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Facts
The assessee filed three appeals against orders relating to assessment year 2014-15. The appeals involved challenges to additions made by the Assessing Officer and confirmations of penalties. The core issues revolve around the classification of income from property transactions (business income vs. capital gains) and unexplained bank deposits.
Held
The Tribunal restored the issues of determining the nature of income from land transactions, unexplained bank deposits, and the applicability of penalty provisions to the Assessing Officer for fresh adjudication. The Tribunal found merit in the assessee's arguments that the nature of land transactions required further examination and that the grounds for additions and penalties needed re-evaluation.
Key Issues
Whether gains from sale of agricultural land are to be treated as business income or capital gains, and whether the additions and penalties levied are justified based on the facts and supporting evidence.
Sections Cited
143(2), 142(1), 133(6), 69, 2(13), 271(1)(c), 271B, 44AB, 68, 28, 2(14), 45
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI R. K. PANDA & SHRI VINAY BHAMORE
The above batch of three appeals filed by the assessee are directed against the separate orders dated 09.04.2025 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2014-15. In the assessee has challenged the order of the Ld. CIT(A) / NFAC confirming the various additions made by the Assessing Officer. In the assessee has challenged the order of the Ld. CIT(A) / NFAC partly sustaining the penalty levied by the Assessing Officer u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). In Ld. CIT(A) / NFAC confirming the levy of penalty u/s 271B of the Act amounting to Rs.1,50,000/- for not getting the accounts audited u/s 44AB of the I T Act, 1961. For the sake of convenience, all these appeals were heard together and are being disposed of by this common order.
Facts of the case, in brief, are that the assessee is an individual and filed his return of income on 29.07.2015 declaring total income of Rs.2,85,200/-. The case was selected for limited scrutiny under CASS on account of the following reasons: a) Large investment in property as compared to total income b) Low capital gain with respect to sale consideration (higher of AIR and ITR)
Accordingly statutory notices u/s 143(2) and 142(1) of the Act were issued. However, there was no response from the side of the assessee to these notices as well as the subsequent notices issued u/s 142(1) of the Act. The Assessing Officer, therefore, proceeded to complete the assessment on the basis of material available on record. The Assessing Officer obtained information u/s 133(6) of the Act from the bank and collected the details from the office of the Sub-Registrar, Talegaon Dhamdhere regarding the transaction of the assessee in property.
From the verification of the bank account the Assessing Officer noted that the assessee has made certain deposits in the bank account totaling to Rs.2,47,99,300/-, the details of which are as under:
In absence of any explanation from the side of the assessee to explain the nature and source of such deposits, the Assessing Officer made addition of the same by invoking the provisions of section 69 of the Act.
He further observed that during the year the assessee had purchased and sold the following properties:
In absence of any explanation filed by the assessee or any details filed in the return of income, the Assessing Officer made addition of the same to the total income of the assessee. Thus, he determined the total income of the assessee at Rs.7,77,71,370/- as against the returned income of Rs.2,85,200/-.
