2019 (3) TMI 281 - AT - Income Tax

Short term capital gain on sale of land - nature of land sold - CIT-A deleting the addition treating the land as agricultural land - fair market value of the property - invoking provisions of section 50C - HELD THAT - Sub divisional magistrate has held that the plot sold by the assessee are agricultural land. According to us, this fact has not relevance. What is relevant is what is the fair market value of the property that has been sold by the assessee as per the circle rate. CIT appeal has not at all considered it and proceeded to delete the addition on altogether irrelevant considerations. We set aside the whole issue back to the file of the learned assessing officer with a direction to the assessee to show what is the fair market value of the property sold by the assessee as per the circle rate. Such circle rate is required to be adopted as the net sale consideration and resultant computation of capital gain is required to be made. The learned AO may also enquire the same to the registering authority. Revenue Appeal allowed for statistical purposes. Treatment of agricultural income shown by the assessee as income from other sources - CIT-A has deleted the whole addition as AADHAR card or Voter identification has been given by those persons - HELD THAT - There is no concrete finding about the difference between the agricultural produce. He also did not examine the facts that how the persons of such a small mean could have given the rent in advance to the assessee. He also did not gave any finding that the amount of rent paid by the other person is out of borrowings and what could have been the sources of borrowing by that person to pay such a huge rent to the assessee. He merely believed the written submission of the assessee for deleting the addition. Therefore, we do not find that on the facts stated by the learned assessing officer the addition deserves to be deleted. We further fully agree with DR that the learned assessing officer should have made the addition as unexplained credit u/s 68 but the learned assessing officer under the mistake has made the addition as income from other sources. We are not concerned with it and now we cannot correct it also. No infirmity in the order of AO in treating the above income as income from other sources and certainly not as an agricultural income. We confirm the action of the AO in holding that agricultural income shown by the assessee is income from other sources. We reverse the order of the CIT appeal and restore the order of the learned assessing officer; consequently, ground number 2 of the appeal of the revenue is allowed.

Summary

Issues Involved:
1. Deletion of addition on account of short-term capital gain on sale of land.
2. Deletion of addition on account of income from other sources instead of agricultural income.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Short-Term Capital Gain on Sale of Land:

The revenue contested the deletion of ?1,90,03,658/- made by the Assessing Officer (AO) on account of short-term capital gain on the sale of land. The AO treated the land as industrial land based on a notification by the Delhi Government, invoking the provisions of Section 50C of the Income Tax Act. The AO adopted the circle rate for industrial land, resulting in the computation of short-term capital gain instead of the short-term capital loss disclosed by the assessee.

The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, citing several reasons:
- The land was not categorized as industrial land as per government records on the date of sale.
- The area was not notified as an industrial area at the time of sale.
- The AO referred to a notification dated 23/3/2015, which was not applicable to the sale in April and May 2010.
- The property transfer was executed through an unregistered agreement, making Section 50C inapplicable.
- The AO did not make inquiries from the purchaser about the actual sale consideration.
- Adjoining plots were held as agricultural land by the Sub-Divisional Magistrate.
- The assessee calculated capital gain as per the provisions of the Act.

The Tribunal noted that the CIT(A) ignored the amendment to Section 50C effective from 01/10/2009, which mandates substituting the sale price with the fair market value if it exceeds the declared consideration. The Tribunal found the CIT(A)'s reasons irrelevant for computing short-term capital gain and set aside the issue back to the AO to determine the fair market value as per the circle rate and compute the capital gain accordingly. Thus, the revenue's appeal on this ground was allowed with directions.

2. Deletion of Addition on Account of Income from Other Sources Instead of Agricultural Income:

The AO treated ?22,00,000/- shown as agricultural income by the assessee as income from other sources. The AO found discrepancies in the statements of the parties from whom the assessee claimed to have received the rent. The parties were of small means and denied paying such a huge amount as advance rent. The AO concluded that the income could not be agricultural rent and treated it as income from other sources.

The CIT(A) deleted the addition, stating that the assessee provided agricultural produce certificates and identity proofs of the parties. The CIT(A) held that the AO did not bring adverse evidence against the assessee's claim during the assessment.

The Tribunal found that the CIT(A) ignored the AO's detailed examination and the parties' statements. The CIT(A) did not substantiate the genuineness of the rent received or the capacity of the parties to pay such rent. The Tribunal agreed with the AO's findings and reversed the CIT(A)'s order, restoring the AO's treatment of the income as income from other sources. The Tribunal also noted that the AO should have made the addition under Section 68 as unexplained credit but upheld the AO's treatment of the income. Thus, the revenue's appeal on this ground was allowed.

Conclusion:

The Tribunal allowed the revenue's appeal, setting aside the CIT(A)'s order on both grounds and restoring the AO's findings. The AO was directed to re-compute the short-term capital gain based on the fair market value as per the circle rate and treat the disputed income as income from other sources. The order was pronounced in the open court on 28/02/2019.