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2024 (11) TMI 573 - HC - Income TaxRevision u/s 263 - Taxability of capital gain - nature of land sold - s cope of erroneous orders - Whether asset sold by the assessee was the agricultural land situated 5 kms / 8 kms beyond the boundary limits of the municipal corporation? - HELD THAT - In the present case, while invoking the provisions of Section 263 of the Act against the order passed by the AO u/s 143 (3) PCIT emphasized that the AO did not scrutinize the critical documents, particularly those concerned with the claim of the assessee with respect to the land being agricultural in nature and its sale being exempt from capital gains tax. Specifically, the PCIT noted that the AO relied on a certificate issued by the Tehsildar, but failed to obtain corroborative evidence from other important and necessary authorities like the DTP, Gurugram. The AO, according to the PCIT, accepted the assessee s claim without proper verification, which amounted to no-inquiry. Ultimately, the PCIT took a view that the land sold by the assessee was not agricultural land, and thus, the assessee was not entitled for long-term capital gains tax exemption. However, the learned ITAT in the impugned order opined in the present case that the AO had considered the issue of capital gains taxability and had accepted the submissions of the assessee. The critical issue remains whether the inquiry made by the AO in this case can be actually considered as an inquiry required to be conducted by the AO. The fact that the AO neither read the contents of the certificate issued by the Tehsildar, which is discernible from the fact that the certificate did not even mention the distance of the land from the municipal limits which is a criteria for determining the agricultural status of land under the Act, nor sought any additional evidence or document from the relevant authorities like the DTP, Gurugram, undoubtedly, suggests that the AO failed to undertake any inquiry or even apply his mind to the documents submitted by the assessee to arrive at the conclusion regarding the long-term capital gains exemption. There is no cavil that the PCIT would not have jurisdiction to pass an order under Section 263 of the Act solely for the reason that he held a different opinion with the AO. If the AO has applied his mind and had arrived at a plausible view, the same would not be amenable to a revision under Section 263 of the Act. Similarly in the case of Tara Devi Aggarwal 1972 (11) TMI 2 - SUPREME COURT upheld the finding of the CIT that the assessments made by the ITO were made in post haste without making any enquiry or investigation into the antecedents of the assessee In the present case, the AO had issued a questionnaire to the assessee on 19.08.2015. The assessee responded to the said questionnaire by claiming that she had earned long term capital gains which was not chargeable to tax as the agricultural land was beyond the prescribed distance from the municipal limits of Sohna district. She also enclosed therewith a document described as a certificate issued by Tehsildar, Sohna to the aforesaid effect. A plain reading of the said document indicates that it did not certify that the land in question was beyond the prescribed distance from the municipal limits as claimed by the assessee. Notwithstanding the same, the AO passed the assessment order on the same date. It is thus apparent that the AO had not applied his mind to the relevant point whether the asset sold by the assessee was the agricultural land situated 5 kms / 8 kms beyond the boundary limits of the municipal corporation. The noting made by the Tehsildar on 24.04.2012, which the assessee claims to be a certificate, merely stated that the land in question was outside the border of Sohna Municipal Corporation . Whether the land in question was outside the municipal limits but whether it was an agricultural land that was located 5 kms. / 8 kms. beyond the municipal limits ? - The Tehsildar s noting is clearly not to the aforesaid effect. It is thus clear that this is not a case where the enquiries conducted by the AO were inadequate; this is a case of lack of enquiry as the AO had not conducted any enquiry to verify whether the land sold by the assessee was beyond the prescribed distance from the boundary of Sohna Municipal Corporation. It is apparent that no enquiry to the said effect was conducted by the AO and there is no material before the AO, other than the self-serving statement of the assessee, to corroborate the same. The assessment order passed by the AO under Section 143 (3) of the Act even records no reasons for accepting the version of the assessee that the land was agricultural land, and not capital asset, and thus exempt from capital gain. In fact, there is no mention of this aspect at all in the order passed by the AO under Section 143 (3) of the Act. Thus, it is not clear as to what had weighed in the mind of the AO since the order passed by the AO is totally silent on this aspect. Therefore, the present case would be one where the absence of any effective inquiry and a total non-application of mind by the AO is evident, and thus, the order passed by the AO would clearly fall within the meaning of an erroneous order . The order is also, undisputedly, prejudicial to the interests of the Revenue inasmuch as it results in loss of the Revenue in the form of tax. PCIT had exercised the jurisdiction under Section 263 of the Act correctly and legally, in view of the fact that the order passed by the AO was erroneous and prejudicial to the interest of the Revenue since the same was passed without conducting any enquiries and applying mind to the claims of the assessee. We are also of the view that the ITAT erred in setting aside the order passed by the PCIT u/s 263 of the Act on the ground that the PCIT had wrongly exercised jurisdiction u/s 263 of the Act. Decided in favour of assessee.
