I Section 144 of the Income-tax Act, 1961

IN THE ITAT DELHI BENCH ‘D’ Mrs. Aruna Jain v. Dy. Commissioner of Income-tax, Investigation circle 17(1), New Delhi RAJENDRA SINGH, ACCOUNTANT MEMBER AND N.K. KARHAIL, JUDICIAL MEMBER I.T. APPEAL NO. 343 (DELHI) OF 2005 [Assessment year - 1997-98] December 20, 2007 I Section 144 of the Income-tax Act, 1961 - Best judgment assessment - Assessment year 1997-98 - Assessee filed her return of income for assessment year 1997-98 on 2-11-1998 - Assessing Officer in course of assessment proceedings issued notices dated 18-9-1999 and 23-12-1999 which remained uncomplied with - Assessee caused appearance in response to notice dated 17-2-2000 and sought an adjournment for 4-3-2000, on which date too, he did not cause appearance - Thereafter, a show cause notice dated 15-3-2000 was issued along with a notice under section 142(1) and, in response to which part reply was furnished on 20-3-2000 and further time was sought for filing balance details on 27-3-2000 - On this date also, assessee failed to cause appearance and, accordingly, Assessing Officer framed assessment under section 144 on 30-3-2000 - On appeal assessee submitted that reply to show cause notice was filed before Assessing Officer on 30-3-2000 at around 6 PM but reply was not considered by Assessing Officer and, hence, he was not justified in passing an order under section 144 - Commissioner (Appeals) held that since assessee had not appeared before department attended, on 27-3-2000 and merely filed a letter on 30-3-2000 at 6.00 PM that was after office hours and after passing of assessment order, Assessing Officer was justified in not taking cognizance of said letter and making assessment under section 144 - Whether since evidence on record clearly suggested that letter dated 30-3-2000 was filed after order of assessment had already been made, in such circumstances, assessment made under section 144 was justified - Held, yes II Section 68 read with section 250 of the Income-tax Act, 1961 - Cash credits - Assessment year 1997-98 - Assessing Officer found certain cash credit appearing in books of account of assessee in respect of sundry creditors - He asked assessee to file confirmation of sundry creditors - As assessee failed in doing so Assessing Officer made addition under section 68 - Before Commissioner (Appeals) assessee filed confirmation of ‘v’ but same was rejected on ground that same was not produced in course of assessment proceedings - Whether an assessee should not be disqualified from producing evidence merely, on ground that evidence was not placed before lower authorities - Held, yes - Whether therefore, Commissioner (Appeals) was not justified in not admitting said confirmation as additional evidence - Held, yes - Whether further since assessee had fully explained genuineness of cash credits which represented credit from purchase made from sundry creditors addition was to be deleted - Held, yes III Section 2(1A) of the Income-tax Act, 1961 - Agricultural income - Assessment year 1997-98 - Whether where assessee was holding agricultural land and planted nursery on same wherein agricultural operations were being carried on, seeds were being sowed and other agriculture operation were being done with help of human skill and labour and plants after they attained its growth were sold to customers, income earned by this process would be treated as agriculture income and department could not treat said income as income from other sources especially when assessee’s claim of agricultural income was allowed in earlier years also after extensive investigation - Held, yes FACTS - I The assessee filed her return of income for the assessment year 1997-98 on 2-11-1998. The Assessing Officer in the course of assessment proceedings issued notices dated 18-9-1999 and 23-12-1999 which remained uncomplied with. The assessee caused appearance in response to the notice dated 17-2-2000 under section 143(2) and sought an adjournment for 4-3-2000, on which date too, he did not cause appearance. Thereafter, a show cause notice dated 15-3-2000 was issued along with a notice under section 142(1) and, in response to which part reply was furnished on 20-3-2000 and further time was sought for filing the balance details on 27-3-2000. On that date also, the assessee failed to cause appearance and, accordingly, the Assessing Officer framed assessment under section 144 on 30-3-2000. On appeal before the Commissioner (Appeals), the assessee submitted by relying on the decision of the Supreme Court in Mehta Parikh & Co. v. CIT [1956] 30 ITR 181 (SC) that the reply to the show cause notice was filed before the Assessing Officer on 30-3-2000 at around 6 PM but the reply was not considered by