2014 (11) TMI 273 - AT - Income Tax

Tribunal upholds CIT(A) decision, dismisses department's appeal on addition of Rs. 47,85,000.

The tribunal dismissed the department's appeal, affirming the CIT(A)'s decision to delete the addition of Rs. 47,85,000 made by the AO. The tribunal ... Income from other sources or agricultural receipts - Site visits and enquires were caused to be made through the inspector who reported that there was no farm existing in which the purported ornamental plants are nurtured or not - Held that:- The assessee has engaged in production of Ornamental Plants - The assessee engaged in business of agricultural production and he has nursery farms by name M/s. Chandeshwar Farms at Survey No.11, Kinaya Xetavaril Moddi, Cotombi, Quepem, Goa, spread across area of 10,150 square meters - The books of account of the assessee has been audited by Charter Accountant u/s. 44AB of the Income Tax Act.1961 and the copy of the audit report along with the return - in the previous year 2006-07 the assessee has carried out the agricultural activities for which return was processed - the AO’s objection is that the assessee has not carried out any agricultural activities - The Inspector was deputed for making enquiry whether the assessee has carried any agricultural activities or not - The Inspector reported that there was some land on which the compound wall with metallic gate on which the name Hariyalee Nursery was fabricated - The compound had some shade nets in which no plants were seen and some plants standing therein distinctly had appearance of plant brought from somewhere and stored - The Inspector has doubted about the genuineness of the agricultural income - The AO recorded the statements of the assessee’s son and he came to conclusion that assessee has not carried any agricultural activities and he has not produced any ornamental plants etc. - the CIT(A) has held that the assessee has carried out agricultural activities which has been verified by the AO - the CIT(A) was of the view that the assessee has carried out agricultural activities - as per the documentary evidence the land exists, therefore, proper course for the AO was to make enquiry from the respective land records officer and he should find out whether any agricultural activities was carried out or not - The AO failed to make the enquiry and he jumped to conclusion that no agricultural activities was carried out - assessee has produced all the documentary evidence to show that assessee has in fact carried out agricultural activities – the order of the CIT(A) is upheld – Decided against revenue. Issues Involved:1. Legitimacy of agricultural income claimed by the assessee.2. Validity of the Assessing Officer's (AO) objections and findings.3. Admissibility of the evidence provided by the assessee.4. Compliance with the Goa Fruit and Ornamental Plant Nurseries (Regulation) Act, 1995.5. Existence and operation of the nursery farm.Detailed Analysis:1. Legitimacy of Agricultural Income Claimed by the Assessee:The assessee filed a return of income on 30.09.2009, declaring a total income of Rs. 6,13,536 and claimed an exemption on agricultural income of Rs. 24,27,770. The AO questioned the legitimacy of this claim, arguing that the agricultural activities and the nursery farm did not exist as claimed. The AO's investigation included site visits and inquiries, which led to the conclusion that the land was insufficient for the production claimed and that no valid license was obtained from the Goa authorities.2. Validity of the Assessing Officer's (AO) Objections and Findings:The AO's objections were based on several grounds: the absence of a valid license, the barren nature of the land, and the lack of substantial evidence supporting the agricultural activities. The AO deputed an inspector to verify the existence of the nursery, who reported that the plants appeared to be brought from elsewhere and stored, and the site had an abandoned appearance. Consequently, the AO added Rs. 47,85,000 to the assessee's income, treating it as deposits from undisclosed sources.3. Admissibility of the Evidence Provided by the Assessee:The CIT(A) found the AO's conclusion to be 'ill-conceived and premature,' noting that the existence of the land and nursery was authenticated. The assessee provided various documents, including a lease deed, audit reports, and an expert site inspection report by a government-registered valuer. The CIT(A) observed that the AO did not make sufficient efforts to find out the real source of the income and based his conclusion on guesswork and presumption.4. Compliance with the Goa Fruit and Ornamental Plant Nurseries (Regulation) Act, 1995:The AO argued that the absence of a license under the Goa Fruit and Ornamental Plant Nurseries (Regulation) Act, 1995, invalidated the assessee's claim of agricultural income. However, the CIT(A) and subsequent tribunal references (e.g., Assistant Commissioner of Income Tax vs. A.P. Forest Department) indicated that the absence of a license does not preclude the claim of agricultural income if the assessee can prove the agricultural activities.5. Existence and Operation of the Nursery Farm:The CIT(A) and the tribunal noted that the assessee had consistently filed returns showing agricultural income and that the nursery farm existed and operated as claimed. The tribunal highlighted that the AO should have made further inquiries with the land records officer to verify the agricultural activities instead of concluding based on insufficient evidence. The tribunal upheld the CIT(A)'s decision, confirming that the assessee had indeed carried out agricultural activities and was entitled to the claimed exemption.Conclusion:The tribunal dismissed the department's appeal, affirming the CIT(A)'s decision to delete the addition of Rs. 47,85,000 made by the AO. The order emphasized the need for assessments to be based on comprehensive and factual records rather than presumptions and surmises. The tribunal's final judgment was pronounced in the open court on 8.8.2014.