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TMI Blog2024 (11) TMI 573X X X X Extracts X X X X X X X X Extracts X X X X ..... and sold by the assessee was not agricultural land, and thus, the assessee was not entitled for long-term capital gains tax exemption. However, the learned ITAT in the impugned order opined in the present case that the AO had considered the issue of capital gains taxability and had accepted the submissions of the assessee. The critical issue remains whether the inquiry made by the AO in this case can be actually considered as an inquiry required to be conducted by the AO. The fact that the AO neither read the contents of the certificate issued by the Tehsildar, which is discernible from the fact that the certificate did not even mention the distance of the land from the municipal limits which is a criteria for determining the agricultural status of land under the Act, nor sought any additional evidence or document from the relevant authorities like the DTP, Gurugram, undoubtedly, suggests that the AO failed to undertake any inquiry or even apply his mind to the documents submitted by the assessee to arrive at the conclusion regarding the long-term capital gains exemption. There is no cavil that the PCIT would not have jurisdiction to pass an order under Section 263 of the Act solel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easons for accepting the version of the assessee that the land was agricultural land, and not capital asset, and thus exempt from capital gain. In fact, there is no mention of this aspect at all in the order passed by the AO under Section 143 (3) of the Act. Thus, it is not clear as to what had weighed in the mind of the AO since the order passed by the AO is totally silent on this aspect. Therefore, the present case would be one where the absence of any effective inquiry and a total non-application of mind by the AO is evident, and thus, the order passed by the AO would clearly fall within the meaning of an erroneous order . The order is also, undisputedly, prejudicial to the interests of the Revenue inasmuch as it results in loss of the Revenue in the form of tax. PCIT had exercised the jurisdiction under Section 263 of the Act correctly and legally, in view of the fact that the order passed by the AO was erroneous and prejudicial to the interest of the Revenue since the same was passed without conducting any enquiries and applying mind to the claims of the assessee. We are also of the view that the ITAT erred in setting aside the order passed by the PCIT u/s 263 of the Act on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lty and the amount, being non-business in nature, was to be disallowed under Section 37 of the Act. The AO also held that the assessee was not able to establish that certain expenditure claimed by her was incurred exclusively for the purpose of business activity, and thus, considering the nature of transactions and volumes of expenses, it was reasonable to disallow 15% of such expenses, i.e. Rs. 2,93,276/-, under Section 37 of the Act. The income of the assessee was thus assessed at Rs. 2,67,48,740/-. 6. The Principal Commissioner of Income Tax-11 [hereafter the PCIT ], on examination of the assessment record of the assessee pertaining to the AY 2013-14, issued a show cause notice on 25.09.2016 under Section 263 of the Act, since the PCIT, upon perusing the records, was of the opinion that the order dated 07.12.2015 passed by the AO was erroneous in so far as it was prejudicial to the interests of revenue. 7. In the show cause notice, the PCIT noted that the AO had framed the assessment on the same day the assessee had submitted the documents, and the AO had accepted the assessee s version of long-term capital gains viz. the land in question, without verifying the records. The PCIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital gain of Rs. 10,72,76,180/- and the AO was directed to modify the order passed by it under Section 143 (3) of the Act. 10. Consequently, an order under Section 263 read with 143 (3) of the Act was passed on 26.04.2017, and addition was made to the income of the assessee by the AO, on account of short-term capital gain to the tune of Rs. 10,72,76,180/-, and the total income of the assessee was assessed at Rs. 13,40,24,920/-. The Impugned Order 11. Aggrieved by the order of the PCIT, the assessee preferred an appeal, i.e., ITA No. 3888/Del/2017, before the learned ITAT. By way of the impugned order, the learned ITAT allowed the said appeal and quashed the order dated 21.04.2017 passed by the PCIT. 12. As revealed from the impugned order, the learned ITAT was of the opinion that the issue regarding the taxability of capital gain was considered while carrying out the assessment and the view taken by the AO, as to the non-taxability of such gains, was found evident. The learned ITAT further held that there was no finding recorded by the PCIT, after the receipt of the replies from the assessee, that the assessment order was erroneous and prejudicial to the interest of the Revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is at page 78 to 87 which also mentions the type of land as agricultural land and 'Chahi'. Copy of certificate from Tehsildar was also placed certifying the distance from the municipality. Paper book page 108 to 110 also copy of Jamabandi which show the subject land as Chahi [irrigated]. Thus, it is evident that during the course of assessment proceedings issue about the taxability of capital gain was considered in assessment and a view was taken by the Assessing Officer as to the non taxability of such gain. Therefore, when the claim of the assessee was accepted in assessment order after due consideration of the facts, it cannot be said that the assessment order was erroneous as assessment was passed after application of mind. It has been held in the case of CIT Vs. Nirav Modi 390 ITR 292 [Bom] that the Assessing Officer having raised queries and perused evidences and having been satisfied with the claim a revision by the CIT was not justified. Hon ble Delhi High Court in the case of Oracle Systems Corporation Vs. ADIT 380 ITR 232 have held that when assessment order is passed u/s 143 (3) of the Act, there is presumption that assessment order has been passed after ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aised. 