2022 (1) TMI 52 - AT - Income Tax

Characterization of income - Disallowing the claim of agriculture income by treating the same as income from other sources - HELD THAT - As there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. It is not necessarily the agriculture income of current year only, as the past savings of the earlier years out of agriculture income were deposited in bank accounts or applied in the current year. We note that net holding of the agriculture land of this assessee and his family members is at 3,84,250.77 square meters, and nature of the crops cultivated by the family are sugar cane, jowar, tuwer, fruits, paddy, vegetables etc. To prove land holding, assessee submitted copies of Forms 7 x 12, which shows joint ownership of his and his family members as well as the types of crops grown in the land belonging to the assessee and his family members. The assessee also submitted before ld CIT(A), balance sheet, cash flow statement. The assessee submitted the agricultural income account. The assessee submitted ledger account of Chalthan Khand Ydhyog Mandali. CIT(A) has not made any adverse finding in any of these documents even, though all the details were furnished by the appellant before him. CIT(A) ought to have examined all these details and refuted / rejected them, with a cogent adverse findings and discernable line of reasoning, in order to arrive at a conclusion. On the contrary, the ld CIT(A) has just brushed aside these evidences without even a word on why they are not acceptable. It is a well settled Law that when an assessee has all the possible evidence in support of its claim, they cannot be brushed aside based on surmises. The additions have been made purely on selective misinterpretation, without dealing with the explanations/ evidences of the assessee. Besides, no incriminating material were found by the search team, hence, no addition can be made for assessment years 2008-09 to assessment years 2010-11, without incriminating material, as the time limit for completion of assessment has already expired when the search was conducted for assessment years 2008-09 to assessment year 2010-11. Hence, we are not inclined to accept the contention of the Ld CIT(A) in sustaining the addition and enhancing the addition based on surmises and conjectures, and hence the addition so sustained and enhanced are deleted. Hence this ground of the assessee is allowed.

Summary

Issues Involved:
1. Disallowance and enhancement of agricultural income.
2. Validity of additions made by the Assessing Officer (AO) and confirmed/enhanced by the Commissioner of Income Tax (Appeals) [CIT(A)].
3. Sufficiency of evidence to substantiate agricultural income claims.
4. Impact of search proceedings under section 132 of the Income Tax Act, 1961.

Detailed Analysis:

1. Disallowance and Enhancement of Agricultural Income:
The primary issue revolves around the disallowance of agricultural income claimed by the assessee and the subsequent enhancement by the CIT(A). The AO disallowed 40% of the agricultural income shown by the assessee, treating it as income from other sources due to insufficient evidence of expenses. The CIT(A) not only confirmed this disallowance but also enhanced the addition, leading to further disputes.

2. Validity of Additions Made by AO and Confirmed/Enhanced by CIT(A):
The AO's disallowance was based on the lack of detailed records for agricultural expenses and the substantial cash deposits found during the search. The CIT(A) adopted a different approach by estimating agricultural income based on previous years and enhancing the addition. The Tribunal noted that the AO had accepted income from Chalthan Sugar Cooperative but doubted other agricultural income due to lack of evidence.

3. Sufficiency of Evidence to Substantiate Agricultural Income Claims:
The assessee provided various documents, including balance sheets, agricultural income accounts, ledger accounts of Chalthan Khand Ydhyog Mandali, and cash books, to substantiate the agricultural income. The Tribunal observed that the CIT(A) failed to bring any cogent evidence to refute these documents. The Tribunal emphasized that the assessee's family was exclusively engaged in agricultural activities, and no contrary evidence was found during the search to suggest other sources of income.

4. Impact of Search Proceedings Under Section 132 of the Income Tax Act, 1961:
The search conducted at the assessee's residence led to the issuance of notices under section 153A. The Tribunal highlighted that no incriminating material was found during the search for the years where assessments had already been completed. The Tribunal relied on the Delhi High Court's decision in CIT vs. Kabul Chawla, which states that completed assessments can only be interfered with based on incriminating material found during the search. Consequently, the Tribunal held that no additions could be made for the years where assessments were already completed, as no incriminating material was found.

Conclusion:
The Tribunal concluded that the additions made by the AO and enhanced by the CIT(A) were based on surmises and conjectures without substantial evidence. The Tribunal deleted the additions, allowing the appeals filed by the assessees. The Tribunal emphasized the importance of concrete evidence in making additions and the necessity of incriminating material for reopening completed assessments under section 153A. The decision underscores the need for the Revenue to provide substantial evidence when disputing claims of agricultural income, especially in the absence of any contrary evidence found during search proceedings.