2018 (12) TMI 274 - AT - Income Tax

Sale of land - nature of land - exemption from income-tax on the gains arising from the sale of aforesaid land claiming the same to be agricultural land used for agricultural purposes - Onus on the assessee to prove that its case strictly falls under exemption provisions as are contained in the 1961 Act - Held that - As established rule of evidence as enshrined in Section 114(g) of the Indian Evidence Act 1872 that the evidences which could be and is not produced would if produced be unfavourable to the person who withholds it. It is incumbent on the assessee to produce all cogent evidences to substantiate and prove its case that gains arising from sale of land are exempt from income-tax. Further we are also reminded at this stage of landmark decision of Hon ble Supreme Court decision in the case of CIT v. Raja Benoy Kumar Sahas Roy 1957 (5) TMI 6 - SUPREME COURT as the forest is more than 150 years old the areas which had thus become denuded and replanted cannot be considered to be negligible. The position therefore is that the whole of the income derived from the forest cannot be treated as non-agricultural income. If the enquiry had been directed on proper lines it would have been possible for the Income-tax authorities to ascertain how much of the income is attributable to forest of spontaneous growth and how much to trees planted by the proprietors. The assessee has fairly pleaded that one more opportunity be provided to the assessee and the assessee will appear before the authorities below and file all necessary cogent evidences to prove that the said land was an agricultural land used by the assessee for agricultural purposes and the assessee is entitled for exemption from income-tax on the gains which arose on sale of the said land - we are setting aside and restoring this matter back to the file of AO for denovo framing of an assessment by afresh determination of the issue on merits - Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Natural Justice
2. Violation of Rule 46A - Additional evidence filed during appellate proceedings, rejected by the CIT(A)
3. Sale of Agricultural Land treated as Capital Assets u/s.2(14) and taxed as Short Term Capital Gain
4. Income earned from sale of Agricultural Land is a Long Term Capital Gain

Issue-wise Detailed Analysis:

1. Natural Justice:
The assessee contended that the learned Commissioner of Income Tax (Appeals) [CIT(A)] erred in confirming the order of the Assessing Officer (AO) without providing copies of documents received from the District Collector, Thane, and without giving an opportunity for cross-examination of those documents. The tribunal observed that the AO obtained documents directly from the District Collector, Thane, which were not confronted to the assessee before prejudicing the assessee by disallowing the claim of exemption from income-tax on gains arising from the sale of land. The tribunal emphasized the fundamental principle of natural justice, stating that no one should be condemned unheard, and directed the AO to furnish all documents obtained directly from the District Collector to the assessee for rebuttal.

2. Violation of Rule 46A - Additional evidence filed during appellate proceedings, rejected by the CIT(A):
The assessee filed additional evidence before the CIT(A) to substantiate its claim that the land sold was agricultural land used for agricultural purposes. These included certificates from various authorities and affidavits. However, the CIT(A) refused to admit these additional evidences citing the bar under Rule 46A of the Income-tax Rules, 1962. The tribunal, in the interest of substantial justice, directed the admission of these additional evidences for evaluation on merits, emphasizing that the powers of the CIT(A) are co-terminus with the powers of the AO.

3. Sale of Agricultural Land treated as Capital Assets u/s.2(14) and taxed as Short Term Capital Gain:
The AO observed that the land in question was not used for agricultural activities, as evidenced by the 7/12 extracts and the absence of any agricultural income reported by the assessee. The AO concluded that the land was sold for real estate development and not for agricultural purposes, and thus treated the gains from the sale as short-term capital gains. The tribunal noted that the AO did not provide the documents obtained from the District Collector, Thane, to the assessee for rebuttal, and directed the AO to furnish these documents to the assessee. The tribunal also directed the AO to admit and evaluate the additional evidence submitted by the assessee to substantiate its claim that the land was used for agricultural purposes.

4. Income earned from sale of Agricultural Land is a Long Term Capital Gain:
The assessee contended that the land was held for more than thirty-six months and should be treated as a long-term capital gain. The AO, however, considered the period from the date of the final purchase deed (16.10.2012) to the date of sale (31.10.2013) and treated the gains as short-term capital gains. The tribunal directed the AO to re-evaluate the period of holding and the nature of the land based on the additional evidence and explanations provided by the assessee.

Conclusion:
The tribunal set aside the assessment order and remanded the matter back to the AO for a de novo determination of the issue on merits, directing the AO to admit all relevant evidence and explanations submitted by the assessee and to furnish any documents obtained at the back of the assessee for rebuttal. The appeal was allowed for statistical purposes.

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