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Income Tax Appellate Tribunal, DELHI BENCH ‘F’, NEW DELHI
Before: SH.R. K. PANDA & MS. SUCHITRA KAMBLE
This appeal filed by the revenue is directed against the order dated 28.03.2012 of the CIT (A)-1, New Delhi, relating to A. Y. 2007-08.
Facts of the case, in brief, are that the assessee is a company engaged in the business of production and trading in agricultural items. It filed its return of income on 27.10.2007 declaring agricultural income of Rs.55,30,869/-. During the course of assessment proceedings the Assessing Officer noted that assessee has shown income from sale of lemon
Rs.70,76,750/- against which expenses amounting to Rs.15,45,881/- have been deducted and net profit of Rs.55,30,869/- has been declared. After adjustment of depreciation, the assessee has worked out its total income at Rs.55,96,085/- which has been claimed as exempt u/s 10(1) of the I.T. Act,1961 on account of it being agricultural income.
During the course of assessment proceedings the Assessing Officer asked the assessee to furnish certain informations / details which are as under :-
i) Please furnish the details of agricultural land on which agricultural activities resulting the agricultural income to the assessee were conducted alongwith documentary evidence in support of and certified copies of such agricultural land from Land Revenue Records evidencing that such lands were agricultural lands. ii) Please furnish details of crops grown substantiated by certificates or records of Land Revenue Authorities. Please also furnish the quantitative details of seeds sown and quantitative details of end product as well as of by product. iii) Please furnish complete names and addresses of the persons to whom such agricultural products were sold and furnish their copies of account appearing in your books of account. Please also state the modes of payments of the sale proceeds to you. iv) Please produce Memorandum and Article of Association of the assessee company. v) Please furnish the break up and details of production and trading in agricultural item, separately, as qualified by your Chartered Accountant in clause 8(a) of form No. 3CD. vi) Please note that your Chartered Accountant has qualified in clause 8(b) of Form No. 3CD “N.A.” there being no change in the nature of business”. Moreover, filing of C.A.’s report in Form no. 3CB and 3CD indicate that the turnover shown in the above mentioned audit report and its annexures in derived from business & profession carried on by you. Please justify your claim of explanation (sic) of such income from incidence of Income Tax. vii) Please furnish copies of account of Shri Rajesh Jain and Ms. Charu Jain in your books as on 31.03.2007. Please also furnish the confirmatory letters confirming the balances alongwith their assessment particulars including PAN. viii) Please produce all the books of account maintained by the assessee company for business activities in financial year 2006-07 alongwith supporting material, if any. ix) Please produce copies of all the bank accounts maintained by you.
The assessee did not produce its books of account and fasli duly certified by the Land Revenue authorities. The assessee did not produce
the sale invoices/ vouchers in original. It only produced loan account with Indian Bank and Bank’s letter confirming grant of subsidy. The assessee did not produce its regular bank account. The Assessing Officer, therefore, again asked the assessee to produce the details called for and justify the lemon grass claimed to have been produced is recorded in the land revenue records. He also asked the assessee to furnish the seed account and bills and invoices of seed purchased. The Assessing Officer further asked the assessee to furnish the list of debtors of Rs.70,26,250/- and status and details of subsequent recovery of the same by the assessee. However, the assessee did not produce the books of account, fasli certified by revenue authorities and its account with Indian Bank. The assessee only produced copies of “Jot Chak Bandi” evidencing holding of approximately 2.3328 hectors of agricultural land by the assessee which has been transferred to it on 18.11.2004, 04.04.2005 and 11.04.2005. Relying on various decisions, the Assessing Officer held mere holding of agricultural land does not prove that assessee has produced lemon grass which could fetch it Rs.70,76,750/-. The Assessing Officer further noted that the assessee did not produce even a single bill/ invoices against purchase of fertilizer and manure expenses of Rs.3,21,200/- which has been debited to P & L account. Similarly, full details could not be produced in respect of salary expenses of Rs.4,50,000/-and labour charges of Rs.51,640/-. After considering the various defects in the scanty details furnished by the assessee and considering the non production of books of account, the Assessing Officer concluded that the agricultural income shown by the assessee is nothing but Sham and the entire story of agricultural operations are concocted only to provide a conduit for assessee’s income from undisclosed sources. Since the assessee was holding some agricultural land the Assessing Officer considered an amount of Rs.4,50,566/- as agricultural income and treated the balance amount of Rs.66,26,1184/- as income from other sources.
