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Facts
The assessee, a private limited company, claimed agricultural income of Rs. 60.42 lakhs for AY 2012-13, which the AO disallowed and treated as income from other sources due to unsubstantiated claims, an unregistered related-party lease deed, and various discrepancies. The AO also made an addition of Rs. 73.14 lakhs as unexplained cash credit under Section 68 for an unsecured loan received from a director, which the CIT(A) also confirmed.
Held
Regarding the agricultural income claim, the Tribunal acknowledged that the assessee had submitted substantial new evidence for the first time before it and, therefore, remitted the matter back to the AO for fresh adjudication to examine the additional evidence and recompute the agricultural income. For the unsecured loan issue, the Tribunal found that the assessee had discharged its primary onus under Section 68 by providing the director's PAN, confirmation, bank statements, and income summary, and accordingly directed the AO to delete the addition.
Key Issues
1. Whether the disallowance of agricultural income and its treatment as income from other sources was justified. 2. Whether the addition of an unsecured loan from a director as unexplained cash credit under Section 68 of the Income Tax Act was warranted.
Sections Cited
68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
M/s Greens Farm Tech Pvt. Ltd., No.325/1, 14th Main, 5th Cross, The Income Tax RMV Extension, Officer, Sadashsivnagar, Vs. Ward - 3(1)(2), Bengaluru – 560 080. Bengaluru. PAN – AACCH 2096 N APPELLANT RESPONDENT Assessee by : Shri Ahmed Khan, CA Revenue by : Smt. Neha Sahay, JCIT Date of hearing : 24.01.2025 Date of Pronouncement : 16.04.2025 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the ld. CIT(A) – 3, Bangalore dated 31/08/2016 in 3(1)(2)/CIT(A)/BNG-3/2015-16 for the assessment year 2012-13.
The first issue raised by the assessee is that learned CIT(A) erred in confirming disallowance of claim of agricultural income and treating the same as income from other sources.
Page 2 of 14 3. Briefly stated facts are that the assessee is a private limited company claimed and claimed to be engaged in agricultural activity. The assessee was formerly known as Hoysala Hospitality and Services Private Limited and was previously engaged in the business of selling or trading of liquor and other beverages through its retail outlets and such business was claimed to be carried on till the year under consideration. The assessee in the return of income for the year under consideration declared business loss of Rs. 14,51,426/- and agricultural income of Rs. 60,42,070/- which was selected for scrutiny.
The AO during the assessment proceedings found that the assessee’s claim of earning Rs. 60.42 lakhs as agricultural income was unsubstantiated. As per the AO, the assessee failed to explain how such huge income was generated within a month after commencing agricultural activities in February 2012. As such, the AO doubted the genuineness and authenticity of lease deed dated 02-02-2012, submitted as evidence in support of agricultural income by holding that impugned deed was unregistered and involved a related party transaction. The AO rejected the assessee’s explanation that the leased property was containing standing crop by holding that the deed vaguely mentioned "standing crops" without specifying their nature or valuation. The AO questioned why a prudent person will lease out land with crops allegedly worth Rs. 60.42 lakhs for a nominal monthly rent of Rs. 41,650.00 only. The AO further noted discrepancies in the value of agricultural income shown in the Profit and Loss account and the amount declared in the return of income. As such, the profit and loss reflected gross agricultural turnover of Rs. 38.82 lakhs along with closing stock valuing at Rs. 21,60,025/- whereas in the income computation, the same was claimed .
Page 3 of 14 at Rs. 60.42 lakhs. The AO also found that the assessee failed to justify the valuation of the closing stock of Rs. 21.60 lakhs. Given these inconsistencies, the AO concluded that the assessee’s agricultural income claim was not genuine. Accordingly, the value of gross agricultural turnover of Rs. 38,82,042/- and value of closing stock of Rs. 21,60,005/- were brought to taxation.
The aggrieved assessee preferred an appeal before the learned CIT(A).
