ITA Nos. 343, 344, 404, 405, 402, 403, 345, 346, 407 and 348/13. Case: Dy. Commissioner of Income Tax, Central Circle - 6 and Ors. Vs K. Kranthi Kiran Reddy and Ors.. ITAT (Income Tax Appellate Tribunal)
| Case Number | ITA Nos. 343, 344, 404, 405, 402, 403, 345, 346, 407 and 348/13 |
| Counsel | For Appellant: K.J. Rao and U. Minichandran, Advs. and For Respondents: A. Srinivas, Adv. |
| Judges | P. Madhavi Devi, Member (J) and S. Rifaur Rahman, Member (A) |
| Issue | Income Tax Act, 1961 - Sections 132(4), 132(4A), 143(3), 153A, 2(22)(e), 22, 23, 23(1), 23(1)(a), 24 |
| Judgement Date | April 21, 2017 |
| Court | ITAT (Income Tax Appellate Tribunal) |
Order:
(Hyderabad Bench)
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All these appeals are pertaining to three different assesses and are filed by the respective assessees as well as the revenue directed against the orders of CIT(A) - 1, Hyderabad, for assessment years 2007-08 & 2008-09. As identical issues are involved in all these appeals, they were clubbed and heard together, therefore, a common order is passed for the sake of convenience.
ITA Nos. 404 & 405/Hyd/2013 for A.Ys. 2007-08 & 2008-09 in case of Shri K. Kranthi Kiran Reddy.
ITA Nos. 402 & 403/Hyd/2013 for A.Y. 2007-08 and 2008-09 in case of Shri K. Ravinder Reddy.
ITA No. 407/Hyd/2013 in case of Smt. K. Priyamvada Reddy for A.Y. 2008-09.
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The following common grounds have been raised with regard to agricultural income in all the appeals of the assessees:
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The A.O. caught not to have treated the agricultural income as income from other sources and brought the same to tax.
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The Appellate Commissioner ought not to have confirmed the order of the A.O. in treating the agricultural income as income from other sources.
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The Appellate Commissioner ought not have given relief to the extent of Rs. 10,50,000/- being agricultural income and taxing the balance as income from other sources.
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To dispose of these grounds, we refer to the facts from the case of Shri K. Kranthi Kiran Reddy in ITA Nos. 404 & 405/Hyd/2013.
3.1 As regards ground Nos. 2, 3 & 4, pertaining to the addition of Rs. 55,11,895/- and Rs. 38,30,000/- towards agricultural income, the Assessing Officer noted that the assessee had shown in the Receipts and Payments a/c, cash receipts from JP Agro Farms during the year. He noted that cash had been deposited into the bank a/c. of the assessee. However, no evidence for sale of agricultural produce or agricultural expenditure was found in the office or residential premises of the assessee during the search. The Assessing Officer noted that in his statement recorded u/s. 132(4) of the Act, Shri K. Ravinder Reddy, Managing Director of the group companies, had stated that his brother in law, Dr. Jitender Reddy is looking after all his agricultural matters, and therefore, he did not have any papers or vouchers relating to agricultural operations. Accordingly, in the course of assessment proceedings the assessee was requested to file evidence/confirmation in respect of receipts appearing in the Receipts and Payments A/c. which were claimed as cash receipts representing sale of agricultural produce.
3.2 The Authorised Representative of the assessee contended before the Assessing Officer that the agricultural expenditure of Rs. 20,77,771/- and Rs. 7,79,025/-, respectively, in these years had been met by M/s. Janapriya Engineers Syndicate, a partnership firm, wherein the assessee is a partner, debiting such amounts to the capital a/c. of the partner in the firm by way of a journal entry. However, no evidence in support of agricultural receipts and agriculture expenditure towards tilling, cultivation, etc could be filed. Therefore the AO treated the receipts from JP Agro Farms of Rs. 55,11,895/- and Rs. 38,30,000/- as income from other sources and added to the income of the assessee for the assessment years 2007-08 and 2008-09.
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During the course of appellate proceedings, the Authorized Representative of the assessee submitted that the assessee had received agricultural income of Rs. 55,11,895/- and Rs. 38,30,000/- in the Assessment years 2007-08 and 2008-09 directly, which were reflected in the cash flow statement submitted before the AO. The expenditure of Rs. 20,77,771/- and Rs. 7,79,024/- towards agricultural operations had been met by M/s. Janapriya Engineers Syndicate, wherein the assessee is a partner. He claimed that the amounts stated above were extracted by the AO from the cash flow statements itself and treated as income from other sources, even while the expenditure was ignored, holding that no details were furnished.
4.1 The AR of the assessee submitted that in the assessee's own case for other AYs, in respect of similar additions made in the order u/s. 143(3) rws 153A, the CIT(A), in his common order, dated 21/02/2012, has directed the AO to follow the same methodology of treating a portion of agricultural income as non agricultural income.
