Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘’ B’’ BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)-2, Ahemdabad dated 01/12/2017( in short “Ld.CIT(A)”) arising in the matter of assessment order passed under s.263 of the Income Tax Act, 1961 (here-in- after referred to as "the Act") dt.19/02/2016 relevant to the Assessment Year 2011-2012.
The assessee has raised the following grounds of appeal;
1) On the facts and in the circumstances of the case in law, the Ld CIT(A) erred in agreeing with the decision of Ld AO. The order u/s 143(3) r.w.s 263 of the Income Tax Act, 1961 passed for A.Y. 2011-12 is wholly illegal, unlawful and against the principles of natural justice. 2) The Ld CIT(A) has grossly erred in interpreting the provisions of section 2{14) r.w,s section 10(1) of the Act, 1961. It has been held by various Apex Courts that profits from sale of specified agricultural land is exempt u/s 10(1) when such agriculture land does not come within the definition of capital asset as prescribed u/s 2(14). Accordingly, the contention'of Ld CIT(A) that section 10(1) of the Act,1961 does not include exemption of profit on sale of agriculture is erroneous. Further, the Ld C1T(A) as well as Ld AO has not disputed the fact that agriculture land in question is not a capital asset within the meaning of the definition of s. 2(14) of the IT Act, 1961. The claim of exemption u/s 10(1) made by the Appellant has been in appropriately rejected by Ld CIT(A). 3) On the facts and in the circumstances of the case as well as law on the subject, the Ld CIT(A) has erred in treating the profit arising on sale of agriculture land which was held as an investment as "Business Income" and thereby erred in disallowing Appellants claim for exemption u/s 10(1) of the Act,1961 w,r,t profit on sale of agricultural land of Rs.6,66J420/-.The Ld CIT(A) has failed to take into consideration, judgement given by various judicial precedents that even the trader can hold the portfolio of land as an investment. 4) Without prejudice to the above grounds raised by the Appellant, even if the claim of exemption u/s 10(1) of the Act, 1961 is rejected then based on capital gain computation provisions under Income Tax Act,1961, it will lead to short term, long term capital loss and no tax will be payable by the Appellant. 5) The appellant crave to add, alter and amend any of the grounds of appeals before or at the time of hearing.
The only effective issue raised by the assessee in ground No. 1 to 3 is that the Ld. CIT-A erred in treating the income on the sale of agricultural land as business income amounting to Rs. 6,66,420/- only.
The facts of the case are that the assessee in the present case is a private limited company and as per the AO, it is engaged in the business of trading in lands and properties. The assessee in the year under consideration has declared a profit of Rs. 6,66,420/- in its profit and loss statement on the sale of agricultural land. The assessee subsequently in the statement of income treated the same as exempted u/s 10(1) of the Act treating the same as a non-capital asset in pursuance to the provisions of section 2(14) of the Act. However, the AO was of the view that the assessee is engaged in the activity of purchase and sale of the lands. Therefore the same has to be taxed under the head business and profession. Accordingly, the AO treated the impugned profit on the sale of land as business income of the assessee.
The aggrieved assessee preferred an appeal to the Ld. CIT-A who has also confirmed the order of the AO by observing as under: 2.3. I hove carefully considered the facts of the case, assessment order and submission of the appellant. The Assessing Officer has made the addition of Rs.6,66,420/- on the ground that profit on the sale of land isa business income and not exempt u/s. 10(1) as claimed by appellant. The appellant company has sold agriculture land and claimed the gain as exempt u/s. 10(1). The Assessing Officer on the other hand has held that sale of agriculture land is the business activity of the appellant, and therefore, not exempt u/s. 10(1). Appellant has contended that it has shown the agriculture land as asset in the balance sheet, therefore, is to be taxed as a capital gain. I do not agree with the .appellant, since the Honourable Supreme Court in the case of Sutlej Cotton Mills Vs. CIT, West Bengal 116 ITR 1 has held that it is well settled that the way in which entries are made by an assessee in his books of account is not determinative of question whether the assessee has earned any profit or suffered any As appellant is a company engaged in the business of purchasing and selling of land, the profit is in the nature of adventure, and therefore, is tobe taxed as a business income. I, therefore, agree with the finding given by the AO and the addition made is confirmed.
Being aggrieved by the order of the Ld. CIT-A, the assessee is in appeal before us.
The Ld. AR before us filed a paper book running from pages 1 to 156 and submitted that it had shown the impugned land in the balance sheet under the head fixed assets. Moreover, the lands in question were purchased in the earlier years, which were classified under the head fixed assets, and this fact was not doubted by the Revenue. Therefore, the same cannot be treated as business income of the assessee.
On the other hand, the Ld. DR draws our attention to the statement of income filed by the assessee, where the impugned income was shown under the head business and profession. The Ld. DR vehemently supported the order of the authorities below.
The Ld. AR in his rejoinder submitted that the assessee in the statement of income had shown the profit on the sale of such agricultural land as exempted u/s 10(1) of the Act under the head business and profession. But, such disclosure does not mean that the impugned profit was earned from the business and profession.
6.1 The Ld. AR before us also filed its memorandum of objects and contended that it is not engaged in the sale purchase of the agricultural lands.
We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the instant case relates whether the impugned land sold by the assessee generates the income under the head business and profession.
7.1 On perusal of the balance sheet filed by the assessee, it is revealed that the assessee has not shown the impugned land as stock in trade. Rather it was shown under the head fixed assets. Therefore it appears that the intention of the assessee was not to trade in the agriculture lands. Page 4 of 6 7.2 Moreover, on perusal of the objects of the assessee, we note that there was not mentioned any business activity in relation to the sale purchase of the lands.
7.3 We also note that the assessee being a body corporate has to show all the income through the profit and loss account. The assessee subsequently will bifurcate the income shown in the profit and loss account prepared as per the Companies Act under different heads in the statement of income prepared under the Act. As the income from the sale of agricultural land is exempted u/s 10(1) of the Act and therefore the same will not be shown under any head of income as specified u/s 14 of the Act. As such, the assessee will get the exemptions on the scope of the total income. However, the mere reflection/declaration of impugned income in the statement of income for claiming exemption u/s 10(1) of the Act does not give rise to hold that the income was from the business activity.
7.4 We also note that even the assessee has made a mistake in the computation of income, but the same can be rectified. Therefore, the declaration of income under the head business and profession to claim the exemption cannot be conclusive that the impugned income is from the activity of the business.
7.5 similarly we also note that the principles laid down by the Hon’ble Supreme Court in the case of Sutlej Cottons Mills v/s CIT reported in 116 ITR 1 that the books of accounts are not conclusive evidence to determine the income under the particular head.
7.6 In the case on hand, the assessee has been showing the lands under the head fixed assets which were accepted by the Revenu, therefore, it is clear that such assets were not held for the purpose of the business. In view of the above, we do not find any reason to uphold the finding of the authorities below. Hence, the ground of appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 25/07/2019 at Ahmedabad.