2014 (5) TMI 1191 - AT - Income Tax

Exemption u/s 2(14) in respect of agriculture property transferred - any proof of conversion of agricultural land to non agricultural land - HELD THAT - This property is the garden land and cultivable area and when it is cultivable area it is an agricultural land therefore we are of the view that CIT(A) is justified in holding that the disputed property is agricultural land and it is liable to be exemption under section 2(14) of the Income tax Act on capital gain. We find that the assessee has sold agricultural land and this agricultural land is situated in village Panchayat and the same was not coming within 8 kms from notified Municipality. The form No. I XIV shows that the land in question is agricultural land. The agricultural operation were carried in the property till the date it was sold and the several fruits bearing trees were existed in the said agricultural land for a number of years thus it is a garden land. Therefore we are of the view that it is not liable to be a capital gain. We find that the CIT has relied upon the decision of Bombay High Court in the case of CIT vs. Debbie Alemao 2010 (9) TMI 560 - BOMBAY HIGH COURT wherein as held that when land is shown by the Govt. as agricultural land and that land is never used as non agricultural land till it was sold. The assessee is not liable for capital gain. The Hon ble High Court has further held that the land has to be treated as agricultural land even though no such agricultural income is shown by the assessee as the assessee stated that the agricultural income received on sale of coconuts grown on the land was just enough to maintain the land and there was no surplus CIT(A) is justified in his action and our interference is not required. We also find from the decision of Karnataka High Court in the case of CIT Anr. vs. Smt. K. Leelavathy 2012 (3) TMI 151 - KARNATAKA HIGH COURT wherein High Court has held that the land sold by the assessee retained its agricultural character till the date of the order permitting non agricultural use and could be treated as capital asset only thereafter. In the instant case there is no evidence on the record that this property in use is converted from agricultural land to non agricultural land moreover the Assessing Officer has not brought out any evidence before us. We find that the assessee was holding this land almost 20 years and the assessee was holding as owner of the property as agricultural land. Therefore in our opinion the CIT is justified and our interference is not required. Therefore we are in complete agreement with the finding of the CIT(A). In the result department s appeal is dismissed on this ground.

Summary

Issues Involved:
1. Classification of land as agricultural or non-agricultural.
2. Whether the sale of land should be treated as short-term capital gain or business income.
3. Validity and authenticity of the sale agreement executed in 1988.
4. Addition of Rs. 10,00,000 based on CIB information.

Detailed Analysis:

Issue 1: Classification of Land as Agricultural or Non-Agricultural
The department contended that the land sold by the assessee was not agricultural, citing that the sale deed did not mention it as agricultural land and Form No. I & XIV showed no cropped area. The assessee argued the land was agricultural, supported by documents and a certificate from the Gram Panchayat indicating the presence of fruit-bearing trees. The CIT(A) observed that the land was recorded as agricultural in government records and no evidence suggested its use for non-agricultural purposes. The Tribunal upheld the CIT(A)'s decision, noting that the land was in a village panchayat, not within 8 km of a notified municipality, and agricultural operations were carried out until the sale.

Issue 2: Treatment of Sale as Short-Term Capital Gain or Business Income
The Assessing Officer initially treated the gain from the sale as short-term capital gain but later considered it as business income, arguing the land was held for a short period and sold to a real estate company. The CIT(A) found this contradictory, noting the land was held for nearly 20 years, purchased with the intention of agricultural use, and not for trading. The Tribunal agreed, citing the Bombay High Court's decision in CIT v. Debbie Alemao, which held that land recorded as agricultural and used as such until sale is not subject to capital gains tax.

Issue 3: Validity of the 1988 Sale Agreement
The department questioned the authenticity of the 1988 sale agreement, suggesting it was fabricated to claim tax exemption. The assessee provided evidence of payment via demand draft and explained the delay in executing the sale deed due to legal disputes. The Tribunal found the agreement genuine, supported by documentary evidence and the fact that the assessee had possession since 1988. The Tribunal concluded the land was held as agricultural property for 20 years and exempt from capital gains tax under section 2(14).

Issue 4: Addition of Rs. 10,00,000 Based on CIB Information
The Assessing Officer added Rs. 10,00,000 to the assessee's income based on CIB information, alleging receipt from M/s. Total Recall Technologies India Pvt. Ltd. The CIT(A) found no concrete evidence supporting this addition, noting the Assessing Officer's reliance on suspicion and lack of verification from the alleged payer. The Tribunal upheld the CIT(A)'s decision to delete the addition, emphasizing the absence of any proof of receipt or existence of the company.

Conclusion:
The Tribunal dismissed the department's appeal, affirming the CIT(A)'s findings that the land was agricultural and not subject to capital gains tax, and that the addition of Rs. 10,00,000 lacked evidentiary support. The Tribunal's decision was based on consistent legal principles and documentary evidence provided by the assessee.