Before the Ld. CIT(A) / NFAC the assessee made elaborate submissions based on which the Ld. CIT(A) / NFAC called for a remand report from the Assessing Officer. After considering the remand report of the Assessing Officer and the rejoinder of the assessee to such remand report, the Ld. CIT(A) / NFAC sustained the addition of Rs.1,77,85,000/- out of addition of Rs.3,51,75,000/- and Rs.1,75,00,000/- on account of sale and purchase of properties by observing as under:
So far as the addition of Rs.2,47,99,300/- on account of deposit / transfer into bank account is concerned, the Ld. CIT(A) / NFAC gave part relied to the assessee by observing as under: “7.2 During the year under consideration, the appellant has deposited Rs.2,18,53,409/- through transfer / clearing as per rejoinder filed by the appellant and further sum of Rs.32,41,300/- is deposited in cash. From the submission of the appellant, it is seen that out of credit through transfer / clearing amounting to Rs.2,18,53,409, a sum of Rs.98,25,000/- is received as hand loans from friends and relatives. The appellant has not submitted this information before Ld AO during the remand proceedings. Further, I find that the appellant has failed to establish the Identity, creditworthiness and genuineness of the transaction, Merely submitting the names of the individuals from whom these amounts were received is not sufficient to establish the correctness of the transaction. Accordingly, the submission of the appellant in respect of credit entries of Rs.98,25,000/- cannot be accepted. Therefore, the same is confirmed. 7.3 As regards, the cash deposited in the bank account, the submission of the appellant that Rs.27,50,000/- out of total cash deposit of Rs.32,59,300/- was received from the sale of the land is accepted. The appellant has further argued that the cash of Rs.3,58,200/- and Rs.1,51,100/- were part of business receipt and other deposits respectively. This argument of the appellant cannot be accepted for want of any documentary evidence to substantiate the claim of the appellant. Accordingly, I confirm the addition of Rs.5,09,300/- on account of cash deposited in the bank account.”
Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds:
1. On the facts and in the circumstances of the appellant's case and in law, the Ld Commissioner of Income Tax (Appeals), NFAC, has erred in confirming huge additions amounting to Rs.2,81,21,168/- out of the additions made by the Assessing Officer vide order dated 29.12.2016 u/s 144 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), which is bad-in-law, without proper application of mind, unjust, invalid illegal, not in accordance with the provisions of law, unsustainable and liable to quashed/deleted.
2. On the facts and in the circumstances of the appellant's case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred in confirming the addition of Rs.1,77,85,000/- by treating the same as business income out of sale proceeds of land under the expression "adventure in the nature of trade' u/s 2(13) of the Act by solely relying on the remand report of the AO and in utter disregard to the detailed rejoinder submitted by the appellant and without appreciating the facts that: i. The land pieces were purchased as agricultural land in a village as described in the title deeds and held as long-term agricultural land with no intention for commercial exploitation but to be held for agriculture only. ii. Sale proceeds of certain old parcels of agricultural land in a village and purchase of certain other new parcels of agricultural lands in the village out of such sale proceeds undertaken in the impugned year, by itself does not lead to conclusion that the said agricultural land pieces were held as stock-in-trade and rural agricultural land in a village (being an undisputed fact) also not being a capital asset within definition as provided u/s 2(14) of the Act, does not lead to even the Capital gains on sale thereof. iii. The pieces of agricultural land in a village were sold as an agricultural land only. without carrying out any commercial activity for instance converting land into plots before sale to justify treating the transaction of the appellant by the Assessing Officer as an incidence of sale falling under expression 'adventure in nature of trade’. iv. The land pieces under subject matter of sale were incidentally sold after a short period of holding solely due to compelling circumstances arising from dispute between farmers, which necessitated the sale and accordingly, the gain arising from such sale cannot by itself, in law or on facts, be characterized as profit arising from an "adventure in the nature of trade," and therefore does not fall within the ambit of 'business’ as defined under Section 2(13) of the Act. v. The pieces of agricultural land purchased till the end of financial year relevant to the AY 2014-15 by the appellant are continued to be held by the appellant till date and are being used for agricultural purpose by the appellant and therefore that by itself proves that the said lands were held as long-term investments for agriculture purpose and not as "adventure in the nature of trade".
