ITAT Estimates Agricultural Expenditure at ₹22.37 Lakhs on Onion Sale, Rejects 35% of CIT(A)'s Estimation [Read Order]
The Tribunal determined that an expenditure of ₹22.37 lakhs of the gross sale proceeds was appropriate for agricultural operations, thereby granting partial relief to the farmer.
The Pune Bench of the Income Tax Appellate Tribunal (ITAT) partly allowed the appeal of a by estimating agricultural expenditure towards onion cultivation at ₹22,37,554 out of gross sales of ₹89,50,214 and set aside the Commissioner of Income Tax (Appeals) [CIT(A)] estimation of 35%.
Shital Nilesh Parakh (assessee), for whom the case related to the Assessment Year (AY) 2020-21, where he possessed 9.06 acres of land, disclosed a total gross agricultural receipt from the sale of onions amounting to ₹89,50,214. The assessee claimed expenditure of ₹18,95,999, resulting in a net agricultural income of ₹70,54,215, which was 21% of the gross receipt.
The Assessing Officer (AO) selected the case for scrutiny and found contradictions in the land area disclosed. Furthermore, only ₹61,52,300 was deposited in the bank towards agricultural sales, and most expenses were incurred in cash.
Due to the assessee's failure to furnish a cash book or complete documentation, the AO rejected the entire agricultural receipt and treated the entire ₹89,50,214 as unexplained income from other sources.
Aggrieved by the AO’s order, the assessee appealed to the CIT(A). The CIT(A) provided partial relief by estimating the allowable expenditure at 35% of the gross receipts, considering factors like high sale prices during the period, adverse weather affecting production, and higher processing/storage costs. This 35% estimation amounted to ₹31,32,575.
The CIT(A) then treated the difference between this estimated expenditure and the expenditure claimed by the assessee ₹31,32,575 - ₹18,95,999 = ₹12,36,575 as unexplained expenditure under Section69C of the Income Tax Act.
Aggrieved by the CIT(A)’s order, the assessee then appealed to the ITAT. The counsel for the assessee argued that his original claimed expenditure of 21% was appropriate. On the other hand, the counsel for the revenue defended the CIT(A)'s estimation of 35%.
The two-member bench comprising Manish Borad(Accountant Member) and Vinay Bhamore (Judicial Member) considered the totality of the facts and arguments. The Tribunal decided to adopt a middle ground to estimate the expenses towards agricultural operations.
The Tribunal observed that it was appropriate to estimate the expenses at ₹22,37,554 approximately of the gross receipts for the period under consideration. This estimation was significantly higher than the assessee's claimed 21% but lower than the CIT(A)'s 35%.
The tribunal held that the Assessing Officer must now accept a net agricultural income of ₹67,12,660 (₹89,50,214 - ₹22,37,554). The tribunal set aside the CIT(A)'s estimation and the resulting addition under Section 69C of the Income Tax Act. The appeal of the assessee was partly allowed.
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