2014 (12) TMI 301 - AT - Income Tax

Assessment of capital gain on sale of land at Maqta Mehaboobpet Held that - AO came to the conclusion that there is transfer of capital asset i.e. land admeasuring acre 1.235 guntas by assessee to MDPL by solely relying upon the agreement of sale-cum-GPA dated 31/07/08 - though assessee had entered into agreement of sale-cum-GPA but it never received the consideration of ₹ 7,14,37,500 as mentioned in the agreement of sale-cum-GPA - Nothing has been brought on record by AO during the assessment proceeding or even by the revenue to controvert the fact that the cheque No.600873 dated 31/07/08 of HDFC Bank, Banjara Hills was never handed over to assessee nor encashed by assessee - when two of the most important ingredients of sale/ transfer viz., receipt of sale consideration and delivery of possession are missing, there cannot be a transfer of capital asset either under the TP Act or under section 2(47) of the IT Act - since the vendor as well as vendee have agreed to cancel the agreement of sale-cum-GPA by entering into a registered cancellation deed even that situation does not arise - there is no other documentary evidence brought on record which could conclusively prove that the property stands transferred to the vendee during the relevant PY - the inference drawn by AO that assessee has sold the property resulting in capital gain cannot be upheld - though in one of the grounds the department has raised the issue of consideration of fresh evidence in violation of rule 46A by CIT(A) but at the time of hearing neither the revenue made any substantive argument on this issue or brought to our notice the exact nature of evidences considered by CIT(A) in violation of rule 46A - the claim of the department that CIT(A) has considered fresh evidence in violation of rule 46A cannot be entertained Decided against revenue. Addition of capital gain on sale of land at Kistareddypet Held that - AO has rejected assessee s claim of exemption from capital gain on sale of land by simply observing that assessee has not brought any evidence to show that the land is situated beyond eight kilometers from the limit of nearest municipality - not only the land is classified as agricultural land but it is beyond eight kilometers from the limits of nearest notified municipality - it is not clear whether land of assessee was actually acquired on that date or subsequently - nothing has been brought on record to indicate the actual date of acquisition of land - actual date of acquisition assumes importance considering the fact that assessee himself has shown the income in the impugned assessment year - no material has been brought either by the assessee or by the department to indicate the exact distance of land from the limits of a nearest notified municipality thus, the matter is to be remitted back to the AO for fresh adjudication Decided partly in favour of revenue. Allowability of claim of exemption u/s 54F Held that - AO has denied claim of exemption u/s 54F for two reasons i.e., construction of the new property was prior to the date of sale of original asset and secondly, the sale consideration received by assessee was not utilized for construction of the new asset - assessee has not only claimed that the construction of the new residential house was started in March 2007 and continued up to June 2008 but has also submitted a report from registered valuer in support of such claim - The bank statement also indicate the fact that not only the sale consideration of the original asset was deposited in bank account but there are substantial withdrawals from the bank account thereafter which gives credence to the assessee s claim that the sale consideration was utilized for construction of the new asset - the assessee has invested in construction of the new asset within the time limit prescribed u/s 54F - in absence of any evidence brought on record by AO to contradict assessee s claim of investment in construction of new house by utilizing the sale proceeds of the original asset the addition made on the basis of presumptions and surmises cannot be sustained - the CIT(A) was justified in allowing the claim of assessee u/s 54F Decided against revenue. Claim of allowability of cost of acquisition Held that - On verifying the sale deed CIT(A) found that assessee has incurred expenses towards cost of acquisition of property in the year 2004 - the claim of the revenue that the CIT(A) has allowed the benefit by considering information which was not filed before the AO cannot be upheld, when the documentary evidence clearly establish the claim of assessee that the CIT(A) was justified in allowing such claim on the basis of material on record Decided against revenue. Allowability of claim of exemption u/s 54F Held that - AO has rejected assessee s claim u/s 54F for the reason that the building having been let out to an educational institution for use as a students hostel, hence, is a commercial property - CIT(A) was of the view that as the building is used as a dwelling unit for students and is having facilities for sleeping, cooking, dining etc., it is a residential house and as such assessee is entitled for deduction u/s 54F - neither AO nor CIT(A) have examined the primary facts before coming to their conclusion - AO was not justified in rejecting assessee s claim by simply observing that as the building is used as a hostel it is commercial property - the finding of CIT(A) is also conflicting and contradictory - the nature of a property whether residential or commercial cannot be determined by solely applying the user test - in the absence of the basic facts, the exact nature of property constructed and assessee s eligibility to section 54F cannot be decided conclusively on presumptions thus, the matter is remitted back to the AO for fresh adjudication Decided in favour of revenue. Allowability of claim of exemption u/s 54B - Gain arising from sale of agricultural land - Held that - Assessee derived gain from sale of agricultural land to the tune of ₹ 31,68,790 which was claimed as exempt having been invested in purchase of agricultural land - the land purchased at Kistareddypet and Sultanpur Village in Patancheru Mandal are classified as agricultural land not only as per the registration deed, pattadar pass book, etc., but, has also been certified by revenue authorities as agricultural land - the only requirement for claiming deduction is the capital gain arising from transfer of agricultural land if is invested in purchase of any other land for being used for agricultural purposes, then, assessee would be eligible for deduction - the documentary evidences submitted by assessee clearly prove that the land purchased are in the nature of agricultural land - the intention of assessee in purchasing the land for being used for agricultural purposes is evident - there is no restriction u/s 54B regarding the proximity of the land to urban area - Only requirement as per section 54B is the land purchased is for the purpose of being used as agricultural land the order of the CIT(A) is upheld Decided against revenue.

