2019 (11) TMI 1732 - AT - Income Tax

Order passed u/s 171 relating to assessment after partition of a HUF - Second round before tribunal - estimation of agricultural income - gross yield and gross agricultural income figures of 7 crops recorded in the 7/12 extracts - rejection of the adhocism of calculating the net income applying the 10% flat rate on the income disclosed by the assessee in the returns and (ii) relying on MPKV data with necessary changes specific to the assessee - HELD THAT - The assessee s failure to furnish evidence non-discharge of onus non-reliability of the MPKV data are the reasons for his decision to adopt estimation of agricultural income. The same is done in violation of the direction of the Tribunal. In our view such overlooking of the direction constitutes violation to the direction of the Tribunal. In this regard we considered the MPKV data specific to the assessee and specific to the assessment year 2002-03 and find with changes adopted adjustments done the MPKV data is still relevant. For this purpose we considered the data relevant for the assessment year 200203 copy of which is placed at page 1788 of the Paper Book; where four crops i.e. (i) Jawar; (ii) Wheat; (iii) Bajara; and (iv) cotton was considered for working out the gross yield and agricultural cost for determining the net profits. We discussed the facts and arguments relating to the total agricultural income earned by the assessee for an assessment year out of 7 crops mentioned in the 7/12 extracts. For earning above income it goes without say the assessee were to incur certain expenditure for earning of the same. The expenditure incurred curtailing includes cost on seeds fertilizers labour capital cost lease rental power to the bullocks etc. The assessee does not have primary evidences in support of the said expenditure. It is an agreed position the said expenditure is required to the estimated on same reliable basis. Findings of the Tribunal on Ground no.1 - Focusing on the agricultural income and agricultural expenditure of the assessee for the assessment year 2002-03 for which data is collected by the Revenue and analyzed by the assessee as mentioned in the earlier paragraphs of this order we find the adjudication of quantification of agricultural income (on gross agricultural income and agricultural expenditure and income for rest of the assessment years involving from the assessment year 1953-54 onwards) are relevant. In our opinion considering the principle of judicial discipline the finding of the Tribunal is in the first round is sacrosanct. MPKV data needs to be used for this object. Ld. AR demonstrated how MPKV can be utilized with data necessary modification. In principle the same is in order and hence acceptable. In effect the ratio of 51 49 (Income Expenditure) should be the base for quantification of agricultural income. Accordingly ground no.1 is allowed. Yield from crops grown in agricultural lands of the HUF - HELD THAT - The base paper for this purpose of crops grown in the agricultural lands are the 7/12 extracts as well as the MPKV data. The said extracts mentioned the facts about the crops grown on fields of the assessee. However there are certain inconsistencies with respect to crops grown in the assessment years started from assessment year 1953-54 onwards. While there is consistency with respect to 7 crops and there are inconsistencies with respect to others qua the claims in return of income. Some crops are mentioned in 7/12 of some years the other crops are not shown in other years. However MPKV data supports the facts of cultivation of such crops in those areas/districts. Considering the same rejecting the assessee s claim is not proper. We need to take some decision and for that we need to the stated inconsistencies. Therefore we are of the opinion that the Assessing Officer need to consider the all the 7 crops which are recorded in 7/12 extracts only and not the others. Accordingly ground no.2 is allowed. Non-consideration of the sale proceeds of fodder and manure for data determining the agricultural income - HELD THAT - The fodder and manure receipts do not constitute agricultural income. So far as taxation of the same as income from other sources we confirm the same however it should be available for explaining the sources of the assets/investments discovered during the search action or any other investments. To that extent we are agree with the Assessing Officer s contentions that the livestock income as well as the receipts from fodder and manure are taxable. No credible evidence is furnished by the assessee in support of generation from livestock/fodder/manure. Therefore taxing them on other sources income is approved. In other words the Assessing Officer s decisions so far as taxation of such livestock/manure/fodder income for the assessment years 2001-02 to 2006-07 is concerned the Assessing Officer has rightly taxed the same under the head income from other sources . Since the taxed income is available to the assessee the same should be considered for explaining the sources of investments/other discoveries. Thus the said income was not considered by the Assessing Officer as agricultural income. We confirm the same. Accordingly the ground no.3 stands dismissed. Adopting the agricultural cost/agricultural expenditure or cost figures based on MPKV data assessee s specific adjustments - HELD THAT - As the inclusion of certain relevant expenditure to the assessee to be Maruti Nivrutti Navale Bigger HUF and held the requirement of adjustments by way of reducing the said 9 heads of expenses from the cost estimated by the MPKV. It is an undisputed fact that the assessee never paid interest either on the working capital or on the fixed capital. The cost of depreciation is not a real cost. There is no whisper about the assessee hiring labour or bullock power or purchase of manure etc. Therefore the adjustment requested by the assessee before us to the cost estimated by the MPKV appears reasonable and sustainable. The said ration is held to be proper and sustainable in this case of the assessee. We have also held that the Revenue has not made out a case that all the 9 heads of expenditure (i) interest on working capital; (ii) depreciation of farm instrument (being notional cost); (iii) rental value of land; (iv) interest on fixed capital; (v) family labour-male (being notional cost); (vi) family labour-female (being notional cost); (vii) bullock