2019 (10) TMI 1166 - AT - Income Tax

Nature of land sold - agricultural land - unexplained investment u/s.69 - HELD THAT - Land was an agricultural land as agricultural operations were duly carried on by assessee on the said land at the time of transfer/sale . It is already stated on oath by learned VAO based on government records as well evidenced through various government records produced by assessee that agricultural operations were carried on in that land when the transfer/sales took place. VAO also confirmed based on government records that there was standing crops of sugarcane, ground nut and paddy and ₹ 500/- was collected as land Revenue. VAO stated that there were three submersible pump sets for irrigating the lands. This contention of the assessee also stood accepted on the touchstone of preponderance of probabilities that the consideration received over and above the sale consideration of ₹ 1.91 crores mentioned in agreement to sale dated 07.01.2008 was towards standing crops. So far as whether the assessee is entitled for exemption on sale of aforesaid agricultural land within the provisions of Section 10(37) read with Section 2(14)(iii) we are of the considered view that this issue requires re-consideration by AO who shall adjudicate this issue afresh after making proper enquiries and verifications with local authorities and of the area where the said property was situated and such enquiries/verifications as the AO may consider necessary so as to arrive at conclusion whether said land is capital asset as defined u/s 2(14) exigible to tax or is entitled for exemption from tax u/s 10(37) We remit this issue back to the file of the AO for fresh determination after making necessary enquiries and verifications so as to determine whether or not the said land is eligible for exemption from capital gains under the provisions of the 1961 Act or is exigible to capital gains tax. The assessee is directed to produce all relevant evidences /material in support of its contention that capital gains earned from sale of said land are exempt from income-tax within four corners of provisions of the 1961 Act, which evidences/material shall be admitted by the AO in the interest of justice and thereafter adjudicated on merits in accordance with law. Needless to say that the AO shall give proper and adequate opportunity of being heard to the assessee in accordance with principles of natural justice in accordance with law in the denovo assessment proceedings.

Issues Involved:
1. Validity of the reopening of assessment under Section 147/148 of the Income-tax Act, 1961.
2. Nature of the land sold (whether agricultural or not) and its tax implications.
3. Evidentiary value of the unregistered sale agreement dated 07.01.2008.
4. Determination of the actual sale consideration.
5. Treatment of cash deposits in the bank account as unexplained investments under Section 69 of the Act.
6. Applicability of exemption under Section 10(37) read with Section 2(14)(iii) of the Act.

Detailed Analysis:

1. Validity of the Reopening of Assessment:
The Assessing Officer (AO) received information from the Investigation Directorate, Chennai, regarding cash deposits in the assessee's bank account. Based on this information, the AO issued a notice under Section 148 of the Income-tax Act, 1961, to reopen the assessment for AY 2008-09 and AY 2009-10. The Tribunal upheld the reopening of the assessment, stating that the information received was tangible incriminating material justifying the invocation of Section 147 of the Act. The Tribunal noted that the assessee had not originally filed returns for the relevant assessment years, and the cash deposits in the bank account were sufficient grounds for reopening the assessment.

2. Nature of the Land Sold and Tax Implications:
The assessee claimed that the land sold was agricultural and thus exempt from capital gains tax under Section 10(37) read with Section 2(14)(iii) of the Act. The Tribunal observed that agricultural activities were indeed carried out on the land at the time of transfer, as confirmed by the Village Administrative Officer (VAO) based on government records. The VAO's statement indicated that the land had standing crops and irrigation facilities, supporting the assessee's claim that the land was agricultural. However, the Tribunal remitted the issue back to the AO for fresh determination after making necessary enquiries and verifications with local authorities to ascertain whether the land qualifies for exemption under the Act.

3. Evidentiary Value of the Unregistered Sale Agreement:
The assessee produced an unregistered sale agreement dated 07.01.2008, claiming that the land was sold for ?1,91,50,575. The buyers admitted to the existence of the agreement but disputed the sale consideration mentioned in it. The Tribunal held that the unregistered agreement could be considered as evidence of the sale consideration, despite the conflicting statements from the buyers. The Tribunal noted that the buyers' denial of the sale consideration was likely an attempt to evade taxes and stamp duty.

4. Determination of the Actual Sale Consideration:
The Tribunal found that the actual sale consideration was ?1,91,50,575 as per the unregistered sale agreement dated 07.01.2008. The buyers' claim that the sale consideration was reduced due to adverse features in the land was deemed highly unlikely. The Tribunal observed that the buyers' statements were not credible and that the agreement to sale dated 07.01.2008 was a true reflection of the sale consideration. The Tribunal held that the sale deeds executed on 11.09.2008 for ?23,34,900 were at the guideline value and did not reflect the actual consideration.

5. Treatment of Cash Deposits as Unexplained Investments:
The AO treated the cash deposits in the assessee's bank account as unexplained investments under Section 69 of the Act. The Tribunal noted that the assessee had deposited around ?2 crores in his bank account, which was claimed to be the sale consideration received in cash. The Tribunal held that the cash deposits were indeed from the sale of the land, as evidenced by the unregistered sale agreement and the consistent statements of the assessee. However, the Tribunal remitted the issue back to the AO for fresh determination of whether the land qualifies for exemption under the Act.

6. Applicability of Exemption under Section 10(37):
The Tribunal remitted the issue of exemption under Section 10(37) read with Section 2(14)(iii) back to the AO for fresh determination. The AO was directed to make necessary enquiries and verifications to ascertain whether the land qualifies for exemption from capital gains tax. The assessee was directed to produce all relevant evidence to support the claim for exemption.

Conclusion:
The appeals for AY 2008-09 and AY 2009-10 were partly allowed for statistical purposes. The Tribunal upheld the reopening of the assessment and the determination of the actual sale consideration based on the unregistered sale agreement. The issue of exemption under Section 10(37) was remitted back to the AO for fresh determination. The AO was directed to give proper opportunity to the assessee to present evidence in support of the exemption claim.

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