In the absence of nexus between sale of agricultural produce and introduction of cash in capital account the addition made by AO was to be upheld

Brijesh Dilipbhai Patel Vs. Asst. CIT

In the ITAT, Ahmedabad B Bench

ITA No. 3407/Ahd/2008

9 September, 2011 – A.Y. 2002- 03

This appeal filed on 14-10-2008 by the assessee against an order dated 23-07-2008 of the ld. CIT(Appeals)-IV, Baroda, for the Assessment Year 2002-03, raises following

“(1) Ld. Commissioner of Income tax (Appeals-IV) has gravely erred in not appreciating the facts and proofs of agricultural income earned and introduced as capital of Rs.7,60,000/- and confirmed addition of it. Same may be deleted.

(2) Ld. Commissioner of Income tax (Appeals-IV) has erred in appreciating the facts and proofs regarding sale of vehicle and introduction of sale proceeds as capital of Rs. 4,00,000/- and confirmed made addition as income. Same may be deleted.

(3) Ld. Asstt. Commissioner of Income tax (Appeals-IV) has gravely erred in not appreciating the fact that deposit in loan account of Rs.99,000/- is made out of agricultural surplus as explained during the proceeding and confirmed unlawful addition as income under section 69C of the Act. Same may be deleted.

Your appellant craves leave to add, amend and/or alter any grounds of appeal at the time of final hearing of the case.”

2. Adverting first to ground no.1 in the appeal, facts, in brief, as per relevant orders are that return declaring salary income of Rs.50,000/- and share income of Rs.13,83,953/- from the firm M/s Abhishek Pooja Construction, was filed on 20-05-2005 by the assessee. During the course of assessment proceedings for the year under consideration i.e. Assessment year 2002-03 in the case of M/s Abhishek Pooja Construction Co., Karamsad, it was noticed that Shri Brijesh D Patel, the assessee, a partner in the said firm introduced an amount of Rs.56,70,991/- (Rs.49,10,991/- + Rs.7,60,000/-) in the firm. Since the source of the above investment in the firm was not satisfactorily explained by the firm, the AO had reasons to believe that income chargeable to tax escaped the assessment within the meaning of provisions of section 147 of the of the Income-tax Act, 1961 (hereinafter referred to as the ‘Act’). Accordingly, a notice under section 148 of the Act was served upon the assessee on 13-05-2005. During the course of reassessment proceedings, in response to a notice dated 04-07-2006, the assessee submitted a copy of a joint declaration made by Shri Hasmukhbhai M Patel (uncle of the assessee) and Shri Dilipbhai M Patel (father of the assessee) and pointed out that they had 29 vighas of agricultural land in the name of family members. They also cultivated agricultural land of around 6 vighas purchased by them, for which documents were yet to be executed besides mortgaged land of around vighas. They cultivated various crops like potato, chicory, banana and grains besides plantation of fruits like mango, amla, sitafal lemon etc.. The assessee also furnished following details of parties to whom crops were sold :

2.1 The assessee further submitted that agricultural income being exempt, the relevant evidence like sale invoices etc. were not properly maintained and almost entire sale proceeds were received in cash. Therefore, the assessee pleaded that it was difficult to produce complete record for the year ending on 31-3-2002 and connected evidence. Inter alia, a chart showing the amount introduced in the capital a/c of the assessees with M/s Abhishek Pooja Construction Co. for the period 1-4-2001 to 31-3-2002 was also filed.

2.2 After considering the details submitted by the assessee, the AO noticed that out of the sum of Rs.56,70,991/-, amount aggregating Rs.11,60,000/- was introduced by way of cash. As regards cash of Rs.7,60,000/- reflected in capital account of the assessee with M/s Abhishek Pooja Construction Co. , the AO did not accept the submissions of the asssesee due to the following reasons :

‘(i) The alleged agricultural income is not reflected in any of the returns of income filled by the assessee. No evidence has been submitted to show that the Agricultural incomes/members share of Agricultural income is reflected in their individual return.

(ii) The assessee is not maintaining primary records from where he can get any support in respect of his explanation and therefore, the credit entries cannot be considered as substantiated.