3. On the facts and in the circumstances of the appellant's case and in law, the Ld Commissioner of Income Tax (Appeals), has erred in confirming additions of Rs.1,77,85,000/- as business income, ignoring the facts that: i. The said sum represents the appellant's proportionate share in the sale proceeds of the agricultural land, with co-ownership also acknowledged by the Assessing Officer at para 4.1 of his remand report dated 10.06.2024 submitted during the course of appellate proceedings and no such adverse view has been taken in the case of the other co-owner and therefore the principle of consistency demands that no adverse view could have been taken by the Assessing Officer in the appellant's case. ii. The said agricultural land pieces in a village, not being a 'capital asset’ by definition provided u/s 2(14), leading to any Capital gains much less constitute taxable profit arising from such sale. Without prejudice to the above, the Assessing Officer at para 4.1 of his remand report dated 10.06.2024 has stated that the profit out of the sale proceeds of Rs.1,77,85,000/- is to be taxed as "business income" in the hands of the appellant whereas the Ld. CIT(A) has confirmed the entire amount of sale proceeds as business income, rendering the impugned addition devoid of legal and factual basis and is therefore liable to be deleted in toto.
4. On the facts and in the circumstances of the appellant's case and in law, the Ld Commissioner of Income Tax (Appeals), has erred in confirming the addition of Rs.98,25,000/- made by the Assessing Officer by invoking provisions of section 69 of the Act, despite the fact that the amount represents ‘loans’ from family and friends of the appellant received through banking channels, which have subsequently been repaid and as such does not constitute 'unexplained investments’ within the meaning of Section 69 of the Act.
5. On the facts and in the circumstances of the appellant's case and in law, the Ld Commissioner of Income Tax (Appeals), has erred in confirming the addition of Rs.5,09,300/- u/s 69 of the Act disregarding the explanation submitted by the appellant that cash receipts amounting to Rs.3,58,200/- constituted business receipts that had already been offered to tax in the return of income filed by the appellant for the relevant assessment year and the remaining sum of Rs.1,51,000/- represents other deposits made into the appellant's bank account, out of the cash withdrawals effected during the same assessment year.
6. The appellant craves leave to add to, alter, amend, modify and for delete all or any of the foregoing grounds of appeal. The appellant prays before the Hon'ble Tribunal to delete the impugned additions made by the Assessing Officer and confirmed by the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi.
The Ld. Counsel for the assessee at the outset drew the attention of the Bench to the remand report submitted by the Assessing Officer, copy of which is placed at pages 35 to 40 of the paper book. Referring to pages 41 to 48 of the paper book, she drew the attention of the Bench to the rejoinder of the assessee to such remand report. She submitted that the assessee in the said remand report has categorically stated that to treat the gain from sale of agricultural land as business income or otherwise depends upon the intention of the assessee at the time of purchase / acquisition. She submitted that the sold assets were held for a substantial period and there were no such instances of frequent sales / purchases of land after the transactions during the year. Relying on the decision of Hon’ble Bombay High Court in the case of CIT vs. Trivedi (V.A.) reported in (1988) 172 ITR 95 (Bom), she submitted that the Hon’ble High Court in the said decision has held that the original intention of the party in purchasing the property, the magnitude of the transaction of purchase, the nature of the property, the length of its ownership and holding, the conduct and subsequent dealings of the assessee in respect of the property, the manner of its disposal and the frequency and multiplicity of transactions afforded valuable guides in determining whether the assessee was carrying on a trading activity and whether a particular transaction should be stamped with the character of a trading adventure.
She submitted that in the present case the assessee was rightly showing the lands under long term own assets and not under stock in trade or current asset. This clearly shows that the intention of the assessee to hold the properties for self- use/long term intentions and not for resale of the same. She submitted that the assessee has not undertaken any further activity (other than cultivation) like dividing, plotting, landscaping etc. The piece of agricultural land was sold as it is without any additional efforts/activities on the same. This further proves that the assessee never intended to earn profit from the sale of land as business income. Further while computing the income neither the Assessing Officer nor the Ld. CIT(A) / NFAC has given any deduction for cost price of the land that has been sold. In any case, she submitted that the profit cannot be treated as adventure in the nature of trade and may be considered as long term capital gain / short term capital gain only.
