2022 (5) TMI 1386 - AT - Income Tax

Addition u/s 68 - Unexplained cash deposit - HELD THAT - Explanation of receipt of gift and past savings has rightly been rejected by the authorities below for cryptic evidence. As regards the claim of sale of land being agricultural receipt, we note that in the statement of facts before us, assessee himself has admitted that there is no evidence whatsoever of agricultural activity having been done in the said land by assessee itself. Assessee has submitted that land was purchased from persons who were doing agricultural activity. If the land was purchased from persons who were doing agricultural activities and assessee has not been performing any agricultural activities in the said land, then said land cannot be said to be agricultural land in the hands of the assessee. Also, as noted by the authorities below, the purchase and sale has been done in a short period of time. In this view of the matter, the location of the land cannot come to the rescue of the assessee de hors any evidence of agricultural activity. Accordingly, we do not find any infirmity in the order of the ld. CIT (A) in this regard. Hence, we uphold the order of the ld. CIT (A) and the appeal of the assessee is dismissed. Penalty levied u/s 271(1)(c) - HELD THAT - We note that the AO has passed the penalty order before the CIT (A) passed the order in the quantum proceedings. The addition in this case related to rejection of claim of agricultural income and rejection of sources of deposits. In our considered opinion, assessee has made a claim and the same has been rejected by the Revenue authorities. Mere rejection of a claim cannot ipso facto fasten rigours of penalty upon the assessee. This has been so held by Hon ble Supreme Court in the case of Reliance Petro Products Pvt. Ltd . 2010 (3) TMI 80 - SUPREME COURT . We are conscious that we have upheld the addition on agricultural income on the grounds of absence of cogent evidence of agricultural activities done on the said land. In this view of the matter, the said addition does not fasten upon the assessee liability for penalty. Other addition has also been sustained by us for not having any cogent evidence. We are of the opinion that penalty u/s 271(1)(c) is not exigible on these additions also. Hence, we set aside the orders of the authorities below and delete the penalty levied in this regard. Therefore, the appeal of the assessee is allowed.

Summary

Issues Involved:
1. Validity of assessment orders under section 144 of the Income-tax Act, 1961.
2. Addition of unexplained deposits under section 68 of the Income-tax Act.
3. Treatment of land sale as business income versus agricultural income.
4. Validity of penalty levied under section 271(1)(c) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Validity of Assessment Orders under Section 144 of the Income-tax Act, 1961:
The Assessing Officer (AO) issued notices to the assessee for filing returns, but there was no compliance. Consequently, the AO passed orders under section 144 of the Income-tax Act, 1961, making additions for unexplained deposits. The assessee challenged the validity of these proceedings, claiming improper service of notice. However, the CIT (A) dismissed this contention, noting that the notices were sent to the correct address and that the assessee had responded to earlier summons. The ITAT upheld this view, confirming the validity of the assessment orders.

2. Addition of Unexplained Deposits under Section 68 of the Income-tax Act:
The AO made two major additions:
- Rs.1,65,20,000/- as unexplained deposit received from M/s. Albina Properties Ltd. for the sale of land.
- Rs.17,63,500/- as unexplained cash deposits.

The CIT (A) partially confirmed these additions, rejecting the assessee's explanations of gifts, savings, and loans due to lack of evidence. The ITAT upheld the CIT (A)'s decision, noting that the explanations provided were insufficient and lacked cogency.

3. Treatment of Land Sale as Business Income versus Agricultural Income:
The assessee claimed that the sale of land should be treated as agricultural income. However, the CIT (A) and ITAT both rejected this claim, noting the absence of evidence of agricultural activities conducted by the assessee. The land was purchased from individuals engaged in agriculture, but the assessee did not perform any agricultural activities. Additionally, the short duration between purchase and sale indicated a business transaction rather than an agricultural one. Consequently, the income from the sale was treated as business income.

4. Validity of Penalty Levied under Section 271(1)(c) of the Income-tax Act:
The AO levied penalties under section 271(1)(c) for furnishing inaccurate particulars of income and concealment. The CIT (A) confirmed the penalties to the extent of 100% of the tax sought to be evaded. However, the ITAT set aside these penalties, citing the Supreme Court's decision in Reliance Petro Products Pvt. Ltd. (322 ITR 158), which held that mere rejection of a claim does not automatically attract penalties. The ITAT noted that the assessee's claims, although rejected for lack of evidence, did not constitute concealment or furnishing of inaccurate particulars. Therefore, the penalties were deleted.

Separate Judgments Delivered:
The ITAT delivered separate judgments for the assessment years 2008-09 and 2009-10, addressing the quantum additions and penalties for each year. The appeals challenging the quantum additions were dismissed, while the appeals against the penalties were allowed, resulting in the deletion of penalties for both years.

Conclusion:
The ITAT upheld the validity of the assessment orders and the treatment of the land sale as business income. The additions for unexplained deposits were also confirmed. However, the penalties levied under section 271(1)(c) were deleted, as the rejection of claims did not warrant penalties for concealment or furnishing inaccurate particulars. The appeals were disposed of accordingly.