ASSISTANT COMMISSIONER OF INCOME TAX, MADURAI vs. S. RAJENDRAN, CHITHARAL

The brief facts of the case are that the assessee is an individual and filed his return of Income for A.Y.2015-16 on 21.03.2016 admitting total income of Rs.97,58,480/-. The assessee is carrying on two businesses as proprietary concerns viz. Conventional country brick manufacturing unit and another is Quarry producing blue metals and M Sand. The case was selected for scrutiny and assessment was completed u/s.143(3) of Income Tax Act, 1961 (in short ‘the Act’) after making an addition of Rs.21,000/- u/s.40(a)(ia) of the Act, thus determining total income of Rs.97,79,480/-. Subsequently, the PCIT-1, Madurai vide order u/s.263 dated 05.05.2020 set aside the assessment to verify the following claims made by the assessee: Rs. 1 Agricultural Income 40,00,000 Genuineness of the following sundry 2 creditors a) Rahul Son of the Assessee 51,98,944 b) KKM Blue Metals 1,14,82,120 c) KKM Bricks Units 93,00,000 Total 2,59,81,064 3 Claim of depreciation on opening W.D.V 1,49,01,920 :-4-: ITA. Nos.:2903 & 2904/Chny/2024 4. The Assessing Officer (in short ‘AO’) initiated fresh assessment proceedings to give effect to the directions of the ld.PCIT as per the order u/s.263 of the Act. The AO completed the assessment under sec.143(3) r.w.s.263 r.w.s.144B of the Act and passed the Assessment Order dated 28.03.2022. During the proceedings, the assessee submitted that he owns 71.05 acres of rubber plantation and also coconut plantations in Kanyakumari District. The assessee filed details of land holdings, crops grown particulars, certificate from Revenue Authorities. Further, it was stated that the Inspector from the Income Tax Department physically visited the rubber plantations in connection with the scrutiny proceedings of A.Y.2013-14. It was also submitted that in the earlier and subsequent scrutiny assessment proceedings, the AO accepted the agricultural income declaring more than Rs.40,00,000/- per annum. However, on perusal of the submissions, the AO disallowed the claim of agricultural income and added Rs.40,00,000/-.

In respect of sundry creditors, the AO himself accepted the credit in the name of Mr.Rahul, son of the assessee and did not make addition. However, the remaining sundry creditors in the books of KKM Blue Metals, it was submitted that they were old creditors not relating to this year and therefore it cannot be added in this year. Further it was submitted that the assessee offered income of Rs.1,12,03,358/- as Income Under IDS 2016 as part of sundry creditors. Similarly in respect of amount of Rs.93,00,000/- shown as Sundry Creditors in the books of KKM Bricks unit, the assessee claimed that it related to earlier assessment years and was the opening balance brought forward from 31.03.2014 and copy of the Balance Sheet as on 31.03.2014 was filed. However, the AO did not accept the submission and added both the amounts without even mentioning the section under which the addition is made.

Further, in respect of depreciation, it was submitted that it related to the assets purchased in the earlier years and the depreciation was claimed on the opening written down value and the same cannot be disallowed in this year. However, the AO disallowed the depreciation despite the fact that the required particulars were filed. Aggrieved by the order of the AO the assessee preferred an appeal against the above additions/ disallowances in the assessment order dated 28.03.2022 before the ld.CIT(A), NFAC, Delhi.

The issue of addition of sundry creditors was dealt with by the ld.CIT(A) in his order in Paras 6.4.1. to 6.4.7. In Para 6.4.6 the ld.CIT(A) referred to the submissions of assessee that the amount of Rs.1,12,03,358/- was disclosed under IDS Scheme 2016 vide Form 4 dated 25.09.2017 for the AY.2014-15. That in the return for AY.2015-16 filed on 21.03.2016, this amount was claimed as opening balance. He observed that the AO, NFAC was of the view that the declaration made does not reflect sundry creditors. The ld.CIT(A) on perusing the records held that the AO NFAC in the set aside assessment order has treated the sundry creditors as business income only. He held that the basis for rejection by the AO is not correct. In respect of the balance amount of Rs.93,00,000/- relating to KKM Bricks Unit, the ld.CIT(A) observed that it has been claimed that the same was outstanding as on 31.03.2014 and is evidenced by the copy of Balance Sheet as on 31.03.2014. The ld.CIT(A) held that the AO, NFAC has not disputed this fact but made the addition in AY.2015-16. The ld.CIT(A) in para 6.4.7 of his order concluded that “Once the Assessing Officer has accepted that the credits were not relating to this year, it lacks logic to review the same in the year under consideration. As the assessment for the AY.2014-15 did not result in any conclusion about the closing balance of sundry creditors making addition of the same amount for the AY.2015-16 is devoid of merits.”

