2011 (7) TMI 1169 - AT - Income Tax

Summary

Issues Involved:
1. Whether the impugned sale transaction can be treated as an adventure in the nature of trade.
2. Whether the agricultural income declared by the assessee should be treated as non-agricultural income.
3. Whether the enhancement of income by the CIT(A) without giving notice to the assessee was justified.

Summary:

Issue 1: Adventure in the Nature of Trade
The revenue contended that the CIT(A) erred in not treating the sale transaction as an adventure in the nature of trade. The assessing officer noted that the assessee had previously engaged in similar transactions and borrowed funds for the purchase of agricultural land, which was later sold at a significant profit. However, the CIT(A) observed that the frequency of such transactions was not alarming and did not indicate a trade activity. The Tribunal upheld the CIT(A)'s decision, stating that there was no evidence to show that the initial intention of the assessee was to sell the land for profit. The Tribunal also noted that the land was leased for agricultural purposes, and the lease rent was declared as agricultural income.

Issue 2: Agricultural Income vs. Non-Agricultural Income
The revenue argued that the agricultural income declared by the assessee should be treated as non-agricultural income. The CIT(A) enhanced the assessment by Rs. 12,000/- without giving notice to the assessee. The Tribunal found that the lessee had confirmed carrying out agricultural operations on the land, and the assessing officer initially accepted the agricultural income. The Tribunal held that the enhancement was against the mandate of the Act, as the assessee was not given a reasonable opportunity to show cause against the enhancement. The Tribunal quashed the enhancement and upheld the agricultural income declared by the assessee.

Issue 3: Enhancement Without Notice
The Tribunal noted that u/s 251(2) of the Act, the CIT(A) cannot enhance an assessment without giving the appellant a reasonable opportunity to show cause against such enhancement. Since the revenue did not show that such an opportunity was given, the Tribunal quashed the enhancement made by the CIT(A).

Conclusion:
The appeal of the revenue was dismissed, and the cross objection of the assessee was allowed. The Tribunal upheld the CIT(A)'s decision that the sale transaction was not an adventure in the nature of trade and quashed the enhancement of income by treating the agricultural income as non-agricultural income.