Case Law Details
Kalur Basappa Shivaprakash Vs ITO (ITAT Bangalore)
Ad-hoc Estimation of Agricultural Income Rejected: ITAT Deletes Section 69A Addition
The assessee declared ₹50 lakh as agricultural income, which the AO partly disbelieved due to lack of bills, inconsistencies in crop details, and alleged improbabilities. The AO estimated income at ₹1 lakh per acre and treated the balance ₹15.55 lakh as unexplained income under Section 69A, alleging it to be a colourable device. The CIT(A) upheld the addition citing absence of supporting evidence as required under Rule 2 of Part IV of Schedule I.
The ITAT noted that agricultural activity itself was not disputed—only the quantum was in question. It held that the AO’s estimation was purely ad hoc without any comparable data or scientific basis. The Tribunal accepted that agriculture operates in an unorganised sector where complete documentation may not always be maintained and emphasized that primary evidence like RTC records and crop details were furnished.
Further, additional evidence such as crop inspection reports and studies on arecanut cultivation supported the assessee’s claim of higher yield. The Tribunal also held that mere variation in estimation cannot justify addition under Section 69A unless there is concrete evidence of non-agricultural income. Allegations based on “human probabilities” without material backing were rejected.
Accordingly, the addition of ₹15.55 lakh was deleted and the assessee’s appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
The present by the assessee for the A.Y. 2020-21 is directed against the order passed under section of 250 of the Income Tax Act 1961 (hereafter the Act) dated 12th September 2024 by the learned Commissioner of Income Tax-Appeal (hereafter- learned CIT-A) at National Faceless Appeal Centre-NFAC.
2. The assessee in the appeal memo has raised as many as 6 grounds of appeal, however the issue raised are interconnected and pertains to disallowances of agricultural income to the extent of Rs. 15.5 lakh only.
3. The facts in brief are that the assessee is an individual who filed return of income for AY 2020-21 declaring total income of Rs. 2,76,750 and agricultural income of Rs. 50,00,000. The case was selected for limited scrutiny. During the course of assessment, the assessee stated that the figure of Rs. 50,00,000/- was net agricultural income and the gross agricultural receipts were Rs. 73,96,500/- with expenses of Rs. 23,96,500/- only. The assessee claimed to carry out agricultural activities on land measuring about 34.45 acres. The assessee to support the claim furnished details such as RTC record and a chart showing survey number wise details of land holding, crop cultivated on such survey number during summer and monsoon season and gross amount of sale, expenses incurred and net profit from particular survey number.
4. The AO observed that the assessee failed to furnish proper supporting evidence despite multiple notices. The assessee has not furnished the sale bills of agricultural produce, not provided vouchers for expenses, and no details of production quantity were submitted. The AO further noticed several inconsistencies in the claim. As such the assessee has claimed to have earned agricultural income of Rs. 8,59,866/- and Rs. 68,952/- from cultivation of areca nut and black paper on land bearing Survey Nos. 54 and 61 having total area of 4.2 acers and 0.34 acers. However, the impugned lands (Survey Nos. 54 and 61) were purchased during subsequent year (F.Y. 2020-21) and hence income from such land could not have been earned during the year under consideration (F.Y. 2019-20).
4.1 Likewise, there were abnormal variations in yield for similar extent of land, indicating inflation of income. The claim of jawar production was found excessive when compared with standard yield, cost and minimum support price data. The assessee also changed stand regarding crops grown, from jawar to arecanut, without reliable evidence. Further, no bank statements or proof of realization of sale proceeds were furnished. Based on these deficiencies, the AO held that the agricultural income declared was not verifiable and not credible. Accordingly, the AO held that the assessee’s claim of agricultural income was not fully substantiated and was against human probabilities. Applying reasonable estimation based on land holding and nature of crops, the AO determined net agricultural income at Rs. 34,45,000/- (i.e., Rs. 1,00,000 per acre). The balance amount of Rs. 15,55,000/- was treated as unexplained income u/s 69A of the Act. The AO further held that the arrangement was a colourable device to introduce unaccounted money in the guise of agricultural income and relied on judicial precedents of Hon’ble Supreme Court such as Sumati Dayal (214 ITR 801) and Durga Prasad More (82 ITR 540) to support application of test of human probabilities. Accordingly, addition of Rs. 15,55,000/- to the total income of the assessee was made.
