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Income Tax Appellate Tribunal, “SMC B” BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI
Date of hearing : 07.01.2019 Date of Pronouncement : 10.01.2019 O R D E R
This appeal by the assessee is directed against the order dated 02.02.2018 of the CIT(Appeals)-10, Bengaluru for the assessment year 2014-15.
2. The assessee has raised the following effective grounds:-
“1. The learned Respondent Assessing Officer has erred in law by rejecting the agricultural income declared by the Appellant as stated above, on the ground that the land relating there too was purchased in the F.Y 2014-15, whereas the fact is that the Appellant had entered into an agreement of sale and taken the possession of the land and the cultivation is made in the F.Y 2013-14 itself.
2. The learned Respondent Assessing Officer has erred in law by rejecting the agricultural income, on the ground that the Appellant cultivated only "Jowar and Ragi" while the Appellant cultivated "Banana and Ginger" which are Commercial crops.
3. The learned Respondent Assessing Officer has erred in law by rejecting the agricultural income to the extent of Rs.29,32,653/-, on the ground that the sale consideration of the property was Rs. 27,00,000/-, since the land yield Agricultural receipts to the tune of Rs. 29,00,000/- cannot be imagined to be sold for Rs. 27,00,000/- by the seller. But the Assessing Officer failed to appreciate the fact that the seller is an ordinary agriculturist growing historical crops without employing much capital into the cultivation. Whereas the Appellant employed sizable amount of capital into the cultivation and grown commercial crops like banana and Ginger which are of high value crops. The yield derived from the developed land with the high- tech agriculture applying professional way of cultivation cannot be compared with the consideration paid to a land which was not properly looked after. Thus the comparison is the mismatch.
4. The learned Respondent Assessing Officer has erred in the law by rejecting agricultural income based on the departmental enquiry reports, as the said report was not forth before the Appellant for rebuttal.
5. The rejection of the agricultural income by the learned Assessing Officer, advancing various other reasons enumerated in the order is not correct for the detailed explanation furnished by the Appellant, as recorded in the impugned order, itself.
6. The learned Respondent Assessing Officer has erred in law by levying penalty u/s 234A of the Act and 234B of the Act, totally Rs. 4,35,888/-.”
The facts of the case are that the assessee filed his return of income for the A.Y 2014-15 on 09-10-2015 declaring income of Rs. 2,18,280/- under the head salary and Rs. 29,32,653/- as agricultural income. The case was taken up for scrutiny and the assessment u/s 143(3) was completed on 30-12-2016 on a total income of Rs. 31,50,933/- making disallowance of the claim of earning agricultural income amounting to Rs. 29,32,653/-.
The facts leading to the addition on account of rejection of the claim of earning agricultural income are that during the year under appeal, the assessee was employed with M/s. Greens Farmtech Pvt. Ltd. from which he received salary of Rs. 2,18,280/-. He claimed before the AO that he purchased agricultural land from Mr. Nived Prasanna for a consideration of Rs. 27 lakhs vide sale deed dated 24-04-2014. The AO noticed that the schedule to the sale deed showed the area of the land at 26 acres and 9 guntas and was a dry land. Further, the AO noticed that the land was purchased in the FY 2014-15, whereas the agricultural income was shown for the period of 2013-14. Before the AO, the assessee stated that he entered into an agreement dated 11-01-2013 on the basis of which the owner of the land gave possession to him.
However, the AO was not impressed with the assessee’s explanation and he rejected the claim observing that the assessee claimed to have paid Rs. 15 lakhs on 17-01-2013 and the balance amount of Rs. 12 lakhs on the date of registration of the property i.e., 24-04-2014. But the sale deed disclosed that the entire amount of Rs.27 lakhs was paid on the registration of the property i.e. on 24-04-2014. The sale deed brought out the fact that the land was handed over to the purchaser on the date of registration of the property i.e. 24-04-2014. Hence, it was concluded by the AO that taking possession of the land in the financial year 2013-14 was an afterthought.