power; (viii) manure; and (ix) incidental charges are incurred by the assessee. Thus for this assessee the ratio of agricultural income and agricultural expenditure can be 51 49%. Considering the reasonability of the claims of the assessee with reference to the agricultural cost the issue raised in ground no.4 is partly justified. In the process the Assessing Officer s ratio of 10 90; CIT(A) s ratio of 15 85; and assessee s ratio of 35 65 are disapproved. Formula of 80 20 decided by the Tribunal in the cases of Arish Shoukat Bagwan 2017 (5) TMI 1510 - ITAT PUNE and VENKATESHWARA AGRICULTURAL FARM VERSUS 2011 (9) TMI 1132 - ITAT PUNE do not apply to the present case fully as it relates to other crops such as vegetables fruits sugarcane flowers etc (not the cereals/millets/sugarcane in the present case). Formula of 65 35 as approved by the Tribunal in the case of Devendra P. Shah 2018 (10) TMI 1625 - ITAT PUNE relates to the grass (alpha-alpha). Accordingly ground no.4 is partly allowed in favour of the assessee. Considering of the tax on livestock income for the purpose of the surplus income available for explaining the sources of the investments in lands and others - limited prayer by the assessee in this regard is that the said tax income should be considered and adopted for explaining the sources of investments in assets/properties - HELD THAT - In our view the said prayer of the assessee is appropriate and acceptable. We do not appreciate the Assessing Officer s stand of taxing certain income; but not considering the said taxed income for explaining the investments. We accordingly direct the Assessing Officer to consider the said taxed livestock income accounting for explaining the sources of the assets/properties. Accordingly ground no.5 is allowed. Absence of investable surplus from agricultural income after considering the household expenses - HELD THAT - As per estimation of the Assessing Officer the income quantified i.e. net agricultural expenses is so meager which is not even adequate enough to meet the household expenses. Now having dismissed the Assessing Officer s stands there is a requirement for calculating the agricultural income and addition of other income of the assessee to the former for all the years under consideration in the light of the directions mentioned above. Accordingly the finding of the Assessing Officer will to undergo change. It is a prayer of the assessee before us that this issue needs to be remanded to the file of the Assessing Officer for fresh consideration and decision in the matter. As discussed in the open Court the Assessing Officer is required not only to quantify the agricultural income on one hand and other sources income (livestock income fodder and manure income) to arrive at the total surplus. The assessee is under obligation to explain the expenditure details to the Assessing Officer in the remand proceedings. The Assessing Officer shall pass a speaking order in this regard after granting reasonable opportunity of being heard to the assessee. Accordingly ground no.6 is allowed for statistical purposes. Finding of the Assessing Officer on assets and investments reported in HUF return - HELD THAT - The total agricultural income is quantified based on the MPKV data. This being the gross amounts there is need for adjusting the same arrive at the net surplus agricultural income. Further in the preceding paragraphs after due analysis/discussion the formula of 51 49 is derived. 49% constitutes the agricultural expenditure. The Assessing Officer is directed to reduce the said gross agricultural income figures by the said 49% for arriving at the net agricultural income of the assessee for both blocks i.e. (i) A.Ys. 1953-54 to 2001-02 and (ii) A.Ys. 2002-03 to 2007-08.6. Conclusion- Agricultural Income The Assessing Officer is directed to adopt the gross agricultural income of figures extracted above (para 49) after removing arithmetic errors if any as they are based on the MPKV figures read with 7/12 extracts. Compliance to (para 8) the existing direction of the Tribunal is met. Further regarding the allowability of deduction towards agricultural expenses the Assessing Officer is directed to adopt the formula of 51 49% (49% towards the agricultural expenses) and calculate the net agricultural income. This income should be available for explaining the personal withdrawals of the coparcenaries and the sources for investments in additional lands/other properties if any. In the process the Assessing Officer s formula 10 90% (90% towards agricultural expenses) is not approved. There are existing orders of the Tribunal in favour of the assessee with better formula. Further the assessee s formula for 65 35% (35% towards agricultural expenses) 50 50 are also rejected as they are not in tune with the existing directions of the Tribunal (vide para 8). Judicial discipline assumes significance. Livestock Receipts Tribunal confirms that the said income is no longer agricultural income exempt from tax. We confirm the action of Assessing Officer in taxing the same from the A.Y. 2001-02 onwards. Assessee failed to demonstrate how the same is exempt. We approve the Assessing Officer s action. However Assessing Officer is under obligation to include the said income in the surplus income of the assessee-HUF for the purposes of explaining the sources of said properties/investments etc. Manure and Fodder Receipts Like in case of Live-stock Receipts for want of discharge of onus we confirm the AO/CIT(A) s findings in matters of denying claim of exemption to these receipts. Hence the same constitutes non-agricultural income. Consequently the income from this source should be available to the assessee for explaining the source of investments etc. Accordingly Assessing Officer is ordered. Additional Directions (i) The direction relating to the addition on the protective basis stands dismissed in view of likely surplus in HUF hands. (ii) The Assessing Officer is directed to undertake the exercise of quantifying required withdrawals for meeting the personal/domestic needs of the coparcenaries of the HUF. Assessee is directed to provide specific needs of all the members of HUF too. The Assessing Officer is directed to grant reasonable opportunity of being heard to the assessee while doing this exercise of quantification. (iii) In the result surplus is quantified after aggregating all receipts para 51 (A) (B) (C) after reducing personal withdrawals of all members of HUF.

