ITAT Hyderabad Holds Agricultural Income Verification Within Limited Scrutiny Scope, Deletes Double Addition

Adinarayana Raju Mandapati Vs ITO (ITAT Hyderabad)

Limited Scrutiny Can Examine the Source, but It Cannot Tax the Same Money Twice — Agricultural Receipts Subsumed in Cash-Deposit Addition

The Hyderabad Bench of the ITAT has held that where a case is selected for limited scrutiny to examine large cash deposits, the AO is entitled to verify the agricultural income claimed as the source of those deposits. Such verification does not amount to travelling beyond the scope of limited scrutiny. However, after treating the entire cash deposits as unexplained money u/s 69A, the AO cannot again make a separate addition of the agricultural receipts forming part of the very same deposits. That would result in double addition of the same amount.

The assessee, Adinarayana Raju Mandapati, filed his return for AY 2017-18 declaring nil taxable income and agricultural income of ₹12 lakh. His case was selected under CASS for limited scrutiny because substantial cash deposits were noticed in his bank accounts as compared with the income returned.

The AO issued notice u/s 143(2) and several notices u/s 142(1). As the assessee did not respond, the assessment was completed on the basis of information available on record. The AO treated cash deposits of ₹75,25,900 as unexplained money u/s 69A. He also separately added the declared agricultural income of ₹12 lakh as unexplained money.

Before the CIT(A), the assessee claimed that he and his wife owned agricultural land and regularly derived agricultural income. He further contended that he and his sister had taken 6.20 acres of land on lease and cultivated Tindoora/Gherkins, locally known as Dondakaya. According to the assessee, approximately ₹50 lakh was realised from the crop through an association between the assessee and his relative.

The CIT(A), however, found that the claim was unsupported by documentary evidence. The assessee had also claimed a loss of ₹55,62,500 from the Tindoora crop, but no reliable evidence was furnished to substantiate the agricultural operations, receipts or expenditure. The additions were therefore confirmed.

Before the Tribunal, the assessee furnished details of deposits and withdrawals appearing in three bank accounts. It was argued that the deposits represented agricultural receipts and that withdrawals reflected the agricultural expenditure incurred.

The assessee also challenged the jurisdiction of the AO. It was submitted that the case had been selected for limited scrutiny only to verify the cash deposits, whereas the AO had proceeded to examine and reject agricultural income, which was allegedly outside the permitted scope. Since no approval for conversion into complete scrutiny had been obtained, the assessee contended that the additional enquiry and consequent addition were invalid.

The Department argued that agricultural income was claimed as the source of the cash deposits. Examination of such income was therefore inseparable from examination of the cash deposits and fell squarely within the limited-scrutiny issue.

The Tribunal agreed with the Department on this jurisdictional aspect. It observed that the CASS reason required the AO to examine the large cash deposits in comparison with returned income. Once the assessee claimed agricultural income as the source, the AO was necessarily required to verify whether such income had actually been earned.

The AO was not examining an independent or unrelated issue. He was examining the explanation offered for the very transaction selected for scrutiny. Therefore, verification of agricultural income was part and parcel of the enquiry into the source of the cash deposits, and no separate approval for expanding the limited scrutiny was required.

On merits, the Tribunal found that the assessee had not produced documentary evidence either before the AO or the CIT(A) to substantiate cultivation of Tindoora or receipt of the alleged agricultural income. Even before the Tribunal, only details of bank deposits and withdrawals were furnished. These details did not independently prove cultivation, production or sale of crops.

The Tribunal therefore sustained the addition of ₹75,25,900 representing unexplained cash deposits.

However, it accepted the assessee’s alternative contention regarding double addition. Once the entire bank deposits of ₹75,25,900 were treated as unexplained, the agricultural income of ₹12 lakh allegedly forming part of those deposits could not again be separately added. The agricultural income was already subsumed in the larger addition.

The original assessment appeal was consequently partly allowed by deleting the separate addition of ₹12 lakh while retaining the cash-deposit addition of ₹75,25,900.

