2018 (12) TMI 622 - AT - Income Tax

Addition u/s. 68 - assessee in the garb of earnest money introduced his own unaccounted money - Held that - If a credit from (or attributed to) a trade debtor is not excluded from the purview of s.68, how could that from a trade creditor be? That is, per se. Where the credit is in respect of money received, the account, be it of a trade creditor or trade debtor, is, essentially, only of a person the stated source of the credit, which is to be established on facts. Reference in this context may be with profit made to the decision in CIT v. Varinder Rawlley 2014 (8) TMI 679 - PUNJAB AND HARYANA HIGH COURT . No doubt, the Hon ble High Courts in V.I.S.P. (P.) Ltd. vs. CIT 2003 (7) TMI 43 - MADHYA PRADESH HIGH COURT ; Indian Woollen Carpet Factory vs. Income-tax Appellate Tribunal 2002 (7) TMI 39 - RAJASTHAN HIGH COURT clarified that sec. 68 would apply to a credit transaction of purchase as well, even as, as aforenoted, the present case is not of a purchase (of goods/services). Section 68 stands rightly invoked by the AO in the facts and circumstances the case. The impugned order is accordingly set aside on this ground, and the impugned addition upheld. Unexplained investment toward purchase of agricultural land - Held that - After considering the AO s report as well as the assessee s reply thereto, he concluded that an AOP was in existence since the year 2004, which had carried out agricultural operations on 178 acres of land during the relevant year, earning as much as ₹ 50 lacs. There was accordingly no case to doubt the receipt of funds attributed by the assessee to the AOP. The addition of ₹ 15 lacs was therefore deleted (pg. 116 of the IO). The finding stands issued upon an exhaustive analysis by the CIT(A). No contrary material, or otherwise any infirmity therein, stands shown to us during hearing. Rather, we compliment the first appellate authority for the painstaking effort made by him to ascertain the facts. Agricultural income - Held that - The assessee has 9 acres of land, stated to be drip irrigated, yielding an annual return of ₹ 57,500 per acre, apart from 19 acres purchased during the year, which was therefore cultivated only for a part of the year, besides being admittedly not drip irrigated, stated to have fetched ₹ 20,000 per acre. No evidence toward the land purchased during the year being put to agricultural use, much less the period for which it is, or of that already owned being drip irrigated, being produced, the AO estimated the assessee s income from agriculture at ₹ 6.50 lacs, making an addition for ₹ 2.50 lacs. CIT(A) regarded the assessee s estimate as reasonable, and deleted the addition. We find the assessee s case as wholly unsubstantiated. The AO s estimate is, under the circumstances, in our view, only reasonable. We, therefore, decline interference therein, and the Revenue succeeds in result.

Summary

Issues Involved:
1. Deletion of addition of ?10 lacs made under Section 68 of the Income Tax Act, 1961.
2. Deletion of addition of ?15 lacs made under Section 69 of the Income Tax Act, 1961.
3. Deletion of addition of ?2.5 lacs made as income from undisclosed sources by disallowing excessive agricultural income.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?10 Lacs under Section 68:

The first issue concerns the addition of ?10 lacs made under Section 68 of the Income Tax Act. The assessee, engaged in developing a colony named 'Kartar Estates,' claimed to have received earnest money of ?101.77 lacs from various persons for booking plots. Out of this, ?32.55 lacs was received in cash. The Assessing Officer (AO) found that ?10 lacs, received from eight individuals in cash, was repaid through a single cheque to a third party, Raj Sher Singh. Affidavits from six individuals were submitted, but their financial capacity was questioned. The AO inferred that the ?10 lacs was the assessee's unaccounted income introduced in the guise of earnest money and brought it to tax under Section 68.

The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the assessee's appeal, holding that the assessee had discharged the initial onus by furnishing affidavits and producing the individuals before the AO, who confirmed receiving their deposits back. The CIT(A) opined that the enquiry into the creditworthiness of the buyers was outside the purview of the assessee.

Upon review, the Tribunal observed that the issue was factual, with the primary fact of receipt of money not in dispute. The Tribunal found that the AO acted reasonably in rejecting the assessee's explanation, as the identity and capacity of the depositors were not satisfactorily proved. The Tribunal held that Section 68 was rightly invoked by the AO and set aside the CIT(A)'s order, upholding the addition of ?10 lacs.

2. Deletion of Addition of ?15 Lacs under Section 69:

The second issue pertains to the addition of ?15 lacs on account of unexplained investment in agricultural land purchased for ?22 lacs. The assessee claimed the investment was sourced from ?9 lacs of agricultural income and withdrawals from his Association of Persons (AOP). The AO admitted only ?7 lacs from agricultural income and added ?15 lacs in the absence of evidence for withdrawals from the AOP.

The CIT(A) admitted additional evidence regarding the AOP's accounts and allowed the assessee's appeal based on this evidence. The Revenue argued that the evidence was fabricated and not produced during the assessment proceedings.

The Tribunal noted that the assessee failed to produce evidence during the assessment proceedings but furnished substantial material during the appellate proceedings. The CIT(A), exercising powers under Section 250(4), admitted some evidence and found that the AOP had been in existence since 2004, carrying out agricultural operations on 178 acres of land, earning ?50 lacs. The Tribunal found no reason to interfere with the CIT(A)'s detailed analysis and upheld the deletion of the addition of ?15 lacs.

3. Deletion of Addition of ?2.5 Lacs as Income from Undisclosed Sources:

The third issue involves the addition of ?2.5 lacs as income from undisclosed sources by disallowing excessive agricultural income. The assessee disclosed ?9 lacs as agricultural income from 9 acres of drip-irrigated land and 19 acres purchased during the year. The AO estimated the agricultural income at ?6.5 lacs, making an addition of ?2.5 lacs.

The CIT(A) found the assessee's estimate reasonable and deleted the addition. The Tribunal, however, found the assessee's case unsubstantiated and upheld the AO's estimate as reasonable, restoring the addition of ?2.5 lacs.

Conclusion:

In conclusion, the Tribunal partly allowed the Revenue's appeal, upholding the addition of ?10 lacs under Section 68 and ?2.5 lacs as income from undisclosed sources, while sustaining the deletion of ?15 lacs under Section 69. The order was pronounced in the open court on July 31, 2018.