INCOME TAX ACT, 1961

Section 68

Income from undisclosed sources - Addition under section 68 - Assessee showed agricultural income in return - Assessee was neither in possession of any agricultural land nor it performed any agricultural activity--Treatment as unexplained cash credits

Assessee-HUF disclosed in its return that it earned agricultural income. AO by placing reliance on statements of landlords found that they were owners of land in question and they entered into a development agreement with the assessee. However, they denied that they received any advances from the assessee in that regard. Further, no construction activity/ agricultural activity was carried out by the assessee on the land and possession of the land was also not handed over to the assessee. Therefore, the AO held the agricultural income as unexplained cash credits liable for taxation and brought into tax as income from other sources. CIT(A) and Tribunal also upheld such addition. Held: Though assessee entered into a lease agreement with land owners but the date of agreement was not mentioned. Further, from perusal of the agreement, it was clear that the land was earmarked for growing/developing of the land for different crops and no trees of any kind were found on the land prior to execution of the lease agreement. Further, the buildings or animal sheds were not constructed on the lands, which was leased out to the assessee as the possession of the land in question was never handed over to the assessee. Thus, it could be said that the assessee was neither in possession of any agricultural land nor it performed any agricultural activity. Therefore, the question of earning any agricultural income would not arise. Hence, the AO was justified in treating the agricultural income shown by assessee as unexplained.

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2005-06

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