5. The aggrieved assessee preferred an appeal before the learned CIT(A).
6. The assessee before the learned CIT(A) submitted that the AO has not disputed the fact that the assessee is engaged in agricultural activities and has earned agricultural income during the year. The dispute raised by the AO is only with regard to the quantum of such income. It was contended that the AO has arbitrarily estimated the agricultural income at Rs. 1,00,000/- per acre without bringing any comparable data, material or basis on record. Such ad hoc estimation is without any evidentiary backing and hence unsustainable in law.
6.1 The assessee further submitted that he had furnished all primary evidence available in the agricultural sector, such as RTC records, land details and crop-wise information. It was emphasized that agricultural operations are carried out in an unorganized sector where maintaining systematic books, sale bills or vouchers for each transaction is practically not possible. Therefore, the AO erred in drawing adverse inference merely for non-production of bills and vouchers, ignoring the practical realities of agricultural activities.
6.2 On the issue relating to Survey No. 54 and 61, it was specifically argued that the AO has incorrectly concluded that the assessee was not the owner of these lands during the relevant year. The learned AR pointed out that the purchase deeds clearly establish that these lands were acquired much earlier (in the year 2000 and 2003) and not in the financial year 2020-21 as alleged, and therefore the income derived from these lands cannot be rejected on this ground.
6.3 With regard to Survey No. 17 and 26(1A), the assessee submitted that there was an inadvertent error in the RTC wherein crop was mentioned as “Jowar” instead of “Arecanut”. The assessee had filed revised RTC to rectify this error and demonstrate that the actual crop grown was arecanut, which is a high-value commercial crop. However, the AO ignored the revised records and proceeded to estimate income based on jowar yield and minimum support price, which is factually incorrect and contrary to evidence on record.
6.4 The assessee further explained that arecanut is a cash crop capable of generating substantially higher income per acre compared to ordinary crops like jowar. It was submitted that, based on experience and local agricultural conditions, one acre of arecanut plantation can yield around 15 quintals, and each quintal can fetch significant market value. Therefore, the AO’s estimation of Rs. 1,00,000 per acre is arbitrary, unrealistic and ignores the nature of crop and regional factors. It was also contended that the AO has wrongly applied the theory of “human probabilities” without any supporting material. The allegation that the assessee has introduced unaccounted money in the guise of agricultural income is based purely on suspicion, conjectures and assumptions. The AO has failed to bring any evidence on record to show that the assessee had any other source of income or that the impugned receipts were from non-agricultural activities.
6.5 Reliance was placed on judicial precedent, including the decision of the ITAT Bangalore in the case of A.S. Srinath (HUF) vs ITO reported in 164 taxmann.com 321, wherein it was held that merely on the basis of estimation or reduction of agricultural income, the same cannot be treated as income from other sources unless there is material evidence to prove existence of non-agricultural income. It was submitted that in the present case, no such material has been brought on record by the AO.
6.6 Without prejudice, it was further argued that even if some estimation is warranted, the same must be based on proper inquiry, comparable data and scientific basis. The arbitrary reduction of agricultural income and simultaneous addition u/s 69A of the Act is legally unsustainable. Accordingly, the assessee prayed to the learned CIT(A) that the addition of Rs. 15,55,000/- made by the AO by treating part of agricultural income as unexplained income u/s 69A be deleted in full, as the same is based on incorrect assumption of facts, improper appreciation of evidence and without any legal basis. However, the learned CIT(A) rejected the assessee’s argument and confirmed the disallowances/addition made by the AO by observing as under:
5. The appellant has submitted only some general information about the agricultural income without submitting any documentary evidences. In this connection, the documents ought to have been maintained by the agriculturist in support of agricultural income given in Rule-2 of Part-IV of Schedule-1 of Income Tax Act, 1961 is reproduced below:
Rule 2.—Agricultural income of the nature referred to in sub-clause (b) or sub-clause (c) of clause (1A ) of section 2 of the Income-tax Act [other than income derived from any building required as a dwelling house by the receiver of the rent or revenue of the cultivator or the receiver of rent-in-kind referred to in the said sub-clause (c )] shall be computed as if it were income chargeable to income-tax under that Act under the head “Profits and gains of business or profession” and the provisions of sections 30, 31, 32, 36, 37, 38, 40, 40A [other than sub-sections (3) and (4) thereof], 41, 43, 43A, 43B and 43C of the Income-tax Act shall, so far as may be, apply accordingly.
