REKHABEN JAYSUKHLAL GHODASARA ,RAJKOT vs. THE ITO, WARD 2(1)(1), RAJKOT, RAJKOT

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ITA 499/RJT/2024Status: DisposedITAT Rajkot17 January 2025AY 2017-186 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal noted that the Ld. CIT(A) recorded that the assessee admitted not furnishing requisite details to the AO. However, the Tribunal also observed that the assessee filed an affidavit as additional evidence before the Ld. CIT(A). The Tribunal pointed out that the affidavit pertained to the cultivation period of 2018-19 and was not relevant for AY 2017-18. The Tribunal further noted that the assessment order and appellate order indicated that the assessee had not submitted details regarding agricultural income, leading to the addition of Rs. 6,60,000/-. However, the Tribunal found that the AO's order was based on suspicion, with no material on record proving the agricultural income was wrongly calculated. The Tribunal also noted that the assessee had furnished land records before the AO and that the requirements of Section 68 of the Act were not satisfied. Consequently, the Tribunal held that Section 68 was not applicable. The Tribunal set aside the orders of the Ld. CIT(A) and AO and remanded the matter back to the Assessing Officer for a fresh assessment, allowing the assessee an opportunity to comply with the notice, and also cancelled the additional evidence (affidavit) submitted during appellate proceedings. The appeal was allowed for statistical purposes.

What were the facts?

The assessee, Rekhaben Jaysukhlal Ghodasara, filed an income tax return for Assessment Year 2017-18, declaring a net income of Rs. 1,74,000/-, which included exempt agricultural income of Rs. 22,00,000/-. The case was selected for limited scrutiny. The Assessing Officer (AO) noted that no agricultural expenses were debited in the books of accounts, nor were details submitted. Citing the ITAT, Rajkot decision in Shri Maganbhai P. Patel (HUF), the AO estimated agricultural expenses at 30% of the agricultural income (Rs. 6,60,000/-) and treated this amount as income from undisclosed sources under Section 68 of the Income Tax Act, 1961. The assessment order dated 27.11.2019 assessed the total income at Rs. 8,34,000/-. The assessee's appeal to the National Faceless Appeal Centre (NFAC)/CIT(A) was dismissed, confirming the addition. The assessee has now appealed to the ITAT.

What were the issues?

1. Whether the addition of Rs. 6,60,000/- as income from undisclosed sources under Section 68 of the Income Tax Act, 1961, by estimating agricultural expenses at 30% of agricultural income, is justified, considering the assessee's claim of agricultural income and the lack of specific expense details. (Question of law) Assessee's contention: The Ld. AR argued that the AO considered gross agricultural income instead of net agricultural income and that Section 68 of the Act is not applicable for making such an addition. The assessee also submitted an affidavit with additional evidence before the Ld. CIT(A). Revenue's contention: The Ld. DR relied on the orders of the Ld. ITO and Ld. CIT(A) and filed written submissions. The revenue also presented arguments regarding the alleged unjustifiable nature of the assessee's claim concerning production and sale of sesame seeds, citing excessive yield beyond norms, inconsistent sale price, and implausible harvest and sale timing.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, RAJKOT BENCH,

Before: DR. ARJUN LAL SAINI, AM. &

Hearing: 23/10/2024Pronounced: 17/01/2025

िनधा�रती की ओर से/Appellant by : Shri D. M. Rindani, Ld. AR ��थ� ओर से/Respondent by : Shri Abhimanyu Singh Yadav, Ld. (DR) सुनवाई की तारीख/ Date of Hearing : 23/10/2024 घोषणा की तारीख/Date of Pronouncement : 17/01 /2025 आदेश / O R D E R PER DINESH MOHAN SINHA, JM:

Captioned appeal filed by the assessee is directed against the order passed by the National Faceless Appeal Centre [(in short “NFAC/Ld. CIT(A)”] vide order dated 29.07.2024, which in turn assessment order passed by Assessment Unit, Income Tax Department / Assessing Officer under section 143(3) of the Income Tax Act, 1961 (in short “the Act”). 2. grounds of appeal raised by the assessee are as follows:

(A.Y.2017-18) Rekhaben Jaysukhlal Ghodasara v. ITO 1) The Ld. CIT(A), ACIT/JCIT (A)-5, Mumbai erred in confirming action of the ITO, ward – 2(1)(1), Rajkot, in making addition of Rs. 6,60,000/- u/s. 68 of the Act, by estimating agricultural expenses @30% of total agricultural income and treating the same as income from undisclosed sources. 2) The appellant craves leave to add, amend, alter and withdraw any ground of appeal anytime up to the hearing of this appeal.

