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TMI Blog1991 (9) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... to the decision of the ITAT in the case of ITO v. Satya Pal Rawat [IT Appeal Nos. 2360 and 3145 (Delhi) of 1982 and 144 (Delhi) of 1983] wherein the expenses in respect of agricultural receipts had been estimated at 36% of the gross receipts and the agricultural income estimated at 64%. Relying upon that decision he estimated the agricultural income of K.L. Agricultural Farm at 64% of gross receipt of Rs. 8,19,870, i.e., Rs. 5,24,716. The difference between the net agricultural income of Rs. 6,69,303 and Rs. 5,24,716 i.e., Rs. 1,44,585 was treated as income from undisclosed sources. (The figure of Rs. 1,26,585 as against Rs. 1,44,585 is wrongly mentioned in the assessment order). Since the assessee was having 20% share in the case of K.L. Agricultural Farm the income from other sources was assessed at Rs. 28,197 (1/5th of Rs. 1,44,585) whereas the income from agriculture was assessed at Rs. 1,04,943. Assessee appealed to the CIT(A)-VII, New Delhi claiming that the books of account having been accepted in the case of K.L. Batra, one of the shareholders, the Assessing Officer was wrong in rejecting the books in this case and estimating the income. With regard to the decision of the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture was far less than 36% the Assessing Officer was justified in estimating the expenditure at 16% and there being no explanation for the source of that expenditure, the Assessing Officer was justified in treating such an expenditure as income from other sources. It was pleaded by the learned D.R., that the Assessing Officer has jurisdiction to determine the income of the assessee and if the source of expenditure is not explained the only course open to him is to treat the same as having been spent out of undisclosed sources. 6. In counter reply, the learned counsel for the assessee contended that the basis for the addition is misconceived. Assessee has incurred the expenditure at 168% of the total produce which cannot be considered to be low. The copy of the decision in the case of Satya Pal Singh Rawat not having been made available, it is not pemissible to the revenue to rely upon that decision, it was pleaded. In any case, Shri Sapra contended, there could be no universal formula for estimating the expenditure for carrying agricultural operations. According to Shri Sapra the percentage of expenditure vis-a-vis the income would depend on various factors. As such addition is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , however, for a limited purpose of determining the rate of tax in respect of income other than agricultural income. In other words, agricultural income in such cases was included for rate purposes only. The constitutional validity of inclusion of agricultural income for rate purposes was challenged before the Kerala High Court in the case of K.J. Joseph v. ITO [1980] 121 ITR 178, inter alia, on the ground that the provision for aggregation was violative of scheme of taxation and that it was beyond the legislative competence of Parliament, the domain of legislation in respect of agricultural income being within the purview of the State Legislature. The constitutional validity was upheld by the Kerala High Court by holding that in aggregation of agricultural income and the income from sources other than agriculture for rate purposes the charging of tax is still on non-agricultural income and no part of it is subject to tax. The Hon'ble Judges held that for the purposes of determining the rate at which non-agricultural income is to be taxed, the agricultural income is taken into account. Such taking into account and the differential rates are based on the different sources of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment of agricultural income is outside the purview of Income-tax Act, 1961. The determination of agricultural income is limited to determination of rate of tax in respect of non-agricultural income. In the case of K.J. Joseph the Hon'ble Kerala High Court has held as under : " Held, that section 4 of the IT Act read with section 10(1) shows that agricultural income is excluded from charge of income-tax. Wherever any income is excluded from chargeability to tax, the exclusion operates in the computation of the total income for the purpose of liability to tax and also for the purpose of determination of the rate of tax. However, this rule would apply only if there is no provision to the contrary. The provisions of the Finance Acts of 1973 and 1974 make such specific provisions and this rule would not render the provisions invalid. Income-tax is a tax on income of the previous year and this rule would not cover something which is not the income of the previous year or made fictionally so. However, there is nothing to prevent the Legislature from fixing the rate and from permitting the rate to fluctuate in relation to some outside factor but the rate must be applied to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axation. In a case where the only source of income is agricultural income, the Assessing Officer, in our view, is not competent to determine the income from agriculture. However, we may hasten to add that where the ITO has reason to believe that assessee has made investment it would be open to him to put to test the claim of the assessee that the investment made is out of income from agricultural operations. At that time Assessing Officer would be at liberty to determine the income for the limited purpose of considering the claim of the assessee explaining the source of investment. In such eventuality the Assessing Officer would not be acting without jurisdiction as determination of income from agriculture would be for determining the income assessable under the provisions of I.T. Act for the purposes of which it would be necessary to compute the agricultural income. In this case, Assessing Officer has determined the agricultural income of the assessee at less than what has been disclosed by the assessee. As it is, assessee has not been found to have made any investment nor has the assessee claimed to have made any from the agricultural income. Considering the facts and circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee as income from undisclosed sources. Firstly, no such case has been made out by the revenue authorities. Secondly, there is no justification for such inference. The estimation of expenditure even if it were to be held as reasonable would be a mere estimate, in the absence of any positive evidence that expenditure has been incurred. The deemed provisions of treating the investment expenditure as out of undisclosed sources would not operate. Under the Income-tax Act if assessee is found to have invested money for the source of which no satisfactory explanation is furnished, the Assessing Officer is empowered to treat the investment as income from undisclosed sources. However, in order to invoke such provisions of law there must be evidence to show that investment/expenditure has been incurred. Assessee's obligation to satisfactorily explain the source of investment/expenditure arises only when the revenue has discharged the onus of establishing that such investment/expenditure has been made. In this case, Assessing Officer has estimated the expenditure and and on the basis of an estimate the deeming provisions could not be pressed into service. 14. Considering the facts and ci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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