2016 (8) TMI 410 - AT - Income Tax

Applicability of provisions of section 50C on the basis of circle rate at the time of execution of sale deed - Held that - Circle rate prevailing at the time of agreement to sell has to be considered for applying the provisions of section 50C. See ITO vs. Modipon Ltd 2015 (1) TMI 609 - ITAT DELHI Claim of deduction u/s. 54B - Held that - There is no requirement that the investment in agriculture land has to be made out of sale proceeds and as such the assessee is eligible to claim deduction u/s. 54B for purchase of lands even presuming that payment for purchase of land was not made out of receipt of sale proceeds on sale of asset. Therefore, there is no justification for restricting claim of exemption u/s. 54B of the Act, thus we reverse the finding of the Ld. CIT(A) on this issue and allow the deduction as accepted by the AO at ₹ 81,05,300/-, as a result the ground raised by the Assessee is allowed.

Summary

Issues Involved:
1. Validity of the Assessment Order under Section 143(3) of the Income Tax Act, 1961.
2. Addition under the head capital gains based on deeming provisions under Section 50C of the Income Tax Act, 1961.
3. Opportunity for rebuttal and principles of natural justice.
4. Full amount of exemption under Section 54B of the Income Tax Act, 1961.
5. Withdrawal of deduction under Section 54B by the CIT(A).
6. Consideration of the correct amount of advance received and its utilization.

Detailed Analysis:

1. Validity of the Assessment Order under Section 143(3):
The assessee argued that the Assessment Order passed under Section 143(3) should be considered null and void due to the lack of due processing under Section 143(1) and serving of intimation in case of a refund. However, this issue was not elaborated upon in the judgment, indicating that it might not have been a focal point in the final decision.

2. Addition under the head capital gains based on deeming provisions under Section 50C:
The AO added ?27,16,668 under capital gains by applying Section 50C based on the circle rate at the time of the sale deed execution. The assessee contended that the circle rate at the time of the agreement to sell should be considered instead. The Tribunal agreed with the assessee, citing precedents such as ITO vs. Modipon Ltd. and DCIT vs. S. Venkat Reddy, which held that the circle rate at the time of the agreement to sell is applicable. Consequently, the addition of ?27,16,668 was deleted.

3. Opportunity for rebuttal and principles of natural justice:
The assessee claimed that the AO passed the order without providing an opportunity for rebuttal, violating the principle of natural justice. The Tribunal did not specifically address this issue in detail, implying that the decision on other grounds rendered this point moot.

4. Full amount of exemption under Section 54B:
The assessee claimed an exemption of ?1,06,58,100 under Section 54B for investment in agricultural land. The AO allowed ?81,05,300, but the CIT(A) restricted it to ?6,05,000, arguing that the payment for the purchase of agricultural lands was not made out of the sale proceeds. The Tribunal found that the entire payment was made from the sale proceeds, corroborated by bank statements, and ruled that Section 54B does not mandate that the purchase must be made from sale proceeds. Thus, the full exemption as claimed by the assessee was allowed.

5. Withdrawal of deduction under Section 54B by the CIT(A):
The CIT(A) withdrew ?75,00,300 of the deduction previously allowed by the AO, based on the assumption that the payment for the purchase of agricultural land was not made from the sale proceeds. The Tribunal reversed this finding, stating that the deduction under Section 54B should be allowed as the payment was indeed made from the sale proceeds.

6. Consideration of the correct amount of advance received and its utilization:
The assessee argued that the CIT(A) did not consider the correct amount of advance received and its utilization for purchasing other agricultural land. The Tribunal's decision to allow the full exemption under Section 54B implicitly addressed this issue, as it recognized the payment for the purchase of agricultural lands from the sale proceeds.

Conclusion:
The Tribunal ruled in favor of the assessee, allowing the full exemption under Section 54B and deleting the addition under Section 50C. The appeal filed by the assessee was allowed, and the order of the CIT(A) was reversed on the grounds discussed above. The judgment underscores the importance of considering the circle rate at the time of the agreement to sell and clarifies that Section 54B does not require the purchase of agricultural land to be made from the sale proceeds.