2020 (9) TMI 568 - AT - Income Tax

Addition u/s 56(2)(vii)(b)(ii) - difference between the stamp duty value and purchase value of agricultural land - purchase of immovable property being a capital asset - agricultural land is very well covered under the term immovable property and thus falls within the purview of Section 56(2)(vii)(b)(ii) - HELD THAT - Any property which is not a capital asset is not covered within the meaning of movable or immovable properties u/s 56(2)(vii) of the Act. In the present case, the agricultural land purchased by the assessee is situated at village Mandana, Kota which situated at a distance of 28 KM from Municipal Limits of Kota. Therefore, the agricultural land purchased in the name of the assessee is not a capital asset as per provisions of Section 2(14) of the Act and it is not covered by the definition of property given in Explanation to Section 56(2)(vii)(b) of the Act. Thus, we direct the AO to delete the addition. Addition by treating the source of investment in agricultural land to this extent as unexplained - HELD THAT - Average income from sale of Lehsun per bigha comes to ₹ 30,000/- to 35,000/- i.e. ₹ 9.00 lacs to ₹ 10.00 lacs per annum and similarly the realization from sale of vegetables is ₹ 30,000/- to ₹ 40,000/- per bigha i.e. ₹ 9.00 lacs to ₹ 10.00 lacs per annum. After considering the agriculture expenses and the house hold expenses, the net savings from Lehsun and Vegetables by the assessee is approximately ₹ 10.00 lacs per annum i.e. around ₹ 25,000/- to ₹ 30,000/- per bigha which is quite reasonable. Thus if we consider the income / savings of the assessee for the last 04 years as has been mentioned in the chart w.e.f. for A.Y. 2010-11 to Assessment Year 2013-14 then it comes to approximately ₹ 40.00 lacs and in this way by considering the income from agriculture as has been calculated in the preceding para, the bifurcation of which is ₹ 12,93,243/- from sale of agriculture crop and approximately ₹ 40.00 lacs from the sale of Lehsun and Vegetables for the last 04 years which is quite sufficient and fully explain the source of investment in the purchase of agricultural land. Assessee has fully proved on record the source of investment in the purchase of agricultural land - we direct the AO to delete the addition. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition under Section 56(2)(vii)(b)(ii) for the difference between stamp duty value and purchase value of agricultural land.
2. Addition for unexplained investment in agricultural land.

Issue-wise Detailed Analysis:

1. Addition under Section 56(2)(vii)(b)(ii) for the difference between stamp duty value and purchase value of agricultural land:
The assessee challenged the addition of ?77,74,535/- under Section 56(2)(vii)(b)(ii), arguing that the section applies only to capital assets, and since agricultural land is not a capital asset, it should not be applicable. The assessee's argument was based on the interpretation that the term "property" in the section refers to capital assets, and agricultural land situated at a distance from municipal limits does not qualify as a capital asset under Section 2(14) of the Act.

The CIT(A) had upheld the addition, interpreting that agricultural land falls under "immovable property" as per Section 56(2)(vii)(b). However, the Tribunal referred to the definition of "property" in the Explanation to Section 56(2)(vii) and concluded that only capital assets are covered under this section. The Tribunal also cited the ITAT Coordinate Bench's decision in the case of ITO vs. Shri Trilok Chand Sain, which supported the view that non-capital assets are not subject to Section 56(2)(vii)(b). Consequently, the Tribunal directed the AO to delete the addition, concluding that agricultural land does not fall under the purview of Section 56(2)(vii)(b)(ii).

2. Addition for unexplained investment in agricultural land:
The assessee contested the addition of ?38,38,739/- for unexplained investment in agricultural land. The AO had made this addition based on the discrepancy between the declared income and the investment made in agricultural land. The assessee explained that the investment was funded by agricultural income from ancestral land. The CIT(A) partially accepted this explanation, considering only 20% of the agricultural receipts as profit available for investment, thereby confirming the addition of ?38,38,739/-.

The Tribunal examined the evidence provided by the assessee, including Khasra Girdawari, sale receipts from Krishi Mandi, and affidavits, which indicated substantial agricultural income. The Tribunal found the CIT(A)'s estimation of 80% expenses on agricultural income unreasonable, noting that the assessee's family was actively involved in farming, reducing the actual expenses to around 40%. The Tribunal recalculated the agricultural income, including sales of vegetables and Lahsun, and concluded that the net savings were sufficient to explain the investment in agricultural land. Consequently, the Tribunal directed the AO to delete the addition of ?38,38,739/-.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, directing the AO to delete both the additions under Section 56(2)(vii)(b)(ii) and for unexplained investment in agricultural land. The Tribunal's decision was based on the interpretation of "property" under Section 56(2)(vii) and the thorough examination of agricultural income evidence provided by the assessee.