2020 (1) TMI 12 - AT - Income Tax

Disallowance of excessive agricultural income - AO has accepted net agricultural income by estimating the agriculture income as per agriculture department/tehsildar reports which is general in nature and based on survey of whole state/district whereas the agriculture yield depends upon quality of land/irrigation facilities, manure and seeds quality and the general report/survey report is not applicable everywhere - HELD THAT - Entire agricultural produce obtained by way of crops is fully vouched and has been sold through Krishi Upaj Mandi. The sale is beyond doubt. AO has not brought any material on record to disprove the sale vouchers and no enquiry has been conducted from the parties through whom the agricultural produce was sold. Any enquiry made from these parties would have disclosed the truth but this was not done by the AO. He has preferred to act on estimate and guess work. At first the AO estimated the gross agricultural produce on the basis of a report from the Tehsildar but when the same was agitated by the assessee claiming that the land owned by the asessee was more fertile and capable of yielding more crops in comparison to an average land as reported by the Tehsildar. However, the AO did not accept the contention of the assessee. This shows the variation on working of agricultural income on estimate basis. AO has estimated price as well yield whereas he is not a specialist for this and made an addition of ₹ 8,24,190/-. Thus found that merely on estimate basis the AO has rejected the assessee's claim of agricultural produce which is duly supported by the bills and vouchers. AO acted on the basis of suspicion and doubt. It is settled position of law that suspicion however strong cannot take the place of evidence. In this case the vouchers of sale cannot be rejected on the basis of suspicion and doubt. in the immediately preceding year the scrutiny assessment was framed and agricultural income so disclosed by the assessee was accepted by the Department at ₹ 31,27,010/- whereas during this year the Department has accepted only a sum of ₹ 21,66,534/- as against disclosed agricultural income of ₹ 27,00,104/-. No justification for the disallowance of agricultural income of the assessee so made by the AO and confirmed by the ld. CIT(A). - Decided in favour of assessee.

Summary

Issues:
Appeal against disallowance of agricultural income.

Analysis:
1. The appeal was filed by the assessee against the disallowance of agricultural income amounting to ?8,24,190. The assessee, a limited company engaged in agricultural activity, had filed a return declaring total income of ?Nil, agricultural income of ?21,66,534, and interest income of ?2,52,333 for the Assessment Year 2016-17. The AO had completed the assessment, disallowing the agricultural income by treating it as non-agricultural.

2. The assessee contended that the AO's disallowance was unjustified as the agricultural produce sales were supported by evidence such as sales bills and vouchers. The AO's estimation of agricultural income based on reports from the Tehsildar was challenged by the assessee, citing the higher productivity of their well-irrigated land compared to the average land in the area. The AO's rejection of the assessee's claims without concrete evidence was criticized.

3. The Tribunal noted that the AO's actions were based on suspicion and guesswork, lacking substantial evidence to disprove the genuine nature of the agricultural income claimed by the assessee. The Tribunal emphasized that suspicion, no matter how strong, cannot replace concrete evidence. Legal precedents were cited to support the principle that vouchers of sale cannot be rejected solely on suspicion.

4. Additionally, the Tribunal highlighted the inconsistency in the Department's treatment of the assessee's agricultural income between the current and the immediately preceding assessment year. In the prior year, a higher agricultural income was accepted, raising questions about the basis for the disallowance in the current year. The Tribunal concluded that the disallowance of agricultural income made by the AO and upheld by the CIT(A) was unjustified, leading to the allowance of the assessee's appeal.

5. The Tribunal's decision was based on the lack of concrete evidence supporting the disallowance of agricultural income, the reliance on suspicion by the AO, and the inconsistency in the Department's treatment of the assessee's income between the current and previous assessment years. The Tribunal found no justification for the disallowance and allowed the appeal in favor of the assessee.