2022 (6) TMI 1234 - AT - Income Tax

Disallowance in respect of agricultural expenses - assessee declared gross agricultural receipts - AO found the expenses to be on lower side by considering the general market trend for agricultural expenses being incurred at 35% of gross agricultural income - HELD THAT - AO has simply rejected the assessee s claim of agricultural expenses being on the lower side on the basis of a yardstick of 35% being trend of current year . It is not understandable as to where from such trend came into vogue. If the percentage of agricultural expenses shown by the assessee for the year under consideration is lower than that of the immediately preceding year, it is better than that for the two years immediately prior thereto. Here is a case in which the assessee maintained complete details of agricultural expenses, which have not been faulted with by the AO. If the expenses were inadequate or wanting in any respect, the AO ought to have rejected such expenses by giving some plausible reasons, whereafter, he could have gone ahead with making a best judgment on some rational basis. Having not done so and simply making the addition on the basis of some trend , we find no reason to sustain the disallowance. For the foregoing reason, we are satisfied that the authorities below were not justified in making and sustaining the addition in such an ad hoc manner. The same is directed to be deleted. - Decided in favour of assessee.

Summary

Issues:
Confirmation of disallowance of agricultural expenses by Assessing Officer.

Analysis:
The appeal was against the confirmation of disallowance of Rs.4,19,970/- made by the Assessing Officer in relation to agricultural expenses for the assessment year 2014-15. The assessee, engaged in manufacturing, trading in Khandsari sugar and jaggery, and power generation, declared gross agricultural receipts of Rs.47,78,862/- and agricultural expenses of Rs.12,52,631/-. The AO increased the expenses to Rs.16,72,601/- based on a general market trend of 35% of gross agricultural income, resulting in the disallowance. The CIT(A) upheld the disallowance, leading to the appeal before the Tribunal.

The Tribunal noted that the assessee's declared agricultural expenses accounted for over 26% of the gross receipts, with detailed year-wise figures provided. The AO's rejection of the expenses as lower based on a 35% trend without valid reasons was deemed unjustified. The Tribunal found that the assessee maintained complete and unchallenged details of agricultural expenses. Since the AO failed to provide plausible reasons for rejecting the expenses or to make a best judgment on a rational basis, the disallowance was deemed ad hoc and unjustified. Consequently, the Tribunal directed the deletion of the disallowance, concluding that the authorities were not justified in their decision.

In conclusion, the Tribunal allowed the appeal, setting aside the disallowance of agricultural expenses made by the Assessing Officer. The order was pronounced in the Open Court on 20th June, 2022.