Income Tax Appellate Tribunal - Jabalpur
Shri Dilip Mehta, Jabalpur vs A.C.I.T, Jabalpur on 16 August, 2021
ITA No. 52/Jab/2013 (AY 2006-07)
Dilip Mehta v. Astt. CIT
IN THE INCOME TAX APPELLATE TRIBUNAL, JABALPUR BENCH,
JABALPUR (SMC)
(through Video Conferencing)
BEFORE SH. SANJAY ARORA, HON'BLE ACCOUNTANT MEMBER
ITA No.52/JAB/2013
Assessment Year: 2006-07
Dilip Mehta, Assistant Commissioner of
Jabalpur vs. Income Tax,
(M.P.) Circle 1,
Jabalpur,
[PAN: AAJPM 8444K]
(Appellant) (Respondent)
Appellant by Sh. Sapan Usrethe Advocate
Respondent by Smt. Swati Agarwal, Jt. CIT
Date of hearing 11/8/2021
Date of pronouncement 16/8/2021
ORDER
Per Sanjay Arora, AM
This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals), Jabalpur ('CIT(A)' for short) dated 12/9/2012, dismissing the assessee's appeal contesting his assessment under section 143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for the Assessment Year (AY) 2006-07 vide Order dated 28/12/2011.
2. Opening the arguments for and on behalf of the assessee, it was submitted by Shri Usrethe, the ld. counsel for the assessee, that the assessee's case is squarely covered by the Tribunal's order in his own case for AY 2005-06, copies of which, i.e., the Third Member order dated 20/3/2020 and the Division Bench order (giving effect to the majority view) dated 20/7/2020, stand furnished by him to the Tribunal (with a copy to the Revenue) on 12/7/2021.
1 ITA No. 52/Jab/2013 (AY 2006-07)Dilip Mehta v. Astt. CIT Narrating the background facts of the case, he explained that the assessment in this case was originally made u/s. 143(3) on 26/12/2008 (APB pgs. 46-51), making two adjustments to the assessee's returned income, being:
a). denial of exemption u/s.10(1) in respect of income returned as agricultural income on account of it being unproved to the extent of Rs. 28.56 lacs; and
b). denial of deduction u/s. 80-JJA on the profits and gains of the business of sale of biofertilizer and biological agent, at Rs. 10.69 lacs.
The same was subject to revision u/s. 263 of the Act by the Commissioner of Income Tax-II, Jabalpur ('CIT' for short) on the ground that penalty u/s. 271(1)(c) had not been initiated by the Assessing Officer (AO) while completing the assessment, which was also directed to be framed afresh. The matter, in further appeal, was set aside by the Tribunal (in ITA 186/Jab/2009, dated 26/10/2009) to the file of the ld. CIT, who, in the set aside proceedings, vide order dated 29/3/2011, dropped the proceedings u/s. 263 qua the deduction u/s. 80-JJA, and remitted the matter back to the AO for fresh examination on the issue of denial of exemption u/s. 10(1). The AO, vide order dated 28/12/2011, repeated the denial of exemption u/s. 10(1), assessing the returned agricultural income (Rs. 29.42 lacs) as income from other sources (to the extent of Rs. 28.56 lacs) inasmuch as no improvement in his case had been made by the assessee in the set-aside proceedings. The same was confirmed by the ld. CIT(A), observing the facts and circumstances of the case to be the same as that for AY 2005-06, for which year the first appellate authority had confirmed the assessment, similarly, of the agricultural income as income from other sources (vide order u/s. 143(3), dated 31/12/2007 (APB 36-45)). The assessee's further appeal to the Tribunal has since been, as clarified earlier, accepted by it, i.e., on the issue of genuineness of the claim qua agricultural income and, thus, of the claim of exemption u/s. 10(1) in its respect, reversing the order by the first appellate authority, relied upon by the ld. CIT(A). He would then take the Bench through the assessment orders dated 26/12/2008 and 28/12/2011; the 2 ITA No. 52/Jab/2013 (AY 2006-07) Dilip Mehta v. Astt. CIT impugned order, as well as the Tribunal's order dated 20/3/2020 recording findings in respect of agricultural income in favour of the assessee, which is the only issue being agitated in the instant appeal, as was the case for AY 2005-06.
