2022 (9) TMI 412 - AT - Income Tax

Tribunal rules on capital gains from land sale, emphasizes proof of agricultural use for exemption

Shri Sendhabhai Ranchhodbhai Chaudhary Versus The ITO, Ward-4, Gandhinagar

The Tribunal upheld the addition of long-term capital gain from the sale of non-agricultural land, emphasizing the need to prove agricultural use for ... Long term capital gain from sale of Non-agriculture land - nature of land - CIT(A) dismissed the assessee’s appeal on the ground that admittedly the land was converted into non-agricultural land for residential purposes on 04-02-2013 and the same was subsequently sold on 22-04-2013, therefore, at the time of sale the land sold was not agricultural land - HELD THAT:- Honourable Supreme Court in the case of Smt.SarifabibiMohd. Ibrahim [1993 (9) TMI 10 - SUPREME COURT] has held that when the land was not an agricultural land at the time of sale, then the income arising from its sale would not be exempt from capital gains tax. Further, the assessee has not filed any evidences in respect of land being agricultural land and being used as such during the relevant period. Since at the time of transfer, the land was not an agricultural land and the same was transferred for the purpose of residential project, the assessee is not entitled for claiming that the land is agricultural land so as to get out of the purview of provision of capital gains tax. In the present facts of the case, we observe that the land was converted into non-agricultural for the purpose of sale and therefore at the time of sale, the land was non-agricultural land. In view of the decision of the honourable Supreme Court referred to above in the case of Smt. Sarifabibi Mohd. Ibrahim and also the decision in the case of Shaileshbhai [2022 (4) TMI 674 - ITAT AHMEDABAD] we are of the considered view that the Ld. CIT(Appeals) has not erred in facts and in law in disallowing the assessee’s claim of capital gains tax exemption on sale of the above land. Allowability of the cost of acquisition - Ahmedabad ITAT in the case of Shaileshbhai [2022 (4) TMI 674 - ITAT AHMEDABAD] held that the assessee is entitled deduction of cost of acquisition of the capital asset against the full value of consideration from the transfer of capital asset. The cost of acquisition cannot be treated as “Nil” merely on the reason that the assessee has not furnished any details for the same. Thus we are restoring the file to the Ld. CIT(Appeals) to adjudicate on the limited point of determining the cost of acquisition, keeping in view the evidence that the assessee may file in support of determining the cost of acquisition. Addition considering agricultural income as income from other sources - We are restoring this issue before the Ld. CIT(Appeals) so as to enable the assessee to furnish any supporting documents in support of claim that it was engaged in sale of agricultural produce, duly supported by evidence showing receipt of income from sale of agricultural produce and details of expenses incurred for purpose of earning agricultural income. Issues:1. Addition of long-term capital gain from the sale of non-agricultural land.2. Treatment of agricultural income as income from other sources.Analysis:Issue 1: Addition of long-term capital gain from the sale of non-agricultural land:The appeal was filed against the order of the Commissioner of Income Tax (Appeals) confirming the addition of Rs. 50,51,000 as long-term capital gain from the sale of non-agricultural land. The assessee contended that the land was treated as agricultural land and hence exempt from capital gains tax. However, the Assessing Officer observed that the land was converted for residential purposes before the sale, indicating non-agricultural use. The Commissioner upheld the addition, citing Supreme Court precedents and lack of evidence supporting agricultural use. The Tribunal concurred, citing relevant case law and the intention behind land conversion. The Tribunal also emphasized the necessity of proving agricultural use for exemption. However, regarding the cost of acquisition, the Tribunal referred to a previous ITAT decision and directed a reassessment based on evidence provided.Issue 2: Treatment of agricultural income as income from other sources:The second ground of appeal concerned the addition of Rs. 1,02,641 as agricultural income treated as income from other sources. The Tribunal noted that this issue was not addressed by the Commissioner in the appellate order and was not raised during proceedings. In the interest of justice, the Tribunal remanded this issue to the Commissioner for further consideration, allowing the assessee to provide supporting documents for the agricultural income claim.In conclusion, the Tribunal partially allowed the appeal, directing a reassessment on the cost of acquisition for the capital gain and remanding the treatment of agricultural income for further review by the Commissioner.