The second appeal arose from the consequential assessment following proceedings u/s 263. The PCIT had invoked revisionary jurisdiction on the ground that the gross agricultural receipts should have been considered instead of merely the net agricultural income. Pursuant to the revision order, the AO enhanced the agricultural-income addition from ₹12 lakh to ₹20 lakh.

The assessee had not separately challenged the PCIT’s order u/s 263. Therefore, the jurisdiction assumed by the PCIT had attained finality. Nevertheless, the Tribunal held that the enhanced addition of ₹20 lakh could not survive because it was also included within the larger addition of ₹75,25,900 made for unexplained bank deposits. The entire additional sum of ₹20 lakh was accordingly deleted.

Author’s Comments

The ruling makes an important distinction between the scope of limited scrutiny and the consequences of the enquiry conducted within that scope. If cash deposits are the selected issue, the AO can examine every explanation directly connected with their source. Where agricultural income is offered as the source, verification of landholding, cultivation, yield, expenses and crop sales does not constitute an impermissible expansion of scrutiny.

The assessee’s failure in this case was evidentiary. Bank deposits and withdrawals may corroborate agricultural activity, but they do not prove it by themselves. Lease deeds, land records, crop particulars, expenditure details, mandi receipts, purchaser confirmations and evidence of yield would ordinarily be necessary, particularly where agricultural receipts of nearly ₹50 lakh are claimed.

However, the Department’s power to reject the explanation does not permit duplication. If the AO treats the entire deposit of ₹75.25 lakh as unexplained, every alleged component of that deposit is already embedded in the addition. The same ₹12 lakh or ₹20 lakh cannot be taxed once as part of the bank deposits and again under the label of agricultural income.

It is important to understand that the Tribunal did not accept the agricultural income as genuine or exempt u/s 10(1). It merely deleted the separate additions because they were swallowed by the larger addition already sustained. Telescoping prevents double taxation; it does not convert an unproved source into a proved one.

Cases Discussed

• Vishnu Srinivasa Rao Kakarla, Ganapavaram, Andhra Pradesh vs. ITO, Ward-1, Tanuku — ITA No. 93/Viz./2023, dated 15.06.2023
• Rajnikanth S. Bhalavat, Ahmedabad vs. ACIT, Circle-5(1), Ahmedabad — ITA No. 495/Ahd./2019, dated 23.12.2022
• ACIT vs. BK Sales Corporation — [2025] 213 ITD 559 (Del.)
• Dahila Infrastructure (P.) Ltd. vs. DCIT — [2025] 212 ITD 184 (Del.)

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, HYDERABAD

This appeal by the Assessee is directed against two separate Orders both dated 25.07.2025 arising from assessment order passed u/sec.143(3) and the Order passed by the Assessing Officer u/sec.143(3) r.w.s.263 of the Income Tax Act [in short “the Act”], 1961 respectively, for the assessment year 2017-2018.

2. First, we take up the appeal ITA.No.1387/Hyd./ 2025 arising from the original assessment order passed by the Assessing Officer u/sec.143(3) of the Act wherein the assessee has raised the following grounds of appeal:

1) The order of the Ld. CIT(A) u/s 250 of the Act dt. 25.07.2025 for the AY 2017-18 is erroneous both on facts and in law to the extent the order is prejudicial to the interests of the appellant

2) The Ld. CIT(A) erred in dismissing the appeal without considering the facts of the case and the submissions of the appellant.

3) The Ld. CIT(A) erred in fairly appreciating the factual & legal position that the AO has lawfully erred in travelling beyond the scope of “Limited Scrutiny” as per CBDT Instruction No.20/2015 dated 29.12.2015 and subsequent clarifications, in as much as the AO has made other additions on other issues which are not within the purview of limited scrutiny.

4) The Ld. CIT(A) ought to have appreciated that case was selected only to verify cash deposits in the bank account, but the AO proceeded to make addition in respect of agricultural income which was not part of the reason for selection, thereby rendering such additions without jurisdiction, and is bad in law.

5) The Ld. CIT(A) grossly erred in not appreciating that the scope of limited scrutiny could not be expanded without prior approval of the PCIT/CIT, and that no such approval was obtained OR placed on record by the AO, rendering the addition void ab initio.