3. Facts of the case that the assessee filed income tax return declaring net income of Rs. 1,74,000/- return filed on 31.07.2017. That income was calculated on estimate basis. The assessee has also shown exempt income, first, Agricultural of Rs. 22,00,000/- and other of Rs. 1,71,180/-. That the case was selected for limited scrutiny by the department. The assessee has submitted, reply in compliance to the notice and submitted that the owner of agricultural land holding, sale of Agricultural product of Rs. 14,00,000/- and Rs. 8,00,000/-. That the Ld. AO has made addition with following observation: “On verification of the details i.e., return of income it is seen that the assessee has earned agriculture income to the tune of Rs. 22,00,000/-. However, there is no agriculture expense debited in books of accounts. Further no details in respect of agriculture expenses are submitted. In view of the same and as per the judgement of Hon’ble ITAT, Rajkot No. 1352/Rjt/2010 dated 11.02.2011 in the case of Shri Maganbhai P. Patel (HUF) it is required to calculate 30% pf agricultural income i.e. 6,60,000/- (22,00,000*30%) as agricultural expenses. In view of the same it is concluded that the capital account is credited higher by an amount of Rs. 6,60,000/- and therefore the same is required to be treated as income from undisclosed source within the meaning sec. 68 of the Act and to be added total income. Notice issued stating that why the amount on account of Rs. 6,60,000/- towards agriculture expenses should not be treated as income from undisclosed source and added to your income for the year under consideration. The assessee was granted time to comply notice on or before 14.11.2019. The assessee has not submitted any details in response to the Page | 2 (A.Y.2017-18) Rekhaben Jaysukhlal Ghodasara v. ITO same. In absence of any details an amount of Rs. 6,60,000/- is treated as income from undisclosed sources and added to the total income u/s. 68 of the Act” That the income has been assessed of Rs. 8,34,000/- order dated 27.11.2019.

4. That the assessee has filed an appeal against the order of the Ld. AO before the Ld. CIT(A) on 30.12.2019. The Ld. CIT(A) and NFAC has decided the appeal of the assessee on 27.05.2024, whereby the addition was confirmed. However, during the course of appellate proceeding, the assessee has filed an affidavit and given detail of sesame seeds cultivated during the period of F.Y. 2018-19.

5.

The assessee has filed an appeal against the impugned order dated 27.05.2024 before us.

6.

The Ld. AR of the assessee submitted that the assessee has filed income tax return that showing the net Agricultural Income. However, the Ld. AO consider to the gross agricultural income and calculated net Agricultural income. Further the Ld. AR submitted, that the Ld. AO has made an addition income from undisclosed source and added in the total income under section 68 of the Act and same was duly confirmed by the Ld. CIT(A) that Ld. AR submitted that section 68 of the Act is not applicable and no addition can be made in similar circumstances.

7.

However, the Ld. DR relied on the order of Ld. ITO as well as the Ld. CIT(A) and filed written submission.

2.

The assessee's claim regarding the production and sale of 24 tons of sesame seeds from 12 acres (approximately 4.85 hectares) of land appears unjustifiable for several compelling reasons: a) Excessive Yield Beyond Agricultural Norms: Maximum Expected Yield: Under the most favourable agricultural conditions, the average yield of sesame seeds is about 3.7 tons per hectare.

