2021 (7) TMI 888 - AT - Income Tax

Tribunal grants appeals, rejects additions to agricultural income under Income Tax Act Section 68

The Tribunal allowed all eighteen appeals filed by the assessees, deleting the additions made by the Assessing Officer regarding the agricultural income ... Capital gain arising from transfer of agricultural land - Addition u/s 68 in respect of agriculture income - HELD THAT:- Section 10(1) of the Income Tax Act provides that agricultural income is not to be included in the total income of the assessee. The result is that agricultural income is not only exempt from tax but, under the scheme of Income Tax Act, is also to be excluded in computing the total income on the basis of which the rate applicable to the taxable income is determined. Since 1973 the annual Finance Act has superseded this scheme by providing for inclusion of agricultural income in the total income for the limited purpose of determining the rate applicable to the taxable income. These provisions are constitutional. Agricultural income has to be exempted from tax under the Income Tax Act because Parliament has no power under the Constitution to levy tax on agricultural income - Parliament has power to levy tax on capital gain arising from transfer of agricultural land. The State legislatures are entitled to impose a tax on any of the categories of agricultural income which are exempted from tax under Income Tax Act. As based on the land holdings and land taken on rent basis to do agricultural activities, the farmers have justified the agricultural income earned by them by furnishing evidences such as, land holding records in the form No. 7, 12, 8-A and 6 etc. Besides, addition was sustained by the Ld. CIT(A) based on the statement of Shri Gajanand B. Patel without providing an opportunity to cross examine, wherein we noted that addition cannot be sustained only on the basis of the statement of Shri Gajanand B. Patel. We also note that CIT(A) has sustained the addition in the hands of all the eighteen farmers based on the statement of Shri Gajanand B. Patel without providing an opportunity to cross examine the said statement hence conclusion reached by the CIT(A) based on the statement of Shri Gajanand B. Patel is not acceptable. We have preceded and for the reasons alluded, we are of the opinion that addition should be deleted. Issues Involved:1. Validity of reopening of assessment under sections 147/148 of the Income Tax Act.2. Justification of agricultural income claimed by the assessee under section 68 of the Income Tax Act.Issue-wise Detailed Analysis:1. Validity of Reopening of Assessment:The assessee challenged the reopening of the assessment under sections 147/148 of the Income Tax Act on several grounds. It was argued that the reassessment was initiated based on information from the ADIT-Investigation wing without the Assessing Officer (AO) applying his own mind, thus constituting 'borrowed satisfaction.' The assessee contended that the AO should have issued a notice under section 143(2)(ii) within the permissible time to verify the agricultural income disclosed in the return. The reopening was claimed to be based on mere suspicion and mechanical action, without tangible new material. Additionally, the assessee argued that no opportunity was provided to confront the statement of Shri Gajanand B. Patel, which was against the principles of natural justice.The Revenue, represented by Ms. Anupama Singla, countered that the AO had validly reopened the assessment based on the inquiry report from the Investigation Wing and had applied his mind before issuing the notice under section 148. It was also noted that the assessee did not object to the reopening during the assessment proceedings and raised the issue only during the appellate proceedings.The Tribunal did not address the technical arguments regarding the reopening of the assessment under sections 147/148, as the appeal was adjudicated in favor of the assessee on merits.2. Justification of Agricultural Income:The primary issue was whether the small farmers, with agricultural income around Rs. 1,15,860, were required to maintain detailed books of accounts, bills for pesticides, seeds, and other expenses to substantiate their agricultural income. The assessee argued that small farmers, often illiterate and below the poverty line, could not be expected to maintain such records. Instead, the agricultural income should be estimated based on land holdings and rental land used for agricultural activities.The Tribunal found merit in the assessee's arguments. It was noted that maintaining detailed accounts would be impractical for small farmers with limited income. The Tribunal examined the landholding patterns and found sufficient evidence to support the agricultural income claimed by the assessee. The Tribunal criticized the CIT(A) for not providing cogent reasons for rejecting the landholding records submitted by the assessee.The Tribunal also highlighted that the CIT(A) relied on the statement of Shri Gajanand B. Patel without providing the assessee an opportunity to cross-examine, which violated the principles of natural justice. The Tribunal cited several judicial precedents supporting the necessity of cross-examination when statements are used as evidence.Conclusion:The Tribunal concluded that the agricultural income of Rs. 1,15,860 claimed by the assessee was justified based on the landholding records. The addition made by the AO and sustained by the CIT(A) under section 68 of the Income Tax Act was deleted. The Tribunal emphasized that small farmers should not be expected to maintain detailed accounts and bills for their agricultural income. The decision was based on the specific facts of the case and was not intended to set a precedent for other assessment years.Result:All eighteen appeals filed by the assessees were allowed, and the additions made by the AO were deleted. The order was pronounced on 12/07/2021.