2015 (11) TMI 855 - AT - Income Tax

Addition on account of agricultural income - as per AO It is a clear case of diverting the business income in the guise of agricultural income which is exempt from tax and part of the income has been suppressed by reducing the sale proceed - CIT(A) deleted the addition - Held that - So far as the agricultural income is concerned it is an admitted fact that as against ₹ 3,63,000/- declared by the assessee during A.Y. 2008-09 the same has been shown at an astronomically high figure of ₹ 17 lakhs during the impugned assessment year. The land holding of 8.5 acres has not undergone any change. Since there is no addition to the agricultural land during the year, therefore, we find merit in the submission of the Ld. Departmental Representative that when there is no change in the cropping pattern or no increase in the holding of the agricultural land, the amount of agricultural income declared at ₹ 17 lakhs cannot be accepted. No doubt the assessee has filed a certificate from the Tahsildar for the impugned assessment year showing the agricultural income at ₹ 17 lakhs. However, the same cannot be sacrosanct. From the order of the AO we find the assessee has also obtained a certificate from the Tahsildar for A.Y. 2008-09 at ₹ 15 lakhs as agricultural income whereas he had declared the agricultural income in his return of income at ₹ 3,63,000/-. Further, the assessee has obtained the certificate from a Talati who is not the Talati for the land situated at Dugaon Therefore, when in his own admission the assessee declared agricultural income at ₹ 3,63,000/- in A.Y. 2008-09 as against the agricultural income certificate of ₹ 15 lakhs obtained from the Talsildar, therefore, in absence of any increase in land holding and pattern of cropping the agricultural income at ₹ 17 lakhs by no stretch of imagination can be accepted. Therefore, the CIT(A) in our opinion was not justified in accepting the submissions made by the assessee regarding the extent of agricultural income declared by the assessee. We accordingly set aside the order of the CIT(A). However, considering the totality of the facts of the case, determination of net agricultural income of ₹ 4 lakhs under the facts and circumstances of the case in our opinion will meet the ends of justice. We hold and direct accordingly. The balance amount of ₹ 13 lakhs will have to be treated as income from other sources. Sale of milk from dairy business - Held that - Considering the rate of milk at ₹ 27.50 per litre and other surrounding circumstances net income of ₹ 6,000/- per cattle per year in our opinion in the given facts and circumstances of the case will be reasonable. Since the assessee had 98 live stock at the beginning of the year and had purchased 4 buffaloes on 30-06-2008, 9 buffaloes on 27-10-2008, 10 buffaloes on 30-11-2008, 4 buffaloes on 15-03-2009 and 10 buffaloes on 17-03-2009 net income of ₹ 6,52,000/- in our opinion will be reasonable under the facts and circumstances of the case. Since the assessee has declared income from dairy business at ₹ 3,85,919/-, therefore, the difference of ₹ 2,66,081/- is the suppressed income from dairy business. Accordingly, as against the addition of ₹ 32,47,843/- made by the AO, the addition of ₹ 15,16,081/- is sustained, i.e. ₹ 13 lakhs ₹ 2,66,081/-). The order of the CIT(A) is accordingly modified and the addition is sustained at ₹ 15,16,081/-. Ground raised by the Revenue is accordingly partly allowed. Disallowance on account of violation of provisions of section 40A(3) - CIT(A) delted the disallowance - Held that - Admittedly, there is no finding given by the AO that the assessee has made payment in cash exceeding ₹ 20,0000/- at any time. Further, we also find merit in the submission of the Ld. Counsel for the asssessee that when income is estimated the provisions of section 40A(3) cannot be applicable. Since in the instant case there is no evidence brought on record by the AO that the assessee had made payment in cash at any time exceeding ₹ 20,000/- per day and since the income has been estimated, therefore, in our opinion the AO was not justified in invoking the provisions of section 40A(3) - Decided against revenue Addition on account of rent - whether the said expenditure being considered as Revenue in Nature? - CIT(A) deleted addition - Held that - No infirmity in the order of the CIT(A) on this issue. It is an undisputed fact that assessee is engaged in the business of sale of milk. Although he started the restaurant from this premises in the 3rd quarter of the year, however, the assessee has stated before Ld.CIT(A) that he was also doing milk business from the said premises. In any case the amount being very negligible under the facts and circumstances of the case and the payment of rent is not in dispute, therefore, we find no infirmity in the order of the CIT(A) deleting the addition. - Decided against revenue Addition on account of Fuel expenditure - CIT(A) deleted addition - Held that - From the order of the AO we find the AO merely states that assessee has not voluntarily disallowed any expenses for personal element in the same. Considering the huge volume of business the fuel expenses at ₹ 65,664/- is very reasonable. Therefore, in our opinion, no disallowance is called for. We accordingly uphold the order of the CIT(A) on this issue and the ground raised by the Revenue is dismissed. - Decided against revenue

