Plant 500 trees and explain Rs 11.22 crore additional income: A rare direction from ITAT Chandigarh asks taxpayer with Rs 1.79 lakh income shown in ITR

A Haryana resident, when filing his income tax return (ITR) for Assessment Year 2017-18, declared an income of Rs 1,79,160 along with an agricultural income of Rs 3 lakh. Things didn’t end there, and his case was picked up for scrutiny, resulting in an addition of a massive Rs 11.22 crore to his income.

Statutory notices were also issued to the Haryana man; however, he did not furnish the requisite details and supporting documentary evidence, according to the assessment order. This resulted in an assessed total income of Rs 11,23,87,670 under Section 143(3) of the Income-tax Act, 1961.

However, he has now been given a rather rare and one final opportunity to substantiate his case against the Rs 11.22 crore income addition. Read on to know what happened and how the man secured this chance.

Rs 1.79 lakh income in his ITR but Rs 11.22 crore added: What happened?

Since the case was selected for scrutiny, the Assessing Officer, during proceedings, found large cash deposits, unsecured loans worth crores, and discovered that the Rs 3 lakh agricultural income wasn’t substantiated by supporting evidence.

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During the proceedings, the tax officer found:

-Cash deposits aggregating to Rs 85.93 lakh in his bank accounts during the demonetisation period, the source of which the man failed to explain.

-Unsecured loans of Rs 9,25,90,050.

-Sundry creditors of Rs 1,07,25,456, for which the man failed to furnish confirmations and other documentary evidence.

Consequently, these amounts were treated as unexplained credits/income, and the AO made additions aggregating to Rs 11.22 crore, thereby assessing the total income of the taxpayer at Rs 11.23 crore under section 143(3) of the Income Tax Act, 1961.

Why was his return selected for scrutiny?

Karanjot Singh Khurana, Partner, DMD Advocates, told ET Wealth Online that while the order does not record the reason for selection, the fact pattern is a textbook trigger.

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“It can be speculated that a return declaring Rs 1.79 lakh of income and Rs 3 lakh of agricultural income, against cash deposits of nearly Rs 86 lakh in the demonetisation window and a balance sheet carrying Rs 9.26 crore of unsecured loans could have been flagged in CASS for scrutiny assessment.”

Taxpayer files appeal against Rs 11.22 crore income addition

Aggrieved, the man filed his first appeal before CIT(A), Gurgaon, where all the income additions were confirmed. He then went to ITAT, Chandigarh, with a fresh appeal.

In his appeal submitted to ITAT Chandigarh, the man did not seek an unconditional deletion of the income; instead, he sought one final opportunity to substantiate his case before the Assessing Officer.

His representative submitted that the man is willing to comply with such conditions as may be considered appropriate by the Tribunal. Moreover, as a measure of social and environmental responsibility, he expressed his willingness to plant 500 trees with the assistance of NGO Hari Yamuna Sehyog Samiti, at the Yamuna Bank at Panipat, Samalakha Site.

It would include the preparation of land, labour cost and plantation requirements that can be done by the assessee itself or with the assistance of the NGO. Additionally, the assessee will pay Rs 30 per plant per year as maintenance cost for one year.

What did ITAT Chandigarh decide?

Taking note of the details and after considering the rival submissions, the Tribunal found it appropriate to grant the taxpayer one final opportunity, as asked for. It remanded the matter to the Assessing Officer for the limited purpose of verifying compliance with the condition that:

The assessee shall plant 500 trees at the specified Yamuna Bank location within one month from the date of the order. He also needs to ensure the plantation, installation, protection and maintenance of the trees.

If he fails to undertake the plantation directly, the man shall deposit or pay the requisite cost towards plantation, installation, protection and maintenance of the 500 trees with the specified NGO, within the same one-month period.

“It is, however, made absolutely clear that this relief is conditional,” ITAT Chandigarh said, adding that in the event the assessee fails to comply with the plantation, the order passed by the CIT(A) shall stand restored. This means that the tax dispute is not yet resolved and the unexplained money is not yet explained. ITAT Chandigarh simply gave another opportunity to the man to explain this unexplained cash.

Why did the ITAT accept the assessee’s willingness to plant 500 trees?

Three things appear to have weighed with the Tribunal, according to Khurana.

First, seemingly the offer for tree plantation came from the taxpayer. The recordings in the Order suggest that the Tribunal accepted an undertaking that was volunteered.

Second, the Income Tax Department did not seriously oppose the offer advanced by the taxpayer. The submission was that if an opportunity were granted, compliance must be strict and time-bound.


Third, the additions rested on an absence of evidence before lower authorities. In situations where critical factual assertions are sought to be made before the Tribunal at the first instance as additional evidence, the tax tribunal ordinarily is inclined to remand the matter to lower authorities.

“In this case, however, because no sufficient cause for failure to produce evidence before lower authorities was brought before the Tribunal, it was unwilling to grant the indulgence gratuitously. The plantation is the cost element, and the Bench has read its discretion as wide enough to attach terms to the relief it grants,” he added.

What is the significance of this order?

In this case, the ITAT has not dismissed the lower authority’s order, but only given the assessee (man) another chance to substantiate his case against the income addition.

What is unusual is that the opportunity has been made conditional on an environmental undertaking requiring plantation and one year’s maintenance of 500 trees rather than on imposition of cost in the conventional sense.

“The Tribunal has seemingly attached a price to the indulgence and directed that price towards ecological restitution rather than to the exchequer,” Khurana shared.

What can taxpayers do to avoid tax scrutiny?

The selection of income tax returns for scrutiny is largely algorithmic and is not something a taxpayer can or should try to engineer around. However, one thing is entirely within a taxpayer’s control – the outcome, said Khurana.

To avoid such scenarios:

●Reconcile the return against AIS and Form 26AS before filing.

●Maintain contemporaneous documentation and confirmation for every loan and gift.

●Substantiate agricultural income with land records and mandi receipts rather than by assertion.

Further, Khurana stressed the importance of responding to notices along with requisite details.

While this case doesn't set a precedent, Khurana stated, it is not hard to imagine that taxpayers seeking remand to lower authorities could assert similar restitutions. It is worth emphasising that the direction was consensual and worked to the assessee’s advantage.