2024 (7) TMI 1700 - AT - Income Tax

Rs.46,00,000 Held Plausible Sale Consideration for Agricultural Land; Addition Under s.147 Set Aside as Exempt

ITAT allowed the taxpayer's appeal, holding that the Rs.46,00,000 deposited was plausibly sale consideration for agricultural land and could not be ... Reopening of assessment u/s 147 - assessee has not filed his return of income - assessee deposited huge cash in his bank account - HELD THAT:- The assessee during proceedings submitted that he has received cash on account of sale of agricultural land explanation of the assessee was not considered by the AO because the agreement value of the said land recorded at Rs. 12,00,000/-. The bench noted that while examining the issue, the ld. AO himself noted this aspect of the matter but has not given the credit of Rs. 46,00,000/-. Assessee argued before us, that the revenue authorities could not controvert this fact that the assessee has no other source in the year under consideration. Therefore, explanation given by the assessee cannot be discarded by the revenue. The holding of agricultural land by the assessee is not disputed, the payment of money is an unfortunate practice followed and there cannot be any contrary proof of having other income to the extent of Rs. 46,00,000/- by the assessee thus it is a case of the assessee that buyer paid the assessee the fair value of consideration which the assessee has deposited into bank account. Thus, the explanation given by the assessee by submitting documentary evidence which has been partly accepted and partly disapproved. The Apex Court in the case of Sreelekha Banerjee [1963 (3) TMI 47 - SUPREME COURT] has held that the department cannot by merely rejecting unreasonable a good explanation converting good proof into no proof. Thus, the contention of the assessee cannot be totally brush aside and the surplus money deposited by the assessee as explained is required to be considered out of the agricultural land proceed and since that land proceed has already been considered while assessing the income of the assessee as exempt the remaining amount of Rs. 46,00,000/- cannot be held as income of the assessee. The bench also noted while making the addition the ld. AO did not mention any section under which that income is made chargeable to tax in the hands of the assessee. Therefore, even on that account also addition made by the ld. AO is not sustainable. Appeal of the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the reopening of assessment by issuance of notice under section 148 was invalid for want of proper/meaningful approval by the competent authority. 2. Whether the first appellate authority's ex parte dismissal for non-prosecution (failure to appear/respond) was procedurally valid and justified. 3. Whether the addition of Rs. 46,00,000 (cash deposits) could be sustained as unexplained income where the assessee maintained the amount represented sale proceeds of agricultural land situated outside municipal limits. 4. Whether the Assessing Officer's lump-sum addition was sustainable where no specific charging provision/head of income was invoked in the assessment order. 5. Whether interest under sections 234A/B/C was incorrectly levied (raised as a ground though not finally adjudicated in detail by lower authorities). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of reopening under section 148: application of mind in approval (legal framework) Legal framework: Reopening under section 147 requires issuance of notice under section 148 after reasons are recorded; approval/sanction by competent higher authority (section 151/administrative scheme) must reflect application of mind and recorded satisfaction. Precedent treatment: Decisions emphasize that mere mechanical stamping of 'approved' or consolidated/tickless approvals without independent satisfaction is insufficient; approvals must be meaningful (authorities cited by parties in submissions). Interpretation and reasoning: The Tribunal reviewed parties' contentions and factual material regarding timing and form of approval. The Revenue filed a report asserting that prescribed format was forwarded and JCIT approved on 06-03-2018. The assessee challenged the approval as consolidated, mechanical and possibly post-dating notice. The Tribunal considered authorities relied upon by the assessee on the need for application of mind but did not finally quash the reopening on this ground in the operative part of the order. Ratio vs. Obiter: Observations about the law requiring meaningful approval and the citations relied upon are treated as guiding ratio where applied in other cases; in the present decision the Tribunal did not set aside the reopening solely on this ground and proceeded to decide merits, so many comments are obiter but endorse established ratio that approval must not be perfunctory. Conclusion: The Tribunal accepted the Revenue's explanation regarding approval for this case and did not annul proceedings solely for want of proper approval; the challenge to reopening based on approval was considered but not determinative. Issue 2 - Ex parte dismissal by first appellate authority for non-prosecution Legal framework: Appellate authorities may dismiss appeals for non-prosecution where a party is repeatedly non-responsive; however, natural justice requires adequate opportunity and due notices. Precedent treatment: Authorities disfavor parties sleeping on rights; ex parte disposal is permissible after adequate opportunities but must be on record. Interpretation and reasoning: The appellate record showed multiple hearing notices sent to the assessee and non-response; first