2015 (7) TMI 247 - AT - Income Tax

Addition of agricultural income as undisclosed income of the assessee - comparing the total actual crop yield of the assessee with the average crop yield from the information available on the website of the Haryana Government submitted by the AO along with remand report - Held that - The authorities below have not denied and fact that there was agriculture land of 8.32 hectare in the hands of the assessee and agricultural activities were carried on and crops were grown/produced on the agriculture land which were sold in the grain market through commission agents. As per the assessee, the wheat and paddy were sold between ₹ 850 to ₹ 870 and ₹ 1400 to ₹ 1950 respectively and the CIT(A) adopted the rates shown on the website of Haryana Government and determined the average sale rate as ₹ 800 for wheat and ₹ 1500 per qtl. for paddy. From careful reading of the assessment order and appellate order, we note that authorities below have not brought out any fact or allegation on record to dispute or raise any doubt regarding papers available at page no. 1 to 51 which contain land ownership proof of the assessee, Master Akhil Garg and Master Aman Garg, confirmation copy of accounts and purchase vouchers/bills for the sale of timber by Master Akhil Garg, proof of ownership of agricultural land of both minor sons of the assessee, copy of the auction (Boli) Registers of the commission agent, clarification/confirmation from commission agent about continuity/usage of J Form bill book, bill/confirmation pertaining to agricultural expenses.On the basis of critical analysis of documentary proof submitted by the assessee supporting to proof of ownership of agriculture land, proof of sale of agriculture credit and timber and receipt of consideration through banking channel, we observe that the assessee submitted all possible documentary proof supporting his claim of agriculture income from sale of agriculture crop and timber. The assessee has also submitted proof of trees which were recorded in the revenue records on the agricultural land in the name of assessee and his minor sons. CIT(A) wrongly adopted average yield and sale price of wheat and paddy as shown in the website of Government of Haryana. The CIT(A) was not correct in dismissing the claim of the asessee regarding income from sale of timber without further verification and examination. We may point out that the issue of sale of timber was also not properly examined by the AO at his level and the AO dismissed entire documentary evidence of the assessee without any deliberation and adjudication. As we have already observed that the authorities below did not properly consider claim of the assessee about agriculture income and AO dismissed the claim of the assessee at the threshold on the basis of incorrect and wrong observations. During the first appellate proceedings, the CIT(A) allowed a part of the claim and restricted the disallowance to ₹ 8,16,153/- without any logical basis and sustainable reasoning and by taking a hyper technical and incorrect approach and data. In this situation, we dismiss the observations of the AO that the assessee did not furnish any iota of document to support her claim about agriculture income because as we have already noted above that the assessee submitted all possible documents including revenue records, purchase bills/vouchers, bank statement and other relevant documents showing agriculture activities which brought agriculture income to the assessee. - Decided in favour of assessee for statistical purposes. Disallowance of interest - Claim of payment of interest remained unsubstantiated - The stand of department for rejection of the claim of the assessee is that the assessee had been allowed interest on loan account of HDFC Bank and EMI paid includes interest component therefore, the interest on current account of Bank of Baroda cannot be allowed - Held that - If we analyse the facts, then we clearly observe that the first instalment of HDFC loan was paid by the assessee on 29.11.2007. Prior to that, there are number of transactions which are related to the agriculture and other economic activities of the assessee including amount of loan advanced to M/s Des Raj Ram Kumar and other firms. In the peculiar facts and circumstances when the interest received from M/s Des Raj Ram Kumar has been offered to tax by the assesse under the head of income from other sources, then the amount of entire interest paid on current account out of which loans were advanced cannot be disallowed at the threshold merely because instalment of property loan to HDFC bank approximately ₹ 3.5 lakh has been paid by the assessee and the entire interest paid on current account cannot be disallowed. However, we make it clear that the AO may disallow the interest amount which is related to the payment of EMIs on HDFC loans by the assessee between the period 29.11.2007 to 28.3.2008 and remaining amount of interest paid by the assessee on Bank of Baroda current account deserves to be allowed and we direct the AO to allow the same accordingly. With these directions, ground no. 3 of the assessee is deemed to be allowed for statistical purposes with the limited direction to the AO as mentioned hereinabove. - Decided in favour of assessee for statistical purposes. Addition on low household withdrawals - CIT(A) upheld the addition on the basis of facts mentioned in the remand report of the AO that the address mentioned in the assessee s ration card and assessee s father-in-law s ration card were different, therefore, it cannot be said that the assessee s father-in-law and mother-in-law were sharing their withdrawals for meeting the household expenses - Held that - from the copies of the ration card placed before us, we note that the address of the assessee and her in laws is the same and any withdrawals made by her in laws cannot be ignored for the purpose of calculating the total withdrawals by the joint family and its sufficiency to meet household expenses during the period under consideration. The lower authorities also ignored this very fact that the assessee is living in a joint family with her in laws without any air-conditioning, generator set facility or any domestic help/servant facility. The AO has not disputed this fact that the assessee holds agriculture land and cattle out of which maximum needs of household, grocery, vegetables, fruits, milk etc. are fulfilled and in this situation, total withdrawals of ₹ 3,80,200 cannot be held as insufficient for meeting the household expenses, specially when the assessee is living a normal life without any expensive luxury and supported by agriculture produce. In this situation, addition made by the AO and partly upheld by the CIT(A) on account of low household withdrawals cannot be held as justifiable and we direct the AO to delete the same - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of agricultural income as undisclosed income.
2. Disallowance of interest paid on loan taken for the purchase of property.
3. Addition on account of low household withdrawals.