In so far as the disallowance of depreciation claimed amounting to Rs.1,49,01,920/- is concerned, the ld.CIT(A) dealt with this issue in the order at Paras 6.5.1. to 6.5.4. In Para 6.5.2., the ld.CIT(A) referred to the submission of assessee that the depreciation claim pertains to the WDV as on 01.04.2015 in respect of the machineries installed during the F.Y.2013-14 relevant to AY.2014-15. Further, reference was also made to the Order of the Chennai Tribunal in the assessee’s own case for A.Y.2015-16 in dated 30.08.2023. In this order, the Tribunal rejected the direction of Ld.PCIT to the AO to verify the details of machineries since it was held that the assessee had explained to the AO that the same is opening WDV and produced all the bills with ledger account copy of A.Y.2014-15 during an enquiry. The Ld.CIT(A) concluded at Para 6.5.4. that “In view of the specific findings of the Hon’ble ITAT in the matter of depreciation claimed by the appellant, the undersigned is of the considered view that these grounds raised by the appellant do not require any further adjudication.” Thus, the ld.CIT(A) directed the AO to delete the disallowance of Rs.1,49,01,920/- made for AY.2015-16.

Aggrieved by the order of the ld. CIT(A) deleting the additions, the Revenue has challenged in this appeal before us.

The ld.DR assailing the action of the ld.CIT(A) submitted that the ld.CIT(A) has erred in allowing the appeal of the assessee on all three grounds and relied on the order of the AO and reiterated the grounds of appeal. The ld.DR submitted that Ld.CIT(A) erred in deleting the addition made by AO under the head Income from other sources of Rs.40,00,000/-, on the ground that chitta and adangal were produced without appreciating the fact that the assessee did not produce any evidence to prove the fact of earning agricultural income. Further the ld.DR stated that the Ld.CIT(A) erred in not appreciating the fact that each assessment is a standalone proceeding and the issues thereon have to be evidenced and supported by the necessary documentary proof for their acceptance & the extrapolation of agricultural incomes of other AYs without any factual finding is not acceptable.

Per contra, the ld.AR for the assessee supported the order of the ld.CIT(A) and submitted that the assessee had not produced any fresh evidence before the ld.CIT(A) and hence there is no reason to interfere in the order of the FAA. The ld.AR reiterated that the assessee owns 79.92 acres of rubber plantation and derived agricultural income of Rs.38,05,954/- during AY 2013-14 and the same was accepted after the personal inspection of the rubber plantation by the Income Tax Inspector as per his enquiry report dated 23.10.2015. The ld.AR drew our attention to the report of the Inspector of Income Tax is placed in Paper Book-1 at page 2 & 3 and copy of the assessment order and tax computation sheet is in pages 4 to 7 for the A.Y.2013-14, basis on which Rs.38,05,954/- claimed as agricultural income for the assessment year 2013-14 was accepted.

Further, the ld.AR submitted that as per the report of the Inspector of Income- tax, 54.19 acres were yielding rubber for four years in Mancode Village and 22.33 acres in Chitharal, Kodumkulam and Nalloor villages were yielding rubber for 5 years and therefore the agricultural income declared of Rs.40,00,000/- is reasonable and correct. The details filed before the AO during the course of the fresh assessment proceedings including the details of land holdings, crops grown particulars, certificate

The ld.AR submitted that the credit balance of Rs.1,14,82,120/- in the books of accounts of KKM Blue Metals, Rs.1,12,03,358/- represents the credit balance as on 31.03.2014 as per the Balance Sheet (page 8 of paper book-1). Similarly, he submitted that the credit balance of Rs.93,00,000/- in the books of accounts of KKM Bricks Unit represents the credit balance brought forward from 31.03.2014 as per the Balance Sheet (page 9 of paper book-1). He further submitted that only the credits made during the relevant year can be assessed u/s.68 of the Act and the opening credit of earlier years carried forward cannot be assessed in the current year. Section 68 of the Act reads as under:- Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year…. From the plain language of the section reproduced above, the credit in any previous year can be assessed only in that relevant year. The Assessing Officer did not give a finding in the assessment order that the credits were introduced during this year. The addition cannot be made u/s.41(1) towards remission of liability as it was not written back to the Profit and Loss account by crediting as stipulated u/s.41(1) in the Explanation to that section.

