M/s. Meghdeep Farms Pvt. Ltd , Ahmedabad V. The ITO, Ward-2(1)(4), Ahmedabad

CO 1/AHD/2020

AI Insights

The case involves an appeal by the Income Tax Officer (ITO) against M/s. Meghdeep Farms Pvt. Ltd., concerning the assessment year 2010-11. The primary issues were the classification of land as agricultural under section 2(14)(iii) of the Income Tax Act, and the deductibility of interest expenses claimed by the assessee. The ITO contested the CIT(A)'s decision which exempted the capital gains from the sale of land and allowed the deduction of interest expenses. The Tribunal examined the facts, including the location and usage of the land, and the nature of the interest expenses, ultimately upholding the CIT(A)'s decisions.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 131447 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 25 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 26-03-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 21-03-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 31-12-2019
• Other Referred Cases: Shiv Shankar Lal vs. CIT, CIT v. Smt. Debbie Alemao, CIT v. Nitish Rameshchandra Chordia, CIT v. K.R.N. Prabhakaran (HUF)
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Capital Gains
• Section: 2(14); 250; 73

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member Th e ITO, Ward-2(1 )(4), Ah medabad (Appellant) Vs M/s. Meghdeep F ar ms Pvt. Ltd. , 1 s t Floor, Blue Star Co mp lex, Nr. High Court Railway Crossing, Navjivan , Ah meda bad PAN: AABCM4 737G (Resp ondent) M/s. Meg hdeep Farms Pv t. Ltd ., 1 s t Floor, Blue Star Co mplex , Nr. High Co urt Railway Crossin g, Navjivan, Ah meda bad PAN: AABCM47 37G (Appellant) Vs The ITO, Ward-2(1)(4), Ah med abad (Resp ondent) Asses see b y : Shri Dhiren Shah, A. R. & M s. Nupur Shah, A. R. Revenue by : Shri Rake sh J ha, Sr. D. R. ITA No. 1402/Ahd/2019 Assessment Year 2011-12 Cross Objection No. 1/Ahd/2020 (In ITA No. 1402/Ahd/2019) Assessment Year 2011-12 I.T.A No. 1402/Ahd/2019 & CO 1/Ahd/2020 A.Y. 2015-16 Page No. ITO vs. M/s. Meghdeep Farms Pvt. Ltd. & M/s Meghdeep Farms Pvt. Ltd. vs. ITO 2 Date of hearing : 18-03 -2 023 Date of pronouncement : 27-03 -2 023 आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- The appeal filed by the Revenue and Cross Objection filed by the assessee are against the order of the ld. Commissioner of Income Tax (Appeals)-2, Ahmedabad, in proceeding u/s. 250 vide order dated 21/06/2019 passed for the assessment year 2010-11. 2. The Department has taken the following grounds of appeal: “1. The Ld CIT(A) has erred in law and on facts in treating the impugned land as agricultural land eligible for exemption u/s 2(14)(iii) of the Act. 1.1 The CIT(A) failed to consider that the assessee had not performed any agricultural activity on the said land which was a relevant factor while deciding eligibility of exemption u/s 2(14) (iii) of the Act. 2. The Ld CIT(A) has erred in law and on facts in deleting the disallowance of the interest expense of Rs 47,72,054/- without appreciating the fact that the nexus between the interest expense and the property were not proved by the assessee. 2.1 The CIT(A) failed to consider the fact that the property has been purchased way back in 2008 and sold on 10.1.2011, whereas portion of interest payments have been made subsequent to the date of sale i.e. March 2011. 3. The appellant craves leave to amend alter any ground or add a new ground, which may be necessary.” I.T.A No. 1402/Ahd/2019 & CO 1/Ahd/2020 A.Y. 2015-16 Page No. ITO vs. M/s. Meghdeep Farms Pvt. Ltd. & M/s Meghdeep Farms Pvt. Ltd. vs. ITO 3 Ground number 1: eligibility of exemption under section 2(14)(iii) of the Act: 3. The brief facts of the case are that the assessee has purchased agriculture land at Soyala Gam on 16/07/2008 and sold it on 10/01/2011 and claimed the profit of Rs.1,67,024/- as exempt on the ground that the land was agriculture land u/s 2(14)(iii) of the Act and therefore the capital gains on sale of such land was exempt under the Income Tax Act. However, the AO did not allow the claim on the ground that appellant has not carried out any agriculture activity in the aforesaid land which had been sold and had not shown any agriculture income. The Ld. Assessing Officer observed that in Shiv Shankar Lal vs. C1T (1974) 94 ITR 433 (Del) the Delhi High Court held that in order to determine whether a particular land is agricultural land, the question whether income