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2025 (5) TMI 362 - AT - Income TaxDisallowance of agriculture income - unexplained cash credit u/s 68 - CIT(A) determining the disallowance of the balance amount at the rate of 15% of agriculture income out of the total disallowance being the estimate of 30% expenses of net agriculture income is quite illegal and unreasonable and wrong concept. HELD THAT - We find that the assessee has submitted a list of agricultural produce details of preparation of soil fertilizer irrigation water electricity charges etc. AR also submitted that the assessee had minimal requirement of labour and owned water facility. Hence the expenses were minimal. The details of sale are neither doubted nor in question. The agricultural produce consists of mango sapota wheat chickpea corn moong guwar juwar tuvar bajari which are regular commercial food crops grown in this area. The average agricultural income per acre on these crops ranges from Rs. 25, 000/- to Rs. 30, 000/-. The total acreage held by the assessee is approximately 40 acres. Since the sale receipt has not been disputed by the Revenue we hold that restricting the expenditure to 15% by the Ld. CIT(A) is quite reasonable and no interference is called for on this issue. Appeal of the assessee is dismissed.
1. ISSUES PRESENTED and CONSIDERED
The principal legal issue considered in this appeal is the validity and reasonableness of the disallowance of expenses claimed by the assessee against agricultural income, specifically:
2. ISSUE-WISE DETAILED ANALYSIS Issue: Validity and Reasonableness of Disallowance of Agricultural Expenses as Unexplained Cash Credit under Section 68 Relevant legal framework and precedents: Section 68 of the Income-tax Act empowers the Assessing Officer to treat unexplained cash credits as income of the assessee if the source of such credits is not satisfactorily explained. The principle underlying section 68 is to prevent concealment of income by the assessee. The burden lies on the assessee to explain the nature and source of such credits. The quantum of disallowance or addition must be based on credible evidence or reasonable estimation aligned with factual circumstances. Court's interpretation and reasoning: The AO observed that the assessee declared substantial agricultural income but claimed minimal agricultural expenses, which was inconsistent with the pattern of expenses in previous years. The AO found the expenses claimed for AY 2020-21 (5.82% of gross agricultural income) to be unrealistically low compared to 27% and 35.1% in AY 2018-19 and AY 2019-20 respectively. Consequently, the AO estimated agricultural expenses at 30% of net agricultural income and disallowed Rs. 28,67,967/- as unexplained cash credit under section 68. The CIT(A) considered the AO's addition excessive and restricted the disallowance to 15% of agricultural income, thus confirming an addition of Rs. 14,33,984/- under section 68. Key evidence and findings: The assessee submitted detailed lists of agricultural produce and expenses such as soil preparation, fertilizers, irrigation, electricity, and minimal labor costs, supported by the fact that the assessee owned water facilities. The agricultural produce included common commercial crops such as mango, sapota, wheat, chickpea, corn, moong, guwar, juwar, tuvar, and bajari cultivated on approximately 40 acres. The sale receipts were undisputed by the Revenue. Application of law to facts: The Court examined the pattern of expenses over three years and noted a significant drop in claimed expenses in the year under consideration. However, the Court acknowledged the assessee's explanation of minimal labor requirements and ownership of water resources, which reasonably explained the lower expenses. Given that the sale receipts were not disputed and the crops were typical commercial varieties, the Court found the AO's 30% disallowance excessive. Treatment of competing arguments: The AO's argument was based on standard agricultural expense percentages in India (around 40% of gross income) and the drastic reduction in expenses claimed by the assessee. The assessee argued that expenses were genuinely low due to owned facilities and minimal labor. The CIT(A) moderated the AO's disallowance to 15%, balancing the AO's skepticism and the assessee's explanations. Conclusions: The Court upheld the CIT(A)'s reduction of disallowance to 15%, considering it a reasonable and justifiable compromise. The AO's 30% disallowance was found to be arbitrary and not fully supported by evidence. The Court dismissed the appeal of the assessee against the disallowance at 15%. 3. SIGNIFICANT HOLDINGS "Since the sale receipt has not been disputed by the Revenue, we hold that restricting the expenditure to 15% by the Ld. CIT(A) is quite reasonable and no interference is called for on this issue." "Considering the above facts and circumstances, it is inferred that the assessee has failed to prove in establishing the fact of low expenditure incurred for producing large agricultural income. ... Since, the assessee failed to substantiate his claim of low expenditure incurred, an amount @ 30% of the net agricultural income, which comes to Rs. 28,67,967/- added to the total income of the assessee u/s68 of the Act being unexplained cash credit." Core principles established:
Final determinations:
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