2022 (4) TMI 1608 - AT - Income Tax

Assessment u/s 153C - search and seizure action was conducted in the office premise in the Appellant s group cases - AO opined that the Appellant is engaged in the purchase and sale of agricultural lands, hence proceeded to treat the activity of sale of agricultural lands to be adventure in the nature of trade - HELD THAT - Similar issue was considered by the coordinate Bench in the case of D. Dasappa 2009 (12) TMI 929 - ITAT BANGALORE as held judgment of the Supreme Court in the case Sinhgad Technical Edn. Society 2017 (8) TMI 1298 - SUPREME COURT is squarely applicable to the facts of the present case. Since the assessment framed u/s. 153C of the Act to be based on material found during the course of search which relate to or belong to the assessee and since we have held that there is no seized material for addition made by the AO, we do not wish to address the arguments made by the ld. AR for the assessee that the condition precedent for initiating the proceedings u/s. 153C of the Act having not been satisfied in the present case, therefore the assessment is liable to be annulled. Accordingly, we hold that the addition made by the AO is not based on seized material found in the course of search and therefore the addition cannot be sustained. Nature of land sold - treatment of the gain arising out of sale of land as capital gain against the claim of assessee that it is exempt - HELD THAT - This agricultural income offered by the assessee has been accepted and assessed in these assessment years. Contrary to this, the lower authorities are not ready to accept the sale of said land as agricultural land. In our opinion, the sale of land is to be treated as sale of agricultural land since there was continuous agricultural operations in the said land and though the land was converted, the land remained as agricultural land till sale of the same. In view of this, we allow the ground taken by the assessee. The other grounds are academic and dismissed accordingly.

2024 (4) TMI 922 - AT

Issues Involved:
1. Validity of assessment framed under Section 153C of the Income Tax Act.
2. Treatment of gains arising from the sale of land as capital gains versus exempt income.
3. Assumption of jurisdiction under Section 153C.
4. Recording of satisfaction under Section 153C.
5. Nature of the land sold (agricultural vs. non-agricultural).
6. Validity of unregistered agreements for sale.

Issue-wise Detailed Analysis:

1. Validity of Assessment Framed Under Section 153C of the Income Tax Act:
The Tribunal examined whether the assessment framed under Section 153C was valid. A search and seizure action at the office of M/s SPR Developers Private Limited led to the seizure of documents related to the appellant. The Assessing Officer (AO) initiated proceedings under Section 153C based on these documents, treating the appellant's sale of agricultural lands as taxable. The appellant argued that the documents did not pertain to the assessment years in question and did not establish any undisclosed income, making the proceedings under Section 153C invalid. The Tribunal referred to various rulings, including CIT v. Sinhgad Technical Education Society, which emphasized that incriminating material must pertain to the assessment years in question for Section 153C to apply. The Tribunal concluded that the assessment under Section 153C was invalid as the additions were not based on any incriminating material found during the search.

2. Treatment of Gains Arising from the Sale of Land as Capital Gains Versus Exempt Income:
The appellant claimed that the lands sold were agricultural and thus exempt from capital gains tax under Section 2(14)(iii) of the Income Tax Act. The AO treated the sale as an adventure in the nature of trade, thereby taxable. The appellant provided evidence that the lands were continuously used for agricultural purposes, classified as agricultural in revenue records, and no development activities were carried out. The Tribunal referred to similar cases, including D. Dasappa v. DCIT, where it was held that lands used for agricultural purposes even after conversion should be treated as agricultural lands. The Tribunal agreed with the appellant, ruling that the gains from the sale of the lands were exempt from capital gains tax.

3. Assumption of Jurisdiction Under Section 153C:
The appellant contended that the assumption of jurisdiction under Section 153C was bad in law as there was no proper recording of satisfaction by the AO. The Tribunal examined the satisfaction note and found that it did not meet the requirements for invoking Section 153C. The Tribunal referred to the Supreme Court's ruling in CIT v. Singhad Technical Education Society, which stated that the satisfaction note must establish a clear link between the seized material and the undisclosed income for the assessment years in question. The Tribunal concluded that the jurisdiction assumed under Section 153C was invalid.

4. Recording of Satisfaction Under Section 153C:
The appellant argued that there was no proper recording of satisfaction as required under Section 153C. The Tribunal found that the satisfaction note did not establish any co-relation between the seized material and the additions made for the assessment years in question. The Tribunal emphasized that the satisfaction note must clearly indicate that the seized material has a bearing on the determination of total income. The Tribunal ruled that the lack of proper satisfaction recording rendered the proceedings under Section 153C invalid.

5. Nature of the Land Sold (Agricultural vs. Non-Agricultural):
The AO treated the lands as non-agricultural, taxable under capital gains, based on their conversion for non-agricultural purposes. The appellant provided evidence, including RTC copies, showing that the lands were continuously used for agricultural purposes and classified as agricultural in revenue records. The Tribunal referred to various rulings, including CIT v. Ashok Kumar Rathi and Tulla Veerender v. Addl. CIT, which supported the appellant's claim. The Tribunal concluded that the lands were agricultural and exempt from capital gains tax.

6. Validity of Unregistered Agreements for Sale:
The appellant argued that the unregistered agreements for sale did not result in a valid transfer for tax purposes. The Tribunal agreed, stating that unregistered agreements do not create any right in favor of the purchaser and cannot be considered for taxation under Section 2(47)(v) of the Income Tax Act. The Tribunal ruled that the unregistered agreements did not result in any taxable income for the appellant.

Conclusion:
The Tribunal ruled in favor of the appellant on all grounds, holding that the assessment framed under Section 153C was invalid, the gains from the sale of lands were exempt from capital gains tax, and the unregistered agreements for sale did not result in any taxable income. The appeals were partly allowed.

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