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February 13, 2023

Agriculture land sales consideration is exempt from income tax

by CA Shivam Jaiswal in Income Tax

Agriculture land sales consideration is exempt from income tax

Fact and issue of the case

Brief facts are that the assessee is an individual and deriving income from the following business and sources:-

i. Dhanalakshmi Agencies – Running a Petrol Bunk

ii. Sale proceeds on account of sale of Agricultural land owned by the assessee.

iii. Maintaining a JCB and hiring it the same for rent

iv. Dhanalakshmi Mini Bus – Doing transport business by way of maintaining two route buses and one spare bus at Perambalur

v. Doing Dairy business at Perambalur

vi. Deriving salary from Dhanalakshmi Chits (Pvt.) Ltd.,

vii. Deriving Rental Income from residential house at Trichy

viii. Interest income and income from other sources (Brokerage / Commission)

The AO noted the fact that the assessee has maintained detailed books of accounts for these lines of his business activities. The AO for assessment year 2010-11 noted that there is sudden increase in cash deposit on various dates during financial year 2009-10 relevant to this assessment year 2010-11 amounting to Rs.9.99 crores in the current account of the assessee. The AO finally considered the explanation of the assessee as regards to the source of income and also other cash credits, added a sum of Rs.7,56,74,000/- claimed by assessee, the amount representing loan accounts received back from various persons i.e., sundry debtors living in and around Perambalur District as unexplained cash credit u/s.68 of the Act and added to the returned income of the assessee.  For this, the AO recorded the findings as under:-

“After considering the submissions of the assessee’s A/R, it is pertinent to mention that the sources of Rs.2,42,26,000/- is accepted and the explanations for the sources of Rs.7,56,74,000/- are not acceptable in view of the following reasons:-

i. the identity of the debtor is not proved

ii. and their credit worthiness is not proved

However, it is pertinent to mention that though the assessee has given sufficient opportunity to prove the sources for claim of cash credits introduced in the current account of the assessee in the books of accounts of Dhanalakshni Mini Bus business, the assessee’s A/R could not submit any proof/supporting documents in support of cash credits of Rs. 7,56,74,000/-Hence, in the absence of proper documentary evidences/proof, the balance unexplained cash credits of Rs. 7,56,74,000/- are treated as income of the assessee u/s 68 of the Income-tax Act, 1961 for the financial year 2009-10 relating to the assessment year 2010-11, After discussion with the assessee’s A/R, the assessment is completed as under:

Similarly in assessment year 2011-12, the AO noticed that there are cash deposits in current account maintained in the books of Dhanalakshmi Agencies amounting to Rs.1,14,00,000/- on various dates and another cash deposit in current account maintained with Dhanalakshmi Mini Bus to the extent of Rs.1,91,00,000/- crores during the financial year 2010-11. After considering the explanation of the assessee, accepted the explanation of the assessee to the extent of Rs.1,07,00,000/- and added the balance sum of Rs.1,98,00,000/- as unexplained cash credit u/s.68 of the Act. For this, the AO recorded his finding as under:-

“For balance amount of Rs.1,98,00,000/-, the authorised representative furnished confirmation letter from various persons stating that Shri. S. Kathiravan used to lend money to the villagers for purchase of cow/ Buffalo and charge interest at the rate of 1% per month. The amount lent to the villagers was repaid during the year to a tune of Rs.94,00,000/-. The Inspector was deputed to enquire this also. On enquiry, the confirmation letters were not found genuine by the Inspector vide his report. Since the genuineness of the transaction is not proved by the authorised representative and those poor villagers have also denied any amount paid to the assessee, creditworthiness is also not proved. Hence this is remained unexplained and added back to the income returned u/s 68. Total addition on this from comes to Rs.94,00,000/-. The same was repaid while selling the milk by deducting the outstanding amount. So there was no bulk repayment during the Financial Year. Also capacity of agriculturist to give heavy amount in cash to the assessee is very much doubtful. If this kind of money is generated by agriculturist by selling live stock, all agriculturists will be very rich persons. But the situation is exactly opposite. All marginal farmers are not makingg any money from agricultural operations. Regarding the explanation of Rs.30,00,000/-, the authorised representative submitted a confirmation letter from Ramesh stating that the person has repaid Rs.30,00,000/- out of the advance money received from the assessee towards sale of land. Due to non-materialization of this sale agreement, the same was returned to him. To verify the genuineness of this, the Inspector was deputed to enquire into this matter from Shri Ramesh. The address given in the letter was found not proper and hence the same could not be verified. Since to prove the genuineness and creditworthiness of the cash credit is onus on the assessee, the same is treated unexplained u/s 68 and added back to the income returned. For the balance amount of Rs.74,00,000/- the assessee furnished explanation without any evidence or confirmation letter that too at the fag end of the year i.e 28/03/2014 giving no time to the department to verify the genuineness of the receipts and hence the source of Rs.74,00,000/- is not accepted and added back to the income returned u/s 68. Therefore total addition u/s 68 comes to Rs.1,98,00,000/-.

Aggrieved, in both the years, the assessee came in appeal before the CIT(A).

Observation by the tribunal

The tribunal has heard rival contentions and gone through facts and circumstances of the case. We noted that only sundry credit claimed by assessee is in the name of Murugan Traders from whom the assessee has obtained loan of Rs.3 crores. The AO required the assessee to file confirmation and assessee filed confirmation of Murugan Traders having Permanent Account NoAATFM1756G. The AO deputed an Inspector but since at the given address, the person was not available, the AO accordingly made addition of this Rs.3 crores as unexplained cash credit u/s.68 of the Act. Aggrieved, assessee preferred appeal before CIT(A).

The CIT(A) also confirmed the action of the AO by holding that the assessee is unable to prove the genuineness of transaction or the creditworthiness of the payer. The assessee before CIT(A) stated that there is no actual cash flow between the assessee and Murugan Traders but credit for a sum of Rs.3 crores in two parts was given on 31.03.2011 by a transfer entry in the Indian Overseas Bank account of Dhanalakhsmi Agencies.It was repaid on 15.04.2011 again through the same bank. The assessee filed confirmation before CIT(A) and the relevant ledger extracts. The CIT(A) noted that although the amount has been confirmed, paid and received through banking channel but he has not accepted the claim of the assessee. But the CIT(A) noted this fact in para 5.17 as under:-

“5.17 While going through the above submissions and details furnished, it can be seen that the appellant has proved only genuineness of the transaction but not the creditworthiness of payer. For any transaction to be valid, the genuineness, creditworthiness and identity should be proved. However, the appellant neither before the AO nor before the appellate authorities proved the creditworthiness. The appellant has claimed that the amount has been received by banking channel and paid back by banking channel is not sufficient to prove the transaction as true and real transaction.

At this stage, when pointed out to ld.counsel, whether he want to file the details before AO to prove the creditor, he undertook to file complete details and to produce whatever evidence the AO wants in regard to this. On this, the ld.CIT-DR has not objected.  Hence, in view of the concession given by both the sides, we remit this issue back to the file of the AO, who will examine the creditor and then will decide accordingly.

In all these three appeals, the assessee has also raised charging of interest u/s.234A, 234B & 234C of the Act. They are consequential in nature. The AO will decide the levy of interest at the time of giving appeal effect to this order.

In the result, the appeal filed by the assessee in ITA No.170 & 171/Chny/2022 are allowed and ITA No.172/Chny/2022 is partly allowed for statistical purposes. Order pronounced in the open court on 23rd December, 2022 at Chennai.

Read the full order from here



The tribunal has ruled in favour of the assessee and dismiss the appeal.

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