2023 (2) TMI 346 - AT - Income Tax

Unexplained cash credit u/s.68 - Unexplained entry in the books of accounts brought to tax - double taxation - taxing the source of investment and application of investment both - HELD THAT - In Assessment Year 2012-13, the assessee had shown a sum as agricultural income and the advance received in respect of lease of lands does not appear in the balance sheet as on 31.3.2012. It is thus clear that what was shown as advance in the balance sheet in Assessment Year 2011-12 as on 31.3.2011 a part of it was shown as agricultural income by the assessee in Assessment Year 2012-13. Therefore, the contention of the assessee that the sum declared as agricultural income was on the opening balance of 31.03.2011 of leased lands received in respect of Manepalli lands is correct. The contention of the assessee that the same income which was taxed in Assessment Year 2011-12 against sought to be taxed in Assessment Year 2012-13 is factually found to be correct. The plea of the learned counsel for the Assessee rest on the theory of Telescoping. If income is available to an Assessee, then that income can be explained as a source for an item of investment or expenditure that the Assessee is unable to explain, provided the income was available to the Assessee when the investment or expenditure is made/incurred. The idea is ultimately tax is levied either only on the income or only on its application. The theory operates on the basic presumption that when there are undisclosed income and also certain undisclosed investments, then it could be reasonably presumed that the undisclosed investments have been sourced out of the undisclosed income, so that only the income may be taxed or only the investment may be taxed and not both, in the hands of the assessee under the provisions of the Act. When an income is taxed / addition is made to taxable income in an earlier year, the assessee may claim that the income arising in subsequent year / subsequent period is sourced out of the income taxed earlier. AO and the CIT(A) have proceeded on the presumption that the assessee is claiming credit on the agricultural income declared in Assessment Year 2011-12 is factually incorrect. The credit is claimed only for the advance shown in the balance sheet that was treated as unexplained credit under section 68 - Decided in favour of assessee.

Summary

Issues:
1. Treatment of agricultural income as unexplained and addition of lease rental as unexplained cash credit.
2. Rejection of assessee's explanation regarding agricultural income for Assessment Year 2012-13.
3. Delay in filing the appeal and condonation of the same.
4. Merits of the appeal regarding the treatment of agricultural income.

Analysis:
1. The first issue involves the treatment of agricultural income as unexplained and the addition of lease rental as unexplained cash credit. The Assessing Officer (AO) treated a portion of agricultural income as unexplained and added it to the total income. Similarly, an advance lease rental received was also treated as unexplained cash credit. The assessee appealed before the CIT(A), but the appeal was dismissed. The Tribunal noted that the assessee did not file a further appeal against the CIT(A)'s order, indicating acceptance of the decision.

2. The second issue pertains to the rejection of the assessee's explanation regarding agricultural income for Assessment Year 2012-13. The AO rejected the contention that the income was transferred from the lease advance already taxed in the previous year. The AO considered the explanation as an afterthought and added the amount as income from undisclosed sources. The CIT(A) upheld the AO's decision, leading to the appeal before the Tribunal.

3. The third issue addresses the delay in filing the appeal and its condonation. The assessee explained the delay citing non-receipt of the order from the previous Counsel. Despite opposition from the Departmental Representative (DR), the Tribunal accepted the reasons provided by the assessee for the delay and decided to condone it based on established legal principles.

4. The final issue concerns the merits of the appeal regarding the treatment of agricultural income. The Tribunal observed that the sum declared as agricultural income for the relevant year was part of the lease advance previously treated as unexplained income. The Tribunal acknowledged the principle of Telescoping, where income can explain investments or expenditures. Based on this principle and the factual findings, the Tribunal accepted the assessee's plea and deleted the addition made by the AO, ultimately allowing the appeal.

In conclusion, the Tribunal allowed the appeal of the assessee based on the factual and legal analysis presented, highlighting the importance of consistent treatment of income and adherence to established legal principles in tax assessments.