2016 (6) TMI 518 - AT - Income Tax

Tribunal decision: Partial win for assessee on agricultural income, sale not business income.

Mr. N. Jayamurgan Versus Deputy Commissioner of Income Tax, Central Circle 2 (1), Chennai and Vica-Versa

The Tribunal allowed the assessee's appeals in part, accepting the declared agricultural income in full and remitting the turnover discrepancy issue for ... Assessment of jurisdiction u/s.153A - agricultural income - Held that:- There is no allegation that these lands were kept idle and no agricultural operation was carried on by the assessee. Considering the vast area of agricultural land owned by the assessee and agricultural operations carried on by the assessee, it is not possible to hold in all assessments completed u/s.143(3) r.w.s.153A of the Act, the assessee’s income not from agricultural income and it is from other sources as there is no evidence found during the search to say otherwise. Hence, in our opinion, when no incriminating material found at the time of search to suggest that the assessee shown nonITA agricultural income as agricultural income and arbitrarily disallowing the same by the AO and confirming the CIT(A) at 50% of that disallowed by the AO, is not justified. Accordingly, the agricultural income declared by the assessee has to be accepted in toto. This ground in all these appeals of the assessee is allowed and the ground raised by the Revenue in all its appeals are dismissed. Addition towards difference in turnover between the seized material and turnover declared in the finance statement - main plea of the assessee is that the turnover mentioned in the seized material does not tally with the books of accounts as on the date of search, since it requires reconciliation - Held that:- The observation of the CIT(A) is that the assessee has not reconciled properly while completing the proceedings before him. The assessee filed above statement reconciling the turnover in seized material with the books of account maintained by the assessee. In the interest of justice, it is appropriate to go through it by the AO, decide the issue afresh. Accordingly, the issue relating to addition towards difference in turnover between seized material and turnover with books of accounts is remitted back to the file of ld. Assessing Officer for fresh consideration after giving adequate opportunity of hearing , the AO shall decide the issue afresh. Addition made in respect of income from sale of agricultural land by treating it as real estate business - Held that:- It is an admitted fact that the land was held by the assessee as a capital asset from the date of purchase till the date of sale. There is no evidenced brought on record by Revenue to show that the land was held by assessee as stock-in-trade. The mere circumstances that a property is purchased in the hope that when sold later on it would leave a margin of profit, would not be sufficient to show, an intention to trade at the inception. In a case where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it, the presence of such an intention is a relevant factor and unless it is offset by the presence of other factors it would raise as strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive and it is conceivable that, on considering all the facts and circumstances in the case, the court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. The presumption may be rebutted. In the present case, considering the facts and circumstances of the case it cannot be considered as an adventure in the nature of trade. The intention of the assessee from the inception was to carry on agricultural operations and even there was no intention to sell the land in future at that point of time. It was due to the boom in real estate market came into picture at a later stage, the assessee has sold the land. Merely because of the fact that the land was sold for profit, it cannot be held that income arising from the sale of land was taxable as profit arising from the adventure in the nature of trade. The period of holding should not suggest that the activity was an adventure in the nature of trade. Further, we make it clear that when the land which does not fall under the provisions of section 2(14)(iii) of the IT Act and an assessee who is engaged in agricultural operations in such agricultural land and also being specified as agricultural land in Revenue records, the land is not subjected to any conversion as nonagricultural land by the assessee or any other concerned person, transfers such agricultural land as it is and where it is basis, in such circumstances, in our opinion, such transfer like the case before us cannot be considered as a transfer of capital asset or the transaction relating to sale of land was not an adventure in the nature of trade so as to tax the income arising out of this transaction as business income. Levy of interest u/s.234A & 234B - period of charging of interest - Held that:- The period of charging of interest should be from the date of determination of income under section 143(1) or 143(3) to the determination of enhanced income under section 143(3) r.w.s. 153A of the Act. Issues Involved:1. Assessment of jurisdiction under Section 153A of the Income Tax Act.2. Addition towards agricultural income.3. Addition towards the difference in turnover between seized material and declared turnover.4. Treatment of income from the sale of agricultural land as real estate business income.5. Levy of interest under Sections 234A and 234B of the Income Tax Act.Issue-wise Detailed Analysis:1. Assessment of Jurisdiction under Section 153A:The assessee challenged the assessment of jurisdiction under Section 153A, claiming that no seized or incriminating material was found during the search. However, this ground was not pressed by the assessee during the hearing, leading to its dismissal.2. Addition towards Agricultural Income:The assessee claimed agricultural income for multiple assessment years, supported by evidence of owning 150 acres of agricultural land and cultivating various crops. The Assessing Officer (AO) disallowed the income, citing insufficient specific details about the agricultural operations. The Commissioner of Income Tax (Appeals) [CIT(A)] partially allowed the claim, treating 50% of the declared income as agricultural and the rest as income from other sources. The Tribunal, however, found that the AO and CIT(A) had arbitrarily disallowed the income without incriminating evidence from the search. Therefore, the Tribunal accepted the agricultural income declared by the assessee in full, allowing the assessee’s appeal and dismissing the Revenue’s appeal on this ground.3. Addition towards Difference in Turnover:During the search, discrepancies were found between the turnover reported in seized materials and the audited financial statements of the assessee’s proprietary concern, M/s. Nandhini Palace. The AO made an addition based on these discrepancies, which was upheld by the CIT(A) due to inadequate reconciliation by the assessee. The Tribunal remitted the issue back to the AO for fresh consideration, allowing the assessee to present a proper reconciliation statement.4. Treatment of Income from Sale of Agricultural Land:The AO treated the income from the sale of agricultural land as business income, arguing that the land was converted into residential plots and sold as part of a real estate business. The CIT(A) found that the land was sold as agricultural land and was under cultivation until the sale. The Tribunal upheld the CIT(A)’s decision, noting that the land was classified as agricultural in revenue records, and the assessee carried on agricultural operations. The Tribunal emphasized that the land was not converted to non-agricultural use by the assessee and was sold as agricultural land, thus not attracting capital gains tax. The Tribunal dismissed the Revenue’s appeal on this ground for all relevant assessment years.5. Levy of Interest under Sections 234A and 234B:The Tribunal clarified that interest under Section 234A is chargeable from the expiry of the notice period under Section 153A to the date of assessment completion under Section 143(3) read with Section 153A. Interest under Section 234B is to be levied on the additional tax on the enhanced income determined under Section 143(3) read with Section 153A. The Tribunal directed the AO to levy interest accordingly.Conclusion:The Tribunal allowed the assessee’s appeals in part, remitting the issue of turnover discrepancy back to the AO for fresh consideration and accepting the agricultural income in full. The Tribunal dismissed the Revenue’s appeals, upholding the CIT(A)’s decision that the sale of agricultural land did not constitute business income. The Tribunal also provided directions on the levy of interest under Sections 234A and 234B.