6) The Ld. CIT(A) erred in considering that the AO has failed to give sufficient opportunity of being heard before making additions beyond the limited scrutiny scope, and that the order has been passed in violation of the principles of the natural justice.

7) The Ld. CIT(A) erred sustaining the addition of Rs.75,25,900/- on account of alleged unexplained cash deposits, without properly appreciating the explanation and documentary evidence furnished by the appellant in support of the same.

8) The Ld. CIT(A) erred in sustaining the addition of Rs.12,00,000/- towards agricultural income without appreciating that the said income is exempt under section 10(1) of the Act and the appellant had duly substantiated the claim with relevant documentary evidence; hence, no addition could have been made in respect thereof.

9) The Ld. CIT(A) ought not to have upheld the addition of Rs.12,00,000/- made by the AO u/s 69A towards unaccounted, especially when there is no unexplained money found with the AO other than bank deposits of Rs.75,25,900/-, wherein, the said agricultural income were already a part of bank deposits.

10) The Ld. CIT(A) ought to have fairly appreciated the fact that the assessee has explained the agricultural income of Rs.20,00,000/- as part of source of bank deposits which was not accepted by the AO but made entire bank deposits and agricultural income as unexplained without giving telescoping effect to the second addition from first addition.

11) The Ld. CIT(A) ought to have appreciated that the agricultural income was the explained source of the said cash deposits; and therefore, taxing both amounts independently has led to double addition of the same income, which is impermissible and results in double taxation.

12) The Ld. CIT(A) has erred in not fairly appreciating the legal position that an addition made in the assessment by the AO is the income available to the assessee in that year for explaining the source for some unaccounted income to be made addition in the assessment.

13) The Ld. CIT(A) ought to have fairly appreciated the law position that the telescoping effect should be given to the agricultural income for explaining the source of deposits made in the bank A/c.

14) The Appellant may, add OR alter OR amend OR modify OR substitute OR delete and/OR rescind all OR any of the grounds of appeal at any time before OR at the time of hearing of the appeal.”

3. The assessee is an individual and stated to be deriving agricultural income. The assessee filed his return of income for the year under consideration on 03.09.2017 admitting total income of Rs.NIL and agricultural income of Rs.12 lakhs. The case of the assessee was selected for scrutiny under CASS for limited scrutiny to examine large value of cash deposits compared to the returned income. The Assessing Officer issued notice u/sec.142(1) of the Act to the assessee however, there was no response from the assessee to the show cause notice issued by the Assessing Officer despite sufficient opportunities. Accordingly, the Assessing Officer proceeded to frame the assessment on the basis of the information available with the Assessing Officer. The Assessing Officer made addition of Rs.75,25,900/- on account of unexplained money being deposite in the bank account of the assessee u/sec.69A of the Act as well as addition of Rs.12 lakhs by treating the agricultural income as unexplained money.

The assessee challenged the action of the Assessing Officer before the learned CIT(A) and submitted that the assessee and his wife possessed agricultural land and deriving agricultural income. The assessee has also contended that in addition to their agricultural income, the assessee along with his sister took 6.20 acres of land on lease and planted Tindoora/Gherkins known as Dondakaya and claimed that the agricultural income received from the lease rent was in the hand of Association of Persons [in short “AOP”] of the assessee and his cousin and assessee received around Rs.50 lakhs on such crop. The learned CIT(A) was not impressed with the explanation of the assessee and confirmed the addition made by the Assessing Officer.

