2019 (9) TMI 193 - HC - Income Tax

Land not agricultural, urban jurisdiction; interest payment remand; penalty upheld for inaccurate particulars. Appeals disposition.

M/s. Chemmancherry Estates Company, Chennai-1., The Commissioner of Income Tax, Tamil Nadu-VIII, Chennai Versus The Income Tax Officer, Ward- VIII (2), Chennai-6.

M/s. Chemmancherry Estates Company, Chennai-1., The Commissioner of Income Tax, Tamil Nadu-VIII, Chennai Versus The Income Tax Officer, Ward- VIII (2), ... Issues Involved:1. Classification of land as agricultural land under Section 2(14)(iii) of the Income Tax Act, 1961.2. Entitlement to indexation of interest payment on borrowed funds used for the purchase of land.3. Remittance of the issue of allowing compound interest on borrowed funds as cost of acquisition.4. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961 for concealment or furnishing of inaccurate particulars.Detailed Analysis:1. Classification of Land as Agricultural Land:The primary issue was whether the land sold by the assessee fell within the definition of agricultural land under Section 2(14)(iii) of the Income Tax Act, 1961. The court noted that the Assessing Officer, CIT(A), and the Tribunal had all concurred that the land was not agricultural. The court emphasized that it could not reappreciate the factual position under Section 260-A of the Act, which allows appeals only on substantial questions of law. The land was within the Chennai Metropolitan Development Authority (CMDA) jurisdiction and assessed as urban land. The court concluded that by operation of law, the land could not be considered agricultural, despite being recorded as such in revenue records. Thus, the court found no grounds to interfere with the factual findings of the authorities and the Tribunal.2. Entitlement to Indexation of Interest Payment:The court addressed whether the interest on borrowed funds used for acquiring the capital asset should be treated as the cost of acquisition for computing capital gains and whether the assessee was entitled to indexation of interest. The Tribunal had affirmed the CIT(A)'s decision that interest paid on borrowed funds for buying the land should be treated as the cost of acquisition, relying on the case of CIT Vs. Rajagopala Rao. However, the Revenue challenged this, citing the Supreme Court's decision in CIT Vs. Tata Iron & Steel Company Limited, which distinguished between the cost of an asset and the cost of raising money for its purchase. Given the remand order to re-examine the genuineness of the interest payment, the court deemed these issues academic and not necessary to decide at this juncture.3. Remittance of the Issue of Allowing Compound Interest:The Tribunal had remanded the matter to the Assessing Officer to re-examine the genuineness of the interest payment. The court upheld this remand, noting that the assessee could not claim prejudice as the Tribunal provided independent reasons for the remand. The court found no reason to interfere with the Tribunal's order for a fresh examination by the Assessing Officer.4. Levy of Penalty under Section 271(1)(c):The court examined whether the Tribunal was correct in upholding the penalty under Section 271(1)(c) for the assessee's claim that the land was agricultural. The court noted that the assessee had knowingly furnished inaccurate particulars, as evidenced by the agreement to convert the land into housing plots and the payment of urban land tax. The Tribunal's finding of wilful concealment was upheld, and the court found no grounds to interfere with the Tribunal's order confirming the penalty.Conclusion:- TCA.Nos.181 to 184 of 2009 were disposed of, affirming the Tribunal's findings on the classification of land and remittance for re-examination of interest payment.- TCA.Nos.521 and 522 of 2009 were allowed, favoring the Revenue's challenge on the cost of acquisition and indexation issues.- TCA.Nos.545 and 546 of 2009 were dismissed, upholding the penalty imposed under Section 271(1)(c).The court also noted the procedural aspect regarding the deposit of penalties as directed in earlier orders, allowing the Assessing Officer to proceed with recovery based on compliance with those orders.