2013 (8) TMI 188 - AT - Income Tax

Addition u/s 68 - Portfolio Investment in Shares - CIT(A) deleted the addition - Held that - The impugned investments are not related to the previous year to the assessment year under consideration. When the fact being so the provisions of Section 68 is not applicable to the said investments for the year under consideration as the provision is applicable only when the sum is found credited in the books of the assessee in the previous year relevant to the assessment year. Also find merit in the contention of the assessee that the assessee has not been required to maintain any books of account in the earlier years as the only source of income is out of her salary. It is also found that the past investments made by her are duly incorporated during the F.Y. 31/3/2007 - the impugned addition u/s 68 is not sustainable in law and in facts. In favour of assessee. Disallowance of sale of agricultural land as short term Capital Gain - Held that - It is not disputed by the Revenue at any stage of the assessment proceedings that the subject matter of transfer is agricultural land and also the sale deed clearly indicates that the sale pertains to agricultural land. In view of that matter, no infirmity in the order of the CIT(A) in holding the immovable property as agricultural land. Thus no merit on in the contention of the Revenue that the assessee has not discharged her onus of proving the subject matter of sale as agricultural land. Agricultural land sold by the assessee is not a capital asset since it is in rural area within the meaning of section 2(14)(iii), the impugned receipt cannot be brought to tax as capital gain by invoking section 54B. As the provisions of section 54B are not applicable to the facts of the case, the issue of holding period of the land for less than 2 years does not arise at all in the instant case - no reason to sustain the addition made by the AO. In favour of assessee.

Summary

Issues:
1. Addition under section 68 of the Income Tax Act for unexplained cash credits.
2. Taxability of short-term capital gains arising from the sale of agricultural land.

Issue 1: Addition under section 68 of the Income Tax Act for unexplained cash credits:
The appeal filed by the Revenue challenged the deletion of an addition of Rs.9,90,675 under section 68 of the Income Tax Act by the Ld.CIT(A). The AO had found discrepancies in the opening capital balance of the assessee and added the difference to the total income as unexplained cash credits. The Ld.CIT(A) deleted the addition, stating that no adverse material suggested fresh investments during the relevant year. The Revenue contended that the explanation provided by the assessee was insufficient. The Ld.AR argued that the past investments were duly explained and sourced from legitimate income. The Tribunal held that section 68 was not applicable as the investments were not related to the previous year, and the assessee was not required to maintain books of account in earlier years. Therefore, the addition was deemed unsustainable in law and facts.

Issue 2: Taxability of short-term capital gains arising from the sale of agricultural land:
The AO treated the receipt of Rs.5,00,000 from the sale of agricultural land as short-term capital gains since the holding period was less than two years. However, the Ld.CIT(A) deleted this addition, stating that the land did not qualify as a capital asset under section 2(14) of the Income Tax Act. The Revenue contended that the holding period made the assessee ineligible for exemption under section 54B. The Tribunal observed that the land was situated in a rural area and did not meet the criteria of a capital asset. As agricultural land in rural areas is not considered a capital asset, the impugned receipt could not be taxed as capital gains. Therefore, the addition made by the AO was held unjustifiable, and the Ld.CIT(A)'s decision was upheld.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the deletion of the addition under section 68 and rejecting the taxability of short-term capital gains from the sale of agricultural land. The judgment highlighted the importance of establishing the nature of assets and income sources in determining tax liabilities.