2023 (10) TMI 253 - AT - Income Tax

Addition being difference in closing stock - As noticed that in closing stock shown there was a mistake leading to the under-stating of closing stock - HELD THAT - The mistake was crept while preparing the stock inventory manually by sales girl that was corrected by assessee and computerized rectified stock inventory has been filed and it cannot be said that it is an after-thought. When the mistake was noticed by assessee, it was rectified by computerizing the same. GP rate commensurate with earlier year rate of GP rate. Accordingly, addition made towards discrepancy in stock inventory is not proper. Accordingly, delete the addition so made. Addition being other income instead of agricultural income - agricultural income declared from the lands which he has taken on Land tenancy or Lease or Geni - HELD THAT - The assessee has filed the lease deed from these parties for taking the lands from above parties. The assessee was asked to produce the copy of agreement entered into for acquiring lands on Tenancy, along with copy of Pahini, Bill in support of sale of agricultural products and details of expenses to verify the genuineness of the agricultural income declared by the assessee. The bills produced does not bear the name of the assessee nor the name of the original land owner. According to the AO, assessee violated the Law of Karnataka Land Reforms Act, which was confirmed by the Tahsildar, Shivamogga vide his letter dated 10.12.2009. On this basis, the lower authorities observed that no Tenancy shall be created or continued in respect of any land nor shall any land be leased for any period as per section 5(1) of the Karnataka Land Reforms Act, 1974. Accordingly, lower authorities confirmed the treatment of agricultural income declared by the assessee as non-agricultural income i.e. income from other sources. In our opinion, violation of Karnataka Land Reforms Act cannot be reason to disallow the claim of assessee as agricultural income.

Summary

Issues Involved:

1. Addition due to discrepancy in closing stock.
2. Addition of income assessed as agricultural income.

Summary:

1. Addition due to discrepancy in closing stock:

The assessee filed a return of income declaring total business income of Rs. 1,55,910/- and net agricultural income of Rs. 8,29,710/-. The AO made an addition of Rs. 2.18 lakhs due to a discrepancy in closing stock. The AO found a mistake in the manually prepared stock inventory, which was later corrected and computerized by the assessee. The AO did not accept the rectified inventory, considering it an after-thought. However, the tribunal found no basis for this allegation and noted that the Gross Profit (GP) rate was consistent with previous years. The tribunal concluded that the addition made towards the discrepancy in stock inventory was not proper and deleted the addition of Rs. 2,18,000/-.

2. Addition of income assessed as agricultural income:

The AO observed that the assessee declared agricultural income from lands taken on "Land Tenancy" but found this claim to be in violation of the Karnataka Land Reforms Act, 1974. The AO issued summons to the agriculturists and recorded their statements, concluding that the assessee camouflaged other income as agricultural income. The tribunal reviewed the evidence and statements of the landowners:

- B.P. Shadaksharaiah (Rs. 96,515/-): Confirmed giving land to the assessee. Addition deleted.
- Hyder Ali Khan (Rs. 1,99,760/-): Denied giving land on lease. Addition confirmed.
- J.L. Jayasheela (Rs. 2,03,260/-): Did not appear due to medical reasons. Issue remitted to AO for fresh consideration.
- Mallappa Shankarappa (Rs. 1,78,400/-): Did not confirm. Issue remitted to AO for fresh consideration.
- Mallikamba (Rs. 61,400/-): Confirmed via letter and medical certificate. Addition deleted.
- S. Mallappa Shekarappa (Rs. 89,275/-): Did not confirm. Addition confirmed.

The tribunal partially allowed the appeal for statistical purposes, remitting some issues back to the AO for fresh consideration. The order was pronounced in the open court on 15th June, 2023.