2014 (1) TMI 1693 - AT - Income Tax

Eligibility of deduction u/s 54F - LTCG V/S business income - Held that - The assessee has treated this land as her asset and not stock in trade. When the entire evidence are examined in their entirety, the only one irresistible conclusion can be drawn that the assessee owned and possessed a piece of agricultural land as her asset acquired for investment and it was sold as an agricultural land. It is found that only because there is some mistake committed by the auditor the nature of the land would not change. It is also clearly established from record that she has sold agricultural piece of land which is exempt u/s 2(14)(iii) of the Act. Accordingly, we hold that the income arising from transaction of sale of agricultural land to the tune of ₹ 76,16,000/- is not a business income and it is simply receipt arising from sale of agricultural piece of land. Accordingly, we order to delete the impugned addition. In view of the our above finding, the claim of deduction u/s 54F of the Act would be of only of academic interest. This land cannot be treated as a capital asset u/s 2(14) of the Act. This receipt in fact is to be treated as long term capital gains having arisen from sale of land and not as a business income. Trading addition - bogus purchases - Held that - The books of account of the assessee were rejected and provision of Section 145(3) of the Act was invoked. Thereafter, the AO estimated the profit @ 25% of the alleged purchases. This addition has been reduced by the ld. CIT(A) after relying on past history of the assessee. It is settled principle of law that after rejection of books of account past history of the assessee, if available, is the best guide. Accordingly, we do not find any fallacy in his finding and confirm the same.

Summary

Issues:
1. Determination of nature of income from sale of land - business income or capital gains.
2. Claim of deduction u/s 54F of the Act.
3. Treatment of trading addition as bogus purchases.

Analysis:

Issue 1 - Determination of nature of income from sale of land:
The appellant filed an appeal against the order of the ld. CIT(A) for the assessment year 2008-09, challenging the treatment of income from the sale of land as business income. The AO concluded that the land was held for selling as a business commodity and added the income to the total income. The appellant contended that the land was acquired for investment purposes and not as stock in trade. The tribunal examined various arguments presented by both parties, including the use of own funds for land acquisition, treatment of transactions as investments, and past wealth tax assessments. After thorough consideration, the tribunal held that the land was treated as an asset by the appellant and not as stock in trade. The income from the sale of agricultural land was deemed exempt under the Act, and thus not classified as business income. Consequently, the impugned addition was deleted, and the income was treated as long-term capital gains, not business income.

Issue 2 - Claim of deduction u/s 54F of the Act:
As a result of the finding in Issue 1, the tribunal determined that the claim of deduction u/s 54F of the Act was of academic interest only. The land in question could not be treated as a capital asset under the Act, and the receipt from its sale was considered long-term capital gains. Therefore, the tribunal disposed of Ground No. 1 and 2 of the appellant accordingly.

Issue 3 - Treatment of trading addition as bogus purchases:
The AO made a trading addition of a certain amount by treating it as bogus purchases, which was partially sustained by the ld. CIT(A). The books of account were rejected under Section 145(3) of the Act, and a profit estimation was made. The tribunal upheld the ld. CIT(A)'s decision based on the past history of the assessee, stating that past history is a reliable guide after the rejection of books of account. Consequently, the tribunal confirmed the addition as reduced by the ld. CIT(A).

In conclusion, the appeal of the assessee was partly allowed, and the tribunal pronounced the order on 30-01-2014.