2019 (1) TMI 1262 - AT - Income Tax

Addition in respect of Long Term Capital Gain arising on sale of land - nature of land sold - whether the land was agriculture land or not? - agricultural land situated in rural area or in the urban area - Held that - Delhi Municipal Corporation with previous approval of the government by notification can declare any portion of the rural areas to form part of the urban area. Ergo, once the Delhi Municipal Corporation Act, 1957 provides powers to the Government to notify and convert any rural area to Urban area, then the entire observation of the CIT (A) that, since Village Chhawla is governed under Delhi Municipal Act, 1957, and therefore, it is an urban land even 10 years prior to the notification. Such an inference is wholly untenable. Accordingly, in view of the government notification, hold that the said land was situated in a rural area, and therefore, sale of such agriculture land falls within the ambit and scope of Section 2(14)(iii) and hence no capital gain can be charged u/s.45. Accordingly, the addition made by the AO stands deleted. - Decided in favour of assessee.

Summary

Issues:
Validity of reopening u/s.147 and addition of Long Term Capital Gain.

Analysis:
1. The appeal was filed against the order passed by the Commissioner of Income Tax (Appeals) for the Assessment Year 2008-09 challenging the reopening u/s.147 and addition of Long Term Capital Gain from the sale of land.
2. The Assessing Officer reopened the case based on the sale of land in Village Chhawla, treating it as an urban land subject to tax u/s.45. The Assessee contested this, claiming it was rural agricultural land and ancestral property with 'Nil' cost of acquisition.
3. The CIT(A) upheld the reopening and rejected the Assessee's objections regarding the cost of acquisition and nature of the land.
4. The Assessee provided evidence that Village Chhawla was declared urban land after the sale date, supporting the claim that it was rural agricultural land.
5. The CIT(A) rejected the Assessee's argument, citing the Delhi Municipal Act and population density as reasons for considering the land as urban.
6. The ITAT Delhi found that the land was rural agricultural land until declared urban in 2017, as per the Delhi Municipal Corporation Act, leading to the deletion of the capital gain addition.
7. The ITAT's decision rendered the validity of reopening moot, and the appeal was allowed in favor of the Assessee.

This comprehensive analysis highlights the key legal arguments, evidence presented, and the final decision by the ITAT Delhi in favor of the Assessee based on the nature of the land in question.