2024 (9) TMI 732 - AT - Income Tax

Disallowance of agricultural income - assessee has not claimed any expenditure in the return of income - HELD THAT - Considering the regularity and consistency of declared income over the years and subsequent assessment years, the income declared by the assessee seems to be in order and also assessee is a professionally graduated in agricultural science. As observed that the AO observed that assessee has not maintained any books of account as per section 44AA of the Act. In our view, assessee s income falls under section 10(1) of the Act and as per section 44A of the Act, as per the provisions of the Act, who are supposed to maintain books of account, does not include agriculturist. Therefore, assessee s case does not fall u/s 44AA - assessee has submitted copy of bills of sale of agricultural produce to various persons, even though to the related parties Considering the agricultural income declared by the assessee over the years, the claim of the assessee is genuine and assessee has submitted that the agricultural expenses were met out of sale of seedlings to farmers is acceptable. If at all required, assessee would have grossed up the sales by including the seedlings sales and claimed the agricultural expenditure. Therefore, no reason to suspect the income declared by the assessee. Accordingly, the grounds raised by the assessee are allowed.

Issues Involved:
1. Disallowance of agricultural income claim.
2. Addition of Rs. 23,36,957/- to the income.
3. Adverse inference without evidence.
4. Doubting authenticity of evidence due to non-compliance with Kisan Mandi requirements.
5. Disallowance of entire agricultural income without proper justification.
6. Requirement to maintain books of account under section 44AA.
7. Violation of principles of natural justice.
8. Charging interest under sections 234A, 234B, and 234C.

Issue-wise Detailed Analysis:

1. Disallowance of Agricultural Income Claim:
The assessee claimed agricultural income of Rs. 23,36,957/- as exempt under section 10(1) of the Income-tax Act, 1961. The Assessing Officer (AO) disallowed this claim, doubting its authenticity due to the absence of claimed expenses. The AO's decision was based on the observation that the assessee did not provide a reasonable explanation or computation of agricultural income along with the books of accounts maintained for agricultural activities.

2. Addition of Rs. 23,36,957/- to the Income:
The AO added Rs. 23,36,957/- to the assessee's income, treating the agricultural income as bogus. This addition was confirmed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC).

3. Adverse Inference Without Evidence:
The AO and NFAC took an adverse inference against the assessee without bringing any adverse evidence on record and without considering relevant evidence furnished by the assessee. The AO's skepticism was primarily due to the assessee not claiming any expenses for agricultural activities, which seemed unusual.

4. Doubting Authenticity of Evidence Due to Non-Compliance with Kisan Mandi Requirements:
The AO doubted the authenticity of the evidence provided by the assessee for selling agricultural produce because the sales were not made through the Kisan Mandi, no Mandi tax was paid, and no Mandi/sales tax registration number was available. The AO considered the bills issued by the assessee as self-serving documents prepared to transfer profits from related companies and claim bogus exempt agricultural income.

5. Disallowance of Entire Agricultural Income Without Proper Justification:
The AO disallowed the entire agricultural income without providing cogent reasons. The assessee argued that the expenses incurred for agricultural activities were met out of sales of seedlings and seeds to mobile vendors and farmers, which is a common practice. This method had been consistently accepted in previous years' assessments.

6. Requirement to Maintain Books of Account Under Section 44AA:
The AO observed that the assessee was liable to maintain books of account for agricultural activities under section 44AA of the Act. However, it was argued that section 44AA applies to business transactions and not to agricultural activities. Therefore, the assessee was not required to maintain books of account for agricultural activities.

7. Violation of Principles of Natural Justice:
The assessee contended that the AO and NFAC violated the principles of natural justice by not issuing a proper show-cause notice proposing the addition along with the reasons. The assessee also highlighted that no opportunity for a hearing through video conferencing was afforded by the NFAC, despite a request being made.

8. Charging Interest Under Sections 234A, 234B, and 234C:
The AO charged interest under sections 234A, 234B, and 234C based on the assessed income. This was contested by the assessee as being unjustified.

Judgment:
After considering the rival submissions and material on record, the tribunal observed that the assessee, a graduate in agricultural science, had been consistently declaring agricultural income over the years. The tribunal noted that the assessee had provided evidence of holding agricultural land and sales of agricultural produce, even if to related parties. The tribunal found the assessee's claim of meeting agricultural expenses through the sale of seedlings and seeds to be acceptable. It was also noted that section 44AA does not mandate agriculturists to maintain books of account. Therefore, the tribunal concluded that the income declared by the assessee was genuine and allowed the appeal, setting aside the additions made by the AO and confirmed by the NFAC.

Result:
The appeal filed by the assessee was allowed, and the order was pronounced in the open court on the 6th day of September, 2024.

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