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All expenses incurred in acquiring or maintaining agricultural income are deductible, inter alia:

(i) cash wages paid to those who work on the farm: power for use on the farm;

(ii) expenses for acquisition of seeds, fertilizers, soil improvement and plant, protection compounds, fodder, fuels and lubricants as well as electrical power for use on the farm;

(iii) expenses for acquisition of livestock for use on the farm:

(iv) expenses for acquisition and renovation of buildings and construction on the farm, machines, tools and appliances used on the farm, as well as for pipe draining, bridges, dams and similar equipment;

(v) expenses for livestock inspections, veterinary medicine services, soil fertility analyses, etc.;

(vi) insurance premiums paid for buildings and other agricultural assets on the farm;

(vii) expenses for repair and maintenance of buildings and construction on the farm, as well as machines, tools, appliances, ditches, bridges, fences, roads etc. used on the farm;

(viii) expenses for lighting and heating, etc. in buildings on the farm;

(ix) rents and other compensations for agricultural land, buildings, machines, tools and appliances as well as other production equipment,

(x) real estate tax, to the extent that it pertains to property used on the farm.

Cultivation Expenses

The following expenses are deductible:

Expenses incurred

(a) in the process of cultivation;

(b) in performing any process for rendering the produce of such land fit to be taken to market;

(c) in transporting the produce to the market and

(d) in maintaining agricultural implements and machinery in good repair and in providing for the upkeep of cattle for the purpose of such cultivation, process or transport.

Insurance

Any sums paid as premium towards any insurance against loss of or damage w lands or any crops are deductible.

Tax on Cultivation or Sale of Crop

Any amount paid as tax or cess on the cultivation or sale of crop is deductible under this head.

Expenses allowable against Agriculture Income

Cash payments exceeding pre- scribed limits – Agricultural produce – Failure to produce farmers – No disallowances can be made. [R. 6DD(e)]

The assessee is trading in maize He purchased maize from cultivators for which payments were made in cash in excess of 20,000. The Assessing Officer held that the assessee had not produced details like addresses and identity of the persons to whom cash payments were made except producing bills and their names and the name of their village to which they belonged and such declaration was not enough to prove the case of the assessee. He, therefore, made addition by invoking Section 40A(3) of the Act. On appeal CIT(A) confirmed the addition. On appeal following the decision in PCIT v. Keshvalal Mangaldas (2018) 257 laxman 133 (Guj.), held that if there are entries in payment is shown to have been made to farmers and when receipts were also Produced but the assessee could not produce the farmers/list of farmers for which a reasonable explanation was also given, no addition could be made under section 40A(3). Accordingly the addition confirmed by the lower authorities is deleted. (Related Assessment years: 2013-14, 2014-15)- [Krisınasa Bhute v. ITO (2019) 179 ITD 824 (ITAT Bangalore)]

Cash payments exceeding prescribed limits- Purchase of jiggery from farmers Disallowance is held to be not justified

Tribunal held that jaggery was produced by farmers who were mostly uneducated and did not know how to operate bank accounts. Books of account of assessee were duly audited and same were not rejected by Assessing Officer. Disallowance by the Assessing Officer is held to be not justified. (Related Assessment years: 2000-01 to 2004-05) – [Tum nath Shaw v. ACIT (2019) 175 ITD 45 (ITAT Kolkata)]

Cash payments exceeding prescribed limits – Purchase of land – No bank account where the land was situated – No disallowance under section 40A(3) can be made.

Purchase of agricultural land through cash payments of Rs. 4.8 lakhs, as assessee had no bank account where said land was situated, disallowance cannot be made. (Related Assessment years: 2008-09,2009-10)- [Jiya Devi Sharma (Smt.) v. ACIT (2014) 165 TTJ

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I am S.K.Jain , Tax Consultant cum Advocate practising in Income Tax , GST , Company Matters . The name of the concern is S.K. Jain and Co. and I am prop. of this concern . I am in practice for the last 30 years . Professionals and non professional can feel free to contact me on mail . My mail ID is View Full Profile

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One Comment

  1. Saravanakumar says:

    Dear TaxGuru,

    I am salaried person, private banking.
    Recently doing farming.

    Need to know, if the expenses i do on farming from my salary could be tax exempted?
    Setting a long term crop and it pulls money from outside agri income.

    Do advise.

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