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Facts
The assessee, a company promoting organic farming, leased out agricultural land and claimed the rental income as exempt agricultural income. The Assessing Officer (AO) rejected this claim, treating the income as from undisclosed sources, as the lessees' activities and the nature of the income were not adequately explained or substantiated.
Held
The Tribunal set aside the issue of agricultural income and rental income to the file of the Assessing Officer. The AO was directed to re-decide the issue after providing the assessee with an adequate opportunity to be heard and to furnish verifiable documentary evidence.
Key Issues
Whether the rental income derived from leasing agricultural land to third parties qualifies as exempt agricultural income, and whether the assessee provided sufficient evidence to support this claim.
Sections Cited
133(6), 143(2), 68, 10(1), 2(1A), 2(1A)(a)
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Income Tax Appellate Tribunal, DELHI ‘E’ BENCH,
Before: SHRI CHALLA NAGENDRA PRASAD, & SHRI NAVEEN CHANDRA
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:-
This appeal by the assessee is preferred against the order of the NFAC, Delhi dated 25.01.2024 pertaining to A.Y. 2017-18.
The solitary grievance agitated by the assessee, emanating from the 7 grounds of appeal, is that the Revenue rejected the claim of the assessee that the rental income from the lease of agricultural land is agricultural 133(6) of the Income-tax Act, 1961 [the Act, for short] which is not binding on the assessee.
None appeared on behalf of the assessee. We decided to proceed with the assistance of the ld DR and on the basis of detailed submissions made by the assessee dated 24.05.2024 before us.
There is a delay of 49 days in filing the appeal. The reasons cited by the assessee in the application filed by the assessee seem to be plausible.
We, therefore, condone the delay.
Briefly stated, the facts of the case are that the assessee is a company duly incorporated and registered under the " Companies Act" and having its office at BU-68, SFS Flats, outer Ring Road, Pitampura New Delhi.
The assessee company is engaged in the business to promote organic farming with the use of bio-technology by own or on contract with collaboration with other agencies. The return of Income for AY 2017-18 was filed on 06/12/2017 declaring total taxable Income of Rs 11,670/- along with exempt net agricultural income of Rs 24,35,777/-.
The case of the assessee was selected under CASS limited security, and accordingly, notice U/s 143(2) of the Act dated 16/08/2018 was issued to examine 'Agricultural Income' along with Questionnaire to furnish Page 2 of 9 and agricultural income.
The assessee replied to the said notice alongwith details and documents relating to ownership of agricultural land in its possession along with copies of lease deed stating the facts of leasing to third parties for rent on the said Agricultural Land, being:-
(a) Manglam Exim Bhim Nagar UP Rs 30,000/- P.M along with advance of Rs 9,00,000/- (Rs Nine Lakhs)
(b) Lala Flour Mill Bhim Nagar [UP] Rs. 1,20,000/- along with advance of Rs. 43,00,000/- as future rent to be adjusted in coming years
After perusing the reply of the assessee, the Assessing Officer was of the opinion that the assessee failed to prove that the rent advance of Rs 52,00,000/- was for the purpose of leasing of agricultural land and the income shown as agricultural income of Rs 26,12,000/-, is exempt from taxation. The AO accordingly, taxed the entire amount of Rs. 78,12,680/- as income from undisclosed sources u/s 68 of the Act.
Aggrieved, the assessee went in appeal before the ld. CIT(A).