Without prejudice to the above, the assessee had filed the details of 5 names of the creditors and submitted that he has voluntarily come forward and offered the above creditors for tax under IDS Scheme 2016. The details of declaration under IDS are in pages 30 to 37 of paper book-2. However, the AO did not accept the same on the ground that on verification of Form 4 issued by the department accepting the IDS application, the above amount of Rs.1,12,03,358/- is under :-9-: ITA. Nos.:2903 & 2904/Chny/2024 business income, that too for AY 2014-15. The corresponding expenses/purchases claimed under the head business were outstanding as creditors in the balance sheet as on 31.03.2014 and therefore the same was offered as business income for AY 2014-15. There is nothing wrong in offering the income under the head business for AY 2014-15. The AO has not pointed out how the income offered under the IDS Scheme was different from those credits claimed as expenditure in earlier years. The ld.AR shown the details of Sundry Creditors for the year ended 31.03.2014 (A.Y 2014-15) and 31.03.2015 (A.Y 2015-16) as detailed below: Sl. Name of the Creditors Balance as on Balance as on No. 31.03.2014 31.03.2015 A.Y 2014-15 A.Y 2015-16 Rs. P. Rs. P. 1 Babulens Enterprises 2,30,000.00 2,30,000.00 2 Creative Manufacturing Solutions 27,17,554.00 27,17,554.00 3 Lakshmi Innovations 10,00,000.00 10,00,000.00 4 Propel Industries 70,85,754.00 68,06,609.00 5 Saravana Electrical 1,70,050.00 1,70,050.00 6 GMMCO Limited - 50,964.00 7 JN Machineries PVT Ltd - 35,885.00 8 Sri Rama Engineering Works - 2,75,362.00 9 Stone Crusher - 25,100.00 Vetri Construction Equipment 10 Company - 1,70,596.00 1,12,03,358.00 1,14,82,120.00 17. The balance as on 31.03.2014 (Assessment Year 2014-15) of Rs.1,12,03,358/- (Sl.No.1 to 5) was offered as Income under the “Income Declaration Scheme 2016”. Other accounts stated above (Sl.No.6 to 10) have been squared by bank payments in subsequent years. Further, the ld.AR argued that the ld.CIT(A) held that the AO, NFAC in the set aside assessment order has treated the sundry creditors as business income only and so his reasoning to confirm the addition was incorrect and had rightly deleted the addition.

In respect of the addition of Rs.93,00,000/- of KKM Bricks Unit, the ld.AR submitted that it was outstanding even as on 31.03.2014. The AO in the assessment order did not dispute the fact that it was outstanding as on 31.03.2014 but made an addition only on the ground that names and addresses of the creditors were not :-10-: ITA. Nos.:2903 & 2904/Chny/2024 submitted. When the AO accepted that the credits were not relating to this year, it is outside the purview of his enquiry because only the credits introduced in the current year can be examined by him. The ld.AR argued that the proceedings for AY 2015- 16 were pending before AO and hence AO cannot examine the credits relating to earlier years. In fact, the credits were closed subsequently by supplying materials to them and such sales are admitted as income in the year of sale. As the credits are not relating to this year as admitted by the AO himself, no addition can be made in the impugned assessment year. In support the ld.AR relied on the decision of the Delhi High Court in the case of CIT Vs Usha Stud Agricultural Farm Ltd. reported in 301 ITR 384 (page no.18 of paper book-1).

The ld.AR also stated that ground No.3 raised on this issue is misleading. It is submitted that the Balance Sheet of AY.2014-15 and also the IDS Declaration are part of the record before the AO and they are not fresh evidence for consideration by the ld.CIT(A). Hence, the question of invoking Rule 46A of I.T.Rules does not arise at all. In view of the above, the ld.AR submitted that the deletion of Rs.2,07,82,120/- (1,14,82,120 + 93,00,000) was correctly made by the FAA and the grounds of department deserves to be dismissed.

With regard to disallowance of depreciation, the ld.AR submitted that the Chennai Tribunal vide its order in dated 30.08.2023 had held that the assessee had explained to the ITO in the course of original assessment proceedings that the same is opening WDV and produced all the bills with ledger account copy of AY.2014-15 during an enquiry and on this score, the Tribunal rejected the direction of Ld.PCIT to the AO to verify the details of machineries. (ITAT order - page 10 of paper book-1). In view of the above arguments and submissions the ld.AR prayed for dismissing the appeal of the revenue.

We have carefully considered the rival submissions advanced by both sides and have perused the material available on record, including the assessment order and the written submissions filed before us. The assessee is an individual and filed his return of Income for A.Y.2015-16 on 21.03.2016 admitting total income of Rs.97,58,480/- along with the agricultural income of Rs.40,00,000/-. It is an admitted fact that the assessee is carrying on two businesses as proprietary concerns viz.

During the proceedings, the assessee submitted that he owns 71.05 acres of rubber plantation and also coconut plantations in Kanyakumari District. The assessee filed details of land holdings, crops grown particulars, and a certificate from Revenue Authorities. The assessee also stated that the Inspector from the Income Tax Department physically visited the rubber plantations in connection with the scrutiny proceedings of A.Y.2013-14. It was also submitted that in the earlier and subsequent scrutiny assessment proceedings, the AO accepted the agricultural income declaring more than Rs.40,00,000/- per annum. However, on perusal of the submissions, the AO disallowed the claim of agricultural income and added Rs.40,00,000/-.