6. This rule gives the manner in which net agricultural income is to be calculated. In the present case the appellant has only submitted details of land holding and crop cultivated. The detailed finding recorded by the AO could not be rebutted by the appellant by submitting supporting documents like sales bill of areca nut and jowar, evidence for agricultural expenses incurred from sowing to harvest, marketing related expenses, labour charges, bank account copies in support of various receipts and payments, evidence for purchase for fertilizer and pesticide, etc. As per Rule-2 of Part-IV of Schedule-1 of Income Tax Act, 1961 the assessee has to maintain such evidences in support of his agricultural income. In the present case, the AO has the examined of agricultural income of Rs.50,00,000/- admitted by the appellant in detail and found that the appellant failed to substantiate the said exempt income. Rule-2 of Part-IV of Schedule-1 of Income Tax Act, 1961 is there in the statute since 1961. A person claiming agricultural income has to produce such evidences by maintain those documents. In the present case no such evidences were submitted by the appellant. Hence, the action of the AO is upheld and the Grounds of appeal are dismissed.
7. As a result, the appeal is dismissed.
7. Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us.
8. The learned AR before us filed paper book running from pages 1 to 240 containing crop inspection report by village accountant, independent study published on cultivation of arecanut in Shimoga district, ITR forms for A.Y. 2021-22 to 2023-24, case laws.
9. On the other hand, the learned DR supported the orders of the lower authorities. It was submitted that the assessee has declared substantially high agricultural income without maintaining any supporting documentary evidence such as sale bills, vouchers, or proof of realization of sale proceeds. The learned DR contended that mere furnishing of RTC records and land details is not sufficient to establish the quantum of agricultural income. It was further argued that the discrepancies noted by the AO, including ownership of land and variation in crop details, clearly indicate that the assessee’s claim lacks credibility. The learned DR also submitted that the AO has reasonably estimated the income considering the land holding and nature of crops, and the addition made under section 69A of the Act is justified in view of the failure of the assessee to satisfactorily explain the excess income declared.
10. We have heard the rival submissions of both the parties and perused the materials available on record including the paper book filed by the assessee. The only issue for our consideration is whether the AO was justified in restricting the agricultural income and treating the balance amount of Rs. 15,55,000 as unexplained income u/s 69A of the Act. At the outset, we note that the AO has not disputed the fact that the assessee is engaged in agricultural activities and has earned agricultural income during the year. The dispute is only with regard to the quantum of such income. Therefore, the question before us is whether the estimation made by the AO is reasonable and based on proper materials. We find that the AO has estimated the agricultural income at Rs. 1,00,000 per acre without bringing any comparable data, scientific basis or material on record. Such estimation is purely ad hoc in nature. It is a settled position that estimation of income, though permissible, must be based on some reasonable basis and not on mere guesswork.
10.1 The assessee, on the other hand, has furnished primary evidence such as RTC records, land holding details and crop-wise information. Further, before us, the assessee has filed additional evidence including crop inspection report issued by the village accountant and an independent study report relating to arecanut cultivation in Shimoga district. The village accountant report supports the fact that the assessee has cultivated arecanut in substantial portion of land. The independent study report indicates that arecanut is a high value commercial crop and can generate significantly higher income per acre than what has been estimated by the AO.
10.2 We also find merit in the contention of the assessee that agricultural activities are carried out in an unorganised sector, and it may not be practically possible to maintain complete bills and vouchers for each transaction. Therefore, rejection of the claim merely on the ground of non-production of bills and vouchers, without considering surrounding facts and evidence, is not justified.
10.3 On the issue relating to Survey No. 54 and 61, the assessee has placed reliance on purchase deeds to show that the lands were acquired earlier and not during the year as assumed by the AO. This aspect has not been properly verified by the lower authorities. Similarly, the issue regarding crop being arecanut or jowar has also not been examined in correct perspective in light of revised RTC and supporting evidence.
10.4 We further note that the AO has invoked the theory of human probabilities and alleged that the assessee has introduced unaccounted money in the guise of agricultural income. However, no material has been brought on record to show that the assessee has any other source of income or that the impugned receipts are from non-agricultural activities. In absence of such material, the addition made u/s 69A of the Act cannot be sustained merely on suspicion.
10.5 In our considered view, once it is accepted that the assessee is carrying on agricultural activities, any variation in estimation of agricultural income cannot automatically lead to the conclusion that the difference represents unexplained income, unless there is cogent evidence to that effect. Considering the totality of facts, the evidence placed on record and the nature of agricultural activities, we are of the view that the estimation made by the AO is arbitrary and not sustainable. Accordingly, the addition of Rs. 15,55,000 made u/s 69A of the Act is hereby deleted. Hence, the ground of appeal of the assessee is hereby allowed.
11. In the result, the appeal of the assessee is allowed.
Order pronounced in court on 16th day of April, 2026
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