3. I have heard the parties, and perused the material on record, including the assessment order for AY 2005-06, also referred to during hearing. 3.1 The assessee's case is that he has advanced all the relevant material, save that already in the possession of the Revenue, toward evidencing the undertaking of agricultural activity and sale of agricultural produce. The manner of his functioning and book-keeping remains the same for the preceding as well as the succeeding years. The income returned as agricultural income be, therefore, accepted as such, as for the immediately preceding year, which has the approval of the Tribunal, with the Revenue's case for the current year being no different from that year, i.e., the non-verification of the cash sale bills (cash memos) issued by the assessee inasmuch as they do not contain the particulars of the buyer/s who had made the cash payment/s thereto. As against the reported sale of agricultural produce at ₹ 46.83 lacs, only ₹ 1.37 lacs has been received by cheque/bank draft from three identified parties. The exemption u/s. 10(1) has accordingly been worked out by the AO on proportionate basis, accepting the sale proceeds received thus as genuine. In doing so, it, as for AY 2005-06, relies on the following case law, emphasizing the trite law that the burden to prove a claim qua an exemption or deduction is on the person claiming the same, i.e., the assessee: CIT v. R. Venkataswamy Naidu [1956] 29 ITR 529 (SC); CIT v. Ramakrishna Deo [1959] 35 ITR 312 (SC); Ridhkarandas Poonamchand Bhura v. CIT [1998] 231 ITR 604 (MP); and Gopi Ram Lila v. CIT [1997] 225 ITR 320 (Raj). The burden would include both, the nature as well as the volume of the income subject to exemption/deduction, as well as the quantum of the latter.
3 ITA No. 52/Jab/2013 (AY 2006-07)Dilip Mehta v. Astt. CIT 3.2 The principle of law is well-settled, and admits of no two views. In all cases in which receipt is sought to be taxed as income, the burden is upon the Department to prove that it is within the taxing provision. Where, however, as in the instant case, the receipt is in the nature of income, the burden of proving that it is not taxable, because it falls within the exemption provided by the Act, lies on the assessee (Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532 (SC)). As noted by it with reference to the decision in CIT v. Calcutta Agency Ltd. [1951] 19 ITR 191 (SC), also quoting therefrom, the burden to prove the necessary facts toward his claims, preferred per his return of income, is on the assessee. As further explained by it, the burden on the Revenue, however, is subject to the source of the receipt being, unlike the instant case, not in dispute; the Apex Court holding as: (pg. 537) 'Whether a receipt is liable to be treated as income depends very largely on the facts and circumstances of the case; it is open to the income-tax authorities to raise an inference that a receipt by an assessee is assessable income where he fails to disclose satisfactorily the source and the nature of the receipt. But in this case the source of the income was disclosed by the appellant, and there was no dispute about the truth of the disclosure.' As explained earlier by the Hon'ble Court in Kale Khan Mohammed Hanif v. CIT [1963] 50 ITR 1 (SC), again a decision by its' larger bench (as indeed it's decisions being relied upon by the Revenue), affirming that by the Hon'ble jurisdictional High Court (reported at [1958] 34 ITR 669 (MP)), the onus to prove the source of a sum of money found to have been received by the assessee is on him. If he disputes the liability to tax, it was for him to show that either the receipt was not income or that, if it was, it was exempt from taxation under the provisions of the Act. In the absence of such a proof, the AO is entitled to treat it as taxable income.
3.3 Be that as it may, I, however, observe no dispute qua the said proposition of law. All that the assessee, accepting the legal proposition afore-stated, and 4 ITA No. 52/Jab/2013 (AY 2006-07) Dilip Mehta v. Astt. CIT relying on the order by the Tribunal in his case for AY 2005-06, contends that he has, on facts, proved to have undertaken agriculture, and income therefrom, duly reflected in his audited accounts, as rightly returned, i.e., as for AY 2005- 06, for which year he has found favour, under the same facts and circumstances, with the Tribunal, so that the income, returned like-wise for the current year, be accepted as such. Now, without doubt, the argument is unexceptional. Subject, therefore, to an absence of any change in the facts & circumstances of the case, toward which the assessment orders for both the years; the impugned order, as well as the Tribunal's order for AY 2005-06 were read out during hearing, the findings issued by the Tribunal for that year would obtain and apply for the current year as well.
