2025 (5) TMI 123 - AT - Income Tax

Addition of cash deposit in the bank account during the demonetization period u/s 69A r.w.s. 115BBE - Assessee submitted that the cash deposits were made out of collection from sale of agricultural produces - HELD THAT - There is no dispute to the fact of holding of around 100 acres of agricultural land by the assessee. It is also an admitted fact that in the subsequent two assessment years i.e. assessment year 2018-19 and 2019-20 the assessee has disclosed the agricultural receipt of Rs. 49.12 lakh and Rs. 1.62 crore respectively. Assessee has reflected such receipts on various dates in the Cash Book. Under these circumstances disregarding the entire agricultural receipts in our opinion is not justified. At the same time when the assessee was having a bank account we fail to understand as to why the assessee was holding so much cash in his hands. Therefore the argument of assessee that no addition can be made also cannot be accepted. Since the assessee undisputedly was holding about 100 acres of agricultural land and in the two subsequent assessment years i.e. 2018-19 and 2019-20 the assessee has shown the gross receipts from the agricultural activity at Rs. 49.12 lakh and Rs. 1.62 crore respectively and nothing was brought by Revenue before us that such agricultural income was not accepted by the Revenue therefore disregarding the entire agricultural income of the impugned assessment year in our opinion is not justified. Disallowance of 20% of such gross receipts in our opinion will meet the ends of justice. Further the provisions of section 115BBE of the Act in our opinion are not applicable to the facts of the present case since the receipts are from disclosed sources i.e. from agricultural activity only. Appeal filed by the assessee is partly allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(a) Whether the delay of 519 days in filing the appeal before the Tribunal should be condoned on the grounds of non-receipt of the appellate order in the correct e-mail ID.

(b) Whether the addition of Rs. 50,99,000/- made under section 69A read with section 115BBE of the Income Tax Act, 1961 (hereinafter 'the Act') on account of cash deposit during demonetization is justified.

(c) Whether the addition of Rs. 30,53,475/- by treating the claimed agricultural income as 'Income from other sources' is justified.

(d) Whether the assessee adequately substantiated the agricultural income claimed and explained the source of cash deposits.

(e) Whether the provisions of section 115BBE of the Act are applicable in the facts of the case.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Condonation of Delay in Filing Appeal

Legal Framework and Precedents: The Tribunal referred to the Supreme Court decision in Collector, Land Acquisition vs. Mst. Katiji & Ors. (167 ITR 471), which establishes that substantial justice should prevail over technicalities. The Court held that non-deliberate delay should be condoned to avoid injustice and to ensure that cases are decided on merits.

Court's Interpretation and Reasoning: The assessee's delay was due to non-receipt of the appellate order in the correct e-mail ID, and the appeal was filed promptly after the demand notice was received. The Tribunal held that the cause of substantial justice outweighed the technical delay.

Application of Law to Facts: Given the explanation and precedent, the Tribunal condoned the delay of 519 days and admitted the appeal for adjudication.

(b) Addition of Rs. 50,99,000/- under Section 69A read with Section 115BBE

Relevant Legal Framework: Section 69A deals with unexplained cash credits, and section 115BBE imposes tax on unexplained income at a specified rate. The burden lies on the assessee to satisfactorily explain the nature and source of cash deposits.

Court's Interpretation and Reasoning: The Assessing Officer (AO) and the CIT(A) found the explanation for the cash deposit during demonetization to be unsatisfactory. The AO applied the "Theory of Human Probability," concluding it was improbable that the assessee held such a large cash amount despite having bank accounts and borrowing funds for land development. The immediate transfer of the entire cash deposit to a partner's account on the same day was considered suspicious.

Key Evidence and Findings: The AO noted that the cash deposit of Rs. 50,99,000/- was abnormal and inconsistent with other bank transactions. The assessee failed to provide convincing documentary evidence linking the cash deposit to agricultural income. The CIT(A) upheld these findings, emphasizing the assessee's non-cooperation during appellate proceedings and the lack of valid explanation.

Treatment of Competing Arguments: The assessee argued that the cash deposit was out of agricultural receipts, supported by cash book entries and subsequent acceptance of agricultural income in later years. However, the AO and CIT(A) rejected these contentions as insufficient and not credible.

