2025 (5) TMI 707 - AT - Income Tax

Penalty u/s 271(1)(c) - addition u/s 69 - unexplained investment - addition being 0.5% of the deemed turnover (investment) - HELD THAT - It is evident that the assessment and penalty orders were passed based on a recharacterization of land transactions as business activity while the assessee s consistent plea was that the transactions related to rural agricultural land held as capital assets. The quantum additions u/s 69 and on account of denial of exemption and the resultant penalties under section 271(1)(c) and 271B were confirmed without proper examination of documentary evidence or due consideration by the CIT(A) who dismissed the appeals ex parte. Thus we are of the considered opinion that all four appeals - two quantum and two penalty appeals - deserve to be restored to the file of the AO for de novo adjudication. AO shall consider the nature and source of land transactions exemption claims applicability of section 44AB and penalty issues afresh after granting adequate opportunity to the assessee to present all supporting materials. Appeals filed by the assessee are allowed for statistical purposes.

Summary

The core legal questions considered by the Tribunal in these consolidated appeals include:

1. Whether the reopening of the assessment for A.Y. 2011-12 under section 147 was valid and justified.

2. Whether the additions made under section 69 of the Income Tax Act, 1961, on account of unexplained investments in immovable property were sustainable.

3. Whether the nature of the land transactions for A.Y. 2011-12 and 2013-14 was agricultural or constituted a business activity (adventure in the nature of trade), thereby affecting the taxability of the surplus arising from such transactions.

4. Whether the exemption claimed under section 10(1) for agricultural income was rightly denied.

5. Whether the Assessing Officer was justified in treating the land as stock-in-trade and consequently treating the surplus as business income.

6. Whether the assessee was under a statutory obligation to maintain books of account and get the accounts audited under section 44AB, considering the nature and volume of transactions.

7. Whether penalties under sections 271(1)(c) and 271B were rightly imposed for furnishing inaccurate particulars and failure to comply with audit requirements.

8. Whether interest under sections 234A/B/C was rightly levied.

9. Whether the ex parte dismissal of appeals by the CIT(A) was appropriate given the circumstances.

Issue-wise Detailed Analysis:

1. Validity of Reopening under Section 147

The reopening of the assessment for A.Y. 2011-12 was triggered by information obtained during the assessment proceedings for A.Y. 2013-14, revealing substantial land purchases not disclosed in the original return. The legal framework mandates that reopening under section 147 must be based on tangible information indicating income escaping assessment.

The Tribunal noted that the AO relied on registered sale deeds to establish the purchases totaling over Rs. 1.10 crore, which were not reflected in the original return or books of account. The assessee failed to provide any explanation or evidence to counter this. The reopening was therefore found to be based on credible material and within jurisdiction.

The assessee contested the reopening as without jurisdiction, but the Tribunal found no merit in this contention, as the AO had sufficient material to justify reassessment.

2. Addition under Section 69 for Unexplained Investment

Section 69 empowers the AO to add unexplained investments to income if the assessee fails to satisfactorily explain the source. The AO noted that the land purchases were neither disclosed nor explained, and no books of account were maintained.

The assessee claimed the lands were agricultural and exempt, but failed to produce competent certification or evidence to support this. The AO's addition was upheld by the CIT(A) and challenged by the assessee as based on presumptions.

The Tribunal observed that the AO's addition was supported by documentary evidence (sale deeds) and the assessee's failure to substantiate the agricultural nature or source of funds. The addition under section 69 was thus sustainable.

3. Nature of Land Transactions: Agricultural Income vs Business Activity

The assessee claimed the lands were rural agricultural lands held as capital assets, and the surplus from sale was exempt under section 10(1). The AO, however, treated the transactions as an adventure in the nature of trade, assessing the surplus as business income.

Relevant precedents establish that the characterisation of land transactions depends on factors such as frequency, motive, holding period, and treatment in books. The AO relied on circumstantial evidence-multiple transactions, joint ownership with unrelated persons, and pattern of purchase and sale-to conclude a profit motive.

The CIT(A) confirmed this view, but dismissed the appeals ex parte without considering the assessee's evidence. The Tribunal noted that the question of whether the transactions constitute business or capital receipts requires detailed factual examination.

