2020 (9) TMI 870 - AT - Income Tax

MAT Computation - adding capital gains arsing out of sale of agricultural land for the purpose of computing book profit u/s. 115JB - AO treated the agricultural land as capital asset u/s. 2(14)(iii) and income arising out of transfer of such land under the head Long-term Capital gains - HELD THAT - Land that was sold was located in village Kishora, which is more that 8 kms away from municipal limits and the profits earned on sale of such land are exempt u/s. 10. Provisions of section 115JB(2)(k)(ii) provide that the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply, shall be reduced from computation of book profit, if any such amount is credited to the statement of profit and loss. Assessee computed the book profits while crediting thesale consideration of agricultural land to the profit and loss account and offered thesame to tax. Obviously, it is a mistake. In view of the decision of Shelly Products 2003 (5) TMI 4 - SUPREME COURT such a mistake has to be rectified by the Revenue Authorities when it is brought to their notice and they are satisfied with the genuineness of the claim. Therefore, when the ld. CIT(A) is satisfied that the income which is exempt u/s. 10 of the Act is included in the book profit u/s. 115JB, which should not be done, the ld. CIT(A) is justified in directing Assessing Officer to follow the law and to compute the tax in accordance with provisions of section 115JB by reducing the amount of income to which section 10 applies, if such amount is credited to the profit and loss account. The action of the ld. CIT(A) is perfectly legal and does not suffer any infirmity. We see no ground to interfere with the same. - Decided against revenue.

Summary

Issues:
Adding capital gains from the sale of agricultural land to compute book profit under section 115JB of the Income-tax Act, 1961.

Analysis:
The Revenue challenged an order regarding the addition of capital gains from the sale of agricultural land to compute book profit under section 115JB for the assessment year 2009-10. The Assessing Officer added the profits from the sale of land to the income, which the assessee claimed as exempt under section 10 of the Act. The CIT(A) allowed the assessee's contention, considering the land's location more than 8 Kms away from the Municipal limits. The CIT(A) directed the Assessing Officer to compute tax by reducing the exempt income from book profits as per section 115JB(2)(k)(ii) of the Act.

The Revenue contended that the CIT(A) exceeded authority by granting relief when the assessee already offered the income for tax. However, the assessee argued that profits from the sale of agricultural land are exempt under section 10 and should be excluded from book profits under section 115JB. The Tribunal noted that the land sold was indeed exempt under section 10 and upheld the CIT(A)'s direction to reduce the exempt income from book profits.

The Tribunal referred to the Supreme Court's decision in a similar case, emphasizing that mistakes in including exempt income in book profits should be rectified by Revenue Authorities. Therefore, the CIT(A)'s decision to direct the Assessing Officer to compute tax by reducing the exempt income from book profits was deemed legally justified. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s findings as legally sound and without merit.