3.4 The matter is, thus, principally factual. On facts, it is observed that the assessee has, for the current year, not produced the books of account and the bills and vouchers for the expenditure claimed to be incurred on agricultural activity, as well as the sale bills, as stated emphatically at pgs.3-4 of the assessment order dated 28/12/2011. The non-production of the sale bills, stated to be on account of the same being impounded by the Addl. CIT, Range-I, Jabalpur, would though be to no moment considering the Revenue's case, i.e., the non-verifiability of the sale of agricultural produce - which is almost wholly in cash, in view of the non-mention of the buyers' particulars on the sale bills, an admitted position. No value, then, can be attached to the Revenues' objection qua non-production of cash sale bills. Qua the non-production of the books of account and agricultural expenditure bills/vouchers during assessment proceedings, particularly considering that the matter was, in revision, remitted for fresh consideration, Sh. Usrethe, on being questioned by the Bench during hearing, would submit that the same were, as for AY 2005-06, impounded by the Revenue, duly explained in appellate proceedings, drawing reference to para 2.2 (pgs. 2-3) of the impugned order, noting the same, besides reiterating the 5 ITA No. 52/Jab/2013 (AY 2006-07) Dilip Mehta v. Astt. CIT assessee's reliance on the Tribunals' order for AY 2005-06. The same is sans any reference to the non-production of the proof for incurring expenditure on agriculture, and only rightly so as the expense vouchers for that year were produced during assessment proceedings (refer pg. 3 of the assessment order, at APB pg. 38). For the current year, on the contrary, the AO categorically notes their non-production. There is in the assessment order for AY 2005-06 no mention of or reference to the expense vouchers for AY 2006-07, for furnishing which there was in fact no occasion nor were called for, for them to be impounded thereat, i.e., during the assessment proceedings for that year. Further, the reference in para 2.2 supra is qua non-production of sale bills, and not of books of account and expense vouchers. The assessee's claim in its respect is thus a bald claim, without any evidence.
Apart therefrom, the following differences between the two years were observed by the Bench during hearing, and the assessee required to furnish the necessary documents/explanations:
a). The Khasra Nakal (revenue record), establishing agricultural activity, had been adduced by the assessee only for three preceding years, i.e., up to fy 2004-
05 (AY 2005-06). Whether, therefore, it had been so for the current year, i.e., fy 2005-06, evidencing agricultural activity for this year? If so, copy thereof;
b). the basis for the claim of cultivation of Safed Musli for the current year inasmuch as, admittedly, there was no purchase of Musli during the year (refer paras 17 & 28 of the Tribunals' order dated 20/3/2020). Also, the assessee had failed to produce the books of account and any proof of incurring expenditure on agricultural activity; and
c). the agriculture profit for the current year, at ~ 63% (of the sale value), is only ~6% lower than that for AY 2005-06 (~ 69%), while the difference in the average sale price of Musli, which constitutes the bulk of the agricultural sale, is very steep, i.e., at Rs.131 per kg., as compared to Rs. 306/kg. for AY 2005-06 (refer para 28 of the Tribunals' order dated 20/3/2020). In other words, going by the sale price of Musli for the two years, a similar per unit cost of production for the current year should result in a much lower profit (or profit ratio) for the current year.
6 ITA No. 52/Jab/2013 (AY 2006-07)Dilip Mehta v. Astt. CIT The Profit & Loss (P&L) Accounts for financial years 2004-05 to 2006-07 were furnished in response (copy on record). Per written submissions the disclosed profit was sought to be explained in terms of the sale quantity/s and sale rate/s. Khasra Nakal (for the current year) was not submitted, though, on asking, stated by Sh. Usrethe, with reference to the assessment order, to have been furnished during the course of the assessment proceedings.
