2016 (4) TMI 822 - AT - Income Tax

Capital gain addition - jurisdiction of AO by computing income of the assessee on the basis of the income as per Section 143(3) - Held that - The Assessing Officer has acted beyond the jurisdiction by computing income of the assessee on the basis of the income as per Section 143(3) where as the intimation was u/s 143(1). The CIT(A) acted beyond its power by directing the Assessing Officer to tax the capital gains in respect of sale of land at Gurgaon, though, there was no addition made by the Assessing Officer in the assessment order to that respect. Capital gain is an independent and different source of income and was not the subject matter of appeal before him nor was the issue considered by the Assessing Officer by framing an assessment order. Instead, the Assessing Officer termed the same as commission on the sale of land. CIT(A) cannot touch upon an issue which does not arise from the order of the assessment and was outside the scope of the order of the assessment - Decided in favour of assessee

Issues Involved:
1. Validity of additions made by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act.
2. Justification for the addition of ?14,85,641 as commission income.
3. Legitimacy of the addition of ?4,33,85,625 as commission income from the purchase of agricultural land.
4. Validity of the addition of ?9,55,074 out of the declared agricultural income.
5. Legality of the direction to tax capital gains on the sale and purchase of agricultural land.
6. Accuracy of the findings regarding the non-furnishing of purchase or sale deeds.
7. Justification for the addition of ?2,51,325.
8. Legitimacy of the interest levied under Sections 234A, 234B, and 234C of the Income Tax Act.

Detailed Analysis:

1. Validity of Additions under Section 143(3):
The assessee contended that the Commissioner of Income Tax (Appeals) [CIT(A)] erred in upholding the additions made by the AO, which totaled ?1,03,14,960 as opposed to the declared income of ?57,12,774. The AO computed the total income based on an intimation under Section 143(1), which included ?19,10,145 as agricultural income. The assessee argued that the AO's assessment was a double addition and unjustified.

2. Addition of ?14,85,641 as Commission Income:
The AO added ?14,85,641 as commission income, assuming the assessee earned a commission from the sale of agricultural land. The CIT(A) upheld this addition, despite the assessee's argument that they were not engaged in the business of buying or selling land. The assessee claimed the sale of agricultural land was a personal transaction, and no commission was earned.

3. Addition of ?4,33,85,625 as Commission Income from Purchase of Agricultural Land:
The CIT(A) directed the AO to tax ?4,33,85,625 as commission income from the purchase of agricultural land. The assessee argued that this finding was arbitrary and contrary to facts, as the land was purchased for personal use and no commission was earned.

4. Addition of ?9,55,074 out of Declared Agricultural Income:
The AO disallowed 50% of the declared agricultural income of ?19,10,145, citing insufficient evidence of agricultural activities. The CIT(A) upheld this addition, despite the assessee's submission of detailed information regarding the sale of agricultural produce, including bills and sale slips.

5. Direction to Tax Capital Gains on Agricultural Land:
The CIT(A) directed the AO to tax capital gains on the sale and purchase of agricultural land, which was not part of the original assessment. The assessee argued that this direction was beyond the jurisdiction of the CIT(A) and contrary to statutory provisions, as capital gains were not considered by the AO in the original assessment.

6. Non-Furnishing of Purchase or Sale Deeds:
The CIT(A) recorded a finding that no purchase or sale deeds were furnished by the assessee during the assessment or appellate proceedings. The assessee contended that this finding was erroneous and contrary to the facts on record.

7. Addition of ?2,51,325:
The CIT(A) upheld an addition of ?2,51,325, which the assessee argued was unsustainable based on the facts and circumstances of the case.

8. Interest Levied under Sections 234A, 234B, and 234C:
The CIT(A) confirmed the levy of interest under Sections 234A, 234B, and 234C of the Income Tax Act. The assessee argued that the interest was not leviable.

Judgment Summary:

Issue 1:
The tribunal found that the AO acted beyond jurisdiction by computing the income based on an intimation under Section 143(1) instead of the returned income. The CIT(A) should have addressed this ground of appeal.

Issue 2:
The tribunal held that the addition of ?14,85,641 as commission income was arbitrary and without basis, as the assessee was not engaged in the business of selling land.

Issue 3:
The tribunal found that the CIT(A) acted beyond jurisdiction by directing the AO to tax ?4,33,85,625 as commission income from the purchase of agricultural land, as this was not part of the original assessment.

Issue 4:
The tribunal held that the disallowance of 50% of the declared agricultural income was erroneous, as the assessee had provided sufficient evidence of agricultural activities.

Issue 5:
The tribunal ruled that the CIT(A) exceeded their powers by directing the AO to tax capital gains on the sale and purchase of agricultural land, as this was not considered in the original assessment.

Issue 6:
The tribunal found that the CIT(A)'s finding regarding the non-furnishing of purchase or sale deeds was contrary to the facts on record.

Issue 7:
The tribunal held that the addition of ?2,51,325 was unsustainable based on the facts and circumstances of the case.

Issue 8:
The tribunal ruled that the interest levied under Sections 234A, 234B, and 234C was not justified.

Conclusion:
The tribunal allowed the appeal, setting aside the additions and directions made by the CIT(A) and AO. The order was pronounced on April 13, 2016.

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