Calculated Maximum Production: For 4.85 hectares, the maximum expected production would be 3.7 tons/ha×4.85 ha=17.945 tons3.7 \text{ tons/ha} \times 4.85 \text{ ha} = 17.945 \text {tons 3.7 tons/ hax4.85\text{tons} 3.7 ton/ha*4.85 ha = 17.945 tons. Claimed Production: The assessee claims to have produced 24 tons, which exceeds the calculated maximum by over 6 tons. Conclusion: This significant discrepancy suggests an overstatement of production capacity, which is unlikely given standard agricultural yields. b) Inconsistent Sale Price Compared to Market Rates: * Prevailing Export Rate: The market rate for exported sesame seeds is 114 Rs per kg, reserved for the highest quality produce. * Assessee's Claimed Rate: The assessee reports selling at 110 Rs per kg. * Quality and Market Alignment: If the produce was of export quality, it should have fetched the prevailing rate of 114 Rs per kg. Conversely, if it was of lesser quality, domestic rates would typically be lower than 110 Rs per kg. *Conclusion: The claimed sale price does not align with market realities, indicating potential inaccuracies in reported figures. c) Implausible Harvest and Sale Timing: * Crop Cycle: Sesame is a summer crop in India, sown around June and harvested by October. *Assessee's Sale Timing: The assessee shows sales occurring in April, which is before the sowing season and several months prior to the typical harvest. * Agricultural Impossibility: It is agronomically impossible to harvest and sell a summer crop in April when it hasn't been planted yet. *Conclusion: The reported sales timing is inconsistent with the crop's natural growing cycle, suggesting that the sales may not be linked to the current year's production.

3.

Summary: Overstated Production: Claiming a yield that surpasses the maximum agricultural potential indicates an overstatement. Discrepant Sale Price: The sale price does not correspond with known market rates for either export-quality or domestic sesame seeds. Unrealistic Sales Timeline: Selling crops before they are harvested (or even sown) is not feasible, pointing to possible inaccuracies in the reported sales. Page | 4

4.

Final Assessment: The combination of an unrealistic production yield, inconsistent sale pricing, and an impossible sales timeline strongly suggests that the assessee's claim is unjustified. These discrepancies warrant a thorough review and adjustment of the claimed figures to reflect realistic and verifiable data consistent with agricultural norms and market conditions. The revenue is producing the research paper as well as government data on subject as factual evidence to counter the wrong claim of the assessee through this submission 8. We have heard both the parties and gone through the material available on record. We noted that the Ld. CIT(A) has recorded in the order that the assessee has admitted that the requisite detail was not furnished by the assessee However, we further note that the assessee filed additional evidence as affidavit on 28.11.2019 before the Ld. CIT(A) and the same is reproduced below: “The affidavit submitted of the cultivator is dated 28.11.2019, wherein the cultivator affirms that for this year, he has cultivated sesame seeds on the land of the appellant. Thus, this Affidavit pertains to cultivation carried out during the period 2018-19 and is not relevant for AY 2017-18 relevant to previous year 2016- 17. Therefore, it may be inferred that the said affidavit is an afterthought and a self-serving document, which has to evidentiary value.” 9. We further note that in the assessment order as well as in the appellate order, speaks the assessee has not submitted detailed of about the agricultural income. hence, Rs. 6,60,000/- given the detail of income earned by the assessee. We further note that the order of the Assessing Officer passed on the basis of suspicious. There was no material on record that proved the agricultural income has wrongly calculated by the assessee. We further note that the income was calculated on estimate basis by the assessee. No books of accounts by the assessee. That requirement of s. 68 of the Act are not satisfied. Hence, section 68 of the Act is not applicable. We further noted that the assessee also furnished land record before the Ld. AO.

10.

In these circumstances of the case, we are of the view that the assessee could not filed the requisite detail before the Ld. AO in response of show cause notice and further, during the appellate proceedings, the assessee filed additional evidence in shape of affidavit. The Ld. CIT(A) has confirmed the order of Ld. AO that addition is treated as income from undisclosed sources and added in total income u/s. 68 of the Act. We are of the view that additional evidence submitted before the Ld. CIT(A), during the course of appellate proceeding and Ld. CIT(A) has recorded that the assessee has admitted that requisite details was not furnished before the Ld. AO. That the order of Ld. CIT(A). on 27.05.2024 and Ld. AO order dated 27.11.2019 are need to be set aside and the matter has remand back to the Assessing Officer for making the afresh assessment, after given due opportunity to the assessee to comply with the notice and also cancelled the additional evidenced (Affidavit) submitted during the course of appellate proceedings.

In the result, the appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open court on 17 - 01 -2025

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