2022 (2) TMI 982 - AT - Income Tax

Revision u/s 263 - allowability of claim of assessee that the property sold was an agricultural land - HELD THAT - Assessee purchased the agricultural land in question on 31.03.2014 for 34 Lakhs and shown himself as farmer as per the Revenue s Laws in Gujarat stating only farmer can purchase the agricultural land. Same is evident from the purchase deed and sale deed of the land in question. Undisputedly the permission for Dholi Integrate Spinning Park Limited were sought on 03.05.2013 and assessee was doing cultivation on said land and same is evident from his income tax return wherein he has shown agricultural income. In this case the assessee had sold the land as agricultural land if thereafter sold land has been converted into non-agricultural purpose by the buyer of the land so in such circumstances the assessee cannot be held to pay long term capital gain. Hon ble Jurisdiction High Court in the matter of PCIT vs. Heenaben Bhadresh Mehta 2018 (8) TMI 987 - GUJARAT HIGH COURT wherein it is held that profits from sale of agricultural land was claimed as exempt on the ground that said land was not a capital asset within the meaning of Section 2(14). Assessee assessee filed a copy of sale deed purchase deed alongwith copy of ledger account of Dholi Gram Panchayat specifying the allocation of land and population of village wherein it is mentioned that above said land is not in Municipal area and is used for agricultural purpose only. After going through all above details we are of the opinion that when already AO has made detailed enquiry then on same point subsequent enquiry by the PCIT is not enquired under the law - In view of the above facts and respectfully following the Hon ble Gujarat High Court s order we allow the appeal of the assessee.

Summary

Issues:
1. Determination of capital gain tax liability on the sale of land treated as agricultural land.
2. Validity of the order passed under section 143(3) of the Income Tax Act, 1961.
3. Interpretation of the nature of the land sold and its tax implications.

Analysis:

Issue 1: Determination of capital gain tax liability on the sale of land treated as agricultural land:
The case involved the sale of land by the assessee, which was initially treated as agricultural land. The Principal Commissioner of Income Tax (Appeals) found that the land was sold to an industrial company and was being used for non-agricultural purposes. The PCIT opined that the land could not be considered as agricultural land and attracted capital gain tax liability. The assessee contended that the land was agricultural and relied on relevant documents to support this claim. The Tribunal analyzed the facts, including the permission granted for industrial use and the subsequent sale, and concluded that the land had lost its agricultural status at the time of sale. However, the Tribunal referred to precedents where profits from the sale of agricultural land were claimed as exempt, emphasizing the intent of the purchaser and the nature of the transaction. Ultimately, the Tribunal allowed the appeal of the assessee, considering the agricultural nature of the land at the time of purchase and the subsequent conversion by the buyer.

Issue 2: Validity of the order passed under section 143(3) of the Income Tax Act, 1961:
The PCIT issued a show cause notice to the assessee under section 263 of the IT Act, 1961, questioning the AO's failure to verify the claim that the property sold was agricultural land. The assessee provided various details and documents to support the agricultural nature of the land. The Tribunal noted that the AO had already conducted a detailed enquiry during the assessment proceedings, and subsequent examination by the PCIT on the same grounds was not warranted under the law. The Tribunal, therefore, held that the order passed by the PCIT was not justified, and in line with the earlier enquiry conducted by the AO, allowed the appeal of the assessee.

Issue 3: Interpretation of the nature of the land sold and its tax implications:
The Tribunal considered the purchase and sale deeds, along with the revenue records and income tax returns of the assessee, to determine the nature of the land sold. It highlighted the agricultural activities carried out by the assessee on the land and emphasized the legal requirements for land to be classified as agricultural. The Tribunal also referenced a judgment by the Hon'ble Gujarat High Court regarding the exemption of profits from the sale of agricultural land based on specific criteria. By analyzing the documents and submissions made by the assessee, the Tribunal concluded that the land was agricultural at the time of sale, and the capital gain tax liability was not applicable.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the agricultural nature of the land at the time of purchase and the legal precedents supporting the exemption of profits from the sale of agricultural land under specific circumstances.