2012 (6) TMI 236 - AT - Income Tax

Capital gain enhanced compensation received on compulsory acquisition assessee claimed capital loss - agricultural land Held that - CBDT has issued a notification in terms of section 2(14)(iii)(b) and that the land in question is situated in Village Kundli being an area adjoining the local limits of Panchkula municipality, which has already been notified by the CBDT for the purpose of section 2(14)(iii)(b) of the Income-tax Act and is therefore a capital asset. The order of the ld. CIT(A) is completely silent in this behalf also. assessee had neither filed any evidence before any of the authorities below to show his ownership of agricultural land nor filed details of expenses. All these aspects have not been looked into by the CIT(A). In this view of the matter, the order passed by the CIT(A) is vacated and the matter is restored to his file for a fresh decision. appeal filed by the Department is treated as allowed for statistical purposes.

Issues Involved:

1. Deletion of addition on account of capital gain.
2. Deletion of addition on account of income from other sources as interest received on enhanced compensation.
3. Deletion of addition on account of income from other sources.
4. Admission of additional evidence by CIT(A) without recording reasons.
5. Determination of whether the land was a capital asset under Section 2(14)(iii)(b) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Capital Gain:

The Department challenged the deletion of Rs. 13,89,711/- added by the AO as capital gain. The AO noted that the assessee received 1/3rd share of enhanced compensation for compulsory land acquisition but claimed a capital loss. The AO taxed the amount as capital gain under Section 45(5)(b) of the Income-tax Act, 1961, as the assessee failed to prove the land was used for agricultural purposes before acquisition. The CIT(A) admitted additional evidence (Patwari/Tehsildar certificate) indicating the land was agricultural and beyond municipal limits, thus not a capital asset under Section 2(14)(iii)(b). The ITAT vacated the CIT(A)'s decision, directing reconsideration of the admissibility of additional evidence under Rule 46A of the Income-tax Rules.

2. Deletion of Addition on Account of Income from Other Sources as Interest Received on Enhanced Compensation:

The AO added Rs. 16,64,226/- as interest on enhanced compensation to the income. The CIT(A) deleted this addition, citing ongoing litigation and lack of finality in interest payment. The ITAT directed the CIT(A) to re-evaluate the issue in light of the Supreme Court judgment in CIT v. Ghanshyam (HUF), which clarified the taxability of interest on enhanced compensation.

3. Deletion of Addition on Account of Income from Other Sources:

The AO treated Rs. 3,50,000/- as non-agricultural income due to lack of supporting evidence for agricultural income. The CIT(A) accepted the claim based on additional evidence (J-Form) submitted at the appellate stage, which was not rebutted by the AO. The ITAT vacated the CIT(A)'s decision, directing a fresh examination of the evidence and compliance with Rule 46A.

4. Admission of Additional Evidence by CIT(A) Without Recording Reasons:

The Department argued that the CIT(A) admitted additional evidence without recording reasons as mandated by Rule 46A(2). The ITAT found that the CIT(A) failed to specify reasons for admitting the Patwari's certificate and other additional evidence. The ITAT vacated the CIT(A)'s order and remanded the matter for reconsideration of the admissibility of additional evidence in compliance with Rule 46A.

5. Determination of Whether the Land Was a Capital Asset Under Section 2(14)(iii)(b) of the Income-tax Act, 1961:

The CIT(A) held the land was not a capital asset, being agricultural and beyond municipal limits. The ITAT noted the CIT(A) did not specify the municipality or consider the CBDT notification regarding the land's location relative to Panchkula municipality. The ITAT directed the CIT(A) to re-evaluate whether the land was a capital asset, considering the relevant municipality and CBDT notification.

Conclusion:

The ITAT vacated the CIT(A)'s order and remanded the case for fresh consideration on all issues, directing adherence to Rule 46A for admitting additional evidence and proper evaluation of whether the land was a capital asset under Section 2(14)(iii)(b). The appeal was allowed for statistical purposes.

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