Agricultural income exemption upholds assessee's case against unexplained cash deposits under section 69A during demonetization

ITAT Indore ruled in favor of the assessee regarding unexplained cash deposits during demonetization period. The tribunal found that the assessee owned agricultural lands and sold agricultural produce, with agriculture being the sole source of income. Despite incomplete documentation, the assessee filed sample bills and a solemnized affidavit confirming no income except agriculture. Since agricultural income is fully exempt and no other income source was established, the addition under section 69A and invocation of section 115BBE were set aside as unsustainable.

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Issues Involved:
1. Legality of the assessment order.
2. Justification for confirming the assessment order.
3. Addition of Rs. 11,46,500/- against cash deposits during the demonetization period.
4. Application of Section 68 and Section 115BBE.

Detailed Analysis:

1. Legality of the Assessment Order:
The assessee argued that the assessment order dated 26.10.2019, passed by the AO u/s 144 of the Income-tax Act, 1961, was bad-in-law, void ab initio, barred by limitation, illegal, and contrary to the facts and circumstances of the case. However, during the appeal, the assessee's representative prayed for non-pressing of this ground, which was not objected to by the respondent's representative. Consequently, the tribunal dismissed this ground as non-pressed.

2. Justification for Confirming the Assessment Order:
Similarly, the second ground, which challenged the CIT(A)'s confirmation of the assessment order on the same grounds of being void ab initio and illegal, was also non-pressed by the assessee's representative and dismissed by the tribunal.

3. Addition of Rs. 11,46,500/- Against Cash Deposits During Demonetization Period:
The main issue revolved around the addition of Rs. 11,46,500/- made by the AO u/s 69A, treating the cash deposits in the bank as unexplained money. The assessee, a farmer, claimed that the cash deposits were from agricultural income. The AO had accepted only Rs. 9,63,798/- out of the declared agricultural income of Rs. 21,20,298/-, treating the remaining amount as unexplained. The CIT(A) upheld this addition, citing that the documents provided by the assessee were self-serving and that it was improbable for the assessee to keep such a large amount of cash idle while availing KCC loans.

The assessee provided documentary evidence, including Khasra copies, Mandi receipts, and an affidavit, to support the claim of agricultural income. The tribunal found that the assessee had sufficient land and sold various crops, with some sample bills submitted as evidence. The tribunal noted that the assessee's sole source of income was agriculture, and no other income source was brought on record by the AO. Given that agricultural income is exempt from tax, the tribunal concluded that the addition u/s 69A was not sustainable and deleted the addition.

4. Application of Section 68 and Section 115BBE:
The assessee also challenged the application of Section 68 and Section 115BBE. Since the tribunal deleted the addition made by the AO, the ground concerning the invocation of Section 115BBE became inconsequential and did not require adjudication.

Conclusion:
In conclusion, the tribunal allowed the assessee's appeal, deleting the addition of Rs. 11,46,500/- made by the AO u/s 69A and rendering the application of Section 115BBE irrelevant. The order was pronounced in open court on 23.01.2024.

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