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Facts
The assessee, engaged in construction, poly-house consultancy, and agriculture, declared agricultural income of Rs. 10,12,400/-. The AO disallowed this income and treated it as income from other sources, also adding cash deposits during demonetization as unexplained money. The CIT(A) partially sustained the agricultural income at Rs. 5,00,000/- and sustained a part of the addition for unexplained money.
Held
The Tribunal held that the AO's action of reclassifying agricultural income as income from other sources and the CIT(A)'s partial allowance are not correct. Similarly, the issue of unexplained cash deposits needs verification. Both issues were remitted back to the AO for fresh adjudication.
Key Issues
Whether agricultural income is to be accepted as declared or estimated, and whether cash deposits during demonetization are unexplained money, requiring further verification and adjudication by the AO.
Sections Cited
250, 139(4), 143(1), 143(2), 142(1), 143(3), 69A, 115BBE
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A’’ BENCH: BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER KESHAV DUBEY, JUDICIAL MEMBER:
This appeal at the instance of the assessee is directed against the order of ld. CIT(A)/NFAC dated 6.9.2024 vide DIN & order No. ITBA/NFAC/S/250/2024-25/1068423534(1) for the assessment year 2017-18 passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”).
The assessee has the raised following grounds of appeal:
1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The learned CIT[A] is not justified in partially sustaining the addition to the extent of Rs. 5,12,400/- from out of the original addition of Rs. 10,12,400/- in respect of agricultural income reported by the appellant and directing treatment of the portion of agricultural income sustained as unexplained money u/s 69A of the Act under the facts and in the circumstances of the appellant's case.
Sri Thimmaiah Srinivas, Bangalore Page 2 of 8 2.1 The learned CIT[A] erred in sustaining a portion of the agricultural income reported by the appellant and ought to have accepted the entire agricultural income of Rs. 10,12,400/- reported by the appellant instead of determining the same on estimate basis at Rs.1,00,000/- per acre considering that that the appellant had filed phanis in support of the extent of land and crops cultivated.
3. The learned CIT[A] is not justified in sustaining the addition of Rs. 5,56,592/- from out of the original addition of Rs. 10,68,992/- being the cash deposited during the demonetization period treated as unexplained money u/s 69A rws 115BBE of the Act under the facts and in the circumstances of the appellant's case.
4. The learned CIT[A] ought to have appreciated that the cash deposit was made from out of the consultancy income and agricultural income of the appellant, especially since the learned CIT[A] had accepted agricultural income to the extent of Rs. 5,00,000/-, which would undoubtedly be available to the appellant to make the deposit of Rs.5,56,592/- that has been sustained under the facts and in the circumstances of the appellant's case.
For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.
Brief facts of the case are that the assessee is an individual engaged in the business activity of construction works, Poly-house Consultancy & also having income from agriculture activities. The assessee had his filed Return of Income declaring a total income of RS.7,36,560/- for the Assessment Year 2017-18 on 31.3.2018 u/s 139(4) of the Act and the same was processed u/s 143(1) of the Act by the AO. The AO had taken up the case for scrutiny assessment. Accordingly, the notices u/s 143(2) of the Act on 24.09.2018 & 142(1) of the Act as well as Show cause notice were issued calling for the details and specific explanations. The assessee has made submissions to the notices by furnishing the details called for by the learned assessing officer. The learned AO has reviewed the documents and passed the assessment order u/s 143(3) of the Act (1) Agriculture income treated as Income from other sources:
The learned AO has also disallowed a sum of Rs.10,12,400/- and taxed the same under income from other sources which was disclosed as agricultural income in the statement of computation. The addition was made on the ground that crop details were missing for this agricultural income even though the assessee had submitted the Pahani.
