2019 (1) TMI 693 - AT - Income Tax

Gain arising on the sale of land - to be taxed as business income - intention of the assessee to procure the land for investment or to sale it at higher profit - physical proof regarding the agricultural nature of the land - Held that - Transaction in sale of land as business transaction, is only on intention of the assessee not to keep the land as investment but to acquire the same, clear encumbrances and sell the same at higher profit which therefore, is business motive of the assessee. It is also asserted by the CIT(Appeal) that the land sold to Manhar Resort Pvt. Ltd and therefore, the land was not in the nature of investment but for business motive transaction. Nothing in coming out from the order of CIT(Appeal) wherein he has brought out any specific reasons regarding statement made in the order. There is no enquiry or factual verification done by the Ld. CIT(Appeal) to ascertain the nature and character of land and whether it could be called as agricultural land in terms of continuous agricultural activities, if at all undertaken. Similarly, the Ld. AR of the assessee submitted that even at present the land is used for agricultural purposes and all throughout, they have shown it as investment in their books of account and agricultural income is also shown in the return of income. We had put a question to the AR whether they have any physical proof regarding the agricultural nature of the land and that as on date whether still it is agricultural land. To which, Ld. AR stated as instructed by the assessee, it is still agricultural land and there is no construction of resort or anything like that on the said land. We find that the power of the Ld. CIT(Appeal) is coterminous with that of the AO. CIT(Appeal) should have called for Inspector s report after sending Inspector for spot verification and taking details about the land. It should come out from facts on record that continuously agricultural activities were carried on the said land and if revenue is having doubt it should bring evidences on record. Similarly specific verification needs to be conducted to verify whether actual intention of the assessee was to procure the land for investment or to sale it at higher profit. These things are not clear from the order of CIT(Appeal). Therefore, the issue requires detailed verification - restore the matter to the file of Assessing Officer to make detailed verification and re-adjudicate the matter after providing reasonable opportunity of hearing to the assessee. - Decided in favour of assessee for statistical purposes.

Summary

Issues involved: Whether gain from the sale of land is to be taxed as 'business income' in the hands of the assessee.

Detailed Analysis:

Issue 1: Nature of the Land
- The assessee claimed the land was agricultural, beyond 8 Kms from municipal limits.
- Assessee relied on legal precedents for determining land's character.
- CIT(Appeal) analyzed the dispute and found discrepancies in the claim.
- CIT(Appeal) noted the land was in forest zone, not used for agriculture.
- CIT(Appeal) observed the land was ideal for a Tourist Resort Complex.
- CIT(Appeal) concluded the land was acquired for business, not investment.

Issue 2: Treatment as Investment
- Assessee argued land was always shown as agricultural in accounts.
- Assessee maintained no commercial activity on the land.
- Revenue contended land was sold to a resort, not solely for agriculture.
- CIT(Appeal) rejected the claim of agricultural land based on intentions.
- CIT(Appeal) cited Supreme Court ruling that book entries not decisive for taxation.

Issue 3: Lack of Factual Verification
- CIT(Appeal) did not conduct detailed factual verification.
- Assessee claimed land still used for agriculture, no construction.
- Tribunal found lack of evidence to ascertain continuous agricultural activities.
- Tribunal suggested physical verification and detailed investigation needed.

Judgment:
- Tribunal set aside CIT(Appeal) orders, directing Assessing Officer to verify facts.
- Orders in favor of the assessee for statistical purposes.
- Both appeals allowed for statistical purposes, restoring the matters for further verification.

This judgment highlights the importance of factual verification in determining the tax treatment of land transactions, emphasizing the need for clear evidence to support claims and intentions regarding land use and character.