(iii) Further, the assessee has not been able to correlate the agriculture income with credit entries in the books of the aforesaid firm. In fact, the assessee is unable to explain crucial entries of his business transactions. The assessee has attended to draw support from the submissions made by Shri Arvindbhai Adambhai Vahora, wherein a claim is made that during the financial year 2001-02 the assessee has sold Potatoes of Rs.3,88,000/- and Chicory of the value of Rs.1,10,000/-. No documentary evidence in support of this claim is submitted on the ground that all the records pertaining to these transactions were destroyed during communal riots on 7-3-2002.

(iv) Out of the entire sale proceeds aggregating Rs.7,96,586/- of agricultural produce of the family members, Rs.7,60,000/- is alleged to have been utilized by the assessee for his business, as contended. Since cultivation is an on-going process requiring periodic expenditure, if is strange that only a sum of Rs.36,586/-(7,96,586 – 7,60,000) is available for such expenses.

(v) It is also not acceptable that the agricultural income of the member of the family is around Rs.8 lacs per annum) particularly when in subsequent years the yield shown (as per documents filled by the assessee in course of assessment proceedings) at Rs.3,37,152/-and Rs.3,50,454/- for the financial years 2005-06 and 2006-07 respectively. Obviously, the assessee has made a futile exercise to explain the credit entries appearing in the above firm on the basis of agriculture income of the family members.

(vi) One more significant feature which emerged in the assessees case is that in the financial year 2000-01, relevant to the Assessment Year 2001-02 also the assessee had introduced similar cash credit aggregating to Rs. 38,00,000/- in the capital account M/s. Abhishek Pooja Constructions Co. The source of the same at that time was explained to be out of loans taken from various farmers. The explanation of the assessee was not found convincing and therefore, addition of the said amount was made under section 68 of the Act. In the year under consideration, the assessee has taken a different stand to explain cash credits by attributing the source to agricultural, turnover of the familys agricultural activities. This clearly puts a question mark on the so-called substantial agriculture income of assessees family leading to non-acceptance of huge agriculture income.

Accordingly, the AO added the aforesaid amount of Rs.7,60,000/- to the total income of the assessee.

3. On appeal, the learned CIT(A) upheld the addition in the following terms:-

‘3.2. I have considered the assessment order and the submissions of the Authorized Representative of the appellant. The appellant admits that the land belonged to the HUF. The appellant also admits that the income from such land is income from the HUF. Why was this income shown in the hands of the appellant is not clear. Was this amount of Rs.7,60,000/- loan to the appellant? How was it transferred to his account. No explanations are offered. Further, no evidence has been filed by the appellant to establish a nexus between sale of agricultural goods and introduction of cash in capital account. The nature of transaction between the HUF and the individual is not clear. The reasons for increase in income from in the current year is also not explained. The appellant has merely submitted that the entire income claimed to be from agricultural sources has been given to the appellant by the HUF to be introduced as his capital. No substantiating evidence has been filed to back this submission. In view of the fact that the source of investment made in cash by the appellant is not satisfactorily explained, the addition of Rs.7,60,000/-by the Assessing Officer is confirmed.’

4. The assessee is now in appeal before us against the aforesaid findings of the learned CIT(A). The learned AR on behalf of the assessee while carrying us through page 11 of the paper book reiterated their submissions before the learned CIT(A). The learned DR, on the other hand, vehmently supported the findings of the learned CIT(A) and contended that there was no evidence in support of agricultural income nor such income has been reflected in his return by the assessee. While referring to page 11 & 14 of the paper book, the ld. DR added that neither date of incurring of alleged expenditure towards agricultural activities nor date of sale of agricultural produce is mentioned. The potato and chicory is alleged to have been sold to Amvarbhai Adambhai Kapadia while confirmation has been submitted by Amvarbhai Adambhai Vahora, the ld. DR pointed out.

