Is your income from agricultural sources taxable? A farmer from Bengaluru who grew vegetables and fruits and sold them to Agricultural Produce Market Committee (APMC) for cash faced a tax notice for unexplained income.However, he was able to successfully challenge an income tax notice over large cash deposits in his bank account. The Income Tax Appellate Tribunal (ITAT), Bangalore, ruled in his favour after he produced evidence to support his explanation for the deposits.
What the case is about
The man owned just over four acres of agricultural land which he used for growing fruits and vegetables. According to him, the produce was sold for cash at an Agricultural Produce Market Committee (APMC) yard.The Income Tax Department questioned the farmer’s financial activities after he deposited large sums of cash into his bank account and was also involved in the sale and purchase of a property.The department suspected a mismatch between these transactions and the income disclosed in his income tax return (ITR). This prompted it to issue a notice seeking an explanation for the cash deposits.To substantiate his account, the man furnished copies of his land records, bills which documented the sales at the APMC yard and also bank statements. He maintained that the deposits were money earned from agricultural activities.The man also said he understood that agricultural income was exempt from tax and, therefore, did not need to be disclosed in his ITR.The Income Tax Assessing Officer (AO), however, was not convinced by his explanation. The officer noted that the Record of Rights, Tenancy and Crops (RTC) documents did not specify which crops the man had cultivated, leaving the AO questioning how his land had generated such substantial cash receipts from agricultural sales.The AO also pointed out that the taxpayer had not reported expenditure on seeds or other inputs required to grow the fruits and vegetables. In the officer’s assessment, the absence of any declared cultivation-related expenses raised doubts about the man’s claim that he had produced and sold the crops.Another concern was that the man had not disclosed agricultural income in either the preceding years or the subsequent year. Taking these factors into account, the AO rejected his explanation and treated the substantial cash deposits as unexplained cash credit under Section 69.The Commissioner of Income Tax (Appeals), or CIT(A), subsequently considered the man’s arguments but dismissed his appeal, holding that he had not supported his explanation with credible evidence.He then challenged the decision before ITAT, Bangalore. On August 28, 2026, the tribunal ruled in his favour.
Why did the farmer win the case?
The ITAT Bangalore observed that the tax authorities’ objections centred on two issues: the farmer had not disclosed the agricultural income in his ITR, and the documents submitted did not clearly identify the crops grown on his land.To examine the matter, the tribunal considered the RTC and pahani records relating to the agricultural land owned or cultivated by the man. It also examined the monthly summaries of sale bills and the individual bills for agricultural produce sold through the APMC market.The documents established that Ramachandrababu owned the land in question.The tribunal pointed out that RTC records are maintained by the Karnataka state authorities. The absence of details about the crops in these records did not establish that the man had not grown any agricultural produce.The tribunal further observed that the AO’s objections might have carried weight if the officer had conducted additional enquiries to establish whether the man’s claims were genuine. However, no such verification had been carried out.On the issue of missing purchase records, the ITAT Bangalore observed that it was not reasonable to expect someone engaged in small-scale agricultural activities to maintain the formal, detailed records that the AO had demanded.After considering the taxpayer’s submissions and the documents he had furnished, including the APMC sale bills, the ITAT Bangalore accepted his explanation.The tribunal consequently concluded that the cash deposits were supported by agricultural income and could not be classified as unexplained money under Section 69A.Akhil Chandna, Partner and Global People Solutions Leader at Grant Thornton Bharat, told ET that the landowner was able to establish where the cash deposited in his bank account had come from.He supported his explanation that the money was agricultural income by producing relevant documents, including agricultural land records, APMC sale bills and bank statements.The ITAT Bangalore observed that the Income Tax Department had neither presented evidence contradicting the taxpayer’s account nor carried out an independent investigation to verify and disprove his explanation.The tribunal also took into consideration the practical circumstances of small-scale farming. It held that the lack of detailed records of agricultural inputs, shortcomings in land records maintained by the government, or the absence of agricultural income declarations in earlier years could not, on their own, invalidate a claim that was otherwise supported by evidence.Chandna says: “Accordingly, since the landowner could establish a credible nexus between the agricultural activities, cash sale proceeds and subsequent bank deposits, the ITAT Bangalore held that such deposits could not be treated as unexplained money under Section 69A of the Income-tax Act, 1961.”