derived from such land was "agricultural income" as defined in the Act would be relevant factor and also the “use” to which the land is put would be a very relevant factor to be considered for determining whether the land sold is agricultural land or not. The Ld. Assessing Officer held that the assessee had purchased the said property with the sole intention to sell the same for profit. Therefore, the said asset could not be considered to be used for agricultural purpose. Therefore, the said gain consequent to the sale of such land cannot be claimed to be exempt u/s 2(14)(iii) of the Act and the same would have to be treated as either as a business income or Capital Gains. Accordingly, the Ld. Assessing Officer disallowed the claim of exemption u/s 2(14)(iii) of the Act on such sale of land amounting to Rs. 1,67,024/-. I.T.A No. 1402/Ahd/2019 & CO 1/Ahd/2020 A.Y. 2015-16 Page No. ITO vs. M/s. Meghdeep Farms Pvt. Ltd. & M/s Meghdeep Farms Pvt. Ltd. vs. ITO 4 4. In appeal before Ld. CIT(A), the assessee contended that the land qualifies as agricultural land and for the following reasons the assessee is eligible to claim exemption section 2(14)(iii) of the Act: (a) The agriculture land under consideration was situated beyond 8 km from the municipal limits. (b) The appellant company treated the same as fixed asset in their audited books of accounts. (c) The land was identified as agriculture land in the revenue records. (d) The appellant company carried on routine agricultural operations and the land was used for agriculture operations occasionally. (e) The appellant company did not convert into non-agricultural land nor used for any other purchase other than agriculture. Thus, the character of the land i.e., agriculture nature was continuing till the same was sold by the appellant company. (f) Because of favorable market conditions the appellant company sold the land and the same fetched them a good price. 4.1 The assessee submitted before Ld. CIT(A) that he has already submitted all the relevant details to support that the said land is a rural agriculture land and relevant documents like the sale deed, purchase deed, 7/12 extract, copy of certificate from Soyala Gram Panchayat stating that the population is below 10000 and distance from Ahmadabad Municipal Corporation is more than 8 km were submitted before the AO for his consideration. Thus, the addition made in respect of Capital Gains earned on I.T.A No. 1402/Ahd/2019 & CO 1/Ahd/2020 A.Y. 2015-16 Page No. ITO vs. M/s. Meghdeep Farms Pvt. Ltd. & M/s Meghdeep Farms Pvt. Ltd. vs. ITO 5 rural agriculture land of Rs. 1,67,024/- is exempt u/s. 2(14)(iii) of the Act and the same deserves to be deleted. 4.2 The Ld. CIT(A) concurred with the submissions of the assessee and allowed this Ground of Appeal of the assessee with the following observations: Decision: 3.3. I have carefully considered the facts of the case, assessment order and submission of the appellant. The appellant has purchased agriculture land at Soyala Gam on 16/07/2008 and sold it on 10/01/2011 and claimed the profit of Rs.1,67,024/- as exempt because the land was agriculture land. However, the AO has not allowed the claim merely on the ground that appellant has not carried out any agriculture activity and not shown any agriculture income. The appellant has contended that land is situated in Soyala Gram Panchyat which is beyond the 8 Kms. limit of Ahmedabad Municipal Corporation and having population of less than 10,000, and therefore, land is a rural agriculture and any gain on agriculture land is exempt from tax u/s. 2(14)(iii). The Assessing Officer has also not doubted the fact that land is situated beyond 8 Kms from Ahmedabad Municipal Corporation and is agricultural land. However, he denied the exemption merely on the ground that there is no agriculture activity carried out andno agriculture income shown. There is no dispute that the land is agriculture land as per Section 2(14)(Hi), and therefore, is not capital asset. In view of the above, the gain arising out of it is not amenable to capital gain. The addition made by the Assessing Officer is accordingly deleted. The ground of appeal is accordingly allowed. 