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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
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.
Brief facts of the case are that the assessee is an individual, filed 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 assessee has raised Five grounds of appeal wherein the crux of the issue is with respect to treating the capital gains on sale of agricultural lands as short term capital gains.
4. Before us, at the outset, the Ld. Authorized Representative [AR] 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.
We have heard both the parties and perused the material available 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.
In the result, appeal of the assessee is allowed.
Pronounced in the open Court on the 31st March, 2023.