SHRI VISHAL NAREDRABHAI PATEL,,VADODARA vs. THE DY. CIT, CIRCLE-4(2),, VADODARA

and they are being disposed of by this common order for the sake of convenience.

2.0 The brief facts in the case of the first assessee i.e. Sh.

Vishal Narendrabhai Patel is that the assessee earns income from salary and is also an agriculturist. The return of income was filed declaring a total income of Rs. 5,06,940/-. The assessment was completed under section 143 (3) read with section 147 of the Income Tax Act, 1961 (hereinafter called “the Act”) at an income of Rs. 57,12,870/- after making an addition of Rs. 52,05,926/- on account of long term capital gain. In the case of the second assessee i.e. Sh. Neel Narendra Patel, the assessee derives income from interest and long term capital gain. The return was filed declaring total income of Rs. 5,300/- and the total income was determined under section 143 (3) read with section 147 of & 1572/AHD/2017 Assessment year 2011-12 the Act at an income of Rs. 61,80,856/- after making an addition of Rs. 61,55,056/- on account of long term capital gain.

2.1 The factual matrix leading to the reopening of the cases was that it came to the knowledge of the assessing officer that the two assessees had entered into a transaction of a sale of land bearing RS No. 65 and 66/2 admeasuring 5314 m² in Padra, Baroda along with one more person for a total consideration of Rs. 2.087 crores. Since the assessees had not reflected the capital gains in their returns of income, their cases were reopened under section 147 of the Act.

2.2 It was the contention of the assessees before the assessing officer that the said land in question was ancestral land which had been inherited from the forefathers. It was further is submitted that the computation of capital gains had not been made since the land in question was agricultural land and the sale was exempt from the capital gains tax. However, the assessing officer did not agree to the submissions of the assessees. The assessing officer made a reference to the Padra Municipality and requested it to provide information under section 133 (6) of the Act on the question as to whether the land in question fell within the local limits of municipality of Padra. In & 1572/AHD/2017 Assessment year 2011-12 reply to the same, the Chief Officer of the municipal board of Padra, vide certificate dated 25/03/2015, stated that the land in question was falling within the municipal limits of the Padra municipality. The assessing officer went on to hold that since the land was not falling outside the jurisdiction of the Padra municipal board, the same would attract the rigours of capital gains tax. Accordingly, the assessments were completed by treating the sale proceeds as being liable for capital gains tax as aforesaid.

2.3 The appeals of both the assessees were also dismissed by the Ld. Commissioner of Income Tax (Appeals). Now, the assessees have approached the Tribunal and have challenged the finding and adjudication by the Ld. Commissioner of Income Tax (Appeals).

3.0 The Ld. authorised representative submitted that the Ld. first appellate authority had erred in law and on facts in confirming the action of the assessing officer of treating the sale proceeds as long term capital gains rate by treating the same as non-agricultural land. It was submitted that the land was an ancestral agricultural land. He also submitted that the records i.e. 7/12 extracts clearly show the subject land as agricultural & 1572/AHD/2017 Assessment year 2011-12 land. It was further submitted that the Ld. first appellate authority had erred in treating the subject land as capital asset and not agricultural situated in the area and within distance of 8 kms from the limits of Padra Municipal Board.

3.1 It was further submitted that the agreement to sell had clearly indicated that the land in question was agricultural land but the land had to be converted to non-agricultural for the purpose of getting the relevant permissions for the purchaser who was not an agriculturist but this did not change the nature of the land sold.

3.2 The Ld. authorised representative submitted that Notification No. 9447 bearing F No. 164/3/87 – [IT (A – I)] dated 06/01/1994 issued under section 2 (1A)/(14) of the Act clearly did not include Padra municipal board for the purposes of section 2(14)(iii)(b) and that there has been no further notification subsequent to this notification so as to bring the land within the municipal limits of the Padra municipal board for the purposes of the Act.

3.3 The Ld. authorised representative further submitted that the Ld. Commissioner of Income Tax (Appeals) had only relied on the certificate issued by the Chief Officer of the Padra & 1572/AHD/2017 Assessment year 2011-12 municipality and had totally ignored that the above notification dated 6/01/1994 which did not include Padra municipality in the list of municipal boards for the purpose of section 2(14)(iii)(b).

