I.T.O WD - 1(4),ASANSOL, ASANSOL vs. MOON MOON SOM., BURDWAN

Firstly, we take up AY 2003-04. The sole ground of revenue appeal is against the action of the Ld. CIT(A) in deleting the addition of Rs.55 lacs. Briefly stated facts are that the AO noted that the assessee for the relevant assessment year has shown in her Balance Sheet brought forward capital at Rs.65,96,914/-. The AO further noted that the assessee was only 31 year old (her date of birth was 31.12.1971) and being very young and having net income of only Rs.1,94,202/- in the year under consideration which included income from beautician profession of Rs.1,02,407/-, salary income of Rs.60,000/-, agricultural income of Rs.1,02,000/-, thus having only net capital generated in the year under consideration is only Rs.1,94,202/-, therefore the AO wondered as to how it was possible for the assessee to accumulate such a huge capital of Rs.65,96,914/- before 2 & 1998/Kol/2015 Moon Moon Som, AYs, 2009-10 & 2003-04 AY 2003-04. Since, according to AO, no other source of income has been disclosed by her till that date and in the absence of any answer/explanation from the assessee, the AO concluded that Rs. 55 lacs out of opening capital of Rs.65,96,914/- as undisclosed income pertaining to AY 2003-04 and he disallowed it. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who was pleased to delete the same. Aggrieved, the revenue is before us.

We have heard rival submissions and gone through the facts and circumstances of the case. During assessment proceedings, the AO noted after perusal of Balance Sheet filed by the assessee that she had shown brought forward capital of Rs.65,96,914/-, which according to AO, was not believable because assessee is a young lady of 31 year old and her beautician income was only Rs.1,02,407/-, salary income was Rs.60,000/- and agricultural income was only Rs.1,02,000/- and thus having net capital generated this year of only Rs.1,94,202/-. And since the assessee did not participate in the assessment proceedings and there was no other known sources of income for the assessee, the AO estimated that Rs. 55 lakhs out of opening capital of Rs.65,96,914/- as undisclosed income pertaining to AY 2003-04 and disallowed it. On appeal, the Ld. CIT(A) deleted the addition. We note that the Ld. CIT(A) has taken note of the fact that the assessee has been filing her return of income from AY 1998-99 onwards. The Ld. CIT(A) took note of the evidence of filing of return by the assessee from 1998-99 onwards. It was brought to the knowledge of the Ld. CIT(A) that the assessee was not keeping well and, therefore, could not participate in the assessment proceedings before the AO. The Ld. CIT(A) was of the opinion that the AO should have considered the past records of the assessee before making the addition and he took note of the fact that the opening capital disclosed by the assessee is the accumulated past income of her. The Ld. CIT(A) also did not find any logical reason for the AO to saddle an addition of Rs. 55 lacs, when the opening capital disclosed by the assessee was to the tune of Rs.65,96,914/- and since the opening capital was the closing capital as on 31.03.2002, the said amount does not pertain to any income of the relevant year under consideration i.e. AY 2003-04. Since it is the brought forward opening capital which is carried forward from earlier year according to ld CIT(A) it cannot be added in this year. We note from a perusal of Balance Sheet of AY 2001-02 i.e. as on 31.03.2001(page 10 of PB), capital brought forward is only Rs.3,65,773/-. However, there was a gift to assessee from Rita Kesh of Rs. 60 lakhs and, therefore, the capital brought forward increased to 3 & 1998/Kol/2015 Moon Moon Som, AYs, 2009-10 & 2003-04 Rs.64,64,542/- as on 31.03.2002 for AY 2002-03(page 8 of PB). This being the history behind the carry forward in respect of capital, and assessee being a regular assessee, in case the AO had any doubts regarding the gift of Rs 60 lakhs which was instrumental in sudden surge of capital, then AO had to take legal course for it in respect of AY 2002-03 and not make addition in this relevant assessment year (AY 2003-04), which is nothing but the closing capital as on 31.03.2002, which is the opening capital on 01.04.2003 in the hands of the assessee for this assessment year. The Ld. CIT(A) has taken note of the fact that the assessee had filed her initial return on 11.06.1999 and has been a regular assessee under the Income-tax Act since AY 1998-99 and the Ld. CIT(A) had gone through the return from AY 1998-99 onwards till the AY under consideration. As we noted earlier that the assessee has received a gift of Rs.60 lacs as on 31.03.2001 which is not relevant for the year 2003-04 and, therefore, the addition of Rs. 55 lacs by the AO on account of opening capital on the basis of surmises and conjectures was unwarranted and, therefore, rightly deleted by the Ld. CIT(A) which does not require any interference. This appeal of revenue is, therefore, dismissed.