the Assessing Officer and, hence, he was not justified in proceeding to make an order under section 144. The Commissioner (Appeals) however, rejected submission of the assessee and held that since, the assessee had not attended department’s office on 27-3-2000 and merely filed a letter on 30-3-2000 at 6.00 PM that was after office hours and of the passing of assessment order, the Assessing Officer was justified in not taking cognizance of said letter and making assessment under section 144. On second appeal: HELD - I There was no dispute that the notice dated 18-9-1999, 23-12-1999 and 17-2-2000 had remained uncomplied with. The submissions of the assessee, however, was that once the assessee had complied with the show cause notice dated 15-3-2000 by filing reply on 20-3-2000 and 30-3-2000, there was no occasion to frame the assessment under section 144. The contention of the assessee was that the reply was filed on 30-3-2000 only on the verbal directions of the Assessing Officer who had himself adjourned the hearing from 27-3-2000 to 30-3-2000. There was no merits in the submissions inasmuchas the same was not supported by any material on record. Mere filing of an affidavit did not substantiate the claim of the assessee that firstly the hearing had been adjourned from 27-3-2000 to 30-3-2000 on the direction of the Assessing Officer and secondly that the Assessing Officer had directed the assessee to file the reply at 6.05 PM though assessee had reached the office at 2.30 PM. Neither the affidavit of the assessee who had purportedly been issued directions to file the reply at 6.00 PM on 30-3-2000 had been placed nor any reason had been stated that for non-filing of the affidavit of the assessee. Even otherwise, the Commissioner (Appeals) on examination of the assessment records had noted that the Assessing Officer had specifically mentioned on the said letter filed on 30-3-2000 that no Cognizance of the letter could be taken as the same was filed after the passing of the assessment order. Therefore, evidence on record clearly suggested that the letter was filed after the order of assessment had already been made which evidence had not been rebutted by any evidence much less independent evidence. In the circumstances the decision relied upon in the case of Mehta Parikh & Co (supra) were not applicable to the facts of the case of the assessee. In such circumstances the assessment made under section 144 was justified. [Para 5] FACTS - II A cash credit of certain sum in the name of ‘v’ firm appeared, in the books of account of the assessee. The Assessing Officer asked the assessee to file the confirmation from ‘v’ for the said amount. Since no confirmation was filed by the assessee the Assessing Officer treated the said amount as the deemed income from undisclosed sources of the assessee under section 68. On appeal before the Commissioner (Appeals) the assessee filed the confirmation of ‘v’. The Commissioner (Appeals) being of opinion that there was difference in the closing balance as per the confirmation of ‘V’ and as per the books of account of the assessee which was not satisfactorily explained upheld the addition. Moreover, he also held that this was an additional evidence filed before him. Hence he rejected the evidence filed and confirmed the addition made by the Assessing Officer. On second appeal, the assessee submitted that the Commissioner (Appeals) was not justified in rejecting the confirmation filed as an additional evidence. He further submitted that the amount represented credits from purchase made from ‘V’. HELD - II The addition had been made by the Assessing Officer, in the instant case, solely on the ground that confirmation from ‘v’ had not been placed on record in the course of assessment proceedings which confirmation, however, was placed before the Commissioner (Appeals) in the appellate proceedings. The said confirmation had also been forwarded to the Assessing Officer for his comments. The Assessing Officer, however, in his report merely relied on the order of assessment and had not made any comments much less specific comments. In the circumstances, the Commissioner (Appeals) was not justified in not admitting the aforesaid confirmation filed as additional evidence. The power conferred on the Appellate Assistant Commissioner under sub-section (4) of Section 250 being a quasi-judicial power, it is incumbent on his to exercise the same if the facts and circumstances justify. If the Appellate Assistant Commissioner fails to exercise his discretion judicially and arbitrarily refuse to make enquiry in a case where the facts and circumstances so demand, his action would be open for correction by a higher authority. Further, in the case of Electra (Jaipur) (P) Ltd. v. IAC [1988] 26 ITD 236 (Delhi) it has been held that the assessee should not be disqualified from producing evidence merely on the ground that the evidence was not placed before the lower authorities. It is, therefore, incorrect to shut out an assessee in the process of administration of justice from leading evidence to prove its case. The earlier inability to lead evidence should not be held against the assessee unless it is known to the Court or suggested to the Court or there was evidence to suspect that the evidence was fabricated. In the light of the aforesaid judicial pronouncement, which were fully applicable to the facts of the assessee, it was held that the Commissioner (Appeals) was not justified in not admitting the confirmation from ‘v’ as additional evidence. The Commissioner (Appeals) had held reading the aforesaid confirmation that there was a difference in the balances as per confirmation and as per the books of account of the assessee. Which was not explained. The said basis was also unjustified by the mere fact that details explaining the difference in balance had been filed in the paper book, which clearly showed that this difference was in respect of goods returned during the financial year 1995-96 for which credit was not given by ‘v’. Therefore, the closing balance of ‘v’ in the books of assessee stood fully explained and as such the addition made was untenable. [Para 9] FACTS - III In the assessment year 1997-98 the assessee had shown certain sum as income from the agricultural activity in respect of certain land. The Assessing Officer however brought the said sum as income of the assessee from other sources on the grounds that (a) no details regarding cultivation activity on the land had been filed by the assessee including the details of sale and purchase of agriculture, details of crops grown, number of crops grown and the yield of crops per unit of land (b) the farm house of the assessee was located in Tehsil Mehrauli, New Delhi which was within municipal jurisdiction of NDMC/MCD and in any case was within eight kilometers of the municipal limits of Delhi and, therefore, any income arising from the said land could not be said to be agricultural income under section 2(1A) (c) as per the details filed by the assessee in the course of assessment proceedings for Assessment year 1994-95, the assessee was running the business of nursery which was not an agricultural activity in view of the H.H. Maharaja Vibhuti Narain Singh v. CIT [1967] 65 ITR 364 (All.). The Commissioner (Appeals) upheld the said order. On second appeal: HELD - III The issue in respect of income from agriculture had been subject matter of consideration before the Tribunal in assessee’s own case, for assessment year 1994-95 wherein addition made by the Assessing Officer and confirmed by Commissioner (Appeals) was deleted. From the said order it was evident that the assessee had been cultivating the land since assessment year 1993-94 and same had been accepted by the revenue department. In fact in assessment year 1994-95 too the Assessing Officer partially accepted the claim of the assessee but, however, on appeal the Tribunal had accepted the entire claim of the assessee. In that year the Assessing Officer made the extensive investigation with regard to the nature of activity carried on by the assessee and it was only on the consideration of such material, it was held that assessee was engaged in agricultural activities. The report of the inspector obtained in the course of assessment proceedings for assessment year 1994-95 had also been placed at the paper book, which clearly showed that the operation of land were being undertaken with help of human skill and labour. It was also established that there was no rest house or dwelling houses constructed there except that the land under reference was covered by boundary wall of stones. In fact, similar income had also been declared as agricultural income in assessment year 1995-96 which too stood accepted by the revenue department. Thus, it could be concluded that the assessee was engaged in agricultural operation on the said land and therefore, income had to be assessed as agricultural income. All what had happened was that the Assessing Officer had made an attempt in reappreciate the provision of law to the facts of the instant case. The purported distinction drawn by the Commissioner (Appeals) that the books of account for Assessment year 1994-95 could not be verified for the instant year was wholly misplaced as neither the land had changed nor the nature of operation had changed. It would be pertinent to state here that even in the instant year as in the past the assessee held 13 bigas and 8 biswas of agriculture land at village Jonapur, Teehsil Mehrauli, Delhi. In fact if the view point of the Commissioner (Appeals) was adopted then the case of the assessee in the year under consideration was on a stronger footing. Since the books of account and other details furnished by the assessee had not been found to be otherwise in any manner by the Assessing Officer. The copy of Khasra Girdwair establishes the ownership, the nature of land and use of land in the instant year. The assessee had also placed the necessary material to establish the genuineness of the activity carried on by the assessee namely the copy of sale book, copy of purchase book, copy of salary paid vouchers, salary ledger account name wise, etc. and copy of vouchers and bills in support of agricultural purchase. From the material it was also found that the assessee had been cultivating this land with help of one ‘B’ through labour employed by the assessee. [Para 14] In fact ‘B’ was found to be an expert in this line of business in assessment year 1994-95 and also managing the operation of the assessee even in the instant year. The income and expenditure account of agriculture activities for the instant year had been placed on record. As regards the observation of the Assessing Officer that the land lay in the jurisdiction of MCD or within eight kilometers of municipal limit of Delhi, therefore, the income derived from the agriculture activity, could not be income within the meaning of section 2(1A) of the Act was not based on correct appreciation of facts of the case. [Para 15] It is evident from the definition of agriculture income as specified under section 2(1A) that the agriculture income include agricultural income derived from land situated in India and used for agricultural purpose. Sub-clause (c) of section 2(1A) deems income from building or house property as agriculture income in the circumstances stated therein. In the instant case as aforesaid there was no house or dwelling house constructed on the land in question. Hence this clause had no application. So far as the income from the land is concerned, the only requirement is that the land should be situated in India and should be used for agriculture purpose. As regards the observation of the Assessing Officer that nurseries were primarily grown in earthen pots and not on the land and therefore nursery income was not in accordance with the decision in the case H.H Maharaja Vibhuti Narain Singh v. State of Uttar Pradesh [1967] 65 ITR 364 (All.), it might be mentioned that the decision was not under the Income-tax Act but under Agriculture Tax Act of a State, therefore, the said decision was not applicable to the fact and circumstances of the instant case. Further, in the case of CIT v. K. E. Sundara Mudliar [1950] 18 ITR 259, the Madras High Court has held that irrespective of the nature of the produce or product of the land, whatever is grown on land aided by human labour and effort, whatever does not grow wild or spontaneously on the soil without human labour or product would be an agriculture product and the process of producing it would be ‘agriculture’ within the meaning of that expression in section 2. Further, in the case of CIT v. Saundarya Nursery, [2000] 241 ITR 530 (Mad) it was held that plants sold by the assessee in pots were the result of primary as well as subsequent operations comprehended within the terms ‘agriculture’ and they are clearly the products of agriculture. The assessee’s case was that she held agriculture land and on the said piece of land she planted a nursery. Therefore, it was the agriculture land wherein agriculture operations were being carried on, seeds were being sowed in the land and other agriculture operation were being done with the help of human skill and labour. The plants after they had attained its growth and were in a salable condition were then sold to customers. Therefore, income earned by this process had to be called agriculture income. Since the assessee was doing both basic as well as subsequent operation while carrying out its business activities and as such, applying the ratio of the decision in the case of CIT v. Raja Benoy Kumar Sahab Roy [1957] 32 ITR 466 (SC) the business of the assessee was agriculture within the meaning of section 2(1A). Therefore, the income in question was to be treated as the agriculture income of the assessee. [Para 16] CASE REVIEW: Mehta Parikh & Co. v. CIT [1956] 30 ITR 181 (SC) [Para 5]; H.H. Maharaja Vibhuti Narain Singh v. State of Uttar Pradesh [1967] 65 ITR 364 (All.) [Para 10] distinguished on facts; Electra (Jaipur) (P.) Ltd. v. IAC [1988] 26 ITD 236 (Delhi) [Para 8]; CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466 (SC). [Para 11] followed.