Income recorded on estimated basis supported with possible evidence is acceptable

Anupama Chandrakandath Vs ACIT (ITAT Cochin)

ITAT Cochin held that agricultural income recorded on estimated basis needs to accepted as it was supported by all the possible evidence for estimating income. Revenue has not brought anything on record to show the income estimated and the percentage of expense claimed is not correct.

Facts- The case of the assessee was selected for scrutiny under CASS and the notice u/s.143(2) was duly served on the assessee. During the course of assessment proceedings, AO noticed that the assessee has only estimated the agricultural income and accordingly called for further details.

AO, proposed to disallow a portion of the agricultural income returned as the assessee had only estimated the income and not based on books of accounts. The AO directed for an inspection to conduct the agricultural activities wherein the actual extent of crops cultivated, nature of rubber trees etc., were obtained by the inspector attached to the AO, who inspected the agricultural holdings and submitted their report. The inspector had also verified the katcha book maintained with regard to the rubber tapping, wages etc. However, the AO was of the opinion that these are not enough to justify the huge agricultural income. The AO held that the assessee had not maintained any books of accounts with regard to the agricultural activities giving actual details of agricultural income. Accordingly the AO estimated the agricultural income of the assessee at Rs.36,00,000 and made addition towards the difference amount of Rs.9,00,000. On further appeal the CIT(A) held that the estimation of agricultural income by the AO is reasonable since the assessee has not maintained any books of accounts and accordingly upheld the order of the AO. Aggrieved the assessee is in appeal before the Tribunal.

Conclusion- In our considered view when the assessee has submitted the possible evidence for estimating the income, the same cannot be brushed aside without recording any adverse finding. The revenue has not brought anything on record to show that the income estimated and the percentage of expense claimed by the assessee is not correct. The AO has also not recorded any supporting to show how the agricultural income is estimated at Rs.36,00,000. In view of these discussions and considering the facts of the case we are of the view that the addition made by the AO is purely based on surmise without recording any contrary finding and therefore should be deleted. Accordingly we hold that the addition of Rs.9,00,000 done both AY 2012-13 and 2013-14 to be deleted and the appeals are allowed in favour of the assessee.

FULL TEXT OF THE ORDER OF ITAT COCHIN

These two appeals are against the order of CIT(A), National Faceless Appeal Centre (NFAC), dated 18.11.2021, for Assessment Year 2012-13 and 2013-14. These two appeals are heard together and disposed of by this common order for the sake of convenience and brevity. The assessee raised the following common grounds in both these appeals:

1. The extend of agricultural holdings of the assessee and the fact that they are rubber plantation and coconut garden has not been disputed by the Assessing officer as the Department Inspectors have conducted a field visit and submitted reports.

2. As agricultural income is exempt from personal tax at Kerala, and as the properties are managed by the assessee’s father along with the agricultural properties of the assessee’s parents and brother, detailed accounts are not maintained. That cannot be a reason to disbelieve the income estimated by the assessee in the absence of any adverse findings by the Assessing Officer.

3. The assessee has estimated the income from rubber based on the yield for different geographical locations as per Rubber Board data and the yield is not the highest yield but the average yield for each area. The prices of rubber are collected by the Rubber Board and the statistics published.

4. The yield of coconut has been estimated, again on the average yield rate and not the highest yield rate. The prices of coconut has been taken on the average rate for the year.

5. Both rubber and coconut are long term crops and tilling, cost of seeds etc., are not required every year. The maintenance expenditure on fertilizer, irrigation in summer etc., labour charges for tapping of rubber, plucking of coconut etc.. are estimated at 20% of the yield. Besides this, the coconut husk, coconut leaves etc., are also sold and yield on income which has not

6. The Assessing Officer has not pointed out any discrepancy or inflation in the yield estimated or the market price at which the income was estimated. Without pointing out any adverse factor, the Assessing Officer cannot simply reject the estimate.

The Hon. ITAT Mumbai in 2021 (3) TMI 264 in the case of NITTA JATIYA (ACIAS & NITAJATIA) Vs. DCIT, Central Charge Range 7(1) Mumbai, at para 5 observed

“In this case, we note that both of the authorities have failed to discharge their duties properly as none of the parties have brought any substantial material on records to prove that the assesse has incurred expenses over and above what has been stated by the assesse “.

In our case, no material has been gathered or produced to show that the income estimated by the assessee is inflated or from the land holding and crops cultivated the said income cannot be generated.

