2016 (7) TMI 849 - AT - Income Tax

Capital gain tax on sale of agricultural land or deduction u/s 54B - fixing the limit of Municipality u/s 2(14)(111)(b) - Held that - The claim for exemption from capital gains or deduction u/s 54B of the Act, in respect of which there were no claims in the original return of income, cannot be allowed in the re-assessment proceedings - Decided against assessee

Issues Involved:
1. Legality of the CIT(A)'s order.
2. Levy of capital gains tax on the sale of agricultural land.
3. Alleged violation of the principle of natural justice by the CIT(A).
4. Eligibility for exemption under Section 54B of the Income Tax Act.
5. Applicability of the Central Government notification regarding urbanization.

Issue-wise Detailed Analysis:

1. Legality of the CIT(A)'s order:
The appellant contended that the order of the CIT(A) was against the facts of the case and bad in law. The CIT(A) confirmed the addition made by the AO on the grounds that the assessee failed to provide evidence supporting the claim that agricultural activities were carried out on the land sold during the financial year 2007-08. The CIT(A) also denied the benefit under Section 54B as it was not claimed in the original return of income.

2. Levy of capital gains tax on the sale of agricultural land:
The assessee argued that the land sold was agricultural and not a capital asset within the meaning of Section 2(14) of the Income Tax Act. The land was situated in Yelahanka Hobli Panchayat, which was not a municipality or urban area. The AO, however, brought the capital gains arising from the sale of the property to tax, citing the Central Government notification dated 6/1/1994, which classified lands within an 8 km radius of BBMP limits as capital assets. The Tribunal upheld the AO's action, stating that once Yelahanka was merged with BBMP, the notification applied to the land in question, making it a capital asset subject to capital gains tax.

3. Alleged violation of the principle of natural justice by the CIT(A):
The appellant claimed that the CIT(A) did not follow the principle of natural justice by not providing an opportunity to respond to the remand report of the AO. However, the Tribunal found that the CIT(A) had confirmed the AO's action based on the lack of evidence provided by the appellant to support the claim of agricultural activity on the land. Therefore, the Tribunal did not find any violation of natural justice.

4. Eligibility for exemption under Section 54B of the Income Tax Act:
The CIT(A) denied the benefit under Section 54B because the assessee did not claim this exemption in the original return of income or in the return filed in response to the notice under Section 148. The Tribunal upheld this decision, citing the Supreme Court's ruling in the case of Sun Engineering Works Pvt. Ltd., which stated that reassessment proceedings cannot be used by the assessee to claim new deductions or exemptions not claimed in the original assessment.

5. Applicability of the Central Government notification regarding urbanization:
The assessee argued that there was no specific notification by the Central Government for Yelahanka Hobli. The Tribunal, however, held that the notification issued for BBMP applied equally to Yelahanka Hobli once it was merged with BBMP. Therefore, the land in question was considered a capital asset, and the gains from its sale were subject to capital gains tax.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the CIT(A)'s order and the AO's action of taxing the capital gains arising from the sale of the property. The Tribunal found that the land was a capital asset as per the applicable notification and that the assessee could not claim new exemptions in the reassessment proceedings.

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