2001 (2) TMI 1025 - AT - Income Tax

Summary

Issues Involved:
1. Admission of additional grounds and evidence.
2. Adequate opportunity of being heard.
3. Classification of land as agricultural or non-agricultural.
4. Applicability of section 2(14)(iii)(a) regarding the population of the municipality.

Detailed Analysis:

1. Admission of Additional Grounds and Evidence:
The assessee moved an additional ground requesting exemption under section 54F on the total sum spent on constructing a residential house. The Tribunal decided to adjudicate on the admission of this additional ground after deciding the main grounds of appeal. The assessee also sought to introduce additional evidence, including the publication date of the 1991 census, copies of pahanies, and photographs of the house. The Tribunal admitted the evidence related to the census publication but declined to admit the photographs and fair market value evidence, as the assessee failed to show why these were not presented earlier.

2. Adequate Opportunity of Being Heard:
The assessee contended that the assessment was framed without adequate opportunity of being heard and relied on an inquiry report not confronted to the assessee. The Tribunal found that the assessment proceedings started on 25-2-1994, and several notices were issued, but there was no clear record of what transpired on certain dates. The Tribunal noted that the assessing officer relied on a report from the Income Tax Inspector and a certificate from Kapra Municipality, neither of which were shared with the assessee. The Tribunal held that the assessment was made without confronting the material gathered at the back of the assessee, deciding this ground in favor of the assessee.

3. Classification of Land as Agricultural or Non-Agricultural:
The assessee argued that the land sold was agricultural, as classified in land revenue records and used for agricultural purposes since its purchase in 1968. The assessing officer treated the land as non-agricultural, thus subject to capital gains tax. The Tribunal considered various factors, including revenue records, agricultural income consistently shown in tax returns, and the nature of crops grown. The Tribunal concluded that the land was indeed agricultural, as evidenced by revenue records and consistent reporting of agricultural income. The potential use by the buyer and the buyer being a company did not alter the land's character at the time of transfer.

4. Applicability of Section 2(14)(iii)(a) Regarding Population of the Municipality:
The assessing officer contended that the land, even if agricultural, was within a municipality with a population exceeding 10,000, making it a capital asset under section 2(14)(iii)(a). The Tribunal examined the evidence and found that Kapra became a municipality in 1987, with the first census in 1991. The census figures were published in February 1993, after the first day of the relevant previous year. Therefore, the population data could not be used to classify the land as a capital asset. The Tribunal held that the land was not a capital asset under section 2(14)(iii)(a), and no capital gains tax was applicable.

Conclusion:
The Tribunal allowed the appeal of the assessee, determining that the land was agricultural and not subject to capital gains tax. The additional grounds and evidence were partially admitted, and the assessment was found to lack adequate opportunity for the assessee to be heard.