Unsustainable addition under Section 68 since leased land is not taken into account when determining agricultural revenue
Fact and issue of the case
The appeal in ITA No.2829/Del/2018 for AY 2014-15, arises out of the order of the Commissioner of Income Tax (Appeals), Meerut [hereinafter referred to as ‘ld. CIT(A)’, in short] in Appeal No.401/2016-17 dated 30.01.2018 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 29.12.2016 by the Assessing Officer, Ward-1(4), Meerut (hereinafter referred to as ‘ld. AO’).
The assessee has filed the recasted ground of appeal as under:-
That in the facts and circumstances of the case learned authorities below wrongly and illegally estimated agriculture income at Rs 10 Lacs as against declared by appellant at Rs 20 Lacs; And balance of Rs 10 lac has wrongly & illegally taxed as income from other sources in the nature o f unexplained income U/S 68; And tax U/S 115BBE has wrongly & illegally charged on the addition so made.
That in the facts and circumstances of the case, Hon’ble C.I.T(A) wrongly and illegally directed to A.O for computing Short Term Capital Gain on sale of flat as against Long Term Capital Gain; And tax U/S 115BBE has wrongly & illegally charged on addition so made. ”
We have heard the rival submissions and perused the material available on record. At the outset, we find that the return filed by the assessee was selected for limited scrutiny through CASS. The reason for scrutiny selection was to examine large agricultural income. This fact is undisputed as is evident from para 3 of the order of ld.CIT(A) in page 2 thereof. The assessee has reported agricultural income of Rs.20 lakhs in the income-tax return. The assessee was asked to furnish landholding ownership details, details of crops cultivated, purchase bills of seeds, fertilizers and other expenses with evidences, Khasra and Khatauni copy, agricultural produce sale evidence with name and address of purchasers, copy of bank statement in which sale proceeds were deposited and books of accounts maintained for the agricultural operations by the assessee. The assessee’s authorized representative furnished the details by stating that the assessee is engaged in the activity of purchase and sale of agricultural produce and also carries on agricultural operations on the agricultural land of four hectares owned by him. The copy of Khatauni was furnished. The details of crops cultivated on the land were also furnished. The assessee also submitted that he was holding 150-200 Bighas of land. The assessee also submitted that he had cultivated rice, dhan, wheat, petha and other vegetables. The assessee furnished sales bills of agricultural produce of Krishi Utpadan Mandi Samiti, Meerut and the purchaser was Shri Sanjay Kumar, proprietor of M/s Guru Kripa Traders, Naveen Sabji Mandi, Meerut. The ld. AO issued notice u/s 133(6) of the Act, to M/s Guru Kripa Traders for furnishing ledger account copy of the assessee for AY 2014-15, which was returned unserved. Further, the ld. AO issued notice u/s 142(1) of the Act to the assessee for producing the proprietor Shri Sanjay Kumar in view of the fact that Income-tax Inspector of the Ward , on his personal inspection of the area, had informed that no such shop was traceable. The authorized representative of the assessee replied before the ld. AO that Shri Sanjay Kumar had gone out of station on winter vacation and was expected to return after 05.01.2017 and, accordingly, expressed his inability to produce before 05.01.2017. The ld. AO observed that the assessee actually held agricultural lands to the extent of 5.01537 hectares and doubted the agricultural produce sales bills of M/s Guru Kripa Traders. The ld. AO, however, accepted the bills furnished of M/s Rama Roller Flours (8 bills) plus other six bills of other traders as genuine. Accordingly, the ld. AO estimated the agricultural income to be Rs.8000 per bigha. He held that the assessee is holding 77.305 bighas and estimated the agricultural income at Rs.6,18,444/- (77.305 x 8000). Since the assessee had shown agricultural income of Rs.20 lakhs in the return, the ld. AO added the remaining sum of Rs.13,81,556 (Rs.20,00,000 (-) Rs. 6,18,444) as unexplained income u/s 68 of the Act and sought to be taxed at the rate prescribed in section 115BBE of the Act.