Before the AO the assessee furnished RTCs in support of holding of agricultural lands by him at Madhihalli Hobli, Konayakanahalli. However, as per the RTC it was seen that the lands were transferred to the assessee during the financial year 2014-15. The RTCs declared crops grown in the said lands as Ragi and Jowar.
The AO conducted certain enquiries in order to verify the authenticity of the claim with regard to cultivation carried out by the assessee. Local enquiries were made and spot inspection was done by the Inspector on 27.07.2016 and 28.12.2016. It was reported by the Income-tax Inspector that not much of cultivation was there in the said lands in earlier years and only Jowar was grown during the year. Thus, the AO found that the RTCs and the Inspector's report complimented each other. The AO also doubted the claim that by purchasing lands for Rs. 27 lakhs the appellant can have agricultural produce worth more than Rs.29 lakhs in one year.
On the basis of the above findings the AO concluded that the claim of the assessee with regard to the receipt of agricultural income amounting to Rs. 29,32,653/- was false. Accordingly, he treated this as income from other sources.
The AO also noticed that there were huge cash deposits in the bank a/c of the assessee as follows:-
ICICI Bank Rs. 4,73,500 Karnataka Bank Rs.13,12,000 Corporation Bank Rs. 8,96,500 ----------------- Total Rs. 26,82,000 -----------------
Before the AO the assessee stated that the deposits were the sale proceeds of agricultural produce. Details were requisitioned but the assessee failed to submit such details. However, as the AO treated the agricultural income as income from other sources, no further addition was made on account of cash deposits in the banks.
On appeal, the CIT(Appeals) observed that it cannot be brought out that the assessee has earned agricultural income to the tune of Rs.29,32,653/-. As against this, the AO has very clearly brought out the facts of the case which proves beyond reasonable doubt that the assessee is making a false claim of earning agricultural income during the year. The contention of the assessee cannot be relied upon due to the following facts:-
i. The appellant produced before the AO an unregistered agreement showing that the possession of the land was handed over to him on 17-01-2013. In cases of transfer of property such a thing does not happen in ordinary course that possession is handed over before receipt of total consideration. It is not possible that someone would give possession of his land without getting the full value of consideration. Moreover, the registered sale deed very clearly shows that the payment was made on 24-04-2014 and the lands were handed over on that very date. As observed by the AO, the land deed mentions as below: "Whereas the schedule lands mentioned below is handed over by the vendor to the purchaser on this day together with all easement and customary rights path, road, water sources and all rights. ... The vendor hereby sells transfers and conveys all his rights, titles and interest over the schedule lands to the purchaser to own hold and enjoy the same by the purchaser, hereinafter with absolute right and forever without any hindrance or disturbance from the vendor or from any person claiming through or under them. The vendor Shall seize to have any right title or interest over the schedule hereinafter.” ii. The RTCs showed that the possession of the land was transferred to the appellant in the year 2014-15. It also showed the crops grown were Ragi and Jowar whereas, on the other hand, the appellant claimed growing ginger and paddy. Whatever may be the case, ginger and paddy cannot bring the appellant a whopping amount of more than 29 lakhs of rupees. iii. All the transactions claimed by the appellant are in cash. So the same cannot be verified beyond reasonable doubt.”
In view of the facts of the case and the findings of the AO, the CIT(Appeals) concluded that the AO is justified in treating the amount of Rs. 29,32,653/- as income from other source and not from agriculture and hence upheld the addition of Rs. 29,32,653/- .
Against the order of CIT(Appeals), the assessee is in appeal before me.