3.4 The Ld. authorised representative placed reliance on an order of ITAT Jaipur bench in the case of Satya Dev Sharma versus ITO reported in (2014) 149 ITD 725 (Jaipur Tribunal) for the proposition that where the assessing officer rejects the assessee’s explanation that the land in question was agricultural land and where the assessing officer proposes to bring capital gain arising from sale of land to tax, for the purpose of application of item (b) of sub clause (iii) of subsection 2 (14) and for the purpose of measuring kilometres from the radius of municipal Corporation, the relevant date would be date of notification and not the date of sale of land in question.

3.5 Further reliance was also placed on the judgement of the Hon’ble Karnataka High Court in the case of CIT versus Madhu Kumar N (HUF) reported in 208 taxman 394 (Karnataka) for the proposition that where an assessee had sold a piece of land which the assessee held to be a capital asset, although the said land was located within 8 km of the municipal city limits but since the Central government had not issued any notification & 1572/AHD/2017 Assessment year 2011-12 under section 2 (14) (iii) (b) for the purpose of including the said area within 8 kms from the municipal limits, the land in question was to be assessed as agricultural land.

3.6 The Ld. authorised representative further submitted that the assessees were also challenging the action of the Ld. Commissioner of Income Tax (Appeals) in confirming the action of the assessing officer in determining the cost of acquisition by taking the fair market value as on 01/04/1981 as per the DVO for computing the long term capital gains and in not appreciating the contention that the fair market value is to be determined on the date of conversion of agricultural into capital asset. The Ld. authorised representative submitted that if the earlier ground of the assessees was allowed then the alternative plea would become academic in nature.

4.0 In response, the Ld. senior departmental representative placed extensive reliance on the findings and observations of the Ld. Commissioner of Income Tax (Appeals) and submitted that the lower authorities had correctly concluded that the impugned transaction was liable to capital gains tax because the impugned land fell within the municipal limits of Padra municipal board and was also not agricultural land. & 1572/AHD/2017 Assessment year 2011-12 5.0 We have heard the rival submissions and have also perused the material on record. It is the claim of the assessee that the land in question was agricultural land and the abstracts of 7/12 also show the same as agricultural land. It is the further claim of the assessee is that the land was inherited from the ancestors and it continued to be agricultural land while its ownership vested with them. The assessees have also relied on the agreement to sell wherein it has been mentioned that the agreement was for the sale of agricultural land. It is further submitted that since the proposed buyer of the land was not an agriculturist and various permissions were needed to develop the land, land was converted to non-agricultural. It is further contention of the assessee that the land in question did not fall within 8 km of the municipal limits of Padra for the purposes of section 2(14)(iii)(b) of the Act and that the lower authorities had erred in treating the same as being within 8 km of the Padra municipality by relying on a certificate from the Chief officer of the Padra municipality because Padra municipality has not been notified in the notification (supra).

5.1 A perusal of the order of the lower authorities shows that these submissions of the assessee were not duly considered & 1572/AHD/2017 Assessment year 2011-12 by them. It is the assessee’s contention that since Padra municipality was not notified regarding the same being a capital asset, the land in question could not be treated as capital asset.

The ITAT Jaipur bench in the case of the Satya Dev Sharma versus ITO (supra) and the ITAT Mumbai bench in the case of ITO versus Amrutila B. Shah reported in (2013) 50 SOT 14 (Mumbai Tribunal) have also held that where the land in question is located beyond 8 kms and there was no notification of the Central government prescribing the same as being a capital asset, the land in question could not be treated as capital asset.

Further, the Hon’ble Karnataka High Court in the case of CIT versus Madhukumar N (supra) has also held similarly. We find that this aspect has not been examined in the correct perspective by the Ld. Commissioner of Income Tax (Appeals). Therefore, in view of the facts of the case and the grievance of the assessee in this regard, it is our considered opinion that interest of Justice would be served if this issue is re-examined by the Ld. first appellate authority in light of the judicial precedents as stated above after duly considering the submissions which the assessee may make in this regard and after giving due opportunity to the assessee to present its case. & 1572/AHD/2017 Assessment year 2011-12 6.0 In the final result appeals of both the assessees stand allowed for statistical purposes.

Order pronounced in open court on 01.10.2019