In respect of sundry creditors, AO himself accepted the credit in the name of Mr.Rahul, son of the assessee and did not make an addition. However, the remaining sundry creditors in the books of KKM Blue Metals, it was submitted that :-12-: ITA. Nos.:2903 & 2904/Chny/2024 they were old creditors not relating to this year and therefore it cannot be added in this year. Further it was submitted that the assessee offered income of Rs.1,12,03,358/- as Income Under IDS 2016 as part of sundry creditors. Similarly in respect of amount of Rs.93,00,000/- shown as Sundry Creditors in the books of KKM Bricks unit, the assessee claimed that it related to earlier assessment years and was the opening balance brought forward from 31.03.2014 and copy of the Balance Sheet as on 31.03.2014 was filed. However, the AO did not accept the submission and added both the amounts without even mentioning the section under which the addition is made.

In respect of depreciation, it was submitted that it related to the assets purchased in earlier years and the depreciation was claimed on the opening written down value and the same cannot be disallowed in this year. However, the AO disallowed the depreciation despite the fact that the required particulars were filed.

On appeal, after considering the submissions and supporting documents placed the ld.CIT(A) passed an order dated 19.09.2024 and allowed the appeal of the assessee.

The revenue has aggrieved by the decision of the Ld.CIT(A) in deleting the addition made by AO under the head Income from other sources of Rs.40,00,000/-, on the ground that chitta and adangal were produced, without appreciating the fact that the assessee did not produce any evidence to prove the fact of earning of agricultural income.

On perusal of the order of the ld. CIT(A) and the submissions made by the ld.AR, we find that the assessee has been regularly declaring the agricultural income in his return of income filed from year on year. Further, in support of the order of the ld.CIT(A), the ld.AR filed two paper books consisting of Chart of Agricultural income for various years, report of the Income Tax Inspector on physical verification of the land holding and crops grown, Financials of the assessee as on 31.03.2014, 31.03.2015, 31.03.2017, 31.03.2019, Chitta and Adangal issued by the VAO, summary of Agricultural land holding, Assessment orders u/s.143(3) of the Act for the A.Ys.2017-18, 2018-19 for having accepted the agricultural income declared by :-13-: ITA. Nos.:2903 & 2904/Chny/2024 the assessee, Declaration of IDS 2016 and Form 3 and 4 issued by the department, the decision of this tribunal against the order of the ld.PCIT u/s.263 of the Act along with the case law relied upon by the assessee.

We note that the AO has disallowed the agricultural income claimed as exempt and treated it as taxable income under the head income from other sources stating that the receipt of any exact amount has not been provided by the assessee. However, the ld.CIT(A) deleted the addition under ‘other sources’ of the agricultural income of Rs.40,00,000/- in Para 6.3.7, by holding that the AO while completing the scrutiny assessment for the A.Y.2013-14 has accepted the report of ITI and accepted the claim of agricultural income amounting to Rs.38.05 lakhs for AY.2013- 30. He further observed that for AY.2017-18 & 2018-19, the claim of agricultural income of Rs.80,00,000/- and Rs.80,81,810/- were also accepted by the AO in the orders passed u/s.143(3) of the Act respectively. The ld.CIT(A) also gave a finding that the ld.PCIT while passing order u/s.263 of the Act did not have the benefit of the details filed by assessee before the AO in AY.2015-16 and so had no occasion to appreciate the claim of agricultural income. The ld.CIT(A) concluded that “in view of the fact that the ITI had made a visit to the agricultural lands owned by the appellant and has made a specific report about the earning of agricultural income by the appellant, there can be no ground to arrive at any adverse conclusion”.

In this regard, we find that the assessee, his wife and children are holding the land to the tune of 78.24 acres at Kanyakumari District and 40.18 Acres at Tirunelveli district and cultivated for earning the agricultural income as per the chart provided by the ld.AR (Page No.53 to 55 of the paper book) having crops of Rubber, Black pepper, coconut, Tamarind, Arecanut and plantain etc., In support of the same the assessee had furnished the Chitta and Adangal issued by the VAO (Page No.43 to 52 of the paper book). Further, we also note that the assessee has been declaring the agricultural income regularly in his return of income, which has been accepted by the department in their orders passed either u/s.143(3) or 143(1) of the Act from A.Y. 2013-14 to 2022-23 as detailed below:

In the present factual matrix, we find that there is no dispute in regard to holding of agricultural land by the assessee. Further, it is not the case that the assessee has sold the property or slaughtered the plantations or coconut trees considering the contemporaneous evidence produced by the assessee. It is pertinent to note that the agricultural income has been declared regularly by the assessee in his return of income filed with the department and the same has been accepted by the department either u/s.143(3) or u/s.143(1) of the Act, excepting the impugned year. Therefore, we do not countenance the action of the AO in rejecting the exemption of the agricultural income arbitrarily. In the present facts and circumstances of the case, we are of the considered view that AO has erred in bringing the agricultural income as taxable under the head income from other sources. Therefore, we do not find any infirmity in the order of the ld.CIT(A) in deleting the additions. Thus, we dismiss the related grounds raised by the revenue.

