2025 (6) TMI 1945 - HC - Income Tax

Addition towards profit on sale of land - Nature of land - factor determinative of the issue whether the land is agricultural or not - According to AO the land was barren land and the irrigation was only through seasonal rains and wells and depending on the quantum of seasonal rains the wells hold water for some period only. Due to this observed that the land could not be used for raising any crops or trees HELD THAT - ITAT rightly accepted the fact that the land has always been classified as agricultural land in revenue records; the land was situated 8 kms from nearest municipality; as per the revenue records agricultural activities were being carried out on the said land; and the intention of the purchase of the land would be immaterial. Assessee in addition has also produced Electricity Board receipts which shows that assessee has been granted subsidy on electricity charges. Assessee has also furnished land test report mentioning soil content and nature of crop which could be grown on the land. ITAT also considered the fact that Kengayapalayam Village has population of less than 1600 and the patta shows that the land has been classified as Punjai wet land. Agricultural income receipts and ploughing expense receipts have also been placed on record. The list of documentary evidence produced has also been listed in the impugned order. None of the lower authorities has placed on record any document to rebut the evidence placed on record by assessee but they have proceeded on the reasoning that the area where the land was situated had commercial potential and hence have assumed that the land was acquired as a part of real-estate business to reap the benefits of commercialisation. ITAT has arrived at a factual finding that assessee has fairly established that the land was agricultural land and revenue has failed to rebut the documentary evidence and bring on record adverse material to prove that the land was not classified as agricultural land.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court were:

(a) Whether the Income Tax Appellate Tribunal (ITAT) erred in holding that the impugned land was agricultural in nature solely on the basis of revenue records without properly appreciating the material evidence and facts on record.

(b) Whether the ITAT failed to consider binding precedent from the Apex Court in Sarifabibi Mohammed Ibrahim and others v. CIT regarding classification of agricultural land.

(c) Whether the ITAT erred in not considering that sale of land to a non-agriculturist for non-agricultural use is a relevant factor in determining the nature of the land, as held by the Bombay High Court in Gopal C. Sharma v. CIT.

(d) Whether the ITAT erred in holding that the transaction was not an 'adventure in the nature of trade' without considering the Supreme Court decision in G. Venkatswamy Naidu v. CIT, which recognizes that even isolated transactions may constitute trade if essential features of trade are present.

(e) Whether the ITAT erred in ignoring that an abnormally high sale consideration is a determinative factor in deciding if the land is agricultural, as held in Sarifabibi Mohammed Ibrahim and others v. CIT.

(f) Whether the ITAT erred in deleting the addition disallowing agricultural income claimed by the assessee without appreciating that the assessee failed to produce evidence of earning agricultural income.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Classification of the Land as Agricultural Based on Revenue Records

The legal framework requires that the nature of land-whether agricultural or non-agricultural-be determined on the basis of relevant facts and evidence, including revenue records and actual use. The Apex Court in Sarifabibi Mohammed Ibrahim emphasized that classification in revenue records is a significant factor but not conclusive if contradicted by material evidence.

The Assessing Officer (AO) had held the land as barren and unsuitable for agriculture, relying on the Village Administrative Officer's report and observations that only a small area was cultivated with corn, and that irrigation was seasonal and unreliable. The AO rejected the assessee's claim of agricultural nature, treating the land as held for resale and assessing profits as business income.

The assessee presented land revenue records, a letter from the Tahsildar, electricity subsidy receipts, soil test reports, agricultural income receipts, and ploughing expense receipts. The ITAT accepted these documents as credible evidence establishing the agricultural nature of the land. It noted that the land was classified as "Punjai" wet land in patta records and that the village had a small population, supporting agricultural use.

The Court observed that none of the lower authorities produced evidence rebutting the assessee's documentary proof. The AO and CIT(A) relied on the commercial potential of the area to infer non-agricultural use but did not provide contrary material evidence.

The Court held that the ITAT's factual finding that the land was agricultural was based on a thorough appraisal of evidence and was not liable to interference.

