hear the dispute is regarding the addition made towards the expenditure calculated on average basis of Rs.6,26,494/- for want of supporting documentary evidences in respect of agriculture expenditure claimed by the assessee. During the course of assessment proceedings, assessee has stated in his reply that he does not maintain any documentary evidences towards agricultural expenses. Therefore, it is clear that the assessee does not have expenditure details in support of the expenditure claimed by the assessee of Rs.23,54,648/-. Accordingly, we uphold the Order of the AO in respect of calculation of disallowance on average basis as stated int eh table noted above. The AO has adopted correct approach for disallowing the Page 7 of 7 expenditure incurred which are not supported by any evidences. Even during the course of appellate proceedings at first appellate stage as well as before us, the assessee was unable to produce any documentary evidence towards agricultural expenses. Accordingly, we dismiss the appeal of the assessee. 11. In the result, appeal filed by the assessee is dismissed. Pronounced in the court on the date mentioned on the caption page. (PRAKASH CHAND YADAV) Accountant Member Bangalore, Dated : 07.07.2025. /NS/* Copy to: 1. Appellant 2. Respondent 3. Pr.CIT4.CIT(A) 5. DR, ITAT, Bangalore. By order