ITAT estimated agricultural income at a reasonable basis

1. Assessee individual along with others was covered in operations u/s. 132 (of Income Tax Act, 1961). Assessee was running un-registered chit businesses and in the course of search proceedings, various incriminating documents, certain property documents, certain pro- notes were noticed and seized. The Assessing Officer (AO) made various additions based on the documents and returns filed by the assessee. Assessee had offered agricultural income of Rs. 1,89,919/- in AY. 2005-06; Rs. 1,01,880/- in AY. 2006-07; and Rs. 1,04,270/- in AY. 2007-08. AO, on the reason that assessee has not substantiated the incomes, has treated the agricultural income as 'income from other sources' and brought to tax. Assessee claimed certain investments and repayments u/s. 80C (of Income Tax Act, 1961) which the AO disallowed. In the course of search, apart from a chit notes, certain promissory notes and agreements of sale were also seized. Based on the value as mentioned in the agreement of sale, AO has made additions in the impugned assessment years towards un-accounted investment in purchase of property.

2. CIT(A) confirmed the addition. It did not allow the repayment of principal amount on the housing loan obtained, claimed at Rs. 1 Lakh and Rs. 68,042. CIT(A) deleted addition based on agreement to sell in AY. 2005-06 but confirmed it in AY 2006-07 & 2007-08.

3. On appeal, the ITAT inter alia held as under:

“Since assessee is not in a position to furnish any evidence to substantiate the incomes earned and returned, we have no option than to estimate the agricultural income at a reasonable basis. Assessee's submission that it has grown Paddy, Grapes and Vegetables on a piece of land of 1.27 acres cannot be accepted as it is not possible to cultivate all the three in small piece of land. However, since assessee owns some agricultural land in the impugned years, we are of the opinion that income at Rs. 10,000/- per acre can be justified as a reasonable income earned on the said lands. Accordingly, AO is directed to accept income at Rs. 10,000/- per acre for AY. 2005-06, 2006-07, 2007-08. The balance of the income in each year is confirmed as 'income from other sources' as was done by the AO. Assessee's grounds are partly allowed.

Before us, Ld. Counsel fairly admitted that assessee did not have any evidence of payment of these amounts. Since assessee is not forthcoming with any evidence, we do not find any reason to interfere with the order of the CIT(A). Accordingly, the grounds on disallowance u/s.80C (of Income Tax Act, 1961) are dismissed.

However, since AO has not enquired properly, we hereby set aside the issue to the file of AO to examine the concerned parties from whom agreement of sale were obtained to establish whether the transaction is of 'agreement of sale' or 'security for chit fund business' and grant necessary relief after due enquiry.”

Case Reference - Panduranga Reddy v Deputy Commissioner of Income Tax.

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES "A", HYDERABAD

BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND

SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER A.