2015 (1) TMI 1472 - AT - Income Tax

Taxation of capital gains on sale of agricultural land pertaining to assessee - determine the sale price as income of assessee - HELD THAT - Assessee was not aware about the statement given by the said Smt. Bhagya Lakshmi and others. It is also noticed that assessee has sold the agricultural property to one Mr. T. Chandra Sekhar and Shri V. Papaiah being the vendors. How these two are connected with Smt. Bhagya Lakshmi in the purchase of the so called 15.14 acres is not coming out of the assessment order. Not only that the basis of determining the price is also not forthcoming from the orders. In fact assessee asked for copies of the documents relied on by the AO which are also denied to him as stated above. As perused the sale deed dt.17-11-2006. It is clear from the recitals that property is ancestral property devolved on assessee by way of partition. In that case, the status of assessee, being HUF property or individual also required to be determined. Not only that, 1/4th of the share of the property, as can be seen from the recitals of the sale deed, pertain to his son who also became vendor No.2. When the sale deed is very clear about respective shares, how the entire amount can be brought to tax in the hands of assessee was also not explained by the AO - document of sale indicates that the property sold was agricultural land. Whether sale of agricultural land can be considered as a capital asset or not also required to be considered. Principles of natural justice have not been followed in this case, we are of the opinion that assessee should be given due opportunity. Since assessee seems to be an illiterate person, it is the duty of the officer to explain the provisions of law, so that the person can follow the proceedings. It is all the more necessary that Assessing Officer should follow the provisions of law before raising a demand against assessee - CIT(A) dismissed the appeal without considering any of the contentions or issues involved in the assessment - assessee should be given due opportunity. AO should determine the correct status, shares of the assessee and the price he received so that correct capital gains can be brought to tax. AO is directed to examine all the issues and then only complete the assessment as per facts and provisions of law. Assessee is free to raise any objections or contentions involved in the assessment procedure. Appeal is allowed for statistical purposes.

Summary

Issues:
Taxation of capital gains on the sale of agricultural land.

Analysis:
The appeal was filed against the Commissioner of Income Tax(Appeals)-III's order regarding the taxation of capital gains from the sale of agricultural land. The assessee, described as illiterate and earning a living by raising cattle, sold a portion of agricultural land in 2006. The Assessing Officer noticed a price difference in the sale deed and issued a notice under section 142(1) for income return. The assessee, being uneducated, did not respond adequately, leading to the assessment of income without computing capital gains. The assessee appealed to the CIT(A) but was dismissed without proper consideration of the merits.

During the proceedings, the assessee requested relevant documents, which were denied on the grounds of third-party information. The assessee argued that the authorities did not provide enough opportunity and taxed amounts based on third-party statements without confrontation. The Tribunal found it unjust for the Assessing Officer to determine the sale price as the assessee's income without proper explanation or providing relevant documents. The Tribunal noted discrepancies in the assessment order and the lack of clarity on how the sale price was determined. It was also highlighted that the sale deed indicated ancestral property devolved to the assessee and his son, raising questions about the tax liability allocation.

The Tribunal emphasized the importance of natural justice and providing the assessee with a fair opportunity to understand the proceedings, especially considering the assessee's illiteracy. It was deemed necessary for the Assessing Officer to explain the provisions of the law to the assessee and follow due process before raising any tax demands. The CIT(A) was criticized for dismissing the appeal without addressing the contentions or issues in the assessment. The Tribunal directed the Assessing Officer to reexamine all aspects, determine the correct status and shares of the assessee, and calculate the capital gains accurately based on facts and legal provisions. The assessee was granted the freedom to raise objections or contentions during the assessment process.

In conclusion, the Tribunal set aside the previous orders and instructed a fresh assessment to be conducted in compliance with the provided directions. The appeal was allowed for statistical purposes, emphasizing the need for a fair and thorough assessment process.