Kathiravan Srinivasan Vs DCIT (ITAT Chennai)
ITAT Chennai held that the sale proceeds from the sale of agricultural land cannot be treated as business asset proceeds as the revenue records clearly treats the land as agricultural land and agricultural activities were duly carried out on it.
Facts-
Assessee firstly contended action of AO in treating loans received back from various persons i.e. sundry debtors living in and around Perambalur District as unexplained cash credit under section 68 of the Income Tax Act.
Further, assessee also contended the action of AO in treating surplus on sale of agricultural land as business income.
Conclusion-
Held that the amount representing cash credits was not includable in the total income of the assessee as the assessee had discharged the initial onus and the assessee can be asked to prove the source of the source of credit in its books of accounts, which the AO failed to do so. In view of this finding and moreover these being only debtors who have returned their loan amount to the assessee and assessee has declared all these loan amounts in their books of accounts, which were never rejected by the Department and accepted in earlier years, now they cannot go back until that the source are not proved.
Held that the Revenue records also show that the same are subject to agricultural revenue and lands are agricultural lands. Even the crops are grown and agricultural activities were carried out. Hence, in the given facts, which are un-controverted, we hold that the sale proceeds are of agricultural land and not business asset as is being contended by Revenue. Hence, the same cannot be assessed to capital gains and are exempt. Accordingly, this issue of assessee in both the years is allowed.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
These three appeals by the assessee are arising out of two different orders of the Commissioner of Income Tax (Appeals)-19, Chennai in ITA Nos.581 & 582/Chny/19-20 dated 03.03.2022. The assessments in ITA Nos.170 & 172/Chny/2022 were framed by the JCIT, Range 1, Trichy for the assessment years 2010-11 & 2011-12 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide orders dated 31.03.2013 & 31.03.2014 respectively. The third appeal in ITA No.171/Chny/2022 is against the assessment order framed in consequence to revision order passed by PCIT u/s.263 of the Act and consequent order of the AO for the assessment year 2010-11 u/s.143(3) r.w.s. 263 of the Act dated 12.03.2015 passed by the DCIT, Circle-1, Trichy.
2. The first common issue in ITA No.170 & 172/Chny/2022 for the assessment year 2010-11 & 2011-12 as regards to the order of CIT(A) confirming the action of AO in upholding the addition made by AO on account of unexplained cash credit u/s.68 of the Act for an amount of Rs.7,56,74,000/- for assessment year 2010-11 and Rs.1,98,00,000/- for the assessment year 2011-12. The relevant grounds raised by assessee in assessment year 10-11 read as under:-
“2.1 The CIT(A) erred in upholding the addition of Rs.7,56,74,000/- as unexplained Cash Credits u/s.68 of the Income Tax Act.
2.2 The applicant having provided proper explanation and proof regarding the credits, the CIT(A) went wrong in confirming the addition made.
2.3 The appellant having submitted that the credits were loans received back, advanced earlier by him, the CIT(A) erred in rejecting the same based on assumptions and surmises. This makes the addition liable to be deleted in full.”
The relevant ground raised by assessee in assessment year 2011-12 read as under:-
2.1 The CIT(A) erred in upholding the addition of Rs.1,98,00,000/- as unexplained Cash Credits u/s, 68 of the Income Tax Act.
2.2 The appellant having provided proper explanation and proof regarding the credits, the CIT(A) went wrong in confirming the addition made.
2.3 The appellant having submitted that the credits were loans received back, advanced earlier by him, the CIT(A) erred in rejecting the same based on assumptions and surmises. This makes the addition liable to be deleted in full.
3. Brief facts are that the assessee is an individual and deriving income from the following business and sources:-
i. Dhanalakshmi Agencies – Running a Petrol Bunk
ii. Sale proceeds on account of sale of Agricultural land owned by the assessee.
