2020 (2) TMI 650 - AT - Income Tax

LTCG on sale of share in agricultural land - Whether the said land was agricultural land covered by the exception contained in section 2(14)(iii) ? - HELD THAT - The Inspector s report categorically suggested that agricultural produce were grown on the said land, there was a canal from which irrigation was done on the said land. Even the certificate obtained from local Talati specifies the land being agricultural land. CIT(Appeals) has not distinguished or brought any other materials on record to negate such findings in the Inspector s report and therefore, we are of the considered view that the land sold was agricultural land and the same is not a capital asset and the same is covered by the exception contained in Section 2(14)(iii) of the Act. In view of the examination of facts on record, we set aside the order of the CIT(Appeals) and allow the grounds raised in appeal by the assessee.

Summary

Issues:
1. Computation of long term capital gains on the sale of agricultural land.
2. Admissibility of additional evidence before the Ld. CIT(Appeals).
3. Interpretation of the exception contained in section 2(14)(iii) of the Income Tax Act.

Analysis:

Issue 1: Computation of long term capital gains on the sale of agricultural land
The Assessing Officer had added ?80,00,000 on the sale of agricultural land as capital gains. The assessee contended that the land was agricultural and fell under the exception in section 2(14)(iii) of the Act. The Ld. CIT(Appeals) partially allowed the appeal, directing the Assessing Officer to compute long term capital gains based on the assessee's 1/5th share in the land, amounting to ?16,00,000. The indexed cost of acquisition was also to be allowed on a proportionate basis.

Issue 2: Admissibility of additional evidence before the Ld. CIT(Appeals)
The assessee submitted additional evidence, including a certificate from the local Talathi and an affidavit confirming agricultural activities on the land. The Ld. CIT(Appeals) called for a remand report, instructing the Assessing Officer to verify the nature of the land. The Ward Inspector's report confirmed agricultural activities on the land, supporting the assessee's claim. The Ld. CIT(Appeals) based the decision on this evidence and partly allowed the appeal.

Issue 3: Interpretation of the exception in section 2(14)(iii) of the Income Tax Act
The Tribunal referred to a previous case where without negating the Inspector's report, the Revenue Authorities could not reject the assessee's claim. In the present case, the Inspector's report indicated agricultural use of the land, supported by the Talathi's certificate. The Tribunal found that the land was agricultural and fell under the exception in section 2(14)(iii) of the Act. Therefore, the order of the Ld. CIT(Appeals) was set aside, and the appeal by the assessee was allowed.

In conclusion, the Tribunal determined that the land in question was agricultural and not a capital asset, thus exempt from tax under the specified exception. The decision was based on the evidence provided by the assessee and the Inspector's report, highlighting the importance of substantiating claims with concrete proof in tax matters.