2020 (1) TMI 221 - AT - Income Tax

Reopening of assessment u/s 147 - cash deposits represent income from undisclosed sources - HELD THAT - Both the persons appeared before the AO as witness, shown documentary evidence of holding the agricultural land and their income from the agricultural land held by them hence shown their capacity to make payment for the purpose of buying agricultural land. Also in support of the said transaction the assessee has submitted the following documents - Copy of affidavit, Copy of Jamabandi towards proof of capacity and Copy of statement accepted the fact that amount was given to the appellant for purchase of his agriculture land. Perusal of the above documents suggest that assessee has discharged his onus to prove the identity and creditworthiness of the lender. No merit in the addition so made by the A.O. Income from other sources - sale of agricultural land - HELD THAT - The claim of assessee that assessee owned 10 bigha of agriculture land is genuine and it cannot be said that the land hold by the assessee is not sufficient to generate quantum of income disclosed. Also found that Shri Banwari accepted the fact that he cultivated the agriculture land (approx. 10 bigha) belonging to Shri Laxman Singh Khokar. He annually paid against the agriculture land amounting to ₹ 1,24,000/- and ₹ 6,800/- against falling tree. No merit in the action of the A.O. in making addition by considering the same as income from other sources. Accordingly, direct to delete the same.

Summary

Issues Involved:
1. Validity of reopening assessment under section 147/148 of the Income Tax Act, 1961.
2. Merit of addition of cash deposits as income from undisclosed sources.
3. Merit of addition of agriculture income as income from other sources.

Analysis:

Validity of Reopening Assessment:
The appeal was filed against the order of ld. CIT(A) for the A.Y. 2009-10 regarding the assessment order passed under section 147/143(3) of the Income Tax Act, 1961. The argument was made that the mere fact of cash deposits in the bank account does not automatically imply undisclosed income. The reasons for reopening must establish how the cash deposits represent income from undisclosed sources to justify reopening under section 147/148. The A.O. had sufficient reasons to conclude that income from cash deposits had escaped assessment, validating the reopening of the assessment.

Merit of Addition - Cash Deposits:
The assessee explained that the cash deposits were from the sale of agriculture land to two individuals. The parties confirmed the transaction, and documents were produced to support the explanation. The mode of transaction, whether in cash or bank, is based on mutual consensus and does not invalidate the transaction if parties confirm it. The oral agreement was recognized under the Indian Contract Act, and the possession of land was transferred. The subsequent year's returns showed no agricultural income, indicating the genuineness of the transaction. The assessee provided ample evidence to prove the source of cash deposits, leading to the conclusion that the addition made by the A.O. was unwarranted.

Merit of Addition - Agriculture Income:
Regarding the addition of agriculture income as income from other sources, the assessee clarified that the income deposited in the bank account was from agricultural activities. Evidence showed that the land owned by the assessee was sufficient to generate the disclosed income. Shri Banwari's payments for cultivation supported the assessee's claim. Considering the facts and circumstances, the addition of agriculture income as income from other sources was deemed unjustified, and the direction was given to delete the addition.

In conclusion, the appeal was allowed, and the additions made by the A.O. were not upheld. The judgment highlighted the importance of establishing the source of income and the genuineness of transactions to avoid unwarranted additions in assessments.