2025 (3) TMI 1535 - AT - Income Tax

AO to verify evidence for claimed agricultural income; NFAC deletion restored; unexplained expenditure u/s 69C and receipts u/s 68 upheld

ITAT directed that the AO verify evidences supporting claimed agricultural income and decide afresh, restoring the NFAC-deleted addition of Rs. 35,83,000 ... Addition u/s 68 - addition of income generated through undisclosed source - Assessee contested to be as agricultural income - HELD THAT:- After having gone through the submissions made before us the assessee, including the case laws relied upon by him, we are of the view that for the purpose of agriculture income as defined in section 2(1A), ownership of agriculture land is not a pre-condition. However, in the interest of justice and in order to verify the evidences placed on record in this regard we set aside this issue, to the extent of verification of agriculture income as shown by the assessee, to the file of the AO. We direct the AO to verify all such evidences including any other evidence as may be submitted by the assessee before him and thereafter decide the issue of agriculture income. The assessee is also hereby directed to fully cooperate with the AO in such set aside proceedings. Thus, this relief of Rs. 35,83,000/- granted by NFAC is set aside to the file of AO. for deciding the issue after taking into consideration the additional evidences furnished and/or any other explanation or evidences furnished before him. In respect of agriculture income of Rs. 17,14,830/- we note that agriculture income from the said land has been offered for tax in earlier assessment years and have been accepted by the Department. The bills have been produced for sale of agriculture produce. Major portion is received through banking channel. Therefore, we do not find any infirmity in the order of NFAC granting relief to the assessee in respect of the said income of Rs. 17,14,830/-. Thus, addition of Rs. 35,83,000/- deleted by NFAC is restored back to the file of AO and order of NFAC is upheld regarding deletion of addition of Rs. 17,14,830/- Addition of unexplained expenditure u/s 69C - AR supported the order of NFAC and submitted that no payments were made out of books which has been so appreciated by NFAC while allowing the relief - We note that, ld. DR has not been able to place before us anything to controvert the finding of NFAC. We agree that no payments have been made out of books. There have been reversal entries for certain cheques which were dishonored and cleared subsequently. Accordingly, we agree with the findings of the NFAC and we do not find any reason to deviate from such findings. Addition u/s 68 - As gone through the evidences furnished before lower authorities by the assessee to discharge his onus under section 68. In respect of loan from Apollo Animal Medical Group Trust a query was raised by the Bench in respect of subsequent payment of affiliation fees by the assessee out of funds received from the said college. Our attention was drawn by ld. AR to Department Paper Book wherein on 4th August, 2020 payment of affiliation fees amounting to Rs. 1 Crore is reflected. On further query raised by the Bench ld. AR submitted evidences in respect of payment of entire affiliation fees of Rs. 1.50 Crores. Thus, the amount is received through banking channel and affiliation fees paid through banking channel is also substantiated. ISSUES PRESENTED AND CONSIDERED 1. Whether credits treated as agricultural receipts can be taxed as unexplained cash credits under section 68 when ownership/possession of agricultural land and receipts from lessee are disputed on revenue records. 2. Whether declared agricultural sales proceeds (including mandi bills and cash receipts) can be rejected as unexplained under section 68 because of low recorded agricultural expenses, discrepancies in books, handwriting/forgery suspicions or timing/date mismatches. 3. Whether unsecured loans/advances shown in books and evidenced by lender confirmations, PAN, bank statements, ITRs and financial statements are liable to be added as unexplained cash credits under section 68 when the Assessing Officer doubts identity, creditworthiness or genuineness. 4. Whether certain payments alleged to be out-of-books (cheque reversals, bank reconciliation items) are assessable as unexplained expenditure under section 69C. 5. Whether admission and consideration of additional evidence by the first appellate authority without forwarding to the Assessing Officer for his remand report violated Rule 46A(3) of the Income-tax Rules and warrants setting aside the appellate decision or remand. