VTP FOODS,PUNE vs. ITO WARD 7 (3), PUNE

Facts of the case, in brief, are that the assessee is an AOP and engaged in agricultural activities. It filed its return of income on 20.10.2017 declaring Nil income. The case was selected for complete scrutiny under the norms of CASS. Accordingly statutory notices u/s 143(2) and 142(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) were issued and served on the assessee in response to which the AR of the assessee appeared before the Assessing Officer and filed the requisite details from time to time.

According to the Assessing Officer, the details provided by the assessee do not commensurate with its claim of agricultural income and cash deposits. He therefore, asked the assessee to explain as to why an amount of Rs.50,99,000/- should not be brought to tax within the meaning of section 69A of the Act and also to explain as to why an amount of Rs.30,53,475/- should not be treated as ‘Income from other sources’. The relevant show cause notice issued by the Assessing Officer reads as under: “You have provided 7/12 extract in the name of the partner's of the firm. The 7/12 was not on the name of the firm. The 7/12 extract is the real time record of land and crops maintained by the revenue department. The Talathi as per his visits and information collected from other revenue workers made entries on 7/12. Further as per the 7/12 extract the entire land was non-irrigated land, and conversely you have claimed to be an irrigated land. Further as per the 7/12 the crop's cultivated shown are Bajari, hulga, mataki, sitaphal etc. All these crops are non irrigated crops. However, you have claimed irrigated crops grown ie. vegetables and fruits cultivated from the land. Thus, your claim of cultivation of irrigated crops is not commensurate with the land record of revenue You have claimed that crops like lady finger, cluster been, tomato, brinjal, papaya, lemon grass leaves, spinach, Green Zukkini, basil etc were produced. You were specifically requested to provide the crop wise area cultivated, Quantity of crop produced/yield, Period of sale made, Quantity of crop sold etc. However you failed to provide the same. Therefore your claim that the above crops were cultivated is not acceptable. You were specifically requested to provide the quantitative details of crops produced. However, you failed to provide the same. You have also failed to produce the sales bills of crops, Pattis, bills issued by purchasers, cess receipt of market comittees. It was submitted that the agricultural products sold on local market. However the names and complete address of the purchasers not provided. As stated by you the firm is doing producing of quality organic agri. products and sold at VTP foods retail outlets placed in malls. However no evidences regarding the same i.e. agreements with malls, rent agreements, details of good transportation etc are provided. Further the evidences of expenses for grading, packing, and sales at retail outlets have not been provided. Therefore your claim of sale of agri, products is improper. 8 You have provided copies of few bills of expenses for agricultural activities. On verification of the bills of expenses it is seen that most of the expenses have been Incurred towards development of land ie. leveling, dumping etc for the period of August 2016 to March-2017. It is thus noted that these expenses have been incurred towards non agricultural activities and not on cultivation. 8.1. Further you have claimed that the land was handed over to VTP Food which was under cultivation for agriculture. However on verification of return of income of the land owners for A.Y 2015-16, 2016-17 & 2017-18 it is seen that they have not shown any agricultural income any of the year. This clearly shows that the land was not under cultivation. Thus you have been failed to establish that the land was under cultivation and the so called crops were cultivated and sold in cash.

We own a TATA truck, which is appearing the fixed assests. This vehicle is used for deliveries, also some transport charges are debited to profit and loss account, some parties collect directly, Ledger of the same was attached in earlier submissions. Hence the contention that details of transportation are not provided, is incorrect.

A few sample bills of expenses were uploaded for your verification. Request you to kindly refer to the Balance sheet where in the fixed Assests an amount of Rs. 2.30 Crores appears as Capital Cost. This the expense incurred towards development of land. Only the expenses incurred towards cultivation like fertilizer, compost, labour, etc are claimed as expenses against agriculture receipts.

As correctly mentioned by you 7/12 extract is the real time record of land and crops maintained by the revenue department. The Talathi as per his information collected from other revenue workers and sometimes of his own make entries on 7/12. However, the records of the Talathi are not updated. An updated 7/12 extract is being procured and will be submitted to your Honour within a week.

As all the receipts are explained and duly recorded in regular books of accounts we request your honour not to add any amount to the returned income. The agriculture activity is genuine and if required please conduct field verification to ascertain the same. Considering the above, we request your Honour not to treat any amount as unexplained.”