8. The ld. CIT [DR] relied upon the Hon'ble Supreme Court decision reported in 243 ITR 83 and ITAT Delhi decision in the case of Surya Jyoti Software which were distinguished by the ld. counsel for the assessee on facts. Explanation 2 to section 263 inserted by Finance Act 2015 cannot be interpreted in a manner which would make the enquiries unending. If Explanation 2 to section 263 is invoked by the Commissioner in such a manner as applied in the present case, in our considered opinion, the process of enquiry would be unending and no assessment order can be said to be final as all the assessment order can be found fault on the ground that enquiries should have been made more elaborate. Certificate issued by Tehsildar in the instant could not be disbelieved by the Assessing Officer inter alia for the reason that the Tehsildar is also a public officer. Certificates issued by the public officers are generally believed by the other officers as public duty unless there is some material, which suggest that such certificate has been obtained under fraud etc. Therefore, we do not agree with the contention of the ld. CIT in the order u/s 263 of the Act that Tehsildar's certi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the order passed by the AO was erroneous. In support of his contentions, he also relies on the decision of this Court in Gee Vee Enterprise v. Additional Commissioner of Income Tax: (1975) 99 ITR 375. 17. It is also contended that the learned ITAT has committed error in substituting its own findings to justify the order passed by the AO, without recording any findings on the issues pointed out by the PCIT while passing the order under Section 263 of the Act. Sh. Chawla also submits that decision of the Hon ble Supreme Court in Sarifabibi Mohmed Ibrahim Ors. v. CIT: (1993) 204 ITR 631 is fully applicable in the present case. 18. He argues that the learned ITAT has erred in ignoring the findings returned by the PCIT, that the land was non-agricultural land falling within the purview of definition of capital assets as per the Act and, therefore, gains from sale of the land was chargeable to capital gains tax. In addition, it is the case of the Revenue that ITAT had committed an error in law and facts by holding that a certificate issued by any authority, such as Tehsildar in the present case, is to be relied upon by the AO without making any enquiry or verification. It is also state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not be invoked in the present case. Therefore, it is argued on behalf of the assessee that the PCIT had wrongly assumed jurisdiction under Section 263 of the Act, since the AO had conducted sufficient enquiries and verification and its order could not be held as erroneous. Thus, the order passed by the PCIT under Section 263 of the Act was bad in law, and the same was rightly quashed by the learned ITAT. ANALYSIS FINDINGS 23. The Revenue has challenged the impugned order by way of which the learned ITAT has set aside the order passed by the PCIT under Section 263 of the Act. In a nutshell, the Revenue contends that the order passed by the AO under Section 143 (3) of the Act was erroneous insofar as it was prejudicial to the interests of the Revenue, since the AO had failed to conduct enquiries into certain critical aspects and verify the claim of the assessee that the land in question was indeed agricultural land and thus exempt from capital gains tax. 24. In the present case, the taxability of capital gains hinges upon whether or not the land in question qualifies as an agricultural land. 25. A capital asset is defined under Section 2 (14) of the Act. Short-term capital gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n from capital gains tax, but has merely mentioned that the land is out of the boundary of Sohna Municipal Corporation. The said letter and the Tehsildar s endorsement is reproduced below: 28. Before the PCIT, the assessee had also placed reliance on another certificate, which was issued by the Tehsildar in the year 2016. However, the said certificate would reveal that it has been issued on the basis of the prior certificate issued in 2012, which has been discussed in the preceding paragraph. The certificate issued in 2016, which was sought to be relied upon by the assessee before the PCIT, only mentioned that the Tehsildar had already given his findings regarding the distance of the land from the municipal limits in 2012, and it reiterates the same. Notably, the certificate issued by Tehsildar in 2016 draws upon the assessment made in 2012; however, since the 2012 certificate did not mention the distance of the land from the municipal limits, the 2016 certificate would suffer from the same deficiency inasmuch as it merely reiterates the earlier assessment without