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Facts
The assessee, a Hindu Undivided Family, declared agricultural income. During scrutiny, the Assessing Officer noted nil agricultural expenses, estimated 40% of gross receipts as expenses, and treated the balance of Rs.17,00,000/- as unexplained money under Section 69A, taxable under Section 115BBE. This action was subsequently confirmed by the Ld. CIT(A) in appeal.
Held
The Tribunal found that the agricultural income itself was not disputed by the lower authorities. It held that the mechanical estimation of agricultural expenses at a flat rate of 40%, without considering the specific nature of long-term crops like poplar and safeda which require minimal expenditure, was not justified. Therefore, the addition made by the AO and confirmed by the CIT(A) based solely on estimation could not be sustained.
Key Issues
Whether the estimation of agricultural expenses at a fixed rate of 40% and the resulting addition under Section 69A as unexplained money were valid, given the nature of long-term crops and the absence of specific evidence for such estimation.
Sections Cited
69A, 115BBE
AI-generated summary — verify with the full judgment below
Order PER KRINWANT SAHAY, A.M: This is an appeal filed by the Assessee against the order of the order of the Ld. CIT(A)/NFAC, Delhi dt. 08/10/2024 pertaining to Assessment Year 2020-21. 2. In the present appeal Assessee has raised the following grounds:
1. 1. 1. 1. 1. That learned CIT(A) NFAC has erred in law and facts in confirming the action of AO in making an addition of Rs. 17,00,000/-u/s 69A by estimating agriculture expenses and treating the same as Income from undisclosed sources.
2. That learned CIT(A) NFAC has erred in law and facts in confirming the action of AO in estimating agriculture expenses of Rs. 17,00,000/-.
3. That learned CIT(A) NFAC has erred in law and facts in confirming the action of AO in estimating agriculture Income of 25,50,000/-.
That the appellant craves leave to add, alter, and amend or to substitute the above grounds of appeal before disposal of the appeal.
The assessee, a Hindu Undivided Family, filed its return declaring agricultural income of Rs.42,50,000/- and other income of Rs.3,500/-. The case was selected for limited scrutiny to examine large agricultural income per acre. During assessment proceedings, the Assessing Officer noticed that the assessee had shown nil agricultural expenses and treated the entire receipts as net agricultural income. The 2 assessee submitted that agricultural expenses were incurred but documentary evidence was not available and that labour charges were paid in kind and certain expenses were borne by commission agents. The Assessing Officer rejected these submissions for want of evidence and held that agricultural activities necessarily involve expenses. He, therefore, estimated agricultural expenses at 40% of gross receipts amounting to Rs.17,00,000/-, determined net agricultural income at Rs.25,50,000/-, and treated the balance of Rs.17,00,000/- as unexplained money under section 69A, taxable under section 115BBE.
4. Against the order of the AO the assessee went in appeal before the Ld. CIT(A). the Ld. CIT(A), upheld the action of the Assessing Officer. The Ld. CIT(A) observed that the assessee itself admitted incurring agricultural expenses but failed to substantiate the same with evidence. It was held that even timber and long- duration crops require minimum agricultural expenditure and that declaring identical figures for gross and net agricultural income was not acceptable. Accordingly, estimation of expenses at 40% and addition under section 69A were confirmed.
Against the order of the Ld. CIT(A) the assessee preferred in appeal before the Tribunal.
Before us, the Ld. AR submitted that the authorities below erred in mechanically estimating agricultural expenses without considering the nature of crops grown, namely poplar and safeda, which are long-term crops requiring minimal expenditure in the year of harvest. It was argued that local agricultural practice permits labour payments in kind and that the source of agricultural receipts was never doubted.
Per contra, the Ld. DR supported the orders of the lower authorities.
We have considered the rival submissions and perused the record. It is not in dispute that the assessee earned agricultural receipts; however, the estimation of expenses at a flat rate of 40% has been made without examining local agricultural practices, nature of crops, or any comparable data. The Ld. CIT(A) has also confirmed the addition without independent verification of these aspects. In our considered view, neither the AO nor the Ld. CIT(A)has doubted agricultural income of the assessee. Therefore, the agricultural income claimed by the assessee has not 3 been disturbed by either of the lower authorities. The only issue is regarding the expenses disallowance on estimation basis. The Ld. AR seems to be justified in his argument that the agricultural produce herein this case is not wheat or paddy or oil seeds, which require bigger labour force. Here the agricultural produce is trees of Safeda etc. which get matured in many years. Naturally therefore, they need minimal labour force. Therefore not claiming of any expenses (particularly when assessee does not have any bills or vouchers to substantiate its claim) may be considered. On the other hand Revenues disallowance of 40% of the agricultural income without bringing any piece of evidence on record, just on estimation basis is not justified. Hence, in our considered view this addition made on estimation basis by the AO and its confirmation by the Ld. CIT(A) cannot be sustained. Thus the addition made by the AO and confirmed by the Ld. CIT(A) is hereby decided.
In the result, appeal of the assessee is allowed.