4. Before the Tribunal, the learned Authorised Representative of the Assessee has filed the details of the deposits and withdrawals in the three bank accounts of the assessee and submitted that there were cash deposits and payments from the bank account of the assessee regarding the agriculture receipts and expenditure incurred by the assessee. He has further submitted that the case of the assessee was selected for limited scrutiny on the issue of cash deposit in the bank account however, the Assessing Officer has proceeded to make the addition on account of agricultural income which is beyond the scope of scrutiny. Thus, the learned Authorised Representative of the Assessee has submitted that the assessment order passed by the Assessing Officer is not sustainable in law and liable to be set aside. In support of his contention, he has relied upon the following decisions:

i. Order of ITAT, Visakhapatnam in the case of Vishnu Srinivasa Rao Kakarla, Ganapavaram, Andhra Pradesh vs. ITO, Ward-1, Tanuku in ITA.No.93/Viz./2023, dated 15.06.2023;

ii. Order of ITAT, Ahmedabad in the case of Rajnikanth S. Bhalavat, Ahmedabad vs. ACIT, Circle-5(1), Ahmedabad in ITA.No.495/Ahd./2019, dated 23.12.2022;

iii. Order of ITAT, Delhi in the case of ACIT vs. BK Sales Corporation [2025] 213 ITD 559 (Del.);

iv. Order of ITAT, Delhi in the case of Dahila Infrastructure (P.) Ltd. vs. DCIT [2025] 212 ITD 184 (Del.);

5. On the other hand, the learned DR has submitted that the assessee has failed to explain the source of deposit in the bank account and therefore, the Assessing Officer has rightly made the addition as unexplained money. He has further submitted that the agricultural income declared by the assessee in the return of income is also part of the issue being source of deposit in the bank account. Therefore, this is not a separate issue but part and parcel of the source of deposit made in the bank account. Thus, the learned DR has submitted that the Assessing Officer has not exceeded the jurisdiction while passing the impugned order. He has relied upon the Orders of the authorities below.

6. We have considered the rival submissions as well as relevant material on record. The assessee has declared total income at Rs.NIL in the return of income and declared agricultural income of Rs.12 lakhs. The case of the assessee was selected for scrutiny under CASS for limited scrutiny to examine large value of cash deposit in the bank account compared to the returned income. The Assessing Officer has issued notice u/sec.143(2) of the Act on 24.09.2018 and also issued various notices u/sec.142(1) of the Act but there was no response on behalf of the assessee to the notices issued by the Assessing Officer. Accordingly, the Assessing Officer has made the addition of Rs.75,25,900/- on account of unexplained cash deposit in the bank account in Para nos.2 and 3 as under:

2.00 Subsequently, Notices u/s 142(1) were issued on various dates viz., 07-08-2019, 15-10-2019 & 18-11-2019 and served upon the assessee, requiring the assessee to furnish various details. In response, the assessee has stated vide letter dated 25-09-2019 that he is an agriculturist having 12 acre of land where he has grown various vegetable plants and paddy. However, the assessee has not made any submissions with regard to the source of cash deposits made during the year in his bank accounts and agricultural income claim with supporting evidences, despite giving sufficient opportunities. Hence, a show cause letter was issued to assessee on 05-12-2019 to make submissions with regard to the information called through various 142(1) notices. However, there is no response from the assessee to the show-cause letter despite giving sufficient opportunity and time. As the assessee has not furnished any supporting evidences, there is no option but to complete the assessment with the material available on record, as discussed under:

3.00 As per the information available, it is found that the assessee was maintaining the following bank accounts during the FY 2016-17, the details of which are as under:

On perusal of the above bank accounts, it is found that the assessee has made cash deposits to the tune of Rs.75,25,900/- during the entire FY 2016-17. The onus to prove the sources of such cash credits in the bank accounts with proper supporting evidences lie with the assessee. However, the assessee has failed to furnish any explanation with regard to cash deposited during the FY 2016-17 despite giving sufficient opportunity. In the absence of supporting evidences, the sources for the cash deposits during the FY 2016-17 in the bank account(s) of the assessee remain unexplained. The Hon’ble Supreme Court of India also held in the case of Sri K. Chinnathamban [(2007) 292 ITR 682 (SC)] dated 24-07-2007 that the onus of proving the source of deposit primarily rested on the person in whose name the deposit appeared in various banks. In these circumstances, I treat the cash deposited to the tune of Rs.75,25,900/- during the FY 2016-17 as unexplained money and is deemed to be the income of the assessee for FY 2016-17 as per provisions of section 69A of the Income Tax Act.