Again, the Hon. ITAT Surat in 2022(1) TMI 52 Shri Rajeshbhai Gijubhai patel, Shri Pankajbhai Gijubhai Patel Vs. CIT Surat at para 22 observed as follows:-

“We must hasten to add here that in this case, there is no finding that any of the details supporting the assesse in its return were found to be in correct or erroneous or false “.

In our case also, nether the Assessing Officer nor the CIT (A) has held that any of the details submitted by us are incorrect, erroneous or false. Based on surmises and conjectures, the details furnished by the assessee has been rejected and a 20% disallowance has been made by the Assessing Officer and sustained by the CIT(A).

7. Having rejected the income estimated by the assessee, the Assessing Officer has again proceeded to estimate the income at 80% of the income returned by the assessee. For this also, there is no justification or basis. The disallowance was an adhoc disallowance for the only reason the assessee had not maintained books of accounts.

8. The assessee is having income from business for which proper accounts have been maintained and audited and audit report in Form 3CB and 3CD submitted. The Assessing Officer has not found any defects in the said accounts, which has been accepted.

Therefore, when the assesse has only one source of income i.e. income from business which has been accepted, in the absence of any evidence to the contrary, the agricultural income estimated and offered by the assesse has to be accepted.

We rely on the decision of the Hon. Gujarat High Court in — Income Tax Officer Vs. Ashwin.D.Metha (HUF) (2014)(12) TMI 1391.

The Hon Gujarat High Court at para 6 held as follows:-

“ The Commissioner of income Tax (Appeals) has held that since the agricultural income has been accepted by the revenue and the Assessing Officer has not been able to prove any other source of income out of which the assesse could have earned this income, and the income declared by the assesse has to be accepted “.

2. The assessee is the proprietrix of a retail medical stores operating in a hospital. The assessee has maintained proper books of accounts for the said business and has got the books of account audited under section 44AB of the Income Tax Act. The assessee also has agricultural income from 26.62 acres of yielding rubber trees at Desamangalam and from 15.25 acres of yielding coconut garden at Muthalamada, Palakkad. The assessee lives in a joint family and the assessee’s father, mother and brother also has similar agricultural holdings. The agricultural holdings of all the members are contiguous and assessee’s father Dr.M.Ramakrishnan manages these properties. With respect to the agricultural income, the assessee has not maintained any books of accounts other than the statutory registers required for wage payment to the rubber tappers. For years under consideration the assessee had estimated the agricultural income as per below details –

3. The assessee filed the return of income on 30.11.2012 declaring income of Rs.33,48,920/- for Assessment Year 2012-13 and on 15.10.2013 declaring an income of Rs.59,69,710/- for Assessment Year 2013-14. The case was selected for scrutiny under CASS and the notice u/s.143(2) was duly served on the assessee. During the course of assessment proceedings, the AO noticed that the assessee has only estimated the agricultural income and accordingly called for further details. The assessee submitted the details as per the below table to substantiate the basis for estimation of income from Rubber and Coconut.

Estimation of Rubber Production

Estimation of Cocunut Production for FY 2011-12 & FY 2012-13

4. The assessee submitted before the AO that the actual yield is slightly higher than the estimated average yield by Rubber Board because the rubber trees were replanted by assessee in 2001 and since the trees are fairly young, the yield is higher. The assessee further submitted that the average sale rate of rubber in Kerala is also substantiated by Report of International Rubber Study Group, 2015. Thus, the assessee contented that the above estimates are in consonance with the income from rubber as per the Rubber Board statistics and the yield from coconut is also based on the basis of the prevailing market prices and yield in Kerala. The assessee had also provided for expenses/ cost of cultivation at 25% of the gross receipts. In the case of rubber and coconut, the cost of cultivation is mainly for fertilizer, irrigation, maintenance and harvesting, as they are long term crops.

8. The AO, proposed to disallow a portion of the agricultural income returned as the assessee had only estimated the income and not based on books of accounts. The AO directed for an inspection to conduct the agricultural activities wherein the actual extent of crops cultivated, nature of rubber trees etc., were obtained by the inspector attached to the AO, who inspected the agricultural holdings and submitted their report. The inspector had also verified the katcha book maintained with regard to the rubber tapping, wages etc. However the AO was of the opinion that these are not enough to justify the huge agricultural income. The AO held that the assessee had not maintained any books of accounts with regard to the agricultural activities giving actual details of agricultural income. Accordingly the AO estimated the agricultural income of the assessee at Rs.36,00,000 and made addition towards the difference amount of Rs.9,00,000. On further appeal the CIT(A) held that the estimation of agricultural income by the AO is reasonable since the assessee has not maintained any books of accounts and accordingly upheld the order of the AO. Aggrieved the assessee is in appeal before the Tribunal.