The ld. AR submitted that the assessee entered into agreement to purchase the agricultural landed property measuring 26 acres 9 guntas at Madhihalli Hobli, Konayakanahalli Village, Madihalli Hobli, Belur Taluk, Hassan District on 17.01.2013 for a consideration of Rs.27 lakhs. Out of this, the assessee has paid Rs.15 lakhs on entering into sale agreement, balance amount of Rs.12 lakhs was paid at the time of registration. The sale deed was entered into between the assessee and seller on 24.04.2014. In the meantime, the assessee got possession of the land and cultivated the same and earned income and deposited it into bank account. According to the ld. AR, as per clause (vii) of sale agreement, possession of land and property has been given to assessee on 17.01.2013. In support of this, he drew our attention to the copy of Affidavit dated 22.11.2016 wherein the Vendor confirming the handing over of the possession to the assessee. The said affidavit is placed on record at pages 37 & 38 of the PB. The ld. AR submitted that the AO drew inference that the agreement of sale is an afterthought on the reason that there was no mention of agreement of sale in the Sale Deed. According to the ld. AR, no reference of agreement of sale in the sale deed was just an error or an omission by the parties to mention it. That itself does not make that there was no agreement to sell dated 17.01.2013. According to the ld. AR, the possession of the land was handed over to assessee on 17.01.2013 and part of sale consideration of Rs.15 lakhs was paid on 17.01.2013 on entering into sale agreement. This was also confirmed by the Vendor vide an affidavit dated 22.11.2016 and it cannot be said that it was an afterthought for the simple reason that agreement to sell was entered on a stamp paper which was purchased on 15.01.2013. This proves the fact that agreement to sell was physically entered into between the parties on 17.01.2013. Since there was a time gap of 15 months between agreement to sell and entering into sale deed, the possession was handed over to the assessee as part of sale consideration of Rs.15 lakhs was paid to the Vendor. It was also submitted that because clause in the sale deed mentions that rights and other things were handed over to Purchaser, it does not mean that there was no possession given vide sale agreement of 17.01.2013. The said clause was mentioned in the sale deed in a routine manner as there was no mention of agreement to sell in the sale deed so as to facilitate the reading of the sale deed in isolation without referring to agreement to sell. According to the ld. AR, the assessee grew banana in 15 acres and ginger in 11 acres which is evidenced by the books of account produced before the AO. He drew our attention to the copy of letter dated 07.11.2016 where he is said to have produced copy of sale and purchase agreement and estates books of accounts like expenses bills, indent copies, etc., copy of letter placed at page 51 of PB.
He further submitted that product noted in the RTC that Ragi & Jowar is the historic record that was being cultivated much earlier. The said certificate was issued without verifying the latest position modifying the record. Since the revenue record was not updated from time to time, it cannot be considered as conclusive evidence. According to the ld. AR, after taking possession of land, he changed cultivation of the crop which was not updated by the revenue authorities.
The ld. AR submitted that according to the revenue, enquiries were carried out. Local enquiry and spot inspection was conducted through the Income Tax Officer ward-2 Masan, on 27th and 28th December 2016, to verify the authenticity of cultivation carried during the year 2013-14. As per the said enquiry, it appears, it is reported that there was no much cultivation in the said lands in the earlier years and presently only, jowar is grown. No other details of the report are found in the impugned order.
He submitted that the assessee was totally unaware of the enquiry or inspection conducted by the ITO at the back of the Appellant. It is not known who are the persons who carried the local enquiry and spot inspection. The details of local enquiry, such as the names and addresses of the persons, with whom the enquiries were made or any statements recorded in that behalf are not specified in the assessment order. It is not known who identified the property for spot inspection. The village area is very vast. Spot inspection of the land, identifying the same with survey numbers could be possible, only, with the help of State Revenue Authorities or the Assessee himself. In this background, how the spot inspection was conducted is not ascertainable from the assessment order. Any enquiry or spot inspection, if conducted at the back of the Assessee and such report is intended to be used against the Assessee, the same cannot be used against the Assessee, (it is customary), unless the same are put to the Assessee for his views on the same. In the instant case the Assessee came to know of the local enquiry and spot inspection, only, by a letter from the ITO dated 29-12-2016 i.e., one day prior to the assessment order dated 30-12-2016. In view of the above, the ld. AR contended that the so-called local enquiry and spot inspection is baseless and the same cannot be used against the assessee. Therefore the conclusion drawn by the AO regarding the crop grown, based on a baseless report, is not correct.
The ld. AR further submitted that in the subsequent assessment year, the AO mentioned that the Village Accountant, Madhihalli Hobli, Konayakanahalli Village, Belur Tq., Hassan Dist., vide letter dated 14.12.2017 stated that RTCs were upto date for the year 2013-14 with crop details as Plantain trees and Paddy in the said agricultural land owned by the assessee.
