Where entries are not bogus in the books of accounts, it is not an undisclosed income

There is a section (section 68) in Income Tax Act which says that if there is any sum which is found  credited in the books of an assessee for any previous year, and if the assessee offers no explanation regarding the source and nature of  such income or where the assessee offers an explanation but the same is not considered satisfactory by the department, then in such cases, the undisclosed income is charged to income tax as the income of the assessee for that same previous year. Now, all of us know that agricultural income is exempt from tax. So, what happened in a recent case of  Commissioner of Income-tax v.Neel Giri Krishi Farms (P.) Ltd.* was that the AO alleged that no agricultural operations were being carried out by the assessee as there was no record maintained by the assessee about the purchase of fertilizers and chemical and expenditure incurred on tube well boring, construction of storehouse, levelling of land etc. So, the AO made an addition of Rs. 17,87,500 under section 68 of Income Tax Act. Now, the assessee filed an appeal to CIT (Appeals). CIT (Appeals) held that even if each assessment year is treated to be a separate unit, just because primary evidence is not available for that particular assessment year, the findings in respect of previous years based on the record of title and possession of agricultural land, and the evidence led for proving that agricultural operations were carried out and crops were produced could not be disbelieved in the subsequent year. Moreover, the assessee was not required to submit proof of agricultural operations every year unless it is suggested that the agricultural operations were stopped or was not carried out in the relevant period. In the given case, there was no evidence to establish that assessee had sold agricultural land or that the assessee had stopped agricultural operations.download (7) Further, the Commissioner (Appeals) and the Tribunal have recorded findings that the assessee as a private company was maintaining regular books of account as required under the Companies Act, which were also audited and accepted in the AGM of the company. The entries in the books were not proved to be bogus. There is nothing under Income-tax Act debarring assessee from selling agricultural produce in cash, and thus, additions based merely on suspicion could not be sustained. To conclude: Where entries are not bogus in the books of accounts, it is not an undisclosed income, and thus addition can’t be made on credit of cash received. Thanks for reading for this article. Please feel free to write to us, if you are facing any issue with like this  at [info@taxmantra.com] or call us at +91 88208208 11. We would be more than happy to assist you.