2018 (6) TMI 1387 - AT - Income Tax

Exemption u/s 10(1) on account of agricultural income - Assessing Officer held mere holding of agricultural land does not prove that assessee has produced lemon grass which could fetch it ₹ 70,76,750/- - assessee did not produce even a single bill/ invoices against purchase of fertilizer and manure expenses - Held that - There is substantial increase in agricultural income only during the impugned assessment year. It is not known as to whether the price of lemon grass has fallen down or the quantity grown has fallen down in the preceding or subsequent years. Although the CIT (A) had passed certain remark that when the Assessing Officer had passed the order the return of income for the two subsequent years would have also come on record, however, he himself has not bothered to verify the same. It is the settled proposition of law that the powers of the CIT (A) are co-terminous with that of the Assessing Officer. He can do what the Assessing Officer has failed to do. In the instant case it appears that the CIT (A) was carried away by the arguments advanced by the assessee before him and failed to discharge the powers conferred upon him. When the assessee did not produce the books of account although it is a private limited company and did not produce the relevant details as called for by the Assessing Officer, the CIT (A) should not have granted substantial relief to the assessee on account of agricultural income which under the facts and circumstances of the case appears to be abnormal - restore the issue to the file of the CIT (A) with a direction to decide the issue afresh in accordance with law after giving due opportunity of being heard to the assessee - Appeal filed by the revenue is allowed for statistical purposes.

Issues Involved:
1. Validity of the agricultural income claim by the assessee.
2. Non-production of books of account and other supporting documents.
3. Acceptance of additional evidence by the CIT (A).
4. Substantial increase in agricultural income during the impugned assessment year.
5. Procedural adherence by the CIT (A) in verifying the claim.

Issue-wise Detailed Analysis:

1. Validity of the agricultural income claim by the assessee:
The assessee, a company engaged in the production and trading of agricultural items, declared an agricultural income of ?55,30,869/- for the assessment year 2007-08. The Assessing Officer (AO) questioned the validity of this claim due to insufficient documentation and evidence. The AO noted that the assessee did not produce certified copies of agricultural land records, details of crops grown, or proof of sales transactions. Consequently, the AO considered the agricultural income claim to be a sham and treated most of it as income from undisclosed sources, allowing only ?4,50,566/- as agricultural income.

2. Non-production of books of account and other supporting documents:
The AO requested various documents, including books of account, bank statements, and sale invoices, which the assessee failed to produce. The AO emphasized that mere holding of agricultural land does not prove the production of lemon grass worth ?70,76,750/-. The assessee's failure to provide bills for fertilizer, manure, salary expenses, and labor charges further led the AO to conclude that the agricultural income claim was fabricated.

3. Acceptance of additional evidence by the CIT (A):
The CIT (A) accepted additional evidence submitted by the assessee, which included audited statements and subsidy documents. The CIT (A) observed that the AO did not conduct site inspections or collect confirmations from third parties to verify the agricultural operations. Despite recognizing the unusual features of the assessee's claim, such as high sales and receivables with no expenditure on seeds, the CIT (A) estimated the agricultural income at 75% of the disclosed value, amounting to ?53,07,560/-, and treated ?18,00,000/- as income from unexplained sources.

4. Substantial increase in agricultural income during the impugned assessment year:
The revenue raised concerns about the significant increase in agricultural income compared to the previous year. The CIT (A) noted that the assessee received a subsidy under the National Horticulture Board scheme, which lent some credibility to the claim. However, the CIT (A) also acknowledged that the assessee did not satisfactorily substantiate the claim of earning ?55,96,085/- from agricultural activities. The CIT (A) estimated the agricultural income at 75% of the disclosed value due to the lack of regular books of account and the absence of a team of experts managing the operations.

5. Procedural adherence by the CIT (A) in verifying the claim:
The Tribunal found that the CIT (A) did not adhere to procedural requirements, such as verifying the agricultural income for subsequent years or examining the reasons for the decline in income. The Tribunal emphasized that the CIT (A) has co-terminous powers with the AO and should have conducted a thorough verification. The Tribunal restored the issue to the CIT (A) for fresh adjudication, directing the CIT (A) to call for a remand report from the AO, examine the books of account, and verify the reasons for the decline in agricultural income in subsequent years.

Conclusion:
The Tribunal allowed the revenue's appeal for statistical purposes, directing the CIT (A) to re-examine the issue of agricultural income claim by the assessee, ensuring adherence to procedural requirements and giving due opportunity to the assessee to present the necessary documents and evidence.

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