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Treatment of alleged agricultural receipts as unexplained cash credits under section 68 (ownership/lease of land) Legal framework: Section 68 applies where sums are found credited in books and the assessee offers no satisfactory explanation as to nature/source. Agricultural income is governed by definition of 'agricultural income' (section 2(1A) conceptually), and ownership is not a prerequisite to claim agricultural income; receipts from lease of agricultural land are relevant. Precedent treatment: Tribunal relied on authorities establishing that once identity, genuineness and creditworthiness (as applicable) are prima facie shown, onus shifts to Department to disprove (Shankar Industries principle and subsequent ITAT decisions quoted by the Tribunal). Interpretation and reasoning: The Tribunal examined documentary proof (registered sale deed, supplementary deed, lessee confirmation to s.133(6), Board of Revenue decision) and found that the assessee had discharged primary onus to demonstrate ownership/transaction and that the receipts were agricultural in character. However, because the first appellate authority (NFAC) had admitted additional evidence without complying with Rule 46A(3), the Tribunal held that the admission procedure was flawed and, in the interest of justice, set aside NFAC's deletion of the Rs.35,83,000 addition to the file of AO for verification of those additional documents and facts. For the other agricultural receipt (Rs.17,14,830), records of prior acceptance in earlier years, sale bills and bank receipts were convincing and the Tribunal upheld NFAC's deletion of that addition. Ratio vs. Obiter: Ratio - where the assessee produced sale deed, supplementary deed, lessee confirmations and public record decisions, the primary onus can be regarded as discharged such that s.68 should not be invoked unless AO disproves; but where admission of additional evidence before appellate authority violated Rule 46A(3), appellate relief based on such evidence must be remitted for AO verification. Obiter - observations about the nature of fodder as by-product and recommended inquiries to Tehsildar are ancillary. Conclusions: NFAC's deletion of Rs.17,14,830 stands. Deletion of Rs.35,83,000 is set aside and remitted to AO for verification of additional evidence and decision after affording opportunity to test those documents (including confronting the AO with additional evidence as required by Rule 46A(3)). Issue 2 - Validity of agricultural sales proceeds and effect of bookkeeping discrepancies Legal framework: Section 68 requires satisfactory explanation of credit; entries in books are relevant but not conclusive. Judicial principle (Kedarnath and Triveni) is that absence/errors in books do not automatically deny entitlement where substantive proof exists. Precedent treatment: Tribunal relied on authority that entries in books are not decisive and that prior acceptance in earlier assessment years and corroborative documents (mandi bills, bank receipts, confirmations) sustain genuineness. Interpretation and reasoning: Tribunal accepted mandi sale bills and bank receipts as adequate to discharge onus for the bulk of alleged sales proceeds. AO's reliance on low recorded expenses and discrepancies (revised cashbook, differing dates) were regarded as human/accounting errors capable of rectification; where evidence of sale (mandi bills, confirmations, bank credits) exists and a portion had been accepted earlier, NFAC's deletion of addition was upheld for that component. The Tribunal noted potential double-addition (same amount added twice) and indicated relief if duplication persisted. Ratio vs. Obiter: Ratio - documentary evidence of sale and bank receipts, together with prior acceptance, can rebut AO's adverse inference even if expenses recorded are low or books were revised; AO must produce contrary evidence to displace such proof. Obiter - suggestion of forensic examination where handwriting doubts exist is discretionary and fact-specific. Conclusions: Deletion by NFAC of the Rs.17,14,830 component is upheld; AO may verify discrepancies but cannot disregard corroborative mandi bills and bank receipts absent rebuttal. Issue 3 - Loans/advances treated as unexplained cash credits under section 68 Legal framework: Section 68 imposes burden on assessee to prove identity, genuineness and creditworthiness of lenders; once prima facie discharged by documentary proof, onus shifts to