2017 (3) TMI 1645 - AT - Income Tax

Addition of surplus/profit on sale of agricultural lands under the head capital gains - nature of land - applicability of exceptions carved out in the definition of capital asset in section 2(14)- Held that - When the assessee submitted the evidences to prove that the land in question was agricultural land and the crops were grown in the form of coconuts and mangoes burden shifts on AO to prove with the documentary evidence that the land was not used for the agricultural purpose or no agricultural operations were carried out in the subject land. Agricultural income is exempted income and merely because the assessee has not returned agricultural income and no expenditure was claimed for agricultural expenses cannot be conclusive proof to hold that subject land was not agricultural land. The assessee s explanation that the agricultural income is exempted income and due to non-declaration agricultural income no expenditure was claimed appears to be reasonable Explanation. Records are showing that the lands are agricultural land, classified as dry land for which Kisthu has been paid and falls far exclusion from the definition of capital asset u/s.2(14) of Income Tax Act. Thus land in question sold by the assesse was agricultural land and cannot be held as capital asset and no capital gains are chargeable - Decided in favour of assessee

Summary

Issues:
Appeal against order taxing surplus on sale of agricultural lands as capital gains without proper justification.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) sustaining the taxation of surplus/profit on the sale of agricultural lands under 'capital gains' without proper reasons. The appellant contended that the assessment of capital gains was unjustified as exceptions under the definition of 'capital asset' applied to the case, and evidences proving the nature of the asset were not rejected. The appellant argued that the lands were agricultural and the taxation based on subsequent events was unjustified.

The Assessing Officer relied on the Supreme Court judgment in Sarifabibi Mohmed Ibrahim v. CIT to disallow the appellant's claim and assess the sale proceeds as long-term capital gains. The AO reasoned that since no agricultural income was declared and no evidence of agricultural activities was provided, the land was not used for agricultural purposes and thus not exempt from capital gains. The AO cited relevant case laws to support the assessment.

The Commissioner of Income Tax (Appeals) upheld the AO's decision, stating that the appellant did not show any agricultural income or evidence of agricultural operations on the land. The appellant then appealed to the ITAT.

During the appeal hearing, the appellant presented evidence of agricultural activities on the land, including cultivation of vegetables, mangoes, and coconuts. The appellant argued that proximity to a business city and the buyer's intentions were irrelevant to the land's agricultural status at the time of sale. The appellant cited relevant case laws supporting their position.

The ITAT analyzed the documentary evidence provided by the appellant, confirming that the land was used for agricultural purposes. The ITAT held that the burden was on the AO to prove that the land was not used agriculturally, which was not done. The ITAT found the appellant's explanation for not declaring agricultural income reasonable and cited case laws supporting the appellant's position. The ITAT concluded that the land sold was agricultural and not a capital asset, thus no capital gains were chargeable, allowing the appeal.

In conclusion, the ITAT allowed the appeal, setting aside the lower authorities' orders and ruling in favor of the appellant.