3.5 The issues arising for adjudication, thus, are:
a). if the undertaking of agricultural activity during the current year has been proved and, if so, to what extent; and
b). without prejudice, the extent of income, if any, that can be said to be derived from agriculture for the current year.
Even though holding of agricultural land or even proving the agricultural activity would not by itself prove agricultural income, much less to the extent stated, in the instant case the said activity itself, wholly a matter of fact, cannot be said to have been established. The production of khasra nakal for AY 2005- 06 was taken by the Tribunal as a primary evidence toward having undertaken agriculture activity (refer paras 28, 29 & 30). Agricultural activity for that year would not by itself translate into the said activity for the current year, particularly considering that the same has been confirmed as since discontinued, i.e., on the inspection of the assessee's land on 26/11/2007. Khasra nakal for the current year, specifically called for during hearing, was not furnished by either party, and for no good reason. The mention of its submission in the assessment order is without reference to the year, which is extremely relevant. In fact, there is no material on record to show it, i.e., for the current year, having been furnished at any stage. Even if, for argument sake, it is assumed to have been furnished during assessment proceedings, what prevents the assessee from doing so now, being a document which is a public record, which can therefore be procured, and ought to have been, particularly in view of the undertaking of 7 ITA No. 52/Jab/2013 (AY 2006-07) Dilip Mehta v. Astt. CIT agricultural activity having been seriously doubted by the Revenue. Coupled with the absence of production of books of account and expense vouchers, which stand furnished for AY 2005-06, the agriculture activity cannot be said to have been proved for the current year. It is trite law that non-furnishing of best evidence, which the party could lead, would entitle drawing an adverse inference (Union of India v. Rai Deb Singh Bist [1973] 88 ITR 200 (SC)). In fact, the P&L A/c for the current year itself reflects no fresh cultivation of Musli, which accounts for over 86% of the total sale for the year.
Coming to the second aspect, stated, without prejudice, hereinabove, the P&L A/cs, however, materially alter the complexion of the case. Even as argued by Sh. Usrethe, the sale of agricultural produce, which for Musli is at an average rate much below that for AY 2005-06, since accepted, would get established on the basis of the closing stock (of standing crops) for that year together with the sale thereof for the current year, i.e., notwithstanding the non- submission of the khasra nakal (revenue record). The argument has merit. The undertaking of agricultural activity for the preceding years, as well as the financial statements for those years, stand confirmed by the Tribunal. As such, the preponderance of probabilities weighs heavily in favour of the realization of the agricultural produce of the immediately preceding previous year, quantity of which as at the year-end is not in dispute. Why would not, one may ask, any prudent or reasonable person, who has in fact established himself in the market, sell his standing crops, realizing their value as well as his earnings therefrom? No impeding circumstance has been stated, much less shown by the Revenue. In fact, the same principle finds application by the Tribunal for AY 2005-06. The agricultural activity being proved, Musli was taken as sold at the going market rates, i.e., as recorded in books, despite the non-specification of the buyers.
The only question that would survive is the extent of such earning. The P&L A/cs for the previous years ending 31/3/2005 & 31/3/2006 reflect the 8 ITA No. 52/Jab/2013 (AY 2006-07) Dilip Mehta v. Astt. CIT closing stock of standing crop of Musli at 34,520 kg. (valued at ₹. 12,82,034) and it's sale for the current year at ₹. 40.35 lacs respectively, which figures also find mention in the Tribunal's order dated 20/3/2020 (for AY 2005-06) (paras 21, 28). The said sale, on the basis of the average sale rate of ₹.131/kg., implies a quantity of 30,801 kg., which, subject to the wastage element, would stand covered by the opening stock (34,520 kg.). As regards wastage, the sale of this crop for AY 2005-06, i.e., ₹. 92.05 lacs, works to 30,081 kgs. on the basis of the average sale price for that year (₹.306/kg.), which quantity is inclusive of wastage, as, apart from being so stated in the Tribunal's order itself, it gets confirmed on the basis of the quantity of the remaining stock (used for cultivation), which is the balancing figure after deducting the said quantity from the opening stock of 38,000 kg., i.e., 7,919 kg., also noted therein (para 21). The sale figure for the current year, i.e., 30,801 kg., is thus inferably also at gross of wastage, which gets also confirmed from the P&L A/c for the current year, stating the closing stock at a difference of meagre 38 kgs. The difference between the carrying cost and sale of Musli, i.e., ₹.27.53 lacs (₹.40.35 lacs - ₹. 12.82 lacs), or at 68% of the sale, being comparable with the profit for AY 2005-06, justifies the disclosed profit rate for the current year.