AO to disprove. Precedent treatment: Tribunal accepted ITAT and High Court precedents (Nimbus, Shankar Industries, Metachem) that PAN, bank statements, audited financials, confirmations and ITRs are satisfactory to discharge primary onus and require AO to test and disprove the materials. Interpretation and reasoning: Tribunal examined documents produced for each lender (ITR, audited accounts, bank statements, confirmations, PAN). For short-term loans repaid in the same year or supported by turnover and bank flows, the Tribunal found AO failed to conduct independent enquiries or produce contrary material. Specific scrutiny of large credits from a trust (where assessee was managing trustee) prompted Bench to seek evidence of subsequent utilisation (affiliation fee payment); on being shown bank evidence of payment of affiliation fees, the Tribunal accepted the explanation. Thus NFAC's deletion of additions aggregating Rs.2,31,88,312 was upheld since primary onus was discharged and AO had not rebutted it. Ratio vs. Obiter: Ratio - comprehensive documentary evidence (PAN, ITRs, bank statements, confirmations, audited accounts) shifts onus to AO and, absent rebuttal, s.68 additions cannot be sustained; repayment/flow-through may be relevant to negate net unexplained credit. Obiter - caution where lender is related/connected (managing trustee) and timings of receipts and payments may invite deeper inquiry. Conclusions: NFAC's deletions of the section 68 additions totalling Rs.2,31,88,312 are upheld by the Tribunal; AO's contentions without independent contrary material were insufficient to sustain additions. Issue 4 - Section 69C addition for unexplained expenditure (cheque reversals and bank reconciliation items) Legal framework: Section 69C addresses unexplained expenditure where payment is not recorded in books; bank records and reconciliations are relevant. Interpretation and reasoning: Tribunal accepted NFAC's finding, supported by bank and loan statements, that the disputed entries were reversal/cancelled transactions (dishonoured cheques subsequently cleared) and that no out-of-books payment ultimately occurred. Department did not place contrary material to rebut NFAC. Therefore addition under s.69C was not sustainable. Ratio vs. Obiter: Ratio - where bank/loan ledger shows cancellations and no net out-of-books payment, s.69C addition cannot be sustained. Obiter - none. Conclusions: NFAC deletion of Rs.84,285 under section 69C is affirmed. Issue 5 - Admissibility of additional evidence by appellate authority without remand/report under Rule 46A(3) Legal framework: Rule 46A(3) prohibits taking into account additional evidence unless the Assessing Officer has been given reasonable opportunity to examine it or to rebut it; appellate authority has powers under s.250(4) but must follow procedure in complex/new evidence situations. Precedent treatment: The Tribunal reviewed competing authorities - some recognising wide appellate powers to admit additional evidence and take evidence itself (Poddar, Jitendra Mehra), others stressing mandatory forwarding to AO when additional evidence is admitted and relied upon (Kerala HC and several ITAT precedents). Interpretation and reasoning: Tribunal found NFAC had admitted additional evidence but had not afforded AO opportunity to examine them as required by Rule 46A(3). That omission was a 'gross violation' of the Rule. Because the additional evidence related to a specific component (Rs.35,83,000) and had bearing on the deletion, the Tribunal allowed the departmental ground on procedural compliance and remitted that portion to the AO for verification, directing cooperation by assessee. For other parts where NFAC decision did not rest on those additional documents (or where evidence already on record sufficed), appellate relief was sustained. Ratio vs. Obiter: Ratio - where additional evidence is admitted by appellate authority and such evidence bears on the appellate decision, Rule 46A(3) requires furnishing to AO and reasonable opportunity to rebut; failure to do so requires remand/verification. Obiter - appellate authority retains wide powers to examine evidence in simple/personal matters, but complex/new materials warrant remand. Conclusions: Admission/use of additional evidence without forwarding to AO vitiated the appellate decision as to the Rs.35,83,000 agricultural receipt; that component is remitted to AO for verification in conformity with Rule 46A(3). The Tribunal upheld NFAC decisions on other issues where Rule 46A breach did not affect the outcome.