iii. Maintaining a JCB and hiring it the same for rent
iv. Dhanalakshmi Mini Bus – Doing transport business by way of maintaining two route buses and one spare bus at Perambalur
v. Doing Dairy business at Perambalur
vi. Deriving salary from Dhanalakshmi Chits (Pvt.) Ltd.,
vii. Deriving Rental Income from residential house at Trichy
viii. Interest income and income from other sources (Brokerage / Commission)
The AO noted the fact that the assessee has maintained detailed books of accounts for these lines of his business activities. The AO for assessment year 2010-11 noted that there is sudden increase in cash deposit on various dates during financial year 2009-10 relevant to this assessment year 2010-11 amounting to Rs.9.99 crores in the current account of the assessee. The AO finally considered the explanation of the assessee as regards to the source of income and also other cash credits, added a sum of Rs.7,56,74,000/- claimed by assessee, the amount representing loan accounts received back from various persons i.e., sundry debtors living in and around Perambalur District as unexplained cash credit u/s.68 of the Act and added to the returned income of the assessee. For this, the AO recorded the findings as under:-
“After considering the submissions of the assessee’s A/R, it is pertinent to mention that the sources of Rs.2,42,26,000/- is accepted and the explanations for the sources of Rs.7,56,74,000/- are not acceptable in view of the following reasons:-
i. the identity of the debtor is not proved
ii. and their credit worthiness is not proved
However, it is pertinent to mention that though the assessee has given sufficient opportunity to prove the sources for claim of cash credits introduced in the current account of the assessee in the books of accounts of Dhanalakshni Mini Bus business, the assessee’s A/R could not submit any proof/supporting documents in support of cash credits of Rs. 7,56,74,000/-Hence, in the absence of proper documentary evidences/proof, the balance unexplained cash credits of Rs. 7,56,74,000/- are treated as income of the assessee u/s 68 of the Income-tax Act, 1961 for the financial year 2009-10 relating to the assessment year 2010-11, After discussion with the assessee’s A/R, the assessment is completed as under:
3.1 Similarly in assessment year 2011-12, the AO noticed that there are cash deposits in current account maintained in the books of Dhanalakshmi Agencies amounting to Rs.1,14,00,000/- on various dates and another cash deposit in current account maintained with Dhanalakshmi Mini Bus to the extent of Rs.1,91,00,000/- crores during the financial year 2010-11. After considering the explanation of the assessee, accepted the explanation of the assessee to the extent of Rs.1,07,00,000/- and added the balance sum of Rs.1,98,00,000/- as unexplained cash credit u/s.68 of the Act. For this, the AO recorded his finding as under:-
“For balance amount of Rs.1,98,00,000/-, the authorised representative furnished confirmation letter from various persons stating that Shri. S. Kathiravan used to lend money to the villagers for purchase of cow/ Buffalo and charge interest at the rate of 1% per month. The amount lent to the villagers was repaid during the year to a tune of Rs.94,00,000/-. The Inspector was deputed to enquire this also. On enquiry, the confirmation letters were not found genuine by the Inspector vide his report. Since the genuineness of the transaction is not proved by the authorised representative and those poor villagers have also denied any amount paid to the assessee, creditworthiness is also not proved. Hence this is remained unexplained and added back to the income returned u/s 68. Total addition on this from comes to Rs.94,00,000/-. The same was repaid while selling the milk by deducting the outstanding amount. So there was no bulk repayment during the Financial Year. Also capacity of agriculturist to give heavy amount in cash to the assessee is very much doubtful. If this kind of money is generated by agriculturist by selling live stock, all agriculturists will be very rich persons. But the situation is exactly opposite. All marginal farmers are not makingg any money from agricultural operations. Regarding the explanation of Rs.30,00,000/-, the authorised representative submitted a confirmation letter from Ramesh stating that the person has repaid Rs.30,00,000/- out of the advance money received from the assessee towards sale of land. Due to non-materialization of this sale agreement, the same was returned to him. To verify the genuineness of this, the Inspector was deputed to enquire into this matter from Shri Ramesh. The address given in the letter was found not proper and hence the same could not be verified. Since to prove the genuineness and creditworthiness of the cash credit is onus on the assessee, the same is treated unexplained u/s 68 and added back to the income returned. For the balance amount of Rs.74,00,000/- the assessee furnished explanation without any evidence or confirmation letter that too at the fag end of the year i.e 28/03/2014 giving no time to the department to verify the genuineness of the receipts and hence the source of Rs.74,00,000/- is not accepted and added back to the income returned u/s 68. Therefore total addition u/s 68 comes to Rs.1,98,00,000/-.
Aggrieved, in both the years, the assessee came in appeal before the CIT(A).
4. The CIT(A) after considering the submissions of the assessee, remand report submitted by the assessee, paper book and other evidences filed by the assessee confirmed the action of the AO by observing in para 6.1 to 6.3 of his order for assessment year 2010-11 as under:-
6.1 While going through the affidavit and confirmation letters submitted by the appellant, I am of the view that all the papers were meticulously prepared in a mechanical way just as a evidence rather than bringing the true affairs of the event. No prudent person will believe that such loans were advanced without any guarantee or mortgage of any property. It may be appreciated that the lands at Perambulur District are not so fertile as in the case of Tanjore delta. If the contention of the appellant is acceptable, all the land owners who are doing agricultural activity at Perambulur District must be millionaire by this point of time. It is beyond imagination the debtors have repaid the loan by single installment by doing dairy activity with small number of cows and holding of small portions of agricultural dry land. The value of the land at Perambulur District would have been in crores of rupees when the agriculturists were able to repay the loan by single installment in lakhs. However, value of dry land at Perambulur District is only a few thousands rupees. In view of this, the contention of the appellant that the amount represents being the recovery of earlier debts is not acceptable.