So far as the addition on account of unexplained cash deposit is concerned, she drew the attention of the Bench to page 46 of the paper book and submitted that the assessee has filed the details of deposit of Rs.2,18,53,409.68 being the amount of cheques received / cleared which is the correct figure as against the figure of Rs.2,15,58,000/- by the Assessing Officer. She drew the attention of the Bench to the following details and submitted that all the amounts except cash deposit of Rs.5,09,300/- has been obtained by cheques:
However, the Ld. CIT(A) / NFAC without considering the facts properly has sustained addition of Rs.98,25,000/- which is not justified. Further, an amount of Rs.5,09,300/- sustained by the Ld. CIT(A) / NFAC is also incorrect since the assessee has explained the source of the same which is not of business and other receipts. However, here also the Ld. CIT(A) / NFAC without considering the facts properly has sustained the addition which is not justified. She accordingly submitted that all the additions sustained by the Ld. CIT(A) / NFAC should be deleted and the grounds raised by the assessee be allowed.
The Ld. DR on the other hand heavily relied on the order of the Ld. CIT(A) / NFAC. He submitted that the Ld. CIT(A) / NFAC after calling for a remand report from the Assessing Officer and considering the rejoinder of the assessee to such remand report has given substantial relief to the assessee. Therefore, the assessee should not have any grievance. He accordingly submitted that the order of the Ld. CIT(A)/NFAC should be upheld and the grounds raised by the assessee be dismissed.
We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. It is an admitted fact that during the assessment proceedings the assessee did not make any submission to substantiate the source for purchase of land, profit from sale of land, the nature and source of cash deposits in the bank account etc. for which the Assessing Officer, in the order passed u/s 144 of the Act, made addition of the same and determined the total income of the assessee at Rs.7,77,71,370/- as against the returned income of Rs.2,85,200/-. We find in appeal the Ld. CIT(A) / NFAC after considering the remand report of the Assessing Officer and the rejoinder of the assessee to such remand report sustained the additions to the tune of Rs.1,77,85,000/- out of addition of Rs.3,51,75,000/- and Rs.1,75,00,000/- respectively made by the Assessing Officer out of land transaction. Similarly, he sustained the addition of Rs.98,25,000/- and Rs.5,09,300/- respectively out of addition of Rs.2,47,99,300/- made by the Assessing Officer on account of various deposits in the bank account.
It is the submission of the Ld. Counsel for the assessee that the assessee has not undertaken any further activities like dividing, plotting and landscaping, etc on the land and he was utilizing the land exclusively for agricultural activities. Therefore, the profit cannot be treated as adventure in nature of trade. Further, since the land being agricultural land in a village is not a capital asset therefore, any profit on sale of such rural agricultural land is out of the ambit of tax. It is also her submission that the cost of land has not been deducted from the sale price so as to determine the correct business income or long term capital gain / short term capital gain or exempt income. Similarly, it is also her submission that the assessee has obtained an amount of Rs.98,25,000/- from various perons through banking channel and the full details were given. It is her submission that given an opportunity the assessee is in a position to substantiate with evidence to the satisfaction of the lower authorities regarding the source of credit entries of Rs.98,25,000/-. It is also her submission that an amount of Rs.5,09,300/- sustained by the Ld. CIT(A)/NFAC on account of cash deposit was explained to be out of business and other receipts which was not considered by the Ld. CIT(A) / NFAC properly.
We find some merit in the above argument of the Ld. Counsel for the assessee. A perusal of the rejoinder of the assessee to such remand report shows that the assessee had purchased the rural agricultural land from sale of rural agricultural land only before the sale took place. The relevant submission of the assessee before the Ld. CIT(A) / NFAC reads as under:
We find the above aspects could not be verified by the Assessing Officer at the time of assessment proceedings due to non submission of any details. Although it was submitted before the Ld. CIT(A) / NFAC in the shape of rejoinder of the assessee to the remand report, however, we find these details were not given to the Assessing Officer at the time of remand proceedings for which the comments of the Assessing Officer could not be obtained. During the remand proceedings the power of the Assessing Officer in our opinion was very limited. In the instant case even the cost price has not been deducted from the sale price for arriving at the business income or long term capital gain / short term capital gain. Therefore, considering the totality of the facts of the case, we are of the opinion that the matter requires proper adjudication to determine the correct income and consequently the correct tax liability including the nature of transaction. We, therefore, restore this issue i.e. adventure in nature of trade or capital gain to the file of the Assessing Officer for adjudication of the issue afresh and in accordance with law after giving due opportunity of being heard to the assessee.
