2021 (4) TMI 1156 - AT - Income Tax

Capital gain on sale of land - nature of land sold - treatment to assessee s land sold as a capital asset - HELD THAT - No merit to accept the foregoing Revenue s argument as the amended Section 2(14) Explanation (iii) clause(b) reads as the Central Government may having regard to the extent and scope for, urbanization of that area and other relevant consideration, specify in this behalf notification in the official gazette . It therefore emerges that once the amendment to the above statutory provision came vide Finance Act, 2013 w.e.f. 01-04-2014 the assessee s case would continue to be governed by the earlier un-amended provisions as we are in AY.2011-12. This is also not the Revenue s stand that assessee s land(s) deserved to be treated as a capital asset as per the unamended proviso since covered by any notification issued in this behalf from the Central Government. I therefore direct the Assessing Officer to delete the impugned long term capital gain addition on this count alone.

Summary

Issues Involved
1. Delay in filing the appeal.
2. Validity of initiating proceedings under Section 147.
3. Determination of capital gains in the assessment year.
4. Validity of assessment under Section 143(3) and notice under Section 143(2).
5. Timing of capital gains realization.
6. Classification of the property as a capital asset.
7. Definition and jurisdiction of a municipality versus a panchayat.

Detailed Analysis

1. Delay in Filing the Appeal
The assessee's appeal suffered from a 36-day delay, attributed to reasons beyond their control as per the condonation petition/affidavit dated 27-12-2019. The departmental side did not rebut this claim. Consequently, the delay was condoned.

2. Validity of Initiating Proceedings under Section 147
The assessee contended that the CIT(A) erred in upholding the validity of initiating proceedings under Section 147, arguing there was no escapement of income in the assessment year. However, this issue was not elaborately discussed in the judgment.

3. Determination of Capital Gains in the Assessment Year
The assessee argued that capital gains did not arise in the assessment year under review, contrary to the provisions of Section 2(47)(v) and based on the misconstrued fact of not giving possession. The CIT(A) upheld the assessment, stating that the property transfer fell within the purview of Section 2(14)(iii)(a) of the Act, and thus, capital gains were applicable.

4. Validity of Assessment under Section 143(3) and Notice under Section 143(2)
The assessee claimed that the assessment was invalid due to the issuance of notice under Section 143(2) without a valid return, and the CIT(A) erred in invoking Section 292B to treat it as a curable defect. This specific issue was not further elaborated in the judgment.

5. Timing of Capital Gains Realization
The assessee contended that capital gains should have been recognized when the General Power of Attorney (GPA) was executed, not when the sale deed was later executed. The CIT(A) disagreed, stating that the property was correctly assessed as a capital asset at the time of the sale.

6. Classification of the Property as a Capital Asset
The core issue was whether the property was a capital asset. The CIT(A) and AO determined that the property was situated within Rajam Nagar Panchayat limits, thereby qualifying as a capital asset under Section 2(14)(iii)(a). The assessee's argument that the land was agricultural and not within a notified municipality was dismissed. The CIT(A) cited the Andhra Pradesh Municipalities Act, 1965, and relevant case law to support this classification.

7. Definition and Jurisdiction of a Municipality versus a Panchayat
The CIT(A) referenced the definition of "Municipality" under Article 243Q of the Constitution of India, which includes Nagar Panchayat. The judgment cited relevant case law (Smt. T. Urmila Vs. ITO) to affirm that Nagar Panchayat falls under the definition of a municipality for the purposes of Section 2(14)(iii)(a) of the Act. The property in question, being within the limits of Rajam Nagar Panchayat, was thus classified as a capital asset.

Conclusion
The appellate tribunal found merit in the assessee's argument regarding the applicability of the amended Section 2(14) Explanation (iii) clause (b), which came into effect from 01-04-2014. Since the assessment year in question was 2011-12, the unamended provisions applied. The tribunal directed the Assessing Officer to delete the long-term capital gain addition, allowing the assessee's appeal.

The order was pronounced on 26th April, 2021.