VANGA JAIN BABU,DEVARAPALLI vs. THE INCOME TAX OFFICER, WARD-1, , TADEPALLIGUDEM

PER S. BALAKRISHNAN, Accountant Member :

This appeal filed by the assessee is against the order passed U/s. 263 of the Income Tax Act, 1961 [the Act] by the Ld. Principal Commissioner of Income Tax, Visakhapatnam-1 [Pr. CIT] in DIN & Letter No. ITBA/COM/F/17/2020-21/1031835728(1), dated 27/03/2021 for the AY 2015-16.

his return of income for the AY 2015-16 admitting a total income of

Rs.3,69,300/- and agricultural income of Rs. 1,25,000/-, on

01/03/2016. The assessee is running a business / trade in “Cashew

Nuts” in the name and style of “Maranatha Cashew and Generals”. The

case was selected for limited scrutiny under CASS with a reason to

examine “Low Capital Gain with respect to sale consideration (higher of

AIR and ITR)”. The Ld. AO issued notice U/s. 143(2) of the Act on

29/7/2016 and the same was served on 7/8/2016. Due to change of

incumbent, another notice U/s. 143(2) r.w.s 129 was issued and served

on the assessee. Further, notice U/s. 142(1) of the Act along with a

questionnaire was issued and the same was served on the assessee. The

Ld. AO in his order observed that despite several opportunities given to

the assessee, the assessee did not respond to the same and therefore

issued notice U/s. 274 r.w.s 271(1)(b) of the Act asking the assessee to

show cause why penalty should not be levied U/s. 271 of the Act and

was provided an opportunity of being heard on 17/7/2017. Since the

assessee did not appear nor filed any written explanation, a penalty U/s.

271(1)(b) was imposed on the assessee vide order dated 16/8/2017.

Further, notice U/s. 142(1) of the Act was issued and served on the

assessee. In response to the notice the assessee’s Representative

appeared and produced the required information called for by the Ld.

AO. The Ld. AO during the scrutiny assessment proceedings observed

that the assessee has entered into various transactions and noticed that

the assessee was in receipt of Rs. 1,82,600/- during the impugned

assessment year which was not disclosed in the return of income.

Therefore, the Ld. AO considered the amount of Rs. 1,82,600/- as

income from other sources, while framing the assessment, for which the

assessee did not object. Subsequently, the Ld. Pr. CIT in exercise of

powers vested U/s. 263 of the Act found that the order of the Ld. AO as

erroneous and prejudicial to the interests of the Revenue, in so far as the

assessee has purchased and sold agricultural lands within a span of one

month and considered that the Ld. AO has not rejected the claim of the

assessee in the absence of documentary evidence. The Ld. Pr. CIT issued

a show cause notice dated 12/2/2020 for which the assessee submitted

its reply on 23/2/2020. Considering the submissions made by the

assessee, the Ld. Pr. CIT found that the assessee purchased agricultural

land admeasuring 6.69 Acrs on 14/07/2014 for Rs.33,45,00/- and sold

the same for a consideration of Rs. 2,25,59,000/- on 5/8/2014.

Further, the Ld. Pr. CIT also observed that the assessee has purchased

another piece of agricultural land admeasuring 4.47 Acres for Rs.

61,00,000/- on 14/8/2014 and sold the same for a consideration of Rs.

1,10,53,000/- on 19/8/2014. From the submissions made by the

assessee, the Ld. Pr. CIT found that the assessee has purchased these

lands with the ultimate motto of selling the lands and hence it cannot be

considered as a simple transaction of sale of agricultural lands thereby

attracting the capital gains on the sale of such lands. The Ld. Pr. CIT

therefore directed the Ld. AO to pass necessary order giving effect to the

revision order U/s. 263 of the Act considering the capital gains on the

sale of land as short term capital gains. The Ld. Pr. CIT also directed the

Ld. AO to afford one more opportunity to the assessee before passing the

consequential order. Aggrieved by the order of the Ld. Pr. CIT, the

assessee is in appeal before the Tribunal.