Application of Law to Facts: The Tribunal acknowledged the onus on the assessee to explain the cash deposit satisfactorily. The failure to do so justified the addition under section 69A. However, the Tribunal also noted the existence of substantial agricultural land and consistent agricultural income in subsequent years, which warranted a moderated approach.

Conclusion: The Tribunal modified the addition, directing the AO to restrict the addition to 20% of the gross agricultural receipts (Rs. 81,52,475/-), amounting to Rs. 16,30,495/-, instead of the full amount added by the AO and CIT(A). The Tribunal further held that section 115BBE was not applicable as the receipts were from disclosed sources.

(c) Addition of Rs. 30,53,475/- Treated as Income from Other Sources

Legal Framework: Income claimed as agricultural income must be substantiated with proper evidence. If not, the income may be treated as income from other sources and taxed accordingly.

Court's Interpretation and Reasoning: The AO and CIT(A) found the assessee's claim of agricultural income unsubstantiated due to lack of crop-wise cultivation details, sales bills, purchaser information, and proof of agricultural activity. The 7/12 land records indicated non-irrigated and uncultivated land inconsistent with the claimed irrigated crops. The AO also relied on the absence of agricultural income in the landowners' returns, undermining the claim of cultivation.

Key Evidence and Findings: The AO noted that expenses were largely for land development, not cultivation. The CIT(A) emphasized the assessee's failure to produce key documents and non-cooperation during appellate proceedings. The Tribunal acknowledged these findings but balanced them against the assessee's possession of 100 acres of agricultural land and acceptance of agricultural income in subsequent years.

Application of Law to Facts: The Tribunal held that complete disregard of agricultural income was not justified. The disallowance of 20% of the gross agricultural receipts was deemed a reasonable compromise to meet ends of justice.

Conclusion: The addition of Rs. 30,53,475/- was modified to be part of the 20% disallowance, reducing the total addition accordingly.

(d) Substantiation of Agricultural Income and Explanation of Cash Deposits

Legal Framework: The assessee must substantiate agricultural income with evidence such as land records, sales invoices, cash books, and other relevant documents.

Court's Interpretation and Reasoning: The AO and CIT(A) found the evidence submitted insufficient. The 7/12 extracts were outdated and inconsistent with the claimed crops. The assessee failed to provide detailed crop-wise sales data, purchaser details, and evidence of retail outlets. The Tribunal noted that the assessee had submitted cash books and financial statements showing agricultural receipts and losses, and that agricultural income was accepted in subsequent years.

Treatment of Competing Arguments: The assessee's argument of carrying out genuine agricultural operations on extensive land and producing financials showing consistent agricultural income was weighed against the AO's findings of insufficient documentary proof and suspicious cash handling.

Application of Law to Facts: The Tribunal found merit in the assessee's claim of agricultural activity but also recognized the AO's concerns regarding cash handling and documentary gaps.

Conclusion: The Tribunal adopted a balanced approach, partially allowing the appeal by reducing the additions to 20% of the gross agricultural receipts.

(e) Applicability of Section 115BBE

Legal Framework: Section 115BBE applies to unexplained income not disclosed in the return and is taxed at a special rate.

Court's Interpretation and Reasoning: The Tribunal held that since the receipts were from disclosed sources (agricultural activity), section 115BBE was not applicable.

Conclusion: The Tribunal directed that section 115BBE should not be invoked in the present facts.

3. SIGNIFICANT HOLDINGS

"When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay."

"Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated."

"If the nature and source of any receipt/investment, whether it be a money or other property, cannot be satisfactorily explained by the assessee, it is open for the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that the income is from any particular source."

"Human Probability Test is one of the important tests in order to check the genuineness of the transactions."

"Considering the totality of the facts of the case, disallowance of 20% of such gross receipts of Rs. 81,52,475/- in our opinion will meet the ends of justice."

"The provisions of section 115BBE of the Act in our opinion are not applicable to the facts of the present case since the receipts are from disclosed sources i.e. from agricultural activity only."

Final determinations:

- Delay of 519 days in filing the appeal was condoned.

- Addition of Rs. 81,52,475/- (comprising Rs. 50,99,000/- cash deposit and Rs. 30,53,475/- agricultural receipts treated as income from other sources) was modified to a disallowance of 20% (Rs. 16,30,495/-) of the gross agricultural receipts.

- Section 115BBE was held inapplicable as the income was from disclosed sources.

- The appeal was partly allowed accordingly.