2020 (9) TMI 412 - AT - Income Tax

Revision u/s 263 - assessee s claim of deduction u/s 54B - Section 50C applicability with regard to computation of capital gain earned on sale of agricultural land - HELD THAT - During the course of scrutiny assessment, the A.O. examined capital gain earned by him. However, he declined the assessee s claim of deduction u/s 54B of the Act which was appealed by the assessee before the ld. CIT(A) and which is still pending before him. CIT, Administration invoked his power U/s 263 and held that the A.O. had not made any proper enquiry and had not applied provisions of Section 50C with regard to computation of capital gain earned on sale of agricultural land. From the record, we found that the assessee had sold the agriculture land and at the time of sales of land, the statute of the same was agriculture. However, in the sale deed which was executed on 05/12/2014 it has been clearly mentioned that the nature of land is agriculture land. Further from the copy of Jamabandi of agriculture land as placed on record, this fact is also clear that the land use was got converted by the buyer of the land only after sale deed got registered by the assessee. Therefore, at the point of sale, the status of land was agriculture land. Whether the sale of agriculture land attracts provisions of Section 50C ? - We observe that the land held by the assessee was agricultural land which is not capital asset as clearly defined U/s 2(14) of the Act, which excludes agricultural land out of definition of capital asset. It is also not in dispute that the assessee had sold the agricultural land at a consideration which was more than DLC. However, as per Rajasthan Government notification since the sale was to a firm or company, the DLC rate was to be taken at 1.5 times. We found that in the case of joint owner of this agricultural land namely Shri O.P. Agarwal, the Tribunal have decided similar issue 2020 (8) TMI 150 - ITAT JAIPUR wherein it was held that the assessee had declared sale consideration more than DLC, accordingly, there is no justification for making any addition U/s 50C - No merit in the order passed by the ld. CIT(A) U/s 263 of the Act. - Decided in favour of assessee.

Issues Involved:
1. Validity of invoking Section 263 of the Income Tax Act, 1961.
2. Applicability of Section 50C of the Income Tax Act, 1961.
3. Status of the land as agricultural land and its implications.
4. Jurisdiction of the Assessing Officer (AO) in limited scrutiny cases.
5. Pending appeal before CIT(A) and its implications on invoking Section 263.

Issue-wise Detailed Analysis:

1. Validity of Invoking Section 263:
The assessee contended that the Principal Commissioner of Income Tax (Pr.CIT) erred in invoking Section 263 of the Income Tax Act, 1961, without appreciating that no addition under Section 50C could be made as the sale consideration disclosed was more than the normal DLC value. The Tribunal admitted the additional ground raised by the assessee, stating it was purely legal and all relevant material facts were on record. The Pr.CIT held that the AO's order was erroneous and prejudicial to the interests of the revenue, as the AO did not invoke Section 50C despite the DLC rate being higher than the sale consideration. The Tribunal, however, found no merit in the Pr.CIT's order, following the precedent set in the case of a co-owner of the same land where it was held that Section 50C could not be applied as the sale consideration was more than the DLC rate.

2. Applicability of Section 50C:
The assessee argued that the AO had considered the applicability of Section 50C during the assessment proceedings and decided not to apply it as the sale consideration was higher than the normal DLC rates. The Tribunal noted that the AO had indeed raised queries regarding Section 50C and, after considering the assessee's reply, chose not to apply it. The Tribunal referred to a similar case involving a co-owner of the land, where it was held that the higher value assessed by the Stamp Duty Authority did not justify applying Section 50C, as the sale consideration was more than the DLC rate.

3. Status of the Land as Agricultural Land:
The assessee claimed the land was rural agricultural land and thus not a capital asset, exempting it from Section 50C. The Tribunal examined the evidence, including sale deeds, Jamabandi, Girdawari, census data, and a Patwari certificate, confirming the land's agricultural status at the time of sale. The Tribunal concluded that the land was agricultural and not a capital asset under Section 2(14) of the Act, thus Section 50C was not applicable.

4. Jurisdiction of the AO in Limited Scrutiny Cases:
The assessee argued that in a limited scrutiny case, the AO could only examine the deduction claimed under capital gains and not the computation of capital gains, which includes the applicability of Section 50C. The Tribunal agreed, noting that the AO was not empowered to examine beyond the scope of limited scrutiny, and thus there was no error in the AO's assessment order.

5. Pending Appeal Before CIT(A):
The assessee highlighted that an appeal against the AO's order was pending before CIT(A), who has the power of enhancement. The Tribunal noted that multiple proceedings were unnecessary and the matter could have been referred to CIT(A) for consideration during the appeal. The Tribunal found that the Pr.CIT was not justified in initiating proceedings under Section 263 when the appeal was still pending.

Conclusion:
The Tribunal concluded that the AO's decision not to apply Section 50C was justified, as the sale consideration was higher than the DLC rate. The land was confirmed as agricultural, exempting it from being a capital asset. The limited scrutiny scope restricted the AO from examining the computation of capital gains. The pending appeal before CIT(A) made the initiation of Section 263 proceedings by Pr.CIT unwarranted. Consequently, the Tribunal allowed the assessee's appeal, setting aside the Pr.CIT's order under Section 263.

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