2023 (9) TMI 431 - AT - Income Tax

Deduction u/s 54B - reinvestment of the sale proceeds of the agricultural land and capital gain deposits scheme - NFAC extracted the contention of the assessee and accepted it allowing claim of deduction - requirement of passing a reasoned order by an authority whether administrative, quasi judicial or judicial - AO used Google Satellite Images of the land, concluded that the land was not used for agricultural purposes for last preceding 2 years, accordingly, denied the claim for deduction - HELD THAT - The order passed by the NFAC does not meet the requirements of being a reasoned order as enunciated by the Hon ble Supreme Court in PANKAJ GARG VERSUS MEENU GARG ANR. 2013 (2) TMI 924 - SUPREME COURT and cannot be sustained in the eyes of law. NFAC had not met the reasoning of the AO and there is no material brought before the NFAC or before us controverting the findings of the AO that the respondent-assessee had filed fabricated/forged documents of 7/12 extracts. There is material on record in the form of the statement on oath of Talhati that no agricultural operation was carried on. The finding of the Assessing Officer that the land was purchased by the respondent-assessee not with the intention of carrying out any agricultural activities, but with the intention of development of properties remains uncontroverted. There is no cogent material brought on record in support of retracting the statement of the respondent-assessee withdrawing the claim for deduction u/s 54B during the course of assessment proceedings. The fact that the agricultural lands were situated within the 8 kilometres from the Municipal Corporation of Pune remain uncontroverted. In the circumstances, the order of the NFAC cannot be sustained in the eyes of law. Thus, the respondent-assessee had failed to discharge the onus of proving that the lands sold were agricultural lands. Therefore, the order of the NFAC is reversed and the addition made by the AO is restored. Thus, the grounds of appeal filed by the Revenue stand allowed.

Summary

Issues Involved:
1. Denial of deduction under Section 54B of the Income Tax Act.
2. Validity of agricultural activity on the land in question.
3. Authenticity of 7/12 revenue records and other evidences.
4. Consideration of statements and admissions by the assessee.
5. Treatment of income as agricultural income.

Summary:

1. Denial of Deduction under Section 54B:
The Revenue challenged the order of the National Faceless Appeal Centre (NFAC) which allowed the assessee's claim for deduction under Section 54B of the Income Tax Act. The Assessing Officer (AO) had initially denied this deduction, concluding that the land sold was not used for agricultural purposes in the two years preceding the sale.

2. Validity of Agricultural Activity:
The AO's conclusion was based on multiple pieces of evidence, including satellite images, field verification reports, and statements from the Talathi and other witnesses, which indicated that no agricultural activities had been carried out on the land in question.

3. Authenticity of 7/12 Revenue Records:
The AO found discrepancies in the 7/12 extracts provided by the assessee, which were claimed to be fabricated. Statements from Talathi officials confirmed that the extracts submitted by the assessee were not issued by them, and the land was classified as 'weedy fallow land' rather than agricultural land.

4. Consideration of Statements and Admissions:
The AO also considered the assessee's own admission during assessment proceedings, where the assessee agreed to offer the long-term capital gains for taxation, thus retracting the claim for deduction under Section 54B. The NFAC, however, dismissed these findings without providing detailed reasons or addressing the AO's evidence.

5. Treatment of Income as Agricultural Income:
The NFAC's order, which directed the AO to treat the income as agricultural income, was found to be lacking in detailed reasoning and failed to address the AO's findings. The Hon'ble Supreme Court's principles on the necessity of reasoned orders were cited to emphasize the need for detailed justification in judicial decisions.

Conclusion:
The appellate tribunal found that the NFAC's order did not meet the requirements of a reasoned order and failed to address the AO's substantial evidence and findings. Consequently, the tribunal reversed the NFAC's order, upheld the AO's decision to deny the deduction under Section 54B, and allowed the Revenue's appeal. The tribunal emphasized the importance of detailed reasoning in judicial orders to avoid arbitrariness and ensure fairness in the decision-making process.