2014 (1) TMI 1404 - AT - Income Tax

Treatment of agricultural land situated in Goa - Held that - The order of the CIT(A) is merely based upon the findings of the AO without verifying the claims made before him - In the earlier years agricultural income was earned from the said land and declared to the tax authorities - The population therein is less than 10000 and it is beyond 25 kms from the notified area - The issue has been restored for fresh adjudication with regards to the claim made by the assessee.

Summary

Issues:
1. Treatment of agricultural land as a capital asset for computing capital gain/loss.
2. Classification of Sanguem Municipal Council as a notified municipality under the Income Tax Act.
3. Verification of assessee's share in properties based on a formal settlement deed and computation of income under Portuguese Civil Code of 1986.

Issue 1: Treatment of Agricultural Land as a Capital Asset:
The appeal was filed against the order passed by CIT(A)-16, Mumbai pertaining to A.Y. 2008-09. The assessee declared total income of Rs. 2,55,758, while the assessment computed total income at Rs. 4,80,620, including a long-term capital loss on the sale of land. The assessee claimed the land was agricultural and outside municipal limits, thus not a capital asset under section 2(14) of the Income Tax Act. The AO argued that the land was within Sanguem Municipal Council limits and not covered under section 2(14). The CIT(A) upheld the AO's decision, disregarding the assessee's arguments based on the valuation report and Goa's laws on agricultural land sales.

Issue 2: Classification of Sanguem Municipal Council:
The assessee contended that the Sanguem Municipal Council was not a notified municipal area under the Income Tax Act due to its population size and distance from a notified municipality. The Tribunal sought clarifications on this aspect, noting the absence of evidence contradicting the assessee's claims. It was highlighted that Goa's laws allowed agricultural land sales to tenants, supported by valuation reports and village office records indicating cultivable agricultural land. The CIT(A) was directed to obtain a report from the AO to verify various aspects, including the land's agricultural use, the assessee's agricultural income history, and the municipal status of the area.

Issue 3: Verification of Assessee's Share and Income Computation:
The appeal was initially found to be time-barred but was admitted due to valid reasons for delay. The Tribunal noted the lack of representation by the assessee during proceedings. The CIT(A) based his decision on the AO's findings without adequately considering the assessee's arguments and evidence. The matter was remanded to the CIT(A) for a detailed review, including verification of the land's agricultural use, the assessee's share, and potential exemptions under section 54EC of the Act. The Tribunal emphasized providing the assessee a fair opportunity to present their case.

In conclusion, the Tribunal set aside the appeal to the CIT(A) for a thorough reevaluation, emphasizing the need to consider the peculiarities of Goa's laws regarding agricultural land sales and the municipal status of the area. The judgment highlighted the importance of verifying the factual claims made by the assessee and providing a fair opportunity for the assessee to present their case.