Addition : Rs.75,25,900/-

7. The assessee challenged the action of the Assessing Officer before the learned CIT(A) and claimed that apart from the agricultural income of the assessee as well as his wife’s own income, the assessee and his sister took land measuring 6.20 acres on lease and planted Tindoora/ Dondakaya. Thus, the assessee claimed that the source of around Rs.50 lakhs is from the receipt of sale of crop of Tindoora. The relevant facts as claimed by the assessee are reproduced by the learned CIT(A) in the statement of facts as under:

The appellant is an individual deriving agricultural income. His wife also possessed agricultural land and derived agricultural income. The appellant filed the return of income on 03.09.2017 admitting total income of NIL and an agricultural income of Rs.12,00,000/-. The appellant is an agriculturist. He holds an agricultural land of 12.38 acres. The appellant cultivates paddy in two crops in his agricultural land. The appellant admitted the gross receipts from agriculture of Rs.20,00,000/-. The appellant wife holds agricultural land to the extent of 5.02 acres in which the appellant cultivates paddy in two crops. The gross receipts on such agricultural land was also deposited in the appellant’s bank account. The gross receipts received from his wife’s agricultural land of Rs.8,20,000/- was deposited in the appellant account. In addition to this the appellant along with his sister took 6.20 acres of land on lease. The appellant planted tindora/Gherkins crop in the agriculture land taken on lease land. The appellant omitted to admit the receipts from such leased land as the said receipt represents the receipt by AOP consisting himself and his cousin. The appellant received approximately Rs.50,00,000/-, on such crop. As the income is exempt, no return is filed by AOP.

The Assessing Officer during the year sent notices u/s 142(1) and 143(2) calling information with regard to the large value of cash deposits in the bank account. The appellant in response to the notice issued, submitted the explanations to the Assessing Officer. The Assessing Officer without considering the explanations submitted completed the assessment u/s 143(3) of the income tax act 1961 and passed order on 15/12/2019. While doing so the Assessing Officer made an addition Rs.75,25,900/-, and Rs.12,00,000/-, u/s 69A of the income tax act 1961 as unexplained money and initiated the provisions u/s 115BBE of the act taxing the deposits at the rate 60 percentage.

It is against the said order of assessment, the appellant is filing the present appeal.

8. The assessee has also filed written submissions before the learned CIT(A) which are reproduced in Para no.5 of the impugned order as under:

5. During the appeal proceedings, the appellant filed written submissions as under:

In connection with the appeal filed by the Appellant, ADINARAYANA RAJU MANDAPATI for the assessment year 2017-18 against the order u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’), dt. 15.12.2019 passed by the ITO, Ward-1, Nalgonda (hereinafter referred to as the “Assessing Officer”/”AO”) and in continuation of the statement of facts and grounds of appeal filed along with the appeal, the following submissions are made for kind consideration of the Ld. Commissioner of Income Tax (Appeals).

1. Brief facts of the case:

1.1 The appellant is an individual deriving agricultural income. His wife also possessed agricultural land and derived agricultural income. The appellant filed the return of income on 03.09.2017 admitting total income of NIL and an agricultural income of Rs.12,00,000/-.

1.2 The appellant is an agriculturist. He holds an agricultural land of 12.38 acres. The appellant cultivates paddy in two crops in his agricultural land. The appellant admitted the gross receipts from agriculture of Rs.20,00,000/-. The appellants wife holds agricultural land to the extent of 5.02 acres in which the appellant cultivates paddy in two crops. The gross receipts on such agricultural land was also deposited in the appellants bank account. The gross receipts received from his wife’s agricultural land of Rs.8,20,000/- was deposited in the appellant account.

1.3 In addition to this the appellant along with his sister took 6.20 acres of land on lease. The appellant planted tindoorа/ Gherkins known as dondakaya in telugu in leased land. The appellant omitted to admit the receipts from such leased land as the said receipt represents the receipt by AOP consisting of himself and his cousin. The appellant received approximately Rs.50,00,000/-, on such crop. As the income is exempt, no return is filed by AOP. The Assessing Officer during the year sent notices u/s 142(1) and 143(2) calling information with regard to the large value of cash deposits in the bank account. The appellant in response to the notice issued, submitted the explanations to the Assessing Officer.