appellate authority found the assessee inactive and proceeded to decide on merits. The Tribunal proceeded to examine merits regardless of prior ex parte dismissal. Ratio vs. Obiter: The Tribunal's acceptance that non-response can justify proceeding is ratio in context of procedural default; but the Tribunal nevertheless considered merits to do substantial justice. Conclusion: The Tribunal did not disturb the appellate authority's procedural finding of non-prosecution but addressed the substantive issues on merits to prevent injustice. Issue 3 - Whether Rs.46,00,000 addition sustainable where claimed source is sale proceeds of agricultural land located outside municipal limits Legal framework: Sale proceeds of agricultural land situated outside municipal limits/used for agriculture may fall outside capital asset under section 2(14) and be exempt from capital gains; revenue must disprove the asserted source to treat deposits as unexplained income. Precedent treatment: Tribunals have held that when nexus between deposit and contemporaneous sale transaction is established by documentary evidence and no contrary evidence is produced by Revenue, deposits should be accepted as sale consideration; department cannot convert a reasonable explanation into no-proof by mere rejection. Interpretation and reasoning: Facts: assessee deposited Rs. 58,00,000 in FY; assessee declared Rs. 12,00,000 as sale proceeds of two agricultural lands; AO accepted Rs.12,00,000 but made addition of Rs.46,00,000 as unexplained. The Tribunal examined bank evidence, sale deed and contemporaneous circumstances, noted that AO himself recorded deposits related to sale consideration and that assessee had no other income source in year. The Tribunal applied principle that Revenue must produce contradictory evidence if contesting source and that mechanical rejection is impermissible. The Tribunal also noted AO's failure to specify head/section for addition in assessment order (see Issue 4) as undermining sustainability. Ratio vs. Obiter: The finding that excess deposits were to be treated as proceeds of sale of agricultural land (and hence not chargeable) is ratio in this case - the Tribunal directed deletion of the Rs.46,00,000 addition on the facts and law applied. Conclusion: Addition of Rs.46,00,000 held unsustainable; Tribunal directed deletion, accepting that the surplus cash represented sale proceeds of agricultural land situate outside municipal limits and that Revenue failed to disprove the explanation. Issue 4 - Requirement to invoke specific charging provision/head when making lump-sum additions Legal framework: Additions to income must ordinarily indicate the statutory provision or head under which the amount is assessed (e.g., sections 68/69/69A/56/48 etc. or specific charging provisions); taxation statutes and penal provisions are strictly construed. Precedent treatment: Prior Tribunal decisions criticized AO's lump-sum additions made without reference to any specific statutory provision or head; such mechanistic additions attract judicial review and potential disallowance. Interpretation and reasoning: The Tribunal observed that the AO's assessment order did not specify the provision under which Rs.46,00,000 was taxed (despite a later rectification sheet alleged by Revenue). The Tribunal held that making a lump-sum addition without invoking appropriate statutory provision undermines the legality of the addition and is contrary to requirement of clear statutory mandate (Article 265 principle invoked in submissions). Ratio vs. Obiter: The Tribunal's insistence that AO must indicate the statutory provision when making additions is ratio for assessing validity of such additions; it formed part of the basis for deleting the addition in this case. Conclusion: AO's failure to specify the head/section for the addition rendered the addition unsustainable; this deficiency supported deletion of the Rs.46,00,000 addition. Issue 5 - Levy of interest under sections 234A/B/C Legal framework: Interest provisions operate subject to the assessment of tax liability and applicable timelines; incorrect levy of interest depends on correctness of assessment and tax demand. Precedent treatment and reasoning: The assessee raised challenge to interest charges, but the Tribunal's order focused on deletion of the primary addition (Rs.46,00,000). Deletion of tax on that amount necessarily impacts any consequential interest; detailed adjudication on interest was not separately elaborated upon in the operative reasoning beyond the deletion outcome. Ratio vs. Obiter: Observations about interest are incidental/obiter; actual consequence is that deletion of the tax base will affect interest liability. Conclusion: As the primary addition was deleted, any consequential interest levied on that addition would not survive; Tribunal's deletion of the addition removes basis for related interest (implicit consequential relief). Overall Disposition and Cross-References The Tribunal, having considered procedural objections to reopening (Issue 1), the appellate non-prosecution (Issue 2), evidentiary material and legal principles on taxing cash deposits and agricultural land treatment (Issues 3-4), concluded that the addition of Rs.46,00,000 was not sustainable. The Tribunal relied on the settled principle that taxing statutes must be strictly construed and that Revenue must produce cogent contrary evidence when rejecting a plausible contemporaneous explanation (cross-reference Issues 3 and 4). Consequently, the addition was deleted and the appeal allowed; any interest consequential on the deleted addition would accordingly not survive.