addressing the fundamental requirement of Section 2 (14)(iii) of the Act. In other words, since no findings were given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gurugram had also informed that the land in question was shown on the sectoral plan of Sector 2, 35 and 36 of Sohna, meaning thereby that the land had been developed into sectors, and thus, no agricultural operations could be carried out on the land. 33. In this background, it shall also be apposite to consider the guidelines/criteria laid down by the Hon ble Supreme Court, regarding the land being defined as agricultural land, in the case of Sarifabibi Mohmed Ibrahim (supra). The relevant portion of the decision is extracted hereunder: Whether a land is an agricultural land or not is essentially a question of fact. Several tests have been evolved in the decisions of this Court and the High Courts, but all of them are more in the nature of guidelines. The question has to be answered in each case having regard to the facts and circumstances of that case. There may be factors both for and against a particular point of view. The Court has to answer the question on a consideration of all of them-a process of evaluation. The inference has to be drawn on a cumulative consideration of all the relevant facts. The first decision of this Court which considered the meaning of the expression a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case where the question arose with respect to a large extent of 105 acres situated in the city of Hyderabad. The land was enclosed by a boundary wall, wherein there were two wells. The land was abutting Hussain Sagar Tank. The Full Bench of the Andhra Pradesh High Court evolved the following eight indicators to determine whether a land is in agricultural land, viz.,: (1) The words 'agricultural land' occurring in Section 2 (e) (i) of the Wealth-tax Act should be given the same meaning as the said expression bears in entry 86 of List I and given the widest meaning; (2) the said expression not having been defined in the Constitution, it must be given the meaning which it ordinarily bears in the English language and as understood in ordinary parlance; (3) the actual user of the land for agriculture is one of the indicia for determining the character of the land as agricultural land; (4) land which is left barren but which is capable of being cultivated can also be 'agricultural land' unless the said land is actually put to some other non-agricultural purpose, like construction of buildings or an aerodrome, runway, etc., thereon, which alters the physical character of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e land on the material date? (6) Whether the land, on the relevant date, had ceased to be put to agricultural use? If so, whether it was put to an alternative use? Whether such cesser and/or alternative user was of a permanent, or temporary nature? (7) Whether the land, though entered, in revenue records, had never been actually used for agriculture, that is, it had never been ploughed or tilled? Whether the owner meant or intended to use it for agricultural purposes? (8) Whether the land was situate in a developed area? Whether its physical characteristics, surrounding situation and use of the lands in the adjoining area were such as would indicate that the land was agricultural? (9) Whether the land itself was developed by plotting and providing roads and other facilities? (10) Whether there were any previous sales of portions of the land for non-agricultural use? (11) Whether permission under Section 63 of the Bombay Tenancy and Agricultural Lands Act, 1948, was obtained because the sale or intended sale was in favour of a non-agriculturist? If so, whether the sale or intended sale to such no-agriculturist was for non-agricultural or agricultural user? (12) Whether the land was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e action of the assessee in obtaining on August 8, 1966, permission to convert the user of the Ajni land to non-agricultural purposes, and (3) the agreement to sell and the sale of the Ajni land for non-agricultural, i.e., building purposes. The Bench observed that to ascertain the true character and the nature of the land, it must be seen whether it has been put to use for agricultural purposes for a reasonable span of time prior to the relevant date and further whether on the relevant date the land was intended to be put to use for agricultural purposes for a reasonable span of time the future. Examining the facts of the case from the said point of view, the Bench held that the agreement entered into by the assessee with the Housing Society is the crucial circumstance since it showed that the asses-see agreed to sell the land to Housing Society admittedly for utilisation for non-agricultural purposes. The sale-deeds were executed four months after the agreement of sale and even if any agricultural operations were carried on within the said span of four months, - the Bench held - it was evidently in the nature of a stop-gap arrangement. On the date the land was sold, the Bench hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessee and Vallabham Buildcon, though mentioning the land as agricultural, stated that the land was not beneficial for cultivation and agricultural purposes. (iii) The assessee had not declared any agricultural income from the said land during the relevant year. 37. The above-mentioned facts make it clear that no inquiry, in fact, was conducted by the AO before passing the assessment order under Section 143 (3) of the Act. 38. During