2017 (4) TMI 248 - AT - Income Tax

Non-taxable capital receipt arising from sale of agricultural land - Held that - The relevant certificate from the competent authority has not been submitted by the assessee as required under law for determination of the distance of land in question from Municipality etc. . The ld. CIT(A) relied upon the certificate from Executive Engineer, Ahmadabad and of Sarpanch of the Village, who are not competent authority as prescribed under law. The assessee need to produce the said certificate from competent authority as prescribed under law for issue of such certificate. The certificate from Executive Engineer , Ahemdabad was introduced by the assessee for the first time before learned CIT(A) and also claim of benefit of notification no. 9447 issued by Central Government dated 06-01-1994 was claimed by the assesse for the first time before learned CIT(A). The learned CIT(A) did not forwarded these additional evidences and fresh claims to the AO for his examination and comments for rebuttal , as no Remand Report was called by learned CIT(A) from the AO. There is breach of Rule 46A(3) of Income-tax Rules, 1962 as no remand report was called by learned CIT(A) from AO and principles of natural justice is also breached as the Revenue has not be granted opportunity of being heard. Considering the factual matrix of the case, we are inclined to set aside this matter back to the file of the A.O. for de-novo determination of the issue on merits.

Issues Involved:
1. Competence of the authority issuing the certificate regarding the distance of the land from the municipal limits.
2. Classification of the land as a "Capital Asset" under Section 2(14) of the Income-tax Act, 1961.
3. Admission of additional evidence by the CIT(A) without remanding it to the AO for comments.
4. Determination of the distance measurement method for the land in question.

Detailed Analysis:

1. Competence of the Authority Issuing the Certificate:
The Revenue contended that the CIT(A) erred in deleting the addition of ?4,10,14,760 relying on a certificate issued by the Sarpanch of Sanathal Gram Panchayat, who is not a competent authority. The AO observed that the land sold by the assessee was within the limit of Sanand Municipality and thus, not agricultural land under Section 2(14) of the Income-tax Act, 1961. The AO rejected the Gram Panchayat certificate and relied on Google maps, determining that the land was 7.1 km from the municipal limits. The CIT(A), however, accepted the Gram Panchayat certificate and the Government of India notification, classifying the land beyond 2 km from Sanand Municipal Corporation as agricultural land.

2. Classification of the Land as a "Capital Asset":
The CIT(A) accepted the assessee's contention that the land sold was agricultural and thus not a capital asset under Section 2(14) of the Act. The AO had computed the long-term capital gain on the sale of the land at ?4,10,14,760 and brought it to tax, but the CIT(A) allowed the appeal of the assessee, holding that the sale was exempt from tax as non-taxable capital receipts.

3. Admission of Additional Evidence by the CIT(A):
The Revenue argued that the CIT(A) admitted additional evidence, such as the certificate from the Executive Engineer and the Government notification, without remanding it to the AO for comments, violating Rule 46A(3) of the Income-tax Rules, 1962. The CIT(A) did not call for a remand report from the AO, breaching the principles of natural justice by not providing the Revenue an opportunity to rebut the additional evidence.

4. Determination of the Distance Measurement Method:
The assessee contended that the distance should be measured as per the pre-amended Section 2(14) of the Act, which considers the shortest road distance, not aerial distance. The amendment to measure distance aerially was introduced by the Finance Act, 2013, effective from 01-04-2014, which is prospective. The tribunal agreed with this contention, citing the Nagpur Bench of the Bombay High Court's decision and CBDT Circular No. 17/2015, which clarified that for periods before the assessment year 2014-15, the distance should be measured by the shortest road distance.

Conclusion:
The tribunal set aside the matter back to the AO for de-novo determination, instructing the assessee to submit a certificate from the competent authority for claiming exemption. The AO was directed to grant proper and adequate opportunity to the assessee, adhering to the principles of natural justice. The tribunal emphasized that the distance should be measured by the shortest road distance for the assessment year 2011-12. The appeal by the Revenue was allowed for statistical purposes.

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