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Facts
The assessee, a widow, primarily derives income from agricultural operations (exempt) and grass trading (offered u/s 44AD). During the assessment year 2012-13, the Assessing Officer (AO) made additions of Rs. 12,20,064/- under Section 68 of the Income Tax Act, 1961, concerning alleged shortfalls in agricultural income, grass trading, sale of a car, and balance payment for a car purchase. The assessee challenged these additions.
Held
The Tribunal held that Section 68 of the Act was not applicable as the assessee was covered under Section 44AD and not required to maintain books of accounts. The additions related to agricultural income and grass trading were deleted, as the assessee had provided sufficient evidence and offered income under Section 44AD. The addition for the sale of a car was deleted because the registration transfer was complete, and the delay by the RTO was not the assessee's fault. The addition for the balance payment towards the car purchase was also deleted, as it was covered by the opening cash balance.
Key Issues
Whether additions made under Section 68 of the Income Tax Act, 1961, for alleged unexplained credits are sustainable when the assessee is covered under Section 44AD and not required to maintain books of accounts, and when supporting evidence has been provided for the income and transactions.
Sections Cited
68, 44AD, 10(1), 44AA, 234A, 234B, 234C, 234D, 271(1)(c)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH MUMBAI
Before: HON’BLE SHRI SANDEEP GOSAIN
Assessee by Shri Bhupendra Shah Revenue by Shri Vithal Machindra Bhosale, Sr. DR Date of Hearing 16.12.2024 Date of Pronouncement 19.12.2024 आदेश / ORDER
PER SANDEEP GOSAIN, JM:
The present appeal has been filed by the assessee challenging the impugned order 27.05.2024, passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi / (‘Ld. CIT(A)’), for the assessment year 2012-13. The assessee has raised the following grounds of appeal:
1) In the facts and the circumstances of the case and in law, the learned A O erred in adding income of Rs 1.82.647/- u/s 68 on a/c of shortfall in Agriculture Income ignoring the evidence submitted and available on record and wrongly treated the expenses as incurred in cash even though the Appellant is covered by provisions of section 44AD and thus section 68 does not apply to her where no books are not liable to be maintained 2) In the facts and the circumstances of the case and in law, the learned A.O. erred in adding income of Rs 6,78,189/- u/s 68 on a/c of shortfall in Grass Sale Income ignoring the evidence submitted and available on record and wrongly treated the expenses as incurred in cash even though the Appellant is covered by provisions of section 44AD and thus section 68 does not apply to her where no books are not liable to be maintained 3) In the facts and the circumstances of the case and in law, the learned A.O. erred in adding income of Rs 3,55,000/- u/s 68 on a/c of cash received on sale of Car ignoring the evidence submitted and available on record even though the Appellant is covered by provisions of section 44AD and thus section 68 does not apply to her where no books are not liable to be maintained.
4) In the facts and the circumstances of the case and in law, the learned A.O erred in adding income of Rs 55,056/- u/s 68 on a/c of shortfall in payment for car purchased ignoring the facts that the assessee has sufficient cash in hand available as per cash flow statement submitted even though the Appellant is covered by provisions of section 44AD and thus section 68 does not apply to her where no books are not liable to be maintained.
5) In the facts and the circumstances of the case and in law, the learned A.O. not justified in assuming that cash generation from agricultural activities restricted only to the extent of cash receipts and cash bills whereas the assessee had carried on activities since 2000 and is not capable to do any other commercial activity to generate cash even though the Appellant is covered by provisions of section 44AD and thus section 68 does not apply to her where no books are not liable to be maintained 6) The Assessing Officer wrongly charged interest u/s 234 A, B, C and D and initiated penalty u/s 271(1)(c).
All the grounds raised by the assessee are interrelated and interconnected and relates to challenging the additions made u/s 68 of the Act. Therefore I have decided to dispose off these grounds through the present consolidated order.
