Sharma Dharmendra Gorakhnath HUF Vs ITO (ITAT Pune)
Section 10(1): ₹89.08 Lakh Agricultural Receipts Sent Back for Verification; ITAT Grants Final Opportunity to Prove Cultivation
The controversy
The Pune Tribunal restored an agricultural-income dispute to the Assessing Officer after the entire gross agricultural receipts of ₹89,07,521 had been treated as taxable income from other sources.
The assessee maintained that agricultural operations were conducted on its own land and a substantial area taken on lease. It complained that documents submitted immediately before completion of the assessment had not been properly examined.
Considering the circumstances, the Tribunal granted one final opportunity to substantiate the claim, while expressly directing the assessee to comply on the appointed date without seeking adjournments.
The agricultural exemption was not finally allowed, and the addition was not deleted on merits.
Substantial agricultural income attracted scrutiny
The assessee-HUF filed its return on 26 December 2020, declaring taxable income of ₹9,470 and net agricultural income of ₹59,56,902.
The agricultural computation disclosed gross receipts of ₹89,07,521, against which expenditure of ₹29,50,619 was claimed.
The case was selected for limited scrutiny to verify the large income claimed in the return and the substantial increase in agricultural income compared with preceding years.
Statutory notices under Sections 143(2) and 142(1) were issued, and the assessee furnished certain details.
AO found agricultural operations insufficiently substantiated
The Assessing Officer held that the assessee had not satisfactorily supported the agricultural activity through documentary evidence.
The deficiencies identified concerned particulars of crops cultivated, quantities sold with reference to acreage, purchasers of agricultural produce and supporting sale invoices.
The Assessing Officer therefore rejected the agricultural-income claim and added the entire gross receipts of ₹89,07,521. The claimed agricultural expenditure was also not accepted.
The assessment determined total income at ₹89,16,991. The Commissioner (Appeals), NFAC, subsequently upheld the action.
Increased cultivation area explained the higher receipts
Before the Tribunal, the assessee’s representative submitted that the HUF owned 6.5 acres of land and had additionally taken approximately 132 acres of agricultural land on a ten-year lease.
The grounds of appeal referred to a lease of 132.28 acres from Maharashtra State Farming Corporation Ltd.
According to the assessee, this substantial expansion in cultivable area explained the increase in agricultural income. It contended that the receipts and expenditure were consistent with the land cultivated and crops grown.
The documents stated to have been furnished included the lease agreement, 7/12 extracts, crop particulars, sale bills, expense bills and bank statements reflecting agricultural transactions.
These were matters requiring verification; the Tribunal did not record a final finding establishing the claimed cultivation or the quantum of income.
Late submissions and portal difficulties were pleaded
The assessee explained that a proper response could not initially be furnished because of the concerned person’s mental condition.
It further submitted that, following the notice proposing best-judgment assessment, the portal closed before the necessary response could be completed. Its representative stated that only 24 hours had been given to submit all the details.
The assessee claimed that documents were ultimately filed on 17 September 2022, but the Assessing Officer passed the assessment order on 18 September 2022 without properly examining them.
It also argued that the Commissioner (Appeals) had not adequately considered the documents furnished during appellate proceedings.
The Revenue disputed the need for another opportunity, maintaining that sufficient opportunities had already been provided and that the appellate order was detailed.
Gross-receipt and procedural objections also raised
The assessee separately challenged the taxation of the entire gross amount. It argued that, even if an adjustment were warranted, gross receipts could not automatically be equated with taxable income without considering the expenditure.
Other grounds questioned the treatment of the case as one of non-compliance, the invocation of Section 144 and the adequacy of the hearing afforded.
The assessee also raised objections concerning Section 270A proceedings.
The Tribunal did not separately determine these propositions on merits. Its operative relief was restoration of the agricultural-income issue for fresh examination.
Final opportunity granted with strict compliance directions
Considering the totality of the facts and the interests of justice, the Tribunal restored the matter to the Assessing Officer.
The Assessing Officer was directed to permit the assessee to furnish the requisite evidence and decide the issue in accordance with the facts and law after giving an opportunity of hearing.
The Tribunal simultaneously directed the assessee to submit its explanation on the appointed date without seeking an adjournment under any pretext. In default, the Assessing Officer would be free to pass an appropriate order according to law.
The appeal was allowed for statistical purposes.
Author’s comments
The decision gives the assessee an opportunity to establish its agricultural claim through a complete evidentiary record. The substantial leased acreage provides an explanation for increased receipts, but the lease alone does not establish actual cultivation, crop sales or the income earned.
