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Facts
The assessee appealed against NFAC's order for AY 2018-19, which sustained two additions made by the AO: Rs. 5,00,000/- as unexplained investment under Section 69 for advances made, and Rs. 3,94,36,125/- as Long Term Capital Gain under Section 45 from the sale of land claimed as agricultural. The AO concluded that the source of the advances was unproven and treated the land sale as taxable capital gain, decisions upheld by the CIT(A).
Held
The Tribunal condoned the delay in filing the appeal. For the first issue, it held that Section 69 was not applicable as the advances were duly recorded in the assessee's books of account, directing the deletion of the addition. For the second issue, the Tribunal found that lower authorities ignored evidence proving the land was agricultural and not a capital asset under Section 2(14), directing the deletion of the capital gain addition.
Key Issues
1. Whether an investment recorded in the books of account can be treated as unexplained under Section 69 of the Income Tax Act. 2. Whether the sale of agricultural land, meeting conditions under Section 2(14), should be treated as a Long Term Capital Gain.
Sections Cited
143(3), 144B, 69, 115BBE, 45, 139(9), 143(2), 2(14), 2(14)(iii)
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Income Tax Appellate Tribunal, “F” BENCH, DELHI
Before: SMT. ANNAPURNA GUPTA&
The instant appeal filed by the assessee is directed against the order dated 27.09.2022 passed by the National Faceless Appeal Centre (NFAC), Delhi, arising out of the assessment order passed by the Assessment Unit, Income Tax Department dated 16.01.2021 under Section 143(3) read with 144B of the Income Tax Act, 1961(hereinafter referred to as ‘the Act’) for Assessment Year 2018- 19.
2 At the time of hearing, none appeared for the assessee though hearing notices have been sent through registered email id as brought on record before the Tribunal. As there is no appearance from the assessee's side, the submissions of the Ld. Sr. DR are recorded, the documents and materials including written submissions and paper book filed by assessee are perused and the matter is taken as heard.
3 The appeal is time barred by 44 days. An application dated 09.01.2023 requesting condonation of delay perused and even Learned DR has not seriously disputed the delay aspect. Thus, delay of 44 days in filing the instant appeal is condoned.
In the instant appeal two issues involved. One is in respect of addition of Rs. 5,00,000/- sustained by Ld. CIT(A) out of total addition of Rs. 5,40,00,000/- made by Ld. AO, representing advances made by assessee held as unexplained investment u/s 69 read with section 115BBE of the Act. Second issue is of addition of Rs. 3,94,36,125/- made by Ld. AO and sustained by Ld. CIT(A) representing profit on sale of agricultural land treated as Long Term Capital Gain and added to the total income of the assessee u/s 45 of the Act.
The brief facts leading to the case are that the assessee has e- filed the return of income for the Assessment Year 2018-19 on 31.10.2018, declaring income of Rs. 29,56,570/- and thereafter has filed return of income on 10.06.2019 in response to notice issued u/s 139(9) of the Act. The case was selected for scrutiny through CASS on the issues “Sources of Loan Advanced” and “Capital Gain/income on sale of property” vide notice dated 22.09.2019 u/s 143(2) of the Act. Ld. AO from books of accounts has observed that the schedule to secured loans indicates that the secured loans have been procured for purchase of commercial vehicles; however assessee has investment in the shape of loans and advances of Rs. 5,40,00,000/-; including loan to M/s Vishwaa Carrier of India of Rs. 5,00,000/- which is under consideration. Ld. AO by recording his final conclusion that the assessee could not submit any documentary evidence to prove the identity, credit worthiness and genuineness of the source of loan received by assessee, thus the source of loan advanced by assessee is also not proved. Apart thereof Ld. AO has also show caused as to why Rs. 3,94,36,125/ representing profit on sale of land claimed as exempt on account that the land is agricultural land, should not be treated as Long Term Capital Gain and added to the total income of the assessee u/s 45 of the Act. In response thereto in support of the stand of assessee, he placed reliance upon sale deed itself, certificate dated 10.02.2021 issued by Tehsildar and khasra khatauni of land under consideration, however learned AO, being not impressed with the reply of assessee, has held that the profit on sale of land as Long Term Capital Gain and added to the total income u/s 45 of the Act. Ld. CIT(A) has sustained the addition of Rs. 5,00,000/- being advances to M/s Vishwaa Carrier of India and Long Term Capital Gain of Rs. 3,94,36,125/-.
Thus the assessee filed an appeal against the order of First Appellate Authority before us, raising two issues (supra). Ld. DR supported the order of First Appellate Authority sustaining the additions made by AO. On the other hand, none appeared from assessee’s side, however written submission supported with paper book has been placed on record.
Taking up the first issue of addition of Rs. 5,00,000/- representing advances to M/s Vishwaa Carrier of India recorded in audited books of accounts of appellant, held as unexplained investment u/s 69 of the Act. On perusal of orders of lower authorities it is unequivocal that the advances has been duly recorded in audited and even assessed books of accounts of the appellant. Thus in our considered upon even without going to other submissions made by appellant, we find force in submission of appellant that once the investments in the shape of advances has been recorded in the books of the account, maintained by him, addition made by invocation of provisions of section 69 of the Act is invalid. Provisions of section 69 of the Act reads as under:
“Unexplained investments.
Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.”
From perusal of provisions of section 69 of the Act, it is evident that provisions of section 69 of the Act applies where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year. Thus for applicability of provision of section 69 of the Act, first condition is that in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income and if this condition fulfils then, the assessee has to offer to explanation about the nature and source of the investments and then either if assessee offers no explanation or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, then as a consequence the value of the investments may be deemed to be the income of the assessee of such financial year. However in the issue under consideration, admittedly advances has been recorded in the books of accounts maintained by assessee, therefore in our view addition made and sustained is not in accordance with provisions of section 69 of the Act, therefore directed to delete the same and in result issue decided in favour of assessee.