As per the facts of the present case, the assessee being widow is deriving income from agricultural operations which are exempt and also income from grass trading which is offered for tax u/s 44AD of the Act. Apart from this the assessee is deriving income from bank interest etc. These activities were carried earlier by her husband but after the death of her husband, the assessee is carrying on the said activities.
4. During the year under consideration, the asessee deposited cash of Rs. 28,79,172/-, however after considering the submissions of the assessee the AO made additions of Rs. 12,20,064/- in respect of four items mentioned in the order of assessment, which were confirmed by CIT(A) as well. Now before me the assessee has challenged those additions by raising different grounds of appeal. The breakup of additions u/s 68 of the Act are with regard to ‘income from agriculture’. Under this head the assessee had disclosed agriculture sales of Rs. 11,73,715/- but AO adopted or accepted the sales at Rs. 9,91,068/- and has not believed the sales of Rs. 1,82,647/- for want of sales receipts of agricultural income and thus added shortfall as unexplained cash credit u/s 68 of the Act. In this regard the Ld. AR apart from reiterating the same arguments as were made before the revenue authorities also relied upon hiswritten submissions which is reproduced below:
2. Breakup of addition under section 68 a. Income from agriculture: The appellant disclosed agricultural sale of Rs. 1,173,715/-, However, the AO adopted the same figure of Rs. 9,91,068/- and calculated difference of Rs. 182,657/- at page number 11 of assessment order as it number 2. In this regard, it is seen from the paper book that cash vouchers or bills have been produced a page number 27 to 49 of the paper book. At page number four of the appellant order, it can be seen that the appellant has shown agricultural income of Rs. 201,002/- after deducting expenses at page no 2 of the paperbook. However, the AO adopted sales at Rs. 991,068/- for want of sales receipt of agricultural income thereby reducing the figure of sales by 1,82,647/- and added the shortfall as unexplained cash credit under section 68. In this regard, it is submitted that this is unwarranted on many counts as follows i. Both the lower authorities have not disputed the nature of agricultural income which was supported by majority of sales bills and proof of agricultural land at page number 16 to 49 of the paper book. They appellant also submitted a detailed cash flow is being number 51 - 52 of the paper book. ii. It was duly submitted that section 68 does not apply to the appellant because there is no requirement to maintain books of accounts under section 44AA for agriculturist in order to claim exemption under section 10 (1) as was held in the case of I C Pahuja [167 Taxmann.com 41 Delhi) 07 iii. The appellant also relied upon the judgement in the case of Bhaichand Bhai Gandhi [141 ITR 67 Bombay HC] in which it is held that no addition can be made under section 68 in respect of cash deposited into bank account by the assessee will not liable to maintain books of accounts. iv. It was also submitted that suspicion however strong cannot replace the solid evidence to treat the income from grass trading as income from other sources.It was further submitted by the appellant that no addition can be made on suspicion and presumption. Dhakeshwari Cotton Mills Ltd. (26 ITR 775 [SC]) v. It was further submitted that the sale of Rs. 678189/- was already offered as income from agricultural operation and therefore invocation of section 68 would lead to double taxation of the said income even though exempt agricultural income is exempt vi. Similar agricultural income has been accepted in the case of her late husband for assessment year 11-12 vii. it was therefore prayed that the addition made by the AO and sustained by the CIT[ appeal] was erroneous on the facts as well as in law and therefore needs to be deleted.
On the other hand, Ld.DR relied upon the orders passed by the revenue authorities.