After perusing the facts and submissions, the ld. CIT(A) held as under:
“4. The only issue involved in this case is that the AO did not gave exemption u/s. 10(1) which is against the intention of legislature. 4.1 As per the assessment order, the AO noticed that during the year under consideration the assessee has declared total income of Rs. 11,670/- and agricultural income of Rs. 24,35,777/- and claimed the same as exempt income. The assessee has furnished copy of the lease deed stating that agricultural land was leased to third parties and assessee has received lease rent. The AO observed from the lease deed that the land given on lease to Manglam Exim was shown to have situated at Bhim Nagar, UP. The assessee has received a sum of Rs. 9,00,000/- as advance towards future adjustment of lease amount and claimed the same as exempt. In respect of other land given on lease to Lala Floor Mill was shown to have received rent of Rs. 1,20,000/- per month and shown to have received advance of Rs. 43,00,000/-to be adjusted against future rent. The basis of receipt of so called advance of Rs. 9,00,000/- and Rs. 43,00,000/- has not be explained. The AO concluded that the persons shown to have taken on lease has not confirmed their activities and has failed to establish that they were engaged in any sort of agricultural activities. The assessee has not engaged in any agricultural activities, but shown receipt from various forms in the name of lease rent, lease rent advance, sale of agricultural produce etc. and claimed exemption as tax free income under the grab of agricultural income. Therefore, the income to the tune of Rs. 78,12,680/- earned by the asessee shown
Page 4 of 9 as agricultural income, is held as income from undisclosed sources and taxes u/s. 68 of the Act. 4.2 During the course of appellate proceedings, the appellant vide in response to notice u/s. 250 filed a reply dtd. 16.1.2024 wherein it had forwarded the documents viz. assets details, bank statement, copy of ITR and audited financials, details of agricultural income, details of directors, details of land, Form 35 and POA. 4.3.1 I have gone through the grounds of appeal and the assessment order. In the submissions the appellant has reiterated the facts narrated before the AO during the assessment proceedings. No new information has been brought on record. If any person has rented out agricultural land the rent received will be considered as agricultural income. In such cases, the rent received will be tax exempt and considered to be agricultural income. The rental income can be considered as agricultural income, if the other party is using the land for agricultural activities. The entire amount of Rs. 52,00,000/- received by the appellant in the form of lease rent / advance during the relevant assessment year shall not fall under the definition of 'agricultural income' as envisaged under the provisions of sec. 2(1A) of the Act because of the following reasons:
1. Lease agreement stipulates that the land is leased out to the company only for the purpose of conducting agricultural activities only. However, the aim of the companies or the memorandum or the activities carried out by those company were not provided by the appellant.
2. It is also evident from the lease agreement that the second party shall plough and develop the land for agriculture purpose only. However, the appellant has not produced any verifiable documentary evidence to show that the second party has carried out only agricultural activities.
3. It is also apparent that the company to whom the assessee has leased out the land has not earned any agricultural income. 4.3.2 The Hon'ble Apex court in the case of CAT vs. Raja Benoy Kumar has Roy (1957) reported in 32 ITR 466 (SC) has held that unless there is some measure of cultivation of land and some skilled labour is performed on the land for cultivation, the land cannot be said to have been used for agricultural purposes. It is essential that basic primary operation, prior to germination of the produce, involving expenditure of human skill and labour on the land and subsequent post germination. Keeping in view of these facts of the case, the AO's observation cannot be simply brushed aside. Further, it is quite apparent that the company which had obtained land from the assessee on lease has not performed any agricultural operation on the land. Section 2(1A) (a) of the Act stipulates that agricultural income means "rent or revenue derived from land which is situated in India and is used for agricultural purposes. In the appellate proceedings, burden of proof lies on the assessee to prove that facts and findings of the AO are incorrect. If the assessee fails to prove or rebut with cogent evidence against such facts and findings, no interference is required
Page 6 of 9 [A.Y. 2017-18] Maroon Organic Farming Vs. ITO with assessment order. It is therefore possible that no activity was carried out on the land and the transaction is a modus operandi to siphon cash out of the company without attracting tax. 4.3.3 The explanation tendered by the appellant that the entire lease rent advance of Rs. 52 lakhs were received during the relevant assessment year is a make belief statement. Even if the lease agreements are to be treated as genuine then the lease rent received by the assessees for the relevant assessment year alone should be treated as the agricultural income. The receipt of so called advance of Rs. 52,00,000/- has not been considered as agricultural receipts. 4.3.4 During the course of appellate proceedings also, as the Assessing Officer has observed, the appellant failed to prove that the land leased was agricultural land and further appellant failed to prove that the lessee was engaged in agricultural operation from the land taken on lease. Further, the concept of 'lease rent in advance for future adjustment of lease amount' is also not clarified by the appellant. Under the circumstances, I have no reason to interfere with the decision of the Assessing officer and the addition made by the AO of Rs 78,12,680/- is upheld. All the grounds raised in this appeal are dismissed.”
Aggrieved, the assessee is in appeal before us.
We have heard the ld. DR and have perused the relevant material on record. We find that the assessee was not given reasonable opportunity to Page 7 of 9 aside the issue of agricultural income and the rental income being agricultural income to the file of the Assessing Officer. The Assessing Officer is directed to decide the issue afresh after providing adequate opportunity of being heard to the assessee and making necessary enquiries and verification of the issue at hand. The assessee is directed to furnish all necessary verifiable documentary evidence to establish that the lessee of the assessee’s land has carried out only agricultural activities on the said land and assist the Assessing Officer in verification of the issue of rental allowed for statistical purposes.
The order is pronounced in the open court on 10.12.2025.