2021 (4) TMI 896 - AT - Income Tax

Nature of land sold - Treatment of sale amount of the land sold by the Assessee - Assessee during the Assessment proceedings, claimed long term capital gain qua sale of land, however, in the first appellate proceedings changed his stand and claimed that sale consideration received qua land sold during the year did not constitute a capital asset within the meaning of Sec 2(14) of the Act and therefore no capital gains income is chargeable to tax in respect of the said transfer of the land - HELD THAT - As per section 2(14) if the land falls more than 8 km. from the local limits of any municipality or cantonment board to in item (a) and which has a population of more than ten lakh cannot be considered as capital asset. In the instant case, admittedly the land situated at an aerial distance of 9.2 km. and it is also admitted fact by the AO that the land sold by the Assessee was an agricultural land prior to sale and as per VRO, the agricultural activities were carried out in the said land upto the month of December 2014. From Adangal extract obtained from the Mee-Bhumi portal, the land has been described as an agricultural land and is useful for cultivation. Further, from the certificate of the Addl. Assistant Engineer, APSPDCL, Gannavaram, it clearly reflects that agricultural power connection was also available in the name of the Assessee for the land in dispute. Even from the proceedings of the Sub-Collector, Nuzvid whereby imposed the penalty on the builder for conversion of agricultural land into non-agricultural land without obtaining permission as required u/sec. 3 of the Andhra Pradesh Agricultural Land (conversion for non-agricultural purposes) Act, 2006 and for non-payment of conversion fees, it goes to show that the land under dispute was agricultural land only. The aforesaid facts have been duly considered by the ld. Commissioner while admitting the claim of the Assessee and holding that the land under dispute was an agricultural land and therefore exempt u/sec. 2(14) of the Act and cannot be subjected to tax. Addition on the ground that the Assessee could not substantiate with any evidence for carrying out the agricultural activities during the year on the land given for development and as per local enquiries conducted through ITI there was no agricultural activity in the said land during the last 2 or 3 years - Commissioner, on appeal, clearly held that the issue of whether the land owned by the Assessee at Kesarapalli village represented agricultural land and whether agricultural activities were carried out on the said land by the Assessee prior to transfer of the land during the year, has already been discussed and adjudicated earlier in its order and it was held that the said land constitute agricultural land and that the Assessee carried out agricultural activities in the said land prior to the transfer of the land during the year. The ld. Commissioner finally held that in view of the said finding of the fact, it is held that the action of the AO in not accepting the claim of agricultural income of the Assessee and treating the same as income from other sources‟ is not sustainable. In our view, the ld. Commissioner thoroughly examined the issue and held that the land under dispute as agricultural land and the Assessee cultivated the land up to transfer of the same, therefore disallowance to the extent of ₹ 45,000/- as claimed by the Assessee as agricultural income, in any way, does not entail any interference . Consequently, we are inclined not to interfere with the decision of the ld. Commissioner on this issue as well. Revenue appeal dismissed.

Issues Involved:
1. Treatment of consideration of land sold by the Assessee and whether it is chargeable to tax under the head "Income from capital gains."
2. Deletion of addition of ?45,000 made by the AO under the head "Other Sources."

Issue-wise Detailed Analysis:

1. Treatment of Consideration of Land Sold:
The primary issue revolves around whether the consideration received from the sale of land by the Assessee constitutes a capital asset under Section 2(14) of the Income Tax Act, 1961, and thus is chargeable to tax under the head "Income from capital gains." The Assessee initially claimed long-term capital gain in the return of income but later, during the appellate proceedings, argued that the land sold was agricultural land and thus not a capital asset under Section 2(14).

The Commissioner admitted additional grounds of appeal and considered additional evidence provided by the Assessee, including:
- Adangal extract from Mee-Bhumi portal showing the land as agricultural.
- Certificate from VRO stating agricultural activity was carried out until December 2014.
- Certificate from APSPDCL confirming agricultural power connection.
- Proceedings from Sub-Collector imposing a penalty for converting agricultural land without permission.

The Commissioner, after considering the remand report from the AO, concluded that the land was agricultural and situated beyond 8 kilometers from the municipal limits, thus not constituting a capital asset. Consequently, the transfer of the land was not chargeable to tax under the head "Income from capital gains."

2. Deletion of Addition of ?45,000:
The second issue pertains to the addition of ?45,000 made by the AO under the head "Other Sources," which the Assessee claimed as agricultural income. The AO disallowed this amount on the grounds that the Assessee did not substantiate the claim with evidence of agricultural activities.

The Commissioner, however, found that the land was indeed agricultural and that agricultural activities were carried out until the transfer of the land. This conclusion was based on the same evidence that supported the first issue. Hence, the Commissioner held that the addition of ?45,000 as "income from other sources" was not sustainable and deleted it.

Conclusion:
The Tribunal upheld the Commissioner’s findings on both issues. It agreed that the land sold by the Assessee was agricultural land situated beyond 8 kilometers from the municipal limits, thereby not constituting a capital asset under Section 2(14) and not chargeable to tax under "Income from capital gains." Additionally, the Tribunal affirmed the deletion of the ?45,000 addition, recognizing it as agricultural income. The appeal filed by the Revenue Department was dismissed.

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