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2022 (2) TMI 1246 - AT - Income TaxAssessment u/s 153C - Nature of land sold - Long term capital gain on account of transfer of agriculture land - converted lands were transferred by the assessee to the company by way of sale deed - assessee contended that the land sold was not taxable as the same not being a capital asset within the meaning of section 2(14) - AO was of the view that the lands were converted in the name of the assessee on 21.06.2005, the transferee being company could not own agricultural lands as per section 80 of the Karnataka Land Reforms Act, 1961 - HELD THAT:- As per the provisions of section 153C of the Act, incriminating material which was seized had to pertain to the assessment year under consideration. It is an undisputed fact that documents which are seized referred to in para 10 of this order do not establish any co-relation with the additions made in these assessment years. This requirement u/s. 153C of the Act was very essential for assessment u/s. provisions of section 153C which is a jurisdictional fact as held by the Supreme Court in Sinhgad Technical Edn. Society (supra). After taking note of the material as recorded in para 10 of this order, there was no seized incriminating seized material so as to frame assessment for these two assessment years u/s. 153C. DR could not point out to the contrary. Being so, the judgment of the Supreme Court in the case Sinhgad Technical Edn. Society [2017 (8) TMI 1298 - SUPREME COURT] is squarely applicable to the facts of the present case. Since the assessment framed u/s. 153C of the Act to be based on material found during the course of search which relate to or belong to the assessee and since we have held that there is no seized material for addition made by the AO, we do not wish to address the arguments made by the ld. AR for the assessee that the condition precedent for initiating the proceedings u/s. 153C of the Act having not been satisfied in the present case, therefore the assessment is liable to be annulled. Accordingly, we hold that the addition made by the AO is not based on seized material found in the course of search and therefore the addition cannot be sustained. Taxability of capital gain arising out of transfer of land - main reason for treating the land as non-agricultural is that the land was converted for usage of non-agricultural purposes - As brought on record by the assessee that the land revenue was paid as applicable to agricultural land only. The land got converted by the assessee for non-agricultural purposes and conversion permission was granted on the condition that the land should be used for non-agricultural purposes within two years, otherwise original character of the land i.e., agricultural in nature would be restored. The assessee has not used the land for non-agricultural purposes even after conversion of the land for non-agricultural purposes. In similar circumstances, in the case of Shri M.R. Anandaram (HUF) [2016 (6) TMI 175 - ITAT BANGALORE] the Tribunal observed that though the said land was converted for non-agricultural purposes, but cultivation of land continued till the date of sale of the land. Thus, the land should have been treated as agricultural land and exempt from capital gain in view of section 2(14) of the Act. The Tribunal also observed that even after conversion, the assessee was carrying on agricultural operations and conversion was done only to facilitate the sale of subject property to a corporate entity/non-agriculturist. These observations of the Tribunal have been extracted in the earlier part of this order. In the present case, the land sold by the assessee was classified as agricultural land in the revenue records. The RTC filed by the assessee before us shows that the assessee raised crops of Ragi and Paddy in certain portion and other portion was temporarily kept idle on account of certain difficulties. Being so, the status of the land therefore remained as agricultural land since mandatory condition stipulated in the conversion order is not complied with and on this count, the CIT(Appeals) was not correct in holding that the land which is subject matter of sale is not agricultural land on the reason that the land was converted for non-agricultural purposes. In view of this, the sale of the impugned land is to be treated as exempt from capital gain in terms of section 2(14) r.w. sections 45 & 48 of the Act. Accordingly, this ground of the assessee is allowed.
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