DCIT, DEHRADUN vs. M/S. JYOTSANA LAMPS CAPS PVT. LTD., DEHRADUN

This appeal by the Revenue is preferred against the order of the Commissioner of Income Tax [Appeals] - Dehradun dated 06.01.2015 pertaining to A.Y 2011-12.

The solitary grievance of the Revenue is that the CIT(A) erred in treating the land in question as agricultural land without appreciating the fact that the AO has established that the land was situated within 8 km of Municipal limit as per letter of Municipal Corporation, Dehradun. The Revenue further alleges that the assessee could not produce any evidence on record regarding agricultural activity being carried out by it during the assessment proceedings.

Briefly stated, the facts of the case are that the assessee is engaged in Real Estate Builders and Developers and is also engaged in money lending business. During the course of scrutiny proceedings and on perusal of the profit and loss account, the AO found that the assessee has credited Rs. 3,08,64,121/- as sale of investment in agriculture land and has claimed the same as exempt being of agriculture in nature in the computation of income. The assessee furnished details of investment in agricultural land in F.Y. 2010-11. After perusing the details furnished by the assessee and after calling for information from Municipal Corporation, Dehradun, the AO came to the conclusion that profit on sale of agricultural land has to be treated as business income. The assessee strongly objected to this proposition of the AO claiming that the impugned land was agricultural land and was shown as such in the account of the assessee. It was further explained that the agricultural activities were carried out on the said piece of land and, therefore, any gain derived from the sale of agricultural land has to be treated as exempt.

The AO found that the said piece of land is within 8 km of municipal limit and is, therefore, covered u/s 2(14)(iii)(b) of the Act. Discarding the claim of the assessee, the AO treated the income arising out of sale of land as business income and accordingly, an addition of Rs. 3,08,64,121/- was made to the income of the assessee.

The assessee strongly agitated the matter before the CIT(A) and contended that the land was purchased as an agricultural land and the assessee did not take any steps to change the nature of the land. It was further explained that the land was classified as agricultural land in the land records and the land revenue was accordingly paid.

After considering the facts and submissions, the CIT(A) was of the opinion that even if the land is located within 8 kms of Dehradun Municipal limits, this would not change the basic character of the land. Since the land continued to remain agricultural land on which the land revenue was paid on the date of transfer, the CIT(A) was convinced as the same cannot be regarded as capital asset. The addition made by the AO was directed to be deleted.

Before us, the ld. DR strongly supported the findings of the AO.

Per contra, the ld. AR moved an application u/r 29 of the Rules and requested for the admission of certain additional evidences which go to the root of the matter.

We have given thoughtful consideration to the orders of the authorities below. We have also carefully considered the documentary evidences brought on record. In our considered opinion, if these documents are properly examined, then the factual position will be clear whether the impugned land was agricultural land or not. Moreover, we find that there is a certificate which certifies that the distance from the end of the municipal limit to the impugned land is around 8.85 km – 9.5 km. We are of the opinion that this needs further verification by the AO. In the interest of justice and fair play, we set aside the matter to the file of the AO. The AO is directed to examine the documents furnished by the assessee. The AO is further directed to verify the distance of the impugned land from the end of the municipal limits as on the date of notification i.e. 6.1.1994. The AO must give reasonable opportunity of being heard to the assessee and then decide the issue afresh.

In the result, the appeal of the Revenue in is treated as allowed for statistical purposes.