The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that income arising from land could not be treated as capital asset once the nature of the land sold had established as agricultural land,
A search was conducted and proceedings were taken against the resident assesseeKamlesh Kumar Rathi in compliance with Section 153A of the Income Tax Act. In response to notices, the assessee submitted his income tax returns for the assessment years 2013–14 and 2014–15, as well as updated reports of income for the two assessment years in question. He did this by enhancing the sale consideration received on the sale of land for the two respective assessment years.
In the course of the assessment procedures, the Assessing Officer treated the on-money received in cash on the sale of land as his undisclosed income, referring to statements recorded during search operations and a value report from 2004.
The assessee contended that the valuation report discovered during the search that indicated the value of the land increased in 2004 could not be trusted because it was obtained in order to obtain a bank loan and therefore could not be taken to represent the fair market value of the land.
The assessee claimed that the lands sold were of an agricultural character and were situated in Surajpur, Uttar Pradesh, more than 8 kilometres from the boundaries of Nagar Panchayat, Dadri, and with a population below the threshold of 10 lacs. Because, according to Section 2(14) of the Income Tax Act, the land sold does not have the characteristics of a capitalasset.
J.S. Minhas,on behalf of the revenue submitted that the addition was based on incriminating material. He further submitted that when there was clear evidence on record to indicate that the declared sale consideration was much below the fair market value, the fact that the assessee had received on-money was proved.
RakeshGupta,on behalf of the revenue submitted that in the first place, no incriminating material was found as a result of search and seizure operation to demonstrate that the assessee had received on-money in cash.
He also contended that once the land sold, being agricultural land, was not coming within the purview of capital asset as defined under Section 2(14)(iii) of the Income Tax Act, any income arising out of sale of such land, whether as declared sale consideration or alleged on-money, would partake the same character, and would be exempted from taxation.
The two-member Bench of SaktijitDey, (Judicial Member) and M. Balaganesh, (Accountant Member) dismissed the appeal filed by the revenue holding that “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.”
The Bench deleted the addition holding that the income derived from sale of agricultural land, which was not a capital asset, could not be made taxable.
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