2022 (4) TMI 1624 - AT - Income Tax

Assessment u/s 153A - incriminating materials found during the course of search and the Assessment was completed purely on the basis of change of opinion and not on the search materials - HELD THAT - There were valid seized material so as to frame assessment for the AY.2010-11 to 2014-15. Hence, it cannot be said that there is no seized material so as to frame assessment u/s.143(3) r.w.s.153A of the Act. Accordingly, placing reliance on the above judgment of Delhi International Airport 2021 (11) TMI 928 - KARNATAKA HIGH COURT We uphold the framing of assessment in these assessment years. This ground of appeal in all these assessment years is dismissed. Correct head of income - Nature of land sold - Treating the net consideration received on sale of agricultural land as business income though the assessee has declared agricultural income, which is exempt income u/s 2(14) - this impugned land is situated beyond 8 Kms of the any municipal limits - only reason by AO to treating the income generated from sale of land is that the assessee has been continuously buying and selling the agricultural land and on this count, he treated the income generated on sale of these lands as business income of the assessee - HELD THAT - There is no dispute that the assessees acquired agricultural land. There is also no dispute that there was agricultural operation in this land before sale of this land. AO was of the opinion that the amount received on sale of this agricultural property is nothing but on account of adventure in the nature of trade and the same was brought into income from business. In this case, the assessee held the land always as investment and not at all converted into stock- in-trade. The character of the land in the hands of the assessees has not changed. There is no material on record to show that the assessee carried on activities of buying and selling of land in a systematic manner so as to justify the action of the AO in treating the activities of the assessee as adventure in the nature of trade. The land was sold by the assessees in acreage and not by making plots. Whether a land is agricultural land or not is essentially a question of fact - The question has to be answered in each case having regard to the facts and circumstances of that case. There may be factors both for and against a particular point of view. We have to answer the question on a consideration of all of them, a process of evaluation and the inference has to be drawn on a cumulative consideration of all the relevant facts. It may be stated here that not all the factors or tests would be present or absent in any case and that in each case one or more of the factors may make appearance and that ultimate decision will have to be reached on a balanced consideration of the totality of the circumstances. The expression 'agricultural land' is not defined in the Act, and now, whether it is agricultural land or not has to be determined by using the tests or methods laid down by the Courts from time to time. Adverting to the facts of the present case, the land in question is classified in the Revenue records as agricultural land and there is no dispute regarding this issue and actual cultivation has been carried on this land and income was declared from this land in the return of income filed by the assessee for the earlier years as agricultural income. It is also an admitted fact that the AO has not brought on record any evidence to show that the agricultural land was used for nonagricultural purposes and the assessee has not put the land to any purposes other than agricultural purposes. It is also an admitted fact that neither the impugned property was subject to any developmental activities at the relevant point of time of sale of the land. The presumption may be rebutted. In the present case, considering the facts and circumstances of the case it cannot be considered as an adventure in the nature of trade. The intention of the assessee from the inception was to carry on agricultural operations and even there was no intention to sell the land in future at that point of time. It was due to the boom in real estate market came into picture at a later stage, the assessee has sold the land. Merely because of the fact that the land was sold for profit, it cannot be held that income arising from the sale of land was taxable as profit arising from the adventure in the nature of trade. The period of holding should not suggest that the activity was an adventure in the nature of trade. When the land which does not fall under the provisions of section 2(14)(iii) of the IT Act and an assessee who is engaged in agricultural operations in such agricultural land and also being specified as agricultural land in Revenue records, the land is not subjected to any conversion as non-agricultural land by the assessee or any other concerned person, transfers such agricultural land as it is and where it is basis, in such circumstances, in our opinion, such transfer like the case before us cannot be considered as a transfer of capital asset or the transaction relating to sale of land was not an adventure in the nature of trade so as to tax the income arising out of this transaction as business income. Accordingly, the ground of appeal raised by the assessee is allowed.

Issues Involved:
1. Validity of notice issued under Section 153A of the Income Tax Act.
2. Legality of proceedings under Section 153A due to absence of incriminating materials.
3. Treatment of net consideration received on the sale of agricultural land as business income.

Detailed Analysis:

1. Validity of Notice Issued Under Section 153A:
The first common ground in all appeals concerns the validity of the notice issued under Section 153A of the Income Tax Act on 10-07-2015. The assessee did not press this ground after finding the notice, leading to its dismissal as not pressed.

2. Legality of Proceedings Under Section 153A:
The second issue challenges the proceedings under Section 153A on the grounds that no incriminating materials were found during the search. The search conducted on 09-10-2014 resulted in the seizure of various documents, including loose sheets, sale deeds, and agreements related to land transactions. The assessee argued that the assessment was based on a change of opinion rather than search materials and cited several legal precedents to support this claim. However, the tribunal found that there were valid seized materials to frame the assessment under Section 153A, referencing the case of PCIT Vs. Delhi International Airport. Consequently, the tribunal upheld the framing of assessments for the relevant assessment years, dismissing this ground of appeal.

3. Treatment of Net Consideration from Sale of Agricultural Land:
The third issue pertains to the treatment of net consideration received from the sale of agricultural land as business income. The assessee declared the income from the sale of agricultural land as exempt agricultural income under Section 2(14) of the Act. The Assessing Officer (AO) treated this income as business income, arguing that the assessee was engaged in continuous buying and selling of land, which constituted a business activity. The tribunal reviewed the facts and found that the land was classified as agricultural in the revenue records, and there was no intention to convert it into non-agricultural land. The tribunal cited various legal precedents to support the view that the sale of agricultural land, held as an investment and not converted into stock-in-trade, should be treated as agricultural income. Consequently, the tribunal allowed this ground of appeal, ruling that the income from the sale of agricultural land should be treated as agricultural income and not business income.

Additional Grounds:
The tribunal found that several additional grounds in various assessment years became infructuous due to the decision to treat the income from the sale of agricultural land as agricultural income. These grounds were dismissed as infructuous.

Conclusion:
The appeals were partly allowed, with the tribunal ruling in favor of the assessee on the treatment of income from the sale of agricultural land. The order was pronounced in the open court on 11th April 2022.

← Previous Next →