(2) Cash deposits treated as unexplained money u/s 69A:
The learned assessing officer has observed that during the demonetization period, the assessee had deposited a sum of Rs.9,28,000/- in cash to the bank account. The assessee had submitted that these deposits are arising out of the agriculture receipts, receipts from poly house consultancy and other construction works. However, the learned AO has concluded that these deposits attract the provisions of section 69A of the Act and the same shall be subject to tax u/s 115BBE of the Act as there were no proof for substantiating the claim of the assessee.
(3) Credit in the Profit and loss account treated as business income: The learned AO has added Rs.25,50,000/- to the business income of the assessee, after reviewing the statement of computation, observed that the assessee has omitted to include the above sum in the total income although the same has been considered for offering income from capital gains.
Aggrieved by the order passed by the ld. AO, the assessee went in appeal before the ld. CIT(A).
5. During the course of appellate proceedings, the ld. CIT(A)/NFAC called for a remand report from the AO vide office order dated 8.8.2024. However, as the AO has not responded, the ld. CIT(A)/NFAC presumed that the AO has no comments to make on the additional evidences furnished by the assessee. Further with regard to disallowance of claim of agricultural income, the assessee filed revenue records showing the details of land owned and crops grown. However, as the assessee has not furnished any details such as sale bills or detail of expenses and therefore, the ld. CIT(A)/NFAC on an estimate basis accepted the agricultural income at Rs.5,00,000/- (Rs.1,00,000/- p.a. from an acre of land) and the balance of Rs.5,12,400/- is treated as unexplained money u/s 69A of the Act.
5.1 Further, with regard to cash deposits during demonetization period amounting to Rs.9,28,000/-, the ld. CIT(A)/NFAC observed that the source of cash deposits are from Poly House Consultancy and the assessee has also submitted the details of consultancy fees received from 3 parties totaling Rs.12,23,000/-. Further, as the ld. CIT(A) observed that as per the cash book submitted, the cash balance as on 8.11.2016 was only Rs.1,54,008/- and therefore, the deposit of Rs.10,68,992/- in cash is not explained. Since the ld. CIT(A)/NFAC already upheld the addition u/s 69A of the Act on account of unproved agricultural income amounting to Rs.5,12,400/-, the net addition confirmed by the ld. CIT(A)/NFAC is Rs.5,56,592/- (Rs.10,68,992/- (-) Rs.5,12,400/-). Lastly, on the issue of income from sale of property, the ld. CIT(A)/NFAC by accepting the contention of the assessee deleted this addition made by the AO. Accordingly, the appeal of the assessee was partly allowed by ld. CIT(A)/NFAC.
Sri Thimmaiah Srinivas, Bangalore Page 5 of 8 6. Aggrieved by the order of ld. CIT(A)/NFAC, the assessee has filed the present appeal before this Tribunal. Before us, ld. A.R. of the assessee submitted a paper book comprising 51 pages containing therein the various documents submitted before the authorities below along with details of agricultural income reported by the assessee from the assessment year 2015-16 to AY 2019-20.
Before us, the ld. A.R. of the assessee vehemently submitted that the ld. CIT(A)/NFAC not justified in partially sustaining the addition to the extent of Rs.5,12,400/- from out of the original addition of Rs.10,12,400/- in respect of agricultural income on estimated basis @ Rs.1,00,000/- per acre. Further, the ld. A.R. of the assessee submitted that ld. CIT(A)/NFAC is not justified in sustaining the addition of Rs.5,56,592/- from out of the original addition of Rs.10,68,992/- by treating it as unexplained money.
Ld. D.R. on the other hand, supported the order of the authorities below.