In appeal the Ld. CIT (A) considered Rs.18,00,000/- as income from other sources and treated the balance amount as income from agricultural activities by observing as under :-
. 1.3 The submission has been considered. The assessee owns agricultural land. As per schedule 4 to the balance sheet it also owned fix assets (at cost) of Rs. 10,87,390/, consisting of agricultural land (4,99,985), borewell (2,55,000) tractor (439804) and plant & machinery (3,62,500). It is settled law that the onus to establish that an income is exempt from taxation is on the assessee. The assessee submitted audited statement of accounts, claiming agricultural income of Rs.55,96,085/. The AO has pointed out various deficiencies in the assessee’s compliance as noted above. According to the assessee, it had produced the ledger of sales as well as the documents relating to the expenses. According to it, there were no other items of significance and, hence, the AO was not correct in drawing conclusion that the books of account were not produced.
1.4 The real issue in assessment was whether the assessee was able to substantiate the claim of agriculture. Non-production of books of account need not lead to conclusion that agricultural income was not actually earned by the assessee. If the AO doubted the assessee’s claim, the best way to verify it was to do site-inspection or to collect confirmation from the third parties. The assessee had furnished the list of its sundry debtors. By the time the assessment order was made the return of income for the two subsequent assessment years would have also come on record. It should not have been difficult for him to find out how the debtors’ accounts were settled, if he just had a look at the balance-sheets of the subsequent years. Whether the debtors had actually purchased lemon grass from the assessee or not could be verified only if he collected information from them. It is also noticed that while the assessee had shown sale of lemon grass worth Rs.70,76,750/, agricultural income (net of the expenses) was shown at Rs.55,96,085/ only. If the AO was of the view that the claim of agricultural income was bogus, he should have considered only the income and not the entire receipt as such.
1.5 On the other hand, the assessee’s case has many unusual features. It showed sales of Rs.70,76,750/ and claimed practically the entire amount as receivable. It claimed that no expenditure was incurred on the seeds. It gave a plausible explanation about why it did not have to buy seeds of lemon grass. But the fact remains that, given turnover of Rs.70,76,750/, it was incumbent upon it to maintain regular books of account and produce the same for verification before the AO. These books of account would contain not only the financial transactions but also stock movement on day-to-day basis and would enable the AO in reaching a conclusion about where and how the agricultural operations were conducted. According to the assessee’s own submission the management was not involved in day to day operations and the same had been left to the caretaker. These facts and circumstances raise question mark about the assessee's claim of doing agriculture and earning Rs.55,96,085/ from the same.
1.6 It is however, noticed that the assessee received Rs. 1.596 lakh subsidy under the National Horticulture Board scheme of “Development of Commercial Horticulture through Production and PHM (post-harvesting mechanism”. The relevant part of the letter, issued by the Managing Director of National Housing Board, Dehradun, conveying the sanction of subsidy reads as below: “This is with reference to the proposal where credit (Term Loan) has been provided by your Branch to M/s Explosive (Prop. Rajesh Jain), Village - Banjarawala, Tehsil - Roorkee, Distt. Hardwar, Uttaranchal for Commercial Cultivation of Aromatic Plant in an area 8.00. Acre. This proposal was considered by the competent authority of the Board on this basis of satisfactory Joint Inspection Report and it has been decided to sanction and release an amount of Rs. 1.596 lakh (One Lakh Fifty Nine Thousand Six Hundred only) as eligible back ended subsidy (full & final).
Accordingly, I am directed to convey the sanction of the competent authority of the Board for Rs. 1,596 lakh (One Lakh Fifty Nine Thousand Six Hundred only) as Back Ended Capital investment Subsidy for above said project to be adjusted finally against the term loan amount. This action is accorded subject to the following terms and conditions:”
This letter is dated November 11, 2006, i.e. in the latter half of the previous year. If the NHB, on the basis of a satisfactory joint inspection report, was satisfied about the assessee’s work, it lends a certain degree of credibility to its claim. It is also noticed that the Indian bank had sanctioned term loan to the assessee for the same purpose. Unless a contrary fact comes on record, it should be understood that these institutions satisfied themselves about the assessee’s work, in view of this, it cannot be said that the assessee did not carry out the agricultural operations even though the AO raised some valid question marks. The nature of his finding is not sufficient to substantiate his conclusion.
1.7 On the other hand, it also cannot be said that the assessee was able to substantiate its claim of earning agricultural income of Rs.55,96,085/ satisfactorily. In this factual situation, a broad view has to be taken, particular considering that more than five years has passed since the previous year and, at this stage, it would be difficult to prove or disprove the claim through independent inquiry. The assessee has tried to substantiate its claim of sale value of lemon grass by the following calculation: Total area of land - 4.2875 hectare Total area in bigha - 55.68 :- No. of plant grown per 1 bigha – 35000 per bigha Harvesting period - after every 3 months
No. of plant grown during the year - 32500*4=130,000 Total no. of plants per bigha produced - 55.68*130,000=72,38,400 Sale price per plant- Re. 1 it is an arithmetic calculation and suggests that the yield was possible. But, unless it is shown, with reference to the relevant record, that it was actually so, a theoretical justification would not suffice. In this connection, it is also relevant to note that ‘fasli’ which is an estimate of agricultural income made by land revenue authority and which was specifically required by the AO, was not produced by the assessee. In view of this, it is held that the claim of agricultural income of Rs.55,96,085/ is not duly substantiated and an estimate has to be made of the same. Considering that the management of the assessee company was not involved in day-to-day operations nor was any team of experts deployed, it can be reasonably inferred that the yield would be at sub-optimal level. Accordingly, the value of the agricultural produce may reasonably be estimated at 75% of the disclosed value of Rs.70,76,750/ i.e. Rs. 53,07,560/. The balance amount of Rs.17,69,190/, rounded off to Rs. 18,00,000/, should be assessed as the assessee’s income from unexplained sources. This will also take care of assessee’s grievance that deduction for various expenses claimed in the P&L A/c was not allowed by the AO.