6.2 The AO has brought out clearly that the persons said to have been received the loan from the appellant are persons of meagre means. It is considered that the report of the AO is crystal clear about the transactions upon which the loan amount was received is only a bogus claim and it is the method adopted by the appellant to bring his own unaccounted cash into main stream.
6.3 In this background, the grounds raised by the appellant upon this issue is hereby dismissed and the addition made was of Rs.7,56,74,000/- as per the order dt. 31.3.2013 w/s 143(3) of the Act and the addition of Rs. 1,72,127/- (which has been admitted by the appellant as unexplained) as per the order dated 12.3.2015 u/s 143(3) rws 263 of the Act are sustained.
Similarly for assessment year 2011-12, the CIT(A) confirmed the addition by observing in para 5.8 to 5.10 as under:-
5.8 While going through the details submitted by the appellant, I am of the view that all the papers were meticulously prepared in a mechanical way just as a evidence rather than bringing the true affairs of the event. No prudent person will believe that such loans were advanced without any guarantee or mortgage of any property. It may be appreciated that the lands at Perambulur District are not so fertile as in the case of Tanjore delta. If the contention of the appellant is acceptable, all the land owners who are doing agricultural activity at Perambulur District must be millionaire by this point of time. It is beyond imagination the debtors have repaid the loan by single instalment by doing dairy activity with small number of cows and and holding of small portions of agricultural dry land. The value of the land at Perambulur District would have been in crores of rupees when the agriculturists were able to repay the loan by single instalment in lakhs. However, value of dry land at Perambulur District is only a few thousands rupees. In view of this, the contention of the appellant that the amount represents being the recovery of earlier debts is not acceptable.
5.9 The AO has brought out clearly that the persons said to have been received the loan from the appellant are persons of meagre means. It is considered that the report of the AO is crystal clear about the transactions upon which the loan amount was received is only a bogus claim and it is the method adopted by the appellant to bring his own unaccounted cash into main stream.
5.10 In this background, the grounds raised by the appellant upon this issue are hereby dismissed and the addition made u/s.68 of Rs.1,98,00,000/-are sustained.
Aggrieved, in both the years, the assessee came in appeal before the Tribunal.
5. We have heard rival contentions and gone through facts and circumstances of the case. We have also perused the paper-book filed by assessee consisting of 1 to 345 pages and another paper-book consisting of pages 1 to 68. The assessee is an individual and deriving income from various business as enumerated by us in para 3 of this order like running petrol bunk, agricultural income, rent from hiring of JCB, doing transport business, diary business, salary from chit fund company, rental income and interest income, etc. The assessee maintained separate books of accounts for all lines of business. The assessee before AO produced complete bills and vouchers in both the assessment years and AO test checked the same as noted by him in the assessment orders. The AO noticed that there is cash credit deposit in the books of accounts of Dhanalakshmi Mini Bus i.e., transport business of the assessee during the financial year 2009-10 relevant to assessment year 201011, a sum of Rs.9.99 crore. Out of this, the AO treated the sum of Rs.7,56,74,000/- as unexplained cash credit u/s.68 of the Act. The explanation of the assessee was that he lends money to small land owners, farmers, cattle owners and other local people in and around Perambalur Village at interest in earlier years and earning interest income also. The ld.counsel for the assessee before us as well as before CIT(A) took this stand that this advancing of small amount of loans for practically all purposes as required by the people in and around Perambalur village is being carried out from very long time. For this, ld.counsel before us argued that the interest income is disclosed for last many years. It was claimed that the said hand loans were given to the locals and shown as sundry debtors in the financials. The ld.counsel for the assessee took us through the financials included the sundry debtors lists for assessment year 2007-08, 2008-09, 2009-10 & 2010-11 amounting to Rs.14,75,05,000/-, Rs.13,52,55,000/-, Rs.13,36,55,000/- & Rs.10,04,98,432/- respectively. To prove this, the assessee filed complete details before AO, before CIT(A) and now before us in his paper-book, wherein complete detail of parties which got verified by AO vide letter No.N.K.A1/2032/2017dated 19.06.2017 giving the names of these persons, the Tahsildar after verification has given the detailed report, which is enclosed in assessee’s paper-book at pages 332 to 345, which is being reproduced as under:-
REMAND REPORT ON SUNDRY DEBTORS ON THE BASIS OF REPORT RECEIVED FROM THASILDHAR, PERAMBALUR