In appeal the Ld. CIT(A) / NFAC sustained both the additions. So far as the addition of cash deposit of Rs.50,99,000/- is concerned, he sustained the addition by observing as under: “6.0 Ground no. 1, 2, and 3 are with regard to addition of Rs.50,99,000/-. The appellant has argued that the matter was explained to the Investigation Wing of the Department. This argument is not a valid argument. It was his duty to explain the matter before the Assessing Officer. Moreover, he has not explained it before the CIT(A). Any legal conclusion cannot be reached, based on the explanation before some other authority. In similar circumstances, the assessees argue against the Department that Notice u/s 148 is issued on borrowed satisfaction, i.e. at the instance of Investigation Wing. Without prejudice to this, the manner of deposit and withdrawal thereafter of Rs.50,99,000/- also indicate that the money did not have any connection with the so called agricultural receipt of the appellant AOP. The analysis of the Assessing Officer at para 10, page 4 of the order appears to be more reasonable than the argument of the assessee. The argument of the assessee as well as the facts and circumstances related to deposit of Rs.50,99,000/-on 18.11.2016 and that also during the demonetization period are against normal human probability. The assessee has not cooperated in enquiry by the CIT(A), which is evident from the non-compliance to the three letters issued as mentioned above. So, this addition is sustained.”

So far as the addition of Rs.30,53,475/- by treating the agricultural income as ‘Income from other sources’, he also sustained the same by observing as under: “7.0 Ground no. 4, 5, 6 and 7 relate to treatment of 30,53,475/- as income from other sources. The assessee has argued that the Assessing Officer has made the addition on irrelevant considerations as well as on conjecture and surmises. The appellant has further argued that the AO should have visited the site of Agricultural production. These arguments of the appellant are just academic as they are not supported by any facts and figures. A.O. is not supposed to go to the land for verifying agricultural activity. Moreover, his visit also would not have revealed the truth as he was proceeding to the assessment after about two years

Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds: The following grounds are taken without prejudice to each other - On facts and in law, 1] The assessee requests for condonation of delay of 519 days in filing the appeal since there was reasonable cause on its part for not filing the appeal within the prescribed time limit. 2] The learned CIT(A) has erred in confirming the addition of Rs.50,99,000/- made u/s 69A r.w.s. 115BBE of the Act on account of cash deposit in the bank account during the demonetization period. 3] The learned CIT(A) erred in confirming the addition of Rs.50,99,000/- on the ground that the assessee had not complied to the enquiries raised during the appellate proceedings. 4] The learned CIT(A) erred in holding that the cash deposit of Rs.50,99,000/- in the bank account during the demonetization was beyond human probabilities and hence, addition was rightly made by the learned A.O. 5] The learned CIT(A) erred in rejecting the contention of the appellant that the cash deposited in the bank account of Rs.50,99,000/- was out of the agricultural income earned by the assessee. 6] The learned CIT(A) erred in not appreciating that the assessee was carrying out agricultural operations at Village Malthan and the cash

The Ld. Counsel for the assessee strongly challenged the order of the Ld. CIT(A) / NFAC in dismissing the appeal filed by the assessee. He submitted that the assessee is having around 100 acres of agricultural land from which the assessee during the year under consideration, has derived the agricultural income. Referring to the Profit and Loss Account for the financial year 2016-17, copy of which is placed at page 188 of the paper book, the Ld. Counsel for the assessee submitted that after considering the expenses the assessee has declared net loss of Rs.1,81,459.25 and has not derived any benefit by claiming excess agricultural income. Referring to the audited financials for financial year 2017-18 i.e. relevant to assessment year 2018-19, copy of which is placed at pages 255 to 272 of the paper book, he drew the attention of the Bench to the Profit and Loss Statement for the year ended 31.03.2018 (page 256) and submitted that the revenue from the operations during the year has been shown at Rs.49,12,359/-. Referring to the audited financials for assessment year 2018-19 i.e relevant to assessment year 2019-20, copy of which is placed at pages 273 to 291 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the Profit and Loss Statement for the year ended 31.03.2019 (page 274) and submitted that the revenue from operations have been shown at Rs.1,62,76,836/- and other income at Rs.21,81,135/-. He submitted that a comparison of the Profit and Loss Account for all the three years would show that the assessee is consistently showing the receipt from agricultural operations. Further in the subsequent years such agricultural income has been accepted. Referring to page 10 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the various submissions made before the Assessing Officer. Referring to page 4 of the order of the Ld. CIT(A) / NFAC, the Ld. Counsel for the assessee drew the attention of the Bench to the various details filed before the Ld. CIT(A) / NFAC which are as under: Subject: Enquiry for the purpose of appeal proceedings-reg.

