2014 (7) TMI 519 - AT - Income Tax

Restriction of agriculture income AO treated the income as business income - Held that - No basis has been spelt out by the AO to arrive at the conclusion that out of the total income declared by assessee, part of the income was business income - no enquiry was made by the AO either by himself or through the inspectors to verify and examine the land holding of the Assessee, the nature of crops cultivated on the land, whether the land was irrigated or what were the facilities available for irrigating the land, the yield of the land during the relevant period - no enquiry with Surpanch or Patwari or any other Revenue Authority was made either by AO or CIT(A) nor the Revenue records were called for to ascertain yield of crops and the factual position - the details like the land holding under agriculture, nature of irrigation facilities on the land, the crops grown on the land in the relevant period, record of crops grown in the Revenue records needs to be verified thus, the matter is remitted back to the AO for examination Decided in favour of Revenue. Treatment of tax of the profit earned on sale of land - Business income or capital gains - Held that - Assessee has claimed deduction u/s. 80IB of the Act for the development of housing projects meaning thereby that the Assessee was engaged in the business of development of housing projects in those years. - A.O has rightly treated the profit from sale of land bearing plot no 91 as business income . - Decided against the assessee. Profit of sale of land not disclosed in the books of accounts - Held that - The submission of the Assessee that the non recording of land in the individual balance sheets was on account of mistake in accounting was also not accepted by CIT(A). Before us the Assessee could not demonstrate as to how the mistake continued for so many years more so, when the accounts of the firm and the Assessee were audited year after year. - taxable as business income - Decided against the assessee. Addition u/s. 41(1) of the Act - Advance received against land sale - A.O as of the view that when the deed of conveyance proved that the transaction was over and each party had taken over the possession of property/consideration, the liability of ₹ 1,27,83,333/- ceased to exist. - revenue submitted that, CIT(A) has wrongly presumed that against the liability, Assessee would have received the amount and such amount would have been offered for tax as there was no material for arriving at such conclusion. He therefore submitted that in the absence of any evidence, A.O has rightly made the addition. - Held that - the order of the CIT(A) needs to be re-examined, thus, the matter is remitted back for the fresh adjudication - Decided in favour of Revenue.

Summary

Issues Involved:
1. Treatment of agricultural income.
2. Treatment of income from sale of land as business income or capital gains.
3. Addition under Section 41(1) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Treatment of Agricultural Income:

The first issue pertains to the treatment of agricultural income declared by the assessee. The Assessing Officer (AO) noticed discrepancies in the bills and vouchers provided by the assessee to substantiate the agricultural income and concluded that part of the income should be treated as business income. The CIT(A) deleted the addition made by the AO, noting that the assessee had been accepted as an agriculturist in earlier years and the claim appeared reasonable based on the agricultural land shown in the balance sheet. However, the Tribunal found that the AO did not conduct sufficient inquiries to verify the landholding, nature of crops, irrigation facilities, or consult revenue records. Therefore, the matter was remitted back to the AO for a thorough examination and verification of the agricultural income claims.

2. Treatment of Income from Sale of Land:

The second issue revolves around whether the income from the sale of land should be treated as business income or long-term capital gains. The AO treated the income from the sale of various pieces of land as business income, citing that the assessee was involved in converting agricultural land to non-agricultural land and selling it, which constituted an adventure in the nature of trade. The CIT(A) granted partial relief by treating the sale of one piece of land (Survey No. 91) as capital gains, noting it was inherited and held for over 20 years, while confirming the AO's treatment of other lands (Survey Nos. 287 and 485) as business income. The Tribunal upheld the AO's and CIT(A)'s findings, emphasizing that the assessee's activities were consistent with business operations, especially given the land was shown as stock-in-trade in the firm's balance sheet and the assessee had claimed deductions under Section 80IB in earlier years, indicating involvement in real estate development.

3. Addition under Section 41(1):

The third issue relates to the addition made under Section 41(1) concerning the liability of Rs. 1,27,83,333 shown as "advance received against land sale." The AO added this amount to the total income, asserting that the liability ceased to exist once the sale deed was executed and consideration received. The CIT(A) deleted the addition, presuming that the amount received was already offered for tax. However, the Tribunal found that the CIT(A) did not provide a detailed reasoning or call for a remand report from the AO. Consequently, the matter was remitted back to the CIT(A) for a fresh examination, directing the CIT(A) to obtain a remand report from the AO and verify if the amount was indeed offered for tax.

Conclusion:

The Tribunal's judgment addressed the issues comprehensively by remitting the matter of agricultural income back to the AO for detailed verification, upholding the treatment of income from land sales as business income for certain properties, and remitting the issue of addition under Section 41(1) back to the CIT(A) for a detailed examination. The appeals of the Revenue were partly allowed for statistical purposes, and the appeals of the assessee were dismissed.