Cash received from agricultural income deposited during demonetization-ITAT deleted addition

Jehan Percy Variava Vs ITO (ITAT Surat)

In the matter abovementioned ITAT deleted addition made on account of undisclosed cash deposits during demonetization period after observing that assessee has substantiate means of income for depositing cash.

Assessee filed his ITR for AY 2017-18 declaring nil income. The case was selected for scrutiny on the issue of large agricultural income shown in ITR and cash deposits during demonetization period. During assessment, AO recorded that assessee was given several opportunities by issuing show cause notice, to explain the source of cash deposit of Rs.24,07,000/-.  Entire cash deposit of Rupee 24 lacs was treated as unexplained money u/s 69A. The AO further made addition of Rs. 5,43,190/- by treating agricultural income as unexplained cash credit u/s 68 and taxed the same u/s 115BBE.

Before CIT (A) it was submitted that assessee is engaged in agricultural activities and growing different type of agricultural crops including mango, paddy, sugarcane. Assessee is holding agricultural land jointly with his father and mother. and assessee is maintaining joint accounts with them. Due to demonetization, assessee deposited cash of Rs.23,57,000/- in joint account. The same amount is mentioned in the return of income of respective person’s / family members which were not considered by AO.  The agricultural income shown by assesse was treated as unexplained cash credit and added to the income of assessee. On the basis of material available on record, CIT(A) recorded that only source of income declared by assessee is agricultural income. The assessee is holding bank accounts with his parents. There is no evidence that those joint owners were filing their return of income or not. The cash deposit during relevant period is more than agricultural income, so no credit can be given of any other amount. The assessee has not furnished satisfactory explanation before AO. Regarding agricultural income, CIT (A) held that income declared by assessee cannot be disallowed and it cannot be brought to tax under section 68 of the Act. But instead of allowing appeal in part, he dismissed the appeal.

Before ITAT it was submitted on behalf of the assessee that he is purely an agriculturist and he owned 9.00 Hectare of agricultural land in joint name with his mother and father. Assessee has no other income except agricultural income. The assessee is having joint bank accounts with his mother and father. The agricultural income earned by assessee is deposited in the bank account. Similarly, his mother and father have also deposited same amount in the joint bank accounts. All details with submission were furnished to CIT(A). The assessee is having sufficient cash available in hand during demonetization period. The agricultural income shown in earlier assessment year, i.e., AYs 2015-16 and 2016-17 were never doubted by Revenue. Assessee consistently showing agricultural income in past which has never been doubted. Regarding the taxing provision of section 115BBE assessee submitted that enhanced rate of tax is not applicable for the transaction prior to 15.12.2016. On the issue of adding agricultural income as unexplained cash credit, assessee submitted that CIT(A) though accepted the agricultural income yet has not given any clear finding in a final result. On the other hand, revenue supported the order of lower authorities.

After considering submissions from both the parties ITAT have held that AO made addition of cash deposit in absence of any details filed by the assessee. Detailed statements to explain agricultural income were filed before CIT (A) who did not sought any written statement from assessee. The bank accounts wherein cash were deposited are joint bank accounts with his father and mother. There was total deposited of Rs.24,07,000/- which was duly explained before CIT (A). During previous AYs, assessee along with his co-owners consistently showing agricultural income in ITR-2A. Thus, the assessee having sufficient earning to substantiate the cash deposits. CIT(A) has accepted such agricultural income and only due to accidental omission, he has not given clear finding in final decision.

In the result, the appeal of the assessee is partly allowed.

FULL TEXT OF THE ORDER OF ITAT SURAT

1. This appeal by assessee is directed against the order of National Faceless Appeal Centre, Delhi [for short to as “NFAC/Ld. CIT(A)”] dated 03.2024 for assessment year 2017-18, which in turn arises out of assessment order passed by the Assessing Officer under section 144 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 26.11.2019. The assessee has raised the following grounds of appeal:-

“1. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of assessing officer in allowing the addition of cash deposited during demonetization of Rs.26,07,000/- as unexplained money u/s 69A of the Act.

2. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in making action 5,43,190/- agriculture income as unexplained cash credit u/s 68 of the Act.

3. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of the Income Tax (Appeals) has not offered adequate opportunities to hear the case and passed ex-parte order and hence the case may please be set aside and restored back to the CIT(A) or AO.

