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TMI Blog2021 (10) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of land as on the date of diversion i.e. on 25.11.2010 shall be taken as 68,90,415/-. Thus, in our view, as discussed supra, capital gain accruing to the assessee till the date of diversion using fair market value of 68,90,415/- shall be exempt from tax. Further, we are of the view that fair market value of 68,90,415/- as on the date of diversion shall be considered as cost of acquisition for the purpose of determination of the amount of capital gain chargeable to tax during the year under consideration. The indexed cost of acquisition of land comes to 91,00,000/- for the FY 2013-14 (AY 2014-15). We are of the view that the findings of ld. CIT(A) deserve to be set aside and accordingly, we delete the addition of 88,78,365/- made on account of long-term capital gain on sale of land. Thus, ground nos.1 to 3 raised in the appeal of the assessee are allowed. Long-term capital gain on compulsory acquisition of land - HELD THAT:- Once it is established that land compulsorily acquired by the Government was agricultural land, it makes no difference whether the said land is rural or urban since compensation received on compulsory acquisition of rural agricultural land is not chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he head assets in the balance-sheet on the ground that during the course of assessment proceedings, in the statements u/s 131 of the I.T. Act, recorded by the Assessing Officer, the assessee failed to explain the source of the investment and also failed to produce books of accounts and any other documentary evidences in support of the claimed liability - HELD THAT:- Assessee categorically explained that corresponding adjustment in respect of addition made to agricultural land was not routed through the capital account but rather the amount of cash to the extent of 12,86,090/- was transferred from the books of accounts of the business to the personal books of accounts of the assessee. Thus, the source of agricultural land purchased by the assessee was duly explained. We also find that the agricultural land under consideration was purchased during the AY 2013-14 and not during the AY 2014-15. Addition is not sustainable on this count also. In view of these facts, the order of ld. CIT(A) on this issue deserves to be set aside. Accordingly, we delete the addition made u/s 68. Estimation of N.P. @ 8% - assessee could not produce his books of accounts during the course of assessment proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly erred in maintaining the entire addition of₹ 88,78,365/- as made to the total income of the appellant on account of long-term capital gain earned on sale of land more so when the said land in question was diverted only in the Financial Year 2010-11 and therefore, the said land in question was not a capital asset till the Financial Year 2010-11 and capital gain earned till the date of diversion was not liable to tax under the provisions of the Income-Tax Act, 1961. 4. That on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in maintaining the addition of ₹ 9,25,047/- as made to the total income of the appellant on account of long-term capital gain earned on the compulsory acquisition of land without properly appreciating the facts of the case and submissions made before him. 5. That on the facts and in the circumstances of the case and in law, the Ld CIT(A] erred in maintaining the addition of ₹ 3,42,358/ - as made to the total income of the appellant on account of long-term capital gain earned on the compulsory acquisition of part of tile house without properly appreciating the facts of the case and submissions made before him. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the submissions made before Revenue Authorities, submitted that the capital gain accruing to the assessee till the date of diversion of land is exempt from tax as the land in question was not a capital asset as per the provision of section 2(14)(iii) of the Act till the date of its diversion. Thereafter, capital gain computed considering the fair market value of land on the date of diversion of ₹ 68,90,415/- comes to NIL and as such, no capital gain is chargeable to tax in the hands of the assessee during the AY 2014-15 in respect of sale of land in question. 5. Per contra, ld. Sr. DR relied upon the orders of the Revenue Authorities. 