2019 (12) TMI 969 - AT - Income Tax

Income from sale of land - Business income or capital gain - assessee in revised return of income has declared the gain on sale of land as Capital Gains , whereas, the stand of Revenue is that the gain on sale of land is assessable under the head Income from business - HELD THAT - The sequence of events and the documents available on record fairly indicates that the intention of assessee was not to engage in the business of trading in subject land. It was standalone transaction carried out by the assessee. The contention of the Revenue that in the original return of income the assessee had declared gain arising from sale of land as business income and it was in the revised return that the assessee declared the gain from sale of land was an afterthought, is not sustainable. The provisions of the Act has granted liberty to the assessee to revise the returns with the object of removing any mistakes / errors in the computation of income or head of income. If the assessee in the original return of income has inadvertently mentioned the head of income as business income, it does not mean that it becomes sacrosanct and the assessee cannot change the head of income in the revised return. Taking into consideration the entirety of the facts, we are of the considered view that the transaction of sale of agricultural land by the assessee is not adventure in the nature of trade. The gain arising from sale of land is assessable under the head Capital Gains . Disallowance of cost of improvement over the land - HELD THAT - Though the voluminous paper book filed before the Tribunal by the assessee, the ld. AR has certified that all the details were available before the AO, however, it is not clearly emanating from records whether the expenditure claimed by the assessee ₹ 3.74 crores was part of expenditure already allowed by the AO. Since, there is ambiguity on facts on this issue, we deem it appropriate to restore this issue back to the file of AO for re-examination. The assessee is directed to furnish relevant details of expenditure before the AO and also clarify whether expenditure of ₹ 3.74 crores is part of the expenditure already allowed by the AO. The AO shall decide this issue de novo after affording reasonable opportunity of hearing to the assessee, in accordance with law.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Classification of income from the sale of land as "Capital Gains" versus "Business Income".
3. Disallowance of cost of improvement over the land.
4. Levy of penal interest.

Detailed Analysis:

1. Condonation of Delay:
The appeal by the assessee was delayed by 503 days. The delay was attributed to wrong advice from the Chartered Accountant. The Tribunal examined the affidavit and found the explanation bona fide, referencing the Supreme Court's stance in Ram Nath Sao and Collector, Land Acquisition cases, which advocate for a liberal approach in condoning delays. The Tribunal condoned the delay and admitted the appeal for hearing on merits.

2. Classification of Income from Sale of Land:
The primary issue was whether the gain from the sale of agricultural land should be classified as "Capital Gains" or "Business Income". The assessee initially declared it as "Business Income" but revised it to "Capital Gains". The Tribunal considered various documents, including revenue records and sale deeds, which indicated the land was held for agricultural purposes. The Tribunal noted the absence of evidence from the Revenue showing the land was held as stock-in-trade or developed for commercial purposes. Despite the assessee's engagement in real estate on a commission basis, the Tribunal concluded the sale was a standalone transaction and not an adventure in the nature of trade. Thus, the gain was assessable under "Capital Gains".

3. Disallowance of Cost of Improvement:
The assessee claimed additional expenditure of ?3,74,62,925/- for land improvement, which the AO disallowed due to a lack of requisite information. The Tribunal observed that it was unclear if this expenditure was part of the already allowed ?11,29,27,500/-. Given the ambiguity, the Tribunal remanded the issue back to the AO for re-examination, directing the assessee to provide detailed information and clarify the expenditure's status.

4. Levy of Penal Interest:
The assessee denied liability for penal interest on merits, but the Tribunal did not provide a detailed discussion on this issue in the judgment.

Conclusion:
The appeal was partly allowed. The Tribunal condoned the delay, ruled the income from the sale of land as "Capital Gains", and remanded the issue of cost of improvement back to the AO for further examination.