Mere reflection of income in P&L Account does not make it business income – ITAT

Mere reflection of income in P&L Account does not make it business income. Books of accounts not conclusive evidence to determine income under a particular head

ABCAUS Case Law Citation:
ABCAUS 3102 (2019) (08) ITAT

Important case law relied upon by the parties:
Sutlej Cotton Mills Vs. CIT, West Bengal 116 ITR

The appeal had been filed at the instance of the assessee against the order of the Commissioner of Income Tax (Appeals) arising in the matter of assessment order passed u/s 263 of the Income Tax Act, 1961 (“the Act”).

The assessee was a private limited company engaged in the business of trading in lands and properties. The assessee in the year under consideration had declared profit in its profit and loss account on the sale of agricultural land.

The assessee subsequently in the statement of income treated the same as exempted u/s 10(1) of the Act treating the same as a non-capital asset in pursuance to the provisions of section 2(14) of the Act.

However, the AO was of the view that the assessee was engaged in the activity of purchase and sale of the lands. Therefore the same had to be taxed under the head business and profession. Accordingly, the AO treated the profit on the sale of land as business income and not exempt u/s 10(1) as claimed by appellant.

The CIT-A opined that appellant was a company engaged in the business of purchasing and selling of land, the profit was in the nature of adventure, and therefore, it was to be taxed as a business income. Accordingly, CIT(A) agreed with the finding given by the AO and the addition made was confirmed.

The Tribunal observed that in the balance sheet the assessee had not shown the impugned land as stock in trade. Rather it was shown under the head fixed assets. Therefore the Tribunal was of the view that the intention of the assessee was not to trade in the agriculture lands.  

Moreover, the Tribunal noted from the objects of the assessee that the sale purchase of the lands was not mentioned any business activity.

The Tribunal also noted that the assessee being a body corporate has to show all the income through the profit and loss account. The assessee subsequently bifurcates the income shown in the profit and loss account prepared as per the Companies Act under different heads in the statement of income prepared under the Act. Since the income from the sale of agricultural land was exempted u/s 10(1) of the Act and therefore the same would not be shown under any head of income as specified u/s 14 of the Act.

The Tribunal opined that the assessee was entitled to the exemptions on the scope of the total income. The mere reflection/declaration of impugned income in the statement of income / P&L Account does not give rise to hold that the income was from the business activity.

The Tribunal also noted that even the assessee had made a mistake in the computation of income, but the same could be rectified. Therefore, the declaration of income under the head business and profession to claim the exemption could not be conclusive that the said income was from the activity of the business.

The Tribunal also noted the principles laid down by the Hon’ble Supreme Court that the books of accounts are not conclusive evidence to determine the income under the particular head.

The Tribunal opined that the assessee had been showing the lands under the head fixed assets which were accepted by the Revenue, therefore such assets were not held for the purpose of the business.

In view of the above, the Tribunal allowed the appeal of the assessee.

Download Full Judgment Click Here >>

• Penalty u/s 271B for unfilled column 40 in Tax Audit Report Form 3CD deleted by ITAT
• Merely ex-parte rectifying computation without amending assessment order not make it nullity- ITAT
• Once assessee discharges primary onus, it shifts to AO to bring evidence to contrary – ITAT
• Cost Inflation Index for FY/Tax Year 2026-27 notified by CBDT. See Up-to-date Table of CII
• Power of CIT(A) u/s 251(1)(a) to remand case can be exercised only in best judgment assessment

addition u/s 68 addition u/s 69A ca misconduct cash deposit in bank cbdt circular CBDT Instruction cbdt notification cbdt order cbdt press release cgst circular cgst notification cit revision 263 concealment penalty condonation of delay covid-19 custom circular demonetisation due date extension e-way bill faq GST circular GST Council Meeting gst faq gstn advisory GSTR-3B GST rates IBBI ibc icai announcement income tax penalty itat ITAT Delhi mca circular MCA notification penalty 271(1)(c) penalty u/s 271(1)(c) Press Release reasons recorded reopening 148 Reopening us 147 Search & Seizure sebi circular unexplained cash credits validity of notice u/s 148 Withdrawal of 2000 500 Bank Notes