The assessee, in its appeal before the learned CIT(A), argued that it had duly disclosed the agricultural income of Rs. 60.42 lakhs in its books of account and had provided supporting evidence, including the lease deed dated 02-02-2012 and the PAN details of Ms. G.C. Ramya, from whom the land was taken on lease. The assessee contended that the AO arbitrarily rejected the claim solely because the lease deed was unregistered, despite the fact that the related party transactions are not inherently invalid. Additionally, the AO dismissed the existence of standing crops without properly examining the lease agreement or summoning Ms. G.C. Ramya for clarification.
The assessee relied on the Supreme Court decision in the case of Sreelakha Banerjee vs. CIT (1963), 49 ITR 112 (SC), arguing that since the income was recorded in the books of account, there was no basis for treating it as undisclosed. The assessee maintained that the AO should have verified whether the disclosed credits corresponded to the stated source rather than rejecting the claim outrightly. Furthermore, it asserted that the AO failed to quote any specific provision of the Act .
Page 4 of 14 under which the addition was made, rendering the assessment arbitrary and contrary to law. Accordingly, the assessee urged the ld. CIT(A) to delete the addition of Rs. 60.42 lakhs.
The learned CIT(A) carefully examined the submissions made by the assessee and found that the claim of earning Rs. 60.42 lakhs as agricultural income within a short span of less than two months was entirely unsubstantiated. The assessee relied on an unregistered lease deed with Ms. G.C. Ramya, a director in the company, to establish that the land was leased and had standing crops. However, the ld. CIT(A) noted that the lease deed did not provide any specific details regarding the type of crops, their stage of growth, the estimated yield, or the details of their sale. In the absence of such critical information, the significant doubts were raised by the ld. CIT-A about the authenticity of the claim.
8.1 The ld. CIT(A) further observed that, despite claiming that the leased land had standing crops of capsicum, the assessee failed to produce any documentary evidence or third-party confirmations regarding the existence, harvesting, or sale of these crops. No invoice, transportation records, buyer details, or payment receipts were furnished to support the claim of agricultural produce being sold. Additionally, the assessee’s claim that the leased land had a greenhouse covering 14 acres was found to be inconsistent, as the lease deed made no reference to such a structure.
8.2 Another key issue noted by the ld. CIT(A) was the disproportionate financial feasibility of the transaction. The lease rent for .
Page 5 of 14 the land was only Rs. 5 lakhs per annum, translating to approximately Rs. 41,600 per month. Given that the assessee claimed to have earned Rs. 60.42 lakhs in just two months, the ld. CIT(A) found it implausible that the lessor, Ms. G.C. Ramya, would lease out land capable of generating such high returns for a nominal rent instead of harvesting the crops herself. The absence of any reasonable commercial rationale for such an arrangement further weakened the credibility of the assessee’s claim.
8.3 The ld. CIT(A) also conducted a comparative analysis of agricultural income declared by Ms. G.C. Ramya (lessee) in previous years as well as in the year under consideration, which showed that she earned an average income of approximately Rs. 35,000 per acre from her 86-acre landholding. In contrast, the assessee claimed an exorbitantly high income of Rs. 2.23 lakhs per acre in just two months, which was nearly six times the amount earned by Ms. G.C. Ramya from similar land. This extreme discrepancy further suggested that the assessee’s claim was not genuine.
8.4 Relying on the Hon’ble Supreme Court’s decision in CIT v. Durga Prasad More (1971) 82 ITR 540 (SC), the ld. CIT(A) emphasized that apparent transactions must be scrutinized for their reality, and self- serving statements/ documents cannot be taken at face value without supporting circumstantial evidence. Furthermore, the Hon’ble Karnataka High Court’s ruling in CIT v. Namdhari Seeds Pvt. Ltd. (2012) 341 ITR 0342 (Kar) was cited by the learned CIT(A) to establish that agricultural income must be derived from active agricultural operations carried out by the assessee. Since, the assessee merely claimed to have derived .
8.5 Considering all these factors, the ld. CIT(A) concluded that the assessee had failed to provide any credible evidence to substantiate its claim. The only document relied upon was an unregistered lease deed that lacked crucial details. Accordingly, the ld. CIT(A) determined that the so-called agricultural income of Rs. 60.42 lakhs were actually unaccounted income introduced as agricultural income to evade taxation. Accordingly, the addition made by the AO was upheld, and the assessee’s appeal was dismissed.
Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us.
