2011 (10) TMI 469 - AT - Income Tax

Validity of Reassessment proceedings u/s 147 - Agricultural land or short-term capital asset - Revenue contended it to be capital asset and its sale transaction constituting to be an adventure in the nature of trade - Held that - It is a settled legal proposition that, when the claim of exemption/deduction is made, the onus is on the assessee to demonstrate the genuineness of such claim. In present case, location of the land, proximity to the residential zone, fact that assessee sold the property of Rs 1.43 lakhs worth for the sum of Rs 11.11 lakhs in the gap of 27 months of holding period tells about worth of land to earn commercial profits, all goes against the assessee. Further, there is no direct evidence and convincing evidence to demonstrate the existence of agricultural activity on the said land during the holding period. Therefore, CIT(A) rightly held it to be capital asset and moreover short term capital asset on the basis of its holding period. Regarding validity - AO formed an opinion that the assessee is carrying on the business of purchase and sale of agricultural land and therefore the activity is an adventure in the nature of trade or business and income from the same is taxable as business income - Held that - AO has rightly formed requisite believe or reason to believe that the income has escaped assessment for the A.Y. 2000-01 - Decided in favor of the revenue

Summary

Issues Involved:
1. Validity of the reassessment proceedings under Section 147 of the Income Tax Act, 1961.
2. Classification of the land in question as agricultural land or a short-term capital asset and whether the sale transaction constitutes an adventure in the nature of trade.
3. Eligibility for deduction under Section 54B of the Income Tax Act, 1961.

I. Classification of the Land and Nature of Transaction:

The assessee argued that the land sold was agricultural and thus not a capital asset, making the gains from its sale exempt from income tax. The Assessing Officer (AO) disagreed, concluding that the land was not agricultural and the sale constituted an adventure in the nature of trade. The AO's decision was based on several factors, including the lack of evidence for agricultural activities, the land's proximity to a residential zone, and the significant profit made from the sale within a short period. The AO's findings were supported by statements from the land's purchaser and the local Talathi, who indicated that no crops were grown on the land at the time of sale. The CIT(A) upheld the AO's decision, noting that the land was not used for agricultural purposes and the sale was an adventure in the nature of trade. The Tribunal agreed with the CIT(A), emphasizing the lack of direct evidence for agricultural activities and the land's potential for non-agricultural use.

II. Validity of the Reassessment Proceedings under Section 147:

The AO issued a notice under Section 148 within four years of the end of the assessment year, based on the belief that the income from the sale of the land had escaped assessment. The assessee objected, arguing that the land was agricultural and not subject to capital gains tax. The AO rejected these objections, citing the significant profit from the sale and the purchase of another agricultural land on the same day as evidence of an adventure in the nature of trade. The CIT(A) upheld the AO's decision, and the Tribunal found that the AO had sufficient cause to believe that income had escaped assessment, thus validating the reassessment proceedings.

III. Eligibility for Deduction under Section 54B:

The assessee claimed a deduction under Section 54B for reinvesting part of the sale proceeds in another agricultural land. The AO and CIT(A) rejected this claim, as the land sold was not used for agricultural purposes in the preceding two years. The Tribunal upheld this decision, noting that the provisions of Section 54B did not apply since the land sold was not agricultural.

Conclusion:

The Tribunal dismissed the appeal, upholding the decisions of the AO and CIT(A) on all issues. The land in question was not considered agricultural, the reassessment proceedings were deemed valid, and the claim for deduction under Section 54B was rejected.