2019 (9) TMI 1199 - AT - Income Tax

Disallowance of agricultural income - treated as income from other sources - Creation of HUF - HELD THAT - CIT(A) observed that, Assessee cannot create a status of HUF for the purpose of taxation. We are, however, not in agreement with this contention of CIT(A). The moment a person is born into a family, HUF is created and if the land holdings were in the joint names of the family members, the assessee also being part of the HUF, would have a right in the income there from. We find that the Revenue is taking contrary stands. AO has taken the stand that there is no evidence filed in proof of land in the name of the HUF and therefore, the income has to be treated as assessee s individual income under the head income from other sources while CIT(A) held that the assessee is not part of the HUF and therefore, the income cannot be held to be belonging to the assessee. The existence of the joint family property is recorded by the CIT(A) and the assessee being the member of the joint family, is entitled to his share in the property. Once joint family property is established, then on partition, the assessee becomes the owner of such share in his individual capacity. In the paper book filed by the assessee, we find that there are copies of revenue records, wherein the name of the assessee is recorded as the owner of agricultural land in Ramtek. Therefore, it is to be accepted that the oral partition, subsequently reduced into writing has been given effect to. The assessee has filed the returns in the status of HUF admitting agricultural income in 2012, i.e. after the search. Thus, there cannot be any doubt that the assessee or the HUF possessed agricultural land. Therefore the income from agricultural land is available with the assessee to the extent of his share. As held by the Hon ble Supreme Court in the case of Gurucharan Singh vs. Kamla Singh 1975 (9) TMI 183 - SUPREME COURT there can be oral partition of joint family property. Therefore, agricultural income offered by the assessee has to be accepted and cannot be treated as income from other sources . Assessee gets relief accordingly in all the A.Ys before us - Disallowance of agricultural income and consequential additions for all the A.Ys in the hands of assessee before us, are deleted. Addition u/s 68 - HELD THAT - assessee has declared agricultural income of ₹ 2,00,000/- for the A.Y. 2001-02. Going by the same, the agricultural income for the earlier years from 1992 can be estimated at ₹ 50,000/ per year i.e. ₹ 4,50,000/-. The marriage expenses incurred outside the books of accounts have already been brought to tax as unaccounted income of the assessee. Therefore, the agricultural income from the earlier years can be accepted as the source for the opening cash balance claimed by the assessee. The peak cash credit of ₹ 4,94,665/- also should be considered as cash available with the assessee. Further, as regards the payment to labour contractor also, we are of the opinion that it should be taken into consideration in A.Y. 2004-05 as the construction of the house commenced in August, 2003. Therefore, AO is directed to redraw the cash flow statement for all the AYs by accepting the opening cash balance as on 1.4.2000 at ₹ 6,26,500/- and considering the labour contractor payment of ₹ 5,00,000/ in the A.Y. 2004-05 and if there is any negative closing cash balance for any of the A.Ys, only such negative cash balance shall be considered as unexplained expenditure of the assessee for such A.Y. and can be brought to tax. The grounds against such additions for all the AYs are accordingly partly allowed for statistical purposes Addition on account of two crossed cheques found in the possession of the assessee - HELD THAT - we find the contentions of assessee to be correct, because both the cheques were found in possession of the assessee, but the cheques were neither issued in his name nor were issued by him. In fact, they were part of litigation between assessee s brother and issuer of cheques. Therefore, we delete the addition of ₹ 4 lakhs made by AO and confirmed by CIT(A) for A.Y. 2001-02. Thus assessee s appeal for A.Y. 2001-02 is partly allowed. Unexplained cash deposits into bank accounts - HELD THAT - We find that the CIT(A) has considered the issue but has held that the assessee has not filed confirmation letters from Chit Fund Companies, GPR Chits, Laxmi Sridevi Chit Fund etc. and therefore has not discharged the onus to support his explanation. Before us, assessee is referring to payment by cheques. In view of the same, we deem it fit and proper to direct the AO to consider if the deposits were by the cheques whose numbers are mentioned by assessee and if they are found to be by way of cheques, then no addition as unexplained deposits into bank account shall be made. The assessee gets relief accordingly and the grounds of appeal on account of unexplained deposits into bank account by way of cheques are treated as allowed for statistical purposes.

Summary

Issues Involved:
1. Agricultural income being taxed as 'income from other sources'.
2. Addition of ?4 lakhs based on cheques found during the search.
3. Unexplained cash credits and cash flow statements.
4. Unexplained investments in house property.
5. Unexplained deposits into bank accounts.
6. Unsecured loans.
7. Negative cash balances.
8. Unexplained income from bounced cheques.

Issue-wise Detailed Analysis:

1. Agricultural Income as 'Income from Other Sources':
The Assessing Officer (AO) treated the agricultural income declared by the assessee as 'income from other sources' due to lack of documentary evidence of agricultural land in the name of the assessee. The CIT(A) supported this view, stating that the assessee could not establish a status of HUF for taxation purposes. However, the Tribunal found that the assessee was part of a joint family owning agricultural land, and thus, the agricultural income should be accepted. The Tribunal referred to the Supreme Court's ruling in Gurucharan Singh vs. Kamla Singh, which allows oral partition of joint family property. Consequently, the Tribunal deleted the additions of agricultural income as 'income from other sources' for all assessment years (AYs).

2. Addition of ?4 Lakhs Based on Cheques:
The AO added ?4 lakhs to the assessee's income based on two cheques found during the search, assuming they represented unaccounted income. The Tribunal found that the cheques were neither issued to nor signed by the assessee, but were part of litigation involving the assessee's brother. Therefore, the Tribunal deleted the addition of ?4 lakhs for AY 2001-02.

3. Unexplained Cash Credits and Cash Flow Statements:
The AO found unexplained cash credits and discrepancies in the cash flow statements provided by the assessee. The CIT(A) required proof of the opening cash balance and excluded certain amounts, leading to revised cash flow statements. The Tribunal directed the AO to redraw the cash flow statements, accepting the opening balance of ?6,26,500 as on 01-04-2000 and considering the payment to the labor contractor in AY 2004-05. Any negative closing cash balance should be considered unexplained expenditure and brought to tax.

4. Unexplained Investments in House Property:
The AO treated the difference between the valuation report of the house property and the assessee's declared investment as unexplained investment. The Tribunal allowed deductions for self-approval and rate differences, and accepted the gift received from Smt. Radha Rao as a source for the investment. However, it upheld the addition of ?12 lakhs paid to Shri Srinivasa Reddy and Shri Madan Mohan due to lack of supporting evidence.

5. Unexplained Deposits into Bank Accounts:
For AY 2005-06, the AO added unexplained deposits into bank accounts. The Tribunal directed the AO to verify if the deposits were made by cheques, as claimed by the assessee. If verified, no addition should be made for these deposits.

6. Unsecured Loans:
The AO added ?7 lakhs as unexplained loans due to lack of confirmation from the lender. The Tribunal remanded the issue to the AO for verification of the confirmation letter provided by the lender. If verified, no addition should be made.

7. Negative Cash Balances:
The issue of negative cash balances was set aside for the AO to redraw the cash flow statements, considering the proper opening balance and other adjustments as directed by the Tribunal.

8. Unexplained Income from Bounced Cheques:
The AO added ?15 lakhs as unexplained income from bounced cheques. The Tribunal directed the AO to verify if the cheques were returned and, if so, not to make any addition for these amounts.

Conclusion:
The Tribunal's judgment provided partial relief to the assessee by deleting certain additions and remanding other issues for verification and redrawing of cash flow statements. The appeals for all AYs were partly allowed for statistical purposes.