2017 (3) TMI 1041 - AT - Income Tax

Indexed cost of acquisition and improvement - lower authorities have taken the fair market value of land as on 01-04-1981 at ₹ 60,483/- by backward indexing of the DLC rates as on 5-08-1998 of the agricultural land and thereby indexing it to ₹ 4,30,034/- as against the assessee s claim of fair market value of the land as on 01-04-1981 at ₹ 1,21,000/- based on sale deed of house dated 10-07-1985 and thereby indexing it to ₹ 8,60,310/- - Held that - The fair market value of the land as on 01-04-1981 determined by the assessee at ₹ 1,21,000/- on the basis of sale deed dated 10-07-1985 (PB 20-22) of a house of 52.14 sq. yard sold for ₹ 12,000/- is more reasonable. This is because as per this sale deed the rate works out at ₹ 222/- per sq. Yard. The assessee s land is 3,607 sq. yard and adopting this rate its value comes to ₹ 8,00,754/- but assessee has only considered approximately 15% of this value i.e. ₹ 1,20,113/- which is rounded off by the assessee to ₹ 1,21,000/- as the fair market value of the agricultural land as on 01-04-1981. Further, the cost of improvement claimed on account of land levelling charges of ₹ 20,000/- to remove the Kachi Dol and to make the land even which because of the irrigation nail was uneven by using the JCB is reasonable. Therefore, the AO is directed to consider the indexed cost of acquisition and improvement of the agricultural land sold by the assessee at ₹ 12,02,592/- as claimed by the assessee. Thus Ground of the assessee is allowed. Deduction u/s 54 in respect of purchase of agricultural land - revenue not allowed this claim for the reason that the sale deed of the agricultural land under consideration was registered on 03-08-2010 and therefore, the agricultural land purchased prior to the execution of sale deed is not entitled for deduction u/s 54B - Held that - In view of the decision of Hon ble Supreme Court in the case of Sanjeev Lal vs. CIT 2014 (7) TMI 99 - SUPREME COURT and Subhash Vinayak Supnekar 2017 (1) TMI 58 - BOMBAY HIGH COURT wherein it was held that where the investment in purchase of residential house or investment in bond is out of the amount received on agreement to sale, the deduction should be allowed even if the sale deed is registered subsequently. However, find that the assessee has only 1/7th share in the agricultural land sold and therefore, to ascertain the availability of the amount with the assessee to purchase the agricultural land of ₹ 5,20,050/-, the issue is set aside to the file of the AO with the direction to allow the deduction u/s 54B in respect of the purchase of this agricultural land to the extent of availability of the funds with the assessee. Ground of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Validity of the order passed under Section 147 due to non-service of notice under Section 148.
2. Discrepancies in the indexed cost of acquisition and improvement.
3. Denial of deduction under Section 54B for the purchase of agricultural land.

Issue-wise Detailed Analysis:

1. Validity of the Order under Section 147:
The assessee contested the validity of the order passed under Section 147, arguing that the notice under Section 148 was not served. The CIT(A) found that the AO had issued the notice, which was refused by the appellant. The reassessment proceedings were initiated based on material available on record. The CIT(A) upheld the validity of the reassessment, citing precedents such as "Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd." and "Raymond Woollen Mills Ltd. vs. ITO," which establish that the sufficiency of the material is not to be questioned at this stage. The tribunal found no merit in the assessee's arguments and dismissed Ground No. 1.

2. Indexed Cost of Acquisition and Improvement:
The dispute arose due to differences in the fair market value (FMV) of the land as on 01-04-1981 and the rejection of land leveling expenses. The assessee claimed an FMV of ?1,21,000 based on a sale deed, while the AO determined it at ?60,483 using DLC rates. The tribunal found the assessee's valuation more reasonable, considering the commercial potential of the land. The tribunal directed the AO to accept the FMV of ?1,21,000 and allow the indexed cost of acquisition and improvement at ?12,02,592 as claimed by the assessee. Thus, Ground No. 2 was allowed.

3. Deduction under Section 54B:
The assessee claimed a deduction under Section 54B for agricultural land purchased for ?5,20,050, which was denied by the AO and CIT(A) because the purchase occurred four years before the sale of the original land. The tribunal referenced the Supreme Court's decision in "Sanjeev Lal vs. CIT," which allows for such deductions if the investment is made from the amount received on agreement to sell, even if the sale deed is registered later. The tribunal set aside the issue to the AO to verify the availability of funds with the assessee and directed to allow the deduction to the extent of available funds. Thus, Ground No. 3 was allowed for statistical purposes.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific directions to the AO to reassess certain aspects based on the tribunal's findings. The order was pronounced in the open court on 15-02-2017.