PRAMOD KUMAR HUF,NEW DELHI vs. ACIT, NAJIBABAD

Accordingly the grievance of the assesse as set out in Ground no. 1 is reproduced hereunder: 1. “That the Ld. CIT(Appeal) has erred in upholding the penalty of Rs. 1,10,000/-, imposed by the AO invoking the provisions of sec. 271(1)(c ) of the Income Tax Act, 1961.”

The relevant facts of the case are that the assessee returned income of Rs. 2,89,764/-. Apart from “Bhandsal” commission and income from interest etc., the assessee had also claimed agricultural income of Rs. 19,50,000/-. Considering the fact there was a substantial increase in assessee’s agricultural income when compared with the earlier years the AO required the assessee to explain the same. A perusal of the assessment order shows that the following explanation was made on behalf of the assessee: “4. The assessee has declared agricultural income of Rs. 19,50,000/- in his return of income. A specific query was raised in this regard vide para 2 of the notice dt. 31.10.2008 whereby the assessee was required to submit proof of agricultural income viz. land holding, seeds and pesticides purchase, crops sown, sale of agricultural produce, Khasra, Khatauni, Kisan Bahi etc. alongwith supporting documents. Vide order sheet entry dt. 25.11.2008, the assessee was again required to furnish vouchers of expenses e.g. purchase of fertilizers, labourers, watering etc. Again, vide order sheet entry dt. 05.01.2009, the assessee was required to furnish proof of sale of agricultural produce and details of expenses on agriculture. Once again, vide order sheet entry dt. 30.10.2009, the assessee was required to furnish Kisan Bahi and Khasra andalso evidences of expenses made in earning agricultural income and evidences of sales of crops.

It is seen that the AO was not satisfied by the explanation of the assessee on the ground that the claim was supported by only three ledger entries made all on the same date. Hence, it was held to be not acceptable. The AO required the assessee to lead evidences of expenses incurred and in the absence of the same made an addition of Rs. 5,50,000/- u/s 68 holding as under: “4.3 ………………………………………………………………………… In the immediately preceding year, agricultural income of Rs. 9,85,000/- was declared. Keeping into consideration the price hike in sugar cane, wheat and vegetables, it is considered fair to take increase of 40% over the preceding year. Calculating the income by giving increase of 40% over the preceding year, the estimated figure comes to Rs. 13,79,000/- which is rounded off to Rs. 14,00,000/- and thus, maximum agricultural income which the assessee could earn during the year could be Rs. 14,00,000/- only and the same is taken as agricultural income. Since the assessee has credited Rs. 19,50,000/- to the accounts, the difference of Rs. 5,50,000/- is treated as income from undisclosed sources and added to the income of the assessee u/s 68 of the I.T. Act. Action u/s 271(1)(c ) is initiated on this score.”

The addition was challenged in appeal before the CIT(A) who though granted part relief but reduced the estimated addition and sustained it to the extent of Rs. 3 lakh.

In the light of these facts penalty order has been passed which has been sustained in appeal by the CIT(A). The correctness of this order is under challenge in the present proceedings.

The Ld. AR referring to the assessment order and the order passed in the quantum proceedings submitted that in the facts of the present case the addition has been made purely on the basis of estimates. All supporting evidences have been filed like Certificate of Tehsildar certifying the crops growing at the relevant point of time and copy of agricultural account have all been filed. Merely because the assessee has not retained vouchers and bills of expenses etc., income from agricultural activity, the addition has been sustained. The penalty u/s 271(1)(c ) of the Act in the circumstances it was submitted was not attracted as all relevant facts and evidences of the Land Revenue Authorities have been made available. It was argued that the addition has been sustained purely on the basis of estimates. Thus, it cannot justify the levy of penalty. 6. The Ld. Sr. DR on the other hand, relying upon the impugned order supported the departmental action. However, on a query was unable to state the fate of the departmental action in the hands of the 2/3rd co-owners of the specific agricultural land. A perusal of the assessment order shows that claim of agricultural income was made from 3.0300 hectares of agricultural land, wherein 1/3rd land belonged to the assessee. The Ld. AR also pleaded ignorance about the agricultural receipts in the hands of the other 2/3 co-owners of the agricultural land stating that his client has not given him any instructions.

I have heard the submissions and perused the material available on record. I find on going through the facts, submissions and the findings recorded that in the peculiar facts and circumstances of the present case penalty u/s 271(1)(c) neither for concealment nor for filing of inaccurate particulars was warranted. The mere fact that the addition has been made and has been sustained on estimates by itself cannot be said to attract penal provisions automatically. The assessee’s consistent explanation before the tax authorities has been considered and it is seen that all necessary facts and evidences have been placed on record. The evidences relied upon may not be sufficient and complete for the purposes of deletion of the addition, however, their authenticity and correctness has not been assailed. The Ld. AR on query has stated that this is the first time that the additions qua the agricultural income have been made on an estimate basis in the hands of the assessee. Thus the mere fact that bills and vouchers were not retained in ignorance cannot make the stated claim of agricultural income a case of either filing inaccurate particulars or a case of concealment. I also find that neither the tax authorities nor the counsel or the assessee have cared to bring anything on record qua the agricultural proceeds/ receipts from the very same land in the hands of the co-owners. The tax payer may have remained in ignorance of the import of the said fact and the counsels representing the tax payer before the AO or the CIT(A) did not care to address the issue, however, the AO cannot claim to also remain ignorant while penalizing one tax payer and not caring to see the fate in the hands of the Co-owners. I have seen that the orders are conspicuously silent viz-a-viz the agricultural receipts in the hands of the co-owners. The said inadvertent lapse strikes at the root of legitimate expectation of a tax payer where on same set of facts and circumstances, there is a legitimate expectation for quasi-judicial or administrative authority to exercise the power fairly, evenly and impartially. I have seen that the assessee in the facts of the present case also did not place evidences of expenses incurred on agricultural activity and thus it can be said to be a good ground for sustaining addition on merits, however, in the face of supporting evidences of Land Revenue Authority, cannot be a ground for levy of penalty. Accepting the explanation of the assessee as bonafide and true, the penalty order is directed to be quashed. Said order was pronounced in the open court at the time of hearing itself.

In the result, the appeal of the assessee is allowed.