2021 (3) TMI 587 - AT - Income Tax

Nature of land sold after plotting - Agriculture land or not - Adventure in the nature of trade - CIT(A) observed that, the assessee has not been able to establish that land was purchased with an intention of carrying out agricultural activity - CIT(A) further observed that purchase and subsequent sale of land after splitting it into flats is adventure in the nature of trade and income derived there from is to be taxed as business income. - HELD THAT - Land in question has been classified in revenue records as agricultural land and it was fit for agricultural operations. Merely for the reason that no agricultural operations was carried out during the period and subsequent use of land for non-agricultural operations by the purchaser, cannot change characteristic of the land being agricultural land as nonagricultural land . Therefore, we are of the considered view that the Assessing Officer as well as learned CIT(A) were erred in coming to the conclusion that profit derived from sale of land is assessable under the head income from business or profession. Additions deleted.

Issues Involved:
1. Validity and fairness of the CIT(A) order.
2. Consideration of written submissions by CIT(A).
3. Adjudication on disallowance of electricity tax and charges.
4. Taxability under "Adventure in the nature of Trade."

Detailed Analysis:

1. Validity and Fairness of the CIT(A) Order:
The assessee contended that the CIT(A) order was "bad and erroneous in law and against the principles of natural justice." The Tribunal examined whether the CIT(A) had properly considered the written submissions and evidence provided by the assessee. It was found that the CIT(A) had endorsed the views of the Assessing Officer (AO) without adequately addressing the evidence and arguments presented by the assessee.

2. Consideration of Written Submissions by CIT(A):
The assessee argued that the CIT(A) failed to consider the written submissions properly. The Tribunal noted that the CIT(A) did not give due weight to the evidence showing the land as agricultural in nature. The Tribunal emphasized that the land was consistently shown as agricultural in the balance sheet and supported by revenue records and an agricultural scientist's certificate.

3. Adjudication on Disallowance of Electricity Tax and Charges:
The Tribunal observed that the CIT(A) did not adjudicate on the disallowance of electricity tax and charges. This issue was raised in the grounds of appeal but was not addressed in the CIT(A) order. The Tribunal found this to be a significant oversight, indicating a lack of comprehensive consideration of the assessee's appeal.

4. Taxability Under "Adventure in the Nature of Trade":
The core issue was whether the profit from the sale of land should be taxed as business income under "adventure in the nature of trade" or be exempt as agricultural income. The AO argued that the land was purchased for real estate development, not for agricultural purposes, citing factors such as the lack of agricultural activities, the land's unsuitability for agriculture, and the assessee's real estate activities.

The Tribunal analyzed several aspects:
- Nature of Land: The land was classified as agricultural in revenue records and was situated beyond 8 km from the nearest municipality, making it non-capital as per Section 2(14) of the Income Tax Act.
- Purpose of Purchase: The assessee provided evidence, including a certificate from an agricultural scientist and correspondence with a bank, indicating the intention to use the land for agricultural purposes.
- Subsequent Use: The Tribunal held that the subsequent commercial use of the land by the purchaser does not alter its agricultural nature at the time of sale.
- Legal Precedents: The Tribunal referred to several judicial precedents, including decisions from the Hon'ble Supreme Court and High Courts, which supported the assessee's position that the land's agricultural classification and intended use at the time of sale are crucial.

The Tribunal concluded that the assessee's intention was to use the land for agricultural purposes, and the land's classification as agricultural was supported by substantial evidence. Therefore, the profit from the sale of the land should not be taxed as business income but considered exempt as agricultural income.

Conclusion:
The Tribunal allowed the assessee's appeal, directing the AO to delete the additions made towards the profit from the sale of land as income from business or profession. The order pronounced on 10th March 2021 emphasized that the land's agricultural nature and the assessee's intention for agricultural use were adequately proven, and the subsequent commercial use by the purchaser was irrelevant for tax purposes.

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