2014 (2) TMI 787 - AT - Income Tax

Additions made service charges (commission) received @ 1% for sale of banana - Ancestral agricultural income estimated by AO @10% reduced to 6% by the CIT(A) - Exemption u/s 10(1) Held that - The assessee did not disclose the saving account of PNB in which cash was deposited - the assessee s initial reaction was that during the year under appeal he has purchased the bananas from the farmers and sold the same to Punjab and Hariyana and earned 1% commission on these transactions and also offered the same for taxation but assessee could not give the details of the traders of Punjab and Hariyana with whom he made trading of banana nor he could give any details of the transporters through which these bananas were supplied to the traders - No details/vouchers in this respect were furnished by the assessee at any stages including during the hearing of appeal. When AO proposed to add net profit @ 10% of the total sales, assessee took the plea that all the transactions were done by the assessee on behalf of HUF and in support of certain documents were also filed - AO also found that neither the HUF nor any member of HUF obtained PAN No. and were not assessed to tax - CIT(A) has also agreed with the finding of AO that cash deposit in the undisclosed bank account was out of trading of bananas - He reduced the estimation of profit from 10% taken by the AO to 6% - nothing was brought on record on behalf of the assessee which could persuade to give any further relief to the assessee and therefore the order passed by Ld. CIT(A) is hereby upheld Decided against Assessee.

Issues:
1. Assessment of service charges received by the assessee.
2. Determination of income from agricultural activities.
3. Taxability of undisclosed income and cash deposits.
4. Verification of business transactions and expenses.
5. Assessment of profit on banana trading business.
6. Appeal against the order of Ld. CIT(A).

Analysis:

Assessment of Service Charges:
The assessee appealed against the order of Ld. CIT(A) regarding the service charges received at 1% pertaining to Hindu Undivided Family (HUF). The appellant argued that the income should be excluded from the assessment, citing acceptance of similar income in previous years without adverse comments. The appellant contended that the service charges were related to agricultural activities on ancestral land, deserving deletion of additions made by the authorities. The appellant provided documentary evidence to support the 1% service charges received, challenging the CIT(A)'s direction to assess 6% income without material evidence. The appellant proposed taxing 1% income based on confirmations and statements of farmers.

Determination of Income from Agricultural Activities:
The case involved income derived from banana trading and agricultural activities. The AO discovered cash deposits in a bank account not disclosed in the income tax return, prompting the assessee to explain the source of funds related to banana trading. The appellant claimed to have purchased and sold bananas, earning 1% commission, and offered additional income for taxation. However, discrepancies arose regarding the cultivation of bananas on ancestral land, as revealed by verification of documents and statements from farmers. The AO concluded that the banana business was conducted individually, not by the HUF, leading to the estimation of a 10% profit added to the total income.

Taxability of Undisclosed Income and Cash Deposits:
The undisclosed income and cash deposits in the bank account raised concerns about the source of funds and the nature of transactions. The appellant's attempts to link the transactions to HUF agricultural activities were refuted by the AO, who found discrepancies in the claimed cultivation of bananas and lack of PAN registration for the HUF members. The AO deemed the explanations as an afterthought to mislead the authorities, resulting in the addition of estimated profits to the individual's taxable income.

Verification of Business Transactions and Expenses:
The authorities requested details of traders, farmers, and transporters involved in the banana trading business, which the appellant failed to provide adequately. Summonses were issued to farmers for confirmation, but incomplete information hindered the verification process. The lack of supporting documents, bills, and vouchers led to the rejection of the 1% commission offered for taxation, with the AO estimating a 10% profit on total sales.

Assessment of Profit on Banana Trading Business:
The AO estimated a 10% profit on the banana trading business, which was later reduced to 6% by Ld. CIT(A) upon appeal. The appellant contested the assessment, presenting arguments and documents to support the HUF's involvement in agricultural activities and banana trading. However, the authorities found discrepancies in the appellant's claims and upheld the reduced profit estimation.

Appeal Against the Order of Ld. CIT(A):
The appellant challenged the order of Ld. CIT(A) before the Appellate Tribunal, reiterating previous submissions and presenting additional evidence. The Tribunal considered the arguments of both parties, reviewed the record, and found no grounds to provide further relief to the appellant. Consequently, the appeal was dismissed, upholding the decision of Ld. CIT(A) regarding the taxability of income from banana trading and agricultural activities.

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