Disallowance of agricultural expenses would result in agricultural income only – ITAT

Disallowance of agricultural expenses would result in agricultural income only. Agricultural expenses disallowed for want of proof can not be treated as income – ITAT

In a recent judgment, ITAT Bangalore has held that disallowance of agricultural expenses would result in agricultural income only. Agricultural expenses disallowed for want of proof can not be treated as income from other sources.

ABCAUS Case Law Citation:
4206 (2024) (08) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) being in confirming disallowance of 25% of the expenses incurred towards agricultural income on the ground that no evidences were produced for such expenses.

The appellant assessee was an agriculturist and partner in the firm. The case was selected for scrutiny. The assessee filed details of financial statements along with agricultural land holdings, bank statements and other details.

On verification of return of income, it was noticed that assessee had declared gross agricultural income after reducing approx. 22% expenses from the gross agricultural income. However, in respect of agricultural expenses, the assessee could not file any evidence and the show cause notice was also issued to the assessee.

However the assessee did not furnish any of the expenses details. Therefore, AO disallowed 25% of agricultural expenses claimed by the assessee resulting additional income and added it as income from other sources and completed the assessment.

Aggrieved by the above order, the assessee filed appeal before the CIT(Appeals). The CIT(A) noted that in the Statement of Facts the assessee had mentioned that there were no documentary evidence with him for expenses claimed since it was on cash basis and it was mainly incurred towards purchase of fertilisers and labour expenses to the labourers were paid on day to day basis.

The CIT(Appeals) relying on Madras High Court judgment in which it had been held that appellant could not furnish supporting evidence to the department, he dismissed the appeal of the assessee.

Before the Tribunal, the assessee submitted that the AO had not disputed gross receipt and if the expenses claimed by the assessee was disallowed, the agricultural income will be increased only. However, the AO had treated it as income from other sources.

It was further submitted that the payment was made towards purchase of fertilisers from the local vendors and towards labourers which are available on day to day payment basis and they have been paid through cash. Therefore, evidence cannot be collected.

The Department contended that the assessee had not established how the expenditure had been incurred and how the gross receipts had been received either through banking channel or entirely on cash basis. The assessee did not furnish any evidence towards the acknowledgment/receipts for the expenditure and how the assessee had incurred expenditure either withdrawn from the bank account or cash sales available with the assessee. The assessee did not submit any evidence, therefore treating the disallowance as income from other sources was correct.

The Tribunal observed that there was no dispute regarding the gross receipts shown since during the proceedings before the authorities below, the assessee was unable to produce any single evidence towards the expenditure incurred for fertilizer and labour payments.

The Tribunal opined that if the assessee was unable to prove the expense with supporting evidences, the AO & CIT(A) could have disallowed the agriculture expenses and resultantly the agriculture income would stand increased. The AO wrongly treated the agriculture expenditure claimed as income from other source.

In the result, the appeal by the assessee was allowed.

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