2023 (12) TMI 1199 - AT - Income Tax

Gain on sale of land - nature of land - assessment order passed by treating the land as capital asset as it falls in the City limit - HELD THAT - We find that Assessing Officer made reference for DVO for valuation of assets on the date of transfer however, report of DVO was not received, the Assessing Officer brought the surplus earn to taxation under the head short term capital gains . The Ld.CIT(A) on filing detailed written submission, though called the remand report on various submissions and evidences of the assessee, however, still the action of the Assessing Officer was confirmed. We find that the main contention of assessee right from the beginning is that the impugned land situated in rural area of village Lajpore, which does not fall within the limit Surat Municipal Corporation. Merely, State Government declared the area of village Lalpore for industrial use would not if so facto will not bring the area in a Municipal limit. Assessee before us has explained that the AO picked up the word shehri sankul aavali chhe , the real meaning of such words is that land falls in urban development area. On appreciation of such contention, we find merit in the submission of Ld. AR for the assessee that mere falling of land within the urban development area or notified area for industrial development of said area would not automatically bring the area in municipal limit unless and until a separate notification is not issued by State Government for including a particular area within municipal limit. No such material was brought on record by AO and he simply assume the jurisdiction on the basis of certain recital in the sale deed and formed his opinion that the impugned land falls in city limit. Assessee has filed sufficient evidence in the form of Land Revenue Record that said land was used for agricultural purposes by the certificate of Land Revenue Authority. Further, the assessee has filed certificate of Gram Panchyat that village Lajpore is not under the area of Surat Municipal Corporation. The assessee has also filed notification of State Government about extension of limit of municipality from time to time, copy of which is available at page No.72 to 81 of paper book, wherein the village Lajpore is not included in Surat Municipal Corporation. The assessee has also filed extract / details from the website of Home Department of Government of Gujarat, wherein the village Lajpore is administered under Panchayat Raj Act and administered by Sarpanch, meaning thereby the provision of Village Panchayat is not ceased to exist. The population of village is less than 10,000 as per Population Census,2011, copy of such details are available on page No.82 to 84 of the paper book. The assessee has also filed notification of Revenue Department of State Government, wherein the land of village Lajpore (Lajpore) is declared as reserve for non-agricultural and industrial development. As recorded above, that by mere declaration of area under industrial development, it would not be automatically include in municipal limit. For bringing the area in municipal limit a separate notification of State Government is required. In the notification placed on record about extension of Municipal limit of Surat Municipal Corporation, the area of village Lajpore is not included in municipal limit. Thus on the basis of the various evidence filed thus concluded the a ssessee has sold agriculture land which cannot be considered as capital asset and the surplus earned on its sale would not be taxable. So far as reliance by ld CIT(A) on the case law of Sarifa Bibi Mohamed Ibrahim Other (supra) is concerned, we find that the facts of said case are different with the facts of the case in hand. Thus, the ground of the appeal is allowed.

Summary

Issues Involved:
1. Validity of reopening under section 147 and 148 of the Income Tax Act.
2. Addition of Rs. 2,68,52,300/- and Rs. 45,86,102/- regarding sale of agricultural land.
3. Non-compliance with the procedure under section 50C(2) of the Income Tax Act.

Summary:

Issue 1: Validity of Reopening under Section 147 and 148
The appeal questioned the validity of the reopening of the assessment under Section 147 and 148. The assessee argued that the reasons recorded for reopening were incorrect, as the land in question was agricultural and exempt from capital gains tax. The Tribunal found merit in the assessee's submission that the land was situated in an urban development area, not within the municipal limits of Surat City. The reopening was based on incorrect assumptions, and thus, the Tribunal quashed the reopening.

Issue 2: Addition Regarding Sale of Agricultural Land
The assessee challenged the addition of Rs. 2,68,52,300/- and Rs. 45,86,102/- on the grounds that the land sold was agricultural and not a capital asset. The Tribunal noted that the land was used for agricultural purposes and was not included in the municipal limits of Surat City. The evidence provided, including land revenue records and certificates from local authorities, supported the claim that the land was agricultural. The Tribunal concluded that the land could not be considered a capital asset, and the surplus earned on its sale was not taxable. The addition was deleted.

Issue 3: Non-compliance with Section 50C(2)
The assessee argued that the Assessing Officer did not follow the procedure under Section 50C(2), which requires referring the valuation to a Valuation Officer if the assessee disputes the valuation by the Stamp Valuation Authority. The Tribunal found that the Assessing Officer had not adhered to this procedure. However, since the appeal was allowed on the merits regarding the nature of the land, this issue became academic and was not further adjudicated.

Conclusion:
The Tribunal allowed the appeal, quashing the reopening of the assessment and deleting the additions made by the Assessing Officer. The land in question was deemed agricultural and not subject to capital gains tax. The order was announced on 29th November 2023.