5. We have heard both the parties and gone through the facts of the case. As is apparent from the aforesaid facts, the assessee introduced cash of Rs. 7,60,000/- in his capital account with M/s Abhishek Pooja Construction Co. and claimed that this was through agricultural income from the land belonging to HUF. Admittedly, the assessee did not have any primary records and evidence in respect of sale of agricultural produce . We find that the alleged agricultural produce viz. potato and chicory is stated to have been sold to Amvarbhai Adambhai Kapadia (page 14 of the paperbook) and potato seeds are also stated to have been purchased from the same person(pg.11 of the paper book) while copy of confirmation placed before us in respect of sale of agricultural produce reveals the name of Anvarbhai Adambhai Vahora (page 26 of the paperbook). The ld. AR appearing before us did not even attempt to explain this discrepancy. The AO noticed that out of the entire alleged sale proceeds aggregating Rs.7,96,586/- on account of agricultural produce by the family members, Rs.7,60,000/- is alleged to have been introduced in the capital of the aforesaid firm ,leaving only a sum of Rs.36,586/- for expenses .The assessee claimed that the agricultural income of the members of his family was around Rs.8 lacs per annum .But the AO found that only an amount of Rs.3,37,152/-was reflected in the financial year 2005-06 and Rs.3,50,454/- in the Financial Year 2006-07 and no basis or evidence was produced in support of agricultural income of Rs. 8 lacs..In these circumstances ,especially when admittedly no evidence was filed by the assessee to establish nexus between sale of agricultural produce and introduction of cash in capital account, the ld. CIT(A) upheld the findings of the AO. The situation remains the same even before us. The ld. AR did not refer us to any material, evidencing sale of agricultural produce . In the absence of any basis, we are not inclined to interfere. Therefore, ground No.1 in the appeal is dismissed.

6. Ground No.2 in the appeal relates to an addition of Rs.4,00,000/-. The assessee claimed before the AO that an amount of Rs.1,50,000/- on 12-4-2001 and Rs.2,50,000/- on 01-05-2001 was introduced by way of cash through sale of Quallis Car, allegedly sold during the year to Shri Amit Pramodbhai Desai of Nadiad for a sum of Rs.6,00,001/-. The AO noticed from a copy of agreement for sale of car and delivery note that Rs.5,000/- was paid on 18-3-2001 by the purchaser of the car and the remaining amount of Rs.5,95,000/- was agreed to be paid as under:

6.1 On perusal of the documents relating to the purchase & sale of vehicle, the AO noticed that though the said vehicle was purchased by the assessee in terms of a hire purchase agreement with The Karamsad Urban Co-op Bank Ltd., Karamsad, the assessee claimed to have sold the same without any reference to the bank and continued to pay even the hire-purchase Instalments to the bank subsequent to the alleged sale. Since the vehicle was registered in the name of the Bank in the registration book of the Vehicle upto 17-6-2002 (refer to certificate dated 17-6-2002 issued by The Karamsad Urban Co-op Bank in this regard), apparently, the vehicle could not be transferred in the name of Mr. Amitbhai P. Desai. In response to a letter dated 7-12-2006, Shri A.P. Desai vide his letter dated 8-12-2006 stated that he purchased the vehicle out of funds received from my relatives and had not filed return of income for the Assessment Year 2002-03. However, the AO did not accept the submissions of the assessee on the ground that since the vehicle belonged to the bank in the registration book of the Vehicle upto 17-6-2002 as per certificate dated 17-6-2002 issued by The Karamsad Urban Co-op Bank and therefore,e could not be transferred in the name of Mr. Amitbhai P. Desai nor the said purchaser had any apparent sources of own funds to purchase the vehicle nor was he assessed to tax. Accordingly, the AO treated the transaction of sale of car fictitious and added an amount of Rs.4,00,000/- under section 69 of the Act..

7. On appeal, the learned CIT(A) upheld the addition in the following terms:-

‘4.3. I have considered the assessment order and the submissions of the appellant. No where has the appellant given any reason for the said sale of the Quallis Car. The primary onus lies on the appellant to establish the source of any sums being introduced by him. In this case, neither the creditworthiness of the so called purchaser nor the genuineness of transaction has been established. It cannot be rebutted that the appellant can sell a vehicle at a loss but to go on incurring a loss for more than a year after the so called sale, appears difficult to accept. Further, the vehicle continued to stand in the name of the appellant which casts doubts on the transaction. Since neither the creditworthiness of the purchaser nor the genuineness of the transaction has been established, I held that the Assessing Officer was justified in adding back the sum of Rs.4,00,000/- as income from unexplained sources.’