The next issue is of addition of sundry creditors of Rs.1,14,82,120/- made by the AO on account of KKM Blue metals and Rs.93,00,000/- shown in KKM Bricks Unit. Though the assessee has explained that the amount is carried forward from the earlier years financials and the same has already been offered as income in IDS 2016 scheme and discharged the taxes and obtained the Form 4 also from the department to the tune of Rs.1,14,82,120/-, the AO was not convinced and has made the addition. The form 4 obtained under IDS 2016 scheme for having declared the sundry creditors as income, has been brought to the notice of the AO, during the first assessment proceedings u/s.143(3) of the Act. The assessee submitted that the sundry creditors of Rs.93,00,000/- shown in KKM Bricks Unit is carried forward from the balance sheet as on 31.03.2014. However, the AO made an addition stating that the assessee has not furnished the details of Name, PAN and other details to show the liability. The ld.CIT(A) considering the submissions of assessee, found that the amount of Rs.1,12,03,358/- was disclosed under IDS Scheme 2016 vide Form 4 dated 25.09.2017 for the AY.2014-15. That in the return for AY.2015-16 filed on :-16-: ITA. Nos.:2903 & 2904/Chny/2024 21.03.2016, this amount was shown as opening balance. He observed that the AO, NFAC was of the view that the declaration made does not reflect sundry creditors. The ld.CIT(A) on perusing the records held that the AO, NFAC in the set aside assessment order has treated the sundry creditors as business income only. He held that the basis for rejection by the AO is not correct.

In respect of the balance amount of Rs.93,00,000/- relating to KKM Bricks Unit, the ld.CIT(A) observed that it has been shown that the same was outstanding as on 31.03.2014 and is evidenced by the copy of Balance Sheet as on 31.03.2014. The ld.CIT(A) held that the AO, NFAC has not disputed this fact but made the addition in AY.2015-16. The ld.CIT(A) in para 6.4.7 of his order concluded that “Once the Assessing Officer has accepted that the credits were not relating to this year, it lacks logic to review the same in the year under consideration. As the assessment for the AY.2014-15 did not result in any conclusion about the closing balance of sundry creditors making addition of the same amount for the AY.2015-16 is devoid of merits.”

Thus, the ld.CIT(A) directed the AO to delete the addition of Rs.2,07,82,120/- made as business income for the AY.2015-16. We note that the assessee has clearly stated that the sundry creditors related to the opening balance carried forward from the previous year balance sheet as on 31.03.2014. The credit balance of Rs.1,14,82,120/- in the books of accounts of KKM Blue Metals, Rs.1,12,03,358/- represents the credit balance as on 31.03.2014 as per the Balance Sheet (page 8 of paper book-1). Similarly, the credit balance of Rs.93,00,000/- in the books of accounts of KKM Bricks Unit represents the credit balance brought forward from 31.03.2014 as per the Balance Sheet (page 9 of paper book-1). We are aware that the credits made during the relevant year only can be assessed u/s.68 of the Act and the opening credit of earlier years carried forward cannot be assessed in the current year. Section 68 of the Act reads as under:- Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year….

We find that the AO did not give any finding in the assessment order that the credits were introduced during this year. Therefore, the addition cannot be made

Further, we also find that the assessee had filed the details of 5 names of the creditors and has voluntarily offered to tax under IDS Scheme 2016. The details of declaration under IDS are in pages 30 to 37 of paper book-2. However, the AO did not accept the same on the ground that on verification of Form 4 issued by the department accepting the IDS application, the above amount of Rs.1,12,03,358/- is under business income, that too for AY 2014-15. We find that the assessee has explained that the corresponding expenses/purchases claimed under the head business were outstanding as creditors in the balance sheet as on 31.03.2014 and therefore the same was offered as business income for AY 2014-15. The AO has not pointed out how the income offered under the IDS Scheme was different from those credits claimed as expenditure in earlier years. The details of Sundry Creditors for the year ended 31.03.2014 (A.Y 2014-15) and 31.03.2015 (A.Y 2015-16) as detailed below: Sl. Name of the Creditors Balance as on Balance as on No. 31.03.2014 31.03.2015 A.Y 2014-15 A.Y 2015-16 Rs. P. Rs. P. 1 Babulens Enterprises 2,30,000.00 2,30,000.00 2 Creative Manufacturing Solutions 27,17,554.00 27,17,554.00 3 Lakshmi Innovations 10,00,000.00 10,00,000.00 4 Propel Industries 70,85,754.00 68,06,609.00 5 Saravana Electrical 1,70,050.00 1,70,050.00 6 GMMCO Limited - 50,964.00 7 JN Machineries PVT Ltd - 35,885.00 8 Sri Rama Engineering Works - 2,75,362.00 9 Stone Crusher - 25,100.00 Vetri Construction Equipment 10 Company - 1,70,596.00 1,12,03,358.00 1,14,82,120.00 39. The balance as on 31.03.2014 (Assessment Year 2014-15) Rs.1,12,03,358/- (Sl.No.1 to 5) was offered as Income under the “Income Declaration Scheme 2016”. Other accounts stated above (Sl.No.6 to 10) have been squared by bank payments in subsequent years.

