2016 (1) TMI 492 - AT - Income Tax

Capital gains - measurement of distance of land from the end of the municipal limits - agriculture land - Held that - As the capital gains worked out on transfer of lands was held justified as these lands, being non-agricultural lands, are capital assets in accordance with section 2(14) of the Act and second, that the Assessing Officer, in his remand report, rightly stated that Gunnor Town and Village Panchi Gujran have common boundary and distance measured for other lands (other than lands in question) from the office of the Tehsildar by vehicle was more than 6 kms. With these observations, the CIT(A) directed the Assessing Officer to measure the shortest possible distance of lands, other than mentioned in para 4 of the CIT(A) order, the CIT(A) in principle decided that the order of the Assessing Officer will remain upheld if the distance from municipal limit to lands is upto 2.00 kms, otherwise the same would not hold the field. The CIT(A) after laying dicta in principle, restored the issue to the file of the Assessing Officer for limited purposes of factual verification and we are unable to see any perversity or any other valid reason to interfere with the same. Before we part with the discussion on this issue, it is relevant to mention that the Assessing Officer will also take into consideration the binding Circular no. 17/2015 dated 6.10.2015 of the CBDT (supra) while verifying the facts and while applying the law in pursuance to the order of the first appellate authority. Accordingly, we uphold the conclusion of the CIT(A) with the direction to the Assessing Officer, as set out above. - Decided against revenue. Rejection of book results u/s 145(3) - Held that - CIT(A) reduced the addition without pointing out any mistake in the calculation of the Assessing Officer and without recording any findings regarding conclusion of the Assessing Officer which is an incorrect approach for a first appellate authority. We, therefore, are of the opinion that this issue requires afresh adjudication at the end of the CIT(A) and hence, we restore this ground to the file of the CIT(A) for re-adjudication on this sole issue. Needless to say that the CIT(A) shall provide due opportunity of hearing to the assessee and shall decide the issue without being prejudiced from his earlier order and our observations in this order. Accordingly, ground of the revenue is deemed to be allowed for statistical purposes.

Summary

Issues Involved:
1. Restriction of addition to business profits.
2. Measurement of the shortest possible aerial distance of land for capital gains purposes.
3. Justification for invoking section 145(3) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Restriction of Addition to Business Profits:
The revenue challenged the CIT(A)'s decision to restrict the addition to business profits to Rs. 10,00,000 as opposed to Rs. 41,90,024 made by the Assessing Officer (AO). The AO had calculated the business income by adding the surrendered amount of Rs. 85,10,000 (pertaining to cash in hand and excess stock) to the gross profit (GP) rate of 2.90% of the turnover. The CIT(A) upheld the AO's rejection of the books of accounts under section 145(3) but reduced the addition without providing a clear rationale. The tribunal noted that the CIT(A) granted relief without pointing out any calculation mistakes or other allegations against the AO's action. Consequently, the tribunal restored the issue to the CIT(A) for re-adjudication, emphasizing the need for a detailed factual analysis and providing the assessee an opportunity for a hearing.

2. Measurement of the Shortest Possible Aerial Distance of Land:
The revenue contested the CIT(A)'s direction to the AO to measure the shortest possible aerial distance of the land from the Gunnor Municipal Limits. The AO had initially considered the land within 2 Kms from the municipal limits as capital assets, thus subject to capital gains tax. The CIT(A) upheld the AO's findings for certain lands but directed the AO to re-measure the shortest aerial distance for other lands. The tribunal supported the CIT(A)'s decision, noting that the AO should consider the CBDT Circular No. 17/2015, which clarifies that the distance should be measured aerially for assessment years 2014-15 and onwards, and by road for earlier periods. The tribunal found no perversity in the CIT(A)'s order and dismissed the revenue's ground on this issue.

3. Justification for Invoking Section 145(3) of the Income Tax Act:
The AO invoked section 145(3) of the Income Tax Act, rejecting the assessee's trading results due to discrepancies found during a survey, including excess stock and cash. The CIT(A) upheld this invocation, observing that the assessee failed to justify the steep rise in various expenses and did not produce documentary proof of expenses. The tribunal noted that the assessee did not challenge the CIT(A)'s decision on this matter. The tribunal found the AO's calculation of business income logical, based on the GP rate of 2.90% of the turnover and the addition of the surrendered amount. However, the CIT(A) reduced the addition to Rs. 10,00,000 without a clear basis, leading the tribunal to remand the issue to the CIT(A) for a fresh adjudication, ensuring a detailed analysis and opportunity for the assessee to present their case.

Conclusion:
The tribunal partly dismissed the revenue's appeal on the issue of measuring the shortest possible aerial distance of land (Ground No. 1) and partly allowed it for statistical purposes on the issue of restricting the addition to business profits (Ground No. 2). The CIT(A) is directed to re-adjudicate the latter issue, providing a detailed factual analysis and an opportunity for the assessee to be heard.