On the other hand, the ld. DR submitted that agricultural land was purchased vide Sale Deed dated 24.04.2014 and possession was given to assessee. This is also supported by the RTC issued by the revenue department. On verification of the agreement to sale and sale deed, the reply filed on 23-11-2016 cited above on the contention that the lands were in possession of the assessee during the FY 2013-14 for cultivation and that he has earned agricultural income of Rs.29 lakhs during the FY 2013- 14 cannot be accepted for the following reasons:- i) Payment of sale consideration 18.1.1 In the agreement of sale dated 17-1-2013 between Sri Nived M Prasanna and Mr. Anil C Gowda for transfer of agricultural lands at Konayakanahalli village, Hassan District, it is stated that the assessee has paid advance of Rs. 15 lakhs and the balance of Rs.12 lakhs to be paid before the registering authority. However, on perusal of the sale deed dated 24-4-2014 it is noticed that the purchaser i.e., assessee has purchased the property by paying sum of Rs.27 lakhs on the date of registration, relevant extract from the sale deed is as under:
“Whereas the purchaser has offered to purchase the properties for consideration Rs.27 lakhs which is the presets mantel and reasonable fair value and the vendor has accepted the afar and agreed to sell it at the said consideration. Now this deed witnesseth that in pursuance of the same a sum of Rs. 27 lakhs paid to vendor by the purchaser in cash before undersigned witness the vendor here acknowledges receiving said amount.” 18.1.2 Though the assessee states that the agreement is entered into on 17-1-2-13 and advance of Rs.15 lakhs paid and the balance of Rs.12 lakhs to be paid before the registering authority, the registered deed dated 24-4-2014 does not mention that advance of Rs.15 lakhs has been paid on the date of agreement, rather it only states that sale consideration of Rs. 27 lakhs is paid by the purchaser in cash before undersigned witness on the date of registration i.e., 24-4-2014. In view of the above, it is amply clear that the assessee was not in possession of the lands during the 2013-14 to earn agricultural income of Rs. 29.32 lakhs. On the strength of the registered sale deed being the date of actual possession of the lands by the assessee, the effort made by the assessee to furnish the agreement dated 17-1-2013, affidavit by the seller dated 22-11-2016 during the course of scrutiny proceedings are all an atter-thought of the assessee to claim that he was in possession of the lands and that he carried out cultivation earning income to the extent of Rs. 29 lakhs in the FY 2013-14.
(ii) Time line for completion of the transfer:
18.2.1 As per the agreement dated 17-1-2013 furnished by the assessee, the time for completion of the sale of the property in favour of the assessee is stated to be within 6 months from the date of agreement whereas the sale has been registered on 24-4-2014 after a lapse of 15 months from the date of agreement. As per the following clause of the sale deed the lands have been handed over on the date of registration which reads as under:-
“ Whereas the schedule lands mentioned below is handed over by the vendor to the purchaser on this day together with all easement and customary rights path, road, water sources and all rights. ... The Vendor hereby sells transfers and conveys all his rights, titles and interest over the schedule lands to the purchaser to own hold and enjoy the same by the purchaser, hereinafter with absolute right and forever without any hindrance or disturbance form. The vendor or from any person claiming through or under them. The vendor shall seize to have any right title or interest over the schedule hereinafter.” 18.2.2 Hence, the claim of the assessee that he took the possession as per agreement dated 17-1-2013 and the affidavit from the seller for handling over possession of lands to the assessee during the FY 2013-14 is not acceptable as it is an afterthought by the assessee to file the affidavit during the course of proceedings.
(iii) Filing of RTCs 18.3.1 During the course of proceedings, the assessee furnished RTCs in support of holding of agricultural lands by him at Madhihalli Hobli, Konayakanahalli. When a query was raised that as per the RTCs the lands were transferred to the assessee during 2014-15, the assessee claims that the data of sale deed mentioned in the RM are not conclusive document to prove since the possession of the property was given to the assessee much before the sale deed and that the assessee had started cultivation during FY 2013-14. Further with regard to the crops grown were ragi and jowar as per the RTCs. The assessee claims that the Revenue authorities have not verified the latest position and modified the crop details which were cultivated by him viz., Banana and Ginger.
