2012 (11) TMI 1157 - AT - Income Tax

Addition u/s 69C - Held that - CIT(A) was of the view that the AO had established that the appellant has provided branded seeds and fertilizer to the Bataidars. In the statement recorded of Shri Raju Neware, the Baraidar has accepted that the assessee has borne agricultural expenses for branded seeds and fertilizers. Copy of statement was given to the assessee, however, the assessee did not choose to cross-examine the witness. CIT(A) was of the view that the AO was justified in making an addition u/s 69C of the Act. Thus, the CIT(A) dismissed the ground.

Issues Involved:
1. Jurisdiction of CIT(A) and inclusion of agricultural income.
2. Treatment of surplus from sale of agricultural land.
3. Binding decisions on surplus from sale of agricultural land.
4. Exempted income under Section 10 and its inclusion in total income.
5. Explanation I to Section 2(IA) regarding surplus from sale of agricultural land.
6. Definition of "trade" and its exclusion of agriculture.
7. Classification of assessee as a dealer in agricultural lands.
8. Classification of agricultural lands as trading assets.
9. Capital asset versus revenue receipt.
10. Use of photographs in decision-making without opportunity to assessee.
11. Addition under Section 69C for unexplained investment in agriculture.
12. Dismissal of additional ground on charging of interest.

Issue-wise Detailed Analysis:

1. Jurisdiction of CIT(A) and Inclusion of Agricultural Income:
The appellant contended that the CIT(A) acted without jurisdiction and failed to address various points raised by the assessee, including the inclusion of agricultural income which is not liable to tax under the law. The Tribunal, however, did not find merit in this argument and upheld the jurisdiction of CIT(A).

2. Treatment of Surplus from Sale of Agricultural Land:
The appellant argued that the surplus realized on the sale of agricultural land should be treated as agricultural income and exempt under Section 10(1). The Assessing Officer treated the profit as income from business, considering the transaction an adventure in the nature of trade. The Tribunal analyzed the facts and precedents, concluding that the land sold by the assessee was agricultural land situated more than 8 kilometers from municipal limits, thus not a capital asset under Section 2(14). The Tribunal held that the surplus was not assessable as business income.

3. Binding Decisions on Surplus from Sale of Agricultural Land:
The appellant cited several binding decisions (128 ITR 86, 154 ITR 629, 159 ITR 775, 219 ITR 554(SC), 247 ITR 150(SC)) to support their claim that the surplus from the sale of agricultural land is agricultural income. The Tribunal considered these precedents and agreed that the surplus from the sale of agricultural land is agricultural income and not business income.

4. Exempted Income Under Section 10 and Its Inclusion in Total Income:
The appellant argued that exempted income under Section 10 cannot form part of the total income under Section 14 of the I.T. Act. The Tribunal upheld this view, stating that agricultural income, being exempt, cannot be classified under any head of income.

5. Explanation I to Section 2(IA) Regarding Surplus from Sale of Agricultural Land:
The appellant contended that Explanation I to Section 2(IA) includes the surplus from the sale of agricultural land as agricultural income. The Tribunal agreed, noting that this explanation incorporates the law declared by the Bombay High Court to remove any doubt about the nature of the surplus.

6. Definition of "Trade" and Its Exclusion of Agriculture:
The appellant argued that the word "trade" does not include agriculture, citing decisions (AIR 1999 SC 1867, AIR 1958 487 (Bom), AIR 1968 SC 554, 70 ITR 730, 732 (SC)). The Tribunal agreed, stating that agriculture is excluded from the definition of "trade" and that the transaction did not constitute an adventure in the nature of trade.

7. Classification of Assessee as a Dealer in Agricultural Lands:
The CIT(A) classified the assessee as a dealer in agricultural lands. The Tribunal, however, found that the assessee was primarily an agriculturist and not engaged in the regular purchase and sale of land. The Tribunal held that the assessee's activities did not amount to dealing in agricultural lands.

8. Classification of Agricultural Lands as Trading Assets:
The CIT(A) held that agricultural lands were trading assets. The Tribunal disagreed, stating that agricultural land is a capital asset and not stock-in-trade. The Tribunal emphasized that agricultural land cannot be treated like non-agricultural land and is not freely transferable.

9. Capital Asset Versus Revenue Receipt:
The appellant argued that an income-producing asset is a capital asset, and the surplus realized is a capital gain, not a revenue receipt. The Tribunal upheld this view, stating that the surplus from the sale of agricultural land is a capital gain and not assessable as business income.

10. Use of Photographs in Decision-Making Without Opportunity to Assessee:
The appellant contended that CIT(A) erred by using photographs taken of nearby places of the agricultural land without giving the assessee an opportunity to respond. The Tribunal did not specifically address this issue in detail but focused on the broader context of the case.

11. Addition Under Section 69C for Unexplained Investment in Agriculture:
The Assessing Officer made an addition of Rs. 1,00,000/- under Section 69C for unexplained investment in branded seeds and fertilizer. The Tribunal upheld the addition, agreeing with the CIT(A) that the assessee provided branded seeds and fertilizer to Bataidars, which was not recorded in the books.

12. Dismissal of Additional Ground on Charging of Interest:
The CIT(A) dismissed the additional ground on charging of interest, stating that the levy of interest is mandatory. The Tribunal did not specifically address this issue in the judgment.

Conclusion:
The Tribunal allowed the appeals in part, setting aside the CIT(A)'s order regarding the classification of surplus from the sale of agricultural land as business income and confirming the addition under Section 69C for unexplained investment. The Tribunal emphasized that agricultural land beyond 8 kilometers from municipal limits is not a capital asset, and the surplus from its sale is agricultural income, not business income.

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