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After considering the submissions of the assessee, the CIT(A) following the decision of his predecessor in assessee's own case held as follows:
"8.3 Despite the fact that the methodology stated above is not acceptable, it cannot be denied that the assessee has not been found having sold any of the land holdings in these years. It cannot be denied that the lands owned by the two farms have agricultural potential. Considering the set up and the potential, it is also logical to accept that agricultural operations were carried thereon. Therefore, a part of the agricultural income shown by the assessee is indeed to be considered as genuine. In this regard, it is seen that the Hon'ble Jurisdictional Income-tax Appellate Tribunal in the case of Ms. T. Kalpana Reddy & Anr. (ITA No. 469/Hyd/2009) have opined that normally 1 acre of land cultivated with mango trees would fetch Rs. 15,000/-- per acre in a year. They have also held that it is also common to fetch Rs. 10,000/- per acre with regard to Paddy cultivation. Accordingly, in terms of the said judicial pronouncement, the maximum income per acre could be Rs. 15,000/- per year. However, considering the fact that the agricultural lands of the assessee are organized into agricultural farms, wherein agriculture can be conducted in a more scientific and productive manner, by even using multiple cropping, the average yield per acre from the said farms can be taken at Rs. 20,000/-. At the said rate, the total income from 210 acres of land comes to Rs. 42,00,000/- (210 x 20,000). Assuming that the assessee and three others had equal share of land holding, the assessee's share comes to Rs. 10,50,000/-. Accordingly, agricultural income to the extent of Rs. 10,50,000/- in each year is accepted, while the remaining income shown of Rs. 44,61,895/- (55,11,895-10,50,000) and Rs. 27,80,000/- (38,30,000-10,50,000) in the Assessment Years 2007-08 and 2008-09, respectively, is considered income from other sources. The grounds in this regard are therefore decided partly in favour of the assessee."
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Aggrieved with the above order, assessee preferred appeal before us. Ld. AR submitted that the issue in dispute is squarely covered by the decision of the coordinate bench in assessee's own case for A.Ys. 2002-03 to 2006-07.
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Ld. DR relied on the orders of revenue authorities.
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Considered the rival submissions and perused the material facts on record. We observed that the assessee has disclosed the agricultural income in earlier years and the assessments reached finality also as under:
Note: AO completed assessments for AY 2003-04 & 2004-05 u/s. 143(3)
Excessive income sustained by the CIT(A) comes to an average of 14% out of agricultural income declared by the assessee.
In the current Appeals under consideration
As per the above statement, in the A.Ys. 2003-04 and 2004-05, assessee has disclosed/claimed agricultural income which was verified by the AO and disallowed certain portion as excessive. Following the above findings, the CIT(A) and coordinate bench has disallowed certain portion as excessive in other assessments. Similarly in the A.Ys. under consideration i.e. 2007-08 and 2008-09, by following the earlier direction of the coordinate bench, we suggest that similar disallowance can be applied for the sake of consistency. Over the years, assessee had disclosed similar income consistently which was accepted by the department. The ld. CIT(A) has brought in findings of ITAT in the case of T. Kalpana Reddy & Anr. We cannot apply the same in the given case by assuming that the agricultural yield will be similar in all the cases. The income from agriculture cannot be presumed without having data or scientific study. There are cash crops and non cash crops involved. For the sake of consistency, we direct the AO to apply the earlier decision of ITAT and disallow the excess claim to the extent of 14%.
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The following common ground raised in all the assessees' appeals relating to deemed dividend.
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The A.O. ought not to have treated the amounts received from the companies in which the assessee is a shareholder as deemed dividend, in spite of the fact that the Appellate Commissioner has given a direction to the A.O. to decide the matter after verification.
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The facts as taken from Shri K. Kranthi Reddy are that in the Assessment Year 2007-08, the Assessing Officer noticed that the assessee had received an amount of Rs. 10 lakhs as advance/loan from Engineers Reddy Homes Pvt. Ltd. The assessee had also received loan of Rs. 50 lakhs from Engineers Syndicate India Pvt. Ltd. (ESIPL). It was noted that the assessee had to receive loan of Rs. 9,80,000/- from ESIPL, whereas he had received Rs. 50 lakhs. Therefore, the advance/loan given by the said company to the assessee during the year 2006-07 came to Rs. 40,20,000/-. The Assessing Officer observed that the assessee was having more than 20% shareholding in the above companies and that both of them were having adequate reserves to advance the said loans to the assessee. He therefore proposed to treat the same as deemed dividend u/s. 2(22)(e) of the Act.
10.1 It was submitted before him that the amounts had been paid by the companies on account of payments to be made to the landlords on behalf of the company for purchase of lands. But the transactions did not materialize and the amounts were returned back by the assessee to the company.
10.2 On a consideration of the above explanation, however, the Assessing Officer found that the assessee could not produce any evidence to substantiate the same. Accordingly, invoking the provisions of sec. 2(22)(e), the amounts of Rs. 10 lakhs and Rs. 40,20,000/- from the said companies were treated as deemed dividend, leading...
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