2025 (10) TMI 567 - AT - Income Tax

Agricultural receipts and related expenses accepted based on videos, photos, bills and field inquiry; tax addition deleted

Arya Agri & Aqua Private Limited Versus DCIT, Circle-1 (1), Bhubaneswar

ITAT CUTTACK held that the assessee's agricultural activity and related expenses were satisfactorily proved by video, photographs, fertilizer bills (DAP, ... Disallowance of expenses claimed against agricultural income - Proof of agricultural activity - HELD THAT:- The assessee has claimed expenses towards purchases of seeds. The expenses pertaining to fishery business were allowed as claimed, however, the AO has doubted the expenses claimed against agricultural income by alleging that the same were without any supporting. As from perusal of the video clip submitted by the assessee, DR has not doubted the agricultural activities carried out at the land. From the perusal of the photographs also we found that the agricultural activities were carried out on the said land. AR also drew our attention to few copies of the bills for purchase of fertilizers which are in paper book placed before us. As perusal of the bills, it is seen that the bills are relating to DAP, UREA, pesticides etc. which could only be used for agricultural production and not for fishery production. All these facts lead to believe that assessee was actively engaged in the agricultural activity and, therefore, the receipts from the agricultural produce cannot be doubted. This view is also supported by field enquiry report of the Inspector where he very categorically observed that paddy was available in patches at the land of assessee. Assessee has been able to establish that agricultural activity was carried out by it and further able to substantiate the agricultural income earned from the sale of agricultural produce which were cultivated on the land owned by it with all plausible evidences and, therefore, the addition made on this account is hereby deleted and the grounds of appeal of the assessee are allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether agricultural receipts claimed as exempt can be treated as unexplained cash credit under section 68 where the Assessing Officer doubts existence of agricultural activity. 2. Whether the assessee discharged the evidentiary burden to establish genuineness of agricultural income by production of documentary and visual evidence (bills, photographs, video, bank sanction letter, inspector's report). 3. Whether the Assessing Officer's / Inspector's spot verification, and the manner in which it was conducted, suffices to displace assessee's claim of agricultural activity when inquiries omitted key witnesses and relevant procedural entries are missing from the record. 4. Whether parity in treatment of expenses for fishery and agriculture (allowance of seed purchase for fishery but doubt as to seed purchase for agriculture) can be a valid ground to discredit the assessee's agricultural claim. 5. Whether delay in filing appeals should be condoned where sufficient reasons are presented and Revenue does not oppose condonation. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Treatment of agricultural receipts as unexplained cash credit under section 68 Legal framework: Agricultural income is exempt under the Income-tax law; unexplained cash credit under section 68 is attracted where credits in the books are not satisfactorily explained by the assessee. Precedent treatment: The Court follows the established principle that credits can be treated as unexplained only where the assessee fails to satisfactorily explain the source or genuineness of receipts; if the assessee furnishes credible evidence to substantiate the source and genuineness, addition under section 68 cannot be sustained. Interpretation and reasoning: The Tribunal examined the totality of evidence-land status (undisputed agricultural land), inspector's report (admission of standing paddy in isolated patches), bank sanction for credit facilities linked to agriculture/fishery, tax return figures showing segmentation of fishery and agricultural receipts, supporting bills (fertilisers, DAP, UREA, pesticides), photographs, and video evidence. The Tribunal held that where evidence collectively establishes agricultural activity and the linkage of receipts to cultivation, AO's conclusion that agricultural receipts are unexplained cash credit is not justified. Ratio vs. Obiter: Ratio - Where the assessee produces plausible, corroborative documentary and visual evidence establishing agricultural operations and linkage to receipts, addition under section 68 treating agricultural receipts as unexplained cannot be sustained. Obiter - Emphasis that isolated negative aspects of inspection do not automatically render statutory exemption inapplicable. Conclusion: The Tribunal deleted the addition made under section 68 and held agricultural receipts genuine and exempt, as assessee established agricultural activity and substantiation of income. Issue 2 - Sufficiency of evidence produced by the assessee (bills, photographs, video, bank letter, inspector's report) Legal framework: Burden lies on the revenue to prove credits are unexplained once the assessee offers plausible explanation supported by evidence; admissibility and weight of documentary and contemporaneous evidence determine