2024 (5) TMI 186 - AT - Income Tax

Addition of agriculture income treated as income from other sources u/s 56 - assessee had not maintained any Books of Account, bills/vouchers for incurring expenditure on agricultural production during the year - HELD THAT - We note that it is not expected from a small and poor farmer to maintain full accounts department and to maintain books of accounts. In India, by and large, most of the farmers are illiterate and poor and in some cases their land holding is also small, hence it is not feasible to maintain books of accounts. However, this situation will not be applicable in case of a big farmer where the farmer is holding large land and earning a good sizable agricultural income, for such farmers it is feasible and easy to maintain books of accounts as they have necessary infrastructure to maintain the accounts department and books of accounts. The assessee under consideration is a small farmer, and he submitted before the assessing officer the statement of Bardoli Sugar, submitted bill of Shree Khedut Sahkari khand Udyog Mandli and bank statement showing withdrawal and deposit of cash in the bank account. We note that assessee has deposited cash in the bank account out of agricultural income and out of earlier cash withdrawn from the bank, (that is, unused cash out of the cash withdrawn from bank). Therefore, assessee has proved the source of the cash deposit in the bank account and hence the addition should not have been made in the hands of the assessee. Decided in favour of assessee.

Summary

Issues Involved:
The issues involved in this case are:
1. Confirmation of addition of entire agriculture income as income from other sources u/s 56 of the Income Tax Act.
2. Initiation of penalty proceedings u/s 270A of the Act.

Issue 1: Confirmation of Addition of Agriculture Income as Other Sources:
The appeal pertains to the order passed by the Learned Commissioner of Income Tax (Appeals) confirming the action of the Assessing Officer in treating the entire agriculture income as income from other sources u/s 56 of the Income Tax Act. The appellant contended that the assessing officer did not consider the cash inflow from agricultural income and cash withdrawals from earlier periods, which were subsequently deposited in the bank. The appellant argued that the genuineness of the agricultural income was not verified before making the addition. The appellant provided details of agriculture income, including production and sales figures, supported by statements from Bardoli Sugar factory. However, the assessing officer rejected the contentions, stating that the appellant did not maintain agricultural production quantity records or provide expenditure details, leading to the addition of Rs. 7,22,810 as income from other sources. The Learned CIT(A) upheld the assessing officer's decision, emphasizing the need for proper records to substantiate agriculture income.

Issue 2: Initiation of Penalty Proceedings:
The assessing officer initiated penalty proceedings u/s 270A of the Act and issued a notice to the appellant. The appellant raised a ground of appeal against this action. However, during the proceedings, this ground was not argued or pressed by the appellant. Consequently, the Tribunal dismissed ground no. 4 as not pressed.

In the final judgment, the Tribunal considered the arguments presented by both parties. The appellant had submitted various documents and evidence related to agricultural income, including bank statements showing cash withdrawals and deposits. The Tribunal noted that the assessing officer's addition was primarily based on the lack of maintained books of account and expenditure records for agricultural production. Recognizing the challenges faced by small and poor farmers in maintaining detailed accounts, the Tribunal found that the appellant, being a small farmer, had provided sufficient evidence to prove the source of cash deposits in the bank account. Therefore, the Tribunal allowed the appeal, deleting the addition of Rs. 7,22,810 as income from other sources. The Tribunal pronounced the order in favor of the appellant on 08/04/2024.