18.3.2 If the assessee claims that the RTCs cannot be relied upon for the date of transfer of lands to the transferee and the crops mentioned in the RTCs to be not the actual crop grown in the said lands by the assessee, then why is such a document relied upon by the assessee to prove that the lands are held by him.
(iv) Quantum of agricultural income declared and the quantum of sale consideration paid.
18.4.1 As per the sale deed dated 24-4-2014, the agricultural lands have been purchased by the assessee by paying cash of Rs.27 lakhs on the date of registration. When the assesses claims that during the FY 2013- 14, he has earned agricultural income of Rs.29 lakhs, there is an ambiguity about the sale consideration for land purchased for sum of Rs.27 lakhs, since the land yielding agricultural receipts to the tune of Rs.29 lakhs cannot be imagined to be sold for Rs.27 lakhs by the seller.
18.4.2 As per the sale deed dated 24-4-2014, dry agricultural lands at Konayakanahalli Village, Hassan District measuring 26 acres and 09 guntas etc., were purchased during the FY 2014-15. However, the assessee claims that he has taken possession of the lands by way of agreement during 2013-14 and cultivated the lands. The assessee has not furnished substantiating proof for any improvement carried out by way of digging wells, borewells etc, in 26.09 acres of dry agricultural lands, which he claims to have yielded revenue to the tune of Rs.29.32 lakhs for the AY 2014-15. Hence, the books of accounts etc. furnished during the course of proceedings cannot be relied for the income declared under agriculture.
18.5.1 The ld. DR submitted that during the course of this proceedings, enquiries were carried out through the Income tax Officer, Ward-2, Hassan, in order to verify the authenticity of the cultivation carried out by the assessee at agricultural lands at konayakanahalli village, Madihalli Hobli, Belur Taluk, Hassan during the FY 2013-14. Based on the local enquiry and spot inspection by the Inspector on 27th and 28th December 2016, it is reported that there was no much cultivation in the said lands during the earlier years and presently only jowar is grown which stands justified as per the RTC filed for the said lands.
18.5.2 According to the ld. DR, the contention of the assesses that the product namely ragi and jowar noted in the RTC are historic record and the claim of the assessee that he has grown banana in 15 acres and ginger in 11 acres and that the crops grown by the assesses have not been updated by the Revenue Authorities is not acceptable in view of the fact that the present crop grown in the lands are reported to be jowar and there is no record for crop grown during FY 2013-14.
The ld. DR vehemently argued that sale agreement is an afterthought and fabricated one.
I have heard both the parties and perused the material on record. The AO decided the issue against the assessee on the primary reason that possession of agricultural land was not at all handed over to assessee on entering into agreement of sale on 17.01.2013. He was of the opinion that possession of agricultural land was handed to assessee on 24.04.2014. According to the AO, since the agricultural land was handed over only on 24.04.2014 for the assessment year under consideration, the assessee could not have earned agricultural income for the FY 2013-14 relevant to AY 2014-15. However, the assessee filed books of account before the AO vide letter dated 07.11.2016, but there is no finding given by the AO regarding the correctness of books of account produced by the assessee. He relied only on the RTC issued by Village Accountant.
Further, the assessee filed affidavit dated 27.11.2016 wherein it is confirmed that handing over of possession of agricultural property to assessee as per clause (7) of the said agreement. This affidavit was filed by the assessee before the CIT(Appeals). But neither the CIT(Appeals) nor the AO verified the contents therein by examining the concerned parties.