Detailed Analysis:

Issue 1: Addition of Agricultural Income as Undisclosed Income
The assessee's appeal contested the addition of Rs. 8,16,153 as undisclosed income by the CIT(A), who upheld the AO's decision. The CIT(A) compared the assessee's crop yield with the average yield data from the Haryana Government's website, which was not referenced in the assessment order. The CIT(A) acknowledged the existence of agricultural land and activities but doubted the yield and sale rates. The assessee argued that the actual crop yield and sale rates were higher due to fertile land and sufficient irrigation. The assessee provided extensive documentation, including ownership proof, sale receipts, and commission agent confirmations, which the authorities did not properly consider. The Tribunal found that the CIT(A) and AO did not adequately verify the documents and relied on arbitrary data. The Tribunal directed the AO to re-examine the issue, considering all the evidence and providing the assessee an opportunity to be heard.

Issue 2: Disallowance of Interest Paid on Loan Taken for Purchase of Property
The assessee challenged the disallowance of Rs. 1,03,655 as interest paid on a loan for property purchase. The AO and CIT(A) held that the interest on the current account from which EMI payments were made could not be allowed, as the interest component in the EMI had already been allowed. The assessee argued that the interest paid on the current account was linked to the property loan. The Tribunal observed that the interest on the HDFC loan had been allowed, and the interest paid on the current account should not be disallowed entirely. The Tribunal directed the AO to disallow only the interest related to EMI payments and allow the remaining interest paid on the current account.

Issue 3: Addition on Account of Low Household Withdrawals
The AO added Rs. 1,50,000 for low household withdrawals, which the CIT(A) reduced to Rs. 1,08,000. The CIT(A) based the decision on the assumption that the assessee's family did not live jointly with her in-laws. The assessee argued that the family lived in a small town, consumed produce from their agricultural land, and had no major expenses. The Tribunal found that the CIT(A) incorrectly assumed separate living arrangements and did not consider the total withdrawals of Rs. 3,80,200, which were sufficient for household expenses. The Tribunal directed the AO to delete the addition, acknowledging the joint family living and self-sufficiency from agricultural produce.

Conclusion:
The Tribunal partly allowed the appeal, directing the AO to re-examine the agricultural income issue, properly consider the interest paid on the current account, and delete the addition for low household withdrawals. The appeal was allowed for statistical purposes on the first two issues and fully allowed on the third issue.