Facts of the Case

The assessee, a retired government primary school teacher residing in a rural area, had not filed a return of income for Assessment Year 2017-18. The Assessing Officer issued notice under Section 142(1) directing him to file the return.

During verification, the AO found that the assessee had deposited cash totaling ₹10,35,000 in multiple bank accounts during the demonetization period. The deposits included:

  • ₹2,41,000 in State Bank of India, Rajapur
  • ₹2,48,000 in Baroda UP Gramin Bank, Jethwara
  • ₹5,46,000 in Baroda UP Gramin Bank, Sarai Indrawat

The assessee explained that the deposits were sourced from withdrawals of pension/salary funds and agricultural income and that the money had been intended for a property transaction that did not materialize.

The AO accepted the explanation for ₹5,46,000 redeposited from prior withdrawals but rejected the explanation for ₹4,89,000 deposited in two other accounts. The assessee claimed that these deposits came from agricultural income and contributions from his son and daughter-in-law, who were also government teachers. Despite submission of land records (khatauni), the AO held that details of agricultural income and expenses were not substantiated and added ₹4,89,000 as unexplained money under Section 69A, taxing it under Section 115BBE.

Issues Involved

  1. Whether cash deposits claimed to arise from agricultural income could be treated as unexplained money under Section 69A.
  2. Whether agricultural income claims can be rejected solely due to lack of formal documentation.
  3. Whether the appellate authority was justified in dismissing the appeal for non-prosecution without examining merits.
  4. Whether landholding records (khatauni) constitute relevant evidence for agricultural income.
  5. Whether the matter required fresh adjudication.

Petitioner’s Arguments (Assessee)

The assessee contended that:

  • He was a retired teacher with pension income below the taxable limit and agricultural income exempt from tax.
  • He owned agricultural land producing crops such as mustard, pulses, and wheat.
  • Cash deposits represented sale proceeds of agricultural produce.
  • Documentary proof typical of urban transactions was not available due to rural cash-based farming practices.
  • Farmers do not maintain formal books of account or invoices for agricultural operations.
  • Khatauni records and purchase receipts for fertilizers had been submitted.

Respondent’s Arguments (Revenue)

  • The assessee failed to substantiate the source of deposits with documentary evidence.
  • He did not file returns or comply fully with notices.
  • The explanation regarding agricultural income and family contributions remained unverified.
  • Therefore, addition under Section 69A was justified.

Court Order / Findings (ITAT Allahabad)

  • The assessee had produced evidence of agricultural landholding through khatauni records.
  • The lower authorities did not examine whether such land could realistically generate the claimed income.
  • Insistence on formal documentation may be impractical in rural economies where transactions occur largely in cash.
  • Agricultural activities are not subject to mandatory maintenance of books of account.
  • The appellate authority erred in dismissing the appeal for default instead of adjudicating on merits.

Considering these factors, the Tribunal held that the matter required proper examination of:

  • Extent of landholding
  • Capacity of land to yield agricultural income
  • Plausibility of the assessee’s explanation

Accordingly, the case was restored to the file of the JCIT(A) for fresh decision after conducting necessary inquiries.

Important Clarification

  • Agricultural income claims must be evaluated in the context of rural realities and customary practices.
  • Landholding records are material evidence and must be examined before rejecting such claims.
  • Absence of formal documentation alone cannot justify addition under Section 69A.
  • Appellate authorities must adjudicate on merits rather than dismiss appeals for non-prosecution when relevant material exists.
  • Restoration does not validate the claim but ensures fair adjudication.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771221843_RAMKRISHNASHUKLAPRATAPGARHVS.ADDIJCITAPATNAPATNA.pdf

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