Similarly, so far as the addition of Rs.98,25,000/- is concerned, we find the amounts were received through proper banking channel and the names of the persons were given. It is the settled proposition of law that for accepting any cash credit the three ingredients in terms of provisions of section 68 i.e. identity and creditworthiness of the creditors and genuineness of the transaction has to be proved. However, in the instant case although the assessee has given the names of the persons and the amount has been received through proper banking channel, however, has not proved their creditworthiness by giving the requisite details. It is the submission of the Ld. Counsel for the assessee that given an opportunity, the assessee is in a position to provide all the details. We, therefore, deem it proper to restore the issue to the file of the Assessing Officer with a direction to give an opportunity to the assessee to substantiate the details of Rs.98,25,000/- by providing the creditworthiness of loan creditors and the genuineness of transaction.
So far as the addition of Rs.5,09,300/- is concerned, it is the submission of the Ld. Counsel for the assessee that the same is out of business income and other receipts. Since the same was neither substantiated either before the Assessing Officer or the Ld. CIT(A) / NFAC except a mere statement and since it is the submission of the Ld. Counsel for the assessee that given an opportunity the assessee will substantiate the same by filing the requisite details, therefore, considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore this issue also to the file of the Assessing Officer with a direction to adjudicate the issue afresh and in accordance with law after providing due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.
The assessee in the grounds of appeal has challenged the part relief granted by the Ld. CIT(A) / NFAC in sustaining the penalty of Rs.94,55,998/- out of Rs.2,62,45,360/- levied by the Assessing Officer u/s 271(1)(c) of the Act. Since in the preceding paragraphs we have restored the issue of quantum addition to the file of the Assessing Officer, therefore, we deem it proper to restore the issue of penalty to the file of the Assessing Officer for fresh adjudication after completion of the quantum proceedings. The grounds raised by the assessee in are accordingly allowed for statistical purposes.
23. The assessee has challenged the order of the Ld. CIT(A) / NFAC in confirming the penalty of Rs.1,50,000/- u/s 271B of the Act for not getting the accounts audited without any reasonable cause in terms of section 44AB of the Act.
24. After hearing both sides, we find the Ld. CIT(A) / NFAC sustained the penalty so levied by the Assessing Officer by observing as under:
25. It is the submission of the Ld. Counsel for the assessee that penalty was wrongly levied by the Assessing Officer u/s 271B by treating the sale proceeds of Rs.1,77,85,000/- arising from the transfer of rural agricultural land as business receipts chargeable to tax u/s 28 of the Act despite the fact that the agricultural land in a village is neither capital asset nor falls within the meaning of capital asset u/s 2(14) of the Act and therefore, not liable to tax u/s 45 of the Act. Further, it is not stock-in-trade of the assessee. In the preceding paragraphs we have already restored the matter to the file of the Assessing Officer with a direction to re- adjudicate the issue of treating the surplus from sale of land as business income or long term capital gain / short term capital gain. We, therefore, deem it proper to restore this issue also to the file of the Assessing Officer with a direction to decide the issue of applicability of getting the accounts audited u/s 44AB of the Act only after determining the nature of such transaction i.e. either as business receipts or long term capital gain / short term capital gain. The grounds raised by the assessee are accordingly allowed for statistical purposes.
In the result, all the three appeals filed by the assessee are allowed for statistical purposes.
Order pronounced in the open Court on 30th October, 2025.