2013 (9) TMI 968 - HC - Income Tax

Addition u/s 68 of the Income Tax Act Lack of evidence to prove the case - proof of agricultural activities Held that - If in the previous years the agricultural income from the same land on which agricultural crops were produced by the appellant was accepted by A.O., then, the income could be treated as agricultural income for want of proof of records of fertilizer and chemicals and expenditures incurred on tube-well boring, construction of store house, levelling of field etc - Even if each assessment year is treated to be a separate unit, the findings in respect of previous years based on the record of title and possession of agricultural land, and the evidence led for proving that agricultural operations were carried out and crops were produced could not be disbelieved in the subsequent year, for want of primary evidence. The assessee was not required to submit proof of agricultural operations every year, in the absence of any material, which may suggest that the agricultural operations were stopped or was not carried out in the relevant period. There was no evidence to establish that the assessee has sold the agricultural land or that the assessee had stooped the agricultural operations. Further, assessee as a Private Company was maintaining regular books of accounts as required under the Companies Act, which were also audited and accepted in the AGM of the Company. The entries in the books were not proved to be bogus. There is nothing under the Income-tax Act debarring the assessee from selling agricultural produce in cash, and thus additions based only on suspicion could not be sustained Decided against the Revenue.

Summary

Issues:
1. Whether the ITAT was legally correct in confirming the decision of the first appellate authority deleting the addition of Rs.17,87,500/- made u/s 68 of I.T. Act, 1961 and directing the AO to assess the income of Rs.8,93,774/- as agricultural income ignoring the fact that no primary record of agricultural activities was available with the assessee to substantiate the agricultural income?
2. Considering the ratio of decisions given by Hon'ble Apex Court in the case of CIT Vs. R. Venkata Swamy Naidu (1956)29 ITR 529 (SC) whether the Hon'ble ITAT was justified in holding the alleged agricultural income genuine, although the assessee could not produce proper material no prove that it had earned any agricultural income during the year under consideration?

Analysis:

Issue 1:
The Income Tax Appellate Tribunal (ITAT) upheld the decision of the first appellate authority to delete the addition of Rs.17,87,500/- under Section 68 of the Income Tax Act, 1961, and directed the Assessing Officer to assess the income of Rs.8,93,774/- as agricultural income. The ITAT reasoned that since the department had previously accepted the agricultural income returned by the assessee for the assessment years 2003-04 and 2004-05, based on evidence of land ownership, cultivation activities, and production of agricultural crops, no interference was warranted for the assessment year 2005-06. The ITAT emphasized that the onus is on the party alleging discrepancies, and in this case, the revenue failed to provide any evidence to contradict the assessee's claims of agricultural income. The ITAT concluded that the CIT (A) rightly deleted the addition and confirmed that the income shown by the assessee was derived from agricultural activities, supported by proper accounting records and approvals.

Issue 2:
The appellant argued that the Assessing Officer (AO) did not believe that agricultural operations were conducted on the land in the previous year due to the absence of records regarding agricultural inputs and expenses. The AO added the declared agricultural income as income from other sources under Section 68 of the Act. However, the CIT (A) and ITAT disagreed with the AO's assessment, stating that if the agricultural income was accepted in previous years, the lack of specific proof for the current year did not invalidate the agricultural nature of the income. They highlighted that maintaining regular books of accounts, audited reports, and compliance with the Companies Act were sufficient to establish the genuineness of the agricultural income. The courts emphasized that mere suspicion or lack of detailed records does not justify adding income under Section 68, especially when past assessments had acknowledged the agricultural nature of the income. The findings of the CIT (A) and ITAT were considered factual and did not warrant any legal intervention or questioning by the Court, leading to the dismissal of the Income Tax Appeal.

This detailed analysis of the judgment from the Allahabad High Court provides a comprehensive overview of the legal issues, arguments presented, and the court's reasoning behind dismissing the Income Tax Appeal.