the issue is with respect to treating the capital gains on sale of

agricultural lands as short term capital gains.

submitted that the assessee has purchased agricultural lands in “Acres”

and has sold the same in “square yards”. The Ld. AR further submitted

that the unit of measurement while buying and selling the agricultural

land will not alter the character of the land. The Ld. AR further

submitted that even though the land was sold in Square Yards, it was

neither converted into ‘non-agricultural land’ nor converted into ‘plots’ by

the assessee. The Ld. AR also submitted that the lands are agricultural

lands as on 24/02/2023. The Ld. AR also in the paper book filed by him

submitted the translated copies of the sale deeds and purchase deeds for

the land bought and sold by the assessee wherein the Ld. AR stated that

it is an agricultural land as mentioned in the sale deeds and purchase

deeds. The Ld. AR further referred to notice of the Ld. AO dated

1/12/2017 wherein he has acknowledged the submissions of the

purchase and sale deed copies for his consideration. The Ld. AR further

submitted that these documents have been considered and examined by

the Ld. AO and therefore Ld. Pr. CIT cannot consider the assessment

order as erroneous and prejudicial to the interests of the Revenue merely

on the basis of change of opinion on the treatment of capital gains. The

Ld. AR therefore pleaded that the order of the Ld. AO be upheld.

Per contra, the Ld. DR relied on the order of the Ld. Pr. CIT.

on record and the orders of the Ld. Revenue Authorities. Admittedly the

Ld. Pr. CIT has not brought on record to show that the lands have been

used for non-agricultural purposes. From the submissions of the Ld. AR

we find that the assessee has acted as a intermediary for the purchase

and sale of agricultural lands during the impugned assessment year.

The only contention of the Ld. Pr. CIT is that the assessee has purchased

the land in Acres and sold the same in Square Yards within a span of

one month for a huge consideration. However, the Ld. Pr. CIT erred in

appreciating the fact that the purchase and sale of land within a span of

one month cannot alter the character of the land as established by the

assessee. Further, the certificate issued by the Village Revenue Officer,

Devarapalli, dated 24/2/2023 has confirmed the land as an agricultural

land. There is also no dispute by the Revenue on the consideration

received by the assessee. In our considered opinion, since the said lands

were entered into the Revenue Records as ‘agricultural lands’ which was

not disputed by the Revenue, the gain on sale of land cannot be

considered as capital gains for the purpose of the Act. Moreover, the Ld.

Pr. CIT has not brought on record that the assessee has sought any

permission for conversion of the agricultural land to non-agricultural

land. Since the character of the land remained as agricultural land both

on the date of purchase and on the date of sale, we are of the considered

view that it is a sale of agricultural land and no capital gains arise on the

sale of such agricultural land and we therefore have no hesitation to

quash the order of the Ld. Pr. CIT on this issue. Accordingly, the appeal

of the assessee is allowed.

Pronounced in the open Court on the 31st March, 2023.

Sd/- Sd/- (दु�वू� आर.एल रे�डी) (एस बालाकृ�णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) �या�यकसद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER Dated :31.03.2023 OKK - SPS

आदेश क� ��त�ल�प अ�े�षत/Copy of the order forwarded to:- �नधा�रती/ The Assessee – Vanga Jain Babu, Prop. Maranatha 1. Cashew and Generals, D.No. 4-32, Near Tobacco Board, Devarapalli. राज�व/The Revenue – Income Tax Officer, Ward-1, D.No. 2-1-56/1, 2. Opp. Punjab National Bank, KV Road, Tadepalligudem. 3. The Principal Commissioner of Income Tax-1, Visakhapatnam. आयकर आयु�त (अपील)/ The Commissioner of Income Tax 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, �वशाखापटणम/ DR, ITAT, 5. Visakhapatnam गाड� फ़ाईल / Guard file 6. आदेशानुसार / BY ORDER

Sr. Private Secretary ITAT, Visakhapatnam