1.4 The Assessing Officer without considering the explanations submitted completed the assessment u/s 143(3) of the income tax act 1961 and passed order on 15/12/2019. While doing so the Assessing Officer made an addition of Rs.75,25,900/-, and Rs.12,00,000/-, u/s 69A of the income tax act 1961 as unexplained money and initiated the provisions u/s 115BBE of the act taxing the deposits at the rate 60 percentage. It is against the said order of assessment; the appellant is filing the present appeal.

(Copy of ITR Acknowledgement and ITR return for the AY-2017-18 vide paper book Pg.No.1-21)

Our Submission:

Grounds 1 and 5 are general in nature:

2. The Ld. AO erred in making the addition of Rs.12,00,000/- towards unexplained money u/s 69A of the act (Ground No.3):

2.1 The Assessing officer erred in treating the amount of Rs.12,00,000/-, as income of the appellant as undisclosed income u/s 69A of the I.T. Act and charging the said amount as per the provisions of Sec. 115BBE of the I.T. Act.

2.2 The assessee, Adinarayana Raju Mandapati along with his wife and his mother-in-law holds an agricultural land of 20 Acres cultivating paddy on all the lands.

(Copy of pattadar pass books of the assessee, his wife and his mother-in-law are attached in the paper book vide Pg No.22-27)

2.3 We would like to submit that the flow of events for cultivating paddy begins with purchasing seeds followed by tilling the land and thereafter planting the crop. Later on, after proper spraying and irrigation the paddy is harvested and ready for sale. In this process various expenses relating to land tilling, sprayings, labour charges or any other interest expenditure is incurred. Expenses also include expense incurred for purchase of seeds and fertilizers and transportation charges incurred for distributing the harvested produce to the place of sale and consumption. The harvested paddy gets sold to the farmers directly or distributed to the local vendors or traders or to rice mills for which distribution charges are also incurred by the appellant.

2.4 The assessee also submitted a copy of statement of profit and loss for the AY 2017-18 for the Ld. AO’s kind perusal. The Ld. AO after verifying the P&L statement of the assessee in the Assessment order dated 31.03.2023 said:

“From the above, it is clear that the assessee submitted that his gross agricultural receipts from paddy crop for the kharif season is of Rs. 9,46,400 and rabi season isofRs. 10,54,080from the agricultural land of 20acres. It is pertinent to mention here that the assessee had submitted the above said agricultural receipts based on a formula ie., multiplication of certain figures with 20 acres agricultural land but not based on the actual yield and not based on the actual expenditure. It is further to note here that the actual agricultural land owned by the assessee is 12 acres only at Raghavapuram village which was submitted by the assessee himself during the scrutiny proceedings, vide his letter dated 25-09-2019.”

2.5 Since, the assessee is cultivating paddy on 20 Acres of land, the statement of P&L for 20 Acres is attached in reply showing total receipts of Rs. 20,00,480/- and total expenses of Rs. 8,00,990/- and accordingly the assessee filed his income tax return for AY 2017-18 showing agricultural income of Rs. 12,00,000/-. (copy of statement of P&L for the AY 2017-18 is attached in the paper book vide Pg. No.30)

2.6 Hence, the addition made by the Ld. AO of Rs. 20,00,000/- without appreciating the facts of the case is invalid and bad in the eyes of law. It is a fact that the assessee is having agricultural income during the year under consideration and therefore treating the said agricultural income earned as unexplained money u/s 69A is against to the provisions of Income tax Act.

3. The Ld. AO erred in making the addition of Rs.75,25,900/- towards unexplained money u/s 69A of the Act (Ground No.2):

3.1 The Assessing officer erred in treating the amount of Rs.75,25,900/-, as income of the appellant as undisclosed income u/s 69A of the I.T. Act and charging the said amount as per the provisions of Sec. 115BBE of the I.T. Act.

3.2 The assessee along with his cousin has taken a land of 6.20 Acres at Angadipeta Village, P.A. Pally Mandal of Nalgonda district on lease and has planted tindoorа/Gherkins. (Copy of lease agreement is attached in the paper book vide Pg. No.28-29).

