2025 (5) TMI 2115 - AT - Income Tax

Addition towards agriculture income - unexplained income - HELD THAT - CIT(A) while disregarding the evidence filed by the assessee observed that in absence of full name of the assessee on the bill it is not ascertainable that the bill consists of name of assessee only and no other person. CIT(A) failed to consider that the aforesaid receipts from sale of agricultural produce were received by APMC (as per the purchase invoices issued by APMC) and the payments were made to the assessee through banking channels. CIT(Appeals) has omitted to consider these crucial aspects while deciding the issue against the assessee. Accordingly CIT(Appeals) erred in facts and in law in not allowing the appeal of the assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(a) Whether the addition of Rs. 1,55,610/- as unexplained agricultural income by the Assessing Officer (AO) was justified, given that the assessee claimed this amount as agricultural income supported by certain evidences.

(b) Whether the Ld. Commissioner of Income Tax (Appeals) (CIT(A)) erred in upholding the AO's addition despite the assessee's submissions and documentary evidence, including 7/12 extracts and agricultural produce sale bills.

(c) Whether the principles of natural justice were violated in the appellate proceedings, particularly in the consideration of evidence submitted by the assessee.

(d) Whether the name discrepancies and absence of land ownership in the name of the assessee, as reflected in the 7/12 extracts and sale bills, justify treating the agricultural income as unexplained income.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Legitimacy of Addition of Agricultural Income as Unexplained Income and Appellate Authority's Confirmation

Relevant legal framework and precedents: Agricultural income is exempt under the Income Tax Act, but the onus lies on the assessee to prove the genuineness of such income. The evidentiary requirements typically include ownership or possession of agricultural land and proof of agricultural activity generating the income. The 7/12 extract is a key document evidencing land ownership or possession in Gujarat. Sale bills or invoices from Agricultural Produce Market Committees (APMCs) further corroborate the source of agricultural income. The principles of natural justice require that the assessee's submissions and evidences be duly considered before making additions.

Court's interpretation and reasoning: The AO observed that the 7/12 extracts submitted did not bear the name of the assessee, indicating that the land was not in the assessee's name. Further, the assessee failed to produce supporting evidence during assessment to substantiate the agricultural income. Accordingly, the AO treated the Rs. 1,55,610/- claimed as agricultural income as unexplained income and added it to taxable income.

The CIT(A) upheld this addition, reasoning that none of the three 7/12 forms submitted during appellate proceedings contained the assessee's name. The CIT(A) found it implausible that the assessee could earn agricultural income without owning or possessing agricultural land. Additionally, two agricultural sales bills submitted contained names different from the assessee's full name, casting doubt on the genuineness of the receipts. The CIT(A) concluded that the addition was justified and the AO's action was correct.

Key evidence and findings: The 7/12 extracts lacked the assessee's name; the agricultural produce sale bills bore names not exactly matching the assessee's full name; the assessee did not provide other credible evidence of land ownership or possession during assessment; the agricultural income was declared but not adequately substantiated to the satisfaction of the AO and CIT(A).

Application of law to facts: The AO and CIT(A) applied the legal principle that agricultural income must be supported by proof of land ownership or possession and genuine agricultural activity. The absence of the assessee's name on the 7/12 extracts and discrepancies in the sale bills led to the conclusion that the agricultural income was unexplained.

Treatment of competing arguments: The assessee argued that the agricultural income was genuine, supported by sale bills, cash book, bank book, and purchase invoices issued by APMC Bavla, showing payments received through banking channels. The assessee contended that these documents demonstrated the source and receipt of agricultural income. However, both the AO and CIT(A) discounted these submissions due to discrepancies in names and lack of land ownership evidence, and did not accept the assessee's claim.

Conclusions: The AO and CIT(A) found the agricultural income unexplained and rightly added it to taxable income. The CIT(A) rejected the assessee's evidences on grounds of name discrepancies and absence of land ownership proof.