As far as second issue, profit on sale of land as Long Term Capital Gain and added to the total income u/s 45 of the Act. Assessee has made the following reply before Ld. AO:
“... The reason why the proposed addition is conceived is that the assessee has claimed exemption of capital gain on the ground that the asset sold was not a capital asset under section 2(14)(iii) of the Act which as per the show cause notice remained unsubstantiated. This is not factually correct as the copies of the sale deed already submitted show the status of land sold as agricultural land. The other ground taken for this adverse action is that the assessee has not disclosed the surplus on sale of the asset in the return of income filed u/s 139(9) of IT Act. In this connection, our most humble submission is that the asset sold in the present case is the agriculture land at Village Raliawas, District Rweari Haryana for a sale consideration of Rs 8,21,87,500/- on which there was surplus of Rs 3,94,36, 125/- The particular land is an agricultural land which fact can be vouch-safed from the sale deed itself which shows the status of land as "Chahi" meaning irrigated through tubewell. Further, the certificate dated 10.02.2021 issued by the Tehsildar (Annexure 4) and also from the khasra khatauni (Annexure 5) of the land in question shows that land in question is under cultivation and most of the land is irrigated. The certificate of Tehsildardt: 02.02.2018 which is after the date of sale of land on 04.08.2017 which shows that even after the sale transaction the status of land continued to be agricultural land.
It may kindly be noted that to qualify the particular land being land falling in section 2(14)(iii) of the Act the assessee also needs to prove that the land is situate beyond the specified distance from the municipal limits as per clause (b) of above section. The nearest municipality to the land in question is Dharuhera District Rewari. The Dharuhera Town has population of 30344 as per the last census of 2011. In view of this the agriculture land to qualify exemption u/s 2(14)(iii) must be falling beyond the municipal limit by distance of more than 2 KM as per clause (b) sub clause (1) of section 2(14) of the Act. The above land is situate more than 9 KM from the Dharuhera Municipal limits which fact can also be verified from the certificate issued by Tehsildar. In view of the above particulars pertaining to the Land in question the said agricultural land is not a capital asset and therefore the profit from sale of such land is outside the ambit of taxation as sale of asset other than capital asset is not exigible to tax sir. Coming to the non-disclosure of profit from sale of such land in the return filed u/s 139(9) of IT Act, it is submitted that as explained hereinbefore since the profit form above transaction is tax neutral the assessee is not under obligation to declare profit/loss from such transaction sir."
9.1 However, the Ld. AO in absence of rebutting the aforesaid evidence placed on record, has made the addition by holding as under:
“5.3.1 The assessee was aware of both the issues right from the day the case was selected for scrutiny wherein, a notice u/s. 143(2) of the I.T. Act dated 22.09.2019 was issued to him as under:
While acknowledging the care and diligence you may have taken in preparing the return, thereare certain issues which need further clarification, for which your return of Income has beenselected for scrutiny and such issues initially are as under. S. No. Issues Source of Loan Advanced Capital Gains/Income on Sale of Property..."
Thereafter, time and again various opportunities were given to the assessee and sufficient time was also given to the assessee. Thus, 16 months time has been given to the assessee in view of the principles of natural justice. In view of the assessment nearing the limitation date, this office too has time constraint for completion of assessment proceeding. Hence, there is no scope to give further opportunities to the assessee. Therefore, the assessment is being concluded as per the discussions made in the assessment order. 5.4 The submission of the assessee have been considered but the same is not tenable for the following reasons: i The assessee did not file any evidence to prove that agricultural activities were carried out in the previous years. ii. Further on perusal of the return of income filed for previous assessment years does not reveal that the assessee has offered any income from agricultural activities in his return of income. The party, M/s: ASPAM Caravan Logistics Parks Pvt Ltd., to whom the land was sold, is carrying out commercial activities. Thus, it is apparent that the land was commercial in nature and not eligible for exemption as profit on sale of agricultural land. iv. Moreover, the assessee has not claimed any exempt income on sale of agricultural land in the return of income filed under section 139(9) of the I.T. Act. 5.5 In view of the above, the profit on sale of land of Rs.3,94,36,125/- is treated as Long Term Capital Gain and added to the total income under section 45 of the I.T. Act…”
9.2 The limited issue for our consideration is whether the land sold, is capital asset as held by lower authorities or otherwise as claimed by appellant. From perusal of order of assessment, more specifically para 5.4 of order (supra), it is clear that Ld. AO instead of analysing the evidence placed on record by assessee in support of his claim, has chose to make addition on other reasons, without even providing the basis for such conclusion. Likewise Ld. CIT(A) has sustained the addition, without analysing the evidences placed on record by AO, and has sustained the addition on the reasoning given by the AO, that the purchaser is carrying out commercial activities on the land under consideration, admittedly the basis for such conclusion is absent in the order of lower authorities. Now as far as evidence placed on record by assessee, it is evident from copy of registered sale deed placed at pages 31-41 of Paper Book, that it is “sale outside MC Area” and type of land is “Chahi”, further copy of certificate from tehsildar is also placed at pages 106-107 of Paper Book, wherein tehsildar has certified that the land under consideration is at the distance of municipality of Dharuhera. Apart thereof khasra khatauni is also placed on record. In view of the facts and circumstances of the case, where evidences place on record establish that the land under consideration is not a capital asset within the meaning of provisions of section 2(14) of the Act and such evidence remains unrebutted by lower authorities, we are inclined to accept the claim of the appellant and thus direct the Ld. AO to delete the addition. In result issue decided in favour of assessee.
The appeal of the assessee is, thus, allowed.