2022 (4) TMI 1625 - AT - Income Tax

Gain on sale of land - nature of land sold - Eligibility for exemption under Section 10(37) - Scope of Section 2(14) of the Income Tax Act regarding capital assets - HELD THAT - As relying on Ambaben J Patel 2022 (5) TMI 1403 - ITAT SURAT we hold that the Hazira Notified area is not municipal area or deemed municipality therefore the agriculture land situated in such notified area would not partake the character of agriculture land as capital asset as defined under section 2(14) of the Act and the value of compensation received on acquisition of such land is not be taxable under Income tax Act. Thus the appeal of assessee is liable to be succeeded on this issue alone. Whether the land acquired is agriculture land and /or being used for agriculture purpose and assessee is eligible for exemption under section 10(37)? - AO rejecting the eligibility of section 10(37) held that the assessee has not produced any evidences regarding agriculture activities carried out on the land and that the District Agriculture officer Zilla Panchayat Surat has written letter to Collector that many part of the land is under sea water and part of land is barren - Considering the facts that we have already held that the land of the assessee is not capital asset as the same does not fall in municipal area Hazira Notified area is not a municipality or deemed municipality and on alternative plea also held eligible for exemption under section 10(37) therefore all other pleas or counter pleas of the parties and the remaining issues arising thereto have become academic. Action of assessing officer in taxing sum as capital gain and not treating the same as part of compensation - No estimate of cost of such built-up structure is furnished. As recorded above the ld CIT(A) estimated the cost of acquisition of built-up units/ pucca structure @ 50% of the cost awarded for such built-up / pucca structure in the award. Considering the area where in the such built-up unit or pucca house is situated in our view the estimation of it s cost of acquisition is on lower side therefore we deem it fit and proper to increase it to 60% would be reasonable and fair. Therefore we direct the Assessing officer to treat the cost of acquisition @ 60% of Rs. 13.00 lacs as cost of acquisition. In the result the corresponding ground of appeal is partly allowed. Treating the agriculture income as unexplained cash credit - Considering the facts that we have already held that the land of assessee was agriculture and was being used as such therefore the income offered by assessee as agriculture is also allowed and the assessing officer is directed to delete this addition.

Summary

Issues Involved:
1. Admission of additional evidence by the revenue.
2. Determination of whether the acquired land is agricultural land.
3. Applicability of Section 2(14) of the Income Tax Act regarding capital assets.
4. Eligibility for exemption under Section 10(37) of the Income Tax Act.
5. Reopening of assessment.
6. Tax treatment of compensation received for constructed property on the land.
7. Treatment of agricultural income as unexplained cash credit.

Issue-wise Detailed Analysis:

1. Admission of Additional Evidence by the Revenue:
The revenue filed an application for the admission of additional evidence, specifically a report from NRSC Hyderabad, to ascertain the nature and use of the land from 1999 to 2014. The revenue argued that these documents were essential for effective adjudication. The Tribunal allowed the admission of these documents to maintain a uniform approach in all appeals, despite objections from the assessees.

2. Determination of Whether the Acquired Land is Agricultural Land:
The Tribunal considered various submissions and documentary evidence, including the revenue records and reports from the District Agriculture Officer. It was established that the land was used for agricultural purposes, and the award by the Special Land Acquisition Collector mentioned the land's agricultural use. The Tribunal concluded that the land was indeed agricultural.

3. Applicability of Section 2(14) of the Income Tax Act Regarding Capital Assets:
The Tribunal examined whether the land fell within the definition of a capital asset under Section 2(14)(iii)(a) of the Income Tax Act. It was determined that the Hazira Notified area is not a municipality or deemed municipality. Therefore, the agricultural land in this notified area does not qualify as a capital asset, and the compensation received is not taxable under the Income Tax Act.

4. Eligibility for Exemption Under Section 10(37) of the Income Tax Act:
The Tribunal analyzed the conditions for exemption under Section 10(37), which include the land being used for agricultural purposes for two years preceding the transfer and the transfer being by compulsory acquisition. It was found that the land met these conditions, and the compensation received was eligible for exemption.

5. Reopening of Assessment:
The Tribunal addressed the issue of reopening the assessment based on the information received about the compensation for the transferred land. It was held that the reopening was valid as there was prima facie material suggesting that income had escaped assessment. The Tribunal dismissed the grounds challenging the validity of the reopening.

6. Tax Treatment of Compensation Received for Constructed Property on the Land:
The Assessing Officer treated part of the compensation as income from other sources. The Tribunal found that the compensation for constructed property on the land should be assessed under the head "capital gains." The cost of acquisition was estimated at 60% of the compensation awarded for the built-up units, and the corresponding ground of appeal was partly allowed.

7. Treatment of Agricultural Income as Unexplained Cash Credit:
Considering the finding that the land was agricultural and used as such, the Tribunal allowed the agricultural income declared by the assessee and directed the deletion of the addition made by the Assessing Officer.

Conclusion:
The Tribunal partly allowed the appeals of the assessees, holding that the land in question was agricultural and not a capital asset, thus exempting the compensation received from taxation. The reopening of assessments was upheld, and the compensation for constructed property was to be treated under capital gains with an estimated cost of acquisition. The agricultural income declared by the assessee was accepted. The order was to be applied consistently to all similar appeals in the Hazira Land Acquisition cases.