2012 (12) TMI 596 - AT - Income Tax

Income from sale of Land - Capital Gain or business income Whether land sold by assessee was agricultural land or capital asset AO argued that the distance between Village and Municipal Corporation is less than 8 km - Held that - As concluding from the fact of the case AO is not justified in treating the assessee s solitary transaction of sale of part of its land holdings on as it is and where it is basis without recording it as its stock-in-trade as assessee s business income. Assessee s land can be held as agricultural land situated beyond 8 kms outside the Gurgaon Municipal limits and that the area population of residents of the village Fazilpur Jharsa being below 10000, the assessee s asset is outside the purview of capital asset. In favour of assessee Undisclosed Income AO made addition as undisclosed income, instead of agricultural income as claimed by the assessee AO argued that land was not cultivated and also the party to whom the agricultural produce was claimed to have been sold was nonexistent Held that - As the assessee had furnished a copy of Girdwari & certificate issued by the Sarpnach. As per these documentary evidences, the assessee had discharged its onus. Therefore, AO was not justified in rejecting assessee s contention with regard to the said agricultural income. In favour of assessee

Issues Involved:
1. Legitimacy of treating the sale proceeds of land as agricultural income versus business profit.
2. Justification for the addition of Rs.40,000 as undisclosed income instead of agricultural income.

Detailed Analysis:

1. Legitimacy of treating the sale proceeds of land as agricultural income versus business profit:

The primary issue was whether the CIT(A), Amritsar, was justified in deleting the addition of Rs.4,78,02,000/- made by the Assessing Officer (AO) to the returned income as business profit instead of agricultural income. The AO argued that the land sold was not agricultural land but stock-in-trade, thus the profit earned was business profit.

The assessee declared the income from the sale of land situated at village Fazilpur, Jharsa, Gurgaon, as agricultural income, claiming the land was beyond 8 KMs from the local municipal limits, thus not a capital asset per section 2(14)(iv) of the Income Tax Act. The AO, however, treated the income as business income, citing that the land was not cultivated and the agricultural produce sale was to a non-existent party.

The CIT(A) reviewed the explanations, additional evidence, and remand reports, and accepted the assessee's claim, deleting the addition made by the AO. The assessee provided substantial evidence, including certificates from Tehsildars and Surveyors, confirming the land's distance from the municipal limits and its agricultural status. The AO's reliance on the District Town Planner's letter was found insufficient as it did not measure the distance from the exact land location.

The Tribunal upheld the CIT(A)'s decision, noting that the AO failed to provide fresh contradictory evidence and did not rebut the assessee's additional evidence. The Tribunal concurred that the land was agricultural and situated beyond 8 km from the municipal limits, thus qualifying as agricultural income under section 2(1A) of the Act.

2. Justification for the addition of Rs.40,000 as undisclosed income instead of agricultural income:

The second issue was whether the CIT(A) was justified in deleting the addition of Rs.40,000/- made by the AO as undisclosed income instead of agricultural income. The AO claimed the land was not cultivated, and the party to whom the agricultural produce was sold was non-existent.

The assessee provided evidence, including Girdwari records and certificates from the Gram Panchayat, proving that crops were grown on the land. The Tribunal found these evidences credible and noted that the AO did not provide substantial evidence to refute them.

The Tribunal agreed with the CIT(A) that the AO was not justified in rejecting the assessee's claim of agricultural income. The evidence provided by the assessee, including the use of a neighbor's tube well for irrigation, was sufficient to substantiate the agricultural activities on the land.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to treat the sale proceeds as agricultural income and to delete the addition of Rs.40,000/- as undisclosed income. The Tribunal found no error in the CIT(A)'s order, affirming that the land was agricultural and situated beyond the municipal limits, thus qualifying as agricultural income under the relevant sections of the Income Tax Act.

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