The learned AR for the assessee before us filed 2 sets of paper book running from pages 1 to 175 and pages 1 to 128 and submitted that there were certain documents filed during the appellate proceedings which have not been considered by the learned CIT-A. As per the assessee there were filed purchase bills on sample basis along with other details about the lands taken on lease for agricultural activities. Accordingly, the ld. AR prayed before us to restore the issue to the file of the AO for fresh adjudication as per the provisions of law.
On the other hand, the learned DR before us submitted that there were numerous inconsistencies in the claim made by the assessee with respect to the agricultural income which have been duly highlighted by .
Page 7 of 14 the authorities below. As such these inconsistencies were not answered by the assessee during the proceedings before the lower authorities based on the documentary evidence. Accordingly, the ld. DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials placed on record, and evaluated the additional evidence submitted by the assessee for the first time before us under Rule 29 of the Income Tax (Appellate Tribunal) Rules. The primary issue for adjudication pertains to the disallowance of agricultural income amounting to ₹60.42 lakhs claimed by the assessee, which was treated by the AO as income from other sources and brought to tax accordingly. Upon examination of the records, we note that the assessee had earlier relied mainly on an unregistered lease deed with a related party to support its claim of agricultural income. This deed lacked details regarding the type, stage, or valuation of the crops, and thus, both the AO and the learned CIT(A) had disbelieved the genuineness of the transaction. However, the assessee has now furnished substantial additional evidence before us, including copies of labour payment extracts, bills for agricultural expenditure, and sales bills—none of which were previously produced before the lower authorities. Based on the fresh evidence, the assessee contended that the agricultural income can be reasonably computed as under: Gross Agricultural Turnover: ₹38,82,045 Value of Closing Stock: ₹21,60,005 Total Agricultural Receipts: ₹60,42,050 Expenditure on Agricultural Inputs: ₹39,21,158 .
Page 8 of 14 Labour Charges Paid: ₹6,48,197 Total Expenses: ₹45,69,355 Net Agricultural Income: ₹14,72,695 12.1 Thus, we note that there is variable difference in the value of agricultural income shown and claimed and disallowed by the AO. Further, the voluminous evidence filed is being considered for the first time, and the AO did not had an opportunity to examine its veracity or reconcile any possible inconsistencies. Thus, we are of the considered view that it would be just and appropriate to remit the matter back to the file of the AO for fresh adjudication. Accordingly, in the light of the principles of natural justice and fair play, and keeping in view that the adjudication should be based on a comprehensive appreciation of facts and materials, we direct the AO to examine the additional evidences submitted by the assessee and recompute the agricultural income accordingly. The AO shall afford reasonable opportunity to the assessee to explain the evidences and substantiate the claim. Accordingly, we set aside the impugned order of the ld. CIT(A) on this issue and restore the matter to the file of the AO for de novo adjudication in accordance with law. Hence, the ground of appeal is hereby allowed for statistical purposes.
13. The last issue raised by the assessee is that the learned CIT(A) erred in confirming the addition of Rs. 73,14,000/-by treating the unsecured loan from director as unexplained credit under section 68 of the Act.
Page 9 of 14 14. The necessary facts are that the assessee during the year under consideration has shown receipt of unsecured from its director namely Smt. Ramya Ramesh Gowda for Rs. 73,14,0000/- only. However, the AO found that the assessee has neither provided confirmation nor any detail establishing the amount was received form the director. Thus, the AO held that the genuineness of unsecured loan not proved, and assessee failed to discharge the onus cast under section 68 of the Act and thereby the AO made addition of Rs. 73,14,0000/- by treating such loan as unexplained cash credit under section 68 of the Act.
The aggrieved assessee preferred an appeal before the learned CIT(A).
The assessee before the learned CIT(A) submitted that the provision of section 68 of the Act requires assessee to explain the nature and sources of credit. The nature of credit is unsecured loan which was received from the director who signed its balance sheet. Hence inherently the detail of nature and sources of the credit has been provided along PAN of lender. The assessee accordingly claimed that its onus was discharged. Before the learned CIT(A) the assessee also submitted confirmation copy from the director.
16.1 The assessee additionally submitted that no opportunity by the AO during the assessment proceeding to explain the credit entry was provided. Further, the statement of the director was recorded during the assessment but no questioned was raised regarding the unsecured loan.