the course of arguments, the learned counsel for the assessee contended that even if this Court arrives at an opinion that the AO did not conduct a proper inquiry, it can at best be a case of insufficient inquiry, but it cannot be termed as a case of absence or lack of inquiry, so as to empower the PCIT to exercise jurisdiction under Section 263 of the Act. It was also contended that the PCIT could not have exercised jurisdiction in the manner as exercised since the AY in the present case is 2013-14 and the amendment to Section 263 of the Act, by which Explanation 2 was inserted in the provision, was brought in the year 2015. Therefore, since the said Explanation came to be incorporated after the AY in question, the earlier provisions of Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. (Emphasis added) 41. As far as the above-noted contention of the assessee is concerned, the same appears merited. The AY qua which the notice was issued by the AO is 2013-14. The said notice was issued under Section 143 (2) on 10.09.2014. However, the Explanation 2 to Section 263 of the Act was inserted by virtue of Finance Act, 2015 with effect from 01.06.2015. The proceedings in this case were initiated in the year 2014, i.e. prior to insertion of Explanation 2 in Section 263 of the Act. 42. Therefore, while deciding the question as to whether or not the jurisdiction was rightly exercised by the PCIT under Section 263 of the Act, we would have to take into consideration the provisions of Section 263 of the Act as they stood prior to the amendment in the year 2015 i.e. sans Explanatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word erroneous in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word erroneous in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed by him. 48. The aforesaid decision was affirmed by the Hon ble Supreme Court in Toyota Motor Corporation v. Commissioner of Income-tax: (2008) 306 ITR 52. 49. Therefore, it is clear that the Hon ble Supreme Court and the Coordinate Benches of this Court had also dealt with the scope of erroneous orders for the purpose of Section 263 of the Act, even when Explanation 2 had not been inserted in the said provision, and had held that an erroneous order would include an order which is passed without conducting sufficient inquiries or without application of mind. 50. In the present case, while invoking the provisions of Section 263 of the Act against the order passed by the AO under Section 143 (3) of the Act, the PCIT emphasized that the AO did not scrutinize the critical documents, particularly those concerned with the claim of the assessee with respect to the land being agricultural in nature and its sale being exempt from capital gains tax. Specifically, the PCIT noted that the AO relied on a certificate issued by the Tehsildar, but failed to obtain corroborative evidence from other important and necessary authorities like the DTP, Gurugram. The AO, according to the PCIT, accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he jurisdiction of a particular ITO. Accordingly, the CIT passed an order under Section 263 of the Act. The High Court upheld the said decision. In the appeal preferred by the assessee, the Hon ble Supreme Court observed that there was ample material to show that the Income Tax Officer has made the assessments in undue hurry . The assessment was made without any enquiry or evidence whatsoever and the order of assessment was erroneous and prejudicial to the interest of the revenue. 54. Similarly in the case of Tara Devi Aggarwal v. Commissioner of Income-Tax, West Bengal, Calcutta: (1973) 88 ITR 323 , the Hon ble Supreme Court upheld the finding of the CIT that the assessments made by the ITO were made in post haste without making any enquiry or investigation into the antecedents of the assessee . 55. A Coordinate Bench of this Court in Commissioner of Income Tax v. Sunbeam Auto Ltd.: (2011) 332 ITR 167 had highlighted the necessity to bear in mind the distinction between lack of inquiry and inadequate enquiry . We consider it apposite to refer to the following passage from the said decision: 17. We have considered the rival submissions of the counsel on the other side and have gone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and situated 5 kms / 8 kms beyond the boundary limits of the municipal corporation. The noting made by the Tehsildar on 24.04.2012, which the assessee claims to be a certificate, merely stated that the land in question was outside the border of Sohna Municipal Corporation . The question is not whether the land in question was outside the municipal limits but whether it was an agricultural land that was located 5 kms. / 8 kms. beyond the municipal limits. The Tehsildar s noting is clearly not to the aforesaid effect. It is thus clear that this is not a case where the enquiries conducted by the AO were inadequate; this is a case of lack of enquiry as the AO had not conducted any enquiry to verify whether the land sold by the assessee was beyond the prescribed distance from the boundary of Sohna Municipal Corporation. It is apparent that no enquiry to the said effect was conducted by the AO and there is no material before the AO, other than the self-serving statement of the assessee, to corroborate the same. 57. The assessment order passed by the AO under Section 143 (3) of the Act even records no reasons for accepting the version of the assessee that the land was agricultural land, a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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