2022 (4) TMI 1609 - AT - Income Tax

Validity of assessment u/s 153A - additions in respect of the agricultural lands - reference to incriminating material found in serach or not? - HELD THAT - As decided in Shri Jitendra Virwani 2021 (8) TMI 70 - ITAT BANGALORE as rightly contended by the DR, there is no requirement for an assessment made u/s 153A of the Act being based on any material seized in the course of search. Further under the second proviso to section 153A pending assessment or re-assessment proceedings in relation to any assessment year falling within the period of six assessment years referred to in section 153A(b) of the Act shall abate. Thus the Assessing Officer gets jurisdiction for six years assessment years referred to in section 153A(b) of the Act for making an assessment or re-assessment. It is not the complaint of the assessee that any income, which is already subjected to assessment under section 143(3) or under section 148 of the Act completed prior to the search in respect of six assessment years referred to in section 153A(b) of the Act and in the second proviso to section 153A, has also been included in the assessment framed under section 153A of the Act. In such circumstances the plea of the assessee cannot be accepted. In our considered opinion, as per clause (a) of sub section (1) of section 153A, at the stage of issue of notice u/s 153A, the only requirement is to ask the assessee to file return of income for relevant six years covered by section 153A and after filing of return of income, the assessment to be made by the AO will be assessment or reassessment has to be determined afterwards and not at the time of issue of notice u/s 153A. In this view of the matter, we find no merit in this technical objection raised by the assessee and the same is rejected. Accordingly, the action of the AO in issuing notice u/s. 153A is justified. This ground of the assessee is therefore dismissed. Nature of land sold - Addition in respect of transfer of land by Based on the documents found during the search in the Appellant s group cases - What is sold by Appellant is agricultural and hence gains are outside the purview of capital gains tax? - HELD THAT - As assessee was continuously carrying out agricultural activities in the impugned land and also offered agricultural income - 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. 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 - we allow the ground taken by the assessee in both A.Ys.

Summary

Issues Involved:
1. Validity of proceedings under Section 153A of the Income-tax Act, 1961.
2. Classification of income from sale of land as business income or capital gains.
3. Determination of whether the land sold was agricultural land and thus exempt from capital gains tax.

Issue-wise Detailed Analysis:

1. Validity of Proceedings under Section 153A:
The appellant contended that the assessment under Section 153A was invalid as the additions did not arise from any material seized during the search. The appellant argued that the additions in respect of agricultural lands at Hampapura and Ramnagara Taluk were not based on incriminating material found during the search, making the proceedings under Section 153A bad in law. The Tribunal, however, upheld the validity of the proceedings under Section 153A, citing the jurisdictional High Court's decision in the case of Canara Housing Development Co. It was noted that once a search is conducted under Section 132, the Assessing Officer is mandated to issue a notice under Section 153A and assess or reassess the total income for the relevant assessment years, regardless of whether any incriminating material was found during the search.

2. Classification of Income from Sale of Land:
The appellant challenged the CIT(A)'s decision to uphold the addition of Rs. 3,38,75,000 as business income. The appellant argued that the amount received was an advance from an agreement of sale and should not be taxed as business income. The appellant further contended that the land was held as an investment and not as stock-in-trade. The Tribunal referred to the case of D. Dasappa v. DCIT, where it was held that even if the land was converted for non-agricultural purposes, it continued to be used for agricultural activities, and thus, the sale of such land should not be treated as business income. The Tribunal concluded that the land in question was agricultural land, and the income from its sale should not be classified as business income.

3. Determination of Agricultural Land:
The appellant argued that the land sold was agricultural land and thus exempt from capital gains tax under Section 2(14)(iii) of the Act. The appellant provided evidence that agricultural activities were carried out on the land until the date of transfer, and the land was situated beyond 8 km from the local limits of any municipality or cantonment board. The Tribunal examined the evidence, including RTC copies and agricultural income records, and concluded that the land was indeed agricultural. It was noted that the land was continuously used for agricultural purposes, and the conversion for non-agricultural use was not acted upon within the stipulated period, thereby restoring its original agricultural character. The Tribunal held that the sale of the land was exempt from capital gains tax as it was agricultural land.

Conclusion:
The Tribunal upheld the validity of the proceedings under Section 153A but ruled in favor of the appellant on the grounds of classification of income and determination of the nature of the land. The Tribunal concluded that the land sold was agricultural land, exempt from capital gains tax, and the income from its sale should not be classified as business income. The appeals were partly allowed, and the additions made by the Assessing Officer were dismissed.