2022 (5) TMI 1264 - AT - Income Tax

Addition of agricultural income as unexplained income - Case was selected for scrutiny assessment and notices under section 143(2) and 142(1) were issued - HELD THAT - No details have been received from the traders to whom sale of agriculture produce is stated to be sold. The assessee also not furnished any proof of purchase of seeds, fertilizer payments etc. Bills produced for sales only stated that payment were deducted on account of off-loading and labour charges for goods sold. It is not possible to have agriculture produce without incurring such expenses. So the claim of the assessee is misleading in the absence of any details of procurement of seeds, fertilisers, water facilities, labour charges, and therefore, no agriculture activities can be said to be done. Further, in the form No. 7/12, there is no details of farming being done by the assessee and the nature of the crops, and the quantification of the land, has not been mentioned. Therefore, the addition made by the AO on account of unexplained agriculture income is confirmed. We find that both authorities are not correct in holding that entire income as admitted by the assessee for having not proved, details of expenditure incurred to be treated as an unexplained income of the assessee. As pleaded by the Ld. AO for assessee's own case for the Asstt.Year 2015-16 on assessee's admission, the same agriculture income at 10% was agreed to be disallowed by the assessee against returned agricultural income of Rs. 21,68,400/-. The same was accepted by the AO, and passed assessment under section 143(3) of the Act on 22.12.2017. Taking into consideration various opportunities given to the assessee, and the fact that the assessee had not explained the expenses incurred in earning the agriculture income of Rs. 37,11,028/-, it is appropriate to make a disallowance at 25% of the expenses incurred for earning this agriculture income seems to be reasonable and meet the ends of justice - Appeal of the assessee is partly allowed

Summary

Issues:
1. Addition of agricultural income as unexplained income.
2. Validity of penalty proceedings under section 271(1)(c) of the Act.
3. Consideration of additional evidence under Rule 46A of the Income Tax Rules, 1962.

Issue 1: Addition of Agricultural Income as Unexplained Income:
The appellant, an individual, filed an appeal against the order confirming the addition of agricultural income of Rs. 37,11,028 as unexplained income. The AO made the addition due to the lack of response from the assessee and failure to provide proof of agricultural activities. The AO highlighted the absence of details regarding farming activities, expenses incurred, and proof of purchase of essential items. The remand report emphasized the misleading nature of the assessee's submissions and the lack of evidence supporting agricultural income. The CIT(A) dismissed the appeal, noting the failure to prove the genuineness of expenses and income from agriculture. The appellant argued that the notice issued to agriculture traders was irrelevant to quantifying agricultural crops. The Tribunal found the authorities erred in treating the entire income as unexplained due to insufficient proof of expenditure. Considering the appellant's admission in a previous year and the lack of explanation for expenses incurred, a 25% disallowance of expenses was deemed reasonable, allowing the appeal partially.

Issue 2: Validity of Penalty Proceedings under Section 271(1)(c) of the Act:
The AO initiated penalty proceedings under section 271(1)(c) of the Act due to the unexplained agricultural income addition. However, the focus of the appeal was on the substantive issue of the addition itself rather than the penalty proceedings. The Tribunal's decision to partially allow the appeal indicates a reevaluation of the original addition rather than addressing the penalty aspect directly.

Issue 3: Consideration of Additional Evidence under Rule 46A of the Income Tax Rules, 1962:
The appellant submitted additional evidence under Rule 46A, including land ownership details and agriculture produce sales bills, during the appellate proceedings. The AO's remand report highlighted the lack of proof for expenses and income, leading to the confirmation of the addition. The CIT(A) and the Tribunal both emphasized the failure to establish the genuineness of expenses and income, ultimately leading to the partial allowance of the appeal based on a reasonable 25% disallowance of expenses. The consideration of additional evidence under Rule 46A played a crucial role in the appellate process, allowing for a more comprehensive review of the case.

In conclusion, the Tribunal partially allowed the appeal, emphasizing the need for proper substantiation of expenses and income related to agriculture activities. The decision highlighted the importance of providing sufficient evidence to support claims and the significance of Rule 46A in presenting additional documentation during appellate proceedings.