IT : Where no agricultural activity was performed by assessee-firm, agricultural income shown by it was treated as unexplained cash credit under section 68
IT : Partners having declared unsecured loan given to assessee-firm in their independent returns, said amount could not be added in hands of assessee-firm
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[2013] 39 taxmann.com 111 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax-II, Surat
v.
Nisuki Farms*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO. 481 OF 2012†
DECEMBER 18, 2012
Section 68 of the Income-tax Act, 1961 - Cash credits [Agricultural income] - Assessment year 2003-04 - Assessee-firm declared its total income as Rs. Nil including certain agricultural income - Revenue authorities as well as Tribunal found that no agriculture activity was performed by assessee-firm and, therefore, firm could not have earned 'agricultural income' - It was, therefore, held that entire 'agricultural income' introduced in books of account was 'unexplained cash credit' under section 68 - Whether issue predominantly being factual in nature, no interference was required - Held, yes [Para 7] [In favour of revenue]
Section 68 of the Income-tax Act, 1961 - Cash credit [In case of firm] - Assessment year 2003-04 - Certain amount of unsecured loan appeared in balance-sheet of assessee-firm in name of one of its partner which was explained to be capital introduced and wrongly treated by accountant of firm - Assessing Officer did not accept that explanation and treated that amount as unexplained unsecured loan - On appeal, Commissioner (Appeals) deleted said addition on ground that partner having declared unsecured loan in his independent return, this could not be added in hands of assessee-firm - Whether findings of Commissioner (Appeals) required interference - Held, no [Para 8] [In favour of assessee]
Manav A. Mehta for the Appellant.
ORDER
Ms. Sonia Gokani, J. - This Tax Appeal is preferred under Section 260A of the Income-tax Act, 1961 against the judgment and order passed by the Income Tax Appellate Tribunal Ahmedabad ["ITAT" for short] dated 3rd February, 2012, proposing following questions for our consideration :
"(A) Whether on facts and circumstances of the case and in law, the Tribunal has erred in law in deleting the addition of Rs. 24,87,171/= made by the Assessing Officer under Section 68 of the Act?
(B) Whether on facts and circumstances of the case and in law, the Tribunal has erred in law in deleting the addition of Rs. 7,50,000/= made by the Assessing Officer under Section 68 of the Act?"
2. On hearing learned advocate Shri Manav Mehta appearing for the Revenue and on perusal of the material with his assistance, this Tax Appeal is being in the following manner.
3. The assessee's return was taken in scrutiny assessment for the Assessment Year 2003-04. He had declared his total income as Rs. "NIL" including agriculture income of Rs. 9,72,750/=. The Assessing Officer assessed its income at Rs. 45,00,000/= [rounded off]
4. Aggrieved and dissatisfied with the said order of the Assessing Officer, the assessee challenged the same before the Commissioner of Income-tax [Appeals], who partly allowed the appeal of the assessee. This was challenged further before the ITAT by both - the Revenue as well as the assessee.
5. The Tribunal dismissed both the appeals and dissatisfied with the same, the present Tax Appeal is preferred by the Revenue.
6. As far as first question is concerned, it pertains to deletion of addition of Rs. 24,87,171/= made by the Assessing Officer. The Tribunal, after hearing both the sides, concluded that no agriculture activity was performed by the assessee-firm, and therefore, the firm could not have earned "agricultural income". It therefore held that the entire "agricultural income" introduced in the books of account was "unexplained cash credit" under Section 68 of the Act and hence, it did not deem it fit to perter the findings of the CIT [A]. In the words of the Tribunal —
"4. We have heard the rival contentions and perused the fact of the case. We concur with the view of Ld. CIT (A) that it is a case where the partners of the firm are purely business persons apparently having nothing to do with agriculture activity. The assessee's version of entering into two different lease agreements, one on 01.04.2000 with Shri Prabhubhai Patel and second on 01.04.2002 with Shri Arvindbhai Patel has been totally demolished by the A.O. It does not appeal to common sense that a person owning land with fruit bearing trees ripe for sale would enter into a lease agreement with a third party for a consideration of Rs. 60,000/= p.a., when within the first two weeks of entering into the lease agreements, the so-called lessee is able to sell fruits in the market for more than entire years lease rent. Also the same lessee from the same places of land was able to earn an income of more than Rs. 12 lakhs by paying a meager rent of Rs. 60,000/= only. Anybody would look at the deal with suspicion since not even the dumbest person would give away a profit of Rs. 12 lakhs that he could have earned from the said land. Therefore, it does not appeal to reason nor it is practically possible that anyone would willingly surrender such a huge amount for the sake of so-called security and maintenance of these fruit bearing trees. Further, although 7x12 records are not sacrosanct, these are indicative of the crop grown on the land duty certified by the local government official like Talati. There could be a difference of type of crop grown in a particular year like crop of wheat being mentioned instead of paddy but it could never be that teak trees are mentioned instead of fruit bearing trees on this record. There has been an agreement dated 01.04.2000 the later agreement dated 01.04.2002 which is claimed to be a continuation of the so-called first agreement, would have mentioned the first agreement. It also appear suspicion that the so-called first agreement was never furnished by the assessee during the course of assessment proceedings and it was only when the A.O issued a show cause notice after detecting irregularities and contradictions, that a copy of the same was filed. Further, the partner of the assessee - Firm contradicted himself during a statement also and further stated that neither he nor his wife nor his father was an agriculturist which means that the firm could not have taken agricultural land on lease since in the State of Gujarat, a lessee for agricultural land, necessarily has to be an agriculturist and no permission of the land government authorities was obtained for entering into so-called lease agreement. The contention of the books of account and bills regarding the agricultural activity were filed before the Assessing Officer in support of agricultural income is also has no these effects since sale bill of produce do not necessarily indicate any agricultural activity. The lease agreements entered into by the assessee firm were only to create evidence of claim of agricultural income, no agricultural activity was performed by the assessee-firm and therefore, no such income was earned by the firm at the entire agricultural income being introduced in the books of account was unexplained cash credit u/s. 68 of the Act. In the circumstances and facts of the case, we find no infirmity in the order of learned CIT [A]. Thus, ground of the assessee's appeal is dismissed."
7. The issue predominantly being factual in nature, and therefore, the findings recorded by the Tribunal requires no interference.
8. Question [B] pertains to deletion of addition of Rs. 7.5 lacs made by the Assessing Officer under Section 68 of the Act. It is noted by the Tribunal that unsecured loan of Rs. 7,50,000/= appear in the balance-sheet of the firm in the name of one of the partner-Smt. Pushpa Parekh. On inquiry, this was explained to be capital introduced and wrongly treated by the accountant of the firm. This was not found satisfactory explanation, and therefore, the Assessing Officer treated this amount as "unexplained unsecured loan".The Tribunal did not deem it fit to interfere with the findings of the CIT [A] which deleted the said addition on the ground that the partners having declared unsecured loan in their independent returns, this cannot be added in the hands of the assessee-firm. Neither on law nor on the facts, this findings merits any consideration. Resultantly, Tax Appeal is dismissed.
VARSHARegards
Prarthana Jalan
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