INCOME TAX OFFICER, WARD-2 , PHAGWARA vs. SH. SUCHA SINGH, PHILLAUR

In the Income-Tax Appellate Tribunal, Amritsar Bench, Amritsar Before ShriLaliet Kumar, Judicial Member And Dr. Mitha Lal Meena, Accountant Member ITA Nos.702/Asr/2017& C.O. 07/Asr/2018 Assessment Year's 2009-10& 2014-15 ITO Ward – 2 V.S. Sh. Sucha Singh S/o. Sh. Phagwara Bikar Singh, VPO Mansupur, (Appellant) Goraya (Respondent)

Smt. Rajindra Kaur, DR Appellant by Respondent by Sh. Tarun Bansal, Adv.

14.07.2021 Date of Hearing Date of Pronouncement 16.08.2021

ORDER Per Laliet Kumar, J.M

The present appeal is filed by the Revenue feeling aggrieved by the order passed by the Ld. Commissioner of Income Tax (Appeals) on 16.08.2017 for the following grounds. The assessee has also filed the Cross Objection against the order passed by the CIT(A) on 16.08.2017 on the following grounds:

"1. That on the facts and in the circumstances of the case Ld. CIT(A) has erred in law and on fact in deleting the addition of Rs.7,48,60,293/- made by the A.O as Capital Gain on the acquisition of Land of the assessee, by

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holding that it is exempt u/s 10(37) of the Income Tax Act, 1961.

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income from other sources plus agriculture income of Rs.5,00,000/- on 25.03.2016 through e-filing. During the assessment year under consideration, the assessee deposited Rs.7,75,79,854/- along with interest in the Bank. 2.1 The assessee's case was selected for scrutiny under 'CASS', after that notice u/s 143(2) was issued on 19.02.2016, which was duly served on the assessee 24.09.2016. A.O. asked the assessee to explain the source of deposit of Rs.8,58,81,037/- made in the previous year. The assessee was also asked to explain why the amount Rs.7,57,91,413/- received as compensation be not taxed according to law. In response to the notice, the assessee submitted a reply to A.O. However, the Assessing Officer was not convinced with the answer given by the assessee . Therefore with a view to ascertain the correct facts of the case ,the Assessing Officer had called a report from the Tehsil Goraya vide letter dated 01.12.2016. 2.1 In response to the letter dated 1.12.2016,the SDM sent the report/

reply to the Assessing Officer. The Assessing Officer duly reproduced the

report of the SDM at page-6 of the assessment order to the following effect:-

i) As per report of the Tehsildar Goraya ,as per revenue record ,Land 22 Kanal 15M-2 Sharshi situated in VillKutebeal, Khasra Nos.489/2/(04,490(4-14),391/1 (3-16),493/2(1- 14),494(3- 0)495/1(4-16), was transferred vide IntakalNo. 062 in the name of National Highway Authority Of India on 31/1/2014 as per Notification No/445E dated 23/12/2010.

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ii)As per report of the Tehsildar Goraya, the Acquired Land is situated at G.T. Road and approximately 650 Meter far away from the Municipal limit of, Goraya.

iii) As per copy of Award certificate sent by the SDM, Phitlaur, Under the Head Date of Possession and Damage to Standing Crops, in which it is clear mentioned that at the time of award there were no crops standing on the Land in question but the building structures and tree comes on the area under acquisition.

2.2 Based on the report of SDM, Assessing Officer concluded that

the Land of the assessee was situated within the urban limit i.e. 650 meters

away from the Municipal Limit. Therefore, the Assessing Officer has

considered the Land acquired by the National Highway Authority of India

(NHAI) as a capital asset. Assessing Officer further inquired from the

assessee as to why compensation received by the assessee on the acquisition

of Capital assets be not taxed as a capital gain.

2.3 In response to the query of AO,the Authorized Representative has submitted

that as per Section 2(14)(iii) of the Income Tax Act, 1961, compensation

received for acquisition of Land received by the assessee is exempt from

taxation. He hadalso drawn the attention of the Assessing Officer to Section

10(37) of the Income Tax Act, on the strength of section 10(37) it

waspleaded Land before the acquisition was used for agriculture purposes,

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as it clear from the certificate issued by the Revenue Authority. The

Assessing Officer was not convinced with the submissions of the assessee,

and as such he had made the addition of Rs.7,78,48,60,293/- towards the

long term capital gain and had also added the amount of Rs.9,47,663/-

towards income earned by the assessee on the FDR deposited with the

financial institution namely Jalandhar Central Co-operative Bank Ltd.,

Mansurpur.

