2017 (2) TMI 231 - AT - Income Tax

Income from sale of land - treatment as business income or LTCG - claim of development expenses denied - ancestral land inherited by the assessee for the last more than 29 years and the assessee is not involved in any business activity of real estate business - Held that - Payments for which necessarily were made to labourers and the material sourced was again local material sourced from the unorganised sector wherein necessarily the expenditure vouched would again be hand vouched. In the absence of any abnormal claim vis- -vis the nature and extent of development done disallowance of the expenses claimed in an adhoc manner is not justified. The said claim it has been stated has been supported by the Report of an Architect/Engineer. These facts, evidences and arguments, it is seen have not been examined before arriving at a conclusion. Accordingly, the impugned order is set aside and the issue is restored to the AO directing him to examine the claim put forth on the basis of facts and evidences and not reject the claim purely on the grounds that it was hand vouched. Similarly, considering the claims not considered i.e. the land sold was ancestral land devolving upon the assessee by way of inheritance. Find no evidence in support of the same is available on record. The argument is available. Accordingly the impugned on this issue also is set aside and the issue is restored to the AO directing the assessee to demonstrate this fact before the Assessing Officer and support its claim by way of facts and evidences. The AO considering the facts is directed to decide the same by way of a speaking order, needless to say that the assessee shall be afforded a reasonable opportunity of being heard. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Correctness of assessing total income.
2. Change of head of income from Long term Capital Gains to Income from Business.
3. Treatment of income from sale of plots as Business Income.
4. Disallowance of development expenses.
5. Compliance with law and facts.

Issue 1: The assessee challenged the correctness of the order assessing the total income. The Assessing Officer made additions to the income based on the conversion of agricultural land to non-agricultural land and subsequent sale of plots. The Assessing Officer disallowed a portion of the development expenses claimed by the assessee, resulting in an increase in the assessed income.

Issue 2: The dispute arose regarding the classification of income from Long term Capital Gains as Income from Business. The Assessing Officer treated the sale of plots as a business activity due to the conversion of land from agricultural to non-agricultural use. This led to a substantial addition to the assessee's income under the head of Business Income.

Issue 3: The contention was made regarding the treatment of income from the sale of plots as Business Income instead of Capital Gains. The CIT(A) upheld the Assessing Officer's decision, resulting in a significant addition to the declared income. The conversion of agricultural land to non-agricultural land was a crucial factor in determining the nature of the income.

Issue 4: The dispute centered around the disallowance of development expenses claimed by the assessee. The CIT(A) rejected the claim, stating that the vouchers provided were hand-made and not fully vouched. The assessee argued that the expenses were necessary for the development of the land and were supported by a report from an engineer/architect.

Issue 5: The overall compliance with the law and facts of the case was questioned by the assessee. The Tribunal set aside the CIT(A)'s order and directed the Assessing Officer to re-examine the claims made by the assessee regarding the ancestral nature of the land and the development expenses. The Tribunal emphasized the importance of considering all relevant facts and evidence before making a decision.

In conclusion, the Appellate Tribunal allowed the appeal for statistical purposes, highlighting the need for a thorough examination of the facts and evidence presented by the assessee. The judgment emphasized the importance of proper assessment and consideration of all relevant aspects in determining the taxable income in cases involving the conversion and sale of land.