2017 (9) TMI 1580 - AT - Income Tax

Tribunal rules land sale not exempt from tax as agricultural, directs indexed cost verification

The Tribunal upheld the addition of Rs. 1,99,56,849/- as Long Term Capital Gains (LTCG), ruling that the land sold by the assessee did not qualify as ... Addition on sale of agricultural land/asset - distance of more than 8 KM from the local limit of Municipalities and less population as provided u/s 2(14)(iii) - CIT-A held that the agricultural land sold to Housing Society, the land though entered in Revenue record as agricultural and profit on sale assessable to Capital Gain tax - Held that:- The ratio of decision of Hon’ble Supreme Court in Smt. Sarifabibi Mohamed Ibrahim & Ors. (1993 (9) TMI 10 - SUPREME Court) squarely applicable is applicable on the fact of the present case. The assessee is permanent resident of Mumbai. The assessee has not shown any income from agriculture activities. The assessee in the return of income has also shown as income from ‘salary’ from M/s Federal Brands Ltd. No evidence to substantiate that any agriculture activity was undertaken by the assessee during the period of holding the land with him, was placed on record by the assessee. The assessee claimed that during the period of holding installed irrigation system, created check dam, water sprinkle etc. No evidence of such activity is filed on record. None of the activity carried by the assessee during the period qualified as agriculture activity. The facts of the various decision relied by ld. AR of the assessee are at variance and the ratio of none of the case is applicable. Moreover, the decision of the Hon’ble Supreme Court is a binding precedent by virtue of Article 141 of the Constitution of India. Thus, we do not find any illegality or infirmity in the order passed by ld. CIT(A). Deduction of cost of acquisition as per section 48 - Held that:- We have seen that while taxing the Capital Gain arising on sale of land, the AO and the ld. CIT(A) has not considered the deduction on account of Index Cost of Acquisition and the cost of Improvement as provided under section 48 of the Act. The assessee has filed an application for addition ground of appeal which we have admitted of this order. As we have noted that assessee’s claim for deduction on acquisition of cost of improvement has not been considered by the lower authorities. Thus, we deem it appropriate to restore the additional ground of appeal to the file of AO to verify the Cost of Acquisition and improvement thereon and grant the appropriate relief to the assessee in accordance with law. Needless to say that before considering the deduction of Index Cost of Acquisition along with the Cost of Improvement the AO shall grant the assessee an opportunity of hearing The AO further directed to grant the benefit of beneficial rate of tax as provided u/s 112 of the Act. Issues Involved:1. Determination of whether the land sold by the assessee qualifies as 'agricultural land' and thus not a 'capital asset' under section 2(14)(iii) of the Income Tax Act, 1961.2. Eligibility for deduction of indexed cost of acquisition and benefit of beneficial rate of tax under sections 48 and 112 of the Income Tax Act, 1961, respectively.Detailed Analysis:Issue 1: Determination of Agricultural Land Status- The primary contention revolves around the addition of Rs. 1,99,56,849/- as Long Term Capital Gains (LTCG) on the sale of land, which the assessee claimed was agricultural and thus exempt from tax under section 2(14)(iii) of the Income Tax Act, 1961.- The Assessing Officer (AO) denied the exemption, arguing that the land was not used for agricultural purposes. The AO based this on the lack of agricultural activity evidence and the land's development status, suggesting commercial use.- The Commissioner of Income-tax (Appeals) [CIT(A)] upheld the AO's decision, noting the land was shown as a 'fixed asset' in the balance sheet and was intended for development, as indicated in the conveyance deed.- The Tribunal considered the rival submissions and found that the assessee did not provide sufficient evidence of agricultural activities. The assessee's claim of installing irrigation systems and other developments was unsupported by evidence.- The Tribunal referenced the Supreme Court decision in Smt. Sarifabibi Mohamed Ibrahim & Ors. Vs. CIT (204 ITR 631), which held that land sold to a housing society, even if recorded as agricultural, is subject to capital gains tax.- Consequently, the Tribunal agreed with the lower authorities that the land was not agricultural and upheld the addition of Rs. 1,99,56,849/- as LTCG.Issue 2: Eligibility for Indexed Cost of Acquisition and Beneficial Rate of Tax- The assessee raised an additional ground of appeal, seeking deduction of indexed cost of acquisition and the benefit of the beneficial rate of tax under sections 48 and 112 of the Income Tax Act, 1961, respectively.- The Tribunal allowed the additional ground, noting that the facts related to this claim were already on record and no new evidence was required.- The Tribunal directed the AO to verify the cost of acquisition and improvement and grant appropriate relief in accordance with the law. The AO was also instructed to consider the beneficial rate of tax under section 112.- The Tribunal emphasized the need for the AO to provide the assessee with an opportunity of hearing before making any determinations.Conclusion:- The appeal was partly allowed. The Tribunal upheld the addition of Rs. 1,99,56,849/- as LTCG, confirming that the land did not qualify as agricultural land exempt from tax.- The Tribunal directed the AO to verify and allow the indexed cost of acquisition and improvement, and to apply the beneficial rate of tax under section 112, after providing the assessee an opportunity of hearing.