2017 (11) TMI 1664 - AT - Income Tax

Nature of sale of land - agricultural land or capital asset - distance from the nearest Municipality - Held that - A perusal of the Assessment Order shows that the AO has recognized that the assessee was running a Nursery under the name and style of Soundariya Nursery. A perusal of the provisions of Sec.2(1A) as also Sec.2(14)(iii) shows that agricultural land is not liable to be treated as a capital asset subject to the condition that the land is situated in an area where the Municipality has a population of less than 10,000 or at a distance of more than 8 KMs from Municipality or cantonment which has a population of more than 10 lakhs. In the present case, admittedly, the land sold by the assessee is situate beyond 8 KMs limit, the land Revenue is collected in the form of Kist in respect of the agricultural land, the land Revenue records shows the land as agricultural land. Thus, all the conditions required for holding the land as agricultural land stands complied. This being so, we are of the view that the land sold by the assessee being an agricultural land and consequently the same cannot be treated as a capital asset, the sale of which gives rise to capital gains. - decided in favour of assessee

Summary

Issues:
1. Appeal against the Order of the Commissioner of Income Tax (Appeals) for the Assessment year 2007-08.
2. Jurisdiction of re-assessment proceedings under Section 143(3) r.w.s 147 of the Income Tax Act, 1961.
3. Failure to disclose during re-assessment proceedings and absence of clear findings by the Assessing Officer.
4. Finalization of re-assessment proceedings without a speaking order disposing of objections.
5. Claim for exemption under Section 2(14) of the Act for sale of agricultural land.
6. Classification of agricultural land as a capital asset.
7. Consideration of evidence and submissions regarding agricultural activities and land details.
8. Consideration of alternate ground under Section 54F of the Act.

Analysis:
1. The appellant challenged the CIT(A)'s order for the AY 2007-08, alleging it was contrary to facts, equity, and natural justice. The re-assessment proceedings under Section 143(3) r.w.s 147 were disputed, claiming lack of tangible material and jurisdiction exceeding limits. The appellant contended that failure to disclose was not proven, objections were not addressed, and no speaking order was issued, affecting fair play.

2. The appellant sought exemption under Section 2(14) for the sale of agricultural land, arguing that agricultural activities were conducted continuously on the land beyond municipal limits. The CIT(A) was criticized for not considering evidence of agricultural activities and denying the exemption claim, leading to a dispute over the classification of the land as a capital asset under Section 45.

3. Detailed submissions and evidence were presented to establish the agricultural nature of the land and activities, including revenue records and tax payments. The appellant's history of agricultural operations and investments post-sale were highlighted to support the claim for agricultural income treatment, emphasizing compliance with statutory requirements.

4. The Inspector's Report verifying agricultural operations and the land's status as agricultural were crucial in determining the land's classification. The unsigned report's rejection by the CIT(A) was contested, asserting its validity and relevance in proving agricultural activities. Legal provisions exempting agricultural land from capital gains tax were invoked to support the appellant's position.

5. The Tribunal allowed the appeal on the merits, recognizing the land as agricultural based on distance from the municipality, revenue records, and compliance with statutory conditions. Technical issues regarding the re-opening of the assessment were not addressed due to the favorable decision on the land's classification, resulting in a partial allowance of the appellant's appeal.