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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI DUVVURU RL REDDY & SHRI G.MANJUNATHA
PER G.MANJUNATHA, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals)-15, Chennai dated 29.11.2018 and pertains to assessment year 2010-11.
The assessee has raised the following grounds of appeal:
“1. The order of The Commissioner of Income Tax Appeals -15, Chennai dated 29.11.2018 for the above assessment year is contrary to law & facts in the circumstances of the case. 2. The CIT (Appeals) - 15 failed to appreciate that Assessing officer erred in assuming jurisdiction u/ s 147 of the Act and consequently erred in completing the re-assessment u/ s 143(3) read with section 147 of the Act without assigning proper reasons and justification.
3. The CIT (Appeals) -15 grossly erred by sustaining the Assessment order, and failed to appreciate that the Assessing Officer went wrong by treating the sale of agricultural land as business income and thereby bringing to tax an amount of Rs. 1,93,71,600/ - which is contradictory to the facts of the cases and not sustainable in law.
The CIT (Appeals)-15 erred in not appreciating and considering the evidences brought out by the Appellant vide his letter dt. 08.11.2018 wherein he has produced the Adangal documents substantiating the claim that agricultural activity was carried out.
Contrary to the facts and documents available and submitted, the ClT (Appeals)-15 erred in holding that the Appellant never offered agricultural income in his Return of Income.
6. The CIT (Appeals)-15 failed to appreciate that the agriculture land bought in the year 05.04.2004 was sold in the year 2009 after 5 years. Had the intention been to do real estate business the appellant would not have retained the land for such a long period and carried out agricultural activity.
7. The CIT (Appeals)-15 ought to have disregarded the erroneous assumption of the Assessing Officer that whatever may be the nature of land, the assessee's intention and actions are of real estate business, since such an assumption is without any cogent facts or reason.
The CIT (Appeals)-15 failed to appreciate that the land sold, grossly fits into the definition of "Agriculture Land" as per the provisions of the Income Tax Act & judicial pronouncement of various courts and tribunals and also as per the facts of the case, therefore the gains arising from sale of such land is not taxable.
The CIT (Appeals) -15, erred by sustaining the order of the Assessing Officer wherein sale of agricultural land was treated as a business income on the premise that appellant is also carrying on the business of real estate. The fact that this transaction is purely in respect of personal agriculture land held by the Appellant and independent of his business activity was overlooked.
The Appellant craves leave to file additional grounds/arguments at the time of hearing.”
Brief facts of the case are that the assessee is an individual engaged in the business of real estate has not filed his return of income for the assessment year 2010-11. As per AIR information, assessee and another person has sold immovable property for `4.00 crores. On the basis of the said information, case was reopened under section 148 of the Income Tax Act,1961 (hereinafter referred to as “the Act”) and consequently case has been taken up for scrutiny assessment. During the course of assessment proceedings, it was noticed that the assessee has sold 16 acres and 48 cents of agricultural land at Karani village near Thirukazhugundram in Tamil Nadu for a consideration of `4.00 crores. The said land was purchased on 05.04.2004. The assessee has computed the long term capital gain from sale of agricultural land and claimed exempt on the ground that the impugned land is agricultural land within the meaning of section 2(14) of the Act and all the conditions prescribed thereunder has been fulfilled. The Assessing Officer was not convinced with the explanation of the assessee and according to him, the asset in question although was agricultural land but income derived from the sale of said land cannot be accepted as exempt, because the assessee was engaged in real estate business and he is regularly engaged in buying and selling the lands systematically with a view to make profits. The Assessing Officer was further of the opinion that whatever may be the nature of land but the intentions and actions of the assessee are relevant to determine whether the said lands were purchased with an intention to carry out agricultural operations or to hold as business asset to derive profit. Since the assessee was into real estate business, even though the land in question was agricultural land, the profit derived from the said land was assessable under the head ‘income from business or profession’, accordingly assessed the total profit derived from sale of land under the head ‘income from business or profession’. The assessee carried the matter in appeal before the learned CIT(A), but could not succeed. The learned CIT(A) for the reasons recorded in appellate order dated 29.11.2018 by following the decision of Hon’ble High Court of Madras in the case of CIT Vs. L.S.Manickam (1995) 215 ITR 519 (Madras) held that to decide whether particular income is assessable under the head income from business or is it exempt as agricultural income depends upon the nature of activity carried out and the intentions of the assessee to purchase and sale of land. Since the assessee was into real estate business, the profit derived from sale of land needs to be assessed under the head ‘income from business or profession’ and consequently, there is no error in the findings recorded by the Assessing Officer to make additions. Aggrieved by the order of CIT(A), the assessee is in appeal before us.