10. The ld AR submitted that the estimation of the agricultural income is recognised in law for purposes of taxation and when books of accounts are not maintained for a source of income, a reasonable estimate is made and the income is subjected to tax. It is also submitted that once the AO does not find any defect or error, the estimate made by the assesse has to be accepted. The Ld AR also submitted that the assessee has been consistently showing the agricultural income in the same range from AY 2008-09 and the revenue has accepted the estimated agricultural income year on year without making any additions. In this regard the ld AR submitted the below table

11. The ld AR also submitted that the AO has to take a consistent stand and when, he has accepted the agricultural income for the various years as shown in the table, there was no specific reason for him to disbelieve the assessee and treat part of the agricultural income as “Income from Other Sources” for the current year. The Ld AR also submitted that the AO has not pointed out any discrepancy or inflation in the yield estimated or the market price at which the income was estimated and without pointing out any adverse factor, the AO cannot simply reject the estimate. In this regard the ld AR relied on following decisions:

• NITTA JATIYA (ACIAS & NITAJATIA) Vs. DCIT, Central Charge Range 7(1) Mumbai, 2021 (3) TMI 264
• Shri Rajeshbhai Gijubhai patel, Shri Pankajbhai Gijubhai Patel Vs. CIT Surat 2022(1) TMI 52

12. The ld AR further submitted that in the absence of any evidence to the contrary, the agricultural income estimated and offered by the assesse has to be accepted. The Assessee relies on the decision of the Hon. Gujarat High Court in:

• Income Tax Officer Vs. Ashwin.D.Metha (HUF) (2014)(12) TMI 1391- GUJARAT HIGH COURT
• CHOKSHI Versus ACIT – 2015 (1) TMI 392 – GUJARAT HIGH COURT

13. The ld DR relied on the orders of the lower authorities.

14. We heard the rival submissions and perused the material on record. The contention of the revenue based on which the estimated agricultural income is disputed by the revenue is that the assessee has not maintained any books of accounts. the extend of agricultural holdings of the assessee and the fact that they are rubber plantation and coconut garden has also not been disputed by the Assessing officer as the Department Inspectors have conducted a field visit and submitted reports. From the perusal of records we notice that no adverse finding has been reported by the inspector. During the course of hearing our attention was drawn to the statement of yield for various years by the Rubber Board of Kerala (page 8 & 9 of paper book) where it is mentioned that the average yield of rubber per hectare of Palakkad District is stated to be 2011-12 – 1940 kgs/ ha and 2012-13 – 1913 kgs/ha. The same report also has details of price per kg of rubber. It is therefore argued by the ld AR that the estimated agricultural income is very well supported and accordingly there is no reason for the AO reject the estimate. The ld AR also argued that the assessee has estimated the income from rubber based on the average yield for different geographical locations as per Rubber Board data and the prices of rubber are collected by the Rubber Board. It is also noticed that the yield of coconut has been estimated, again on the average yield rate and the prices of coconut has been taken on the average rate for the year. From these facts we see merit in the contention that the estimation of the agricultural income is done on valid basis and not estimated on adhoc basis. It is also noticed that the assessee has been declaring the agricultural income on estimated basis in earlier years which has not been disputed by the revenue. The AO has estimated the agricultural income of the assessee to Rs.36,00,000 and the basis on which this estimate is made is not coming out clearly in the order of the AO and this contention of the assessee has not been looked into by the CIT(A) except for stating that the said estimate is reasonable. In our considered view when the assessee has submitted the possible evidence for estimating the income, the same cannot be brushed aside without recording any adverse finding. The revenue has not brought anything on record to show that the income estimated and the percentage of expense claimed by the assessee is not correct. The AO has also not recorded any supporting to show how the agricultural income is estimated at Rs.36,00,000. In view of these discussions and considering the facts of the case we are of the view that the addition made by the AO is purely based on surmise without recording any contrary finding and therefore should be deleted. Accordingly we hold that the addition of Rs.9,00,000 done both AY 2012-13 and 2013-14 to be deleted and the appeals are allowed in favour of the assessee.

15. In the result, appeals are allowed.

Pronounced in the open court on the date mentioned on the caption page.