1.8 In this connection, it is noted that the AO, in spite of his adverse observation that the claim of agricultural income was sham, ended up accepting the claim in principle and estimated agricultural income at Rs.4,50,566/. This was the figure of agricultural income shown by the assessee for A.Y. 2006-07. If its claim for A.Y. 2006-07 was found correct and complete, there is no reason why, given the same facts and circumstances, the claim should be rejected in A.Y. 2007-08 simply because the Turnover as well as the income was higher. With these observations, the assessee’s income from unexplained sources is reduced to Rs.18,00,000/-.
Aggrieved with such order of the CIT(A), the revenue is in appeal before the Tribunal by raising the following grounds :-
The Ld. CIT (A) has erred in law and on facts of the case accepting the claim of the assessee of agricultural income of Rs.53,07,560/- (75% of gross receipts shown by the assessee) only on the basis of proof of agricultural land, grant of subsidy and loan, and no cross verification of any sale transaction has been done which was in incumbent in the light of the fact that Lemon Grass gives very low yield and could not have generated income of Rs.55,96,085/- in the current year as against the income of Rs.4,50,566/- in the A. Y. 2006-07.
2. The Order of the Ld. CIT(A) be aside and that of the Assessing Officer restored.
The revenue has also raised the following additional ground :-
“1. The Ld. CIT (A) has erred in law and facts of the case by accepting the additional evidences during the course of hearing of appeal of the assessee in violation of rule 46A of IT Rules, as no application was made by the assessee for adducing additional evidence with reason thereof and neither the additional evidence were ever confronted to the Assessing Officer for his report.”
After hearing both the sides the additional ground raised by the revenue is admitted for adjudication.
We have heard the rival arguments made by the both the sides and pursued the material available on record. We find the assessee during the course of assessment proceedings did not produce the books of account, statements and various other details as called for by the Assessing Officer. We find before the Ld. CIT (A) the assessee filed certain additional evidences which were accepted by the Ld. CIT (A) in violation of u/s. 46 A IT Rules 1962. On a pointed querry by the Bench, the Ld. Counsel for the assessee furnished the details of agricultural income declared by the assessee for other years which are as under :-
Assessment year 2006-07 Rs.7,40,000/- 2007-08 Rs.70,76,750/- 2008-09 Rs.43,80,000/- 2009-10 Rs.30,69,250/- 10. A perusal of the above details shows that there is substantial increase in agricultural income only during the impugned assessment year. It is not known as to whether the price of lemon grass has fallen down or the quantity grown has fallen down in the preceding or subsequent years.
Although the Ld. CIT (A) had passed certain remark that when the Assessing Officer had passed the order the return of income for the two subsequent years would have also come on record, however, he himself has not bothered to verify the same. It is the settled proposition of law that the powers of the CIT (A) are co-terminous with that of the Assessing Officer. He can do what the Assessing Officer has failed to do. However, in the instant case it appears that the CIT (A) was carried away by the arguments advanced by the assessee before him and failed to discharge the powers conferred upon him. When the assessee did not produce the books of account although it is a private limited company and did not produce the relevant details as called for by the Assessing Officer, the CIT (A) should not have granted substantial relief to the assessee on account of agricultural income which under the facts and circumstances of the case appears to be abnormal.
Considering the totality of the facts of the case and in the interest of justice we deem it proper to restore the issue to the file of the CIT (A) with a direction to decide the issue afresh in accordance with law after giving due opportunity of being heard to the assessee. While doing so he may call for a remand report from the Assessing Officer if he so desires. He may also direct the assessee to produce the books of account either before the Assessing Officer during the remand proceedings or before him to find out as to whether books of accounts are maintained or not, how the sales are recorded etc. He may also examine the reasons for decline in the agricultural income in the two subsequent years and meager income shown in the preceding assessment year. Needless to say, the CIT (A) shall give due opportunity of being heard to the assessee and decide the issue as per
fact and law. We hold and direct accordingly. The grounds raised by the revenue are accordingly allowed for statistical purposes.