2023 (5) TMI 736 - AT - Income Tax

Addition of undisclosed income arising out of sale of land - amount received by the assessee towards sale of agricultural land - whether as declared sale consideration or on-money ? - assessee has not disclosed the sale proceeds of the land sold in the original return of income - HELD THAT - As in the revised return of income filed in pursuance to the notice issued u/s. 153A assessee has offered the amount received from sale of land. This, in our view, cannot be a finding which is sustainable either on facts or in law. Firstly, AO has not controverted the nature and character of land sold. Once, nature and character of land sold is established as agricultural land not to be treated as capital asset u/s. 2(14)(iii) of the Act, any income arising out of sale of such land whether by way of declared sale consideration or on account of on-money, would partake the character of exempt income, as the source of both the declared sale consideration and the on-money received is the same, viz., sale of agricultural land. Income derived from sale of agricultural land, which is not a capital asset, cannot be made taxable. The decisions relied upon by ld. Counsel for the assessee fully supports this view. No infirmity in the decision of ld. Commissioner (Appeals) in deleting the additions made. Decided against revenue.

Issues involved:
The judgment involves appeals by the Revenue against two separate orders of the Commissioner of Income-tax (Appeals) pertaining to assessment years 2013-14 and 2014-15.

Deletion of Addition of Undisclosed Income:
The common dispute in both appeals relates to the deletion of addition made on account of undisclosed income arising from the sale of land. The assessee filed revised returns of income for both assessment years, increasing the sale consideration received on the sale of land. The Assessing Officer called upon the assessee to explain why the on-money received in cash on the sale of land should not be treated as undisclosed income. The assessee argued that the land sold was agricultural land and not a capital asset, therefore any income from the sale would be exempt from taxation.

Assessing Officer's Decision and Commissioner (Appeals) Ruling:
The Assessing Officer proceeded to tax the additional consideration received on the sale of land as undisclosed income and brought it to tax. However, the Commissioner (Appeals) held that since the alleged on-money received by the assessee was not credited to the books of account, the provisions of section 68 of the Act could not be invoked. The Commissioner further ruled that the addition was not based on any incriminating material found during the search and seizure operation, therefore, it could not be made in the absence of such material.

Arguments and Rulings:
The Departmental Representative argued that clear evidence showed the declared sale consideration was below the fair market value, indicating receipt of on-money. On the other hand, the assessee's counsel contended that no incriminating material was found, and any income from the sale of agricultural land would be exempt from taxation. The Tribunal found that the land sold was agricultural land and not a capital asset, hence any income derived from the sale would be exempt from taxation. The Tribunal dismissed the appeals, upholding the Commissioner (Appeals) decision to delete the additions made.

Conclusion:
The Tribunal concluded that the nature and character of the land sold as agricultural land exempted any income derived from the sale from taxation. As the source of both the declared sale consideration and the alleged on-money was the sale of agricultural land, which was not a capital asset, the income could not be made taxable. The decisions cited by the assessee's counsel supported this view, and therefore, the Tribunal dismissed the appeals.

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