Issues Involved:
1. Whether the land in question qualifies as agricultural land and is exempt from capital gains tax. 2. Whether the Assessing Officer (AO) conducted sufficient inquiries regarding the nature of the land. 3. Whether the Principal Commissioner of Income Tax (PCIT) rightly exercised jurisdiction under Section 263 of the Income Tax Act, 1961. 4. Whether the Income Tax Appellate Tribunal (ITAT) was justified in setting aside the PCIT's order under Section 263. Issue-Wise Detailed Analysis: 1. Qualification of Land as Agricultural Land: The crux of the case was whether the land sold by the assessee qualified as agricultural land, which would exempt it from capital gains tax under Section 2(14) of the Income Tax Act, 1961. The assessee claimed the land was agricultural and located beyond the prescribed municipal limits, thus not a capital asset. However, the PCIT found that the land was within the municipal limits of Gurugram, based on a report from the District Town Planner (DTP), and was being aggregated for development, indicating non-agricultural use. The Tehsildar's certificate, relied upon by the assessee, failed to specify the distance from the municipal limits, which is crucial for determining the land's status under the Act. 2. Sufficiency of Inquiries by the AO: The AO accepted the assessee's claim of the land being agricultural without conducting adequate inquiries. The AO relied on a certificate from the Tehsildar, which did not mention the critical distance from municipal limits. The AO did not seek corroborative evidence from relevant authorities like the DTP, nor did he verify the actual use of the land. The assessment order lacked any reasoning or mention of the land's status, indicating a lack of inquiry and non-application of mind. 3. Exercise of Jurisdiction by the PCIT under Section 263: The PCIT invoked Section 263, arguing that the AO's order was erroneous and prejudicial to the revenue because it was passed without proper inquiry. The PCIT noted that the AO failed to verify the land's status and relied solely on inadequate documentation. The PCIT's jurisdiction was challenged by the assessee, arguing that the AO had made a plausible view, and the PCIT's action was based on a mere difference of opinion. However, the court found that the AO's lack of inquiry justified the PCIT's intervention under Section 263. 4. Justification of ITAT's Decision: The ITAT set aside the PCIT's order, holding that the AO had considered the taxability of capital gains and accepted the assessee's submissions. The ITAT relied on the Supreme Court's decision in Malabar Industrial Co. Ltd v. CIT, which emphasizes that an order cannot be revised under Section 263 if the AO has taken a possible view. However, the court found that the ITAT erred in its decision, as the AO had not conducted any inquiry, and the order was both erroneous and prejudicial to the revenue. The court set aside the ITAT's order, upholding the PCIT's exercise of jurisdiction under Section 263. Conclusion: The court concluded that the AO's order was erroneous and prejudicial to the interests of the revenue due to the lack of inquiry into the land's status. The PCIT rightly exercised jurisdiction under Section 263, and the ITAT erred in setting aside the PCIT's order. The appeal was disposed of by reinstating the PCIT's order.
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