2024 (2) TMI 892 - HC - Income Tax

Capital gain - nature of land sold - whether the land would not be covered under definition of capital asset as stated in Section 2(14)(iii)? - ITAT has directed the AO to adjudicate denovo - HELD THAT - The order of the ITAT must be read and understood in the proper context and in law. All that is stated in the order itself. There was considerable force in the submission of Petitioner that the order must be read as restricting the scope of the AO only to question the evidence filed by petitioner and nothing more, and to ascertain whether the land would not be covered under definition of capital asset as stated in Section 2(14)(iii) of the Act. Moreover, the ITAT has not disturbed the findings of the CIT(A) that actual carrying on of agricultural operation is not a necessary condition for deciding that a particular parcel of land was agricultural land. The matter has been restored to the AO only to examine the evidence filed by petitioner and conducting enquiry, if necessary, with the concerned authorities of the Government to find out the true nature and character of the land sold and only if, the AO comes to a conclusion on the basis of material brought on record that the lands sold by petitioner are not in the nature of agricultural land, can he come to conclusion that the land would come within the purview of capital asset as defined under Section 2(14) of the Act. We hereby quash and set aside the impugned order dated 24th March 2022 and remand the matter for passing the fresh assessment order. The AO will only examine whether the evidence brought on record to establish the claim that the lands sold are in the nature of agricultural land, was authentic. If the AO has to reject the evidence filed by petitioner, he shall bring contrary material on record. For that, the AO has to conduct an enquiry to ascertain the authenticity of the certificates filed by petitioner. AO may take such steps as required by conducting necessary enquiry with the concerned Government authorities. The contention of petitioner cannot be rejected purely on presumption that the lands sold were not an agricultural lands because petitioner sold the parcels of lands within two years of purchase. If the AO is satisfied that the parcels of land actually are not situated in an area which will fall under Section 2(14)(iii), the AO shall proceed on the basis that in the facts and circumstances of the case, actual carrying on of agricultural operation is not a necessary condition for deciding that the parcels of lands were agricultural lands.

Summary

Issues Involved:
1. Whether the land sold by the petitioner qualifies as agricultural land under Section 2(14)(iii) of the Income Tax Act, 1961.
2. Whether the sale of the land should be taxed as capital gains.
3. Compliance with procedural requirements under Section 144B of the Income Tax Act.

Summary:

Issue 1: Agricultural Land Qualification
The petitioner claimed that the land sold was rural agricultural land as per Section 2(14)(iii) of the Income Tax Act and therefore, not a capital asset, making it exempt from capital gains tax. The Assessing Officer (AO) rejected this claim, stating that there was no evidence of agricultural operations on the land. The Commissioner of Income Tax (Appeals) [CIT(A)] accepted that actual agricultural operations were not necessary but rejected the claim due to lack of evidence showing the land as agricultural in government records. The Income Tax Appellate Tribunal (ITAT) remanded the case for de novo adjudication, directing the AO to verify the nature of the land based on additional evidence provided by the petitioner, including certificates from village officials.

Issue 2: Taxation as Capital Gains
The AO initially taxed the sale as capital gains, arguing that the land was held for investment rather than agricultural purposes. The ITAT, however, emphasized that the AO must verify whether the land falls under the definition of a capital asset as per Section 2(14)(iii) and only then consider the applicability of Section 50C. The ITAT noted that the revenue authorities had not conducted proper inquiries to verify the nature of the land and directed the AO to reassess based on the evidence provided by the petitioner.

Issue 3: Procedural Compliance
The AO's subsequent assessment order was challenged for not complying with Section 144B, which mandates a personal hearing. The High Court quashed this order, noting that the AO failed to follow the ITAT's directions and did not provide a personal hearing. The court directed the AO to reassess the case, focusing on the authenticity of the evidence provided by the petitioner and ensuring compliance with procedural requirements.

Conclusion:
The High Court quashed the impugned assessment order and remanded the case for fresh consideration by the Jurisdictional Assessing Officer (JAO). The JAO is instructed to verify the authenticity of the evidence regarding the agricultural nature of the land and to conduct necessary inquiries with government authorities. The JAO must also provide a personal hearing to the petitioner and share any documents or judicial precedents relied upon. The court emphasized that actual agricultural operations are not a necessary condition for the land to be considered agricultural under Section 2(14)(iii). The petition was disposed of with these directions.