We have heard the rival submissions and perused the materials available on record. The assessee is deriving income from business as civil contractor in the trade name “City Construction”. Further, as the AO observed that the assessee has declared agricultural income of Rs.10,12,400/- during the year under consideration. We also take a note of the fact that during the course of appellate proceedings, the assessee has also submitted details of consultancy fees received from three parties totaling Rs.12,23,000/- towards “Poly-House Consultancy”. This Poly-House Consultancy receipts were treated as business income of the assessee. It is not disputed fact that assessee owns an agricultural land measuring 5 acres and 31 guntas and has been declaring income from sale of agriculture produce as can be verified from the details of agricultural Sri Thimmaiah Srinivas, Bangalore Page 6 of 8 income reported by the assessee from the assessment year 2015-16 to assessment year 2019-20 produced before us. The AO has treated this agricultural income of Rs.10,12,400/- as income from other sources. However, the ld. CIT(A) treated Rs.5,00,000/- on an estimate basis as agricultural income and surprisingly treated the balance amount as unexplained money u/s 69A of the Act whereas the AO treated as Income from other sources. The main ground for disallowance of agricultural income by the AO is due to the fact that the crop information mentioned is NIL for the year in Pahani (land record) filed for the FY 2016-17. Further the assessee has not filed the details like crops grown, sold, sale of agricultural commodities, if any. We are of the considered opinion that mere absence of crop/yield information in the Pahani document for a particular year does not mean that assessee is not carrying out agricultural operations and has no income from the agricultural activities. The assessee during the course of appellate proceedings, has submitted the revenue records showing the details of land owned and crops grown. However, the ld. CIT(A)/NFAC observed that the assessee has not furnished any details such as sale bills or details of expenses and accordingly partly accepted the agricultural income of Rs.5 lakhs on estimated basis. Further, we also take a note of the fact that during the course of appellate proceedings, remand report was called for from the AO vide office order dated 8.8.2024. However, the AO has not responded and accordingly the ld. CIT(A)/NFAC presumed that the AO has no comments to make on the additional evidence furnished by the assessee. We are of the opinion that as the assessee has not furnished the details like crops grown, sold, sale of agricultural commodities before the AO and as observed by the ld. CIT(A)/NFAC the details of expenses, therefore, we are remitting this issue back to the file of AO in order to call for and examine the same and decide in accordance with law after giving reasonable opportunity of being heard. We make it clear that mere absence of Sri Thimmaiah Srinivas, Bangalore Page 7 of 8 crops/yield information in Pahani document for a particular year does not negate the actual agricultural activity. We are of the opinion that the classification of income as agricultural should be based on the actual conduct of agricultural operations and not dismissed due to minor discrepancies in documentation. Therefore, the agricultural income should be assessed based on the substantive evidence and the nature of activities carried on rather than being dismissed due to procedural lapses or minor discrepancies in documentation. In view of the above, the AO’s action to reclassify the agricultural income as income from other sources as well as the action of ld. CIT(A)/NFAC in partly allowing Rs.5 lakhs only as agricultural income is not correct as per law. The assessee is also directed to produce all the relevant documents/accounts/records/information/evidences in support of his claim and should not take unnecessary adjournments. It is ordered accordingly.
9.1 Further, with regard to cash deposit of Rs.9,28,000/- deposited during the demonetization period treated as unexplained money u/s 69A of the Act, the assessee claims to have earned agricultural income, poly-home consultancy fees income and receipt from construction activities. The assessee claims to have disclosed all these income in the return filed for the assessment year 2017-18. The assessee has also submitted the balance sheet and profit & loss account in which all these three sources were accounted for in the books of accounts as claimed by the assessee. The ld. CIT(A) on the other hand upheld the addition of Rs.5,56,592/- out of Rs.9,28,000/- deposited during the demonetization period. We are of the opinion that this issue may also be remitted back to the file of AO to verify all these sources of income as well as books of accounts maintained by the assessee. If the AO found that these cash deposits are already recorded in the books of accounts, then the AO after considering & examining the same may take a decision in accordance Sri Thimmaiah Srinivas, Bangalore Page 8 of 8 with law after giving reasonable opportunity of being heard. We make it clear that if the assessee has satisfactorily explained the source of cash deposit and the income has been recorded in the books of accounts and found to disclosed in the income tax return, the AO cannot treat the cash deposits as unexplained money. It is ordered accordingly.
In the result, appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 21st Apr, 2025