2021 (8) TMI 710 - AT - Income Tax

Denial of exemption u/s.10(1) in respect of income returned as agricultural income on account of it being unproved - Safed Musli produced - agricultural expenditure Presumably incurred on the standing crops - Denial of deduction u/s. 80-JJA on the profits and gains of the business of sale of biofertilizer and biological agent - HELD THAT - Preponderance of probabilities weighs heavily in favour of the realization of the agricultural produce of the immediately preceding previous year, quantity of which as at the year-end is not in dispute. Why would not, one may ask, any prudent or reasonable person, who has in fact established himself in the market, sell his standing crops, realizing their value as well as his earnings therefrom? No impeding circumstance has been stated, much less shown by the Revenue. In fact, the same principle finds application by the Tribunal for AY 2005-06. The agricultural activity being proved, Musli was taken as sold at the going market rates, i.e., as recorded in books, despite the non-specification of the buyers. The sale of agricultural produce, i.e., as attributable to the standing crops, is though inferable, and toward which, therefore, further expenditure, as imputed on the basis of the reported profit rate, is adopted. The balance income of ₹ 2.58 lacs, i.e., the agricultural income returned over ₹ 26.84 lacs, would continue to be assessed as income from other sources, for assessment under which head of income there is ample authority, including the decisions relied upon by the Revenue in the instant case. Before parting with this order, it is deemed proper to dilate on an aspect of the matter. The assessment in the instant case was subject to revision on the ground that the AO had not initiated penalty proceedings u/s. 271(1)(c) while completing the assessment. The matter, in further appeal, was set aside by the Tribunal directing the Administrative Commissioner (CIT) to review afresh after allowing proper opportunity of hearing to the assessee. The revision order dated 29/3/2011 is not on record. It is thus not clear as to how could under section 263 proceedings the ld. CIT drop the disallowance of deduction u/s. 80- JJA, made in assessment, more so as the same was deemed erroneous and prejudicial to the interest of the Revenue on account of non-initiation of penalty proceedings. The same constitutes a valid ground for assuming jurisdiction u/s. 263 and, besides, the said aspect has attained finality. The ld. CIT could at best, upon hearing the assessee, regard the non-initiation of penalty proceedings qua the said disallowance as justified. The basis for not disallowing deduction u/s. 80-JJA, admittedly effected in the original assessment, by the AO in the second round is thus not clear. The same is clearly a question of law. It is deemed proper to state this aspect of the assessment as the said question, arising out of the assessment, was neither agitated before nor has been dealt with by the Tribunal. Sure, the non-disallowance of and, consequently, acceptance of the transactions of sale, similarly made, of bio-fertilizer and biological agents, was one of the grounds on which the assessee found favour with the Tribunal for AY 2005-06, and which could therefore be argued as a distinguishing feature for this year. This, however, shall have no impact on the instant adjudication inasmuch as the current year has already been found distinguishable on account of non-substantiation of his case by the assessee due to non-production of other relevant materials - Assessee s appeal is partly allowed.

Issues Involved:
1. Denial of exemption under section 10(1) of the Income Tax Act for agricultural income.
2. Denial of deduction under section 80-JJA for profits from the sale of bio-fertilizer and biological agents.
3. Non-initiation of penalty proceedings under section 271(1)(c).

Detailed Analysis:

1. Denial of Exemption under Section 10(1) for Agricultural Income:
The primary issue in this appeal was the denial of exemption under section 10(1) for agricultural income, which the assessee claimed was wrongly assessed as income from other sources. The assessee argued that his case was identical to the previous year (AY 2005-06), where the Tribunal had ruled in his favor. The assessment for AY 2006-07 initially denied the exemption on the grounds that the agricultural income was unverified, particularly the cash sales which lacked buyer details.

The Tribunal emphasized that the burden of proof lies on the assessee to establish the genuineness of the agricultural income. The assessee claimed to have provided all relevant materials but failed to produce the books of account and expenditure vouchers for the current year, attributing this to their impoundment by the Revenue. However, the Tribunal found no evidence of such impoundment for the current year and noted the discrepancies in the agricultural activity's continuity.

The Tribunal noted significant differences between AY 2005-06 and AY 2006-07, such as the lack of Khasra Nakal (revenue record) for the current year and the steep drop in the average sale price of Musli. Despite these issues, the Tribunal inferred the realization of agricultural produce from the preceding year's closing stock, leading to a partial acceptance of the agricultural income claim. The exemption under section 10(1) was allowed to the extent of ?26.84 lacs, based on the profit ratio from the previous year, while the remaining income was assessed as income from other sources.

2. Denial of Deduction under Section 80-JJA:
The assessee's original assessment included a denial of deduction under section 80-JJA for profits from the sale of bio-fertilizer and biological agents. This issue was initially subject to revision under section 263 due to the non-initiation of penalty proceedings. However, in the set-aside proceedings, the CIT dropped the revision proceedings concerning the deduction under section 80-JJA and remitted the matter back to the AO for fresh examination on the issue of exemption under section 10(1).

The Tribunal found that the non-disallowance of the deduction under section 80-JJA in the second round of assessment was not adequately explained. This aspect was not contested before the Tribunal, and the Tribunal noted that this issue did not impact the current adjudication as the primary focus was on the agricultural income exemption.

3. Non-initiation of Penalty Proceedings under Section 271(1)(c):
The revision under section 263 was initiated because the AO had not initiated penalty proceedings under section 271(1)(c) during the original assessment. The Tribunal observed that the CIT's decision to drop the proceedings under section 263 concerning the deduction under section 80-JJA was questionable, as the non-initiation of penalty proceedings constituted a valid ground for revision. However, since this issue was not raised or addressed in the appeal, it did not affect the Tribunal's decision regarding the agricultural income exemption.

Conclusion:
The Tribunal partially allowed the assessee's appeal. The exemption under section 10(1) for agricultural income was granted to the extent of ?26.84 lacs, while the remaining income was assessed as income from other sources. The issues concerning the deduction under section 80-JJA and the non-initiation of penalty proceedings under section 271(1)(c) were noted but did not influence the primary adjudication on the agricultural income exemption.

← Previous Next →