THUCANAICKENPALAYAM MARANNAN MANOHARAN,ERODE vs. ITO, WARD-2(4), ERODE

The assessee had also filed the ledger of his capital account in all his partnership firms and proprietorship for the year. However, the AO did not accept the assessee’s explanation for the following reasons; :-3-: ITA. No: 824/Chny/2025 a. Net agricultural income claimed by the appellant for the year was Rs.14,52,973/- and not Rs.19,50,148/- b. No expenditure was booked by either the appellant or the firm towards excess net agricultural income of Rs.4,97,175/- c. Neither excess income from sale of turmeric stock nor expenses against the same was booked during the A.Y.2016-17.

The AO thus proceeded to make an addition of Rs.18,84,065/- as the assessee's unexplained investment. The break-up of the same is as follows:

Challenging these additions, the assessee filed the an before the ld.CIT(A). The assessee submitted before the ld.CIT(A) that the very same explanation and also filed the ledgers of his capital account in the following firms and proprietorships;

The assessee highlighted all the agricultural income credited to his capital (which included both sale of turmeric and sugarcane) and also the withdrawals to meet the agricultural expenses. He further submitted the abstract of his agricultural income and expenses for this year, which the Ld.AR has placed in the Paper-book filed before us at Pgs.41 & 42. Furthermore, the assessee also submitted the sales bills issued for the sale of turmeric before the ld.CIT(A) to evidence the same.

Aggrieved by the order of the ld.CIT(A), the present appeal has been preferred before us. In relation to the addition to the extent of Rs.13,86,890/-, the Ld. AR submitted before us that though the proceeds from the sale of turmeric were omitted to be included in the ITR filed for this year, the same were duly recorded by the assessee in the ledgers in the capital account in the firms and proprietorships. To evidence the same, he took us through the ledgers of the assessee’s capital account in the firms and proprietorships, highlighting the agricultural income credited on various dates and withdrawals for meeting the agricultural expenses. He also showed us the sales bills issued for the sale of turmeric, which were admittedly filed before the ld.CIT(A).

The ld.AR further submitted that the ld.CIT(A) had erred in appreciating these evidence and had merely confirmed the additions. He thus prayed for the addition to be deleted as the assessee had duly proved the income from the sale of turmeric stock. In relation to the remaining portion of the addition of Rs.4,97,175/-, the Ld. AR submitted that the same was incorrect as the AO had compared the net agricultural income declared in the ITR of Rs.14,52,973/- with the gross agricultural income credited in M/s.Rathna & Co. of Rs.19,50,148/-. Нe submitted that the AO ought to have seen that the actual gross agricultural income during the year, including the sale of turmeric was higher, at Rs.35,61,038/-, and even the gross agricultural income deficiently declared in the ITR was higher, at Rs.21,74,148/-. He thus prayed for the addition to be deleted in full.

The Ld. DR on the other hand relied on the orders of the sub-ordinate authorities to state that the assessee's claim of income from sale of turmeric stock is an afterthought and that the same cannot be accepted. She further submitted that though the assessee had produced the sale bills, no proof :-5-: ITA. No: 824/Chny/2025 regarding the cultivation of the crops was submitted by the assessee and that in the absence of the same, the addition needs to be sustained.

We have heard both the parties perused the materials available on record and gone through the orders of the lower authorities along with the paper book filed. The total addition of unexplained investment made by the AO for this year was Rs.18,84,065/-. We shall first deal with the 2nd portion of the addition, to the extent of Rs.4,97,175/-, which the AO has made by comparing the gross agricultural income credited in M/s.Rathna & Co. with the net agricultural income declared in the ITR. Such a comparison is by itself defective, as the AO has compared the gross receipts credited in the capital account with the net income declared in the ITR. As rightly submitted by the Ld.AR, the gross agricultural income declared in the ITR, even excluding the same from turmeric stock, comes to Rs.21,74,148/-, which is more than the gross receipts credited to the capital of Rs.19,50,148/-. Further, we note that the AO has erred in not considering the gross collection of agricultural income for the purpose of cash flow. Hence, this portion of the addition of Rs.4,97,175/- is unsustainable and we direct the AO for deleting the same.

Coming to the remaining portion of the addition of Rs.13,86,890/-, the same had been explained by the Ld.AR before us, to be from the sale of turmeric stock. The AO had made the addition for the reason that the same was not recorded in the ITR and no additional expenses were booked for the same. We note that the ld.CIT(A) upheld the addition by observing that this explanation furnished was an afterthought. Having perused the ledger accounts of the assessee in the firms and proprietorship, we see that the sale proceeds from turmeric stock have duly been credited in the capital and also there have been regular withdrawals to meet agricultural expenses. Though the assessee has failed to include the same in the ITR, the fact remains that the proceeds and expenses have been duly recorded in his books. Hence, the argument that the explanation was an afterthought has no merits and the same is rejected.

Further, mere omission of sale of turmeric in the ITR cannot preclude the assessee from furnishing evidence for the same to explain the increase in the capital. Having furnished the sale bills before the ld.CIT(A), the ld.CIT(A) ought to have verified the same and we do not countenance his action in failing to refer to the evidence in his order and upholding the addition by stating that the explanation was mere afterthought. It is pertinent to note that immediately succeeding year (i.e.) the A.Y.2017-18, the assessee’s net agricultural income of Rs.35,25,244/- was scrutinized and accepted by the AO vide his order of assessment u/s.143(3) of the Act for the A.Y.2017-18 dated 27.12.2019.

In the present facts and circumstances of the case, since the evidence such as the sales bills were not available with the AO, we remit this portion of the addition of Rs.13,86,890/- alone to the AO for verification along with ledger accounts furnished by the ld.AR. The AO shall examine the sales bills and any other evidence that the assessee may rely on and file in support of his claim. The AO shall also be at liberty to call for relevant details after providing sufficient opportunity.

In the result, the appeal filed by the assessee is partly allowed