2015 (1) TMI 55 - AT - Income Tax

Tribunal Rules in Favor of Assessee on Agricultural Land Capital Gains

Mr. Venugopal Mundada Versus JCIT, Warangal

The Tribunal allowed the Assessee's appeal, ruling that gains from the sale of agricultural land were exempt from capital gains tax. The Revenue's appeal ... Taxability of sale proceeds - Sale of agricultural land exempted u/s 2(14)(iii) or not – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the AO could not make out any case to treat the lands as non-agricultural lands so as to tax the profits on their sale under the head short term capital gains - since the evidence produced by the assessee clearly shows that the property is an agricultural property – and decision relied upon by assessee cannot be relied upon as the land was situated within municipal limits registered as urban land, bearing municipal door No. and subject to urban land tax sold on yardage basis surrounded on all sides by industrial and commercial buildings on which the assessee itself constructed two buildings after its purchase, part of such land lying vacant cannot be agricultural land for the mere reason that it was subject to agricultural operation, and hence its sale gave rise to capital gains – since gain on sale of agricultural lands are exempt from Capital gains, CIT(A) was not justified in bringing into tax gain on sale of agricultural lands as business income – Decided in favour of assessee. Claim of deduction u/s 80IB(11A) - Information/evidence furnished at the time of finalization of assessment or not – Held that:- In assessee’s own case for the earlier assessment year, it has been held that the assessee has fulfilled all the conditions, therefore, entitled for deduction u/s 80IB(11A) – thus, the order of the CIT(A) is upheld - Decided against revenue. STCG and LTCG disallowed - Information/evidence furnished or not – Held that:- CIT(A) rightly noticed that in the remand report, the AO has accepted the interest income at ₹ 83,721/- as shown by the assessee - Thus, the addition made on estimate basis of at ₹ 1,00,000/- is deleted - Regarding the short term capital gains shown at ₹ 2,06,826/- which was estimated by the A.O. at ₹ 2,50,000/- is again accepted by the AO in the remand report and the sale of land at ₹ 1,47,441/- which was estimated at ₹ 1,50,000/- the AO has accepted the figure in the remand report, therefore, the addition made at ₹ 4,00,000/- on account of short term capital gains and ₹ 1,00,000/- income from other sources is deleted – thus, the order of the CIT(A) is upheld – Decided against revenue. Most of the additions made by A.O. were accepted to be wrong and Ld. CIT(A) deleted the same. In the bargain returned income by assessee was not brought to tax. Therefore, we direct the A.O. to accept the income returned. To that extent, Revenue appeal is partly allowed. Cost of ₹ 1000 levied on ACIT-1, Warangal for coming in appeal on issues which are already accepted by him in the remand report - This amount should be recovered from the salary of the Officer concerned and to be remitted to the Government account. Issues:Cross-appeals by Assessee and Revenue against Order of Ld. CIT(A)-XVIII, Mumbai; Disallowance of deduction under section 80IB (11A) of the I.T. Act; Addition of short term and long term capital gains; Treatment of exempt capital gains as business income.Analysis:The Assessee derived income from handling storage and transport business through an AOP named Durga Bhavani Enterprises. The AOP took a contract from A.P. State Warehousing Corporation. Members of the AOP claimed deduction under section 80IB (11A) of the I.T. Act, which was disallowed by the Assessing Officer (A.O.). Additionally, the A.O. made an exparte order adding amounts as short term capital gain, long term capital gain, and income from other sources, bringing the total to be taxed as business income. The Ld. CIT(A) granted relief to the Assessee on most issues except for the treatment of exempt capital gains as business income, leading to cross-appeals by both parties.The Assessee contended that the sale proceeds from the agricultural land were exempt under section 2(14)(iii) based on a previous Coordinate Bench decision. The Tribunal agreed, ruling that since gains from the sale of agricultural lands were exempt from capital gains, the A.O. and Ld. CIT(A) were not justified in taxing the gains as business income. Consequently, the Assessee's appeal was allowed.Regarding the Revenue's appeal, various grounds were raised, including the deletion of additions towards income from house property, short term and long term capital gains, and income from other sources. The Tribunal found most of the Revenue's contentions to lack merit as the A.O. had accepted many issues in the remand report. The Ld. CIT(A) had also ruled in favor of the Assessee based on previous ITAT decisions. The Tribunal rejected the Revenue's grounds and even imposed a cost on the ACIT-1, Warangal, for appealing on issues already accepted in the remand report.Ultimately, the Tribunal partly allowed the Revenue's appeal by directing the A.O. to accept the income returned by the Assessee. The Assessee's appeal was fully allowed. The judgment highlighted the importance of following legal precedents, proper assessment procedures, and the consequences of appealing on settled matters.