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2021 (10) TMI 451 - AT - Income TaxComputation of long term capital gain on sale of land - agricultural land initially purchased - determination of fair market value - diversion of agricultural land - Whether land in question was not a capital asset as per the provision of section 2(14)(iii)? - whether AO erred adopting the Fair Market Value of Land as on 01-04-1981 arbitrarily without determining the Fair Market Value of Land as on 01-04-1981 using the Reverse Indexation Method which is a well settled method of determination of fair market value? - HELD THAT - Land in question was not situated within the limit of any municipality or cantonment board. Thus, in view of these facts and circumstances of the case, we find that the agricultural land initially purchased by the assessee was not a capital asset as per section 2(14)(iii) of the Act. Accordingly, the amount of capital gain accruing to the assessee till the diversion of agricultural land on 25.11.2010 shall not be eligible to tax. FMV determination - As fair market value of land as on the date of diversion i.e. on 25.11.2010 shall be taken as ₹ 68,90,415/-. Thus, in our view, as discussed supra, capital gain accruing to the assessee till the date of diversion using fair market value of ₹ 68,90,415/- shall be exempt from tax. Further, we are of the view that fair market value of ₹ 68,90,415/- as on the date of diversion shall be considered as cost of acquisition for the purpose of determination of the amount of capital gain chargeable to tax during the year under consideration. The indexed cost of acquisition of land comes to ₹ 91,00,000/- for the FY 2013-14 (AY 2014-15). We are of the view that the findings of ld. CIT(A) deserve to be set aside and accordingly, we delete the addition of ₹ 88,78,365/- made on account of long-term capital gain on sale of land. Thus, ground nos.1 to 3 raised in the appeal of the assessee are allowed. Long-term capital gain on compulsory acquisition of land - HELD THAT - Once it is established that land compulsorily acquired by the Government was agricultural land, it makes no difference whether the said land is rural or urban since compensation received on compulsory acquisition of rural agricultural land is not chargeable to tax under the IT Act, 1961 whereas compensation received on compulsory acquisition of urban agricultural land is exempt from tax as per section 10(37) of the Act subject to conditions specified therein. However, since land compulsorily acquired by the Government in the present case was a rural agricultural land, there arises no question of taxability of capital gain on compulsory acquisition of such land. Accordingly, we set aside the findings of Ld. CIT(A) and delete the addition made on account of long-term capital gain on compulsory acquisition of land. Thus, ground no.4 raised in the appeal of the assessee is allowed. Long-term capital gain on compulsory acquisition of a part of his house - HELD THAT - Government merely acquired 250 Sq Fts of plot area and demolished the constructed area of house of the assessee built upon such plot area at the time of compulsory acquisition. We find force in the arguments of the Ld. Counsel for the assessee that part of the house of the assessee was merely demolished and that there was no transfer of any capital asset so as to attract capital gains tax in the hands of the assessee. Thus, we are of the view that there was no transfer as per section 2(47) of the Act at the time of demolition of part of the house of the assessee and accordingly, no capital gain is taxable in the hands of the assessee in respect of demolition of part of his house. For compulsory acquisition of plot area of 250 Sq Fts is concerned, we find that the assessee merely received an amount of ₹ 15,840/- as compensation in lieu of compulsory acquisition of plot area which was way less than the cost of acquisition of the said plot area which comes to ₹ 49,331/- (₹ 2,25,000/- ( ) ₹ 21,655/- 250/1,250) as is evident from the purchase registry which has been filed on Page No. 52-58 of the paper book. Therefore, no capital gain was chargeable in the hands of the assessee even in respect of compulsory acquisition of plot area. Further, the assessee incurred substantial repair and renovation expenses to the tune of ₹ 5,23,817/- to bring back the house to a suitable condition for living subsequent to demolition done by the Government. Thus, it is clear that the assessee did not earn any long-term capital gain - Ground no.5 raised in the appeal of the assessee is allowed. Unexplained credit u/s 68 - unexplained/bogus liability - Addition of agricultural land in the head assets in the balance-sheet on the ground that during the course of assessment proceedings, in the statements u/s 131 of the I.T. Act, recorded by the Assessing Officer, the assessee failed to explain the source of the investment and also failed to produce books of accounts and any other documentary evidences in support of the claimed liability - HELD THAT - Assessee categorically explained that corresponding adjustment in respect of addition made to agricultural land was not routed through the capital account but rather the amount of cash to the extent of ₹ 12,86,090/- was transferred from the books of accounts of the business to the personal books of accounts of the assessee. Thus, the source of agricultural land purchased by the assessee was duly explained. We also find that the agricultural land under consideration was purchased during the AY 2013-14 and not during the AY 2014-15. Addition is not sustainable on this count also. In view of these facts, the order of ld. CIT(A) on this issue deserves to be set aside. Accordingly, we delete the addition made u/s 68. Estimation of N.P. @ 8% - assessee could not produce his books of accounts during the course of assessment proceedings - HELD THAT - CIT(A) failed to bring on record any evidence to controvert the financial results as per the audited final accounts of the assessee for the year ended 31.03.2014 rather the Assessing Officer estimated the net profit of @ 8% in adhoc manner which is not justified. The Assessing Officer/ld. CIT(A) did not consider the fact that the financial results of the assessee for the year ended 31.03.2014 were comparable with the results of the preceding as well as subsequent years. Further, the Chartered Accountant who audited the books of accounts also did not give any adverse findings regarding the books of accounts maintained by the assessee. In view of these facts and circumstances, the addition is not justified - findings of Ld. CIT(A) deserves to be set aside. Accordingly, we delete the addition made on account of estimation of N.P. @ 8%. Therefore, ground no.7 raised in the appeal of the assessee is allowed.
