In the same assessment year, the assessee sold lands for a consideration of Rs. 1,91,50,575/- which was evidenced by an unregistered agreement of sale entered into by him with the buyers. He claimed that he received an advance of Rs.50 lakhs in cash, out of which he deposited Rs. 45 lakhs in his bank while he retained the balance of Rs. 5 lakhs in cash, which was subsequently deposited with the same bank. It was the assessee’s contention before the AO  that the lands were rural agricultural lands and therefore not liable to income tax having consideration to the provisions of S.2(14)(iii) read with S. 10(37) of the Act. Further, since the assessee had identified the nature of receipt, source of funds and persons who had provided the sum to the assessee, the provisions of S.69 had no applicability. However, the Assessing Officer observed that the parties to the agreement to sale had expressed conflicting versions of the facts and therefore the unregistered agreement lost its evidentiary value. Thus, there was no evidence on record to prove that the assessee received cash which was deposited in the bank, and the unregistered sale agreement did not contain any endorsement relating to the payment of cash made or received by respective parties. Since the assessee had failed to explain the sources of amount deposited in the bank the cash deposits were treated as unexplained investments under S.69.

On appeal, the CIT (A)  confirmed the addition made by the AO.

On further appeal to the Tribunal it was observed that the Village Administrative Officer confirmed that agricultural operations were being conducted on the land sold by the assessee when the transfer took place by stating that various crops were grown and land revenue of Rs. 500 was collected. The matter was remanded to the Assessing Officer for reconsideration on whether the assesse could claim benefit the provisions of S.2(14)(iii) read with S. 10(37) of the Act by conducting necessary enquires with the local authorities of the area where the land was located. The assessee was directed to produce all relevant evidence in support of his contention that capital gains earned from sale of land were exempt from income tax under the Act which would be admitted by the AO  in the interest of justice and thereafter be adjudicated on the merits and in accordance with law. Re assessment is held to be valid.(AY.2008-09, 2009-10)