Further, the assessee has not furnished any fresh evidence before the ld.CIT(A) other than the Balance Sheet of AY.2014-15 and the IDS Declaration are part of the record before the AO and they are not fresh evidence for consideration by the ld.CIT(A). Hence, there is no question of invoking Rule 46A of I.T.Rules. Thus, the grounds of revenue are dismissed.

The next ground of appeal raised by the revenue is ld.CIT(A) has erred in deleting the disallowance of Depreciation claimed of Rs.1,49,01,920/- by not calling for a remand report as mandated under Rule 46A of the Act on the submission of the assessee as the AO categorically in his order stated that no details were furnished during assessment proceedings. On perusal of the records and submissions we find that the matter remanded by the ld.PCIT for verification to the AO in his order u/s.263 of the Act, has already been quashed by this Tribunal in its order in dated 30.08.2023 by observing that the assessee had explained to the ITO in the course of original assessment proceedings that the same is opening WDV and produced all the bills with ledger account copy of AY.2014-15 during an enquiry. Therefore, we do not find any fault in deleting the disallowance of Depreciation on machinery by the ld.CIT(A) in his order. Further, we do not find any fresh evidence before the ld.CIT(A) to decide this issue in favour of the assessee. Therefore, in our considered view there is no violation of Rule 46A of the IT Rules and hence, we confirm the order of the ld.CIT(A) on this issue. We order accordingly.

The assessee in the return of income filed for the A.Y.2020-21 on 29.03.2021 by admitting a total income of Rs.13,07,07,740/- along with an agricultural income of Rs.1,72,08,324/-. The case was selected for scrutiny assessment and while passing the order the Assessment Unit observed that the assessee has failed to furnish complete details, documentary evidences regarding agricultural receipts, agricultural expenses, failed to furnish bank accounts to prove the genuineness of agricultural income; disbelieved the agricultural income returned and assessed the entire agricultural income of Rs.1,72,30,372 as unexplained credit u/s.68 of the Income Tax Act and also levied tax u/s.115BBE. The assessment was completed u/s.143(3) r.w.s 144B of the Act by an order dated 22.09.2022. Thus, he determined the total income as Rs.14,79,38,112/-.

The assessee filed an appeal before the ld.CIT(A) disputing the addition u/s.68 of the Act. The ld.CIT(A), vide order dated 19.09.2024 deleted the addition u/s.68 made by the officer of the agricultural income returned by assessee. During the appellate proceedings the assessee submitted that the pre-requisites for applying u/s.68 of the Act are totally absent in the case of assessee and that the denial of agricultural income returned cannot be assessed u/s.68 as unexplained credits.

Further, the assessee submitted that, the explanations as to the agricultural income were given and records to prove the ownership of agricultural lands and receipt of income thereof, had produced land records - Chitta Adangal giving details of crops cultivated, certificate from the Village Administrative Officers certifying the extent of land, crop cultivated and in the case of rubber plantations – yield per acre. The rubber prices are governed by International Market and published in the Daily Newspapers. Further the Income Tax Department themselves have accepted the existence of vast areas of agricultural lands owned by the assessee, receipt of agricultural income every year after personal inspection of the agricultural lands by :-20-: ITA. Nos.:2903 & 2904/Chny/2024 the Officers of the Income Tax Department during scrutiny proceedings in the earlier assessment years. The Department has personally inspected and satisfied themselves on several occasions about the ownership of agricultural lands and receipt of agricultural income before accepting the agricultural income returned by the assessee during scrutiny proceedings. Hence it was submitted before ld.CIT(A) that invoking the provisions of Section 68 of the Act for agricultural income is contrary to law and against the principles of natural justice.

