Facts of the Case

The assessee, Melody Agri Farms, was engaged in agricultural activities including cultivation of banana, potato, sugarcane, wheat, and vegetables. The assessee declared agricultural income earned from sale of agricultural produce and claimed exemption under Section 10(1) of the Income Tax Act.

A search action dated 27.05.2018 was conducted in the group cases of Anuj Poddar Group, following which assessments for Assessment Years 2017-18, 2018-19, and 2019-20 were completed under Section 153A read with Section 143(3).

During the assessment proceedings, the Assessing Officer alleged that:

  • The assessee had booked inflated or non-genuine expenses relating to transportation, poultry feed, fertilizers, etc.
  • Certain transporters admitted that bills were issued without actual services.
  • Agricultural sales, particularly banana sales, were treated as bogus.
  • The assessee allegedly inflated expenses to route unaccounted cash.

Based on these allegations, the Assessing Officer treated a part of agricultural sales as bogus and made additions under Section 68, amounting to:

  • ₹92,85,085 for AY 2017-18
  • ₹1,15,33,431 for AY 2018-19
  • ₹1,20,68,133 for AY 2019-20

The CIT(A) deleted these additions. Aggrieved by the deletion, the Revenue filed appeals before the ITA

Issues Involved

  1. Whether the Assessing Officer was justified in treating part of the assessee’s agricultural sales as bogus and making additions under Section 68.
  2. Whether the assessee’s agricultural income from banana cultivation was eligible for exemption under Section 10(1).
  3. Whether the addition made by the Assessing Officer on the basis of Mandi Shulk calculation and statements recorded during search was sustainable in law.

Petitioner’s Arguments (Revenue)

  • The assessee had claimed bogus transportation bills, which were admitted by transport operators in statements recorded under oath.
  • The assessee had shown inflated expenses to route unaccounted money through the books.
  • The assessee allegedly sold poultry litter for cash even before purchasing it, indicating manipulation of accounts.
  • Statements recorded during investigation indicated cash deposits made by associates of Anuj Poddar, suggesting use of the assessee entity for laundering unaccounted money.
  • The rate and variety of banana claimed by the assessee were inconsistent with statements of purchasers.
  • The CIT(A) ignored the findings of the Assessing Officer and wrongly deleted the additions.

Respondent’s Arguments (Assessee)

  • Agricultural activities were genuinely carried out on agricultural land, which was verified and certified by the Tehsildar after inspection.
  • The assessee cultivated various crops including banana, potato, wheat, sugarcane, and vegetables, and not only banana as presumed by the Assessing Officer.
  • Mandi Shulk was paid according to the local mandi rate, and the Assessing Officer wrongly computed sales based solely on such tax.
  • The sale rate of bananas was consistent with market rates prevailing at Azadpur Mandi, Delhi.
  • All sales transactions were recorded in regular books of account and supported by banking channels such as RTGS and account-payee cheques.
  • Books of account were maintained, audited, and produced before the Assessing Officer.
  • The Assessing Officer did not conduct independent enquiries under Section 133(6) or Section 131 with buyers to prove that sales were bogus.
  • Therefore, the additions made purely on suspicion were unsustainable in law.

Court Order / Findings (ITAT)


  • The Tehsildar’s report confirmed that agricultural activities were actually carried out on the farm using improved techniques.
  • The assessee cultivated multiple agricultural crops, whereas the Assessing Officer incorrectly treated the entire sales as banana sales.
  • The Assessing Officer incorrectly calculated sales based on Mandi Shulk, ignoring that many agricultural products were sold locally without payment of such tax.
  • The assessee had maintained regular books of account which were audited and produced during proceedings.
  • Sales proceeds were received through banking channels, supporting the genuineness of transactions.
  • The Assessing Officer failed to identify any specific buyer or sales transaction as bogus and did not conduct proper enquiry.
  • The methodology adopted by the Assessing Officer to treat sales as bogus only on the basis of Mandi Shulk calculation was not sustainable.

.Important Clarification

  • Mere statements recorded during investigation or suspicion regarding expenses cannot justify treating agricultural sales as bogus without proper enquiry.
  • When agricultural activities, land ownership, books of account, and banking transactions are substantiated, agricultural income cannot be denied.
  • Additions cannot be sustained where the Assessing Officer fails to verify transactions or identify specific bogus sales.


    Link to download the order -  https://itat.gov.in/public/files/upload/1735624493-PqPCE5-1-TO.pdf

    Disclaimer

    This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.