5. The Department is in appeal before us against the aforesaid order passed by Ld. CIT(A) allowing the appeal of the assessee with respect to the eligibility of the assessee to claim exemption u/s. 2(14)(iii) of the Act in respect of sale of aforesaid land. The Ld. Departmental Representative primarily relied upon the observations made by the Ld. Assessing Officer in I.T.A No. 1402/Ahd/2019 & CO 1/Ahd/2020 A.Y. 2015-16 Page No. ITO vs. M/s. Meghdeep Farms Pvt. Ltd. & M/s Meghdeep Farms Pvt. Ltd. vs. ITO 6 the assessment order. In response, Ld. Counsel for the assessee submitted that there is no infirmity in the order of Ld. CIT(A) and as per the Act there is no criterion which has been mentioned that for holding a land to be “agricultural land”, agricultural produce must be done on such land and agricultural income should have been derived from such land. Ld. Counsel for the assessee drew our attention to the relevant provisions of the Act in support of the above contention. We have heard the rival contentions and perused the material on record. We observe that Section 2(14)(iii) reads as under : (in) 5 agricultural land in India, not being land situate- (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or (b) in any area within such distance, not being more titan eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette;] 5.1 In our view, Ld. CIT(A) has correctly observed that the assessee is neither covered in clause a) or clause b) of the section 2(14)(iii) and thus, it qualifies as a rural agriculture land. Further, the assessee has also submitted relevant details in support of its contention that the said land is a rural agriculture land in the form of sale deed, purchase deed, 7/12 extract, copy of certificate from Soyala Gram Panchayat stating that the population is I.T.A No. 1402/Ahd/2019 & CO 1/Ahd/2020 A.Y. 2015-16 Page No. ITO vs. M/s. Meghdeep Farms Pvt. Ltd. & M/s Meghdeep Farms Pvt. Ltd. vs. ITO 7 below 10000 and distance from Ahmadabad Municipal Corporation is more than 8 kms. 5.2 In the case of CIT v. Smt. Debbie Alemao196 Taxman 230 (Bombay), the assessees had purchased a piece of land for a sum of Rs. 8 lakhs as an agricultural land. Later on, they sold said land to 'V' Ltd. for a sum of Rs. 73 lakhs. The assessees filed separate returns of income wherein capital gain arising out of sale of agricultural land was claimed by each of them to be exempt. The Assessing Officer rejected assessees' claim and brought amount of profit to tax as capital gain. The Commissioner (Appeals) as well as Tribunal however, allowed assessees' claim. The High Court held that it was apparent from records that land in question was entered in revenue records as an agricultural land and no permission was ever obtained for non-agricultural use by assessees. It was also noted that permission for non-agricultural use was obtained for first time by 'V' Ltd. i.e., purchaser, after it purchased land. Therefore, the High Court held that since on facts, finding recorded by two authorities below that land was used for purpose of agriculture, was based on appreciation of evidence and by application of correct principles of law and, therefore, said finding did not require any interference. In the case of CIT v. Nitish Rameshchandra Chordia57 taxmann.com 394 (Bombay), the High Court held that where agricultural land sold by assessee was situated beyond 8 kms from municipal limits when measured through road distance, profit from sale of said land was not taxable. In the case of CIT v. K.R.N. Prabhakaran (HUF)73 taxmann.com 305 (Madras), the High Court held that where Survey Department of State government and Tahsildar of relevant zone, had I.T.A No. 1402/Ahd/2019 & CO 1/Ahd/2020 A.Y. 2015-16 Page No. ITO vs. M/s. Meghdeep Farms Pvt. Ltd. & M/s Meghdeep Farms Pvt. Ltd. vs. ITO 8 consistently certified that land sold by assessee was agricultural land situated beyond 8 kms from municipal limits, Assessing Officer could not have relied on report of investigation wing to hold otherwise and to hold assessee liable to capital gains tax. 5.3 Accordingly, in light of the facts of the instant case that the land had been shown as agricultural land in Revenue records, there was no application made for conversion of aforesaid agricultural land to non- agricultural land, the agriculture land under consideration was situated beyond 8 km from the municipal limits and further in light of the judicial precedents reproduced above, we are of the considered view that Ld. CIT(A) has not erred in facts and in law in holding that the assessee was eligible for claim of deduction u/s 2(14)(iii) of the Act on sale of aforesaid agricultural land. 6. In the result, Ground Number 1 of the Department’s