2025 (7) TMI 246 - AT - Income Tax

Unexplained investment u/s 69 read with section 115BBE - investments in the shape of advances has been recorded in the books of the account - HELD THAT - For applicability of provision of section 69 of the Act first condition is that in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account if any maintained by him for any source of income and if this condition fulfils then the assessee has to offer to explanation about the nature and source of the investments and then either if assessee offers no explanation or the explanation offered by him is not in the opinion of the AO satisfactory then as a consequence the value of the investments may be deemed to be the income of the assessee of such financial year. However in the issue under consideration admittedly advances has been recorded in the books of accounts maintained by assessee therefore in our view addition made and sustained is not in accordance with provisions of section 69 of the Act therefore directed to delete the same and in result issue decided in favour of assessee. Profit on sale of agricultural land treated as Long Term Capital Gain and added to the total income of the assessee u/s 45 - Nature of land sold - whether the land sold is capital asset as held by lower authorities or otherwise as claimed by appellant? - HELD THAT - CIT(A) has sustained the addition without analysing the evidences placed on record by AO and has sustained the addition on the reasoning given by the AO that the purchaser is carrying out commercial activities on the land under consideration admittedly the basis for such conclusion is absent in the order of lower authorities. Now as far as evidence placed on record by assessee it is evident from copy of registered sale deed that it is sale outside MC Area and type of land is Chahi further copy of certificate from tehsildar wherein tehsildar has certified that the land under consideration is at the distance of municipality of Dharuhera. Apart there of khasra khatauni is also placed on record. Where evidences place on record establish that the land under consideration is not a capital asset within the meaning of provisions of section 2(14) of the Act and such evidence remains unrebutted by lower authorities we are inclined to accept the claim of the appellant and thus direct the AO to delete the addition. In result issue decided in favour of assessee.

Summary

Two core legal questions were considered by the Tribunal in this appeal arising from the assessment order under the Income Tax Act, 1961 for the Assessment Year 2018-19. First, whether the addition of Rs. 5,00,000/- representing advances made by the assessee to M/s Vishwaa Carrier of India, held as unexplained investment under Section 69 read with Section 115BBE of the Act, was justified. Second, whether the addition of Rs. 3,94,36,125/- representing profit on sale of agricultural land, treated as Long Term Capital Gain under Section 45 of the Act, was correctly made by the Assessing Officer (AO) and sustained by the Commissioner of Income Tax (Appeals) [CIT(A)].

Issue 1: Legitimacy of addition of Rs. 5,00,000/- as unexplained investment under Section 69

The relevant legal framework is Section 69 of the Income Tax Act, which applies when an assessee has made investments in the financial year immediately preceding the assessment year that are not recorded in the books of account maintained by him for any source of income, and the assessee either offers no explanation or an unsatisfactory explanation regarding the nature and source of such investments. Under these conditions, the value of the investments may be deemed to be the income of the assessee for that financial year.

The AO made an addition of Rs. 5,00,000/- representing advances to M/s Vishwaa Carrier of India, holding them as unexplained investments under Section 69. The AO's reasoning was that the assessee failed to provide documentary evidence proving the identity, creditworthiness, and genuineness of the source of the loan advanced. The CIT(A) upheld this addition.

However, the Tribunal noted that the advances in question were duly recorded in the audited and assessed books of accounts of the assessee. This fact is crucial because Section 69 explicitly applies only to investments not recorded in the books of account. Since the advances were recorded, the condition precedent for invoking Section 69 was not fulfilled.

The Tribunal emphasized the statutory language of Section 69, stating: "Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account...the value of the investments may be deemed to be the income..." Thus, the applicability of Section 69 is contingent upon the investments being unrecorded.

Given that the advances were recorded, the Tribunal concluded that the addition was not in accordance with the provisions of Section 69 and directed deletion of the addition. The Tribunal thereby ruled in favor of the assessee on this issue, holding that the addition was invalid.

Issue 2: Treatment of profit on sale of agricultural land as Long Term Capital Gain under Section 45

The second issue concerned the addition of Rs. 3,94,36,125/- representing profit on sale of agricultural land, treated as Long Term Capital Gain (LTCG) taxable under Section 45 of the Act. The assessee contended that the land sold was agricultural land and therefore not a capital asset within the meaning of Section 2(14) of the Act, specifically under clause (iii) which exempts certain agricultural land from being treated as a capital asset. Consequently, the profit from the sale was claimed to be exempt from capital gains tax.

In support of this claim, the assessee submitted the registered sale deed indicating the land as "Chahi" (irrigated agricultural land), a certificate dated 10.02.2021 from the Tehsildar certifying the land's agricultural status, and the khasra khatauni (land record). The assessee also argued that the land was situated beyond the specified distance from the municipal limits of Dharuhera (more than 9 km, exceeding the 2 km threshold), satisfying the distance criterion under Section 2(14)(iii)(b) for exemption.

The AO rejected the claim, primarily on the grounds that:

• The assessee did not file evidence to prove agricultural activities were carried out in previous years;
• The assessee's previous returns did not disclose any income from agricultural activities;
• The purchaser, M/s ASPAM Caravan Logistics Parks Pvt Ltd., was engaged in commercial activities, suggesting the land was commercial in nature;
• The assessee had not disclosed the profit from the sale in the return filed under Section 139(9).

The CIT(A) sustained the addition based on the AO's reasoning, without critically analyzing the evidence submitted by the assessee.

The Tribunal undertook a detailed examination of the evidence placed on record by the assessee. It observed that the AO and CIT(A) failed to rebut or disprove the documentary evidence, including the registered sale deed, Tehsildar's certificate, and khasra khatauni, which consistently supported the agricultural character of the land. The Tribunal noted that the lower authorities' conclusions were not supported by any material basis or analysis of the evidence.

Further, the Tribunal highlighted that the purchaser's commercial activities on the land did not ipso facto convert the nature of the land at the time of sale from agricultural to commercial. The status of the land at the time of sale, as supported by official land records and certificates, was determinative.

Accordingly, the Tribunal held that the land sold was not a capital asset within the meaning of Section 2(14) of the Act and that the profit on sale was exempt from capital gains tax. The Tribunal directed the AO to delete the addition of Rs. 3,94,36,125/- treated as LTCG.

Significant holdings and principles established:

On the first issue, the Tribunal preserved the statutory interpretation of Section 69, emphasizing that the provision applies exclusively to investments not recorded in the books of account. It held: "...once the investments in the shape of advances has been recorded in the books of the account, maintained by him, addition made by invocation of provisions of section 69 of the Act is invalid." This principle safeguards taxpayers from arbitrary additions when proper accounting records exist.

On the second issue, the Tribunal underscored the necessity of a fact-based inquiry into the nature of the asset sold, relying on documentary evidence such as sale deeds, official certificates, and land records. It rejected the lower authorities' approach of inferring the land's nature based on the purchaser's activities without evidence. The Tribunal stated: "...where evidences place on record establish that the land under consideration is not a capital asset within the meaning of provisions of section 2(14) of the Act and such evidence remains unrebutted by lower authorities, we are inclined to accept the claim of the appellant..." This holding reinforces the principle that the burden lies on the revenue to disprove the assessee's evidence before making additions.

In conclusion, the Tribunal allowed the appeal, deleting both additions. The addition of Rs. 5,00,000/- under Section 69 was deleted as the advances were recorded in books of account, and the addition of Rs. 3,94,36,125/- as LTCG was deleted on the basis that the land was agricultural land exempt from capital gains tax under Section 2(14)(iii) of the Act.