2023 (10) TMI 1226 - AT - Income Tax

Assessee loses appeal on undisclosed property investments but wins agricultural income deduction claim

The ITAT Pune dismissed the assessee's appeal regarding undisclosed debit entries in impounded books related to property investments. The Tribunal found ... Undisclosed debit entries in the impounded books - investment in advances for properties - contention of the ld. AR in respect of non-materialization of transaction with Manas Arun Kulkarni argued that the contents therein deposed before the Executive Magistrate supports the statement of non-materialization of transaction regarding the alleged payment - HELD THAT:- Since, the AO made addition taking into the said entry which was challenged before the CIT(A) except making reiteration of the statement that was made before the AO, no evidence such as the affidavit filed before the AO, also as well in the First Appellate proceedings. We see no reason for non-filing of the same before the AO and CIT(A) as rightly pointed by the ld. DR. Further, CIT(A) clearly observed vide notice that the dates and payments was specifically mentioned and as such on the dates and payments are different. Therefore, the statement made by the said Manas Arun Kulkarni before the AO is a mere statement without any evidence. No such evidence furnished before the CIT(A). It is for the first time, the assessee filed such affidavit before this Tribunal, in our opinion, is only to protract the litigation. The assessee ought to have filed the same before the AO during the course of assessment proceedings in 2016 and as well before the CIT(A) in 2017. It is pertinent to note that the said affidavit is dated 04-05-2017 is only after 4 days of passing of impugned order. Therefore, taking into consideration the facts and circumstances of the case and the finding of CIT(A) in the impugned order, we find no infirmity in the order of CIT(A) and it is justified. Thus, ground raised by the assessee are dismissed. Agricultural income - According to the AO no complete details were furnished regarding the total sales and expenditure, but however, allowed 50% taking into account the large land holdings by the assessee - said 50% was treated as income from other sources is allowed setoff against the addition on account of undisclosed source of income - HELD THAT:- AO and CIT(A) made addition in this regard on estimation basis, in our opinion, without considering the land holding and crops yielded i.e. Jowar, Cotton, Udad, Adrak, Harbhara and Banana. We note that the details filed by the assessee in written statement that the Banana crop yielded alone Rs. 75,60,000/- as gross receipt, but however, both the authorities below without considering the land holding, crops yielded, and value of crop yielded therein proceeded to make disallowance on estimation basis. Therefore, taking into consideration the facts and circumstances of the case i.e. land holding and details of crop yielded, average yield as per Government chart, rate per quintals and sale amount, we reverse the order of CIT(A) and hold that the assessee is entitled to claim allowance of entire agricultural income. Thus, ground No. 5 raised by the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether debit/credit entries in impounded books found during a survey can be treated as unexplained investments and added to income where the assessee fails to satisfactorily explain their nature and source. 2. Whether a post-adjudication affidavit filed for the first time before the Tribunal can be admitted to displace entries recorded in impounded material and statements taken during survey, when the declarant had earlier made oral statements before the assessing officer but did not file any documentary evidence during assessment or first appeal. 3. Whether the First Appellate Authority's reconciliation methodology - reducing the assessing officer's addition by identifying available sources and allowing part of claimed agricultural income - is sustainable, and if the Tribunal may re-visit estimate of agricultural income in light of land-holding, crop yield details and market rates. ISSUE-WISE DETAILED ANALYSIS Issue 1: Treatment of impounded books and unexplained investments - legal framework Legal framework: Survey under section 133A permits inspection and impoundment of books; unexplained cash/credit/debit entries found in impounded records may be taxed as unexplained income or investment unless the assessee satisfactorily explains the nature and source. The assessing officer has power to make additions where explanations are not supported by cogent evidence; the appellate authority may examine and reconcile impounded entries against available admitted sources. Precedent Treatment: No prior authorities were invoked or applied in the impugned order; the Tribunal considered statutory and evidentiary principles concerning survey material and onus of explanation. Interpretation and reasoning: The Tribunal noted that the assessing officer reconciled impounded entries year-wise and invited the assessee to furnish cogent evidence; the assessee failed to substantiate advances/investments shown in impounded material. The First Appellate Authority reduced the AO's total addition after examining the assessee's tabular reconciliation and identified actual investments of Rs. 2,36,08,073/- against AO's Rs. 3,30,19,093/-, then quantified admitted available sources at Rs. 67,11,466/-, resulting in an unexplained investment of Rs. 1,68,96,607/-. The Tribunal accepted the appellate calculation and reasoning as justified on the record and facts, finding no infirmity in CIT(A)'s approach of reconciling impounded entries with available admitted receipts and reductions in capital accounts. Ratio vs. Obiter: Ratio - Where entries in impounded books are not adequately supported by documentary evidence and the assessee