3.0 Feeling aggrieved, the assessee filed an appeal before the Ld.

CIT(A), and the Ld,.CIT(A) had granted the relief to the assessee and had

deleted the addition of Rs.7,57,79,854/-.

3.1 Feeling aggrieved by CIT(A) order, the Revenue is in appeal before us

on the grounds stated above. Departmental Representative (DR) for the

Revenue has drawn our attention to the report submitted by the Revenue

Authority (the SDM) which the Assessing Officer reproduced at page-

6,which is produced hereinabove. She had drawn attention to the remand

report and the comments of the assessee in the appellate proceedings. Ld.

CIT(A) reproduced reply to remand report of the assessee in paragraphs 4.4

of order to the following facts:

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"I humbly seek your permission to give para wise reply to opening remarks and comments qj Assessing Officer ward -2 Phagwara as under:

"1.) In delivery of justice A.O. was bound to assess correct income of assessee , but A.O. ignored relevant part of clinching evidence oj report sent by SDM cum LAO Phillaur and KhasraGirdawaries sent by Tehsildar Phillaur justifying the exemption u/s 10(37) of I.T. Act 196 l.It is humbly prayed that same may be considered for deciding our appeal.

Reliance is placed on;

Principal Commissioner of Income Tax Bathinda vs. Sh.Daljit Singh Sra Prop M/s Sra Construction Co. Bathinda, Punjab & Haryana High Court ITA No. 98 of 2017 decided on 16.03.2017 (copy enclosed as per annexure- 1).

2) Had A. O fully considered these evidences during assessment there would have been no occasion for Appellant to submit any thing before Your Honour.

3) Sir, this is not additional evidence it was just amplifying and elaborating the information to advance interest of justice already collected by A.O. u/s 133(6) of I.T. Act 1961. This is reiteration of same facts and material which was called by A.O. herself from slate revenue officer directly.

Reply to opening remarks para 3

4)In para 3 of A.O.comments ,she has not denied that Assessees had gone to Canada to attend marriage of Daughter and sought time to file reply.

Reply to opening remarks para 4

5) In this para A.O. has admitted that she issued summons u/s 133(6) of the Income lax act to SDM Phillaur and Tehsildar. She states that she issued these summons to knowexact Location of the Land. This is factually incorrect.

6) What She actually asked from SDM Phillaur using her powers u/s 133(6) on 3/11/2016 (Copy of letter enclosed as per anenxure-2) is as under.

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So, on 18/11/2016 she already knew that Land acquired was agriculture andcompensation was paid on agriculture rate but A.O. totally ignored this relevant evidence justifying claim of exemption u/s 10(37) of I.T. Act 1961.

8.Also on 01/12/2016 using powers u/s 133(6) to verify claim of exemption of capital gain by assessee A.O. asked Tehsildar Goraya to furnish.

Copy of KhasraGirdwari sent by patwari through Tehsildar of seven years from 2006 to 2013 showed Crop Sown Wheat, Rice and sugarcane in all

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seven years by Sucha Singh Himself. Patwari sent Girdawari for area measuring 9 Kanal 10 Marla as against total acquired Land of 22 Kanal 15 Marla.

But A.O. referred only distance of Land in asstt. order and ignored copies of KhasraGirdawaris sent by Tehsildar. 10) So, as on 05/12/2016 A.O. had officially received back the replies from revenueauthorities SDM and Tehsildar and it was on record that Land acquired was agricultureand was under cultivation Sucha Singh Appellant during 2006-2007 to 2012-2013 asevidenced by KhasraGirdawaris. 11) Learned A.O. has not commented on the sanctity of KhasraGirdawaris which is the clinching and reliable evidence for framing correct assessment. 12) So, both the conditions of Sec. 10(37) of Income Tax Act 1961 stood satisfied at the lime of assessment .But A.O. caused grave injustice to Appellant in denying exemption of 10(37) Income Tax Act 1961 ignoring material,authentic and independent evidence on record. 13) On 22/12/2016 appellent specifically asked the A.O. to provide himcopies of SDM Report and Tehsildar Report but A.O. did not supply copies and framed assessment at a huge income of Rs.7,78,86,396/-.

14) Where copies of reports or documents or statement of third party is relied upon for making an addition, it is the duty of the Department to allow the assessee not only to examine such documents but also to cross- examine the party.