4. The learned A.R. for the assessee submitted that the learned CIT(A) has erred in confirming the additions made by the Assessing Officer towards gain derived from sale of agricultural land under the head ‘income from business or profession’, even though he has admitted the fact that impugned land was an agricultural land which is beyond the scope of section 2(14) of the Act and consequently no capital gain is levied. The learned AR further submitted that there is no dispute with regard to the fact that land in question was agricultural land, which is situated beyond 8 kms from the locality of the municipality. When the land is agricultural land and gain derived from sale of land is exempt from tax, the Assessing Officer has assessed the said income under the head ‘income from business or profession’ only for the simple reason that assessee was into real estate business and derives income from buying and selling lands ignoring the crucial point that there is no bar under the law for a business person to buy land for agricultural purposes and sell it, when the said land was not in requirement. The learned AR further referring to the paper book filed submitted that on perusal of the purchase deed and sale deed of the impugned land, it is clear that the nature of land was very much specified as agricultural land and the Revenue records clearly indicated that the lands are agricultural lands. The assessee has also produced necessary certificate from Thasildar to prove that agricultural activities are being carried out in the said lands. The Assessing Officer as well as CIT(A) have ignored all evidences filed by the assessee and assessed gain derived from sale of land under the head ‘income from business or profession’.
5. The learned DR, on the other hand, strongly supporting the order the learned CIT(A) submitted that even though the land in question was agricultural land but the assessee has failed to file necessary evidence to prove that agricultural operations were carried out in the land to claim the benefit of tax of status of agricultural income. Even before the learned CIT(A), the assessee has failed to file any evidence to substantiate his claim that land in question was non-agricultural land and consequently gain derived from the said land was not assessable to tax.
We have heard both parties, perused the materials and gone through the orders of authorities below. The solitary question that needs to be answered in the facts and circumstances of the case is whether profit/gain derived from transfer of agricultural land is exempt from tax or which is assessable under the head ‘income from business or profession’. There is no dispute with regard to the fact that impugned land was agricultural land. In fact, the Assessing Officer as well as the CIT(A) have categorically accepted the fact that land in question was agricultural land. However, they proceeded to assess gain to tax under the head ‘income from business or profession’ only for the simple reason that assessee was engaged in real estate business and buying and selling lands systematically to derive profits. In this factual background, we see the reasons given by the Assessing Officer and CIT(A) to arrive at a conclusion that gain derived from sale of land be assessable to tax under the head ‘income from business or profession’ and we find that there is no substance in the reasons given by the lower authorities because there is no bar under the law for a business person to buy land for agricultural purposes. When there is no bar in law for a business person to hold land for agricultural purposes, then merely for the reason that the said person engaged in the business of buying and selling of lands, the profit derived from sale of agricultural land cannot be brought to tax under the head ‘income from business or profession’, more particularly when the nature of land was agricultural land at the time of purchase as well as at the time of sale. Further, the assessee has also filed necessary evidence to prove that impugned land was purchased for the purpose of agricultural operations and also before the date of sale, the said land was used for agricultural purposes, which is evident from the fact that assessee has declared agricultural income for the assessment year 2005-06 and 2006-07. The assessee has also filed necessary Revenue records to prove that nature of land was agricultural land till the date of sale. The assessee has also furnished a letter from Thasildar to prove that agricultural operations were carried out in the impugned lands before the date of sale.
From the above, it is clear that land in question was agricultural land and was used for agricultural purposes till the date of sale.
Therefore, we are of the considered view that merely for the reason that assessee was into real estate business and involved in buying and selling of lands for profits, profit derived from sale of agricultural land cannot be brought to tax under the head ‘income from business or profession’. Had it been the case of Assessing Officer that assessee has purchased agricultural land, converted into non- agricultural purposes, formed lay out and then sold, then the question could be different. In this case, the lower authorities have categorically admitted the fact that impugned land in question was agricultural land. Once the land in question was agricultural land, then gain derived from transfer of said land is exempt from tax.
Accordingly, there is no substance in the reasons given by the authorities below to bring to tax gain derived from sale of land under the head ‘income from business or profession’. Hence, we direct the Assessing Officer to delete the addition made towards the profit derived from sale of land under the head ‘income from business or profession’.
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 28th October, 2020