In the restored proceedings, the land records, cultivation details, sale proceeds and expenditure should be reconciled into one coherent account.
The ruling is therefore useful as a procedural remand ensuring verification, rather than a substantive precedent accepting ₹59.57 lakh as exempt agricultural income or prohibiting taxation of gross receipts in every disputed case.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT PUNE
This appeal filed by the assessee is directed against the order dated 16.01.2026 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2020-21.
2. Facts of the case, in brief, are that the assessee-HUF filed its return of income on 26.12.2020 declaring taxable income of Rs.9,470/- with net agricultural income of Rs.59,56,902/- after claiming expenses of Rs.29,50,619/- from the gross agricultural receipt of Rs.89,07,521/-. The case was selected for limited scrutiny under CASS for the following reasons:
i) To verify the large income claimed by the assessee in ITR.
ii) Substantial increase in agricultural income as compared to that shown in preceding returns.
3. Accordingly, statutory notices u/s 143(2) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) and u/s 142(1) were issued and served on the assessee in response to which the assessee filed certain details. The Assessing Officer completed the assessment u/s 143(3) r.w.s. 144B of the Act determining the total income of the assessee at Rs.89,16,991/- wherein he added the entire gross agricultural receipt of Rs.89,07,521/-. While doing so the Assessing Officer held that the assessee failed to substantiate with documentary evidence with respect to agricultural activities undertaken such as details of crops grown, quantity of crops sold acre wise, details of the purchasers to whom the agricultural produce was sold, copies of sale invoices of agricultural produce etc.
4. In appeal the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer by observing as under:
6. DECISION OF THE APPELLATE AUTHORITY W.R.T GROUND NO.-1 TO 6 :
The contentions of both the Assessing officer and the appellant assessee resp. have been carefully considered and this Appellate authority has noted the following points:
6.1 Grounds 1 and 2 – Addition of Rs. 89,07,521/- as Income from Other Sources and denial of agricultural income
The assessee contends that the addition of Rs. 89,07,521/- is erroneous and represents legitimate agricultural income arising from cultivation of owned and leased land in Taluka Shrirampur, District Ahmednagar. The assessee states that he owns 6.5 acres and holds on lease 132.28 acres from The Maharashtra State Farming Corporation, Pune. The crops cultivated include soybean, wheat, maize, cotton, and gram. Copies of lease agreements and supporting annexures were uploaded on 17.09.2022, after the AO deactivated the e-filing portal link.
The AO, however, in the assessment order, observed that while partial submissions were made on 15.07.2021, the assessee failed to furnish corroborative documentary evidence such as Khatauni copies, sale invoices, bank statements, or crop-wise yield reports, despite repeated notices under sections 142(1) and 144B(1)(xi). The AO noted that the agricultural receipts declared were substantially higher than in previous years, while declared expenses were comparatively low, raising doubt about the genuineness of the claimed agricultural income. The AO further observed that the submission uploaded on 17.09.2022 could not be considered in the assessment as the assessment order was already finalized.
On careful examination of the record, including the submission of the assessee, the appellate authority finds that the AO has duly followed the provisions of the Act. The AO had issued repeated notices and afforded adequate opportunity for submission of evidence. The mere filing of lease agreements does not substantiate the income claimed as agricultural income without supporting evidence of actual cultivation, crop yield, sale, or expenses incurred. In absence of verifiable evidence, the addition under section 144 is justified. Therefore, Grounds 1 and 2 are dismissed and the AO’s addition of Rs. 89,07,521/- under ‘Income from Other Sources’ is confirmed.
6.2 Grounds 3 and 4 – Alleged non-consideration of submission made on 16/17.09.2022
The assessee contends that the submission uploaded on 17.09.2022 in response to the AO’s portal link reactivation was not considered and therefore the assessment is bad in law. The assessee requests deletion of the addition and refund of the pre-deposited amount of Rs. 7,68,000/-.
The appellate authority notes that the AO had initiated assessment proceedings well before the submission made on 17.09.2022. The AO had repeatedly requested supporting documents during the course of assessment and afforded ample opportunities. The appellate authority finds that the submission made on 17.09.2022, although filed after deactivation of the portal link, does not include verifiable documentary evidence of actual agricultural income and expenses, and therefore cannot change the assessment made under section 144 on the basis of available records. The appellate authority also notes that the AO’s order is a reasoned best judgment assessment, supported by prior non-response and discrepancies noted in the agricultural income. Consequently, Grounds 3 and 4 are dismissed.
