2021 (4) TMI 165 - AT - Income Tax

Profit derived from sale of land - lands sold by AOP at Vellore - AO assessed profit derived from sale of land under the head income from business or profession on the sole basis of survey report received from Office of the Income Tax Officer, Vellore in the case of M/s. Kumaran Real Estate Builders, Vellore as an AOP - HELD THAT - AO having accepted the fact that assessee is not a member of AOP, ought to have verified the income declared under the head long term capital gain with reference to lands sold by her in her individual capacity by ascertaining the fact that whether the assessee has sold lands as part of AOP or not. In case, lands sold by the assessee are not part of activity of AOP, but are independent lands, then assessability of profit from sale of lands should be independently examined without any influence from survey report in the case of M/s. Kumaran Real Estate Builders, Vellore, because assessment of AOP and its members were made solely based on the findings of the survey and statement recorded from the members during the course of survey. Assessing Officer has arrived at a conclusion that income derived by assessee from sale of lands is assessable under the head income from business or profession without carrying out an independent enquiry with regard to land sold by the assessee. Hence, we are of the considered view that the issue needs to go back to the file of Assessing Officer for both assessment years to ascertain the fact with regard to the land sold by the assessee in her individual capacity to determine nature of income and assessability of such income under the head income from business or profession or capital gains. Hence, we set aside both appeals to the file of the Assessing Officer and direct him to reconsider the issue in light of various evidences filed by the assessee including settlement deed executed in favor of M/s. Sri Kumaran Educational Charitable Trust and to ascertain nature of income declared by the assessee under the head income from long term capital gains. Appeal allowed for statistical purposes.

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Classification of income from the sale of land: whether it should be considered as income from business or profession or as long-term capital gains.
3. Assessment of the appellant's involvement in the activities of an AOP (Association of Persons).

Detailed Analysis:

1. Condonation of Delay:
The appeal filed by the assessee was barred by a limitation of 2 days. The assessee submitted a petition for condonation of delay along with an affidavit explaining the reasons for the delay. After hearing both sides, the tribunal found the reasons provided by the assessee to be reasonable and condoned the delay, admitting the appeal for adjudication.

2. Classification of Income from Sale of Land:
The primary issue was whether the income derived from the sale of land should be classified as income from business or profession or as long-term capital gains. The assessee had not filed her return of income for the assessment years 2011-12 and 2012-13. A survey conducted under Section 133A of the Act at the premises of M/s. Kumaran Real Estate & Builders led to the reopening of assessments. The Assessing Officer (AO) concluded that the assessee was involved in systematic business activity of purchase and sale of lands, and thus, the profit derived should be assessed under the head "income from business or profession." The AO supported this conclusion with findings from the survey and admissions made by Mr. P.S. Mani, a member of the AOP.

The assessee contested this, arguing that she was not a member of the AOP and that the lands sold by her were different from those sold by the AOP. She claimed that the profits should be assessed under the head "long-term capital gains" as the lands were sold in her individual capacity as an investment activity. The CIT(A) upheld the AO's decision, stating that the role played by the assessee in the real estate business was similar to that of other associates whose income was assessed as business income.

3. Assessment of Appellant's Involvement in AOP Activities:
The AO and CIT(A) based their findings on the survey report and statements recorded from members of the AOP, concluding that the assessee was involved in the real estate business. The assessee argued that the lands sold by her were for charitable purposes and different from those sold by the AOP. She provided evidence, including a settlement deed executed in favor of Sri Kumaran Educational & Charitable Trust, to support her claim.

The tribunal found that the AO should have independently verified the lands sold by the assessee and not solely relied on the survey report and statements from the AOP members. The tribunal noted that if the lands sold by the assessee were different from those sold by the AOP, the profits should be assessed independently.

Conclusion:
The tribunal concluded that the AO had not conducted an independent inquiry to ascertain the nature of the lands sold by the assessee. Therefore, the tribunal set aside the appeals for both assessment years and directed the AO to reconsider the issue, taking into account the evidence provided by the assessee, including the settlement deed. The appeals were allowed for statistical purposes, and the AO was instructed to determine the nature of the income and its assessability under the appropriate head.

Order Pronouncement:
The order was pronounced in the open court on 19th March 2021.

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