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2017 (5) TMI 361 - AT - Income TaxRevision u/s 263 - capital gain on sale of land - nature of land - agriculture land situated within municipal limit or not - Held that - In the present case, the land sold by the assessee not situated in any of the places as mentioned above. In fact the land situated in a hamlet village is not even situated in a village. Therefore, section 2(14)(iii)(a) has no application. So far as application of section 2(14)(iii)(b) of the Act is concerned to attract the capital gains, the land must situate within 8 kms. from the notified municipality. In the present case, the land is situated 3 kms. away from Anakapalle municipality, however, the Anakapalle municipality is not a notified municipality as per the notification dated 6.1.1991 and amended notification no.11186 dated 28.12.1999, therefore, section 2(14)(iii)(b) of the Act has also no application. Once land is classified in the revenue record as an agricultural land even assessee has not carried agricultural operations, capital gain tax cannot be attracted. Exclusion provided u/s 2(14)(iii) does not apply to agricultural land situated within the Panchayat limits. The impugned land sold by the assessee not attract the capital gains tax and no capital gain can be taxed. We also observed that the assessing officer has not at all examined before passing the order u/s 143(3) of the Act whether the capital gain attracts or not. After survey proceedings, assessee filed the return and same is accepted without making any enquiry. It is the duty of the A.O. to conduct an enquiry before assessing particular income has to be taxed or not. In this case, such enquiry was not made by the A.O. In view of the above, we are of the opinion that the A.O. is not correct in taxing exempt income as a capital gain. We find that the Ld. CIT(A) without considering the facts of the case and without examining whether the impugned land is an agricultural land or not, the ground raised by the assessee is dismissed. Thus, we reverse the order passed by the CIT(A) and the ground raised by the assessee is allowed.
Issues Involved:
1. Classification of the land as a capital asset under Section 2(14)(iii) of the Income Tax Act, 1961. 2. Validity of the proceedings under Section 263 of the Income Tax Act, 1961. 3. Admissibility of additional grounds raised by the assessee. 4. Determination of whether the land sold by the assessee is agricultural land. 5. Assessment of capital gains tax applicability. Detailed Analysis: 1. Classification of the Land as a Capital Asset: The primary issue is whether the land sold by the assessee qualifies as a capital asset under Section 2(14)(iii) of the Income Tax Act, 1961. The land in question is situated in Thummapala hamlet of Kottavaru village, 3 kms from Anakapalle Municipality. The assessee argued that the land is agricultural and falls outside the purview of a capital asset as per Section 2(14)(iii)(b) of the Act. The CIT(A) and the AO held that the land is a capital asset, but the Tribunal found that Anakapalle Municipality is not a notified municipality as per the relevant notifications. Therefore, the land does not qualify as a capital asset under Section 2(14)(iii)(a) or (b) of the Act. 2. Validity of the Proceedings under Section 263: The Commissioner initiated proceedings under Section 263, directing the AO to re-do the assessment after further inquiries. The AO, following these directions, disallowed the entire compensation and commission payments claimed by the assessee. The Tribunal observed that the AO had not conducted a proper inquiry before the initial assessment. Thus, the CIT(A) rightly assumed jurisdiction under Section 263 to revise the assessment order. 3. Admissibility of Additional Grounds Raised by the Assessee: During the appellate proceedings, the assessee raised additional grounds challenging the classification of the land as a capital asset. The CIT(A) admitted these additional grounds, considering their legal nature and their impact on the root of the matter. The Tribunal upheld this decision, emphasizing the importance of addressing foundational issues in tax assessments. 4. Determination of Whether the Land Sold by the Assessee is Agricultural Land: The Tribunal examined whether the land sold by the assessee is agricultural. The revenue records classified the land as "dry cultivatable land," and it was not converted to non-agricultural land. Despite the lack of agricultural operations in the year under consideration due to disputes, the Tribunal held that the land's classification in revenue records as agricultural land suffices to exempt it from capital gains tax. This conclusion aligns with precedents, including the Hon'ble Madras High Court's decision in Sakunthala Vedachalam Vs. Vanitha Manickavasagam and the coordinate bench's decision in Smt. Chalasani Naga Ratna Kumari Vs. ITO. 5. Assessment of Capital Gains Tax Applicability: Given that the land does not qualify as a capital asset under Section 2(14)(iii) and is classified as agricultural land in revenue records, the Tribunal concluded that the capital gains tax does not apply. The AO's failure to conduct a proper inquiry before the initial assessment further invalidated the tax imposition. Conclusion: The Tribunal allowed the appeal filed by the assessee in ITA No. 187/Vizag/2014, reversing the CIT(A)'s order and confirming that the land sold by the assessee is agricultural and exempt from capital gains tax. The other appeals filed by the assessee were dismissed as infructuous, and the stay petition was dismissed as well. The Tribunal upheld the CIT's jurisdiction under Section 263 for re-assessment due to the AO's lack of inquiry in the initial assessment.
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