In State of Kerala vs. K.T. Shaduli Yusuf (1977) 39 STC 478, the Supreme Court held that not only it is the duty of the Department to provide copies of statements or reports butthe assessee is entitled to seek right ' of cross- examination. The Supreme Court in Kishan Chand Chellaramv, CIT (1980) 125 HR 713 (S.C.) held that evidence which is used against the assessee must be provided to the assessee and also an opportunity to confront the same should be given permitting cross-examination.

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15) A.O. was totally wrong in basing his assessment order on single observation of LAO that no crop was standing at the time of award. Award was passed in year 2013 and Land was acquired in year 2010 By virtue of sub sec (2) Section 3D of NHAI Act it vested in central govt on 04/08/2010.So what was required to see was cultivation by appellant during year 2008 to year 2010. Moreover it is matter of common knowledge once Land is acquired owners are allowed to harvest the crop standing on it. 16) Land of appellant was compulsorily acquired by National Highway Authority, It was agriculture land under cultivation of appellant himself for more than two years, So, provision of sec 10(37) of Income Tax Act were applicable. 17) Appellant was also under bonaftde belief that Land is outside municipal commitle boundary so exempt from capital gain tax. So, there was nothing illegal in mentioning eligibility of both deductions under income tax act. 18) It is totally wrong on part of A.O. to observe that by claiming deduction u/s 54 (b) f exemption u/s 10(37) becomes redundant.

Both deductions act in separate field and require independent specific conditions to be satisfied for claiming them, 10(37) is available when Land is compulsorily acquired by Govt .section 10 (37) of I.T. Act has been inserted in Act for benefit of urban agriculture lands because rural agriculture land Is not a capital asset and otherwise exempt if sold or acquired. So repeated emphasis by A.O. on distance of Land in comments has no bearing on claim of exemption u/s 10(37) of I.T. Act."

4.1 On the basis of the above, firstly entire Land was not cultivated by

the assessee, prior to its acquisition, for a period of two years, and therefore,

the Land is not covered under Section 10(37). Secondly, it was submitted

that assuming the Land was cultivated, then the remarks of the SDMon

which the assessee is relying, clearly shows that the entire Land was not

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under cultivation, as only part of the Land wasunder cultivation; therefore, it

was not appropriate on the part of the Ld. CIT(A) to delete the addition in

respect of the entire Land namely 22 kanals and 4 marla. She has also drawn

our attention to a synopsis dated 26.12.2018filled by the assessee, attention

was drawn to page-10A, 11A, 12A & 13A( translated copies of

KhesraGirdawri of acquired Land for the year2008-09, 2009-10, 2010-11,

2011-12 & 2012-13). From perusal of the KhesraGirdawari No.489 for year

2008-09 , it is clear that only 4 kanal 16 marlas were under cultivation

forplusesduring Mansoon crop and the same Land was under cultivation for

wheat during spring crop. Similarly, in respect of Khesra No.490 for 4

Kanal 14 Marlas, the Land was cultivated for pluses during the Mansoon

crop. The same Land was under cultivation for wheat during spring crop.

Similar was the status of Land for years 2009-10 to 2012-13. It was

submitted that in total, Land under agricultural cultivation was only 8 kanal

30 marlas and not the entire land, namely 22 kanal 15 marla and 2

sarsahiwhich was acquired for six laneproject.

4.2 Further, the Ld. D.R., had submitted even these khesragirdawari cannot

be taken into account, as were issued on 05.12.2016, which was subsequent

to the date of the award. She had drawn our attention to the award passed by

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the authorities on 19.07.2010. After the passing of the award, she submitted

the ownership of Land vested in favor of the National Highway Authority of

India , hence it would be preposterous for the revenue authority to show

assessee as the cultivator of the Land even after possession was taken,

award was passed and compensation was paid. Hence Appeal of the

Revenue is required to be allowed.

5.0 Per contra, the Ld. Authorized Representative (AR) has drawn our

attention to the Gazette of India dated 19.02.2010 wherein it is mentioned

that the Notification under section 3(a)(iii) of the National Highway

Authority Act was issued on 10.03.2010 and after the issuance of the

Notification on 10.03.2010 the competent authority called the objection,

however, the objection raised by the assessee were dismissed and

accordingly a declaration u/s 3D(i) was issued whereby the Land stood

vested in the NHAI. Accordingly, the assessee was granted the

compensation after passing the award, accordingly the Land was acquired by

the NHAI on 19.07.2010 and, therefore, the compensation was granted to the

assessee has mentioned in the assessment order 2.40 crore per acre for the

total sum of Rs.7,57,51,413/- was paid to the assessee. It was submitted that

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the action on the part of the CIT(A) is correct. A.R. had also filled written statement in support of order passed by the CIT(A) , we are reproducing herein for the sake of record :

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publication of the declaration u/s Sub-section 1 of Land shall vest absolutely in the Central Govt. free from all encumbrances.