3.3 The assessee has received an amount of almost Rs.55,00,000/- from this land and has incurred a loss of almost Rs.55,62,500/- for the year under consideration. Since, the said leased land represents AOP consisting of the assessee and his cousin, the assessee did not reflect the same in his income tax return. Moreover, the assessee has realized loss from sale of such crop and since agricultural income is exempt from taxation as per provisions of Income tax Act, 1961 no return of income was filed for the AY 2017-18. (Copy of bills and vouchers on sample basis are attached in paper book vide Pg. No.31-58).

3.4 On approximate basis,

• • 30 bags of 50kgs are produced in a week per Acre making it 1500kgs of Gherkins per week per Acre, producing 6000kg/month
  • Since there are 6.2 Acres almost 36000kgs of gherkins are produced per month
  • Considering the Average price to be Rs.12/kg, Rs.4,32,000/- is received per month. Hence, sales amounting to almost Rs.51,84,000/- are made during the year.

Copy of bank statements are attached in paper book vide page no 59-107.

4. Levy of Interest proceedings u/s 234A & 234B of the Act (Ground No.4):

The AO further charged an amount towards interest for defaults. In this connection, it is submitted that the disallowance made by the AO deserves to be deleted and as such there is no default by them. Therefore, the CIT(A) is requested to kindly delete the consolidated interest charged u/s 234A & 234B of the Act.

5. Levy of penalty proceedings under section 271AAC of the Act (Additional Ground:6):

The A.O has erred in initiating penalty proceedings u/s 271AAC of the I.T. Act, 1961 without appreciating the fact that there is no unexplained income as said in the assessment order and the order needs to be quashed. Hence, penalty levied on such invalid addition is not correct and needs to be deleted.

9. The learned CIT(A) has considered these submissions of the assessee and given the finding that the assessee has claimed loss from the crop of Tindoora of Rs.55,62,500/-. All the submissions and the claim of the assessee were without any supporting evidence and therefore, the entire submissions of the assessee remained unsubstantiated by any evidence. Accordingly, the learned CIT(A) confirmed the addition made by the Assessing Officer. Even before the Tribunal, the assessee has not filed any documentary evidence except the details to explain the amounts of deposits and the payments made by the assessee. Thus, these details also remained only the oral version of the assessee without any supporting evidence. Hence, on the merits of the addition, we do not find any error or illegality in the impugned order of the learned CIT(A) when the assessee has failed to produce any supporting evidence either before the Assessing Officer or before the learned CIT(A) to generate the agricultural income by growing the crop Tindoora.

10. As regards the objection of the learned Counsel for the Assessee regarding the validity of the assessment order, we find that the Assessing Officer has considered the source of cash deposit in the bank account which was the subject matter of scrutiny taken-up in CASS and therefore, the agricultural income declared by the assessee in the return of income is very much part and parcel of the said subject matter as taken up being source of deposit in the bank account. Therefore, the Assessing Officer has not proceeded beyond the scope of scrutiny while examining the claim of agricultural income of the assessee. Further, we find that once the total amount of cash deposit was Rs.75,25,900/- then, the amount of Rs.12 lakhs as declared agricultural income by the assessee would be part and parcel of the source of the said deposit of Rs.75,25,900/- and therefore, no separate addition on account of agricultural income is warranted. Thus, we find that though the agricultural income was very much part of the scope of the scrutiny as taken up for source of the huge cash deposit in the bank account but no separate addition on account of agricultural income is warranted when the larger addition has been made by the Assessing Officer as unexplained cash deposit in the bank account. The decisions relied upon by the assessee on this point would not help the case of the assessee as the Assessing Officer has not travelled beyond the scope of scrutiny. Hence, we restrict the addition made by the Assessing Officer and confirmed by the learned CIT(A) to the extent of Rs.75,25,900/-.

11. In the result, ITA.No.1387/Hyd./2025 of the Assessee is partly allowed.

12. In the appeal ITA.No.1388/Hyd./2025 arising from the Order passed by the Assessing Officer u/sec.263 of the Act, the assessee has raised the following grounds of appeal:

1) The order of the Ld. CIT(A) u/s 250 of the Act dt. 25.07.2025 for the AY 2017-18 is erroneous both on facts and in law to the extent the order is prejudicial to the interests of the appellant.