Summary

Issues Involved:
1. Assessment of capital gain on sale of land at Maqta Mehaboobpet.
2. Assessment of capital gain on sale of land at Kistareddypet.
3. Allowance of claim under Section 54F.
4. Allowance of claim under Section 54B.
5. Treatment of agricultural income as income from other sources.

Issue-Wise Detailed Analysis:

1. Assessment of Capital Gain on Sale of Land at Maqta Mehaboobpet:
The department raised concerns regarding the assessment of capital gain on the sale of land at Maqta Mehaboobpet, which was deleted by the CIT(A). The AO argued that the land, located near a municipality, could not be treated as agricultural land under Section 2(14) of the IT Act. Despite the cancellation of the sale agreement, the AO considered the transaction complete and computed capital gain. The CIT(A) found that no transfer occurred as the sale consideration was not realized, and possession was not handed over. The Tribunal upheld the CIT(A)'s decision, stating that without the transfer of consideration and possession, no capital gain could be charged.

2. Assessment of Capital Gain on Sale of Land at Kistareddypet:
The AO treated the sale of land at Kistareddypet as a capital gain, claiming the land was not agricultural. The CIT(A) observed that the land was classified as agricultural by the land acquisition officer and situated beyond eight kilometers from the nearest notified municipality. The Tribunal remitted the issue back to the AO for verification of the land's acquisition date and its distance from the nearest notified municipality to determine if it falls under the definition of a capital asset.

3. Allowance of Claim under Section 54F:
The AO denied the exemption under Section 54F for investments in residential property, arguing that the sale proceeds were not utilized for construction. The CIT(A) found that the sale proceeds were used for constructing a residential house within the prescribed time. The Tribunal upheld the CIT(A)'s decision, noting the investments were made within the time limit, and the sale proceeds were used for construction, thus allowing the claim under Section 54F.

4. Allowance of Claim under Section 54B:
The AO rejected the claim under Section 54B, questioning the agricultural nature of the land and the proximity to urban limits. The CIT(A) allowed the claim, stating that the lands were classified as agricultural by revenue authorities and used for agricultural purposes. The Tribunal upheld the CIT(A)'s decision, noting the lands were agricultural and the investments were for agricultural purposes, satisfying Section 54B's requirements.

5. Treatment of Agricultural Income as Income from Other Sources:
The AO restricted the agricultural income to Rs. 20,000 per acre, treating the excess as income from other sources. The CIT(A) upheld this view. The Tribunal found no basis for the AO's estimation and noted that the agricultural income declared was consistent with previous years. The Tribunal directed the AO to accept the agricultural income as declared by the assessees and delete the additions under income from other sources.

Conclusion:
The Tribunal partly allowed the department's appeals for statistical purposes and dismissed the appeal in ITA No.432/Hyd/2013. The assessees' appeals were allowed, directing the AO to accept the agricultural income as declared and to reexamine the issues related to capital gains and exemptions under Sections 54F and 54B.