6.3 Ground 5 – Initiation of penalty proceedings under section 270A
The assessee contends that the penalty under section 270A is based on the erroneous assessment order and should be quashed. The assessee points out that a stay application was filed and 20% of the original demand was deposited in accordance with the stay order issued by the PCIT.
The appellate authority observes that penalty proceedings under section 270A are independent of the assessment order; however, they rely on the determination of underreported income. Since the addition of Rs. 89,07,521/- has been confirmed in this appeal, the initiation of penalty proceedings by the AO is justified under law. The appellate authority notes that the assessee has availed the benefit of stay and complied with the deposit schedule. The confirmation of addition renders the penalty proceedings valid and Ground 5 is dismissed.
6.4 Ground 6 – Miscellaneous submissions
The assessee reserves the right to amend or modify grounds. The appellate authority notes this for record and finds that no new substantive ground has been raised.
Conclusion
After careful consideration of the assessee’s submissions, documents, and the AO’s assessment order, the appellate authority is satisfied that the AO has correctly applied the provisions of the Income-tax Act, 1961, given ample opportunity to the assessee, and arrived at a reasoned assessment under section 144. All grounds raised by the assessee are without merit. Accordingly, the assessment order dated 18.09.2022 and the addition of Rs. 89,07,521/- under ‘Income from Other Sources’ is confirmed, and the appeal is dismissed.
5. Aggrieved with such order of the Ld. CIT(A) / NFAC the assessee is in appeal before the Tribunal by raising the following grounds:
1. On the facts and in the circumstances of the case and in law, the learned CIT(A)-NFAC erred in confirming the addition of Rs.89,07,521 by treating bona fide agricultural receipts as taxable “income from other sources”, and in thereby upholding the best-judgment assessment under section 144, without properly considering the evidences placed on record and in violation of the settled legal position regarding agricultural income and burden of proof.
2. On the facts and in the circumstances of the case, the learned CIT(A) failed to appreciate that the Appellant had, in fact, furnished comprehensive evidences of agricultural operations including lease agreement for 132.28 acres from Maharashtra State Farming Corporation Ltd., 7/12 extracts, crop details, sale bills, expense bills and bank statements showing agricultural transactions, and therefore, the conclusion that the claim of agricultural income is unsubstantiated is perverse, arbitrary and contrary to material on record.
3. On the facts and in the circumstances of the case, the order of the Ld.CIT(A)-NFAC is bad in law and void ab initio as it violates the principles of natural justice:
(a) by treating the assessment as a case of non-compliance despite the Appellant’s grievance, request for time and subsequent upload of detailed submissions on 17.09.2022; and
(b) by dismissing the appeal without independent examination of the evidences and without granting effective opportunity of being heard, contrary to the mandate of section 250(6).
4. The authorities below erred in mechanically invoking section 144 and in converting an otherwise regular scrutiny under section 143(3) into best- judgment assessment, merely on alleged delay or technical issues in uploading documents on the NFAC portal, without demonstrating that the requirements of section 144 were satisfied in substance and without correlating the evidences actually filed by the Appellant.
5. On the facts and in the circumstances of the case, the learned CIT(A) erred in ignoring that the Appellant’s agricultural income had increased due to a significant increase in cultivable area consequent to lease of 132.28 acres, and that the quantum of receipts and expenditure is commensurate with the area and crops cultivated; the addition solely on the basis of “substantial increase” over earlier years is unsustainable in law.
6. The authorities below erred in law and on facts in treating the entire gross receipts of Rs.89,07,521 as taxable income, even assuming (without admitting) that any disallowance was warranted; at best, only profit element could have been considered, and the approach of taxing gross receipts as “income from other sources” is contrary to basic principles of computation of income under the Act.
7. The learned CIT(A) erred in upholding initiation and continuation of penalty proceedings under section 270A merely because the addition has been confirmed, without independently examining whether there was any “under-reporting” or “misreporting” as defined in section 270A(2) and (9), and without appreciating that the appellant had made a full and bona fide disclosure of agricultural income, supported by documentary evidence, thereby negating any element of concealment or inaccurate particulars.
8. On the facts and in the circumstances of the case, the impugned orders fail to consider that where evidences uploaded before NFAC are not considered or are ignored, the same constitutes violation of principles of natural justice warranting deletion of additions or at least restoration of the matter, as consistently held by various Benches of the ITAT in NFAC matters, including in cases where CIT(A) ignored documents duly uploaded on the portal.
