MUNISWAMAPPA ANANDA,KAKOLU vs. INCOME TAX OFFICER, WARD 6(1)(1), KORAMANGALA

Based on specific information flagged as per Risk Management Strategy during the financial year 2015-16, it was noticed that the assessee during the relevant previous year, has sold agricultural land. The case was reopened and notice u/s 148 of the Act was issued. The assessee, in response to notice u/s 148, filed the return of income on 24.04.2023 claiming exempt income of Rs.1,28,00,000/- on account of sale of agricultural land. Thereafter Notice u/s 142(1) of the Act was issued calling for details, followed by SCN. The AO also issued notice u/s 133(6) to Ms Vandana Gupta the purchaser of the land. In absence of any document/evidence in respect of the claimed exempt income, the AO completed the assessment on an ex-parte basis under section 144 of the Act and made an addition of Rs.1,28,00,000/- as undisclosed short-term capital gain. Thus, the AO determined the total income at Rs.1,28,00,000/-.

On being aggrieved by the Order of the Ld AO, the assessee filed an appeal before learned CIT(A). The assessee did not comply with the notices issued by Ld CIT(A). The Ld CIT(A) therefore dismissed the appeal.

Assailing the order of the learned CIT(A), the assessee is now before the Tribunal.

At the outset, it was noticed that the assessee has sought condonation of delay of 180 days in filing the appeal before Tribunal.

The assessee has explained that the delay was neither intentional nor deliberate. It is submitted that the assessee is an agriculturist, has limited educational qualifications and is not conversant with the English language. It has further been submitted that the communications/notices issued electronically were not properly understood by him and that he was under a bona fide belief, based on the advice received by him, that no return was required to be filed in respect of the sale of agricultural land situated beyond the prescribed municipal limits.

We have considered the explanation furnished by the assessee and perused the material available on record. The Hon’ble Supreme Court in Collector, Land Acquisition, Anantnag & Anr. v. Mst. Katiji & Ors. [(1987) 167 ITR 471 (SC)] has held that when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred. The Hon’ble Supreme Court further emphasized that there is no presumption that delay is occasioned deliberately or on account of culpable negligence or mala fides. Accordingly, keeping in view the totality of the facts and circumstances of the case and the principles laid down by the Hon’ble Supreme Court, we are satisfied that the assessee was prevented by sufficient and reasonable cause from filing the appeal within the prescribed period. Accordingly, the delay in filing the appeal is hereby condoned and we now proceed to adjudicate the appeal on merits.

The assessee has raised the following grounds: 1) Ground 1. The appellant requested the honorable appellate (ITAT) to condone the delay of filing the appeal due to non-understanding the English by the appellant, that to sale of exempted agricultural land. 2. The appellant begs to honorable appellate authority that it is ancestral agricultural land beyond the limits of municipality under section 2(14) of the income tax act. And filing of return not required under section 139(1) due to exempted income, and requested to delete the addition made by the commissioner of appeals order and assessment order. 3. The appellant fully explained before filing with the commissioner of appeal the statement of facts and grounds of appeal. 4. The appellant beg the honorable appellate authority (ITAT) to delete the additions as per natural justice of the exempted sale of agricultural land and any additional grounds to the chair at the time of hearing of the appeal.

The short question arising for consideration is whether the agricultural land sold by the assessee constituted a “capital asset” within the meaning of section 2(14) of the Act and, consequently, whether the amount received on sale thereof could be subjected to capital gains taxation.

The Ld AR submitted that he has filed a petition under Rule 29 of the ITAT Rules seeking admission of additional evidence in the form of population certificate and Distance certificate.

The Ld AR submitted that the assessee was under a bona fide belief that the sale of ancestral agricultural land situated beyond the prescribed municipal limits did not result in taxable income and, therefore, there was no requirement to file a return of income merely on account of such sale. It was also submitted that the additional evidences filed before Hon Tribunal proves the fact that the land sold was rural agricultural land falling outside the definition of “capital asset” under section 2(14) of the Act. It was also submitted that erroneous deduction of tax at source u/s 194IA cannot alter the nature of income. The Ld AR relied on the decision of co-ordinate Bench in Swamiappan vs DCIT (56 taxmann.com 185). He therefore prayed that the addition be deleted.

Per Contra the Ld DR relied on the orders of lower authorities.

We have heard the rival contentions and carefully perused the material on record, including the written submissions of the assessee. The assessee has filed additional evidences invoking Rule 29 of the ITAT Rules. Since these additional evidences relate to the core issue contested by the assessee we admit the additional evidences. It was submitted that these additional evidences were not available before the revenue authorities during the assessment and the first appellate proceedings.

The assessee has consistently claimed that the land sold was agricultural land which was inherited/ancestral agricultural land.

The assessee has specifically contended that the land was situated beyond the prescribed distance from the relevant municipality/municipal limits and, therefore, fell outside the definition of “capital asset”. Section 2(14) of the Act defines the expression “capital asset” which reads as follows:

On plain reading of the above stated definition, the exclusion contained in section 2(14)(iii) is material for the present case. Agricultural land situated outside the specified municipal/cantonment limits and beyond the prescribed distance, subject to the statutory conditions, is not regarded as a capital asset. The primary question is the character of the land and its location in terms of section 2(14)(iii).

This contention is required to be examined with reference to the additional evidences, including the population of the concerned municipality/cantonment board and the prescribed distance certificate filed by the assessee before us. The population certificate and the distance certificate (translated copy) is extracted below:

Prima facie, the documents relied upon by the assessee establish that the agricultural land was situated beyond the prescribed municipal distance contemplated under section 2(14)(iii) of the Act.

In view of the foregoing discussion, we are of the considered opinion that the land sold by the assessee was agricultural land which was situated beyond the prescribed municipal limits/distance contemplated under section 2(14)(iii) of the Act and therefore, did not constitute a “capital asset” within the meaning of section 2(14) of the Act.

The addition made by the Assessing Officer and sustained by the learned CIT(A) on account of the sale of the said agricultural land therefore cannot be sustained and hence deleted.

In the result the appeal of the assessee are allowed. Pronounced in the open court on the date mentioned on the caption page.