As regards the sale of agricultural produce other than Musli, valued at ₹. 75,000 as on 31/3/2005, quantity thereof is not mentioned either in the P&L A/c or the Tribunal's order supra. The profit disclosed for the current year is at 62.82%, so that the balance 37.18% represents cost, which would therefore have to be applied to estimate the sale value thereof. Here it may be relevant to state that even though the Revenue's objection is primarily to the non-proving of the credits ascribed to the sale of agricultural produce, i.e., the nature of the receipt, it has not brought the entire such receipt to tax, but only the agricultural income comprised therein, worked out on proportionate basis. The undertaking of agricultural activity, to whatever extent, as well as the proportion of the income 9 ITA No. 52/Jab/2013 (AY 2006-07) Dilip Mehta v. Astt. CIT imbedded therein, is, thus, accepted. For the Musli crop, sold at ₹. 40.35 lacs, deducting the profit @ 62.82% (₹. 25.35 lacs) implies a cost of ₹. 15.00 lacs, or an expenditure of ₹. 2.18 lacs on the crop of ₹. 12.82 lacs, which works to 17% of the crop cost. A similar expense ratio on the other crops implies a cost of ₹. 0.13 lacs (i.e., ₹. 0.75 lacs X 17%), resulting in the total cost at ₹. 0.88 lacs, which, at 37.18% of sale, makes for a sale value of ₹.2.37 lacs. Even if, therefore, the entire opening stock is regarded as sold, so that no part of it is used for cultivation, its sale would be at ₹.2.37 lacs. That would give a total agricultural sale for the year at ₹.Rs. 42.72 lacs (i.e., ₹. 40.35 lacs + ₹. 2.37 lacs), yielding a profit of ₹.26.84 lacs, being 62.82% of ₹.42.72 lacs. Income to that extent is to be, accordingly, regarded as agricultural income. The exemption u/s. 10(1), thus, would stand to be allowed at ₹.26.84 lacs, as against at ₹.0.86 lacs by the Revenue, which, needless to add, would get subsumed therein.
I am conscious that the cost of sale of the agricultural produce, imputed on the basis of the profit/profit ratio disclosed for the current year, i.e., at ₹. 15.88 lacs (i.e., ₹. 42.72 lacs - ₹. 26.84 lacs), exceeds the opening stock of standing crops for the year (₹. 13.57 lacs), so that the difference (₹. 2.31 lacs), being expenditure on agricultural activity, is a tacit admission of the said activity having been undertaken during the year, in which case the agriculture sale ought to be adopted at the book figure for the current year, i.e., ₹. 46.83 lacs. The argument, though impressive, is not backed by any evidence or material on record, only on the basis of which could the Tribunal issue any finding of fact in deciding a matter before it (refer, inter alia, CIT v. Radha Kishan Nandlal [1975] 99 ITR 143 (SC); CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC)). The agricultural sale, admitted by the AO at ₹. 1.37 lacs, has been accepted for Musli at that reported by the assessee (₹. 40.35 lacs), being covered by the opening stock thereof, while also extending that for other agricultural produce to the entire opening stock thereof, adopting the disclosed 10 ITA No. 52/Jab/2013 (AY 2006-07) Dilip Mehta v. Astt. CIT profit rate which, it may be appreciated, cannot be exceeded. Some expenditure on standing crops, which would in the very least require being harvested, packed, stored, and sold in the market, which could again only be over a period of time, entailing both direct and indirect (fixed) costs, is only inferable, and at ₹. 2.31 lacs (i.e., ₹. 15.88 lacs - ₹. 13.57 lacs), considered reasonable. Further, the agricultural expenditure of ₹. 2.31 lacs presumably incurred on the standing crops, can only be appropriated uniformly on the quantity (or, in its absence, its surrogate, i.e., cost) of the standing crops at the beginning of the year. The foregoing also explains the estimation of the sale value of the crops other that Safed Musli in a sum not in excess of ₹. 2.37 lacs.
