2019 (8) TMI 520 - AT - Income Tax

Nature of land sold - agriculture land - capital assets leads to capital gain OR business assets leads to business income - AO consider profits of on sale of land as non agriculture land sale and treated as business income - no agricultural income was shown by the assessee - HELD THAT - It is an undisputed fact that the 7/12 extracts were provided to the Revenue Authorities wherein clearly it is stated that the land in question was agricultural land. Even, there is certificate from Deputy Director, Town Planning, Pune stating that at the time of transfer the lands were agricultural land. Similarly, in the Sale Deed itself it is clear that the lands in question were agricultural land. On the contrary, though the Revenue is taking the transaction as business income they have not brought in any evidence on record neither they have conducted any specific enquiry to show that it is business transaction. The Hon‟ble Jurisdictional High Court in CIT VERSUS DHABLE, BOBDE PAROSE, KALE, LUTE AND CHOUDHARI 1992 (9) TMI 45 - BOMBAY HIGH COURT held that the onus of proving that the land formed part of the business assets of the assessee is on the Department and in the absence of any evidence to that effect the presumption will be that the land was held as a capital asset by the assessee and the income from transfer thereof was not income from business. - we set aside the order of the Ld. CIT(A) and direct the AO to delete the addition from the hands of the assessee on this issue Disallowance of development expenses at ad-hoc @ 10% - HELD THAT - The assessee has provided all the details of development work that he has undertaken before the Revenue Authorities. The Revenue Authorities did not raise any doubt regarding development activities taken place. That on verification of the relevant documentary evidences, it was found that certain receipts were not available or they were sans any signature. The Revenue Authorities disallowed 10% of the expenses only on the ground that proper vouchers and documents were not maintained/signed and in order to prevent any leakages of revenue. Taking the totality of facts and circumstances into consideration, we are of the considered view that this 10% disallowance of the expenses is definitely on the higher side. To meet the ends of justice, we set aside the order of the Ld. CIT(A) and direct the AO to restrict the disallowance to ₹ 1,50,000/- under this head while providing appeal effect to this order.

Summary

Issues Involved:
1. Classification of income from the sale of agricultural land.
2. Disallowance of development expenses.
3. Charging of interest under Section 234B of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Classification of Income from the Sale of Agricultural Land:

The primary issue was whether the surplus from the sale of agricultural land should be classified as business income or exempt income. The assessee claimed exemption, asserting that the land sold was agricultural and not a "Capital Asset." The Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)] disagreed, treating the surplus as business income. The AO noted that the land had been sold at exorbitant prices, suggesting it was not agricultural. The CIT(A) supported this view, citing the short holding period and lack of agricultural income in the assessee's returns.

However, the Tribunal found that the land was indeed agricultural based on:
- 7/12 extracts (revenue records).
- A certificate from the Deputy Director, Town Planning, Pune.
- Clauses in the sale deed indicating agricultural activities.

The Tribunal referenced the Bombay High Court's decision in Commissioner of Income Tax Vs. Smt Debbie Alemeo, which held that land shown as agricultural in revenue records and never used for non-agricultural purposes by the assessee should be treated as agricultural land, even if no agricultural income was shown. Consequently, the Tribunal directed the AO to delete the addition of ?6,34,30,268/- from the assessee's income, allowing ground No.1 in the appeal.

2. Disallowance of Development Expenses:

The second issue involved the disallowance of ?8,03,268/-, being 10% of the development expenses claimed by the assessee. The AO disallowed this amount due to inadequate documentation, such as missing payees' acknowledgments or signatures. The CIT(A) upheld this disallowance.

The Tribunal, upon review, agreed that while some documentation was lacking, the 10% disallowance was excessive. It directed the AO to restrict the disallowance to ?1,50,000/-, thereby partly allowing ground No.2 in the appeal.

3. Charging of Interest under Section 234B:

The final issue pertained to the charging of interest under Section 234B of the Income Tax Act. The Tribunal noted that charging interest under this section is consequential and mandatory. Therefore, it dismissed ground No.3 in the appeal, finding it devoid of merit.

Conclusion:

The Tribunal's order resulted in the partial allowance of the assessee's appeal. The addition of ?6,34,30,268/- as business income was deleted, the disallowance of development expenses was reduced to ?1,50,000/-, and the charging of interest under Section 234B was upheld. The order was pronounced on 31st July 2019.