Issues Involved:
1. Fair Market Value of Land as on 01-04-1981. 2. Addition of ?88,78,365/- on account of long-term capital gain on sale of land. 3. Taxability of land diverted in FY 2010-11. 4. Addition of ?9,25,047/- on account of long-term capital gain on compulsory acquisition of land. 5. Addition of ?3,42,358/- on account of long-term capital gain on compulsory acquisition of part of the house. 6. Addition of ?12,86,090/- as unexplained credit under section 68. 7. Addition of ?4,12,148/- on account of estimation of net profit @ 8%. Issue-wise Detailed Analysis: Ground Nos. 1 to 3: Fair Market Value and Long-term Capital Gain on Sale of Land The assessee challenged the addition of ?88,78,365/- made by the Assessing Officer on account of long-term capital gain on the sale of land. The land was sold for ?91,00,000/- on 02.05.2013. The Assessing Officer treated the land as a capital asset under section 2(14) of the IT Act, while the assessee contended it was agricultural land and thus not chargeable as capital gain. The CIT(A) confirmed the addition, noting the land was diverted for non-agricultural purposes and situated 1.5 km from the bus stand of Kurawar Gram Panchayat. The Tribunal found that the land was initially rural agricultural land and thus not a capital asset under section 2(14)(iii) of the Act until its diversion on 25.11.2010. The fair market value of the land on the date of diversion was determined using the reverse indexation method, resulting in a value of ?68,90,415/-. The indexed cost of acquisition was calculated, leading to no taxable capital gain during AY 2014-15. Consequently, the addition of ?88,78,365/- was deleted. Ground No. 4: Long-term Capital Gain on Compulsory Acquisition of Land The assessee contested the addition of ?9,25,047/- made by the Assessing Officer on account of long-term capital gain from the compulsory acquisition of land. The CIT(A) confirmed the addition, treating the land as a capital asset. The Tribunal found that the land compulsorily acquired was agricultural and not diverted land. Since it was rural agricultural land, the compensation received was not chargeable to tax under the IT Act. The addition of ?9,25,047/- was deleted. Ground No. 5: Long-term Capital Gain on Compulsory Acquisition of Part of the House The assessee challenged the addition of ?3,42,358/- made by the Assessing Officer on account of long-term capital gain from the compulsory acquisition of a part of the house. The CIT(A) confirmed the addition. The Tribunal found that the part of the house was merely demolished, not transferred, and thus no capital gain tax was applicable. For the compulsory acquisition of a 250 Sq Ft plot area, the compensation received was less than the cost of acquisition, resulting in no taxable capital gain. The addition of ?3,42,358/- was deleted. Ground No. 6: Unexplained Credit under Section 68 The assessee contested the addition of ?12,86,090/- made by the Assessing Officer, treating it as unexplained credit under section 68. The CIT(A) confirmed the addition. The Tribunal found that the agricultural land was purchased during AY 2013-14, and the amount was transferred from the business books to personal books. The source of investment was explained, and the addition of ?12,86,090/- was deleted. Ground No. 7: Estimation of Net Profit @ 8% The assessee challenged the addition of ?4,12,148/- made by the Assessing Officer on account of estimating net profit at 8%. The CIT(A) confirmed the addition due to the absence of books of accounts. The Tribunal found that the books were audited by an independent Chartered Accountant, and the financial results were comparable with preceding and subsequent years. The estimation of net profit at 8% was deemed unjustified, and the addition of ?4,12,148/- was deleted. Conclusion: The appeal was allowed, and all the additions made by the Assessing Officer and confirmed by the CIT(A) were deleted. The Tribunal's decision was based on detailed analysis and consideration of the facts, legal provisions, and judicial precedents.
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