2) The Ld. CIT(A) erred in dismissing the appeal without considering the facts of the case and the submissions of the appellant.

3) The Ld. CIT(A) erred sustaining the addition of Rs.75,25,900/- on account of alleged unexplained cash deposits, without properly appreciating the explanation and documentary evidence furnished by the appellant in support of the same.

4) The Ld. CIT(A) erred in sustaining the addition of Rs.12,00,000/- in the original assessment and the further addition of Rs.8,00,000/- in the revisionary assessment towards agricultural receipts, without appreciating that the said income is exempt under section 10(1) of the Act and that the appellant had duly substantiated the claim with relevant documentary evidence; hence, no addition could have been made in respect thereof.

5) The Ld. CIT(A) ought to have appreciated that the addition of agricultural receipts was invalid as the original assessment u/s 143(3) was completed by selecting the case for limited scrutiny to verify only the cash deposits and that the AO has travelled beyond the scope of “Limited Scrutiny” thereby rendering such additions without jurisdiction, and is bad in law.

6) The Ld. CIT(A) ought not to have upheld the addition of Rs.20,00,000/- made by the AO u/s 69A towards unaccounted, especially when there is no unexplained money found with the AO other than bank deposits of Rs.75,25,900/-, wherein, the said agricultural income were already a part of bank deposits.

7) The Ld. CIT(A) ought to have fairly appreciated the fact that the assessee has explained the agricultural receipts of Rs.20,00,000/- as part of source of bank deposits which was not accepted by the AO but made entire bank deposits and agricultural receipts as unexplained without giving telescoping effect to the second addition from first addition.

8) The Ld. CIT(A) ought to have appreciated that the agricultural receipts were the explained source of the said cash deposits; and therefore, taxing both amounts independently has led to double addition of the same income, which is impermissible and results in double taxation.

9) The Ld. CIT(A) has erred in not fairly appreciating the legal position that an addition made in the assessment by the AO is the income available to the assessee in that year for explaining the source for some unaccounted income to be made addition in the assessment.

10) The Ld. CIT(A) ought to have fairly appreciated the law position that the telescoping effect should be given to the agricultural income for explaining the source of deposits made in the bank A/c.

11) The Appellant may, add OR alter OR amend OR modify OR substitute OR delete and/OR rescind all OR any of the grounds of appeal at any time before OR at the time of hearing of the appeal.”

13. We have heard the learned Authorised Representative of the Assessee as well as learned DR and considered the relevant material on record. The PCIT invoked the provisions of sec.263 of the Act in respect of agricultural income declared by the assessee of Rs.12 lakhs and addition made by the Assessing Officer of the said amount and particularly to enhance the assessment to the gross receipt instead of net agricultural income. Consequently, the Assessing Officer made the addition of Rs.20 lakhs instead of Rs.12 lakhs on account of agricultural income treating the same as unexplained money while passing the Order in pursuance to the Order passed u/sec.263 of the Act. The assessee has not challenged the Order passed by the learned PCIT u/sec.263 of the Act therefore, to the extent of jurisdiction of PCIT u/sec.263, the issue has attained finality. However, in view of our finding on the merits of the addition on account of agricultural income, the addition made by the Assessing Officer of Rs.20 lakhs on account of agricultural income is not sustainable as the addition made by the Assessing Officer on account of unexplained cash deposit of Rs.75,25,900/- subsumed the said amount of agricultural income. Accordingly, the said addition made by the Assessing Officer enhancing from Rs.12 lakhs to Rs.20 lakhs is deleted.

14. In the result, appeal ITA.No.1388/Hyd./2025 of the Assessee is allowed.

To sum up, ITA.No.1387/Hyd./2025 of the Assessee is partly allowed and appeal ITA.No.1388/Hyd./2025 of the Assessee is allowed. A copy of this common order be placed in the respective case files.

Order pronounced in the open court on 10.09.2026.