It is also observed that in the subsequent assessment year, the AO himself as accepted that in the FY 2013-14 relevant to AY 2014-15, the mention of growing Plantain trees and Paddy in RTC issued by Village Accountant vide his letter dated 14.12.2017. This goes contrary to the facts recorded by the AO in the impugned assessment order. Further, the reliance placed by the AO on the enquiry report conducted by the ITO, Ward-2, Hassan cannot be appreciated. This enquiry was made behind the back of the assessee and which was not put for comments from the assessee. Any evidence collected behind the back of a person against whom it is used, an opportunity of hearing has to be given, otherwise it is untenable in law. The enquiry was made on 27th & 28th December, 2016 which is subsequent to the financial year ending on 31.3.2014 i.e., long after the completion of financial year relevant to AY 2014-15. No credence can be given to this enquiry report/investigation report. With regard to the RTC issued by the Village Accountant, it contains the details of crop cultivated by the earlier Vendor and latest position was not updated. Hence it cannot be considered as conclusive.
I further make it clear that the AO should consider apparent as real, unless it is proved otherwise. Now the onus shifts on the department who alleges that possession was not given vide sale agreement. If the AO believes that sale agreement is not real and it is fabricated, he should prove that it is not real. However, no evidence has been brought on record to show that sale agreement was bogus or fabricated one. The AO/CIT(Appeals) always has the power and freedom to ‘go behind’ the documents to find out the real intention of the parties and he must have done so to find out the real intention of the parties. That presupposes that in a given case, the real intention of the parties to a document/transaction/arrangement could be different from what it appears from it ex facie. The AO must normally proceed on the basis of professed intention. But if that is under doubt or dispute or challenged, then has a power to find out the real intention of the parties by ignoring the apparent has to be, and has always been conceded. It is difficult to imagine whether this is possible, except in cases of make believe arrangement or a subterfuge or a dubious or a colourable device adopted. In such a case, the AO will be merely removing the façade to expose the real intention of the parties cleverly cloaked and if that intention is discovered to be the evasion of taxes, it cannot be given the effect to, merely because all the steps taken as component parts of the arrangement are legally correct or valid. The right of the parties to enter into the transaction according to their free will or choice has always been protected, the only rider being that both the professed intention and the real intention should be the same. The income-tax authorities have without exception been denied the right to vary the terms of the contract between the parties merely because the agreed terms are not to their liking in the sense that they do not add to the statistics of collection of taxes. Thus, all commercial arrangements and documents or transactions have to be given effect to even though they result in a deduction of the tax liability, provided that they are genuine, bona fide and not colourable transactions.
In the present case, the assessee produces the agreement to sell wherein there is a clause of handing over possession of landed property to the assessee and this was confirmed by the seller that he has handed over the landed property on entering into sale agreement. There is evidence produced by the assessee before the AO in the form of estate books of account like expense bills, indent copies. However, the lower authorities opted not to comment on these documents and went on to hold that possession of property was not at all handed over to assessee vide agreement of sale dated 17.01.2013. In my opinion, the evidence brought on record by the revenue authorities was not sufficient to establish their stand that the assessee has not taken possession of land and cultivated the same and sale agreement is only paper transaction or bogus. In my opinion, the entire evidence has to be appreciated in a wholesome manner and even where there is documentary evidence, the same can be overlooked if there are surrounding circumstances to show that the claim of the assessee is opposed to normal course of human thinking and conduct or human probabilities. Even applying this principle to the instant case, there was some difficulty in rejecting the assessee’s plea as opposed to the normal course of human conduct. The surrounding circumstances of the case were also not strong enough to justify the rejection of assessee’s plea as outrageous or fabricated one. In my opinion, taking possession of land vide sale agreement and also carrying out of agricultural activities in the said land has to be accepted. However, in my opinion, the quantum of agricultural income declared in the impugned land is very much on the higher side which cannot be accepted to that extent. The AO considered the entire amount of Rs.29,32,653 declared by the assessee as non- agricultural income. In my opinion, this view of the AO is very unreasonable and vindictive in nature. As already stated, the declaration of Rs.29,32,653 as agricultural income out of the area of land measuring 26 acres 9 guntas is on the very higher side which cannot be reasonable. Hence I make a reasonable estimate of 50% of Rs.29,32,653 i.e., Rs.14,66,327 as agricultural income and the balance amount as income from other sources at Rs.14,66,326. Thus, assessee gets relief of Rs.1,46,66,327. It is accordingly directed.
In the result, the appeal by the assessee is partly allowed.
Pronounced in the open court on this 10th day of January, 2019.