appeal is dismissed. Grounds No. 2: disallowance of interest expense of 47,72,054/- 7. The brief facts in relation to this ground of appeal are that the assessee sold a piece of land for sale consideration of 4.66 crores on 10-01-2011. The said land had been purchased by the assessee on 25-06-2008 for a consideration of 3.92 crores. The sale transactions thus resulted in the profit of 74,24, 659/-. However, the assessee claimed interest expenses to the tune of 47, 72,054/- against the said profit and declared a net income I.T.A No. 1402/Ahd/2019 & CO 1/Ahd/2020 A.Y. 2015-16 Page No. ITO vs. M/s. Meghdeep Farms Pvt. Ltd. & M/s Meghdeep Farms Pvt. Ltd. vs. ITO 9 of 26,52,635/-. During the course of assessment, the AO observed that the assessee has claimed to have paid interest amounting to 47,72,054/ - which was including an amount of 24,85,581/-which was paid to Ganesh Plantation. On verification from the interest ledger account which the assessee submitted during assessment, the AO observed that the aforesaid interest expenses paid towards land of 24,85,581/- paid to Ganesh Plantation was for the period 01-03-2011 to 31-03-2011. Therefore, the AO observed that while these interest expenses were for the period March 2011 but the land in question was already sold on 10-01-2011. Therefore, these interest expenses are not related to the above land transaction. Accordingly, the AO held that the assessee has not been able to establish that the said loan had been taken by it for purchase of land only and not for any other business purpose. In view of the above, the AO held that the total interest expenditure of 47,72,054/-incurred during the year consideration had no relation to the investment in land. Accordingly, the AO disallowed the aforesaid interest expenses amounting to 4 7,72,054/- and added the same to the total income of the assessee. 8. In appeal, Ld. CIT(A) allowed the appeal of the assessee on the ground that the AO erred in facts in holding that the interest expenditure of 24,85, 581/- was paid after the date on which the aforesaid land was sold. The Ld. CIT(A) held that the assessee has been able to establish from records that it had claimed only a sum of 9,70,718/- as interest to Ganesh Plantation which was paid before the date of sale of aforesaid land. Accordingly, Ld. CIT(A) allowed the appeal of the assessee with the following observations: I.T.A No. 1402/Ahd/2019 & CO 1/Ahd/2020 A.Y. 2015-16 Page No. ITO vs. M/s. Meghdeep Farms Pvt. Ltd. & M/s Meghdeep Farms Pvt. Ltd. vs. ITO 10 “4.3. I have carefully considered the facts of the case, assessment order, and submission of the appellant. The appellant while computing the gain sale of land at Soyala Gam has claimed interest expenses of Rs.47,72,054/- as interest paid in the purchase of land. The Assessing Officer has disallowed the claim on the ground that appellant has not been able to prove that interest paid was for purchase of land. The Assessing Officer has also noted that the interest included the interest payment of Rs.24,85,581/- to M/s. Ganesh Plantation which was interest for the period 01/03/2011 to 31/03/2011. The appellant has submitted that it has taken a loan for the purchase "of land on 25/06/2008 and has paid interest as under:- Sr. No. Particulars A.Y. Amount (Rs.) 1 Agarwal Estate Organisers Ltd 2009-10 24,12,537 2010-11 6,59,746 2 Jhaveri Trading & Investment Pvt Ltd 2010-11 7,00,274 3 Ganesh Plantations Ltd 2010-11 9,70,718 4 Other parties 2010-11 28,779 The appellant has also submitted copy of ledger accounts of loan and interest payment before the Assessing Officer which was also submitted during the appellate proceedings. As regard to Assessing Officer's observation that interest expenses of Rs.47,72,054/- included an amount of Rs.24,85,581/- paid to M/s. Ganesh Plantation Ltd. was relating to period from 01/03/2011 to 31 /03/2011, the appellant has submitted that only interest expenses of Rs. 9,70,718/- up to the date of sale of land relating to M/s. Ganesh Plantation Ltd. has been claimed and included in interest of Rs.47,72,054/-. It is evident from the ledger account, that appellant has purchased land out of borrowed fund and the interest paid has also been duly recorded in I.T.A No. 1402/Ahd/2019 & CO 1/Ahd/2020 A.Y. 2015-16 Page No. ITO vs. M/s. Meghdeep Farms Pvt. Ltd. & M/s Meghdeep Farms Pvt. Ltd. vs. ITO 11 the books of account. Assessing Officer's observation that interest expenses of Rs.24,85,581/- is included in interest claim of Rs.47,72,054/- related to period 01/03/2011 to 31/03/2011 is not correct, in view of the above, and the fact that interest paid is relating to cost of land, AO’s observation is not justified to disallow the claim of interest expenditure. The ground of appeal is accordingly allowed.” 