In sum
4. The assessee, who pleaded his case as covered by the Tribunal's order for the immediately preceding year, has, for his part, for the current year, in contradistinction, not produced either the khasra nakal or the books of account or any proof of incurring agricultural expenditure, so as to contend having proved undertaking any further agricultural activity, which was found discontinued by the Revenue on an inspection of the assessee's site during the course of assessment proceedings for AY 2005-06. As explained in CIT v. R. Venkata Swamy Naidu (supra), in order to claim an exemption from payment of income-tax in respect of what the assessee considered agricultural income, the assessee had to put before the Revenue Authorities proper materials which would enable them to come to a conclusion that the income which was sought to be assessed was agricultural income. It was not for the Revenue to prove that it was not agricultural income. The sale of agricultural produce, i.e., as attributable to the standing crops, is though inferable, and toward which, therefore, further expenditure, as imputed on the basis of the reported profit rate, is adopted. The balance income of ₹.2.58 lacs, i.e., the agricultural income 11 ITA No. 52/Jab/2013 (AY 2006-07) Dilip Mehta v. Astt. CIT returned over ₹.26.84 lacs, would continue to be assessed as income from other sources, for assessment under which head of income there is ample authority, including the decisions relied upon by the Revenue in the instant case.
Before parting with this order, it is deemed proper to dilate on an aspect of the matter. The assessment in the instant case was subject to revision on the ground that the AO had not initiated penalty proceedings u/s. 271(1)(c) while completing the assessment. The matter, in further appeal, was set aside by the Tribunal directing the Administrative Commissioner (CIT) to review afresh after allowing proper opportunity of hearing to the assessee. The revision order dated 29/3/2011 is not on record. It is thus not clear as to how could under section 263 proceedings the ld. CIT drop the disallowance of deduction u/s. 80- JJA, made in assessment, more so as the same was deemed erroneous and prejudicial to the interest of the Revenue on account of non-initiation of penalty proceedings. The same constitutes a valid ground for assuming jurisdiction u/s. 263 and, besides, the said aspect has attained finality. The ld. CIT could at best, upon hearing the assessee, regard the non-initiation of penalty proceedings qua the said disallowance as justified. The basis for not disallowing deduction u/s. 80-JJA, admittedly effected in the original assessment, by the AO in the second round is thus not clear. The same is clearly a question of law. It is deemed proper to state this aspect of the assessment as the said question, arising out of the assessment, was neither agitated before nor has been dealt with by the Tribunal. Sure, the non-disallowance of and, consequently, acceptance of the transactions of sale, similarly made, of bio-fertilizer and biological agents, was one of the grounds on which the assessee found favour with the Tribunal for AY 2005-06, and which could therefore be argued as a distinguishing feature for this year. This, however, shall have no impact on the instant adjudication inasmuch as the current year has already been found distinguishable on account 12 ITA No. 52/Jab/2013 (AY 2006-07) Dilip Mehta v. Astt. CIT of non-substantiation of his case by the assessee due to non-production of other relevant materials (refer paras 3.4, 3.5).
I decide accordingly.
5. In the result, the assessee's appeal is partly allowed.
Order pronounced in the Open Court on August 16, 2021 Sd/-
(Sanjay Arora) Accountant Member Dated: 16/8/2021 Copy of the Order forwarded to:
1. The Appellant: Shri Dilip Mehta, Prop. M/s. Rajul Builders, Rajul Arcade, Napier Town, Jabalpur, MP
2. The Respondent: Assistant Commissioner of Income Tax, Circle 1(1), Jabalpur
3. The CIT-1, Jabalpur
4. The CIT(A), Jabalpur
5. The Sr. DR, ITAT, Jabalpur
6. Guard File // True Copy // 13