2020 (11) TMI 453 - AT - Income Tax

Income from sale and purchase of land - correct head of income - capital gain or business income - HELD THAT - In the own case of the assessee held AO as well as CIT(A) misdirected themselves in law and on facts in holding the land/properties to be in the nature of trading asset merely on the ground that some of the agricultural land were converted into non-agricultural land and some agreements were entered for the development of the land in the year under appeal acquired and held for decades in many cases. We find considerable weight in the plea of the assessee that intention at the time of purchase to hold impugned land/properties as a capital asset is manifest on records. The balance-sheet filed by the assessee over years, wealthtax returns filed by the assessee, adequacy of its own capital clearly underscore the intention of the assessee to hold land/properties as capital asset as claimed. Inextricably, we also take note of the plea of the assessee that he is a co-owner of impugned land/properties holding certain percentage of ownership-rights therein and the claim of the land/properties as capital asset has been accepted by the Revenue in the hands of other co-owners in the assessment proceedings u/s.143(3) of the Act. This fact has remained uncontroverted. Therefore, respectfully following the decision of the Coordinate Bench of the Tribunal in AY 2004-05 and having regard to the totality of the facts and circumstances noted above, we find considerable merit in the plea of the assessee. We accordingly hold that land/properties were held by the assessee as capital asset before its sale and consequential gains arising on sale thereto is chargeable under the head of capital gains . Unexplained unsecured loan under Section 68 - HELD THAT - Assessee has justified the conditions applicable with respect to cash credit under Section 68 i.e. identity, creditworthiness of the parties and the genuineness of the transactions of the loan taken from the parties as discussed above during the appellate proceedings. The necessary details furnished by the assessee in support of his claim were also forwarded to the AO for his comment. But we note that the Learned CIT(A) has given a clear finding that there was no adverse remark of the AO in the remand report with respect to the impugned unsecured loan. Therefore, the Learned CIT(A) has deleted the addition made by the AO. At the time of hearing the Learned DR has not brought anything on record contrary to the finding of the Learned CIT(A). Accordingly, we are not inclined to interfere in the order of Learned CIT(A). Hence, the ground of appeal of the Revenue is dismissed.

Summary

Issues Involved:

1. Whether the gains from the sale and purchase of land should be taxed under the head "capital gain" or "business income."
2. Whether the addition made on account of unexplained unsecured loan under Section 68 of the Income Tax Act was justified.

Detailed Analysis:

Issue 1: Tax Treatment of Gains from Sale and Purchase of Land

The Revenue contended that the assessee's repeated transactions in land constituted a business activity, thus the income should be taxed as "business income" rather than "capital gain." The Assessing Officer (AO) observed that the assessee had sold 19 properties, incurred costs for converting agricultural land to non-agricultural land, and was involved in development agreements, suggesting a systematic business activity. The AO also noted that the assessee had been purchasing land continuously over several years and had previously been classified as engaged in the business of trading in lands by the ITAT for the Assessment Year 2006-07.

The CIT(A) reversed the AO's decision, directing that the gains be taxed under the head "capital gain," referencing a prior ITAT decision for the Assessment Years 2007-08 to 2012-13, which held that the land/properties were held as capital assets. The CIT(A) emphasized that the intention at the time of purchase was to hold the properties as capital assets, supported by the balance-sheet, wealth tax returns, and the declaration of agricultural income.

Upon appeal, the ITAT upheld the CIT(A)'s decision, noting that the facts and circumstances had not changed from previous years where the gains were treated as capital gains. The ITAT reiterated that the AO and CIT(A) had misdirected themselves by treating the land as trading assets based on the conversion of agricultural land and development agreements. The ITAT found that the properties were held as capital assets and the gains should be taxed under the head "capital gains."

Issue 2: Addition on Account of Unexplained Unsecured Loan

The AO added ?37,25,000 to the assessee's income under Section 68 of the Income Tax Act, citing the assessee's failure to provide necessary details to establish the identity, genuineness, and creditworthiness of the loan creditors. The loans in question were from Shri Parnav H. Amin (?7,25,000) and Bansari Enterprise (?30,00,000).

The CIT(A) deleted the addition, noting that the assessee had provided sufficient evidence of the creditors' identity, genuineness of the transactions, and creditworthiness during the appellate proceedings. The details were forwarded to the AO, who did not provide any adverse comments. The CIT(A) concluded that the loans were genuine and met the requirements under Section 68.

The ITAT upheld the CIT(A)'s decision, noting that the assessee had justified the conditions of identity, creditworthiness, and genuineness of the transactions. The ITAT observed that the AO had no adverse findings in the remand report and thus agreed with the CIT(A)'s decision to delete the addition.

Conclusion:

The ITAT dismissed the Revenue's appeal, affirming that the gains from the sale and purchase of land should be taxed as "capital gains" and that the addition on account of unexplained unsecured loans was not justified. The ITAT's decision was based on consistent treatment of similar transactions in previous years and the lack of adverse findings by the AO in the remand report. The order was pronounced on 19th October 2020 at Ahmedabad.