2016 (9) TMI 809 - AT - Income Tax

Sale proceeds of agricultural land - whether the land in question was situated outside the municipal limits of Gurgaon (as confirmed by the Patwari Gurgaon) and hence the land was not a capital asset as defined in section 2(14)(iii)? - Held that - AO had not given any opportunity to the assessee to negate the Tehsildar s report that the land in question was within 6.6 kms from the Municipal Corporation of Gurgaon. It was submitted that now the assessee seeks to admit the following as additional evidences under Rule 29- i) Certificate dated 10.07.2013 from the office of SDM Mehrauli confirming that the land is situated outside the limit of Delhi Municipality. ii). Certificate dated 18.07.2013 from the Executive Magistrate, Mehrauli certifying that the land does not fall within their jurisdiction. iii). Certificate dated 4.10.2013 from the Municipal Commissioner, Gurgaon stating that the distance of the land from the municipal limit in the year 2006 was approximately 12kms. iv). Certificate dated 25.10.2013 certifying that the distance of land is 8.5 kms from Mandi village, 11.2 kms from Aya Nagar and 13kms from Ambience Mall, Gurgaon. We have heard the rival submissions and perused the relevant documents. We also deem it fit to admit the documents being admitted as additional evidence under Rule 29 of the ITAT Rules, 1963 as these documents/evidences will have a bearing on the final outcome of this case. However, since the AO has not had the benefit of examining these additional evidences, it will be more appropriate that these additional evidences are examined/verified by the AO so as to be enable him to adjudicate the issue at hand afresh. We accordingly set aside the order of the Ld. CIT (A) and remit the matter to the file of the AO to re-examine the issue after duly considering the documents/evidences as submitted by the assessee and which we have permitted to be admitted as additional evidence as afore said after giving the assessee a proper opportunity of being heard.

Summary

Issues involved:
1. Determination of whether the land in question qualifies as a "capital asset" under section 2(14) of the Income Tax Act.
2. Validity of the addition of ?5,59,17,764/- to the income of the assessee on account of long-term capital gains from the sale of agricultural land.

Detailed Analysis:

Issue 1: Determination of whether the land in question qualifies as a "capital asset" under section 2(14) of the Income Tax Act.

During the assessment proceedings, the Assessing Officer (AO) observed that the assessee claimed an exemption on the sale proceeds of agricultural land, asserting it was situated beyond 8 kilometers from the municipal limits of Gurgaon. The AO sought verification from the Tehsildar, who reported that the land was approximately 6.6 kilometers from the local limits of the Gurgaon Municipal Corporation. Based on this report, the AO classified the land as a "capital asset" under section 2(14) of the Income Tax Act, thus subjecting the gains from its sale to taxation under section 45 of the Act.

The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the land was outside the municipal limits of Gurgaon, as confirmed by a Patwari certificate. The CIT(A) agreed with the assessee, noting that the AO's remand report confirmed the land was beyond 8 kilometers from the Gurgaon Municipal Committee area and thus did not qualify as a "capital asset" under section 2(14)(iii). The CIT(A) emphasized that the relevant municipality for determining the distance was Sohna, not Delhi, and concluded that the land was agricultural and exempt from capital gains tax.

Issue 2: Validity of the addition of ?5,59,17,764/- to the income of the assessee on account of long-term capital gains from the sale of agricultural land.

The Department appealed against the CIT(A)'s order, arguing that the land was within 6 kilometers of the municipal limits of Delhi and thus a "capital asset" under section 2(14)(iii)(b). The Department cited a Supreme Court judgment to support its claim that the land fell within the urbanized area, thus subjecting it to capital gains tax. The Department also contended that the CIT(A)'s conclusions were contradictory, as the land was under the jurisdiction of Sohna Municipality.

The assessee countered by highlighting that the AO's remand report confirmed the land was outside the jurisdiction of any municipality, including Sohna. The assessee also sought to admit additional evidence, including certificates from various authorities, confirming the land's distance from municipal limits. These documents were crucial for determining the land's status as a "capital asset."

The Tribunal admitted the additional evidence under Rule 29 of the ITAT Rules, 1963, noting its potential impact on the case's outcome. However, since the AO had not examined these documents, the Tribunal remitted the matter to the AO for re-examination, allowing the AO to consider the new evidence and adjudicate the issue afresh.

Conclusion:

The Tribunal set aside the CIT(A)'s order and remitted the case to the AO for a fresh examination of the additional evidence. The AO was directed to re-evaluate the status of the land as a "capital asset" under section 2(14) of the Income Tax Act and determine the validity of the addition of ?5,59,17,764/- to the assessee's income based on the new evidence. The appeal of the Department was allowed for statistical purposes.