2015 (11) TMI 1372 - AT - Income Tax

Addition on account of capital gains on account of transfer of the land - whether the land sold was situated at a distance of 10Kms from the nearest Avadi Municipality based on the VAO s certificate ? - main argument of the Department is that the land sold by the assessee is a capital asset, as it is situated within the distance of 8 kms. from the nearest Municipality limit (Avadi) - Held that - Tehsildar is the competent authority to issue certificate, which is to be accepted. Further, the distance of agricultural land has to be measured in terms of the approach by road and not by a straight-line distance on horizontal plane or as per crow s flight as held by the Punjab & Haryana High Court in the case of CIT vs. Satinder Pal Singh (2010 (1) TMI 752 - Punjab and Haryana High Court). In view of this, the AO has no material to prove the contention of the assessee that the distance of the land as on date of sale has to be held more than 8 kms. from the nearest Municipality, is not correct. Therefore, the assessee has to prove one essential condition that the land owned by him or her is situated at a distance more than 8 kms. from the nearest Municipality, which was proved by the assessee. To sum up, in our opinion, the distance has to be measured in terms of the approach by road and not by a straight-line distance on horizontal plane or as per crow s flight. Further, the assessee has also proved that the land was situated at a distance more than 8 kms. from the nearest Avadi Municipality. Measurement of aerially distance came into force with effect from 1.4.2014 under sec. 2(14)(iii)(b) of the Act and it cannot be applied to the present assessment year 2009-10. Regarding carrying out of agricultural activities in the said land, there is an evidence in the form of lease deed between the assessee (and other family members) and M/s. Vel Horticultures leasing the land for agricultural operations, the leasing company claimed agricultural income which had been accepted in the scrutiny assessment as noted by the CIT(Appeals) in his order, which was not controverted by the ld. DR. As such it cannot be denied that the land in question was an agricultural land situated at a distance more than 8 kms. from the nearest Municipality (Avadi).Therefore, there is no merit in the argument of the ld. DR and we are inclined to dismiss the appeals of the Revenue. - Decided in favour of assessee

Summary

Issues Involved:
1. Determination of whether the land sold by the assessees qualifies as agricultural land.
2. Assessment of the distance of the land from the nearest municipality for tax exemption purposes.
3. Evaluation of the evidence provided by the assessee regarding the nature and location of the land.
4. Compliance with the directions of the ITAT in the reassessment process.

Detailed Analysis:

1. Determination of Agricultural Land:
The primary issue was whether the land sold by the assessees could be classified as agricultural land. The Assessing Officer (AO) initially contended that the land was not agricultural, citing the absence of evidence such as certificates from Revenue Authorities, records of agricultural operations, receipts, or expenses. The CIT(A) upheld this view, noting that the land was barren and sold to a Trust for non-agricultural purposes. However, the ITAT, upon appeal, found that the AO had not considered all the evidence provided by the assessee, such as certificates from the Village Administrative Officer (VAO) and other authorities, and thus remanded the matter back to the AO for reassessment.

2. Distance from Nearest Municipality:
Another critical issue was whether the land was situated more than 8 kilometers from the nearest municipality, which is a condition for tax exemption on the sale of agricultural land. The AO argued that the land was within 8 kilometers based on the report of an Income-tax Inspector, who measured the distance as 5.5 kilometers. However, the assessee provided certificates from the Deputy Surveyor and the Metropolitan Transport Corporation, indicating that the land was more than 8 kilometers from Avadi Municipality. The CIT(A) and ITAT found these certificates more credible, especially since the AO did not provide substantial reasons for rejecting them.

3. Evaluation of Evidence:
The ITAT emphasized the need for the AO to consider all evidence presented by the assessee, including certificates from the VAO and other authorities, which were initially overlooked. The ITAT directed the AO to reassess the case by verifying all documents and providing a speaking order. During reassessment, the AO again denied the claim, relying on a Supreme Court decision and the Inspector's report. However, the CIT(A) and ITAT found that the evidence provided by the assessee, including the lease deed for agricultural operations, was sufficient to classify the land as agricultural and situated more than 8 kilometers from the nearest municipality.

4. Compliance with ITAT Directions:
The ITAT had earlier remanded the case for reassessment with specific instructions to consider all evidence. The reassessment process involved verifying the certificates and other documents provided by the assessee. The CIT(A) and ITAT found that the AO did not adequately justify rejecting these pieces of evidence and upheld the assessee's claim based on the credible certificates and the lease deed indicating agricultural use.

Conclusion:
The ITAT concluded that the land in question was agricultural and situated more than 8 kilometers from the nearest municipality, thereby qualifying for tax exemption on the sale. The appeals of the Revenue were dismissed, and the CIT(A)'s decision to delete the addition on account of capital gains was upheld. The judgment reinforced the importance of considering all relevant evidence and adhering to procedural directions in reassessment cases.