2017 (3) TMI 1946 - AT - Income Tax

Nature of land sold - capital asset or agricultural land - Deduction u/s 54F - main grievance of the assessee is that though the land was converted for industrial purpose, agricultural operations were continued to be carried on in the land and therefore, same should have been treated as agricultural land - HELD THAT - We are of the considered opinion that it is not disputed fact that the land was situated beyond the prescribed limits of the Mysore City Corporation and also that the land was converted for non-agricultural purpose by the competent authority, the conversion was sought by the assessee himself. Therefore, the intention of the assessee is manifest from the conduct of conversion of the land into non-agricultural land and the land ceased to be agricultural land. Even the character of land is shown as non-agricultural in the revenue records. Therefore, submission of the learned counsel for the assessee that the land continues to be agricultural land cannot be accepted. New claim made before CIT(A)/FAA - Deduction u/s 54F - investment made in apartment - assessee had not made any claim before the AO for grant of benefit u/s 54F and it is only before the CIT(A) that this ground was raised praying for benefit of section 54F - No doubt, law is quite settled to the extent that new claim can always be made during the course of assessment proceedings even though not made in the return of income. But no new claim can be made for the first time before the appellate authority, though powers of the CIT(A) are co-terminus with that of the AO, it is equally settled law that the CIT(A) cannot do what the AO himself could not have done. Thus we hold that the CIT(A) ought not to have entertained new claim which also requires verification of certain facts as to investment in new house etc. whether the investment was made within prescribed time or not. More so, without affording an opportunity to the AO. This action of CIT(A) offends rule 46A and also it amounts to CIT(A) acting beyond the powers vested with him u/s 250 of the Act or beyond the subject matter of appeal. Appeal filed by the revenue is allowed.

Summary

Issues:
1. Assessment of total income and addition on account of sale of property.
2. Claim of land as agricultural land vs. industrial purpose conversion.
3. Appeal against CIT(A) order confirming addition.
4. Appeal against CIT(A) direction to allow deduction u/s 54F.

Analysis:
1. The judgment involves cross appeals by the assessee and the revenue challenging the CIT(A) order for the assessment year 2011-12. The assessment was completed under section 143(3) of the Income-tax Act, 1961, with an addition on account of the sale of property. The assessee declared total income along with agricultural income, which was disputed by the assessing officer leading to the addition.

2. The primary issue revolved around the nature of the land sold by the assessee, whether it should be treated as agricultural land or not. The land in question was initially purchased for agricultural purposes, but later converted for industrial use. The assessing officer rejected the claim of the land being agricultural, based on the conversion and location beyond city limits. The CIT(A) confirmed the addition, emphasizing the conversion and non-agricultural character of the land.

3. The assessee appealed against the CIT(A) order, arguing that agricultural operations continued on the land even after conversion, citing precedent. However, the Tribunal held that the conversion and intentions of the assessee to change the land use were evident, leading to the dismissal of the assessee's appeal.

4. On the other hand, the revenue challenged the CIT(A) direction to allow deduction under section 54F for investment made in an apartment from the sale proceeds of the land. The Tribunal noted that the claim for this deduction was raised for the first time before the CIT(A) without prior mention in the return of income. The Tribunal held that such new claims cannot be entertained at the appellate stage without affording the assessing officer an opportunity for verification, allowing the revenue's appeal.

In conclusion, the Tribunal dismissed the assessee's appeal regarding the treatment of land as agricultural and allowed the revenue's appeal against the CIT(A) direction for deduction under section 54F, emphasizing the importance of adhering to procedural requirements and principles of law during the appellate process.