2023 (4) TMI 101 - AT - Income Tax

Correct head of income - Business Income or capital gain - Deduction u/s 54F denied - as per DR assessee s income should be assessable under the head Business Income instead of under the head Capital Gain and consequently, the deduction claimed by the assessee under section 54F of the Act, should not be allowed - HELD THAT - We note that assessee was farmer for six years and he sold the land due to compulsion and pressure since, government made a Road in the assessee s land. The assessee was holding the land as an investment activity / portfolio. We observed that a Road was passed from the land, and the assessee was allotted two final plots being Final Plot No.61/A and Final Plot No.61/B. Since the government Road was passed from the assessee s land and therefore assessee was allotted two final plots. So, assessee cannot do agricultural activities on different plots, as it was inconvenient for him, therefore assessee decided to sale the land, due to compulsion, hence assessee cannot be treated as a trader in land and therefore his income cannot be assessed under the head Business Income . Hence, these above facts prove, that intention of the assessee is to hold the land as Capital Assets, therefore, we direct the assessing officer to assess the assessee s transaction under the head capital gain. Thus, ground No.1 raised by the assessee is allowed. Deduction u/s 54F - Since, we have allowed ground no.1 of the assessee, holding the assessee s transaction falls under the head capital gain, therefore assessee is entitled to claim the deduction under section 54F - Since, all the conditions of section 54F of the Act are satisfied, the assessee is entitled for deduction under section 54F . Addition u/s 68 - unexplained cash credit - Onus to prove - HELD THAT - Once the assessee had produced all documents establishing the identity and capacity of creditors and genuineness of transactions, the initial onus cast upon the assessee was discharged and the onus shifted to the assessing officer to bring material on record to the effect that in spite of identity and creditworthiness of the creditor being proved, the transaction was still not genuine. However, the Assessing Officer has not made any further inquiries and has not brought any material on record to controvert the documentary evidence submitted by the assessee. Therefore, considering the legal and factual matrix of the case, as stated above, we delete the addition. Decided in favour of assessee.

Summary

Issues Involved:

1. Taxation of gain from the sale of land as business income vs. Long Term Capital Gain.
2. Deduction under section 54F of the Income Tax Act.
3. Addition under section 68 of the Income Tax Act for unexplained cash credits.

Issue 1: Taxation of Gain from Sale of Land

The primary issue was whether the gain from the sale of land should be taxed as business income or as Long Term Capital Gain (LTCG). The assessee argued that the land was held as a capital asset and not as stock-in-trade. The assessee had been engaged in agricultural activities and had not indulged in the business of buying and selling land. The land was converted into non-agricultural land due to the implementation of a town planning scheme, and a portion was transferred to a partnership firm as a capital contribution. The Assessing Officer (AO) treated the gain as business income, which was upheld by the CIT(A). However, the Tribunal concluded that the land was held as a capital asset and directed the AO to assess the gain under the head "capital gain."

Issue 2: Deduction under Section 54F

The assessee claimed a deduction under section 54F for investment in a residential unit out of the sale proceeds of the land. The AO and CIT(A) disallowed the deduction, treating the gain as business income. The Tribunal, having held that the gain should be assessed as capital gain, allowed the deduction under section 54F. The assessee had invested Rs. 40,00,000 in a residential house, and all conditions for the deduction were satisfied.

Issue 3: Addition under Section 68 for Unexplained Cash Credits

During the assessment proceedings, the AO made an addition of Rs. 15,00,000 under section 68 for unexplained cash credits. The AO issued notices to eight parties from whom the assessee had taken unsecured loans. One party denied the transaction, and another did not respond. The CIT(A) confirmed the addition. The Tribunal noted that the assessee had provided sufficient evidence to establish the identity, creditworthiness, and genuineness of the transactions. The onus then shifted to the AO, who failed to bring material on record to disprove the assessee's claims. Consequently, the Tribunal deleted the addition.

Conclusion:

The Tribunal allowed both appeals filed by the assessee, directing the AO to assess the gain from the sale of land under the head "capital gain" and to allow the deduction under section 54F. The addition under section 68 was also deleted.