2021 (1) TMI 222 - AT - Income Tax

Profit from land sale not business income, Tribunal emphasizes assessing intention and evidence.

The Tribunal dismissed both the revenue's appeal and the assessee's cross objection, upholding the CIT(A)'s decision that the profit on the sale of land ... Gain on sale of land - assessee has sold the agricultural land - CIT-A deleted the addition holding that the AO was not justified to consider gain on sale of land as a business income - HELD THAT:- On perusal of the material it is observed that agricultural land purchased by the assessee company was very old purchased in F.Y. 1995-96 and 1996-97 and the same had been treated as fixed assets. The correctness of the aforesaid facts is demonstrated from the audited accounts of the assessee for the financial year 2007-08 and from the findings of the ld. CIT(A) in the appellate order. Assessee has sold the agricultural land as fixed asset in its balance sheet. After perusal of the assessment order, it is observed that without specifically controverting the relevant material and claim of the assessee, the Assessing Officer simply on the basis of memorandum of association has held that income derived from purchase and sale was a business income. No infirmity in the decision of ld. CIT(A). Therefore, this ground of appeal of the revenue is dismissed. Issues: Appeal and cross objection regarding the treatment of profit on the sale of land as business income for A.Y. 2008-09 under section 143(3) r.w.s. 263 of the Income Tax Act, 1961.Analysis:1. Revenue's Appeal Grounds:- The revenue contested the deletion of an addition made by the AO regarding the treatment of gain on the sale of land as business income.- The revenue argued that the assessee was systematically dealing in land, justifying the income classification.- The appeal was filed below the monetary limit due to a Revenue audit objection under Circular 21/2015 issued by the CBDT.2. Factual Background:- The assessee declared income of Rs. 4,33,010/- in the return filed on 25th July 2009.- The CIT-2 passed an order u/s. 263 on 14 May 2014, noting that the assessee derived income from capital gain and interest.- The CIT-2 observed that the profit on the sale of agricultural land, derived from 15 transactions, should be treated as business income.- The Assessing Officer completed assessment u/s. 143(3) r.w.s. 263, considering the selling of agricultural land as the business of the assessee.3. Decision of CIT(A):- The CIT(A) allowed the appeal of the assessee, emphasizing that the intention of the assessee determined the nature of income.- Citing the case of Sultan Brothers, the CIT(A) highlighted that the mere presence of 'purchase and sale' in the memorandum of association did not indicate land dealing.- The CIT(A) referred to other cases where land in the same vicinity was considered agricultural, supporting the assessee's position.4. Tribunal's Analysis:- The Tribunal noted that the agricultural land was old, treated as fixed assets, and sold by the assessee.- The Tribunal found that the Assessing Officer's decision solely based on the memorandum of association was erroneous.- Considering the facts and evidence, the Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal.5. Cross Objection by Assessee:- The assessee's cross objection supported the CIT(A)'s findings, which became infructuous due to the dismissal of the revenue's appeal.6. Final Decision:- Both the appeal by revenue and cross objection by the assessee were dismissed by the Tribunal.- The Tribunal upheld the CIT(A)'s decision regarding the treatment of profit on the sale of land, emphasizing the importance of assessing the intention and nature of income.This judgment underscores the significance of objectively analyzing the facts and intention of the taxpayer to determine the appropriate classification of income, especially in cases involving the sale of assets like land. The Tribunal's decision highlights the need for thorough examination and consideration of evidence to avoid erroneous assessments.