2023 (1) TMI 718 - AT - Income Tax

Deduction u/s 54B - Capital gain on transfer of land used for agricultural purposes not to be charged in certain cases - basis of situation of the disputed land outside the municipal limits the land has not been considered to be capital land for the purpose of Section 2(14) - assessee as primarily submitted that only on the basis of high stamp duty levied by the registration authority, AO has concluded the land is a capital asset being non-agricultural land - Whether land falling in the share of assessee which was sold by the impugned sale deed was not converted to non-agricultural purposes? - HELD THAT - Primarily it is on the basis of the fact that in the sale deed, land was mentioned to be sold for residential purpose and that it has been assessed to stamp duty as a non-agricultural land, the land was considered to be of capital in nature - matter of fact is that in the revenue record copies filed before AO it was mentioned that land is under use for agricultural purposes. It has standing crops and irrigated by tubewell. There is report of the concerned revenue officer Lekhpal that Khasra no. 175 of which the land sold is part is situated at distance of 9 kilometer away from Nagar Palika. However, the matter of fact is that there is a copy of revenue record in the form of Kisan bahi and Khatauni for the Falsi year 1414 to 1422 i.e. assessment year 2008-09 to 2012-13. There it is mentioned that in proceedings u/s 143 of the UP Jamindar abolition of Land Reforms Act, 1950 which authorizes Sub Divisional Magistrate / Assistant Collector to change the type and nature of any land from agricultural land to residential proceedings was initiated under a petition title Vinay and Kedar vs. State and by order dated 05.11.2004 land forming part of Khasra no. 175/ 0.619 Hectare stood converted for non-agricultural purposes. Ld. AO has specifically taken note of it in the assessment order. Thus, there was the change of land use before it was sold by the assessee. AO has not taken any inquiry to ensure that when there were various co-sharers holding different title in a survey number to which assessee was also a co-sharer, then if the whole land in the survey number was converted to non-agricultural purpose or land falling in the share of assessee was not converted to non-agriculture purpose. Ld. AO seems to have fallen in error in reading the revenue records without seeking its due clarification from the assessee. At the stage of appeal, Ld. CIT(A) has fallen in error in not allowing assessee to produce further evidences to show that of land falling in the share of assessee of which he was also co-sharer was not converted, before its transfer by the assessee. The crucial point of controversy thus, needs to be restored to the files of Ld. CIT(A) to allow the additional evidences of the assessee and to let the assessee establish that the land falling in the share of assessee which was sold by the impugned sale deed was not converted to non-agricultural purposes by any order of revenue authorities. If that stands establish the mere fact that it was sold for the purpose of residence of the vendor or that it was valued for the purpose of stamp papers by the registered authority as a non-agricultural land would not be material and assessee will be entitled to benefit of Section 54 - Appeal of assessee is allowed for statistical purposes.

Issues Involved:
1. Admission of additional evidence under Rule 46A.
2. Legality of proceedings under Section 148.
3. Treatment of agricultural land as a capital asset under Section 2(14)(III).
4. Computation of Long-Term Capital Gains (LTCG) under Section 50C.
5. Deduction under Section 54B.
6. Levy of interest under Sections 234A and 234B.

Detailed Analysis:

1. Admission of Additional Evidence under Rule 46A:
The appellant argued that the Commissioner of Income Tax (Appeals) [CIT(A)] erred in not admitting additional evidence under Rule 46A. The additional evidence included an affidavit, an order from the Collector of Stamp Duty, and purchase deeds of agricultural land. The CIT(A) rejected these on the grounds that they were not produced before the Assessing Officer (AO) despite having the opportunity. The Tribunal acknowledged that the appellant had indeed prejudiced additional evidence and noted the failure of the CIT(A) to consider these documents, thus allowing the grounds for statistical purposes.

2. Legality of Proceedings under Section 148:
The appellant contended that the CIT(A) erred in not categorically deciding the legality of the proceedings under Section 148, which were already disposed of by the AO. The Tribunal noted that the CIT(A) merged and dismissed the grounds without proper consideration, thus remanding the issue back to the CIT(A) for a fresh decision.

3. Treatment of Agricultural Land as a Capital Asset under Section 2(14)(III):
The AO treated the land sold by the appellant as a capital asset, citing that it was sold for residential purposes and assessed to stamp duty as non-agricultural land. The appellant argued that the land was agricultural, supported by revenue records showing standing crops and irrigation by tubewell. The Tribunal found that the AO did not adequately verify whether the entire survey number, including the appellant's share, was converted to non-agricultural purposes. The Tribunal directed the CIT(A) to allow the appellant to produce additional evidence to establish the agricultural nature of the land.

4. Computation of LTCG under Section 50C:
The AO computed LTCG based on the circle rate of Rs. 1,42,11,000/-, whereas the actual sale consideration was Rs. 1,00,00,000/-. The appellant argued that the land was agricultural and thus not subject to capital gains tax. The Tribunal found that the AO's reliance on the stamp duty valuation without proper verification of the land's status was erroneous. The issue was remanded to the CIT(A) for a fresh decision after considering additional evidence.

5. Deduction under Section 54B:
The appellant claimed that the land was agricultural and that he purchased new agricultural land after the sale, entitling him to a deduction under Section 54B. The CIT(A) did not admit this claim, stating it was not made through a revised return. The Tribunal noted that if the land sold was indeed agricultural, the appellant would be entitled to the deduction. The issue was remanded to the CIT(A) for reconsideration.

6. Levy of Interest under Sections 234A and 234B:
The appellant contended that the CIT(A) did not decide the legality of the interest levied under Sections 234A and 234B. The Tribunal directed the CIT(A) to adjudicate this issue afresh in light of the revised findings on the nature of the land and the resultant tax liability.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, remanding the case to the CIT(A) to pass a fresh order considering the additional evidence and the Tribunal's observations. The CIT(A) was directed to verify whether the land sold was converted to non-agricultural purposes and to reconsider the appellant's entitlement to deductions and the computation of LTCG accordingly.

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