2019 (11) TMI 925 - AT - Income Tax

Nature of land sold - sale of alleged agricultural land - Lower authorities held that the assessee s land to be a capital asset u/s 2(14) - HELD THAT - The assessee s detailed paper book reveals that the land in issue in sale had been shown as agricultural as per the relevant records as on 26.02.2019. Coupled with this, we find that this is not also the Revenue s case that the land itself during assessee s possession had ever been converted to industrial use. Hon'ble Bombay high court s decision in CIT vs. Debbie Alemao and 2. Joaquim Alemao 2010 (9) TMI 560 - BOMBAY HIGH COURT holds that it is nowhere necessary for an assessee to prove carrying out actual agricultural activity of the land in issue is agricultural. Both the lower authorities have erred in law and on facts in treating the assessee s agricultural land sold as industrial giving rise to capital gains in issue. We therefore accept assessee s former twin substantive grounds to this effect. Deemed dividend addition u/s 2(22)(e) - HELD THAT - We find no reason to agree with the impugned addition. Case file indicates that the assessee had executed an MoU with M/s Spac Martix Pvt. Ltd. on 07.10.2009 agreeing for extending security in the form of assignment or hypothecation of personal assets for securing loan for the company and the latter in turn had to give mutual financial accommodation to the former. The assessee thereafter pleas on record all the relevant details regarding its personal guarantee and collateral security provided to the bank in favour of M/s Space Martix Pvt. Ltd. Page 158 of the paper book reveals that the latter entity had deficient figures of ₹43,87,70,364/- and ₹47,36,60,894/- as on 27.03.2012 and 31.03.2012; respectively. Be that as it may, hon'ble jurisdictional high court s judgment in Pradip Kumar Malhotra vs. Commissioner of Income Tax, West Bengal-V 2011 (8) TMI 16 - CALCUTTA HIGH COURT hold long back that such a case does not attract the deeming friction of dividend u/s 2(22)(e). We therefore direct the Assessing Officer to delete the instant latter addition as well

Summary

Issues:
1. Treatment of income from sale of alleged agricultural land as capital gains under sec. 50C of the Income Tax Act, 1961.
2. Addition of deemed dividend u/s. 2(22)(e) without proper examination.

Analysis:

Issue 1: Treatment of income from sale of alleged agricultural land as capital gains under sec. 50C:
The appellant challenged the lower authorities' action treating income from the sale of alleged agricultural land as capital gains under sec. 50C. The appellant argued that the land was not a capital asset under sec. 2(14)(iii) of the Act and was used for agricultural purposes. The appellant provided evidence from land records to support the claim that the land was agricultural at the time of sale. The Assessing Officer verified the claim from the office of the additional District Sub-Registrar, which mentioned the land's purpose as industrial use. However, the appellant's detailed submissions and supporting documents contradicted this claim. The Tribunal noted that the Revenue failed to prove that the land was converted to industrial use during the appellant's possession. Citing a Bombay High Court decision, the Tribunal held that actual agricultural activity was not necessary to classify land as agricultural. Therefore, the Tribunal accepted the appellant's grounds and ruled in favor of treating the land as agricultural, not industrial, for capital gains tax purposes.

Issue 2: Addition of deemed dividend u/s. 2(22)(e) without proper examination:
The appellant contested the addition of deemed dividend u/s. 2(22)(e) without proper examination. The Assessing Officer stated that the appellant, a substantial shareholder in a company, received a loan of ?60 lakhs, treated as deemed dividend. The appellant argued that the loan was a temporary advance to meet short-term cash requirements and not for business purposes. The Tribunal reviewed the details provided by the appellant, including an MoU with the company and collateral security provided. Referring to a jurisdictional high court judgment, the Tribunal concluded that the case did not fall under the deeming provision of dividend u/s. 2(22)(e). Consequently, the Tribunal directed the Assessing Officer to delete the addition of deemed dividend.

In conclusion, the Tribunal allowed the appellant's appeal, ruling in favor of the appellant on both issues.