2016 (10) TMI 1319 - AT - Income Tax

Correct head of income - gain on sale of property - capital gains or business income - HELD THAT - The issue involved is essentially factual in nature. It is the case of the assessee that the land and other properties were no correction and acquired/purchased over several years and held as capital asset in the nature of investment. From the written submissions of the assessee as extracted by the CIT(A) in his order, we note that there a considerable time lag between the purchase and the sale of land and other properties. Simultaneously, the land/properties have been declared as capital investment by the assessee all along. Some of the properties were let out and rent thereon was earned as a yield on such investments. Agricultural income has been consistently declared year-after-year on agricultural land so held before its sale. The non-agricultural land so held were shown as investment and subjected to wealth tax being capital asset. On perusal of the written submissions as reproduced by the CIT(A) we note that the land/properties were purchased and held for several years in many cases before its sale. Coupled with this, we also take note of the fact that assessee has large capital of its own at its disposal which is far in excess of the corresponding investments made in land/properties over years. On cumulative reading of these glaring facts, we fail to comprehend the action of the Revenue in holding capital gains earned on sale as declared to be a business venture. It is manifest that the AO as well as CIT(A) misdirected themselves in law and on facts in holding the land/properties to be in the nature of trading asset merely on the ground that some of the agricultural land were converted into non- Agricultural land and some agreements were entered for the development of the land in the year under appeal acquired and held for decades in many cases. We find considerable weight in the plea of the assessee that intention at the time of purchase to hold impugned land/properties as a capital asset is manifest on records. The balance-sheet filed by the assessee over years, wealth-tax returns filed by the assessee, adequacy of its own capital clearly underscore the intention of the assessee to hold land/properties as capital asset as claimed. We also take note of the plea of the assessee that he is a co-owner of impugned land/properties holding certain percentage of ownership-rights therein and the claim of the land/properties as capital asset has been accepted by the Revenue in the hands of other co-owners in the assessment proceedings u/s.143(3) of the Act. This fact has remained uncontroverted. We also note that having regard to the facts noted above, the Coordinate Bench of the Tribunal in assessee s own case relevant to AY 2004-05 has decided the issue in favour of the assessee. 2011 (6) TMI 994 - ITAT AHMEDABAD Thus land/properties were held by the assessee as capital asset before its sale and consequential gains arising on sale thereto is chargeable under the head of capital gains . AO is directed to consider the gains arising on sale of land/properties under the head capital gains . AO is further directed to de novo consider the relief as and where claimed by the assessee u/s.54B relevant to assessment years under appeals in accordance with law after affording requisite opportunity to the assessee. We accordingly set aside the issue towards eligibility of relief claimed u/s.54B of the Act back to the file of the Assessing Officer for fresh consideration. Validity of assessment u/s 153A - HELD THAT - On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed. Legal issue stands adjudicated in favor of the assessee. Thus, in our considered view, the realignment of income from one head of income to another without reference to any incriminating material is not sustainable in law in the facts of the present case.

Summary

Issues Involved:
1. Whether the income from the sale of land and properties should be treated as "business income" or "capital gains."
2. The applicability of Section 54B exemption.
3. The legality of reassessment under Section 153A without incriminating material.

Detailed Analysis:

1. Treatment of Income from Sale of Land and Properties:
The primary issue was whether the income from the sale of land and properties should be treated as "business income" or "capital gains." The AO treated the income as "business income," citing reasons such as the purchase of agricultural lands, conversion to non-agricultural lands, development agreements, and the intention to sell for profit. The CIT(A) supported this view, noting that the assessee's activities resembled those of a trader in land. The Tribunal, however, found merit in the assessee's argument that the lands were held as capital assets for a considerable period, declared as investments in balance sheets, and subjected to wealth tax. The Tribunal also noted that similar gains were accepted as capital gains in the hands of co-owners and in previous years. Therefore, the Tribunal directed that the gains be treated as "capital gains" and not "business income."

2. Applicability of Section 54B Exemption:
The AO denied the exemption under Section 54B, which was also upheld by the CIT(A). However, the Tribunal directed the AO to reconsider the eligibility of the exemption claimed under Section 54B de novo, in accordance with the law, after affording requisite opportunity to the assessee.

3. Legality of Reassessment under Section 153A:
For AY 2007-08, the assessee contended that the reassessment under Section 153A was not justified in the absence of any incriminating material found during the search. The Tribunal noted that the return for AY 2007-08 was finalized prior to the search, and no incriminating material was found. The Tribunal, referring to various judicial precedents, held that the realignment of income from one head to another without incriminating material is not sustainable under Section 153A. Therefore, the reassessment was not justified, and the legal ground raised by the assessee was allowed.

Conclusion:
The Tribunal ruled in favor of the assessee, holding that the income from the sale of land and properties should be treated as "capital gains," directed the AO to reconsider the Section 54B exemption, and declared the reassessment under Section 153A invalid in the absence of incriminating material. The appeals were partly allowed, and the stay petitions were dismissed as infructuous.