Summary

Issues Involved:
1. Deletion of addition of Rs. 32,25,325/- out of the total addition of Rs. 32,47,843/-.
2. Disallowance of Rs. 6,53,970/- on account of violation of provisions of section 40A(3).
3. Deletion of addition of Rs. 15,000/- on account of rent.
4. Deletion of addition of Rs. 13,133/- on account of fuel expenditure.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 32,25,325/- out of Rs. 32,47,843/-:
The assessee declared agricultural income of Rs. 17 lakhs and income from dairy business at Rs. 3,85,919/-. The AO questioned the agricultural income due to the lack of records and discrepancies in the certificate issued by the Tahsildar. The AO determined reasonable agricultural income at Rs. 3,50,000/- and treated the balance Rs. 13,50,000/- as suppressed business income. Additionally, the AO noted discrepancies in the dairy business income, estimating suppressed receipts from milk sales at Rs. 32,47,843/-. The CIT(A) deleted the addition of Rs. 13,50,000/- related to agricultural income, accepting the Tahsildar's certificate and the spot sale system for crops like grapes. The CIT(A) also reduced the addition related to dairy business to Rs. 22,518/-, considering customary practices and wastage in milk production. The Tribunal modified the CIT(A)'s order, determining net agricultural income at Rs. 4 lakhs and treating the balance Rs. 13 lakhs as income from other sources. The Tribunal also sustained an addition of Rs. 2,66,081/- for suppressed dairy business income, resulting in a total addition of Rs. 15,16,081/-.

2. Disallowance of Rs. 6,53,970/- on Account of Violation of Provisions of Section 40A(3):
The AO disallowed Rs. 6,53,970/- for purchases made in cash without vouchers. The CIT(A) deleted the addition, noting no evidence of cash payments exceeding Rs. 20,000/- and the supplier being a cultivator of sugarcane. The Tribunal upheld the CIT(A)'s decision, agreeing that the AO did not provide evidence of cash payments exceeding Rs. 20,000/- and that income estimation negates the applicability of section 40A(3).

3. Deletion of Addition of Rs. 15,000/- on Account of Rent:
The AO disallowed Rs. 15,000/- out of Rs. 30,000/- rent, stating the restaurant operated only for six months. The CIT(A) deleted the addition, noting the shop was leased for the dairy business and later used for the restaurant. The Tribunal upheld the CIT(A)'s decision, recognizing the lease was for ongoing business activities and the rent payment was not disputed.

4. Deletion of Addition of Rs. 13,133/- on Account of Fuel Expenditure:
The AO disallowed Rs. 13,133/- (20% of Rs. 65,664/-) for fuel expenses, citing potential personal use. The CIT(A) deleted the addition, noting the AO did not provide specific evidence of personal use. The Tribunal upheld the CIT(A)'s decision, considering the fuel expenses reasonable given the business volume.

Conclusion:
The Tribunal partly allowed the Revenue's appeal, modifying the CIT(A)'s order to sustain a total addition of Rs. 15,16,081/- for suppressed income from agricultural and dairy business. The Tribunal upheld the CIT(A)'s decisions on disallowances related to section 40A(3), rent, and fuel expenditure.