2015 (8) TMI 1218 - HC - Income Tax

Agricultural income - assessee has shown income of ₹ 12,12,220/- being income from agriculture activities but A.O. has considered income of ₹ 7,50,000/- to be as business income - Tribunal reversing the well reasoned order of C.I.T. (Appeals) and in sending the matter back to the Assessing Officer - Held that - No basis has been spelled out by the A.O. to arrive at the conclusion that out of total income declared by assessee, part of income was business income. We also find that no enquiry was made by the A.O. either by himself or through the Inspector to verify and examine the land holding of the assessee, the nature of crops cultivated on the land, whether the land was irrigated or what were the facilities available for irrigating the land, the yield of the land during the relevant period. We also find that no enquiry with Sarpanch or Patwari or any other revenue authority was made either by A.O. or CIT(A) nor the revenue records were called for to ascertain yield of crops and the factual position. We find that learned CIT(A) has considered the claim of the assessee of having agriculture income in view of the agriculture land shown at ₹ 1.25 Crore in the balance sheet. During the course of hearing the ld. A.R. Has asked specific question about the total land holding of the assessee, the type of crops grown and what were the irrigation facilities available to which neither the ld. A.R. or ld. D.R. Could furnish any reply. We are therefore of the view that the details like the land holding under agriculture, nature of irrigation facility on the land, the crops gown on the land in the relevant period, record of crops grown in revenue records needs to be verified and therefore, the matter is restored to the file of A.O. for him to examine the aforesaid facts and thereafter decide the issue as per law. When now the matter is remitted to the file of learned A.O. to examine the aforesaid issue afresh in accordance with law, we see no reason to interfere with the same. No error has been committed by the learned tribunal in remitting the issue to the file of learned A.O.

Issues Involved:
1. Whether the Tribunal was right in reversing the CIT(A)'s order and remanding the matter back to the AO regarding agricultural income.
2. Whether the sale of Plot No.91 should be treated as business income or capital gain.
3. Ownership and tax treatment of land at Survey Nos.287, 458, and 485.
4. Applicability of Section 41(1) of the Income Tax Act.

Detailed Analysis:

1. Agricultural Income:
The Tribunal remanded the issue of agricultural income back to the AO for fresh examination. The Tribunal found that the AO had not conducted a thorough investigation into the agricultural activities, such as verifying land holdings, crop types, irrigation facilities, and yield. The Tribunal directed the AO to examine these details and decide the issue as per law, granting adequate opportunity for the assessee to present additional evidence. The High Court upheld this decision, finding no error in the Tribunal's approach and dismissed the related appeals (Tax Appeal Nos. 64, 66, 68, and 70).

2. Sale of Plot No.91:
The Tribunal held that the income from the sale of Plot No.91 should be treated as business income and not as capital gain. The assessee claimed the land was acquired through a Will and held for over 20 years, thus qualifying for capital gain treatment. However, the Tribunal found that the Will was not registered or probated, and the land was not disclosed in the assessee's balance sheet. The Tribunal also noted that the assessee was engaged in the business of developing housing projects, as evidenced by claiming deductions under Section 80IB. The High Court agreed with the Tribunal's findings and dismissed the appeals related to this issue (Tax Appeal Nos. 64, 66, 68, and 70).

3. Ownership and Tax Treatment of Land at Survey Nos.287, 458, and 485:
The Tribunal and CIT(A) found that these lands were held as "Stock-in-trade" by M/s. Satyanarayan Traders, where the assessee was a partner. The lands were reflected in the firm's balance sheet, not the individual balance sheets of the assessees. The Tribunal rejected the claim that the lands were mistakenly not recorded in individual balance sheets, noting that the accounts were audited annually. The Tribunal upheld the AO's classification of the income from the sale of these lands as business income. The High Court found no reason to interfere with these findings and dismissed the related appeals (Tax Appeal Nos. 65, 67, and 69).

4. Applicability of Section 41(1):
In the case of Mr. Hasmukhbhai Prajapati, the Tribunal remanded the issue regarding the applicability of Section 41(1) to the CIT(A) for fresh consideration. The Tribunal noted that the CIT(A) had decided the issue summarily without a speaking order and without obtaining a remand report from the AO. The High Court upheld the Tribunal's decision to remand the matter, finding no substantial questions of law and dismissed the related appeal (Tax Appeal No. 66).

Conclusion:
The High Court dismissed all the tax appeals, upholding the Tribunal's decisions to remand certain issues for further examination and confirming the classification of income from land sales as business income. The judgments emphasized thorough verification and proper classification of income based on the nature of transactions and the assessee's business activities.

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