2015 (11) TMI 183 - AT - Income Tax

Long Term Capital Gains - whether land is agricultural and transferred without sale deed ? - CIT(A) deleted the addition - whether the land was under developed agricultural and provisions of section 50C of the IT Act 1961 were in-applicable? - Held that - CIT(A) has thoroughly gone through the assessment order alongwith the Remand Report and Rejoinder to the Remand Report as well as the other evidences filed by the assessee. Ld. CIT(A) has decided the issue in favour of the assessee by respectfully following the order of Navneet Kumar Thakkar. Versus Income-tax Officer Ward - 4. 2007 (3) TMI 317 - ITAT JODHPUR which is clearly similar to the facts and circumstances of the present case wherein held that unless property transferred has been registered by sale deed and for that purpose value has been assessed and stamp duty has been paid by parties Sec.5OC inserted by Finance Act 2002 with effect from 1-4-2003 cannot come into operation. It has been further held by the Hon ble Court that in such a situation position existing prior to Sec. 5OC would apply and onus would be upon revenue to establish that sale consideration declared by the assessee was understated with clinching evidence. The property in question has been transferred by executing an agreement which was not registered with registering authority therefore in our view Sec. 5OC could not have come into operation and the addition in dispute has rightly been deleted by the Ld. CIT(A) - Decided against revenue. Disallowance of car running expenses & telephone expenses - CIT(A) deleted the addition - Held that - The car running for personal use is totally against the provision of Income Tax Act because it is made on the basis of assumption and presumption. Similarly for telephone expenses debited to the profit and loss account are only in respect of the telephone which is situated at the business premises of the assessee. The assessee furnished full details of telephone bills and this addition was also made on the basis of assumptions and presumptions only. We also find that the AO examined the complete books of account and found no defect in the same hence the action of the CIT(A) for estimation of disallowances are against the principles of Income Tax Act. The assessee has furnished all the details before the AO and the AO has not given sound reason for observing person use . Therefore both the additions were rightly deleted by the Ld. CIT(A) which does not need any interference on our part - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition made by the AO on account of Long Term Capital Gains.
2. Classification of land as agricultural or commercial.
3. Applicability of Section 50C of the IT Act, 1961.
4. Deletion of addition on account of car running expenses.
5. Deletion of addition on account of telephone expenses.

Detailed Analysis:

Issue 1: Deletion of Addition Made by the AO on Account of Long Term Capital Gains
The Revenue challenged the deletion of addition made by the AO on account of Long Term Capital Gains. The AO had added a difference of Rs. 1,48,05,740/- under this head of income, asserting that the land was sold at a higher rate than declared by the assessee. The ITAT upheld the CIT(A)'s decision, stating that the land was sold through an unregistered agreement and thus not subject to Section 50C. The ITAT referenced the Jodhpur Bench ruling, which held that Section 50C applies only to registered sale deeds.

Issue 2: Classification of Land as Agricultural or Commercial
The AO contended that the land in question should be classified as commercial, contrary to the assessee's claim of it being agricultural. The CIT(A) and ITAT found that the land was agricultural as per revenue records and that the AO's observations were based on assumptions. The ITAT supported the CIT(A)'s view that the land's classification in revenue records and its use for agricultural purposes were decisive.

Issue 3: Applicability of Section 50C of the IT Act, 1961
The AO applied Section 50C, estimating the sale price based on circle rates, which the CIT(A) and ITAT found inappropriate for the unregistered sale agreement. The ITAT cited the Jodhpur Bench decision, stating that Section 50C does not apply to unregistered agreements and that the AO failed to provide evidence of understated sale consideration. The ITAT confirmed that the provisions of Section 50C were not applicable in this case.

Issue 4: Deletion of Addition on Account of Car Running Expenses
The AO disallowed Rs. 29,580/- of car running expenses due to lack of a logbook to distinguish personal and business use. The CIT(A) and ITAT found this disallowance baseless, as it was made on assumptions without any defect found in the books of accounts. The ITAT upheld the CIT(A)'s decision to delete this addition.

Issue 5: Deletion of Addition on Account of Telephone Expenses
The AO disallowed Rs. 23,916/- of telephone expenses, citing the absence of call registers. The CIT(A) and ITAT found that the expenses were for business purposes and that the AO's disallowance was based on assumptions. The ITAT upheld the CIT(A)'s decision to delete this addition.

Conclusion:
The ITAT dismissed the Revenue's appeal and upheld the CIT(A)'s order, confirming that:
- The land was correctly classified as agricultural.
- Section 50C did not apply to the unregistered sale agreement.
- The additions for car running and telephone expenses were rightly deleted as they were based on assumptions without any substantive evidence.

The assessee's cross-objection was withdrawn and dismissed accordingly.