2016 (2) TMI 739 - AT - Income Tax

Agricultural Income - CIT(A) confirmed the treatment of agricultural income as income from other sources - Held that - There is no dispute with reference to the fact that assessee owns agricultural land and also purchased 4.71 guntas of land in September, 2004. Considering the value of the land purchased and the extent of agricultural income offered, the AO s contentions seems to be partially correct. Since assessee is not in a position to furnish any evidence to substantiate the incomes earned and returned, we have no option than to estimate the agricultural income at a reasonable basis. Assessee s submission that it has grown Paddy, Grapes and Vegetables on a piece of land of 1.27 acres cannot be accepted as it is not possible to cultivate all the three in small piece of land. However, since assessee owns some agricultural land in the impugned years, we are of the opinion that income at ₹ 10,000/- per acre can be justified as a reasonable income earned on the said lands. Accordingly, AO is directed to accept income at ₹ 10,000/- per acre for AY. 2005-06, 2006-07, 2007-08. The balance of the income in each year is confirmed as income from other sources as was done by the AO. - Decided partly in favour of assessee Disallowance u/s. 80C - CIT(A) while allowing the payment to LIC in AYs. 2006-07 & 2007-08, did not allow the repayment of principal amount on the housing loan obtained - Held that - . Before us, Ld. Counsel fairly admitted that assessee did not have any evidence of payment of these amounts. Since assessee is not forthcoming with any evidence, we do not find any reason to interfere with the order of the CIT(A). Accordingly, the grounds on disallowance u/s.80C are dismissed. Additions based on agreement of sale - Held that - Assessee not only submitted various evidence, but also affidavits in support of the contentions that the document of agreement of sale is only a security obtained for chit fund business. AO did not make any enquiry, the fact of which is also noted by the Ld. CIT(A). In view of this, since assessee s modus oparandi was accepted by the CIT(A), we are of the opinion that the additions cannot be made simply on the basis of agreement of sale found with the assessee, when they are not intended for purchase of property. However, since AO has not enquired properly, we hereby set aside the issue to the file of AO to examine the concerned parties from whom agreement of sale were obtained to establish whether the transaction is of agreement of sale or security for chit fund business and grant necessary relief after due enquiry. Assessee should be given due opportunity to substantiate the claim and assessee is free to furnish necessary documents/evidences/confirmations/affidavits in support of his contentions. With these observations, balance of addition as raised by assessee for AYs. 2006-07, 2007-08 and 2010-11 are restored to the file of AO for proper enquiry. - Decided in favour of assessee for statistical purposes. Addition based on Promissory Notes - Held that - Since the promissory notes are available with the department (by this time, they would have been time barred), it is necessary that AO makes necessary enquiries with the persons who executed the promissory notes to ascertain whether assessee has advanced cash or obtained them towards security for the chit availed by them. Unless proper enquiry is made, it would not be proper to refuse assessee s contentions, when part of the contentions with reference to agreements of sale were accepted. In view of this, we are of the opinion that necessary enquiries with the persons who executed promissory notes is required to be conducted by the AO to know the exact nature of a transaction and then take a decision whether the amount can be brought to tax as unexplained investment/ unexplained asset or not. For this purpose, we set aside the orders of the AO and CIT(A) on this issue and restore the matter to the file of AO for fresh enquiry.- Decided in favour of assessee for statistical purposes. Claim of interest on the bank OD - Held that - The assessee contention cannot be rejected simply because AO did not comment on the issue. There is evidence that assessee has obtained Over Draft from the bank. If the amount was utilized for the purpose of business, the interest paid thereon should be allowed as a deduction while computing income from profits and gains of business . Since the AO has not examined this claim, we set aside the issue to the file of AO to examine the claim of the assessee and the purpose for which the borrowed funds were utilized. Assessee should be given due opportunity, before taking any decision adverse to the interest of assessee. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Agricultural Income
2. Disallowance u/s. 80C of the Act
3. Additions based on agreement of sale
4. Addition based on Promissory Notes
5. Claim of interest on the bank OD

Issue-wise Detailed Analysis:

Agricultural Income:
The assessee reported agricultural income for AYs 2005-06, 2006-07, and 2007-08. The AO reclassified this as 'income from other sources' due to lack of substantiation. The CIT(A) upheld this, noting the absence of documentary evidence for cultivation and sale. The Tribunal acknowledged the ownership of agricultural land but found the income claims unsubstantiated. It directed the AO to accept a reasonable income of Rs. 10,000 per acre for the relevant years, with the balance treated as 'income from other sources.'

Disallowance u/s. 80C of the Act:
The assessee's claims for investments and repayments under Section 80C were disallowed by the AO. The CIT(A) allowed payments to LIC for AYs 2006-07 and 2007-08 but disallowed claims for housing loan principal repayments due to lack of evidence. The Tribunal upheld the CIT(A)'s decision, dismissing the grounds on disallowance u/s. 80C.

Additions based on agreement of sale:
The AO made additions based on agreements of sale found during the search, treating them as unaccounted investments. The assessee contended these were securities for chit business, not actual purchases. The CIT(A) accepted this explanation in some cases but confirmed additions where evidence was lacking. The Tribunal noted the AO's failure to conduct proper inquiries and set aside the issue for fresh examination by the AO, directing verification of the nature of transactions.

Addition based on Promissory Notes:
The AO added amounts based on promissory notes found during the search, assuming they represented cash loans. The assessee argued these were securities for chit business. The CIT(A) upheld the additions due to lack of evidence. The Tribunal found the AO had not conducted necessary inquiries and remanded the issue for fresh examination, instructing the AO to verify the nature of the transactions.

Claim of interest on the bank OD:
The assessee claimed interest paid on an overdraft for business purposes. The CIT(A) admitted additional evidence but upheld the disallowance due to lack of comments from the AO. The Tribunal remanded the issue to the AO for examination of the claim and the purpose of the borrowed funds, directing that the assessee be given an opportunity to substantiate the claim.

Conclusion:
The appeals were partly allowed, with the Tribunal directing fresh examination and verification of several issues by the AO, emphasizing the need for proper inquiry and substantiation of claims. The Tribunal's decision underscored the importance of documentary evidence and due process in tax assessments.