2025 (2) TMI 223 - AT - Income Tax

Addition of differential agricultural income - HELD THAT -Assessee had filed the return of income for AY.2016-17 wherein agricultural income Rs. 7, 17, 797/- was declared. The same was processed u/s 143(1) of the Act and the case was not picked up for scrutiny. Therefore the AO could have added the impugned sum by re-opening the assessment for AY.2016-17. However he has allowed agricultural income partly. Income offered in the earlier year cannot be disturbed without scrutinizing the return by way of regular assessment or re-assessment u/s 143(3) or 147 of the Act respectively. Therefore the addition is deleted. Unexplained cash credits u/s. 68 r.w.s. 115BBE - AO has added it u/s 68 by holding that higher exempted agricultural income was declared only to explain the cash deposit during demonetization period - HELD THAT - AO concluded that (i) no tenant details are available on government record (ii) details of crop cultivated shows Padtar which means no agricultural activity has been undertaken on the land and (iii) that there was no irrigation facility in the land. These findings have not been disproved by the appellant before CIT(A) or the Tribunal. Therefore the plea of extra agricultural income cannot be accepted. We find that the assessee was also engaged in the retail trading business in the name of Shreeji Paints Ply . Therefore benefit of cash sales and debtors realization cannot be denied to assessee till the date of cash deposit. Disallowance would be sufficient to avoid possibility of revenue leakage. Accordingly addition is upheld and the remaining amount is deleted. The ground is partly allowed. Addition at the enhanced rate of tax u/s 115BBE - Applicability of amended provision of Section 115BBE is not retrospective. There is no reason not to follow above decisions. Thus the AO is directed to tax the addition at normal rate of tax and applicable surcharges and cess if any. The assessee is accordingly allowed relief against taxing the addition at higher rate u/s 115BE of the Act.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the addition of Rs. 10,09,859/- as unexplained cash credits under Section 68 of the Income Tax Act, 1961, was justified.
• Whether the agricultural income declared by the assessee was correctly assessed by the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)].
• Whether the AO erred in levying interest and penalty under Sections 234 A/B/C/D and 271AAC of the Act.
• Whether the enhanced tax rate under Section 115BBE was applicable to the additions made.
• Whether the assessee should be allowed to submit additional evidence in the interest of natural justice.

ISSUE-WISE DETAILED ANALYSIS

1. Addition of Rs. 10,09,859/- as Unexplained Cash Credits

Relevant Legal Framework and Precedents: Section 68 of the Income Tax Act allows the AO to treat unexplained cash credits as income. The CIT(A) relied on precedents such as Durga Prasad More vs. CIT and Sumati Dayal vs. CIT to uphold the AO's decision.

Court's Interpretation and Reasoning: The Tribunal noted that the AO added Rs. 5,17,797/- and Rs. 4,92,062/- for AY 2016-17 and 2017-18, respectively, as unexplained cash credits. However, the AO had not scrutinized the return for AY 2016-17, which was processed under Section 143(1) without further assessment.

Key Evidence and Findings: The Tribunal considered the assessee's claim of increased agricultural income due to self-supervised operations and additional rented land, which the AO did not find credible due to lack of evidence.

Application of Law to Facts: The Tribunal concluded that the AO should have reopened the assessment for AY 2016-17 to add the impugned sum. Thus, the addition of Rs. 5,17,797/- was deleted.

Treatment of Competing Arguments: The Tribunal acknowledged the assessee's reliance on various ITAT decisions supporting their claim of legitimate agricultural income.

Conclusions: The Tribunal deleted the addition for AY 2016-17 and partially upheld the addition for AY 2017-18, allowing Rs. 2,00,000/- as a disallowance to prevent revenue leakage.

2. Applicability of Enhanced Tax Rate under Section 115BBE

Relevant Legal Framework and Precedents: Section 115BBE imposes a higher tax rate on unexplained income. The Tribunal referred to decisions indicating that the amended provision is not retrospective.

Court's Interpretation and Reasoning: The Tribunal found that Section 115BBE, enacted on 15.12.2016, could not be applied retrospectively to the assessment year in question.

Key Evidence and Findings: The Tribunal considered various ITAT decisions that supported the non-retrospective application of Section 115BBE.

Application of Law to Facts: The Tribunal directed the AO to tax the addition at the normal rate, granting relief to the assessee from the higher tax rate.

Conclusions: The Tribunal allowed the assessee's appeal regarding the tax rate, directing taxation at the standard rate.

3. Interest and Penalty under Sections 234 A/B/C/D and 271AAC

Relevant Legal Framework and Precedents: Sections 234 A/B/C/D relate to interest on late filing and payment of taxes, while Section 271AAC pertains to penalties for unexplained income.

Court's Interpretation and Reasoning: The Tribunal did not specifically address these sections in detail, as the primary focus was on the unexplained cash credits and tax rate issues.

Conclusions: The Tribunal's decision to adjust the taxable amount and rate implicitly impacted the interest and penalty calculations.

SIGNIFICANT HOLDINGS

Core Principles Established: The Tribunal emphasized the necessity of proper assessment procedures, such as reopening assessments under Sections 143(3) or 147, before making additions for previous years. It also reinforced the non-retrospective application of Section 115BBE.

Final Determinations on Each Issue: The Tribunal partly allowed the appeal, deleting the addition for AY 2016-17, reducing the addition for AY 2017-18, and directing normal tax rates for the additions.