Given the assessee's consistent claim and lack of opportunity to produce evidence, the Tribunal found it appropriate to remit the matter for fresh adjudication, directing the AO to consider all relevant factors and evidence afresh.

4. Denial of Exemption under Section 10(1)

The exemption under section 10(1) applies to agricultural income. The AO denied exemption on the ground that the lands were not agricultural in nature or used for agriculture, but were held for commercial purposes.

The Tribunal emphasized that such denial must be based on concrete evidence and not on guesswork or presumptions. Since the CIT(A) dismissed the appeals ex parte without examining the evidence, the Tribunal found the denial of exemption premature and remanded the issue for reconsideration.

5. Treatment of Land as Stock-in-Trade

The AO treated the land as stock-in-trade, which has implications for income characterization and audit obligations. The assessee contended that the land was an investment and not stock-in-trade.

The Tribunal acknowledged that the classification depends on the facts and circumstances, including intention and treatment in books. Given the disputed nature and lack of detailed inquiry, the Tribunal directed fresh consideration of this issue.

6. Obligation to Maintain Books and Audit under Section 44AB

Section 44AB mandates audit of accounts if turnover exceeds prescribed limits. The AO held that since the land transactions were business receipts, the turnover threshold was crossed, triggering audit and penalty provisions.

The assessee argued that no business activity existed and hence no audit was required. The Tribunal noted that the applicability of section 44AB hinges on the nature of transactions (business or capital). Since this was under dispute, the Tribunal ordered fresh examination of audit applicability after determining the nature of transactions.

7. Penalties under Sections 271(1)(c) and 271B

Penalties were imposed for furnishing inaccurate particulars (section 271(1)(c)) and failure to get accounts audited (section 271B). The AO issued show cause notices, but the assessee did not respond, leading to ex parte penalty orders.

The CIT(A) confirmed penalties relying on judicial precedents that non-compliance justifies penalty. The assessee challenged the penalties as unjustified due to absence of business activity and audit requirement.

The Tribunal observed that penalty proceedings must be fair and based on proper determination of underlying facts. Since the nature of transactions and audit obligation were yet to be conclusively decided, the Tribunal remanded penalty issues for fresh adjudication after proper opportunity to the assessee.

8. Levy of Interest under Sections 234A/B/C

The assessee contended that interest levies were erroneous. The Tribunal did not elaborate extensively on this issue but included it among grounds to be reconsidered in fresh proceedings, as interest depends on correctness of assessment and compliance.

9. Ex Parte Dismissal of Appeals by CIT(A)

The CIT(A) dismissed the appeals ex parte due to non-compliance with notice requirements and failure to file evidence. The assessee claimed inability to upload evidence in the faceless appeal system.

The Tribunal recognized the procedural difficulties and the importance of fair opportunity to present evidence. It held that dismissal without considering the merits or evidence was inappropriate and warranted remand for fresh adjudication.

Significant Holdings:

The Tribunal held that reopening under section 147 was valid, additions under section 69 were sustainable based on unexplained investments, and that the nature of land transactions (business or agricultural) is a critical factual issue requiring detailed inquiry.

The Tribunal emphasized that the denial of exemption under section 10(1) and classification of land as stock-in-trade must be based on evidence rather than presumptions or guesswork. It stated:

"Such denial must be based on concrete evidence and not on guesswork or presumptions."

Regarding penalties and audit obligations, the Tribunal held that these depend on the proper determination of the nature of transactions and turnover, and hence must be reconsidered after fresh factual examination.

The Tribunal also underscored the necessity of affording the assessee reasonable opportunity to present evidence, noting that ex parte dismissal of appeals was improper in the circumstances.

Accordingly, the Tribunal set aside the impugned orders of the CIT(A) and restored all four appeals to the file of the Assessing Officer for de novo adjudication in accordance with law, directing the AO to consider all relevant issues afresh and grant adequate opportunity to the assessee.

As a measure to ensure future diligence, the Tribunal imposed a cost of Rs. 5,000 per quantum appeal on the assessee, totaling Rs. 10,000, payable within 30 days.

The appeals were allowed for statistical purposes, indicating that the substantive issues remain open for fresh consideration.