Exemption to Agricultural Lands bought when not for any Business purposes allowed: ITAT [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) in the case of DCIT v Kushal Infra project Industries allowed exemption on agricultural lands bought without an intention to purchase the land for any business purposes.

The Bench constituting of B.R.R. Kumar and Bhavnesh Saini as Accountant and Judicial Members respectively held the following:

1. AO had disallowed a substantial portion of the amount of 33 Lakhs of remuneration paid to Directors on the ground that for the immediately preceding AY payment of only Rs 2 lakhs had been made on this account and there was an abnormal increase in Director’s income over the year. The deduction allowed by CIT (A) was upheld on the ground that remuneration of Rs 42 lakhs has been paid in another AY.

2. The Revenue contended disallowance of profit on the sale of Pooth Khurd village land on the ground that the amount was not exempt under Section 2(14) of the Income Tax Act since the agricultural lands do not fall in the definition of ‘Capital Asset’. The AO had held that u/s 2(14)(iii), any land situated within a distance of 8 KM from the local limits of any Municipal Corporation will be treated as Urban Land and the condition not being satisfied, the land was held not to be agricultural land.

The Bench observed that according to the Certificate of Patwari as well as Tehsildar and Sub-Divisional Magistrate of Delhi submitted by the assessee, it is clarified that the land in question is situated more than 9 km from the municipal limit and the population of the area is about 7000 only. The Bench upheld the decision of the CIT(A) in holding that land in question is agricultural land and the amount earned on the sale of the land to be a capital receipt.

The Bench stated that the assessee had admittedly sold the agricultural land as there was no intention to do any business activity, therefore, the period of holding would not be relevant. The same is evident from the fact that assessee never converted the land into non-agricultural, neither did he create any plot or carried any development activities or make any advertisements for the sale of land.

3. The AO on the ground of an increase in the authorized share capital from Rs 10 lakhs to Rs 51 crores asked for details, to which the assessee submitted that ROC Fees paid was the reason for such an increase. The AO held that expenditure on the increase of authorized share capital is not allowable under Section 35D. The CIT (A) however held that u/s 35D only 1/5^th of the expenses could be allowed in every 5 years and was accordingly directed.

However, the instant Tribunal set aside the order of the CIT(A) on the grounds held by AO.