Issue (c): Alleged Violation of Principles of Natural Justice and Consideration of Evidence

Relevant legal framework: The principles of natural justice mandate that an assessee must be given a fair opportunity to present evidence and that such evidence must be duly considered before adverse findings are made.

Court's interpretation and reasoning: The Tribunal noted that the CIT(A) failed to appreciate the submissions and supporting documents furnished by the assessee, particularly the fact that the agricultural income receipts were from sales made at APMC Bavla and payments were received through banking channels as per purchase invoices. The CIT(A) omitted to consider these crucial aspects while confirming the addition.

Key evidence and findings: The assessee had submitted agricultural produce bills, cash book, bank book, and purchase invoices from APMC, which indicated receipt of agricultural income through banking channels. These documents were not given due weight by the CIT(A).

Application of law to facts: The Tribunal held that the CIT(A)'s failure to consider these evidences amounted to an error in law and fact, as it deprived the assessee of a fair adjudication of the claim.

Treatment of competing arguments: The Revenue relied on the AO and CIT(A)'s findings, emphasizing the absence of land ownership and name discrepancies. The Tribunal found that while these are relevant, the failure to consider the receipts and banking evidence was a significant omission.

Conclusions: The Tribunal concluded that the CIT(A) erred in law and facts by not allowing the appeal and not appreciating the evidence submitted, thereby violating the principles of natural justice.

Issue (d): Effect of Name Discrepancies and Absence of Land Ownership on Agricultural Income Claim

Relevant legal framework: Proof of land ownership or possession is essential to claim agricultural income. The 7/12 extract is a primary document evidencing such ownership/possession. Sale bills and receipts must clearly identify the assessee to establish the genuineness of income.

Court's interpretation and reasoning: The AO and CIT(A) relied heavily on the absence of the assessee's name in the 7/12 extracts and the presence of different names on sale bills to cast doubt on the agricultural income claim. However, the Tribunal observed that the bills contained names closely resembling the assessee's name and that the payments were made through banking channels to the assessee's account, as per APMC invoices. The Tribunal found that the CIT(A) did not adequately address these facts.

Key evidence and findings: The 7/12 extracts did not bear the assessee's name, but the agricultural produce sale bills and APMC purchase invoices indicated sales linked to the assessee. The payments were routed through banking channels, supporting the claim of agricultural income.

Application of law to facts: While the absence of land ownership in the name of the assessee is a relevant factor, the Tribunal recognized that agricultural income can also arise from land possessed or operated by the assessee even if not in his name, subject to proof. The banking channel receipts and APMC invoices were significant evidence supporting the claim.

Treatment of competing arguments: The Revenue focused on documentary discrepancies to discredit the claim. The Tribunal balanced this against the evidence of payment receipts and banking transactions, finding the latter more persuasive.

Conclusions: The Tribunal held that the name discrepancies and absence of land ownership in 7/12 extracts were not sufficient to reject the agricultural income claim outright, especially when credible evidence of receipt of income through banking channels was available.

3. SIGNIFICANT HOLDINGS

"The Ld. CIT(A) has omitted to consider these crucial aspects while deciding the issue against the assessee."

"In our considered view, looking into the facts of the assessee's case, Ld. CIT(A) erred in facts and in law in not allowing the appeal of the assessee."

"Accordingly, the appeal of the assessee is allowed."

Core principles established include:

- The necessity of considering all relevant evidence, including banking channel receipts and APMC purchase invoices, in determining the genuineness of agricultural income.

- The absence of land ownership in the name of the assessee, while a significant factor, is not conclusive to deny agricultural income if other credible evidence supports the claim.

- The principles of natural justice require that the appellate authority must duly appreciate and consider the submissions and evidences submitted by the assessee before confirming additions.

- The Tribunal emphasized that failure to consider material evidence and submissions can amount to an error of law and fact, warranting interference with the appellate order.

Final determinations:

The Tribunal set aside the addition of Rs. 1,55,610/- as unexplained agricultural income and allowed the appeal of the assessee, holding that the CIT(A) erred in confirming the addition without proper appreciation of the evidence submitted by the assessee.