On perusal of the submissions, the ld.CIT(A) noted that assessee all along for the earlier years has been claiming agricultural income which is rising year on year. This is on account of the fact that assessee being a long-standing agriculturist with substantial landholdings and carrying out predominantly plantations of Rubber, Coconut, etc.. The ld.CIT(A) observed in Para 6.3.7 that the assessee has provided documentary evidence, such as sales invoices and landholding certificates from the Village Panchayat Authority, which support the claim of agricultural income. The ld.CIT(A) concluded at Para 6.3.8. that the AOs reliance on provisions of section 68 of the Act to treat the entire agricultural income as unexplained is not appropriate as the assessee had been claiming agricultural income year on year. In doing so, the ld.CIT(A) took note of the report of the Inspector of Income Tax on physical examination of the lands in the course of assessment for AY.2013-14. On the basis of the report, the AO accepted the agricultural returned by assessee for that year. The ld.CIT(A) also considered that for AY.2015-16, he had allowed the agricultural income of Rs.40,00,000/-. Further, the AO, NFAC has accepted agricultural income of Rs.80,00,000/- and Rs.80,81,810/- for the A.Y. 2017-18 and 2018-19 respectively. The return of income having agricultural income of Rs.1,07,00,000/- was accepted for the A.Y. 2019-20 in their intimation u/s.143(1) of the Act.

The ld.CIT(A) in his order accepted the higher agricultural income for the AY.2020-21 owing to increase in yield and better price realization for Rubber and getting full yield in coconut from 40.18 acres of plantation. The ld.CIT(A) also referred to the Hon’ble Apex Court decision in the case of Dakeswari Cotton Mils Ltd. Vs.CIT for the proposition that in making an assessment, the AO is not entitled to make pure guess and make an assessment without reference to any evidence on :-21-: ITA. Nos.:2903 & 2904/Chny/2024 any material at all. The Hon’ble Supreme Court had held that the assessment must not be made on mere suspicion but on legitimate material from which a reasonable inference may be drawn. The ld.CIT(A) concluded by holding that “In the present case, the AO before invoking the deeming provisions of section 68 of the Act has not brought on record any cogent and corroborative evidence to prove that the assessee has actually received any explained credits. In the appellant’s case, the AO rejected the agricultural income claim without disproving the certificates and sale invoices provided by the appellant. Further, the AO has not disproved the landholding or cultivation records but has only expressed suspicion about the lack of expense details but has treated the entire agricultural receipts as unexplained cash credits without specific evidence to prove that the income is fictitious. Mere lack of detailed expense records should not lead to the denial of agricultural income unless the AO can prove that the income is fabricated.”

The ld.DR for the revenue supported the order of the AO and submitted that the Ld.CIT(A) erred in deleting the addition made by AO under the head Income from other sources of Rs.1,72,30,372/-, on the ground that chitta and adangal were produced without appreciating the fact that the assessee did not produce any evidence to prove the fact of earning of agricultural income. Hence, the ld.DR prayed for setting aside the order of the ld.CIT(A) by confirming the order of the AO.

Per contra, the ld.AR for the assessee supporting the order of the ld.CIT(A), submitted that the assessee is owning the following agricultural land along with the crop details: Rubber Plantations In Puliyoorsalai & Mancode areas : 62.056 acres In Attoor village : 10.105 acres In Thiruvattar : 6.750 acres Total area under rubber trees : 78.911 acres Coconut Plantations In Kasthoorirengapuram Gramam, Radhapuram, Tirunelveli : 56.32 acres

The lands stated above are part of the fixed assets schedule as on 31.03.2020 of the assessee. It is submitted that normally the yield from rubber plantation peaks between the 10th to 30th year of cultivation. The rubber yield had been increasing year on year and from the current year good income has been :-22-: ITA. Nos.:2903 & 2904/Chny/2024 generated. Further, the market price of rubber was also on the rise in this year. These factors contributed to the higher agricultural income returned by assessee.

It is submitted that the Ld.CIT(A) had rightly appreciated that Assessing Unit failed to take on record the various attestations from Governmental Departments in support of the possession of agricultural land owned by the assessee where he extensively grows rubber trees, coconut trees. Further, all transactions regarding agricultural income had passed through his bank accounts. It is beyond comprehension that the AO could disbelieve the agricultural income returned in the face of extensive agricultural lands held by assessee and the consistent agricultural income returned by assessee in all the earlier years and also accepted by the Department. The higher income in this year is attributable to the higher yield of rubber in this year and also the better price realization for the produce.

The ld.AR submitted that it is pertinent to note that agricultural income of Rs.80,00,000/- returned for assessment year 2017-18 has been accepted by the Department in the scrutiny proceedings order 143(3) dated 15.04.2019. (Refer to page 1 of Paper book-2), which has been selected for verification of agricultural income. Similarly, for the assessment year 2018-19, the agricultural income of Rs.80,81,810/- has been accepted by the National e-Assessment Centre, Delhi vide its order u/s.143(3) r.w.s 143(3A) & 143(3B) dated 20.03.2021. (Refer to page 4 of Paper book-2), wherein the case was selected for limited scrutiny for issues – agricultural income and details of assets and liabilities.

