Income Tax Appellate Tribunal

Income-tax Officer vs. Buniyad Developers, New Delhi

MANU/ID/0771/2020

21.09.2020

Direct Taxation

If the Assessee has mistakenly included any amount which is exempted from the payment of Income-tax, Revenue is under obligation to grant the refund of tax paid in excess by him

In facts of present case, the Assessee is a company, deriving income from agricultural activities and earning from investments. For the assessment year 2009-10, they have filed their return of income declaring nil income but paid tax on book profits under Section 115JB of the Income Tax Act, 1961 (IT Act) at Rs.5,73,70,009. The return was processed under Section 143(1) of the IT Act.

Subsequently, during the assessment proceedings relating to assessment year 2010-11, learned Assessing Officer noticed that the Assessee claimed exempt income to the tune of Rs.21,71,74,573 on account of profit on sale of agricultural land and the learned Assessing Officer treated the agricultural land as capital asset under Section 2(14)(iii) of the IT Act and income arising out of transfer of such land under the head 'Long-term Capital gains'. Assessing Officer noticed that in F.Y. 2009-10 also, the lands were sold in part and that there has been no income declared in respect of its profits of Rs.5,58,61,180 earned on sale of land.

The Assessing Officer accordingly issued notice under Section 148 of the Act and after hearing the assessee made an addition of Rs.5,41,38,217 with interest income of Rs.21,90,212. The assessee preferred appeal before the learned Commissioner of Income Tax (CIT(A)) and argued that, income earned from sale of land is exempt under Section 10 of the Act, as the land sold by the assessee was in village Kishora, which is more than 8 Kms. away from the Municipal limits. The assessee further argued that even for the purpose of Section 115JB, the profits arising from sale of agricultural land cannot be added to the book profits under the provisions of Section 115JB(2)(k)(ii) of the IT Act.

The learned CIT(A) found that, since the village where the sold land was located was 8 Kms away from the Municipal limits, the very basis of Assessing Officer for reopening the assessment proceedings for the AY 2009- 10has no locus standi, as the Assessing Officer himself admitted the said fact. He, therefore, allowed the contention of the Assessee on that ground.

Learned CIT(A) further considered the contention of the Assessee that, under the provisions of Section 115JB(2)(k)(ii) of the IT Act, the profits derived from sale of an agricultural land, which is exempt under Section 10 of the IT Act, has to be reduced from the book profits and therefore, the Assessee is entitled to relief even in respect of the amount that was offered to tax. Learned CIT(A) accepted the same and since the addition itself was exempt as the land sold was outside the purview of capital assets defined under Section 2(14) of the Act and exempt under Section 10 of the Act, the same requires to be reduced from the book profits under Section 115JB of the Act. Learned CIT(A), therefore, directed the Assessing Officer to compute the tax in accordance with law by reducing the amount of income to which any of the provisions of Section 10 of the Act applies, if the said amount is credited to the profit and loss account.

The Supreme Court in the case of CIT vs. Shelly Products and Another, held that if the Assessee had, by mistake and inadvertence or on account of ignorance included in his income any amount which is exempt from payment of Income-tax or is not income within the contemplation of law, the Assessee may bring the same to the notice of the Revenue, which if satisfied, may grant the assessee necessary relief and refund the tax paid in excess, if any.

It an admitted fact that, the land that was sold was located in village Kishora, which is more that 8 kms away from municipal limits and the profits earned on sale of such land are exempt under Section 10 of the IT Act. Further, provisions of section 115JB(2)(k)(ii) of IT Act provide that, the amount of income to which any of the provisions of Section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply, shall be reduced from computation of book profit, if any such amount is credited to the statement of profit and loss.

In present matter, the Assessee computed the book profits while crediting the sale consideration of agricultural land to the profit and loss account and offered the same to tax. It is a mistake. In view of the decision of Hon'ble Supreme Court in the case of Shelly Products, such a mistake has to be rectified by the Revenue Authorities, when it is brought to their notice and they are satisfied with the genuineness of the claim. Therefore, when the learned CIT(A) is satisfied that, the income which is exempt under Section 10 of the Act is included in the book profit under Section 115JB of IT Act, which should not be done, the learned CIT(A) is justified in directing the learned Assessing Officer to follow the law and to compute the tax in accordance with provisions of Section 115JB of the IT Act by reducing the amount of income to which Section 10 applies, if such amount is credited to the profit and loss account. The action of the learned CIT(A) is perfectly legal and does not suffer any infirmity. The appeal of the Revenue is dismissed.

Tags : Additions Exemption Direction

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