Facts of the Case

The case arose from a search action conducted on 27.05.2018 in the Anuj Poddar group of cases. During the course of assessment proceedings, the assessee Melody Agri Farms claimed agricultural income derived from the cultivation and sale of bananas and other agricultural produce.

For Assessment Years 2017-18, 2018-19 and 2019-20, the assessee declared agricultural income and claimed exemption under Section 10(1) of the Income Tax Act.

However, the Assessing Officer (AO) doubted the genuineness of the agricultural activities and alleged that the assessee had shown bogus agricultural sales and inflated expenses to introduce unaccounted money.

The AO treated part of the agricultural sales as bogus and made additions under Section 68, mainly relying on statements recorded during investigation and calculations based on Mandi Shulk (market fee).

The CIT(A) deleted the additions, and the Revenue filed appeals before the Income Tax Appellate Tribunal (ITAT), Delhi Bench.

Issues Involved

  1. Whether the agricultural income declared by the assessee from sale of bananas and other agricultural produce was genuine and eligible for exemption under Section 10(1).
  2. Whether the Assessing Officer was justified in treating a portion of agricultural sales as bogus and making additions under Section 68.
  3. Whether the method adopted by the AO of computing sales based on Mandi Shulk payments was legally sustainable.

Petitioner’s Arguments (Revenue)

  • The CIT(A) erred in deleting additions made by the Assessing Officer.
  • Statements recorded during investigation suggested that transportation bills were bogus and expenses were inflated.
  • The assessee allegedly recorded sales of poultry litter and agricultural produce inconsistently, indicating manipulation of accounts.
  • The AO found discrepancies regarding variety of banana sold and the actual agricultural activities conducted.
  • Cash deposits linked with related persons indicated possible routing of unaccounted cash through agricultural income.
  • The AO relied upon Mandi Shulk payments to determine the actual sales turnover, which allegedly showed inflated agricultural income.

Respondent’s Arguments (Assessee)

  • It had genuine agricultural land and carried out agricultural operations, which were confirmed by a report from the Tehsildar after inspection of the farm.
  • Agricultural activities such as cultivation of banana, potato, wheat, sugarcane and vegetables were carried out on the farm.
  • The AO incorrectly assumed that all sales were of bananas and ignored sales of other agricultural produce.
  • The Mandi Shulk rate is calculated based on the local mandi price and not the final selling price, therefore the AO’s calculation of sales based on mandi fee was incorrect.
  • The assessee maintained regular books of account and tax audit reports, which were filed with the returns before the search.
  • Sales proceeds from buyers were received through banking channels such as RTGS and account payee cheques.
  • The AO did not conduct any independent enquiry and merely relied on statements recorded by the Investigation Wing.

Court Findings / Order

  • The Tehsildar’s report confirmed that agricultural and horticultural activities were actually carried out at the farm.
  • The assessee cultivated multiple agricultural crops, and the AO wrongly treated the entire turnover as sale of bananas.
  • The method adopted by the AO of computing sales based on Mandi Shulk was incorrect and unsustainable.
  • The assessee had maintained proper books of account and tax audit reports, and the transactions were recorded in regular books.
  • Sale proceeds were received through proper banking channels, supporting the genuineness of transactions.
  • The AO did not conduct independent verification or issue notices under sections 131 or 133(6) to confirm alleged bogus expenses or sales.
  • The AO failed to identify specific parties or transactions that were actually bogus.

 Important Clarification

  • Agricultural income cannot be treated as bogus merely on suspicion or indirect calculations such as mandi tax analysis.
  • Proper verification and independent enquiry by the Assessing Officer is necessary before making additions.
  • Statements recorded during investigation cannot substitute substantive evidence unless corroborated.


    Link to download the order -  https://itat.gov.in/public/files/upload/1735624568-wGvwna-1-TO.pdf

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