Further, the ld.AR also stated that in the asst. year 2019-20, the agricultural income returned by the assessee of Rs.1,07,00,000/- has been accepted by the Department u/s.143(1). (Refer to page 24 of Paper book-2)

The ld.AR stated that the above Income Tax assessments prove the existence of agricultural land, agricultural activities on a large scale and receipt of agricultural income all of which have been accepted by the Department all these years. All the above points clearly justify the existence of agricultural lands, earning of agricultural income and acceptance of the same by the Department in all these years. It is paradoxical that the Assessment Unit did not find any agricultural income

Further, the ld.AR stated that assessee’s authorized representative during the Video Conferencing before the AO, reiterated that the increase in agricultural income is due to higher yield and increase in price of rubber and getting full yield for the first time from 40.18 acres of coconut garden. The above facts were clearly mentioned in our letter dated 22.03.2022 submitted before the NFAC. In spite of elaborate submissions made by assessee on the issue, the AO had denied the entire agricultural income claimed by assessee on mere suspicion and without due regard to the Bonafide evident from the records of earlier years, wherein agricultural income from the same lands had been accepted in the assessment.

Further, the ld.AR reiterated that the Report of the Inspector of Income Tax Department dated 23.10.2015 (at page 3 of paper book-1) had stated that he had physically visited the assessee’s rubber plantations to enquire about the agricultural income claimed in the return of income filed on 28.4.2014 for AY.2013-14. The ITI also noted that the land under rubber cultivation was 79.92 acres. It is further, submitted that the Ld.CIT(A) had appreciated these factual details and accepted the claim of agricultural income. Hence, the ld.AR prayed confirming the order ld.CIT(A) by dismissing the appeal of the revenue.

We have carefully considered the rival submissions advanced by both sides and have perused the material available on record, including the assessment order and the written submissions filed before us. The assessee in the return of income filed for the A.Y.2020-21 on 29.03.2021 has admitted a total income of Rs.13,07,07,740/- along with an agricultural income of Rs.1,72,08,324/-. The AO has disallowed the agricultural income claimed as exempt and treated as unexplained income and brought to tax u/s.68 r.w.s 115BBE of the Act. However, the ld.CIT(A) deleted the addition of an agricultural income of Rs.1,72,08,324/- stating that the higher agricultural income for the AY.2020-21 owing to increase in yield and better price realization for Rubber and getting full yield in coconut from 40.18 acres of plantation. Further, ld.CIT(A) also taking into consideration of the preceding and :-24-: ITA. Nos.:2903 & 2904/Chny/2024 subsequent years’ agricultural income declared and accepted by the revenue along with the report of the ITI for the A.Y. 2013-14 in respect of the agricultural land holding and crops grown by the assessee, deleted the additions.

On perusal of the records, it is undisputed fact that the assessee is holding around 78.911 acres having rubber plantations and 56.32 acres of coconut plantations. Further, the crops grown in the above agricultural land is also not disputed by the revenue. In support of the same the assessee also submitted the require documents like Chitta and adangal.

We find that the ld.CIT(A) has made a finding that all the transactions regarding agricultural income had passed through his bank accounts. It is beyond comprehension that the AO could disbelieve the agricultural income returned in the face of extensive agricultural lands held by assessee and the consistent agricultural income returned by assessee in all the earlier years and also accepted by the Department.

In this regard we note that an agricultural income of Rs.80,00,000/- returned for assessment year 2017-18 has been accepted by the Department in the scrutiny proceedings order u/s.143(3) of the Act dated 15.04.2019 (page 1 of Paper book-2)., which has been specifically selected for verification of agricultural income. Similarly, for the assessment year 2018-19, the agricultural income declared of Rs.80,81,810/- has been accepted by the National e-Assessment Centre, Delhi vide its order u/s.143(3) r.w.s 143(3A) & 143(3B) of the Act dated 20.03.2021 (page 4 of Paper book-2), wherein the case was selected for limited scrutiny for verification of issues – agricultural income and details of assets and liabilities.

We also find that for the asst. year 2019-20, the agricultural income returned by the assessee of Rs.1,07,00,000/- has been accepted by the Department u/s.143(1). (page 24 of Paper book-2). Further we find that during the course of assessment proceedings for preceding A.Y.2013-14, the AO had deputed the Income Tax Inspector (ITI) for physical verification of the holding of the agricultural land and the crops grown to find out the genuineness of the agricultural income

In the present factual matrix, we find that there is no dispute in regard to holding of agricultural land by the assessee. It is pertinent to note that the agricultural income has been declared regularly by the assessee in his return of income filed with the department and the same has been accepted by the department either u/s.143(3) or u/s.143(1) of the Act. In the present facts and circumstances of the case and the reasoning as discussed above, we are of the considered view that AO has erred in bringing the agricultural income as taxable u/s.68 of the Act arbitrarily and hence, we do not find any infirmity in the order of the ld.CIT(A) in deleting the additions. Thus, we dismiss the related grounds raised by the revenue.