2025 (7) TMI 1672 - AT - Income Tax

Addition u/s 69/69A - addition as made by the AO on account of deposit of cash in the bank Account - assessee has explained cash to have sourced out of advances against proposed sale of agricultural land and part being sourced out of agricultural activity carried out by the assessee on agricultural lands owned by the father of the assessee and also on lease lands - HELD THAT - We find that there is no compulsion of registration of an agreement for sale of agricultural land however registration under Act 1908 is compulsory in case of transfer lease or mortgage of immovable property. As such the legal validity of the agreement of sale cannot be doubted - As such we accept the explanation of the assessee that cash of Rs. Ten lakhs has been deposited in bank out of such advance received which is a reasonably acceptable explanation in absence of any materials to the contrary. Issue of compulsory registration of lease deed raised by the ld DR it is our opinion that an unregistered lease deed may not be admissible as evidence in court to prove the terms of the lease or to claim any rights based on those terms but it is still relevant to establish the existence of a landlord tenant relationship. In the instant case lease deeds covering the agricultural lands from where the agricultural income is arising to the assessee (lands being leased in his favour) gives a right to the assessee to cultivate the same and the said right is in between the owner and the assessee (which is not disputed by any of the parties ) and for the purpose of the revenue the genuineness of actual RECEIPT of agricultural sale proceeds evidenced by form J has never been doubted which means funds were available as per Form J with the assessee (and his father ) for making deposit in banks even after incurring expenses for agricultural activity. As such since availability of funds are accepted out of sales of agricultural produce (with the assessee and his father) both belonging to the same agricultural family earning their livelihood from cultivation from the same plot of land owned by the father and leased plot of land taken on lease by the son (with no other source of income other than agriculture) the cash deposit in bank is accepted as explained. Assessee appeal allowed.

Summary

ISSUES:

Whether the reopening of assessment under section 148 of the Income Tax Act, 1961 was valid and based on "reason to believe" that income had escaped assessment.Whether the addition of Rs. 16,75,000/- on account of cash deposits in bank account under section 69 of the Income Tax Act, 1961 was justified.Whether the Rs. 10,00,000/- received as advance under an unregistered agreement to sell agricultural land can be accepted as a valid source of cash deposit.Whether the addition of Rs. 6,75,000/- derived from agricultural activity on leased and self-owned land is justified, including the acceptance of J-Forms and lease deeds as evidence.Whether the rejection of documentary evidence including unregistered lease deeds and J-Forms, and reliance solely on suspicion and doubt, was legally proper.Whether affidavits submitted by witnesses to the agreement to sell, without cross-examination, can be relied upon as proof of transaction authenticity.

RULINGS / HOLDINGS:

The reopening of assessment under section 148 was not adjudicated on merits as the appeal was allowed on substantive grounds; hence, legal grounds related to reopening were not taken up for adjudication.The addition of Rs. 16,75,000/- under section 69 was deleted as the assessee satisfactorily explained the source of cash deposits with "reasonably acceptable explanation" supported by documentary evidence and affidavits.The Rs. 10,00,000/- advance received under an unregistered agreement to sell agricultural land was held to be a valid source of income; "there is no compulsion of registration of an agreement for sale of agricultural land" and the unregistered agreement was supported by notarized affidavits of witnesses which were not challenged, making the explanation acceptable.The addition of Rs. 6,75,000/- from agricultural income was deleted as the assessee proved cultivation on leased and self-owned land, supported by lease deeds and J-Forms; rejection of such documents solely because they were in the name of the father was "unjustified and contrary to settled law."Unregistered lease deeds, though not admissible as evidence in court to prove lease terms, were held relevant to establish landlord-tenant relationship and genuineness of agricultural income; the genuineness of agricultural sale proceeds evidenced by Form J was not doubted.Affidavits submitted by witnesses attesting to the agreement to sell were held reliable evidence since no cross-examination was conducted; reliance was placed on precedent that "in absence of any such examination ... the sworn declaration contained therein cannot be disbelieved."

RATIONALE:

The Court applied provisions of the Income Tax Act, 1961, specifically sections 69 (unexplained cash credits) and 148 (reopening of assessment), and considered evidentiary standards for proving source of income.It relied on the Registration Act, 1908, particularly section 17, to clarify that registration of an agreement to sell agricultural land is not mandatory for its validity.Precedents were cited to support the acceptance of unregistered agreements and affidavits as valid evidence, including judgments holding that affidavits not disproved by cross-examination cannot be rejected by revenue authorities.The Court recognized common familial practices in joint families regarding ownership and operation of agricultural land to justify acceptance of documents in the name of the father for the son's agricultural income claim.The Court distinguished between evidentiary admissibility in civil courts and relevance for income tax proceedings, holding that unregistered lease deeds, while not conclusive proof of lease terms in court, are relevant to establish the existence of landlord-tenant relationship for tax purposes.The Court did not find any material contradicting the assessee's explanation and thus accepted the source of cash deposits, shifting the burden back to the revenue which failed to produce contrary evidence.Due to acceptance of the substantive explanation, the Court refrained from adjudicating on the validity of reopening under section 148.