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Facts
The assessee claimed exempt agricultural income in their returns for assessment years 2012-13 and 2013-14. Upon scrutiny, the Assessing Officer found no evidence of agricultural land ownership or activity and treated the claimed receipts as income from undisclosed sources under Section 69 of the Income Tax Act, 1961.
Held
The Tribunal held that the assessee failed to provide any evidence to substantiate the claim of agricultural income. The affidavits submitted to explain the discrepancy were found to be self-serving and filed with an inordinate delay, without justification.
Key Issues
Whether the claim of agricultural income, unsupported by evidence, was rightly disallowed by the Assessing Officer and confirmed by the CIT(A)?
Sections Cited
69, 271F, 271(1)(c), 271B, 143(2), 142(1)
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Order PER LALIET KUMAR, J.M: Both the above appeals have been filed by the Assessee against the separate orders of Ld. CIT(A)/NFAC, Delhi each dt. 27/02/2023 pertaining to Assessment Years 2012-13 & 2013-14 respectively. 2. Since the issues involved in both the above appeals are common and were heard together so they are being disposed off by this consolidated order for the sake of convenience and brevity. 3. Firstly, we shall take up the appeal in for the Assessment Year 2012-13 as a lead case for discussion, wherein assessee has raised the sold effective ground which read as under:
“That the Ld. Commissioner of Income Tax (Appeal) is not justified in upholding the order of the Ld. Assessing Officer, whereby the Ld. AO has treated the gross agricultural receipt of Rs. 60,25,751/- as income from undisclosed sources under section 69 of the Income Tax Act, 1961.”
The facts in brief are that the assessee filed a return of income declaring exempt income on account of agricultural activity. In the 2 subsequent year too, a similar claim was made. The case was selected for scrutiny, and the Assessing Officer required the assessee to substantiate the claim of agricultural income. 4.1 Upon verification, it was foundj by the AO that the assessee neither owned nor cultivated any agricultural land. Consequently, the Assessing Officer treated the claim as untenable and added the corresponding income to the total income of the assessee.
Feeling aggrieved by the order the assessee preferred the appeal before the Ld. CIT(A). During appellate proceedings, the assessee submitted an affidavit asserting that the claim of agricultural income was made due to an inadvertent error. A supporting affidavit from the Chartered Accountant was also filed. However, the Ld. CIT(A) noted that the claim had been made repeatedly, and no evidence whatsoever was furnished to establish ownership, possession, or agricultural activity. He accordingly confirmed the additions.
Feeling aggrieved by the order passed by the Ld. CIT(A), the assessee is in appeal before us, on the ground mentioned hereinabove.
Before us, the Ld. AR reiterated that the claim was made by mistake and should not have been treated adversely in the assessment. Reliance was placed on CIT v. Reliance Petroproducts Pvt. Ltd. [(2010) 322 ITR 158 (SC)], wherein the Hon’ble Supreme Court held that a mere incorrect claim does not ipso facto amount to furnishing of inaccurate particulars.
The Ld. Sr. Advocate for the assessee had submitted that there was inadvertent mistake / error on the part of the assessee as well as the ITP who had filed the return of income of the assessee. In support the assessee. In support of the above the Ld. Sr. Advocate had drawn our attention to the Affidavit filed by both assessee as well as by the ITP which are available at page 25 & 26 of the paper book which are to the following effect:
3 Deliberately left
Based on the above, it was submitted that the error had been committed by the Income Tax Practitioner (ITP), who has duly acknowledged in an affidavit that, due to a mistake in the return of income filled by him, the 5 assessee had wrongly claimed certain income as agricultural income. Therefore, it was contended that the benefit of such a mistake should not enure to benefit of the revenue and must be decided in favour of the assessee. it was further submitted that the assessee may be permitted to withdraw his claim of having earned agricultural income during the relevant assessment years. The Ld. Sr Advocate had also relied upon the decision of the Hon’ble Supreme Court in the case of CIT, Bombay City I Vs. Messrs. Shoor Ji Vallabhdas And Co. dt. March 27 1962 wherein our attention was drawn to the following :
“In Chamanlal Mangaldas & Co.'s case (supra), the assessee was also the managing agent of a company, and under the agreement was entitled to receive commission at a certain rate. By another agreement, the commission earned by the managing agent for the calendar year 1950 was reduced by Rs. 1 lakh. That agreement took place during the previous year, and the resolution of the board of directors of the managed company was also in the previous year. It was, however, made final on April 8, 1951, at a meeting of the board of directors, but that was beyond the previous year. The High Court of Bombay held that by reason of the resolution during the currency of the previous year, the right of the assessee to commission ceased to be under the original agreement and depended upon and arose only after the decision of the board of directors to reduce the commission. The assessee was, therefore, not held liable on the larger sum which, it was held, was only a hypothetical income, which it might have earned if the old agreement had continued to subsist. The facts of the present case are almost identical, and the principle applied by the Bombay High Court governs this case. The reason is plain. Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a "hypothetical income", which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account. This is exactly what has happened in this case, as it happened in the Bombay case Commissioner of Income-tax v. Chamanlal Mangaldas & Co. [1956] 29 ITR, which was approved by this court. Here too, the agreements within the previous year replaced the earlier agreements, and altered the rate in such a way as to make the income different from what had been entered in the books of account.' A mere book-keeping entry cannot be income, unless income has actually resulted, and in the present case, by the change of the terms the income which accrued and was received consisted of the lesser amounts and not the larger. This was not a gift by the assessee firm to the managed companies. The reduction was a part of the agreement entered into by the assessee firm to secure a long-term managing agency arrangement for the two companies which it had floated.”
