2022 (10) TMI 127 - AT - Income Tax

ITAT Grants Partial Relief for Agricultural Income; Upholds Rulings on Penalty and Unexplained Credit Card Expenses.

The ITAT dismissed the Revenue's appeal regarding the penalty under Sec. 271D, finding it inapplicable to transactions between directors and the company. ... Penalty u/s. 271D - amount paid by the Directors / Shareholder towards share capital and unsecured loans in the form of cash - HELD THAT:- We are of the considered view that the amount paid by the Directors / Shareholder towards share capital and unsecured loans in the form of cash does not attract the provisions of section 269SS of the Act and penalty U/s. 271D cannot be levied on the same. We therefore find no error in order of the Ld. CIT(A) and hence no interference is required in the order of the Ld. CIT(A) and dismiss the grounds raised by the Revenue. Nature of income - agricultural income or income from other sources - AO allowed a sum from sale of coconut and bananas but disallowed a sum from sale of Eucalyptus - HELD THAT:- As noted from the paper book that the assessee has been regularly admitting the agricultural income in the earlier assessment years. It was also not disputed by the Ld.AO in earlier years. It is also noted that the statement recorded U/s. 131 of the Act by M. Rama Rao does not have any evidentiary value and cannot be enforced upon. We also find from the paper book that the assessee has filed a letter from the Sarpanch of Vaddangi Gram Panchayat regarding the planting of Eucalyptus trees in the assessee’s lands. The submission of the Ld.AR that harvesting of Eucalyptus trees will take 4 to 5 years cannot be denied. The assessee in his statement has accepted the fact that they used to get Rs. 1 lakh to Rs. 1.5 lakhs per Acre from the agricultural operations. In the sale of agricultural produce viz., Coconut grove, Paddy and Eucalyptus, the receipt of cash is common among agriculturists. We find merit in the arguments of the Ld. AR that assessee has engaged in agricultural activities, not contested by the Revenue, and therefore we are of the considered view, considering the 13½ acres of wet and dry lands owned by the assessee, it can be reasonably estimated that the assessee would have earned Rs. 7 lakhs per annum during the impugned assessment year in agricultural activity carried on by him from his agricultural lands of13 ½ Acres. We therefore direct the Ld. AO to consider the agricultural income of Rs. 7 lakhs. Accordingly, the grounds raised by the assessee are partly allowed. Expenses incurred by the assessee through Credit Cards - HELD THAT:- Assessee has clarified before the Revenue that there Is withdrawals from the capital account and accommodation from friends - The assessee has also offered the difference amount due to the inability of the assessee to produce evidence for the same. AO has rightly distinguished the facts and in the absence any cogent evidence we are of the considered view that the Ld. CIT(A)’s decision is in accordance with law and based on the facts and circumstances of the case and therefore we find no reason to interfere with the of the Ld. CIT(A) on this issue. It is ordered accordingly. Thus, this ground raised by the assessee is dismissed. Issues Involved:1. Penalty under Section 271D for violation of Section 269SS.2. Addition of agricultural income as unexplained income.3. Credit card expenses treated as unexplained income.4. Delay in filing Cross Objection.Issue-wise Detailed Analysis:1. Penalty under Section 271D for violation of Section 269SS:The Revenue filed an appeal against the order of the CIT(A) which deleted the penalty of Rs. 72,30,000 levied under Section 271D for accepting share capital and unsecured loans in cash, violating Section 269SS. The assessee argued that share capital is neither a deposit nor a loan, thus not attracting Section 269SS. The Tribunal, referencing the Supreme Court's explanation in ADA Investigation vs. Kumar A B Shanti, concluded that transactions between directors and the company are not loans or deposits as per the Companies (Acceptance of Deposits) Rules, 1975. Therefore, the penalty under Section 271D was not applicable, and the appeal by the Revenue was dismissed.2. Addition of agricultural income as unexplained income:In the case of Dharmana Chinna Chandrudu, the AO added Rs. 14 lakhs as unexplained income, rejecting the agricultural income claim. The Tribunal noted that the assessee owned significant agricultural land and had a history of declaring agricultural income. Despite discrepancies in the statement of a buyer, the Tribunal estimated a reasonable agricultural income of Rs. 7 lakhs, partially allowing the appeal.For Dharmana Sasidhar, the AO disallowed Rs. 23,80,085 out of Rs. 24,00,500 claimed as agricultural income. The Tribunal, considering the confirmation from the buyer and the agricultural activities, directed the AO to treat the entire amount as agricultural income, allowing the appeal.For Dharmana Dharma Rao, the AO treated Rs. 19,20,670 as unexplained income out of the claimed Rs. 24,25,000 agricultural income. The Tribunal, following its reasoning in the Chinna Chandrudu case, directed the AO to consider Rs. 11,22,500 as agricultural income, partially allowing the appeal.3. Credit card expenses treated as unexplained income:Dharmana Sasidhar's appeal included a dispute over Rs. 11,56,600 in credit card expenses. The assessee explained part of the expenses as withdrawals from the capital account and loans from friends. The Tribunal found no reason to interfere with the CIT(A)'s decision to treat the unexplained portion as income, dismissing this ground of appeal.4. Delay in filing Cross Objection:The assessee's Cross Objection was delayed by 391 days due to inadvertent misplacement and the Covid pandemic. The Tribunal condoned the delay, finding a reasonable cause. However, since the grounds supported the CIT(A)'s decision, the Cross Objection was dismissed as infructuous.Conclusion:The Tribunal dismissed the Revenue's appeal and the assessee's Cross Objection, while partly allowing the appeals of Dharmana Chinna Chandrudu, Dharmana Sasidhar, and Dharmana Dharma Rao, providing partial relief in the estimation of agricultural income.