4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”

2. Brief facts of the case are that assessee is an individual, filed his return of income for the first time for assessment year 2017-18 declaring nil income on 06.03.2018. The case was selected for scrutiny on the issue of large agricultural income shown in ITR and cash deposits during demonetization period. During assessment, Assessing Officer recorded that assessee was given several opportunities by issuing show cause notice, one after another, for substantiate the source of cash deposit of Rs.24,07,000/- (Rs.24.00 lakh approximately). During demonetization period, the Assessing Officer further recorded that despite given several opportunities, the assessee has not explained the source of cash deposits. Thus, entire cash deposit of Rupee twenty-four lacs was treated as unexplained money under section 69A of the Act. The Assessing Officer further noted that assessee has shown agricultural income in his computation of income. The assessee has claimed gross agricultural receipt of Rs.17,73,370/- and after deducting agricultural expenses of Rs.12,30,180/-, has shown net agricultural income of Rs.5,43,190/-. The Assessing Officer recorded that in response to show cause notice, assessee has not furnished any details of land holding, sale bill or details of crop production. Thus, in absence of such details, Assessing Officer treated his agricultural income as unexplained cash credit under section 68 of the Act and taxed the same under section 115BBE of the Act, while passing the assessment order under section 144 of the Act on 26.11.019.

3. Aggrieved by the additions made in the assessment order, assessee filed appeal before Ld.CIT(A). Before Ld.CIT(A), assessee filed detailed statement of fact. The assessee in his statement of fact, narrated that he is engaged in agricultural activities and growing different type of agricultural crops including mango, paddy, sugarcane. The assessee has shown agricultural income and bank interest while filing his return of income. The assessee is holding agricultural land jointly with Mr. Percy Variava and Mrs. Maher Variava (mother and father). The assessee is maintaining joint bank accounts with Mr. Percy Variava and Maher Variava. Due to demonetization period, assessee deposited cash of Rs.23,57,000/- which comprised of Rs.7,85,667/- of Mr. Jehan Variava, Rs.7,85,667/- of Percy Variava and Rs.7,85,667/- of Maher Variava in joint account. The same amount is mentioned in the return of income of respective person’s / family members. The Assessing Officer ignored this fact, that bank accounts are in the name of joint owners. The Assessing Office also ignored the facts of cash deposits as the assessee furnished such details in ITR while filing return of income. The assessee was not aware about assessment proceedings in his case. The assessee came to know about the assessment proceedings on 05.11.2019 and he sought adjournment for making comprehensive submission, however, the Assessing Officer instead of providing further opportunity passed assessment order under section 144 of the Act. The agricultural income shown by assesse was treated as unexplained cash credit and added to the income of assessee. The Ld.CIT(A) has nowhere mentioned, whether any written submission was filed by assessee during pendency of appeal or any show cause notice issued by him under section 250 of the Act for seeking further submission from assessee. The Ld.CIT(A) on the basis of material before him recorded that only source of income declared by assessee is agricultural income. The assessee is holding bank accounts with Maher Variava and Percy Variava. There is no evidence that those joint owners were filing their return of income or not. The cash deposit during relevant period is more than agricultural income, so no credit can be given of any other amount. The assessee has not furnished satisfactory explanation before Assessing Office. Therefore, addition of cash deposit is upheld. On the issue of agricultural income in treating the same as unexplained credit, the Ld.CIT(A) has given contrary finding. The Ld.CIT(A) though accepted that assessee has claimed agricultural expenses of Rs.12,30,180/- against gross receipt of agricultural produce of Rs.17,73,370/-. Thus, he held that income declared by assessee cannot be disallowed and it cannot be brought to tax under section 68 of the Act. No disallowance is to be made when the assessee has declared agricultural income real purpose and disallowance under section 68 is uncalled for. However, in final result, the Ld. CIT(A) instead of allowing appeal in part dismissed the appeal. Further aggrieved, the assessee has filed present appeal before Tribunal.

