2014 (9) TMI 1254 - AT - Income Tax

Profit on sale of land - assessable under the head capital gains OR profits and gains of business or profession - HELD THAT - From the recitals in the letter it is not clear as to whether the assessee was really carrying on the activity of adventure in the nature of trade or that these properties were considered as trading assets by the assessee. CIT(A) has clearly held that these lands were held by the assessee as agricultural land for a period of more than 3 year - the Tribunal by order 2011 (3) TMI 1821 - ITAT BANGALORE in the assessee s own case in similar set of facts for assessment year 2006-07 held the income from the sale of land to be capital gains and not income from business or profession. Copy of the Tribunal s order for the earlier assessment year 2006-07 is also filed before us and it is evident there-from that the Tribunal has considered the activities of the assessee of improving the land by leveling the land and making plots etc. and has held that it is not an activity in the nature of adventure in trade Since the facts of the case before us are similar to the facts in the assessee s own case for earlier assessment year respectfully following the decision of the co-ordinate Bench to which one of us i.e. the Judicial Member is the signatory we uphold the findings of the CIT(A) that income from sale of land is to be taxed as income from capital gains . The Revenue s ground of appeal is accordingly rejected. Addition on account of suppression of sale consideration of the land - HELD THAT - AO has made addition only on the basis of the statement of Shri Purushotham Reddy recorded during the course of search that the assessee has received sale consideration at the rate of Rs. 1224/- per sq.ft. as against Rs. 975/- per sq.ft. claimed by the assessee. Except for the statement of Shri Purushotham Reddy there has been no evidence brought on record to show that the sale consideration was at the rate of Rs. 1224/- per sq.ft.. In the absence of any material on record to substantiate the statement recorded during the course of search of the third party we are not inclined to accept the contention of the Revenue that there is suppression of sale consideration by the assessee. We therefore do not see any reason to interfere with the order of the CIT(A) on this issue. This ground of appeal is also rejected. Disallowance u/s 40(a)(ia) - non-deduction of tax at source before making payment to certain parties - AO has disallowed the sum on the ground that the assessee has not deducted tax before making payment to various parties set out in para.13 of the assessment order - HELD THAT - We find that the CIT(A) has also recorded a finding that no TDS has been deducted while making payment but that the genuineness of the expenditure has not been doubted by the AO and that there is no evidence on record to suggest that this expenditure was not incurred. However since we have already held that income from sale of land is to be taxed as capital gains and not as income from business or profession the provisions of sec.40(a)(ia) are not applicable. Therefore this ground of appeal of the Revenue is also rejected. Expenditure allegedly incurred by the assessee towards the construction of the compound wall and paid to G.K.Associates - HELD THAT - We find that the sale of land had taken place in March 2007. Up to the date of sale a sum of Rs. 49, 79, 320/- was made to GK Associates. Out of this except for a sum of Rs. 10, 42, 929/- the balance was paid in cash. The subsequent payments are in the months of April June July and October 2010 and are all by account payee cheques. As rightly held by the CIT(A) and argued by the learned Departmental Representative just because certain account payee cheques have been made to one person it does not mean that these are attributable to construction of compound wall or that they are relatable to the improvement of land. The assessee has to explain with necessary evidence as to the reasons why payments were made much later to the sale of land. No details were furnished either before the AO or the CIT(A) nor did the authorities below examine as to whether there was a compound wall constructed by GK Associates during the relevant period and whether the payment to GK Associates as claimed by the assessee was towards such construction of the compound wall. Therefore in the interests of justice we deem it fit and proper to remit this issue to the file of the AO with a direction to examine and verify whether compound wall was in fact constructed around the schedule land and reasons for payments made subsequent to the date of sale of land and allow the expenditure incurred for such construction of compound wall if it is found that compound wall was in fact constructed by the GK Associates at the behest of the assessee - cross objection of the assessee is allowed for statistical purposes.

Summary

Issues:
- Classification of profit on sale of land
- Addition on account of suppression of sale consideration
- Disallowance u/s 40(a)(ia)
- Disallowance of expenditure on construction of compound wall

Classification of profit on sale of land:
The Revenue challenged the CIT(A)'s decision to classify profit on the sale of land as capital gains instead of business income. The AO reopened the assessment due to alleged suppression of sale consideration. However, the Tribunal upheld the CIT(A)'s decision, citing a previous case where similar activities were deemed capital gains. The Tribunal emphasized that holding land for a significant period indicated investment rather than a trade venture. Thus, the income from the sale of land was treated as capital gains, rejecting the Revenue's appeal.

Addition on account of suppression of sale consideration:
The AO made an addition based solely on a statement during a search, claiming the assessee received a higher sale consideration than declared. The Tribunal found no concrete evidence supporting this claim apart from the statement. Consequently, the Tribunal dismissed the Revenue's appeal, as there was insufficient proof of suppressed sale consideration by the assessee.

Disallowance u/s 40(a)(ia):
The AO disallowed certain expenses under section 40(a)(ia) for failure to deduct tax at source. The CIT(A) acknowledged the non-deduction but found the expenses genuine. As the income from the land sale was classified as capital gains, not business income, the Tribunal ruled that section 40(a)(ia) did not apply. Therefore, the Tribunal rejected the Revenue's appeal on this ground as well.

Disallowance of expenditure on construction of compound wall:
The AO disallowed expenses related to the construction of a compound wall post-sale of land. The CIT(A) upheld the disallowance, questioning the timing of payments. The Tribunal noted discrepancies in payment dates and lack of evidence linking payments to the wall construction. Consequently, the Tribunal remitted the issue back to the AO for further verification to determine if the expenses were genuinely incurred for the wall construction. The cross objection of the assessee was allowed for statistical purposes.

In conclusion, the Tribunal upheld the classification of income from land sale as capital gains, rejected the addition for suppressed sale consideration, dismissed the disallowance under section 40(a)(ia) due to the capital gains classification, and remitted the disallowance of expenditure on the compound wall for further examination by the AO.