8. The assessee is now in appeal before us against the aforesaid findings of the learned CIT(A). The learned AR on behalf of the assessee while reiterating their submissions before the learned CIT(A) contended that vehicle was sold to the aforesaid person in terms of confirmation placed on page 10 of the paperbook. The learned DR, on the other hand, supported the findings of the learned CIT(A) and submitted that even after alleged sale of car the assessee paid instalments of loan to the The Karamsad Urban Co-op Bank and the vehicle was registered in the name of the bank itself. Apparently, the assessee could not sell property belonging to the bank nor the purchaser had any apparent sources of funds to purchase the vehicle. There was nothing to suggest that the vehicle was ever registered in the name of Mr. Amitbhai P. Desai ,the ld. DR added.

9. We have heard both the parties and gone through the facts of the case. Indisputably, the assessee continued paying instalments of loan to the The Karamsad Urban Co-op Bank for the vehicle registered in the name of the bank itself nor placed any evidence before the lower authorities, establishing creditworthiness of Mr. Amitbhai P. Desai or genuineness of the transactions of receipt of cash from him. There is nothing to suggest that the assessee could sell the vehicle belonging to the bank nor the purchaser had any apparent sources of funds to purchase the vehicle. In these circumstances, the ld. CIT(A) upheld the addition , the primary onus lying on the assessee to establish the source of any sums introduced by him, having not been discharged. Even before us, the ld. AR on behalf of the assessee did not place any material so as to enable us to take a different view in the matter. There is nothing to suggest that the vehicle was ever registered in the name of Mr. Amitbhai P. Desai. In the absence of any basis, we have no hesitation in upholding the findings of the lower authorities. Therefore, ground no.2 in the appeal is dismissed.

10. Ground No.3 in the appeal relates to an addition of Rs.99,000/-. On perusal of a copy of the statement of accounts in respect of H.P. Account No. 1622 with the Karamsad Urben Co-op. Bank Ltd. for the period 17-01-2000 to 17-06-2002, the AO noticed that assessee made following repayments in cash :-

10.1 Toa query by the AO, seeking documentary evidence in support of the sources of these funds, the assessee did not respond . Accordingly, the said amount of Rs.99,000/- was treated as unexplained expenditure as per the provisions of section 69C of the Act.

11. On appeal, the learned CIT(A) upheld the addition in the following terms:-

‘5.3. In appeal, the appellant submitted that the source of this deposits were made out of surplus funds available from agricultural income. Apart from making this bald statement, no effort was made to link the repayment in the bank with income from agriculture. This becomes specially important in view of the fact that the appellant himself has not declared any income from agriculture in his Individual capacity. In view of the fact that the source of this repayment to the bank in cash do not stand satisfactorily explained, the Assessing Officer was justified in making the addition of Rs.99,000/- and same is confirmed.’

12. The assessee is now in appeal before us against the aforesaid findings of the learned CIT(A). The learned AR on behalf of the assessee merely submitted that amount could not be added under section 69C of the Act while the learned DR supported the findings of the ld. CIT(A).

13. We have heard both the parties and gone through the facts of the case. Indisputably, the assessee did not submit any evidence before the lower authorities, establishing sources of aforesaid repayments to the bank. The ld. AR did nothing to improve the situation even before us. We may point out that simply mention of wrong section by the AO, does not mean that the assessee established sources of repayment of aforesaid amount of loan/interest to the bank. The power exercised by a competent authority cannot be regarded as illegal simply because a wrong section is mentioned if the said authority has jurisdiction under some other provision. So we are of the view that the mention of a wrong sub-section is not fatal to the validity of the addition, when the assessee did not explain the sources of repayment to the bank. Since the ld. AR did not even whisper before us in respect of sources of repayment of aforesaid amount of Rs.99,000/-, we have no hesitation in upholding the findings of the ld. CIT(A). The onus is on the assessee to establish the sources of funds , since facts relating to these transactions are within his specific knowledge. In view of the foregoing, especially when the ld. AR did not place any material before us so as to enable us to take a different view in the matter, we are not inclined to interfere. Therefore, ground No. 3 in the appeal is dismissed.

14. No additional ground having been raised before us in terms of residuary ground in the appeal, accordingly, this ground is dismissed.

15. No other plea or argument was made before us.

16. In the result, appeal is dismissed.

Order pronounced in the court today on 9-09-2011.