2020 (12) TMI 782 - HC - Income Tax

Exemption u/s 10(1) - profit arising on sale for a land on the ground that the land, which was sold was agricultural land - Tribunal reversed the order passed by the CIT-A, who confirmed the order of assessment only on the ground that the lands were shown as agricultural lands in the revenue record during the relevant period and therefore, would not fall within the purview of the definition of 'capital asset' under the Act - HELD THAT - In the instant case, nothing was brought on record by the assessee to establish that the agricultural operations were carried on prior to his purchase and after purchase. Conduct of the assessee in selling the property within a short period of one year and the property being used to develop the SEZ ought to have taken note of by the Tribunal while deciding the character of the land, as mere classification of the land in the revenue record, as agricultural land, does not conclusively prove that the nature of the land is an agricultural land. Lands were transferred to non-agriculturists for non-agricultural purpose and this would also be one of the relevant factors to test the case of the assessee. The Tribunal relied on the decision in the case of M.S.Srinivasa Naicker 2007 (1) TMI 149 - MADRAS HIGH COURT the said Judgment could not have been applied to the case on hand because in the said decision on examining the facts and as admitted by the revenue, on the date of sale, agricultural operations were carried on in the lands, which is not so in the case of the assessee. Thus, for all the above reasons, we find that the Tribunal erred in interfering the order passed by the CIT A affirming the order of assessment dated 14.03.2014. - Decided in favour of the revenue

Summary

Issues:
1. Appeal challenging Tribunal's order on the classification of land as agricultural.
2. Assessment under Section 263 of the Income Tax Act, 1961.
3. Burden of proof on the character of the land.
4. Discrepancy in assessing agricultural operations on the land.
5. Tribunal's decision based on revenue record classification.
6. Relevant legal factors to determine land character.
7. Failure of the assessee to cooperate in assessment proceedings.
8. Tribunal's reliance on previous judgments and its impact on the case.

Issue 1: Appeal challenging Tribunal's order on land classification

The Revenue filed an appeal challenging the Tribunal's decision on the classification of land sold by the assessee as agricultural. The Tribunal reversed the order passed by the Commissioner of Income Tax (Appeals) and held that the land was agricultural based on its revenue record classification. However, the High Court found that the Tribunal applied the wrong test and ignored established legal principles, as outlined in the case of Smt. Sarifabibi Mohmed Ibrahim v. Commissioner of Income Tax. The Court emphasized the need to consider various factors to determine the character of the land.

Issue 2: Assessment under Section 263 of the Income Tax Act

The Commissioner initiated proceedings under Section 263 of the Act to review the assessment order due to errors prejudicial to the revenue's interest. Despite multiple opportunities, the assessee failed to cooperate in providing necessary explanations and evidence regarding the character of the land. The assessing officer conducted a detailed inquiry, but the assessee's lack of cooperation hindered the assessment process.

Issue 3: Burden of proof on the character of the land

The Court discussed the burden of proof regarding the character of the land, emphasizing that the initial onus was on the assessee, which they partially discharged. However, when challenged with relevant materials, the assessee failed to provide a satisfactory explanation, shifting the burden to them. The Court concluded that the Revenue had discharged its onus, and the assessee's failure to substantiate their claims affected the case.

Issue 4: Discrepancy in assessing agricultural operations

The High Court highlighted discrepancies in assessing whether agricultural operations were carried out on the land. The assessing officer noted that the land was sold within a year, used for a special economic zone, and the agricultural income claimed by the assessee was unsubstantiated. The lack of evidence of agricultural activities prior to or after the purchase further weakened the assessee's case.

Issue 5: Tribunal's decision based on revenue record classification

The Tribunal's decision primarily relied on the classification of the land in revenue records as agricultural. However, the Court emphasized that mere classification in records does not conclusively prove the land's nature. The Tribunal failed to consider crucial factors such as the short holding period, sale to non-agriculturists, and land use for non-agricultural purposes, leading to an erroneous decision.

Issue 6: Relevant legal factors to determine land character

The Court referenced legal factors outlined by the Supreme Court to determine the land's character, such as revenue record classification, actual agricultural use, permission for non-agricultural use, and surrounding characteristics. These factors were crucial in assessing whether the land qualified as agricultural, and the Court applied them to the case at hand.

Issue 7: Failure of the assessee to cooperate in assessment proceedings

The High Court noted the assessee's failure to cooperate in assessment proceedings, as evidenced by their lack of responses to questionnaires and failure to provide necessary documentary evidence regarding the land's character. This lack of cooperation hindered the assessment process and affected the outcome of the case.

Issue 8: Tribunal's reliance on previous judgments and its impact on the case

The Court discussed the Tribunal's reliance on previous judgments and highlighted the differences between those cases and the present case. The Tribunal's failure to consider crucial factors, such as agricultural operations, land use, and short holding period, led to an erroneous decision. The Court overturned the Tribunal's order and ruled in favor of the Revenue, emphasizing the importance of considering all relevant factors in determining the character of the land.