After having heard the counsels for both the parties and after having gone through the documents placed on record and the facts of the present case, I noticed that revenue authorities have not disputed the nature of agricultural income, which even otherwise has been supported by the assessee by placing on record sale bills, proof of agricultural land, cash flow statement etc. The Ld.AO has reduced gross income solely on the grounds that few sales receipts were missing and could not be submitted by the assessee, whereas AO has neither denied this fact that assessee is carrying agricultural activities nor he has found any other evidence so as to conclude that the assessee has cash income from undisclosed sources. The AO has fail to bring on record any evidence that assessee is capable to do any other activities to generate cash income at the age of 76 years other than her regular agricultural activities. The important facts have been ignored by the AO to the effect that assessee is owner of agricultural land of 7 acres and is cultivating crops as is mentioned since the year 2000-01 and this land is sufficient to generate such agricultural income. Since in the present case, the assessee has filed return of income u/s 44AD of the Act and thus there was no requirement for maintain books of accounts in order to claim exemption u/s 10(1) of the Act as has been held in the case of IC Pahuja (167 taxmann.com 41 Delhi) therefore no addition u/s 68 of the Act could have been made. It was further ignored by AO that similar agricultural income has been accepted in the case of her late husband for A.Y 2011-12, keeping in view the above facts and circumstances, I direct the AO to delete the additions.
The Ld.AO made additions u/s 68 of the Act on account of ‘Income from grass trading’, in this regard Ld. AR relied upon the written submissions mentioned herein below: b. Income from grass trading:- The appellant clarified that both the lower authorities have ignored the fact that grass trading was comprising of parts, Cash sales of Rs. 1,325,440/- and shall through bank was Rs. 116,806/- thereby totaling to Rs. 1,442,246/-, As can be seen from the page number four of the paper book, the appellant has shown sales of grass trading at Rs. 1,442,246/- and after deducting the expenses on purchase of grass and indirect expenses, the appellant has shown net profit of Rs. 245,380/- under section 44 A.D, at page number two of the paper. Not only that but details of expenses were filed at page number 52 of the paper book in which it is seen that the appellant has made expenses of Rs 1,70,000/- in cash and remaining expenses of Rs. 1,196,866/- have been incurred through bank et cetera. However, the AO adopted the sales at Rs. 991,068/- for want of sales receipt of agricultural income thereby reducing the figure of sales by 647251/- and added back the shortfall as unexplained cash credit under section 68. In this regard, it is submitted that this is unwarranted on many counts as follows i. Both the lower authorities have not disputed the nature of grass trading income which was supported by page number four and two of the paper book. They appellant also submitted a detailed cash flow is being number 51-52 of the paper book. ii. It was duly submitted that section 68 does not apply to the appellant because there is no requirement to maintain books of accounts under section 44AD for iii. The appellant also relied upon the judgement in the case of Bhaichand Bhai Gandhi [141 ITR 67 Bombay HC] in which it is held that no addition can be made under section 68 in respect of cash deposited into bank account by the assessee will not liable to maintain books of accounts. iv. it was further submitted that the sale of Rs. 678189/- was already offered as income from grass trading under section 44 A.D. and therefore invocation of section 68 would lead to double taxation of the said income even though the same is already offered under sales u/s 4AD at page no 4 of the paper book. This was also pointed out at page number five of the appellant order by the appellant before the CIT [A] v. Similar grass trading income has been accepted in the case of her late husband for assessment year 2011-12.
On the other hand, Ld.DR relied upon the orders passed by the revenue authorities.
After having heard the counsels for both the parties and after having gone through the documents placed on record and the facts of the present case, I found from record that both the authorities have ignored the fact that grass trading was comprising of two parts i.e cash sales of Rs. 13,25,440/- and through bank of Rs. 1,16,806/- thereby totaling to Rs. 14,42,246/-. The assessee has shown sales of grass trading and after deducting the expenses on the purchase of grass and indirect expenses, the assessee has shown net profit of Rs. 2,45,380/- u/s 44AD of the Act.
The assessee has also drawn our attention to the details of expenses filed before the revenue authorities which are at paper book at page No. 52, wherein expenses of Rs. 1,70,000/- were made in cash and the remaining expenses were incurred through bank of Rs. 11,96,866/-. Since, the AO had adopted the sales at Rs. 9,91,068/- for want of sales receipt of agricultural income thereby reducing the figure of sales by Rs. 6,47,251/- and added back the shortfall as unexplained cash credit u/s 68 of the Act. Since I have already held and set aside the shortfall in the sales in ground No. 1 with regard to income from agriculture, therefore keeping in view the said findings I am also of the view that sales of Rs. 6,78,189/- were already offered as income from grass trading u/s 44AD of the Act, therefore invocation of Sec. 68 of the Act would lead to double taxation of the said income as the same is already offered under sales under 44AD of the Act. The revenue has also ignored the fact that similar grass trading income has been accepted in the case of her late husband for the A.Y 2011-12. Therefore keeping in view the above facts I direct the AO to delete the additions.