Page 10 of 14 17. The learned CIT(A) found that the loan was received from the director thus apparently the identity of the lender was established. However, other detail to establish the genuineness of the loan was not provided. Hence assessee failed to discharge the onus. Accordingly, the learned CIT(A) confirmed the addition made by the AO.
Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.
The assessee before us filed additional evidence in the form of loan confirmation from director, his return of income for 3 years, summary of income and director bank statements etc. Considering the facts that the above additional evidences are crucial to the issue on hand therefore exercising the power under rule 29 of the ITAT, we accept the same.
The learned AR before us submitted that the loan in dispute was taken by the assessee from its director and this fact was very much in the knowledge of the authorities below. Accordingly, this same cannot be treated as unexplained cash credit under section 68 of the Act in the hands of the assessee.
On the other hand, the learned DR before us vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. The provisions of section 68 of the Act fastens the liability on the assessee to make proper and .
Page 11 of 14 reasonable explanation regarding the nature and sources of sum credited in the books to the satisfaction of the AO. The assessee is liable to provide proof of the identity of the lenders, establish the genuineness of the transactions and creditworthiness of the parties.
Now, 1st we proceed to understand the identity of the party. The 23. identity of the party refers to the existence of such party which can be proven based on the evidences. As such the identity of a party can be established by furnishing the name, address and PAN detail, bank details, passport and other details of the Government agencies.
The next stage comes to verify the genuineness of the transaction. Genuineness of transaction refers what has been asserted is true and authentic. A genuine transaction must be proved to be genuine from all prospective and not merely on paper. The documentary evidences should not provide a mask to cover the actual transaction or designed in way to present the transaction as true but the same is not. Genuineness of transaction can be proved by submitting confirmation of the party along details of mode of transaction but merely showing transaction carried out through banking channel is not sufficient enough. As such, the same (genuineness) should also be proved by circumstantial/ surrounding evidences as held by the Hon’ble Supreme court in case of Durga Prasad More reported in 82 ITR 540 and in case of Smt. Sumati Dayal reported in 214 ITR 801.
The last stage comes to verify the creditworthiness of the parties. The term creditworthiness as per Black Law Dictionary refers as:
Page 12 of 14 "creditworthy, adj. (1924) (Of a borrower) financially sound enough that a lender will extend credit in the belief default is unlikely; fiscally healthy- creditworthiness.
Similarly in The New Lexicon Webster's Dictionary, the word "creditworthy" has been defined as under:- "creditworthy, adj. of one who is a good risk as a borrower."
It the duty of the assessee to establish that creditor party has capacity to advance such loan and having requisite fund in its books of account. The capacity to advance loan can be established by the showing sufficient income, capital and reserve or other fund in the hand of creditor. It is required by the AO to find out the financial strength of the creditor to advance loan with judicious approach and in accordance with materials available on record but not in arbitrary and mechanical manner.
In the light of the above discussion, we proceed to adjudicate the issue on hand. The assessee during the year shown receipt of unsecured loan of Rs. 73.14 Lakh from its director. The identity of the creditor Smt. Ramya Ramesh Gowda is not disputed. Thus, the issue before us remains only in relation to genuineness of the transaction and creditworthiness of the parties.
From the preceding discussion, we note that the assessee during the appellate proceeding furnished confirmation letter and detail such as name, address and PAN of the director were already on record. The learned CIT(A) has not considered all these facts and held, other than establishing the identity, that no other evidence was produced to .
Be that as maybe, we note that the assessee before us filed additional document in the form of confirmation letter, income summary of the lender/director, bank statement etc. In our considered opinion, the assessee discharged primary onus cast upon him by furnishing copy of PAN, confirmation and Bank statement, income summary etc of Smt. Ramya Ramesh Gowda and now onus shifted on the revenue to bring contrary material. However, the Revenue failed to discharge its onus before treating credit of loan from said director as unexplained cash credit which need to be set aside/deleted.
In view of the above, we hold that the assessee discharged the onus cast under section 68 of the Act therefore we hereby set aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is hereby allowed.
In the result, the appeal of the assessee is hereby partly allowed for statistical purposes.