The Sum and substance of the submission of the Sr. Advocate was that the Revenue should not gain out of the mistake committed by the assessee, and the tax should be levied on the real income.
Per contra, the Ld. Senior Departmental Representative (Sr. DR) drew our attention to the assessment order dated 01/12/2016, specifically to page 3 thereof, which records the following findings:
On the basis of the above, it was submitted that the assessee, for A.Y. 2012–13 and the subsequent A.Y. 2013–14, consistently claimed to have earned agricultural income. However, when the assessee’s case was selected for scrutiny assessment, the assessee reiterated during the assessment proceedings that the income declared was indeed agricultural.
Since the assessee failed to produce any evidence or proof of agricultural activities or ownership of agricultural land, the Ld. AO treated the said income as income from undisclosed sources.
The Ld. DR submitted that both at the time of filing the return of income and during the assessment proceedings, the assessee consistently maintained the stand that the income was agricultural. Ironically, when the AO decided the issue against the assessee by treating the income as non- agricultural, the assessee, feeling aggrieved by the order, preferred the present appeal before the Ld. CIT(A). In the appellate proceedings, the assessee filed a self-serving affidavit, seeking to justify that the claim of agricultural income was based on independent earning. 14.1 The Ld. DR submitted that the Hon’ble Supreme Court, held that an explanation for a false claim made by the assessee in the return of income must be substantiated by facts, and the onus is on the assessee to prove the same. It was further held that merely filing an incorrect audit report, without any corroborative evidence, is not sufficient to establish a bona fide error.
14.2 The Ld. DR, further submitted that the assessment proceedings are distinct from penalty proceedings, and where the assessee makes a claim completely unsupported by any fact, the AO is fully justified in rejecting the same and making the addition. He relied on Durga Kamal Rice Mills v. CIT [(2004) 265 ITR 25 (Cal)] where the Hon’ble Calcutta High Court held that where a claim is found to be patently false on examination of facts, the AO can disallow such claim even in assessment.
In rebuttal, the Ld. Senior Advocate submitted that the errors were inadvertent, and the only available recourse for the assessee was to rectify the same at the appellate stage. Therefore, it was urged that a lenient view may be taken in the interest of justice.
We have heard the rival contentions and perused the material on record. In the present case, the chronology of key events leading to the assessment is as under: Date of death of the father of the assessee: 04/04/2013 Date of filing of the return of income for A.Y. 2012–13: 22/11/2013 Date of filing of the return of income for A.Y. 2013–14: 26/11/2013 Date of notice under section 143(2): 12/09/2014
8 Date of notice under section 142(1): 19/12/2014 Date of passing of the order 24/03/2015 Date of filing of the appeal 05/05/2015 Date of filing of the Affidavit of assessee 11/04/2017 Date of filing of the Affidavit by Shri Ketan Sharma (ITP) 11/04/2017 17. From a conjoint reading of the dates mentioned hereinabove, it becomes abundantly clear that the assessee had claimed exempt agricultural income while filing the return of income on 22.11.2013. Thereafter, after a nearly four-year lapse, the assessee filed an affidavit during the appellate proceedings on 11.04.2017. Notably, the affidavits filed by both the individual and ITP, failed to provide any explanation for the inordinate delay in filing such affidavits. While the law indeed permits an assessee to rectify mistakes made in the return of income, it does not countenance a situation where a person plays hide and seek with the legal process and seeks to benefit from a calculated risk especially when the false claim made by the assessee has been detected and scrutinized by the Revenue authorities. Given the limited number of scrutiny assessments conducted, if such self- serving affidavits are accepted without credible justification, it would undermine the integrity of the system, disincentivise the Revenue authorities from diligently detecting wrong claims, and incentivise unscrupulous assessee to make false declarations. Such conduct, aimed at subverting the purity of the legal and tax administration system, cannot be approved. 17.1 Further, the issue before us is whether the claim of agricultural income, unsupported by evidence of landholding or agricultural activity, was rightly disallowed in assessment proceedings. It is settled law that an assessee is duty-bound to furnish correct particulars of income in the return and substantiate all exemptions or deductions claimed therein. While the Hon’ble Supreme Court in Reliance Petroproducts (supra) clarified that a wrong claim per se does not attract penalty, it does not mean that the AO is bound to accept such a claim in assessment if it is not supported by facts. 17.2 In the present case, the assessee has not produced any land records, khasra girdawari, or any agricultural produce sale evidence. The repeated
9 claim of agricultural income, even in the subsequent year, belies the plea of inadvertent error. The affidavits filed are self-serving and not corroborated by independent evidence.In our view, the ratio in Durga Kamal Rice Mills (supra) aptly applies, wherein it was held:
“The AO is entitled to draw an inference from the facts before him and reject a claim which is unsupported and factually untenable, even if there is no penalty consequence.”
Given the above facts and judicial precedents, we find no infirmity in the order of the CIT(A) confirming the addition.
In the result, the present appeal of the Assessee is dismissed.
Both the parties fairly submitted that the facts and circumstances of other appeal i.e Chd/2023 are exactly identical to the Appeal in and similar contentions raised therein may be considered, therefore, our findings and directions given in ITA No. 229/Chd/2023 shall apply mutatis mutandis to other appeal also.
In the result, both the above appeals filed by the Assessee are dismissed.