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6.0 We have heard the rival submissions and perused the material

on record. The undisputed facts are that the Land was acquired pursuant to

the award passed by the NHAI u/s 3D of the Income Tax Act, 1961. It is

also not disputed declaration was issued by authority u/s 3A(iii) of the

NHAI Act on 10.03.2010 and thereafter, Land stood vested in terms of

NHAI. It is also not disputed that the compensation was granted to the

assessee for an amount of Rs.7,57,91,413/- @ 2.5 Crore per acre.

6.1 CIT(A), had passed the impugned order in a cryptic stereotype

manner without discussing how the acquired Land falls within the purview

of section 10(37) of the Income Tax Act. We may reproduce the finding

recorded by the CIT(A), in paragraph 4.10 onwards to the following effect:

"4.10 Having considered the material available on record, I find that first issue to be taken up is with regard to claim of exemption u/s 10(37), for which it is necessary to reproduce the relevant provisions - 10(37) in the case of an assessee, being an individual or a Hindu undivided family, any income chargeable under the head "Capital gains" arising from the transfer of agricultural Land, where— (i) such Land is situate in any area referred to in item (a) or item (h) of sub- clause (iii) of clause (14) of section 2; (ii) such Land, during the period of two years immediately preceding the date of transfer, was being used for agricultural purposes by such Hindu undivided family or individual or a parent of his; (i) such transfer is by way of compulsory acquisition under any law, of a transfer the consideration for which is determined or approved by the Central Government or the Reserve Bank of India; (iii) such income has arisen from the compensation or consideration for such transfer received by such assessee on or after the 1st day of April, 2004.

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Explanation.—For the purposes of this clause, the expression "compensation or consideration" includes the compensation or consideration enhanced or further enhanced by any court, Tribunal or other authority; 4.11 It is seen from the above that primarily in plain words, the following conditions have to be satisfied for claim of exemption- (i) Agricultural Land in any referred to in section 2(14)(iii) ; (ii) Such Land was used for agricultural purposes in the period of two years immediate y preceding the date of transfer; (iii) Such transfer is by way of compulsory acquisition under any law. 4.12 In this case, all these conditions as provided for in the provisions of section 10(37)of the I.T. Act have been satisfied as is clear from certificate of SDM, Phillaur (Land is stated to be within 650 meters of municipal limits of Goraya), compensation paid for agricultural Land and a certificate of Patwari — Tehsildar giving details of agricultural crops grown thereon from khasragirdawari records. Thus, I find that there is an over whelming evidence available on record which suggests compliance of necessary conditions by the appellant as specified in section 10(37) of the I.T. Act. A.O. in the remand report has not been able to bring out as to how and why the appellant is not entitled for claim of exemption u/s 10(37) of the I.T. Act and has only reiterated the reasons given in the assessment order. Various courts have held that any claim for exemption/deduction even if not made before the A.O. has to be given to the assessee if he satisfies the requisite conditions for such exemption/deduction.

Therefore, the fact that appellant has also claimed deduction u/s 54B of the I.T. Act does not mean that exemption of income, if it is available under other section can be denied. Accordingly, I hold that appellant is entitled to the claim of exemption of income u/s 10(37) of the I.T. Act. Thus, the issue of claim of deduction u/s 54B of the I.T. Act becomes academic and hence is not taken up for consideration."

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6.2 There was no discussion in the order of the CIT(A), as to how the

conditions provided under section 10(37) were fulfilled in the assessee's

case. The moot question before us is whether the acquired Land fallswithin

the purview of 10(37) of the Income Tax Act or not. The CIT(A), in

paragraph 4.11 of his order at rightly captured conditions required to

fulfilled for bringLand within the purview of section 10(37) of the Act.

6.3 The Ld. CIT(A) has rightly held that the Land was the land reference

under section 2(14) (iii) of the Act as it is situated within 650 m of the

Municipality limit. Further the CIT appeal had rightly held that the Land was

acquired by way of compulsory acquisition under National Highway

Authority of India act.

6.4 However, the CIT(A) has wrongly held that the Land was under

agricultural use for a period of two years before its acquisition. He was

improperly swayed by the compensation order passed granted by the

acquisition authorities, giving the compensation by treating the Land as

agriculture.

