2013 (12) TMI 826 - AT - Income Tax

Purchase of agricultural land - Held that - It was an established fact that the situation of the land was more than 08 kms. away from the municipal limits of Jodhpur - As per the provisions contained in section 2(14)(iii)(a) of the Act, the present land being agricultural land situated beyond 08 kms. of the municipal limits was not a capital asset - The profit earned by the assessee on the sale of the said land was not a capital gain - The assessee intention was to keep the land available for cultivation - Decided against Revenue. Interest income - Held that - The assessee purchased FDR amounting for 12 months - The period of 12 months from the date of purchase of the FDR was going to be expired on 31/10/2009 - Maturity date was not falling within the period relevant to the assessment year under consideration - The Assessing Officer was not justified in making the addition on the basis of notional income accrued to the assessee - Decided against Revenue.

Summary

Issues:
1. Deletion of profit earned on the sale of agriculture land.
2. Treatment of purchase of land as investment.
3. Deletion of interest income earned by the assessee.

Analysis:
1. The first issue pertains to the deletion of profit earned on the sale of agriculture land. The Assessing Officer made an addition of Rs. 35,00,000/- as the profit earned from the sale of agricultural land by the assessee. The assessee contended that the land was purchased for agricultural purposes and was treated as a capital investment. The CIT(A) observed that the land was indeed agricultural and situated beyond municipal limits. The Tribunal agreed that the land was not a capital asset under section 2(14) of the Income Tax Act, and the profit earned was not taxable as capital gain. The Tribunal upheld the CIT(A)'s decision to delete the addition made by the Assessing Officer.

2. The second issue relates to treating the purchase of land as an investment. The Assessing Officer considered the transaction as an adventure in the nature of trade, disputing the intention of the assessee to hold the land for agricultural purposes. The CIT(A) found that the land was genuinely purchased for cultivation, and the intention to earn a profit was not supported by evidence. The Tribunal concurred that the land was agricultural, situated away from urban limits, and the assessee's first transaction aimed at cultivation. Consequently, the Tribunal upheld the deletion of the addition by the CIT(A).

3. The final issue concerns the deletion of interest income of Rs. 67,665/-. The Assessing Officer added this amount as accrued interest on an FDR that the assessee had not shown in the return of income. The CIT(A) ruled in favor of the assessee, stating that the interest on the FDR had not accrued by the relevant assessment year end date. The Tribunal agreed that the maturity date of the FDR was beyond the assessment year, thus the addition by the Assessing Officer was unjustified. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the interest income addition.

In conclusion, the Appellate Tribunal dismissed the department's appeal, upholding the decisions of the CIT(A) in deleting the additions related to the profit earned on the sale of agricultural land and the interest income on the FDR.