The assessee submitted before the ld.CIT(A) that the ld. AO had considered less bighas of land while determining the agricultural income of the assessee. It was submitted that the assessee had owned agricultural lands and had also taken agricultural lands on lease and had paid Rs.3,80,000/- as lease rent. The assessee filed the complete list of sale vouchers of Mandi Samiti for Rs.77,12,192/- along with the list thereon. It was submitted that the concerns M/s Guru Kripa Traders and M/s Rama Roller Flour Mills are registered in the Mandi Samiti, Meerut for which the Secretary, Mandi Samiti, Meerut had issued a certificate certifying the registration of the above concerns. The ld.CIT(A), considering the fact of lands taken on lease by the assessee, estimated the agricultural income at Rs.10 lakhs and restricted the addition made by the ld. AO to Rs.10 lakhs as against Rs.13,81,556/-. Aggrieved, the assessee is in appeal before us.
It is not in dispute that the assessee owns certain agricultural lands and had also taken agricultural land on lease. It is not in dispute that agricultural crops were indeed cultivated by the assessee. The sale bills for the agricultural produce were indeed filed by the assessee before the lower authorities. However, due to some deficiencies found in those bills, the lower authorities had not accepted the same. The ld. AR submitted that the assessee was actually holding 14 acres in his control (both owned as well as leased) whereas the lower authorities had ultimately taken only 12 acres while estimating the agricultural income. The ld. AR drew our attention to reassessments framed in AYs 2012-13 and 2013-14 to examine the very same issue of agricultural income. This matter travelled to the Tribunal and this Tribunal had remanded the matter back to the file of ld. AO. The ld. AO, after due inquiries thereof in AYs 2012-13 and 201314, had accepted the agricultural income at Rs.15 lakhs per annum. The ld. AO has been consistently taking the holding of land by the assessee (both owned as well as leased) only at 12 acres even in AYs 2012-13 and 2013-14. But, the assessee’s claim was that it had 14 acres in his control and hence, correspondingly, the agricultural income figure for 14 acres should be Rs.17.5 lakhs. As against this, the assessee had reported Rs.20 lakhs in his return. It is a fact that even in AY 2015-16, pursuant to the Tribunal order, agricultural income was accepted by the ld. AO only at Rs.15 lakhs. We find that the lower authorities had been considering the agricultural holdings of the assessee including the leased lands only for 12 acres and accordingly had estimated the agricultural income at Rs.15 lakhs in AYs 2012-13, 2013-14 and 2015-16. Hence, we estimate the agricultural income at Rs.15 lakhs for AY 2014-15 also. The ld. AO is directed accordingly.
Observation of the court
With regard to yet another addition made on account of property transaction of the assessee, the ld. AO erroneously considered the sale of flat in Raj Nagar Extension in Ghaziabad for Rs.35,31,000/- as an unexplained investment made by the assessee on account of purchase transaction thereof in the assessment. This fact was clarified by the ld.CIT(A) that a sum of Rs.35,31,000/- does not represent purchase value, but, instead represents sale value of flat. However, after the assessment was completed on 29.12.2016 by the ld. AO, the assessee had made a declaration under Pradhan Mantri Garib Kalyan Yojana (PMGKY) announced by the Income-tax Department offering short-term capital gain on sale of this flat on 03.04.2017 and paid taxes thereon for the AY 2014-15. The ld. CIT(A), however, observed that since this declaration under PMGKY was made subsequent to framing of assessment by the ld. AO, the same cannot be accepted and directed the ld. AO to compute short-term capital gains again after giving direction to delete the unexplained investment in the sum of Rs.35.31 lakhs.
At the outset, we find that the return filed by the assessee was selected for limited scrutiny only to examine the aspect of large agricultural income. The aspect of examination of the property in Raj Nagar Extension in Ghaziabad was never sought to be examined or was never intended to be examined by the ld. AO in the limited scrutiny proceedings. Admittedly, in the instant case, the case of the assessee was never converted from limited scrutiny to complete scrutiny with the approval of the competent authority as per the CBDT Instructions. Hence, the ld. AO could not have travelled on any other aspect other than the agricultural income during the year under consideration while framing the assessment as he was mandated to frame the assessment only on limited scrutiny basis to examine the agricultural income. Hence, on this limited ground itself, the direction given by the ld. CIT(A) to assess the short-term capital gains on sale of this property requires to be cancelled and is hereby cancelled.
In any event, there is absolutely no loss to the exchequer as the assessee had already disclosed short-term capital gain on sale of this property under PMGKY and paid due taxes thereon. Hence, the recasted ground No.2 raised by the assessee in this regard is allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 18.08.2023
In the result, appeal of the assessee is allowed and ruled in favour of the assessee