cannot show commensurate sources, the AO is entitled to make additions; an appellate authority may reduce such additions after identifying and allowing admitted or proved sources. Obiter - General comments on duties of the assessee to file evidence during assessment and appeal proceedings. Conclusion: The addition made by the AO is partly sustainable; the Tribunal upheld the CIT(A)'s confirmation of unexplained investment of Rs. 1,68,96,607/- and deletion of the balance addition, on the basis that the assessee failed to provide cogent documentary proof to explain impounded entries. Issue 2: Admissibility and evidentiary value of post-order affidavit (statement of third party) filed before the Tribunal Legal framework: Evidence supporting factual claims must ordinarily be placed on record before the AO and before the first appellate authority; late evidence may be prima facie objected to as an attempt to protract litigation or to create after-thought justification. Statements recorded during survey/assessment are admissible material; subsequent unfiled affidavits have limited value where the declarant earlier made oral statements but offered no contemporaneous documentary evidence. Precedent Treatment: No external precedent was cited; the Tribunal applied established evidentiary principle that fresh evidence filed for the first time at the Tribunal must meet justification for non-filing earlier and is subject to scrutiny for genuineness and timing. Interpretation and reasoning: The Tribunal observed that the affidavit in question was sworn after the CIT(A)'s order and was not produced before the AO or before the CIT(A). The declarant (third party) had earlier appeared before the AO and made a statement denying materialization of the alleged transaction but did not file an affidavit or documentary proof. The Tribunal treated the late affidavit as an after-thought aimed at benefiting from earlier appellate findings and noted absence of explanation for non-filing during earlier stages. Given the AO's reliance on specific dates and payment entries in the impounded material and the lack of corroborative evidence from the declarant at the earlier stages, the Tribunal held the late affidavit had no evidentiary value to rebut the entries in impounded books. Ratio vs. Obiter: Ratio - Affidavits or evidence filed for the first time before the Tribunal after completion of lower proceedings, without satisfactory explanation for non-production earlier, may be rejected and held insufficient to overturn findings based on contemporaneous impounded material and earlier statements. Obiter - Observations on litigational conduct and motives for late filing. Conclusion: The Tribunal rejected the assessee's attempt to rely on the post-order affidavit to displace the impounded entries; the CIT(A)'s treatment of the Manas Arun Kulkarni-related entry was upheld. Issue 3: Quantification of agricultural income - sufficiency of estimation and scope for Tribunal to re-assess Legal framework: Agricultural income is assessable to the extent it is proved; where authorities estimate agricultural income, the assessee is entitled to have estimation based on land holding, crop yields, government yield/norms and market rates if such material is produced. The onus to substantiate claimed agricultural receipts and expenses rests on the assessee; however, when cogent land-holding and crop production data are filed, the appellate authority (and Tribunal) may re-visit and correct an estimate made without considering such material. Precedent Treatment: No precedents were cited; the Tribunal applied appraisal of primary evidence (7/12 extracts, crop details) against the lower authorities' estimation approach. Interpretation and reasoning: The AO accepted only 50% of the claimed agricultural income on an estimation basis, while the CIT(A) increased allowance to 75% (Rs. 36,75,000/-). The Tribunal examined land records (7/12 extracts showing ~37 acres), crop details including types (Jowar, Cotton, Udad, Adrak, Harbhara, Banana) and claimed gross receipts (notably banana receipts). The Tribunal concluded that both authorities had made estimates without adequately factoring land holding, crop yield per acre, government average yields and market prices. Considering the detailed materials filed before the Tribunal (land records, crop yield particulars and price information), the Tribunal reversed the CIT(A)'s partial allowance and held that the entire claimed agricultural income was admissible. Ratio vs. Obiter: Ratio - Where particulars of land holding, crop type and yield and market rates are placed on record, an estimation made by lower authorities without applying those facts may be corrected and the full agricultural income accepted. Obiter - Comment that AO and CIT(A) relied on estimation despite available primary data. Conclusion: The Tribunal allowed the assessee's ground on agricultural income and directed acceptance of the full agricultural income claimed, reversing the CIT(A)'s restricted acceptance. Cross-references and Final Outcome Issues concerning impounded books and late affidavits are interlinked: failure to adduce primary evidence before AO/CIT(A) undermines attempts to displace impounded entries at the Tribunal (see Issue 1 & Issue 2). Conversely, where primary documentary evidence (land-records, crop yield particulars) exists and was produced, the Tribunal may overturn estimation-based disallowances (see Issue 3). Overall conclusion: The Tribunal upheld the appellate reconciliation of impounded entries and confirmed unexplained investment of Rs. 1,68,96,607/- (AO's larger addition partly deleted) and rejected late affidavit evidence to negate specified entries; separately, the Tribunal allowed full claimed agricultural income on the basis of land-holding and crop yield evidence, resulting in a partly allowed appeal.