Issue (b): Consideration of Apex Court Precedent in Sarifabibi Mohammed Ibrahim

The Revenue contended that the ITAT failed to consider the binding precedent in Sarifabibi Mohammed Ibrahim, which sets out principles for determining agricultural classification.

The Court found that the ITAT had indeed considered the ratio of the Sarifabibi case, particularly the relevance of revenue records and the importance of material evidence. The ITAT applied these principles by examining the land records and other documentary evidence, and by noting the absence of rebuttal evidence from Revenue.

Thus, the Court concluded that the ITAT did not err in this regard.

Issue (c): Sale to Non-Agriculturist and Intended Use

The Revenue argued that the ITAT failed to consider that sale of land to a non-agriculturist for non-agricultural purposes is a relevant factor, citing Gopal C. Sharma v. CIT.

The Court noted that while such a factor is relevant, it cannot override clear documentary evidence of the land's agricultural classification and use. The ITAT's finding was that the intention of purchase or sale was immaterial to the classification of land as agricultural, especially when the land was recorded as such and agricultural activities were evidenced.

The Court found no error in the ITAT's approach of prioritizing documentary and factual evidence over speculative assumptions about future use.

Issue (d): Nature of Transaction as Adventure in the Nature of Trade

Revenue contended that the ITAT erred in not treating the transaction as an adventure in the nature of trade, relying on G. Venkatswamy Naidu v. CIT, which holds that even isolated transactions may be trade if essential features like intention to profit are present.

The Court observed that the ITAT considered the intention to make profit but found that the transaction was not an adventure in trade because the land was agricultural and the profit arose from sale of agricultural land, not from a business activity. The ITAT's reasoning was that intention alone does not convert an agricultural land sale into business income when the land is genuinely agricultural.

The Court upheld the ITAT's reasoning as consistent with legal principles and supported by evidence.

Issue (e): Abnormally High Sale Consideration as a Determinative Factor

The Revenue argued that an abnormally high sale consideration should have been considered by the ITAT as indicative that the land was not agricultural, per Sarifabibi Mohammed Ibrahim.

The Court found that the ITAT did not ignore this factor but implicitly considered the overall evidence, including the sale price, in its factual determination. The ITAT's conclusion that the land was agricultural despite the sale price was based on the absence of contrary evidence and the presence of documentary proof of agricultural classification and use.

The Court held that the ITAT's approach was reasonable and did not constitute an error of law.

Issue (f): Deletion of Addition Regarding Agricultural Income Without Evidence

Revenue contended that the ITAT erred in deleting the addition relating to agricultural income claimed by the assessee without requiring proof of such income.

The Court noted that the assessee produced receipts for agricultural income and ploughing expenses, along with other supporting documents. The ITAT accepted these as sufficient evidence. The lower authorities failed to produce evidence disproving the agricultural income claim.

The Court found no error in the ITAT's deletion of the addition, given the evidentiary record.

3. SIGNIFICANT HOLDINGS

"The entire finding of the ITAT has been based on factual evidence available before the ITAT... Assessee has fairly established that the land was agricultural land and revenue has failed to rebut the documentary evidence and bring on record adverse material to prove that the land was not classified as agricultural land."

"None of the lower authorities has placed on record any document to rebut the evidence placed on record by assessee, but they have proceeded on the reasoning that the area where the land was situated had commercial potential and, hence, have assumed that the land was acquired as a part of real-estate business to reap the benefits of commercialisation."

"The intention of the purchase of the land would be immaterial."

The Court established the principle that classification of land as agricultural in official revenue records, supported by credible documentary evidence and not rebutted by contrary material, must be accepted for income tax purposes. Speculative assumptions about commercial potential or intended future use cannot override such classification.

The Court held that the ITAT's factual findings based on documentary evidence and absence of rebuttal were not liable to interference under the substantial questions of law raised.

Accordingly, the appeal was dismissed with no order as to costs.