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6.5 In our considered opinion, there is a distinction between the grant of compensation for the Land at an agriculture rate and cultivation of the Land fortwo years for agricultural purposes before acquisition. The SDM report

categorically mentioned that no compensation for standing crops was given to the assessee. No evidence was found that the Land was used for agricultural purposes for two years prior to its acquisition.

6.6 However on scrutiny of the revenue record for the year 2008-09 ,(khesragirdawari), it is clear land under cultivationwas restricted to total 8 Kanal 30 marlas and not the entire land i.e., 22 kanal 15 marlas which was acquired under the compulsory acquisition under the NHAI.( ref pages 10 to 13 of P.B.) .The above said fact was not examine by the CIT(A), despite the revenue record was available on the paper book filed by the assessee. We are reproducing herein below SDM report it was mentioned as under :

It is requested that as per the today's order of NAYAB tehsildar Goraya dated 02-12-16 and income tax officer, ward no.2, Phagwara through letter dtd 133(6)/2016-17 dated 1-12-16, verified the record of village Kutbewal, Tehsil- Phillaur, District- Jalandhar in which the ownership lies with Sucha Singh s/o Birak Singh s/o Nand Singh bearing No.489/ 414 , 490/414. Ownership transferred vide Intkaal No.882 to National Highway authority bearing Khasra No. 489/2 (0-4), 490(4-14)

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Having area 4 K- 18 M approved dated 31-1-2014, Copy enclosed. This area vide notification No.445 (E) dated 23.12.10 was transferred to National Highway authority of India. These Khasra Numbers are out of municipality area limit, away at a distance of 650 meter and near to G.T road and copy of Gurdawari bearing these Khasra Numbers is enclosed. This report is submitted for further action.

6.7 As per 10(37) of IT Act , compensation granted only for land which was undercultivation for two years before its acquisition can only be exempted to compute the capital gains, despite beingurbanizedAgricultural Land. The compensation received for the land, which was not under cultivation, would be exigible to tax. The capital gain tax would be leviable on the said compensation received as the land would continue to be the capital asset within the meaning of section 45 of the Income Tax Act.In our opinion, the assessee is liable to pay the capital gain tax on the compensation amount received by the assessee on the land that was not under cultivation. Undoubtedly, the Land other than 8 kanal 30 marlas was the capital asset within the meaning of section 2 (14)(iii) read with section 10(37) r/w section 45 of the Income Tax Act and therefore, anycapital gain arising to the

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assessee on the sale of the land land would be the subject matter of the capital gain.

6.8 In view of the above, the ground raised by the Revenue is required to be partly allowed, and the matter is remanded back to the file of AO with the above said observation and following directions:

(i) To reduce the 8 kanal 30 marla from the total Land of 22 kanal 15 marla which are acquired by the NHAI (ii) To compute the compensation at Rs 2.4 Crore per acre on cultivated land of 8 Kanal 30 marlas. AO is directed to give Section 10(37) benefit on the said compensation by not treating it as a capital gain. (iii) To calculate the remaining amount of compensation after reducing the compensation amount on 8 kanal 30 marla( as per ii supra) from the total acquisition awarded of Rs.7,57,91,413/- and tax the residual compensation received for non-cultivated agriculture land following the law by treating it as a capital asset. 6.9 As we are remanding back the matter on long terms capital gain to the file of the Assessing Officer, therefore, the pro rata interest earned on

compensation received for cultivated and non-cultivated land shall, be

calculated by AO , and consequential benefit shall be given to the assessee on compensation received on cultivated land. As we have held, assessee,s land partly was urbanized agricultural cultivated Land and remaining as a capital asset. Therefore the assessee would not be entitled to the benefit of section 54B of The Income Tax Act 1961.

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7.0 In the result, the appeal of the Revenue is partly allowed.

8.0 The Cross Objection of the assessee is primarily to support to the order of the CIT(A), therefore, the Cross Objection of the assessee becomes infructuous, as we have modified the order passed by the Ld. CIT(A), whereby we have segregated the Land which is capital asset within the

meaning of the Act and the urbanized the agriculture land exempted u/s 10(37). Therefore, the Cross Objection of the assessee is dismissed.

9.0 No order as to costs. Order pronounced on 16August, 2021. Sd/- Sd/- (Dr. Mitha Lal Meena) (Laliet Kumar) Accountant Member Judicial member PK/Ps Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. D.R.: ITAT

Sr. Private Secretary Income Tax Appellate Tribunal Agra Bench, Agra