6. We have heard rival contentions of both the parties and perused material available on record. We find that the assessee purchased agricultural land situated at Survey no. 83, Village Lasudalya Ramnath, Halka no. 58, Village Kurawar, Narsinghgarh, Rajgarh admeasuring 2.529 hectares during the FY 1978-79. The assessee also purchased agricultural land situated at Survey no. 82/6, Village Lasudalya Ramnath, Halka no. 58, Village Kurawar, Narsinghgarh, Rajgarh admeasuring 0.772 hectares during the FY 1988-89. Out of the agricultural land situate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res consideration now is whether the land initially purchased by the assessee was a rural agricultural land and if it was so, how much of the amount of capital gain shall be treated as exempt on that count. We find that the Assessing Officer observed that the land sold by the assessee was situated at a distance of 1.5 km (approx.) from the bus stand of kurawar gram panchayat having population of more than 10,000. Thus, the Assessing Officer was of the view that the land in question was already a capital asset and there would be no impact of distance of land and accordingly, provisions of section 2(14)(iii) of the Act shall not be applicable to the facts of the present case. On the other hand, the Ld. Counsel for the assessee categorically emphasized that section 2(14)(iii) of the Act refers to inclusion as capital assets of agricultural land situated in India within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand. Ld. Counsel for the assessee re-iterated that land in question wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MAD.) has held that: " _____________Even as regards the second question, it is seen that under section 2(14) of the Income-tax Act, 1961, the exclusion of agricultural land as capital asset, would be applicable to land within the limits of a municipality and not a panchayat. The land sold by the assessee was situate in Koshancherry town and that was only a panchayat. Though learned counsel for the Revenue strenuously contended that a panchayat would also be comprehended within section 2(14) of the Income-tax Act, 1961, we are unable to accept the contention. Section 2(14)(iii) refers to the exclusion as capital asset of agricultural lands situate in an area which is comprised within the jurisdiction of a municipality (whether known as municipality or municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment, which has a population of not less than 10,000 according to the last preceding census. In order that the benefit of exclusion of agricultural land as capital asset may not be available, the land should be situated within the jurisdiction of a municipality or a cantonment board as stated earlier and is also relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hectares). Alternatively, the Ld. Counsel for the assessee submitted that fair market value shall be determined on the basis of reverse indexation method. The fair market value of land computed on the basis of reverse indexation method comes to ₹ 68,90,415/-. The reverse indexation method for determination of fair market value of a capital asset is duly accepted and approved in the following judgments: • Deen Dayal Rathi Vs ITO-3(4), Jodhpur - ITA No. 108/Jodh/2013 • Prem Bhai Kanji Bhai Tandel Vs ITO - ITA No. 192/Ahd/2016 • DCIT Vs Shri Rajendra Kumar Singhvi - ITA No. 313/Jodh/2010 • Dashrathbhai G Patel Vs DCIT - 182 ITD 327 (Ahd-Trib.) • Smt. Mina Deogun v. ITO [2008] 19 SOT 183 (Kol.) • Pfizer Ltd. v. Dy. CIT [2015] 56 taxmann.com 260/ 153 ITD 433 (Mum.) • CIT v. Ashven Datla [2013] 37 taxmann.com 261/ 218 Taxman 74 (Mag.)(AP) On consideration of above, we find force in the contention of the ld. Counsel for the assessee that fair market value of land as on the date of diversion i.e. on 25.11.2010 shall be taken as ₹ 68,90,415/-. Thus, in our view, as discussed supra, capital gain accruing to the assessee till the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT(A) who having gone through the facts/circumstances, material and submissions confirmed the addition. The ld. CIT(A) noted that the assessee received the compensation due to compulsory acquisition of land out of survey no.83 for which the taxability has already been decided against the assessee and since the land has been held as capital asset, the addition of ₹ 9,25,047/- made by the Assessing Officer is justified. Still aggrieved, the assessee is in appeal before this Tribunal. 9. ld. Counsel for the assessee, reiterating the submissions made before Revenue Authorities, submitted that the land purchased by the assessee was a rural agricultural land and not a capital asset as per section 2(14)(iii) of the Act. Accordingly, compensation received by the assessee on compulsory acquisition of its rural agricultural land shall not be chargeable to tax under the IT Act, 1961. Per contra, ld. Sr. DR relied upon the orders of the Revenue Authorities. 