THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI RAMESH RANGANATHAN INCOME TAX TRIBUNAL APPEAL Nos.495 AND 508 OF 2010 08.09.2010 Between: M/s.Shankar Dairy Private Limited …. Appellan AND Deputy Commissioner of Income Tax, Circle-3(1), Aayakar Bhavan, Hyderabad. … Responden THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI RAMESH RANGANATHAN INCOME TAX TRIBUNAL APPEAL Nos.495 AND 508 OF 2010 COMMON JUDGMENT: (Per Hon’ble Sri Justice V.V.S.Rao) These two appeals under Section 260A of the Income Tax Act 1961 (the Act) are against the same order. One is filed against the orde of Income Tax Appellate Tribunal dismissing the assessee’s appeal and the other is filed against the order of the learned Tribunal partly allowing the appeal filed by Revenue. For the assessment year 2003-2004, the appellant company filed its return declaring “nil” income. The same was taken up for scrutiny, and a notice under Section 143(2) of the Act was issued. The assessee had shown net agricultural income of Rs.19,62,467/-, and had claimed exemption under Section 10(1) of the Act. After receiving notice unde Section 143(2), the Managing Director of the company and its Chartered Accountant appeared. After considering the matter, the assessing office determined Rs.3,30,000/- as exempted agricultural income, and treated the balance amount of Rs.16,32,467/- as income from undisclosed sources. Accordingly, the assessment was completed under Section 143(3) of the Act requiring the appellant to pay an amount o Rs.8,24,897/- towards tax including surcharge and interest thereon Aggrieved by the same, the appellant preferred an appeal under Section 246A of the Act before the Commissioner of Income Tax (Appeals) (CIT) By an order dated 30.06.2008, the CIT estimated an amount o Rs.11,00,000/- towards agricultural income as exempt, and the remaining amount of Rs.8,62,467/- was treated as income from undisclosed sources for the purpose of income tax. Aggrieved thereby the revenue as well as assessee preferred separate appeals before the Income Tax Appellate Tribunal. As noticed supra, the revenue’s appea was partly allowed, and the assessee’s appeal was dismissed, holding that agricultural income to an extent of Rs.5,50,000/- can be considered as exempt as against Rs.11,00,000/- allowed by CIT (Appeals). The senior counsel for the appellant submits that the finding of the Tribunal is perverse and, therefore, a substantial question of law would arise; the Tribunal erred in following the principle of approximation; there is no proper appreciation by Tribunal and there is no finding recorded by the Tribunal with reference to any of the findings favourable to the assessee. Relying on the decision of Supreme Court in C.I.T. v Managing Trustee, Jalakhabai Trust[1], he would submit that when there is a question of law which can be supported by reasonable grounds, High Court may intervene under 260A of the Act. We have carefully perused the order of the assessing officer and CIT as well as the impugned order of the learned Tribunal. The question before the assessing officer was essentially a question of fact being whether Rs.19,62,467/- claimed as exempt under Section 10(1) of the Act was substantiated by the assessee or not. Needless to mention tha if the income tax of any person exceeds the exempted limit, all such income, subject to certain allowances, is liable to tax. If any person claims any income as exempt being agricultural income, it is for him to satisfy the assessing officer is the requirement under law. Section 2(1A) to the extent relevant, defines ‘agricultural income’. The same reads as under. 2 (1-A). “agricultural income” means— (a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes; (b) any income derived from such land by— (i) agriculture; or (ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market; or (iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause; (c) any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on: It is incumbent on the assessee to show that the agricultura income claimed as exempt is income derived by sale of the produce raised on the land in the market. A mere statement that an assessee owns agricultural land with all modern agricultural friendly facilities including drip irrigation facility itself does not suffice nor is the assessing officer bound to accept the version of the assessee with regard to the amount claimed as exempt being agricultural income. Agricultura income is neither an imaginary figure nor a matter of conjecture. Given the nature of land, the probable input costs, labour costs and the marke conditions, it is possible to give an estimate of agricultural income even i a person does not meticulously maintain accounts in relation to agricultural operations. The appellant was asked to produce evidence relating to agricultural activities during 2002-2003. By letter dated 25.12.2005, the appellant explained the nature of business activity, and stated that he is raising inter alia crops like rice, mango, maize, jowar, red gram, black gram, bengal gram, green gram, ladyfingers, tomato and othe vegetables. The appellant further stated that total extent of Acs.22.00 o land situated in Masaniguda village of Ranga Reddy District, was being irrigated with the help of two bore wells; the farm is well equipped modern horticulture and oleri-culture (growing vegetables) operations are undertaken; and they follow crop rotation for maximum yield. The assessing officer relied on statistics released by organizations like Directorate of Economics and Statistics, Department of Agriculture and Cooperation, Ministry of Agriculture, Government of India, National Bank for Agriculture and Rural Development, Department of Agriculture Government of Andhra Pradesh, and came to the conclusion that it would be difficult to accept the yield shown by the assessee. He also observed that though they have grown 24 crops during 2002-2003, they could no produce any evidence except some bills in respect of purchase of seeds and fertilizers. He then relied on Gopiram Lila v Commissioner of Income Tax[2] and Ridhkarandas Punamchand Bhura v Commissioner of Income Tax[3] and came to the conclusion that the reasonable estimate of Rs.15,000/- per acre would be proper fo determining the agricultural income exempt from tax. Accordingly he allowed Rs.3,30,000/- as exempt and treated the balance amount as undisclosed income. The appeal by the assessee was partly allowed by the CIT. While observing that the appellant did not file comparable case of agricultura income during the course of appellate proceedings, and that the assessing officer did not give any logic for considering income a Rs.15,000/- per acre as reasonable, the CIT opined that Rs.50,000/- would be reasonable income and, accordingly, allowed an amount o Rs.11,00,000/- as agricultural income exempt from tax. In the departmental second appeal before the learned Tribunal, the only question was whether the CIT ought to have upheld the decision o assessing officer in restricting the agricultural income as Rs.15,000/- pe acre, in the absence of any proof in support of the claim by the assessee. Considering the rival submissions, the learned Tribuna observed as below. The assessing officer rightly noticed that due to severe drought conditions that prevailed during the year under consideration; the assessee would not have made so much agriculture income. The assessing officer also rightly pointed out that the acreage required to produce the yield shown by the assessee is 371.28 acres when compared to the land of 22 acres as shown by the assessee. Even considering that some of the crops have been grown as inter cropping, the minimum area required to get the above yield is at least 150 acres of land. We also find that the assessee has not produced any evidence to show that agricultural operations have been carried out on the said agricultural land and earned income thereon. No bills/vouchers for agricultural receipts as well as expenditure are produced before the lower authorities except in the case of seeds and fertilizers. Therefore, the lower authorities are right in rejecting the books of account of the assessee. However, the estimation of the assessing officer at Rs.15,000/- per acre as net agriculture income seems to be on lower side. Having come to the conclusion that the estimation of Rs.3,30,000/- as agricultural income was on the lower side, the learned Tribunal took the view that the agricultural income to the extent of Rs.5,50,000/- is reasonable and directed the same to be considered as exempt. The fact of learned Tribunal allowing the appeal is to set at naugh the order of the CIT, and restore the order of assessing officer. We are convinced that the assessing officer followed an objective and reasonable criteria for estimating the agricultural income while rejecting the claims made by the assessee. When no bills/vouchers fo agricultural receipts were produced, the method adopted by the assessing officer cannot be faulted as has been held by the learned Tribunal. It is a question of fact based on various relevant factors and when the consideration of these matters by the assessing office received the approval of the learned Tribunal, we do not think that a substantial question of law is involved in the case especially when the appellant failed to produce bills/ vouchers in support of his claim. In Gopiram Lila on which reliance was placed by the assessing officer, it was observed as follows. The assessee has inflated the income under the head “Agricultural income” and deflated the expenses. The income- tax authorities, after consideration of the material available on record, came to the conclusion that such inflated income from agriculture was not possible and, therefore, rightly detrmined the added income as “income from undisclosed sources.” The onus was on the assessee to show the extent of the agricultural income which the assessee failed to do and the explanation submitted by the assessee was not accepted by the income-tax authorities and, therefore, the assessee’s added income was rightly assessed by the assessing authorities under the head “Income from other sources”. In this view of the matter, we are of the opinion that the income-tax authorities were right in treating the additional income as “income from other sources”. We are in respectful agreement with the principle enunciated by the Rajasthan High Court. In view of the acceptance of the order of the assessing officer while reversing the order of CIT, we are sure that the learned Tribunal was aware of the ratio. The submission in this regard that insisting upon production of meticulously kept records for the purpose of allowing exemption of agricultural income is not warranted and the Court should take broad view, cannot be accepted. It is one thing to say that if an assessee claims reasonable amount of agricultura income as exempt from tax, strict proof may not be necessary but when the agricultural income is inflated so as to go out of the tax bracket, it is certainly a matter of proof and the burden always lies on the assessee who claims such exemption. In this case, we are convinced that the appellant did not discharge the burden as per law. The learned Tribuna was right in partly allowing the appeal of the revenue and dismissing the assessee’s appeal. The appeals for the above reasons are dismissed. _______________ (V.V.S.RAO, J) ______________________________ (RAMESH RANGANATHAN, J) .09.2010 YS [1] (1967) 66 ITR 619 [2] (1996) 225 ITR 320 (Raj) [3] (1996) 231 ITR 604 (MP)