Brief note about the activity related to agriculture.

Copy of Bank Statements for F.Y 2015-16, 2016-17 and 2017-18 3. Copy of invoices for sale of product.

Referring to the copy of Cash Book for the financial year 2016-17, copy of which is placed at pages 39 to 169 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to page 110 of the paper book and submitted that the assessee has deposited the cash of Rs.50,99,000/- on 18.11.2016. He submitted that the cash so deposited was out of cash available in assessee’s cash book which is regularly maintained. He accordingly submitted that the order of the Ld. CIT(A) / NFAC sustaining both the additions made by the Assessing Officer is not justified and therefore, the same should be deleted.

The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC. He submitted that the onus is on the assessee to substantiate with evidence to the satisfaction of the Assessing Officer regarding the agricultural income received by him during the year. Further, it is not understood as to why and how the assessee, despite a having bank account, has kept so much of money in his hand and which was deposited on 18.11.2016. He accordingly submitted that the order of the Ld. CIT(A) / NFAC being reasoned one should be upheld and the grounds raised by the assessee be dismissed.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee and the Revenue. We have also considered the various decisions cited before us. It is an admitted fact that the Assessing Officer not being satisfied with the explanation given by the assessee made addition of Rs.50,99,000/- being the cash deposit in the bank account on 18.11.2016 i.e. during the demonetization period u/s 69A r.w.s. 115BBE of the Act. Similarly the balance amount of Rs.30,53,475/- (i.e. total income from agricultural operations at Rs.81,52,475/- less cash deposited in the bank account at Rs.50,99,000/-) was also added by the Assessing Officer by treating the same as ‘Income from other sources’. We find the Ld. CIT(A) / NFAC sustained both the additions, the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that the assessee is holding around 100 acres of agricultural land, in assessment year 2018-19 the assessee has disclosed agricultural receipt of Rs.49.12 lakh and in assessment year 2019-20 the assessee has disclosed agricultural receipt of Rs.1.62 crore. In the two subsequent years such agricultural receipt has been accepted and nothing has been added. It is also his submission that the cash so deposited in the bank account on 18.11.2016 is on the basis of availability of cash in the Cash Book. Further, it is also his submission that when all the necessary evidences were produced before the Assessing Officer, he was not justified in disregarding the agricultural income and making the addition of Rs.30,53,475/- apart from the addition of Rs.50,99,000/-.

We find some force in the above arguments of the Ld. Counsel for the assessee. There is no dispute to the fact of holding of around 100 acres of agricultural land by the assessee. It is also an admitted fact that in the subsequent two assessment years i.e. assessment year 2018-19 and 2019-20 the assessee has disclosed the agricultural receipt of Rs.49.12 lakh and Rs.1.62 crore respectively. It is also an admitted fact that the assessee has reflected such receipts on various dates in the Cash Book. Under these circumstances, disregarding the entire agricultural receipts in our opinion is not justified. At the same time, when the assessee was having a bank account, we fail to understand as to why the assessee was holding so much cash in his hands. Therefore, the argument of the Ld. Counsel for the assessee that no addition can be made also cannot be accepted. Since the assessee undisputedly was holding about 100 acres of agricultural land and in the two subsequent assessment years i.e. 2018-19 and 2019-20, the assessee has shown the gross receipts from the agricultural activity at Rs.49.12 lakh and Rs.1.62 crore respectively and nothing was brought by Revenue before us that such agricultural income was not accepted by the Revenue, therefore, disregarding the entire agricultural income of the impugned assessment year in our opinion is not justified. Considering the totality of the facts of the case, disallowance of 20% of such gross receipts of Rs.81,52,475/- in our opinion will meet the ends of justice. The order of the Ld. CIT(A) / NFAC is modified accordingly. Accordingly, we direct the Assessing Officer to restrict the addition to Rs.16,30,495/- as against the addition of Rs.81,52,475/- (i.e. Rs.50,99,000/- + Rs.30,53,475/-). Further, the provisions of section 115BBE of the Act in our opinion are not applicable to the facts of the present case since the receipts are from disclosed sources i.e. from agricultural activity only. We hold and direct accordingly. The grounds raised by the assessee are accordingly partly allowed.

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