credibility. Precedent treatment: The Tribunal follows the principle that multiple forms of corroborative evidence may be cumulatively sufficient to satisfy the evidentiary burden on the assessee. Interpretation and reasoning: The Tribunal evaluated individual evidentiary items: (a) bills for fertilisers and pesticides (items demonstrably used for agriculture rather than fishery); (b) photographs showing ponds and agricultural produce; (c) video footage of the entire land displaying agricultural and fishery activity; (d) bank sanction letter and loan records evidencing lender's due diligence and periodic verifications; and (e) inspector's report acknowledging standing paddy. The Tribunal found these items, taken together, formed a coherent, plausible account supporting the assessee's claim of agricultural operations and receipts. Ratio vs. Obiter: Ratio - Cumulative documentary and visual evidence demonstrating cultivation and linkage to receipts can discharge the assessee's burden and preclude an addition under section 68. Obiter - Individual lacunae in evidence (e.g., not producing every voucher) are not fatal if substantial corroboration exists. Conclusion: The Tribunal held that the assessee satisfactorily substantiated agricultural income by credible contemporaneous documents and visual evidence; the addition was therefore deleted. Issue 3 - Adequacy and propriety of spot verification by the Inspector Legal framework: Fact-finding by departmental inspectors must be properly conducted and recorded; inquiries should be fair, comprehensive, and procedurally regular to merit decisive weight against assessee's evidence. Precedent treatment: Tribunal treated defective or incomplete departmental verifications with caution where procedural shortcomings or inadequate inquiries undermine the reliability of the inspection report. Interpretation and reasoning: The Inspector's report acknowledged agricultural activity in patches but the Tribunal noted several procedural and substantive defects: (a) Inspector did not record statements of the assessee's employees who were available and actively engaged in agriculture; (b) enquiries were made from unrelated local villagers rather than relevant on-site persons; (c) the order sheet lacked entries authorizing or documenting the inspector's deputation and follow-up; and (d) verification was carried out much later than the relevant year, after agricultural operations had largely ceased, affecting observable evidence. These infirmities diminished the probative value of the inspection report as a basis to displace assessee's other evidence. Ratio vs. Obiter: Ratio - An inspection report that omits key inquiries, records, or authorization and is conducted at a non-representative time cannot, by itself, justify rejecting contemporaneous documentary and visual evidence proving agricultural activity. Obiter - Timeliness and completeness of inspection strongly affect its evidentiary weight. Conclusion: The Tribunal held the inspector's report was inadequate to negate the assessee's established evidence and could not sustain the AO's adverse finding. Issue 4 - Consistency in treatment of expenses for fishery and agriculture Legal framework: Assessing Officer's treatment must be consistent; differential acceptance of similar categories of expenses requires explanation and justification to impugn credibility of claimed expenses. Precedent treatment: Tribunal treats inconsistent assessment approaches skeptically where disparate treatment is not rationally explained. Interpretation and reasoning: AO accepted seed/fuel/inputs for fishery but disbelieved seed purchases for agricultural operations without adequate basis. The Tribunal found such differential treatment arbitrary in absence of reasons for singling out agricultural expense vouchers, particularly when the assessee produced specific bills for agricultural inputs (DAP, UREA, pesticides). This undermined the AO's premise that agricultural receipts were unexplained. Ratio vs. Obiter: Ratio - Lack of reasoned consistency in departmental disallowance weakens the finding that particular receipts are unexplained. Obiter - Comparative acceptance of related expenses for one activity tends to support genuineness of other related expenses unless clearly distinguishable. Conclusion: Tribunal rejected AO's differential treatment as insufficient to sustain addition under section 68. Issue 5 - Condonation of delay in filing appeals Legal framework: Delays in filing statutory appeals may be condoned on sufficient cause; absence of opposition by Revenue is a relevant factor though not conclusive. Precedent treatment: Tribunal condones delay where assessee furnishes affidavits stating sufficient reasons and Revenue does not object. Interpretation and reasoning: The assessee filed condonation applications with affidavits explaining delays; Revenue did not oppose condonation. Tribunal exercised its discretion to condone respective delays and proceeded to hear appeals on merits. Ratio vs. Obiter: Ratio - Where sufficient cause is shown and Revenue does not object, Tribunal may condone delay and adjudicate appeals on merits. Obiter - Each condonation application is dependent on facts and explanation provided. Conclusion: Delays in filing the appeals were condoned and appeals were heard finally on merits.