Verification of Claims Relating to Agricultural Income

Edu-Visor Update 18-12-2021

The assessing officers and professionals preparing ITR of the assessee are required to satisfy themselves that the assessees were eligible for allowance of the exemption claimed under section 10(1) read with section 2(1A) of the act. Section 2(1A)(B) provides that the agricultural income includes, inter alia, any income derived from land in India by agricultural operations including processing of agricultural produce, raised or received as rent in kind or any process ordinarily employed by cultivator or receiver of rent in kind so as to render it fit for the market, or sale of such produce. Agricultural income of this nature will broadly be computed as if it were chargeable to tax under the head ‘Profit and gains of business or profession”. This exemption claimed is indicated under schedule EI of the ITR filed by the assessees.

Section 143(3) of the Act dealing with detailed scrutiny envisages that after hearing the evidence produced by the assessee and such other evidence as the Assessing Officer may require and after taking into account all relevant materials which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income of the assessee, and determine such assessment. Thus, Assessing Officers are mandated by law to assess the income of the assessee and determine the tax payable by/refundable on the basis of such assessment. Different types of claims together with accounts, records and documents enclosed with the return are required to be examined in detail in scrutiny assessments.

VERIFICATIONS OF CLAIMS RELATING TO AGRICULTURAL INCOME- ASSESSING OFFICER SHALL HAVE POWERS AS HE HAS UNDER THE INCOME TAX ACT

For the purposes of computing the net agricultural income of the assessee, the Assessing Officer shall have the powers as he has under the Income Tax Act for the purposes of assessment of the total income.

ONUS LIES ON THE ASSESSEE WHO CLAIMS EXEMPTION TO ESTABLISH IT

It has been held by the Apex Court in CIT v. R. Venkataswamy Naidu (1956) 29 ITR 529 (SC) that the onus lies on the assessee who claims exemption to establish it. While determining the taxable income and tax payable, the Assessing Officer shall have the same powers as he has under the Income Tax Act should insist upon production of material evidence for the exemption claimed on account of Agricultural income. Failure to adopt a system of establishing the veracity of the claim would result in excess allowance of exemptions and under-assessment of taxable income

EXEMPTION ALLOWABLE ONLY AFTER VERIFICATION OF SUPPORTING DOCUMENTS

The claim of exemption on account of agricultural income is allowed only after verification of supporting documents such as the land records, income and expenditure statements, crop information, proof of agricultural income and expenditure such as ledger account, bills, invoices etc. These documentary proofs in support of agricultural income claimed by the assessee should be available in the assessment records to establish the veracity of the claim.

VERIFY THE DOCUMENTS AND DETAILS FOR CORRECTNESS OF ALLOWANCE OF EXEMPTION

Before allowing exemptions for agricultural income, the assessing officer should obtain and verify the following details for correctness of allowance of exemption:
1. Land records- Ownership/rights over the agricultural land,
2. Land Usage,
3. Cost of cultivation,
4. Purchase of seeds, fertilizers,
5. Labour / Machinery use in agricultural activity/
6. Cash book and / or Bank Statements of the assessee
7. Transaction details of agricultural produce
8. Details of receipts and expenditure claimed by assessee (i.e. proof of agricultural receipts and expenses)
9. Proof of having sold the agricultural produce in the open market or in one’s own retail shop
10. Proof of having sold the agricultural produce directly from any land used for agricultural purposes.
11. Proof of having derived the agricultural income from direct connection with the agricultural land showing cultivation of the ground, tilling of the land, sowing of the seed, planting and similar operations on the land, expenditure on human labour and skill, weeding, digging the soil around the growth, removal of undesirable growth, preservation of the crops from insects and pests, protection from depredations by cattle, tending, pruning, cutting, etc.
12. Proof of performance of any process ordinarily employed by a cultivator or receiver of rent in kind.
13. Proof of having rendered the produce raised or received by him in a fit condition for being taken to the market without applying any process other than ordinarily employed by a cultivator or receiver of rent in kind
14. Proof / evidence of the market value of the agricultural produce sold, evidence of the rate, quality and kind of the produce sold.
15. Proof of having granted rights to the user of the land where it was given to some share cropper of cultivation.
16. Proof of having derived the agricultural income (claimed by Assessee) from direct connection with the agricultural land showing cultivation of the ground, tilling of the land, sowing of the seed, planting and similar operations on the land, expenditure on human labour and skill, weeding, digging the soil around the growth, removal of undesirable growth, preservation of the crops from insects and pests, protection from depredations by cattle, tending, pruning, cutting etc., & market where the agricultural produce sold.

Omission to verify the above documents, assessee’s submission, agricultural income and expenditure statement may be resulted not only in inaccurate allowance of exemption but also under-assessment of ‘income from other sources’. Where exemption on account of agricultural income was allowed without taking into account / verifying the expenditure incurred to earn the agricultural income, which could also be a potential undesirable avenue for bringing unaccounted income/ black money into the financial.

Team Edu-Visor