8.1 On going through the facts of the case and the observations made by Ld. CIT(A) in the appellate order, we observe that Ld. CIT(A) on appreciation of the facts of the case has observed that the assessee has been able to establish the nexus between interest paid on borrowed fund and the sale of land and accordingly the assessee in the instant set of facts was justified in claiming interest expenditure of 47,72,054/-as interest paid on the purchase of said land against sale of land at Soyala Gam. Further, Ld. CIT(A) on going through the relevant records has also satisfied itself that no portion of interest expenses were incurred after the date of sale of the aforesaid property. Accordingly, we do not find any infirmity in the order of Ld. CIT(A) so as to call for any interference. 9. In the result, ground number 2 of the Department’s appeal is dismissed. 10. In the result, the appeal of the Department is dismissed. CO-1/Ahd/2020 11. The assessee has also filed Cross objection against appeal filed by the Department. The assessee has taken the following grounds in its Cross objection: I.T.A No. 1402/Ahd/2019 & CO 1/Ahd/2020 A.Y. 2015-16 Page No. ITO vs. M/s. Meghdeep Farms Pvt. Ltd. & M/s Meghdeep Farms Pvt. Ltd. vs. ITO 12 “All the grounds in this Cross Objections are mutually exclusive and without prejudice to each other :- 1. The Ld.CIT(A) after carefully considering the facts of the case, submission of the appellant as well as the various judicial pronouncements relied upon by the appellant has rightly held that "the AO has not doubted the fact that land is situated beyond 8 kms from Ahmedabad Municipal Corporation and is agricultural land. There is no doubt that the land is agriculture land as per Section 2(14)(iii), and therefore, is not capital asset. In view of above, the gain arising out of it is not amenable to capital gain and the Ld.CIT(A) has rightly deleted the addition of Rs. 1,67,024/- made by the AO. 2. The Ld.CIT(A) after carefully considering the facts of the case, submission of the appellant as well as the various judicial pronouncements relied upon by the appellant has rightly held that "it is evident from the ledger account, that appellant has purchased land out of borrowed funds and the interest paid has also been duly recorded in the books of account and capitalized to the cost of land. Assessing Officer's observation that interest expense of Rs.24,85,581/- is included in interest claim of Rs.47,72,054/- related to period 01.03.2011 to 31.03.2011 is not correct as only interest expense of Rs.9,70,718/- upto the date of sale of land has been claimed and included in interest of Rs.47,72,054/-. In view of above and the fact that interest paid is relating to cost of land, AO is not justified to disallow the claim of interest expenditure" and the Ld.CIT(A) has rightly deleted the addition of Rs.47,72,054/-made by the AO. 2.1. The AO has not considered the fact that the appellant has claimed only interest expense of Rs.9,70,718/- up to the date of sale of land relating to M/s. Ganesh Plantation Ltd. and included in interest of Rs.47,72,054/-. 3. Your Respondent craves right to add, amend, alter, modify, substitute, delete or modify all or any of the above grounds of cross objection.” I.T.A No. 1402/Ahd/2019 & CO 1/Ahd/2020 A.Y. 2015-16 Page No. ITO vs. M/s. Meghdeep Farms Pvt. Ltd. & M/s Meghdeep Farms Pvt. Ltd. vs. ITO 13 12. In the aforesaid cross objections, the assessee has primarily supported the observations made by Ld. CIT(A) while allowing the appeal of the assessee. Since, we have already dismissed the appeal of the Department on merits, we are not separately adjudicating on the cross objections filed by the assessee. 12. In the result, the cross objection of the assessee is dismissed. 13. In the combined result, the appeal of the Department and Cross Objection filed by the assessee both are dismissed. Order pronounced in the open court on 27-03-2023 Sd/- Sd/- (WASEEM AHMED) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 27/03/2023 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/ आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद