2020 (2) TMI 348 - AT - Income Tax

LTCG in respect of sale of land - Characterization of income - benefit of indexation - HELD THAT - As already negated observation of Ld.AO that, said land was purchased and sold in a short span during financial year relevant to assessment year under consideration. We therefore reject this argument by Ld.DR that income earned from sale of said land is to be treated as business income. Coming to the nature of said land, Ld.AO before Ld.CIT(A), submitted that the Village that includes said land has been ascertained by BDA as residential zone. Whereas assessee submitted that he did not convert the said land for non agricultural purposes. However, we also note that assessee has not established by way of documents /evidences that it was agricultural land. We therefore cannot appreciate the argument advanced by Ld.AR. As we have held hereinabove that said land is a long term capital asset, capital gains must be computed by granting indexation benefit to assessee. Ld.AO is directed to recomputed LTCG in respect of sale of said land by assessee in accordance with law. Accrued interest on the loan raised for the company against F.D. Booked by the Director - Payments of interest on FD and on the interest paid on loan - HELD THAT - Admittedly, assessee deposited ₹ 1 crore in bank in his name as F.D, on which assessee received interest of ₹ 3,93,198/-. On security of this FD, company in which assessee is a Director, raised loan of ₹ 50 lakhs and repaid the loan. However, interest on loan amounting to ₹ 3,68,252/- was claimed as expenditure by the assessee. In our opinion this interest is actually the liability of the company and there is no basis for claiming this expenditure, in the hands of the appellant. Therefore there is no basis for setting off of this liability of company against interest earned by assessee on funds belonging to him deposited in the bank. Hence, the actual interest which actually works out to 3,68,253/- - We therefore do not find any infirmity in order of Ld,CIT(A).

Issues Involved:
1. Legality of the search and assessment under section 153A.
2. Classification of the land as agricultural land and its tax implications.
3. Treatment of the sale transaction as an adventure in the nature of trade.
4. Computation of capital gains and applicability of indexation.
5. Justification of additions made by the authorities.
6. Denial of carry forward of capital loss.
7. Charging of interest under sections 234A, 234B, and 234C.

Issue-wise Detailed Analysis:

1. Legality of the Search and Assessment under Section 153A:
The appellant challenged the initiation of the search under section 132(2) and the consequent assessment under section 153A, claiming it was illegal and based on suspicion rather than prior information. However, the appellant withdrew these grounds before the Tribunal, leading to their dismissal.

2. Classification of the Land as Agricultural Land and its Tax Implications:
The appellant argued that the land sold was agricultural and thus not a capital asset as per section 2(14) of the Act. The Tribunal examined the facts and documents, including the sale deed and a certificate from the PWD stating the land was beyond 12.6 km from BBMP limits. Despite the AO’s assertion that the land was in a residential zone, the Tribunal concluded that the land was agricultural and not a capital asset, thus not attracting capital gains tax.

3. Treatment of the Sale Transaction as an Adventure in the Nature of Trade:
The authorities below treated the sale of land as a business venture, considering it an adventure in the nature of trade. The Tribunal, however, rejected this view, stating that the land was acquired in 1995 and sold in 2004, indicating it was not a short-term transaction for business purposes. Thus, the sale consideration should not be treated as business income.

4. Computation of Capital Gains and Applicability of Indexation:
The Tribunal held that the land was a long-term capital asset, acquired in 1995 and sold in 2004. Consequently, the capital gains should be computed with the benefit of indexation. The AO was directed to recompute the long-term capital gains in accordance with the law.

5. Justification of Additions Made by the Authorities:
The appellant contested the addition of ?70,00,000 as short-term capital gains. The Tribunal, considering the land as a long-term capital asset, directed the AO to recompute the gains, thereby partially allowing the appellant’s grounds.

6. Denial of Carry Forward of Capital Loss:
The appellant argued against the denial of carry forward of capital loss amounting to ?2,61,621. However, due to a lack of supporting evidence, the Tribunal upheld the CIT(A)’s order, dismissing this ground.

7. Charging of Interest under Sections 234A, 234B, and 234C:
The appellant contested the charging of interest under sections 234A, 234B, and 234C. The Tribunal did not specifically address this issue, implying that the interest charges were consequential and did not require separate adjudication.

Conclusion:
The appeals for the assessment years 2004-05 and 2007-08 were partly allowed. The Tribunal directed the AO to recompute the long-term capital gains with indexation benefits and upheld the denial of carry forward of capital loss and the addition related to interest on FD. The legality of the search and assessment issues were dismissed as withdrawn. The sale transaction was not treated as business income, and the land was classified as agricultural, exempting it from capital gains tax.

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