Summary

Issues Involved:
1. Existence of HUF and its partition claim.
2. Agricultural income estimation.
3. Livestock income classification.
4. Fodder and manure income classification.
5. Compliance with Tribunal's directions.
6. Personal withdrawals and surplus income calculation.
7. Consideration of assets and investments.

Detailed Analysis:

1. Existence of HUF and its Partition Claim:
The assessee claimed the existence of M.N. Navale Bigger HUF and partition under section 171 of the Income Tax Act based on a Compromise Decree from the Civil Court, Pandharpur. The Assessing Officer (AO) rejected this claim, stating there was no credible evidence of ancestral properties and the HUF never existed. The Tribunal in the first round upheld the existence of HUF properties to the extent of 60.40 acres of agricultural land but remanded the issue of quantification of income and assets to the AO for reconsideration.

2. Agricultural Income Estimation:
The AO estimated agricultural income at 10% of the reported income, which was increased to 15% by the CIT(A). The Tribunal found this method non-compliant with its earlier directions to use MPKV data with necessary adjustments. The Tribunal directed the AO to adopt a 51:49 ratio (income: expenditure) based on MPKV data, rejecting the flat rate estimation by the AO and CIT(A).

3. Livestock Income Classification:
The AO treated livestock income as taxable under "other sources" rather than exempt agricultural income. The Tribunal confirmed this classification but directed that such income should be considered for explaining the sources of investments/assets.

4. Fodder and Manure Income Classification:
Similar to livestock income, the AO treated fodder and manure income as taxable. The Tribunal upheld this classification but directed that these receipts should be included in the surplus income for explaining investments.

5. Compliance with Tribunal's Directions:
The AO did not comply with the Tribunal's directions to use MPKV data for estimating agricultural income and instead resorted to flat rate estimation. The Tribunal reiterated the need to follow its directions, emphasizing the use of MPKV data with necessary adjustments for accurate estimation.

6. Personal Withdrawals and Surplus Income Calculation:
The Tribunal directed the AO to quantify personal withdrawals of HUF members and calculate the net surplus income after considering all sources of income (agricultural, livestock, fodder, and manure). This surplus should be used to explain investments/assets.

7. Consideration of Assets and Investments:
The Tribunal noted that the AO did not consider the taxed income from livestock, fodder, and manure for explaining investments. It directed the AO to include these incomes in the surplus calculation for explaining the sources of investments/assets.

Conclusion:
The Tribunal allowed the appeals partly, directing the AO to:
- Use MPKV data with necessary adjustments for estimating agricultural income.
- Consider livestock, fodder, and manure income as taxable but include them in the surplus for explaining investments.
- Quantify personal withdrawals and net surplus income for explaining investments.
- Remand the cases for compliance with these directions, ensuring a fair and accurate assessment of the HUF's income and assets.