4. I have considered the submissions of Ld. Authorized Representative (Ld.AR) for the assessee and Ld. Senior Departmental Representative (Ld. Sr-DR) for the Revenue and have gone through the orders of lower authorities carefully. The Ld. AR for the assessee submits that assessee is purely an agriculturist. The assessee owned huge agricultural and all agricultural land in joint name with his mother and father or of land holding is filed on record. The assessee owned more than 9.00 hectare of land. The assessee is growing paddy, sugarcane, tuhar and other crops. The assessee has no other income except agricultural income. The assessee is having joint bank accounts with his mother and father. The agricultural income earned by assessee is deposited in the bank account. The assessee while filing return of income for assessment year (AY)- 2017-18 has shown net agricultural income of Rs.5,43,190/-. His mother, Maher Variava also shown agricultural income of Rs.5,48,650/-. Similarly, for assessment year 2016-17, assessee has shown agricultural income of Rs.5,96,729/-. His father has also shown similar agricultural income, copy of return of assessee for assessment year 2016-17, his mother and father for assessment years 2016-17 and 2017-18 are also placed on record. In their return, they have shown net agricultural income as well as gross receipt of agricultural produce. Similarly, for assessment year 2015-16, the assessee has shown agricultural income more than Rs.9,00,000/- and gross receipt of agricultural income more than Rs.21,00,000/-. His father has also shown agricultural income of Rs.8,59,353/- and his mother has shown net agricultural of Rs.9,04,707/-, copy of acknowledgements, return of income as well as ITR Form-2A are also placed on record. During demonetization period, the assessee has deposited Rs.7,52,667-. Similarly, his mother and father have also deposited same amount in the joint bank accounts. All details with submission were furnished to Ld.CIT(A). The assessee is having sufficient cash available in hand during demonetization period. The agricultural income shown in earlier assessment year, i.e., assessment year 2015-16 and 2016-17 were never doubted by Revenue. Similarly, agricultural income of his family members for impugned assessment year is also accepted by revenue, and no addition in case of co- owner is made. Entire cash deposits are added in the hand of assessee. The total landholding with assessee and other co-owners is more than 9 hectare i.e., 99,000 square meters, the share of assessee on cash deposits is only Rs.7,52,667/-. The assessee consistently showing agricultural income in past which has never been doubted. Thus, no addition is liable to be sustained in the hand of assessee.

5. So far the taxing provision of section 115BBE of the Act, the ld AR of the assessee submits that enhanced rate of tax is not applicable for the transaction prior to 15th December, 2016, admittedly all cash deposits were made prior to 15th December, 2016. Even otherwise, this Bench has taken a consistent view in a number of cases that amended provision section 115BBE of the Act is not applicable for assessment year under consideration. On the issue of adding agricultural income as unexplained cash credit, the Ld. AR for the assessee submits that Ld. CIT(A) though accepted the agricultural income yet has not given any clear finding in a final result. Thus, order of Ld.CIT(A) may be modified in order to allow relief to the assessee of such issue.

6. On the other hand, Ld. Sr-DR for the Revenue supported the order of lower authorities. The Ld. Sr-DR for the Revenue submits that assessee has not discharged onus to substantiate the source of cash deposit before Assessing Office and no details were filed before Assessing Officer. Thus, claim remained unsubstantiated.

7. I have considered the submission of both the parties and have gone through the orders of lower authorities carefully. I find that Assessing Office made addition of cash deposit of rupee twenty-four lacs during demonetization period by taking view despite allowing several opportunities but assessee failed to substantiate source of cash deposits. I further find that net agricultural income offered by the assessee was also treated as unexplained cash credit under section 68 of the Act. Before Ld.CIT(A), assessee filed detailed statement, which recorded on page-2 of impugned order. I further find that from the impugned order; it is not discernible whether Ld. CIT(A) sought any written statement from assessee. On contrary, case of ld AR of the assessee is that they furnished complete details of agricultural income and land holding. The bank account wherein cash was deposited is a joint bank account. On careful perusal of various documents, I find that assessee maintained three bank accounts, one with The Surat District Co-Op. Bank Ltd., second in State Bank of India and third in ICICI Bank. All three bank accounts are joint accounts with his mother and father. In The Surat Dist. Co- Op. Bank Ltd. there was deposited of Rs. 99,000/-; in State Bank of India deposited Rs. 50,000/- and with ICICI Bank Rs.22,58,000/-. Thus, total deposited of Rs.24,07,000/-. In the submission before ld.CIT(A), the assessee explained that they have deposited Rs.23,57,000/-. On perusal of return of income, agricultural income declares by assesse and his father & mother for AY 2015-16 to 2017-18 are as under:

8. On perusal of aforesaid details, I find that in all the aforesaid assessment years the assessee along with his co-owners consistently showing agricultural income in the return of income, which is also clearly evident from ITR Form-2A. Thus, in my considered opinion, the assessee having sufficient earning to substantiate the cash deposits. Though, I find that assessee has substantial agricultural income in past three assessment years, yet to avoid the possibility of revenue leakage on token disallowance of Rs.2.00 lakh would be sufficient to avoid possibility of revenue leakage. So far as treating the agricultural income as unexplained cash credit, I find that Ld.CIT(A) has accepted such agricultural income and only due to accidental omission, he has not given clear finding in final decision. Therefore, the treatment of agricultural income is upheld and no addition on such account is called for. In the result, on corresponding ground raised before Ld. CIT(A) of assessee is allowed. As I have sustained ad hoc addition to the extent of Rs. 2.00 lacs only. Therefore, the Assessing Officer is directed to tax the addition on normal rate of tax.

9. In the result, the appeal of the assessee is partly allowed.

Order pronounced in open court on 12 November, 2024.