2023 (7) TMI 789 - AT - Income Tax

Revision u/s 263 - sale consideration for sale of agricultural land - assessment of trust - assessee claimed amount spent on purchase of agricultural land as exemption u/s 11(1A) but since the Assessee was not registered u/s 12A/12AA or section 10(23C), the provisions of sections 11 and 12 of the Act were not applicable - AO had wrongly granted deduction u/s 54B to the Assessee as this section 54B is applicable to persons with status of individual or HUF only but the Assessee is a trust - HELD THAT - Assessee has not controverted the facts that (i) it is not registered either u/s 12A or section 12AA, or approved u/s 10(23C) of the I.T. Act and that as such, the exemptions u/ss 11 12 are not applicable to it, as rightly observed by the ld. CIT(E). (ii) The AO had wrongly given benefit of deduction u/s 54B to the Assessee, without any claim by the Assessee for such benefit. (iii) Even otherwise, the provisions of section 54B of the Act are applicable to individuals and HUFs, whereas the Assessee is a trust, and so, not entitled to benefit u/s 54B of the Act. (iv) The Assessee is not entitled to benefit u/s 10(21) r.w.s. 35(1) r.w.s. 11 of the I.T. Act. (v) Whether the sale of the property was voluntary or otherwise, is not material to the assessment of the income chargeable to tax under the Income Tax Act, except if any exemption or benefit becomes available from the transaction of sale. CIT(E) has correctly held the assessment order to be erroneous as well prejudicial to the interests of the Revenue. CIT(E) has, rightly, hence, cancelled the assessment order passed u/s 143(3) - Decided against assessee.

Summary

Issues Involved:
1. Classification of sold land as agricultural land or capital asset.
2. Validity of the order passed under Section 263 of the Income Tax Act, 1961.
3. Incorrect allowance of deduction under Section 54B of the Income Tax Act, 1961.
4. Applicability of exemptions under Sections 11 and 12 of the Income Tax Act, 1961.

Summary:

1. Classification of Sold Land:
The Assessee contended that the sold land was agricultural land and not a capital asset. However, the Assessing Officer (AO) and the Commissioner of Income Tax (Exemptions) [CIT(E)] wrongly considered and confirmed the sold land as a capital asset. The Assessee argued that the transaction was more of an exchange of land rather than a sale, as it was legally obligatory to purchase new agricultural land with the sale proceeds.

2. Validity of the Order Passed Under Section 263:
The CIT(E) issued a show cause notice under Section 263 of the Income Tax Act, 1961, stating that the Assessee was not registered under Sections 12A/12AA or Section 10(23C), making the provisions of Sections 11 and 12 inapplicable. The CIT(E) held that the assessment order dated 09.12.2019 was erroneous and prejudicial to the interests of the Revenue. The CIT(E) directed the AO to pass a fresh order in accordance with the law, considering the observations made and after affording a reasonable opportunity of hearing to the Assessee.

3. Incorrect Allowance of Deduction Under Section 54B:
The AO wrongly granted deduction under Section 54B to the Assessee, which is applicable only to individuals or Hindu Undivided Families (HUFs). The Assessee, being a trust, was not entitled to this benefit. The CIT(E) noted that the AO allowed this deduction without any claim from the Assessee, representing an incorrect application of the provisions of the Act.

4. Applicability of Exemptions Under Sections 11 and 12:
The CIT(E) observed that the Assessee was not entitled to exemptions under Sections 11 and 12 as it was not registered under Sections 12A/12AA or approved under Section 10(23C). The CIT(E) emphasized that the exemptions under these sections are applicable only if the property is held under trust for charitable or religious purposes and the income is applied in India.

Conclusion:
The Tribunal upheld the CIT(E)'s order, confirming that the assessment order was erroneous and prejudicial to the interests of the Revenue. The Tribunal dismissed the Assessee's appeal, finding no merit in the grievances raised. The order under appeal was confirmed, and the appeal was dismissed.