Now, coming to ITA No. 2001/Kol/2013 for AY 2009-10. Revenue has challenged the action of ld CIT(A) in respect to the disallowance made by AO of Rs 35,50,000/- and Rs 1.0,53,480/- . Brief facts is that during the assessment proceedings, the AO received an information from ITO, Wd-2, Asansol regarding business transaction of the assessee with M/s. Gupta Plywood and M/s. Glass Mart, Chanda for the period 01.04.2008 to 31.03.2009. Taking note of this fact, the AO raised certain queries during the course of assessment proceedings to the assessee about the nature of business transaction with M/s. Gupta Plywood and M/s. Glass Mart, Chanda. The assessee replied to the said letter that M/s. Gupta Plywood and M/s. Glass Mart, Chanda had conducted the entire cultivation job at the assessee’s farm. However, the AO noted that since no evidentiary proof has been furnished along with the letter, he did not give any weightage to the said contention. The AO also noticed that assessee has paid in cash amounting to Rs.35,50,000/- and Rs 10,53,480/- on different dates. According to the AO, the assessee had not shown any supporting documents regarding the cash payments and taking note of sec. 40A(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), which restricts cash transaction in a day beyond Rs.20,000/-, according to AO no deduction on the said amount can be given as an expenditure and, therefore, he disallowed Rs.35,50,000/- and Rs 10,53,480/- and added the 4 & 1998/Kol/2015 Moon Moon Som, AYs, 2009-10 & 2003-04 same to the total income of the assessee. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to dismiss the appeal of the assessee. However, though the Ld. CIT(A) dismissed the appeal of the assessee, the revenue has preferred this appeal before us.

We have heard rival submissions and gone through the facts and circumstances of the case. We note that the AO received information from ITO, Ward-2, Asansol stating that assessee had some business transaction with M/s. Gupta Plywood and M/s. Glass Mart, Chanda. On going through the ledger copy of M/s. Gupta Plywood, the AO noted that the assessee had paid in cash an amount of Rs. 35,50,000/- and Rs 10,53,480/- on different dates. The assessee was asked about the nature of business transaction with the said concerns. The assessee replied that the said concerns executed entire cultivation job with the help of labourers in their agricultural farm. Since according to the AO, no evidence was placed before him he disbelieved the same and since Rs.35,50,000/- and Rs 10,53,480/- has been paid in cash to the said concern, which according to AO, was in contravention of sec. 40A(3) of the Act he disallowed the said amount. On appeal, the Ld. CIT(A) wondered as to why the assessee has come in appeal before him on this disallowance of expenditure on agricultural income because by way of disallowance of agricultural expenditure, assessee’s agricultural income got enhanced by that much amount. We would like to add here that when the agricultural expenditure has not been debited by the assessee in the P&L Account, then invoking of section 40A(3) of the Act does not first of all arise because disallowance invoking sec. 40A(3) of the Act is only for expenditure which is incurred under the head “business or profession”. We note that the disallowance made by the AO does not pertain to the earning of non-agricultural income by assessee to the tune of Rs.2,11,500/- which was disclosed by the assessee. The AO has accepted the non-agricultural income of Rs.2,11,500/-. The agricultural income is exempt from tax and is to be aggregated only for the rate purpose. The Ld. CIT(A) has taken note of the fact that the assessee has already been taxed at the maximum marginal rate and the enhancement of income by virtue of the disallowance made by him in respect to the agricultural expenditure does not in any manner impact the assessee’s taxable income. In the light of the aforesaid circumstances, the Ld. CIT(A) did not find any reason for the assessee to be aggrieved by the decision of the AO, therefore, he was pleased to dismiss the same. Likewise, we also wonder as to why the Revenue is in appeal before us since the Ld. CIT(A) has dismissed the ground of appeal of 5 & 1998/Kol/2015 Moon Moon Som, AYs, 2009-10 & 2003-04 the assessee, and we do not understand the grievance of the revenue on this issue. We note that the assessee had clearly stated before the AO that the payment of Rs.35,50,000/- and Rs 10,53,480/- has been paid to M/s. Gupta Plywood and M/s. Glass Mart for expenses incurred for cultivation of her farm land from which agricultural income was shown by the assessee and has been accepted by the AO. When the agricultural income is exempt from tax and is to be aggregated only for rate purposes and since the AO has accepted the assessee’s earning from the non-agricultural income of Rs.2,11,500/- as disclosed by the assessee, the disallowance made in respect of agricultural expenditure would amount to enhancement of the agricultural income. The Ld. CIT(A) has dismissed the appeal of the assessee and, therefore, the result is that AO’s order is not disturbed on this issue and the effect of disallowance of agricultural expenditure by the AO will enhance the agricultural income of the assessee, however, the AO erred in applying Sec. 40A(3) of the Act to disallow the agricultural income because Sec. 40A(3) is applicable only for expenditure incurred under the head “Business or Profession” and cannot be invoked for expenditure incurred on agriculture and, therefore, AO erred in invoking Sec. 40A(3) of the Act and thus as stated earlier, the Ld. CIT(A) dismissed the appeal of the assessee, there could not have been any grievance on the part of the revenue to have filed an appeal before us. For the reasons stated above the appeal of revenue is dismissed.

In the result, both the appeals of the revenue are dismissed. Order is pronounced in the open court on 6th December, 2017 Sd/- Sd/- (M. Balaganesh) (Aby. T. Varkey) Accountant Member Judicial Member Dated : 6th December, 2017 Jd.(Sr.P.S.) Copy of the order forwarded to: