ITAT allows Assessee’s Plea of Farmhouse Construction from Funds Derived from Agricultural Activities, terms income “Undisclosed” [Read Order]
The assessee argued that the entries reflected farm-related activities and that construction was financed out of accumulated agricultural income and past savings.
The Delhi Bench “A” of the Income Tax Appellate Tribunal (ITAT) has accepted the assessee’s claim that the construction of a farmhouse was funded through agricultural income and past savings, while holding that such funds, reflected in seized documents, constituted “undisclosed money” taxable under Section 69A of the Income Tax Act, 1961.
A search operation under Section 132 was conducted on December 1, 2018, in the case of Faquir Chand Lockers and Vaults Pvt. Ltd. group, which also covered Gupta’s locker in Delhi’s Khari Baoli area. Loose papers titled “Farm Account” were seized, allegedly showing expenditure on farmhouse construction. The Assessing Officer (AO) treated the entries as unexplained investments under Section 69.
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The assessee argued that the entries reflected farm-related activities and that construction was financed out of accumulated agricultural income and past savings. The AO rejected the explanation, citing lack of documentary proof such as Khasra, Khatauni, or Form J.
Before the Tribunal, the assessee’s counsel, Shri K. Sampath and Shri V. Rajkumar, reiterated that the farmhouse construction was carried out using agricultural proceeds, and the loose sheets did not represent any unaccounted assets. The Revenue, represented by Shri Javed Akhtar, CIT-DR, and Shri Amit Katoch, Sr. DR, contended that the seized documents constituted evidence of undisclosed investments.
The Tribunal examined the seized Farm Account documents and observed that they recorded both cash and cheque transactions relating to agricultural and construction activities. Dismissing the Revenue’s argument that the seized papers were dumb documents, the Tribunal noted that such documents were not blank or meaningless, as they contained financial particulars linked to the assessee’s farming activities.
Holding that the funds reflected in the seized records represented unaccounted income, the bench observed that loose sheets captioned as ‘Farm Account’ show that the assessee generated funds which can be considered undisclosed money under Section 69A. The investment in the farmhouse was carried out from agricultural income and past savings.
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The Tribunal concluded that while the assessee’s claim of agricultural funding was plausible, the unrecorded nature of transactions rendered the amount undisclosed for tax purposes. It thus directed that only such cash components be treated as unexplained money under Section 69A, not as unexplained investments under Section 69.
The ruling partially allowed the assessee’s appeal for AY 2011-12 and extended the same reasoning to subsequent assessment years up to 2014-15, while clarifying that the additions must be limited strictly to unrecorded cash transactions.
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