2015 (12) TMI 1128 - HC - Income Tax

Sale of part of land - business income or agricultural income - Held that - Under the provisions of section 2(14)(iii)(a)/ (b), the 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. The AO is not justified in rejecting the assessee s alternative claim of exemption under section 54F as it has made investment worth ₹ 7.18 crores more than the sale consideration within a short period of six months by acquiring a residential property at New Delhi. Therefore, the AO was not justified in making addition treating assessee s agricultural income as business income. The same has rightly been deleted by learned CIT(A) and confimed by ITAT As regards treatment of agricultural income as undisclosed income, the assessee had furnished a copy of Girdawri pertaining to the earlier financial years 2005-06 and 2006-07 that crop of sarson was grown and cultivated in the assessee s land holdings and out of the said sarson crops, some crop was retained to be used as sarson seeds in the next years. Ex Sarpanch of Gram Panchayat of Village Fazilpur Jharsa, Form J No.III dated 15.3.2008 duly verified by Shri Jasmeet Singh on 13.12.2010. As per these documentary evidences, the assessee had discharged its onus. These evidences cannot be brushed aside by the AO. The assessee had been using the neighbourer s tube well for water purposes. The statement of original seller for development of land does not hold any significant and evidentiary value against the assessee. Therefore, as per copy of Girdawri and certificate issued by the Sarpanch, the AO was not justified in rejecting assessee s contention with regard to the said agricultural income. In view of the above discussions, we find no infirmity in the order of the learned CIT(A) who has rightly deleted the addition so made by the AO aNd confimed by ITAT. - Deleted against revenue.

Summary

Issues:
1. Interpretation of legal principles by ITAT
2. Assessment of profit from sale of land as business income
3. Treatment of income from undisclosed sources as agricultural income

Interpretation of legal principles by ITAT:
The appeal was filed by the revenue under Section 260A of the Income Tax Act against the ITAT order. The substantial questions of law raised included the correct application of legal principles by ITAT in considering admissible and relevant evidence. The ITAT was also questioned on its decision regarding the assessment of profit from the sale of land as business income under relevant sections of the Income Tax Act. Additionally, the treatment of income from undisclosed sources as agricultural income was contested. The CIT(A) accepted the assessee's version by treating the sale of agricultural land in accordance with the provisions of the Act. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal.

Assessment of profit from sale of land as business income:
The respondent HUF had sold agricultural land and declared the sale proceeds as agricultural income. The Assessing Officer treated this as business income, citing reasons such as no agricultural activity being done on the land prior to its sale and its proximity to the municipal limits of Gurgaon. The CIT(A) reversed the AO's findings, which were upheld by the Tribunal. The Tribunal considered evidence, including a certificate confirming the land's location beyond 8 kms from Gurgaon limits. It was noted that the AO failed to provide certain information and did not justify rejecting the assessee's alternative claim under Section 54F. The Tribunal concurred with the CIT(A)'s view, holding that the land was agricultural and the addition made by the AO was unjustified.

Treatment of income from undisclosed sources as agricultural income:
The AO treated the income of Rs. 40,000 from the sale of agricultural products as undisclosed income, alleging no agricultural activities were carried out. The assessee provided evidence, including Girdawri documents and a certificate from the Sarpanch, to support agricultural activities. The Tribunal found the AO unjustified in rejecting the assessee's contention regarding agricultural income. The CIT(A) rightly deleted the addition made by the AO. The Tribunal dismissed the revenue's grounds related to this issue. The High Court found no illegality or perversity in the decisions of the lower authorities, dismissing the appeal as no substantial question of law arose.