Addition in respect of ‘sale of car’; in this regard the Ld. AR relied upon his written submissions as under:
Addition of Rs. 355,000/– in respect of sale of car :-the appellant sold the car to one Mr Jigar Shah four Rs. 355,000/- for which are due registration receipt was produced by the appellant on page number 26 of the paper book. In this regard, the appellant submitted as follows i. both the lower authorities have not denied the provisions number 26 of the paper book. ii. However, just because the registration was effected late by the RTO for which the appellant cannot be held responsible because she has no control over the RTO authorities for effecting the transfer. iiiRTO registration certificate clearly shows name of the appellant is transfer the and name of Mr Jigar Shah is the transferee. iv. However, no adverse side made by one of the lower authorities to further verify the proof of sale of car effected by the appellant as per the records of the RTO authorities. v. It was therefore contended by the appellant that such an addition under section 68 is uncalled for and corresponding reduction in available cash made by one authorities is without any basis vi. it was further argued by the appellant that cash no statement correctly reflected the said cash of Rs. 355,000/- in respect of sale of car effected by the appellant and confirmed by the RTO authority vii. accordingly the addition made by the AO and confirmed by the CIT appeal needs to be deleted to the tune of Rs. 355,000/- in respect of sale of car 11. On the other hand, Ld.DR relied upon the orders passed by the revenue authorities.
After having heard the counsels for both the parties and after having gone through the documents placed on record and the facts of the present case, I found that the assessee has sold the car to one Mr. Jigar Shah for Rs. 3,55,000/- and the AO had made the addition only on the ground that registration of the said car was effected late by the RTO. In this regard, I am of the view that RTO registration certificate placed on record clearly shows that the name of the assessee is transferred and the car is transferred in the name of Mr. Jigar Shah, thus under these circumstances the additions could not have been made merely on the ground of late registration. Therefore I direct the AO to delete the additions.
Addition in respect of balance amount paid towards purchase of car. The Ld. AR relied upon his written submissions mentioned herein below: d. Addition of Rs. 55,056/- in respect of balance amount paid towards purchase of car: what the lower authorities treated differently in the invoice value and the payment by bank as the cash payment towards purchase of car. Accordingly the addition was made by the AO and confirmed by the CIT appeal amounting to Rs. 55,056/-. In this regard, the appellant submitted as follows The AO is already accepted at page number 11 of the assessment order that the appellant had opening cash balance of Rs. 4,93,058/- as on 1 April 2011. ii. Therefore, the said payment of Rs. 55,056/- is well covered by the opening balance as on 1 April 2011 iii. the appellant therefore contended that the addition made by the AO needs to be deleted due to the factual inaccuracy consequent to the above the additions made by the AO and confirmed by the CIT appeal 14. On the other hand, Ld. DR relied upon the orders passed by the revenue authorities.
After having heard the counsels for both the parties and after having gone through the documents placed on record and the facts of the present case, I found that lower authorities treated differently in the invoice value and the payment by bank as the cash payment towards purchase of car. Accordingly the Ld.AO had made addition of Rs. 55,056/-, whereas the AO has himself admitted in the order of assessment that assessee was having opening cash balance of Rs. 4,93,058/- as on 01.04.2011, therefore in such circumstances the payment of Rs. 55,056/- is well covered by the opening balance as on 01.04.2011. Therefore keeping in view these fact I direct the AO to delete the additions.
In the result appeal filed by the assessee stands allowed.
Order pronounced in the open court on 19.12.2024.