2023 (5) TMI 409 - AT - Income Tax

Unexplained closing cash balance - Additions u/s.68 - mandation to disclose the cash balance - Whether assessee is covered under the provisions of section 44AD ? - HELD THAT - Assessee claimed to be an agriculturist and in support of his contention has filed the landholding certificates in form 7A/12 and Talati certificate showing the agricultural produce. But the assessee fairly admitted that the accountant has wrongly declared the income under the provisions of section 44AD of the Act wherein it was mandatory to disclose the cash balance. As per the assessee, being an agriculturist, he was not supposed to disclose any cash balance in the return filed under section 44AD of the Act. Accordingly, it was contended that the assessee should not be punished for the mistake committed by the accountant of the assessee. The provisions of section 44AD are applicable to such resident assessee who is an Individual, Hindu Undivided Family and Partnership Firm but not Limited Liability Partnership Firm. The presumptive taxation scheme under these provisions can be opted for by the eligible assessee who is engaged in any business (except the business of plying, hiring or leasing goods carriages referred to in section 44AE), whose turnover or gross receipts from such business do not exceed the limit of audit prescribed under section 44AB of the Act. There is no evidence available on record to indicate that the case of the assessee is covered under the provisions of section 44AD of the Act except the income tax return i.e. the income was disclosed under the provisions of section 44AD of the Act. However, the assessee during the assessment proceedings has countered that he is not covered under the provisions of section 44AD of the Act by furnishing the landholding and Talalti certificates as discussed above. AO, without disposing of the objections raised by the assessee has assumed that the assessee has not furnished the necessary details in support of agricultural activity. But at the same time the AO has also not brought anything on record suggesting that the assessee is engaged in the activity which is subject to the provisions of section 44AD of the Act. As such, the assessee shifted the onus upon the revenue by submitting the details of the landholding and thereafter it was the onus upon the revenue to disprove the contention of the assessee based on the documentary evidence but it has not been done so. As per the assessee, the cash balance was arising to him out of the accumulated fund from the agricultural activities which has been disbelieved by the AO but without bringing any material on record that the cash was generated by the assessee from any other activity which was subject to tax. Thus revenue failed to discharge the onus imposed upon it to disprove the contention of the assessee. As transpired that whatever cash was available with the assessee was out of the agricultural activity of the earlier years carried out by him. Accordingly, we are not inclined to uphold the finding of the authorities below. Hence the ground of appeal of the assessee is hereby allowed.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Addition of unexplained closing cash balance under Section 68 of the Income Tax Act.

Summary:

Issue 1: Delay in Filing the Appeal

The appeal was filed by the assessee with a delay of 779 days. The assessee, being a small agriculturist, claimed ignorance of income tax provisions as the reason for the delay. The Tribunal, referencing the Hon'ble Supreme Court's principles in Collector, Land Acquisition v. Mst. Katiji and Ors. (167 ITR 471), emphasized that "substantial justice" should be preferred over technicalities. It was noted that the Revenue did not allege that the delay was deliberate. The Tribunal decided to condone the delay, stating that the substantial justice deserved to be preferred and proceeded to decide the issue on merit.

Issue 2: Addition of Unexplained Closing Cash Balance

The assessee, an individual claiming to be an agriculturist, filed a belated return of income for the Assessment Year 2015-16, declaring a closing cash balance of Rs. 7,81,648. The AO added this amount as unexplained cash credit under Section 68 of the Act, citing discrepancies in the assessee's claims and lack of evidence supporting the cash balance. The assessee contended that the cash was accumulated from agricultural activities and that the income was incorrectly declared under Section 44AD due to an accountant's error.

The CIT(A) upheld the AO's addition, noting inconsistencies in the assessee's explanations and failure to substantiate the cash balance. The Tribunal, however, found that the Revenue did not provide evidence to disprove the assessee's claim of agricultural income. It was noted that the cash balance represents the cash available from various transactions over the financial year, and the Revenue failed to show that the cash was generated from taxable activities. The Tribunal concluded that the cash was likely accumulated from agricultural activities and allowed the assessee's appeal, thereby deleting the addition of Rs. 7,81,648.

Conclusion:

The Tribunal condoned the delay in filing the appeal and ruled in favor of the assessee, deleting the addition of Rs. 7,81,648 made under Section 68 of the Income Tax Act, as the Revenue failed to disprove the assessee's claim that the cash was accumulated from agricultural activities.