2025 (6) TMI 1941 - AT - Income Tax

Unexplained cash credit u/s. 68 - Assessee argued it as Agricultural Income - as per AO for the year under consideration which witnessed widespread calamity i.e. Gujarat 2017 floods the agricultural income cannot be more and the reply given by the assessee was nothing but a concocted story - HELD THAT -Explanation of the assessee that there has been hike in agricultural income by three times in the current year and expenses have gone down from 76% to 43% cannot be held to be reasonable logical and acceptable. We are in agreement with the Ld. CIT(A) s observation in confirming the addition on merits of the case. Appeal of the assessee is dismissed.

Summary

The core legal issues considered in this appeal revolve around the validity and correctness of the addition of Rs. 49,55,101/- as unexplained cash credit under section 68 of the Income Tax Act, 1961, and the related assessment of agricultural income for the Assessment Year 2018-19. Specifically, the Tribunal examined:

• Whether the addition of Rs. 49,55,101/- as unexplained cash credit u/s. 68 was justified in light of the assessee's claimed agricultural income.
• Whether the explanations and evidence submitted by the assessee regarding the threefold increase in agricultural income and reduction in agricultural expenses were properly considered and found satisfactory.
• The validity and legality of the order passed by the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (CIT(A)/NFAC) in confirming the addition and rejecting the assessee's appeal.

Issue-wise Detailed Analysis:

1. Legitimacy of Addition under Section 68 as Unexplained Cash Credit

The relevant legal framework is section 68 of the Income Tax Act, which mandates that any sum credited in the books of an assessee as cash credit must be explained satisfactorily by the assessee as to the nature and source of such credit, failing which it is liable to be treated as income from unexplained sources and added to the total income.

In this case, the Assessing Officer (AO) scrutinized the agricultural income declared by the assessee, which was Rs. 75,54,376/-. The AO observed that this figure represented a threefold increase from the previous year's agricultural income of Rs. 25,99,275/-, despite the occurrence of severe floods in Gujarat in 2017, which would have adversely affected agricultural output.

The AO noted that the assessee failed to provide adequate details about the crops grown and sought multiple adjournments. The computerized ledger extracts submitted showed daily sales of similar vegetables but did not substantiate the claimed income increase. The AO concluded that the excess amount of Rs. 49,55,101/- (difference between declared and estimated agricultural income) was unexplained cash credit and added it under section 68.

The CIT(A)/NFAC upheld this addition, reasoning that the threefold hike in agricultural income during a natural calamity year was unbelievable and unsupported by documentary evidence. The CIT(A) also noted that the photos of vegetables submitted did not rebut the AO's findings.

On appeal, the Tribunal concurred with the AO and CIT(A), holding that the explanation of a steep increase in agricultural income coupled with a reduction in expenses was neither reasonable nor acceptable. The Tribunal emphasized that the assessee failed to provide credible proof to justify the claimed figures.

The Tribunal's application of section 68 to the facts was consistent with established legal principles that the burden lies on the assessee to satisfactorily explain unexplained credits. The AO's and CIT(A)'s findings were based on a holistic examination of the facts, including the adverse impact of floods, absence of corroborative evidence, and the improbability of the claimed income increase.

2. Appreciation of Assessee's Submissions and Evidence

The assessee argued that the CIT(A) erred in not properly appreciating the facts, submissions, and explanations provided during assessment proceedings. The explanation centered on the reduction of agricultural expenses from 76.6% to 43.94%, which allegedly justified the increase in net agricultural income.

The AO and CIT(A) examined these submissions but found them unconvincing. The AO observed that the reduction in expenses was not substantiated by any documentary evidence, nor was there any explanation for how such a drastic reduction was achieved. The CIT(A) further noted the lack of details about the nature of agricultural activities and the repeated adjournments sought by the assessee.

The Tribunal agreed with this assessment, holding that the explanations were neither logical nor supported by credible evidence. The Tribunal emphasized that mere assertions without documentary backing cannot override the findings of adverse facts such as the natural calamity and the improbability of a threefold increase in income.

The treatment of competing arguments was fair and balanced, with the Tribunal giving due consideration to the assessee's contentions but ultimately relying on the weight of evidence and reasoned conclusions of the AO and CIT(A).

3. Validity and Legality of the CIT(A) Order

The assessee contended that the CIT(A) order was invalid and bad in law. However, the Tribunal found no procedural irregularity or legal infirmity in the appellate order. The CIT(A) had comprehensively considered the facts, submissions, and evidence before confirming the addition.

The Tribunal held that the CIT(A)'s order was a well-reasoned and speaking order, consistent with the legal standards for appellate scrutiny under the Income Tax Act. The Tribunal found no merit in the contention that the order was invalid or bad in law.

Significant Holdings:

The Tribunal upheld the addition of Rs. 49,55,101/- as unexplained cash credit under section 68, affirming the principle that unexplained credits must be added to the income if the assessee fails to satisfactorily explain their nature and source.

It was held that a sudden and substantial increase in agricultural income, especially during a year of natural calamity, requires credible documentary evidence and logical explanation, failing which the claimed income cannot be accepted.

The Tribunal stated verbatim: "The explanation of the assessee that there has been hike in agricultural income by three times in the current year and expenses have gone down from 76% to 43% cannot be held to be reasonable, logical and acceptable."

The core principle established is that the burden of proof lies on the assessee to demonstrate the genuineness of claimed income and credits, and mere assertions or inadequate evidence cannot displace the findings of the AO and appellate authorities.

Finally, the Tribunal dismissed the appeal, confirming the assessment order and the addition made under section 68, thereby affirming the correctness of the assessment and appellate orders on both facts and law.