2016 (9) TMI 454 - AT - Income Tax

Treating the agricultural land as capital asset - Held that - It is observed that no such ground was taken before the First Appellate Authority as is evident from Form No. 35. However, this being a legal ground and goes to the very root of the taxability of the capital gain, we deem it proper that the same be admitted for adjudication. Accordingly, the same is admitted. The contention of the assessee is that the agricultural land falls beyond the specified limit from the Municipal limit, hence could not be amenable to capital gains tax. We find that both the authorities below have accepted the fact that the land being transferred was an agricultural land. However, neither of them has given a clear finding as to how the transfer of agricultural land would be transfer of capital asset and is outside the exemption clause of section 2(14) of the Act. Since this issue goes to the very root of the taxability of capital gains, therefore, we hereby set aside the impugned order of ld. CIT (A) and restore the issue to the file of the AO to decide it afresh in the interest of justice. The AO would verify the distance of agricultural land from the limit of Municipality. In the event, he finds that the transfer of agricultural land sweep within the definition of Capital Asset, he would compute the capital gain on such transfer as per law after giving the deductions as available to the assessee under the Act. - Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Classification of the impugned lands as agricultural lands and their exemption from capital gains tax.
2. Validity of proceedings initiated under Section 148 of the Income-tax Act, 1961, especially in the context of the notice being served after the death of the assessee.
3. Deduction under Section 54B of the Income-tax Act for reinvestments made by the appellant HUF in the names of its co-parceners/members.
4. Deduction under Section 54F of the Income-tax Act and other related deductions.
5. Adoption of indexed cost for the valuation of land.
6. Consideration of the cost of improvement in the agricultural land sold.
7. Adequacy of opportunity provided and adherence to principles of natural justice.
8. Drawing of adverse inference by the lower authorities.
9. Computation of total income.
10. Levy of tax and interest.
11. Permission to raise new grounds.

Detailed Analysis:

1. Classification of the Impugned Lands:
The appellant argued that the impugned lands were ancestral, under cultivation, and beyond the specified limit, thus not qualifying as capital assets under Section 2(14)(iii) of the Income-tax Act. The Tribunal observed that both the authorities below accepted the land as agricultural but did not provide a clear finding on whether it fell within the municipal limits. The Tribunal restored the issue to the Assessing Officer (AO) to verify the distance of the agricultural land from the municipal limit and decide afresh. The Tribunal referenced a similar case where land beyond 8 km from municipal limits was not considered a capital asset.

2. Validity of Proceedings Under Section 148:
The appellant contended that the notice under Section 148 was served after the death of Shri Bhoma Ram, rendering the proceedings invalid. The Tribunal noted that this ground was not raised before the Commissioner of Income-tax (Appeals) [CIT(A)] but admitted it for adjudication due to its impact on the legality of the proceedings. The issue was restored to the AO for a fresh decision.

3. Deduction Under Section 54B:
The appellant claimed deductions under Section 54B for reinvestments made in the names of HUF members. The Tribunal noted that the language of Section 54B was amended by the Finance Act, 2012, to include HUFs, and this amendment was clarificatory and retroactive. The issue was restored to the AO for reconsideration.

4. Deduction Under Section 54F and Related Deductions:
The appellant sought deductions under Section 54F and for amounts paid for adverse possession and brokerage. The Tribunal restored these issues to the AO for a fresh decision, considering the restoration of the primary issues.

5. Adoption of Indexed Cost:
The appellant argued for adopting an indexed cost of ?75,000 per hectare instead of ?3273 per bigha. The Tribunal restored this issue to the AO for reconsideration.

6. Consideration of Cost of Improvement:
The appellant contended that the cost of improvement in the agricultural land was not considered. The Tribunal restored this issue to the AO for a fresh decision.

7. Adequacy of Opportunity and Principles of Natural Justice:
The appellant argued that the assessment and appellate orders were made without providing adequate opportunity and violated principles of natural justice. The Tribunal restored the issues to the AO for reconsideration, emphasizing the need for a fair hearing.

8. Drawing of Adverse Inference:
The appellant claimed that adverse inferences were drawn without adequate evidence and opportunity. The Tribunal restored this issue to the AO for a fresh decision.

9. Computation of Total Income:
The appellant contested the computation of total income at ?2,12,91,192 against NIL. The Tribunal restored this issue to the AO for reconsideration.

10. Levy of Tax and Interest:
The appellant challenged the levy of tax and interest. The Tribunal restored this issue to the AO for a fresh decision.

11. Permission to Raise New Grounds:
The appellant sought permission to raise new grounds. The Tribunal did not specifically address this request, focusing on the restoration of primary issues to the AO.

Condonation of Delay:
The Tribunal condoned the delay of 1249 days in filing the appeal, considering the appellants' illiteracy, ignorance of law, and reliance on legal advice. The Tribunal referenced several judgments supporting a liberal approach towards condonation of delay to advance substantial justice.

Conclusion:
The appeal was allowed for statistical purposes, with all issues restored to the AO for fresh consideration and decision in accordance with the principles of natural justice. The Tribunal emphasized the need for a fair hearing and proper verification of facts.

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