10. We have heard rival contentions of both the parties and perused material available on record. We find that the Government compulsorily acquired land admeasuring 0.180 hectares out of the land admeasuring 0.217 hectares which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of long-term capital gain on compulsory acquisition of a part of his house. Brief facts as culled out from the orders of Revenue Authorities are that the assessee received the compensation of ₹ 8,03,041/- due to compulsory acquisition of part of house. The Assessing Officer noted that the part of house is nothing but a capital asset because in the year 2001, the assessee had taken the permission from Gram Panchayat for building construction which was approved by the Gram Panchayat. 12. Being aggrieved, the assessee challenged the action of the Assessing Officer before the ld. CIT(A) who having gone through the facts/circumstances, material and submissions confirmed the addition. Still aggrieved, the assessee is in appeal before this Tribunal. 13. ld. Counsel for the assessee, reiterating the submissions made before Revenue Authorities, submitted that the part of the house of the assessee was merely demolished and that there was no transfer of any capital asset so as to attract capital gains tax in the hands of the assessee. With regard to compulsory acquisition of plot area of 250 Sq Fts, the ld. Counsel for the assessee submitted that the assessee merely received an amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time of demolition of part of the house of the assessee and accordingly, no capital gain is taxable in the hands of the assessee in respect of demolition of part of his house. So far as the compulsory acquisition of plot area of 250 Sq Fts is concerned, we find that the assessee merely received an amount of ₹ 15,840/- as compensation in lieu of compulsory acquisition of plot area which was way less than the cost of acquisition of the said plot area which comes to ₹ 49,331/- (₹ 2,25,000/- (+) ₹ 21,655/- *250/1,250) as is evident from the purchase registry which has been filed on Page No. 52-58 of the paper book. Therefore, no capital gain was chargeable in the hands of the assessee even in respect of compulsory acquisition of plot area. Further, the assessee incurred substantial repair and renovation expenses to the tune of ₹ 5,23,817/- to bring back the house to a suitable condition for living subsequent to demolition done by the Government. Thus, it is clear that the assessee did not earn any long-term capital gain. In view of these facts and circumstances, we set aside the findings of ld. CIT(A) and delete the addition of ₹ 3,42,358/- made on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stamp duty of ₹ 1,64,820/- and incurred various other expenses in connection with purchase of the said land. Thus, total cost of land for the assessee came to ₹ 12,86,090/- which though pertained to AY 2013-14 but was incorporated in the books of accounts only during the AY 2014-15. But, the Assessing Officer presumed that there was a strong possibility of bogus liability since the assessee could not furnish any explanation regarding the corresponding adjustment entry in the liability side of the balance sheet. However, we find that the ld. Counsel for the assessee categorically explained that corresponding adjustment in respect of addition made to agricultural land was not routed through the capital account but rather the amount of cash to the extent of ₹ 12,86,090/- was transferred from the books of accounts of the business to the personal books of accounts of the assessee. Thus, the source of agricultural land purchased by the assessee was duly explained. We also find that the agricultural land under consideration was purchased during the AY 2013-14 and not during the AY 2014-15. Therefore, addition of ₹ 12,86,090/- is not sustainable on this count also. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that books of accounts for the assessment year 2014-15 under consideration were duly audited by an independent Chartered Accountant. Therefore, the assessee cannot be put in a disadvantageous position merely for the reason that his books of accounts were misplaced after the audit was conducted by an independent Chartered Accountant. We are of the view that the Assessing Officer/ld. CIT(A) failed to bring on record any evidence to controvert the financial results as per the audited final accounts of the assessee for the year ended 31.03.2014 rather the Assessing Officer estimated the net profit of @ 8% in adhoc manner which is not justified. The Assessing Officer/ld. CIT(A) did not consider the fact that the financial results of the assessee for the year ended 31.03.2014 were comparable with the results of the preceding as well as subsequent years. Further, the Chartered Accountant who audited the books of accounts also did not give any adverse findings regarding the books of accounts maintained by the assessee. In view of these facts and circumstances, the addition is not justified. Thus, the findings of Ld. CIT(A) deserves to be set aside. Accordingly, we delete the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X
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