9. On the facts and in the circumstances of the case, and having regard to judicial precedents that recognize income derived from agricultural operations on leased agricultural land as agricultural income entitled to exemption under section 10(1), the authorities below erred in law in denying the Appellant’s claim merely on conjectures and on alleged non- furnishing of evidence, despite material showing actual cultivation and sale of crops.
10. The appellant seeks leave to alter, amend, omit, delete and/ or add other ground/grounds of appeal at the time of hearing.
11. Any other ground as Your Honor may deem fit.
C. Prayer
In view of the above facts and grounds, the appellant humbly prays that this Hon’ble Tribunal may be pleased to:
a. Delete the addition of Rs.89,07,521 made by the Assessing Officer and confirmed by the CIT(A)-NFAC by treating the Appellant’s agricultural receipts as “Income from other sources”, and hold that such income is exempt agricultural income under section 10(1) of the Act;
b. In the alternative, set aside the assessment order dated 18.09.2022 and appellate order dated 16.01.2026 and restore the matter to the file of the Assessing Officer and/or CIT(A) for fresh adjudication after considering all evidences and after granting adequate, effective opportunity of being heard, including personal hearing, if so requested;
c. Hold that the assessment under section 143(3) r.w.s. 144B, in so far as it treats the appellant as non-compliant and invokes section 144, is bad in law and liable to be quashed for violation of principles of natural justice and non- consideration of material on record.
d. Cancel the penalty proceedings and penalty order under section 270A. holding that there is no “under-reported income” or “misreporting of income” within the meaning of section 270A, in view of the bona fide, fully disclosed claim of agricultural income;
e. Direct refund of Rs.7,68,000/- deposited pursuant to the stay order of the Ld. PCIT, along with applicable interest, consequent upon deletion of the impugned addition and penalty;
f. Grant such other and further reliefs, including costs, as this Hon’ble Tribunal may deem fit in the facts and circumstances of the case.
6. The Ld. Counsel for the assessee submitted that the assessee HUF holds 6.5 acres of own land and has also taken on lease 132 acres of agricultural land for 10 years on which the assessee is conducting agricultural activities. He submitted that the notice u/s 143(2) of the Act was issued to the assessee on 29.06.2021 in response to which the assessee could not file any proper reply due to his mental condition. Subsequently a notice u/s 144 of the Act was issued and by the time the assessee could file reply before the Assessing Officer the portal was closed. He submitted that various details filed at the last minute before the Assessing Officer were not considered by him and he passed the order on 18.09.2022. Referring to the order of the Ld. CIT(A) / NFAC he submitted that although various details were furnished before him, however, he did not go through the same properly and upheld the action of the Assessing Officer which is not justified. He submitted that given an opportunity, the assessee is in a position to substantiate his case by filing the requisite details.
7. The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC. He submitted that despite ample opportunities granted by the Assessing Officer, the assessee failed to submit the details on time for which the Assessing Officer rejected the claim of agricultural activities and added the entire gross receipts as ‘Income from other sources’. He submitted that the order of the Ld. CIT(A) / NFAC is exhaustive and a detailed one and therefore, the same should be upheld.
8. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case has declared gross agricultural receipts of Rs.89,07,521/- and after claiming expenses of Rs.29,50,619/- the total net agricultural income at Rs.59,56,902/- was claimed as exempt u/s 10(1) of the Act. We find the Assessing Officer rejected the claim of agricultural activities of the assessee due to lack of evidence to his satisfaction regarding the agricultural activities and made addition of Rs.89,07,521/- which was the gross agricultural receipt declared by the assessee. In the said order the Assessing Officer also rejected the claim of agricultural expenses incurred by the assessee at Rs.29,50,619/-. We find in appeal the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that before the Assessing Officer he could not file the details due to closure of portal since only 24 hours time was given to submit all the details. However, when the assessee filed the details on 17.09.2022 the Assessing Officer did not go through the same and passed the order on 18.09.2022 rejecting the claim of agricultural income. He submitted that although various details were filed before the Ld. CIT(A) / NFAC however, he has not considered them properly and upheld the action of the Assessing Officer. It is the submission of the Ld. Counsel for the assessee that given an opportunity, the assessee is in a position to substantiate his case by filing the requisite details. Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to grant one final opportunity to the assessee to substantiate his case by filing the requisite details and decide the issue as per fact and law after giving due opportunity of being heard to the assessee. The assessee is also hereby directed to make his submissions, if any, on the appointed date without seeking any adjournment under any pretext failing which the Assessing Officer is at liberty to pass appropriate order as per law. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.
9. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 13th October, 2026.
