KRISHNA KISHORE REDDY MANYAM ,HYDERABAD vs. INCOME TAX OFFICER, WARD-6(4) , HYDERABAD

The Hon'ble CIT(A) is not justified with regard to further restricting the claim u/s.548 to Rs.1,01,07,115/- as against Rs.1,17,15,000/- allowed by the assessing officer.

The Hon'ble CIT(A) without giving any enhancement notice ought not to have restricted the deduction u/s.54B to Rs.1,01,07,115/- as against Rs.1,17,15,000/-allowed by the assessing officer.

The Hon'ble CIT(A) ought to have directed the assessing officer to allow claim of the assesse u/s.54F of the IT Act which was completed rejected by the assessing officer.

Any other ground will be raised at the time of hearing of appeal.”

Succinctly stated, the assessee had filed his return of income for A.Y. 2008-09 on 29.12.2008, declaring an income of Rs.6,28,250/- along with agriculture income of Rs.1,60,600/-. Thereafter, the assessee filed a “revised” return of income on 30.03.2009, wherein he had declared an income of Rs.50,72,667/- along with agriculture income of Rs.1,60,600/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Section 143(2) of the Act.

During the course of assessment proceedings, it was observed by the A.O. that the assessee in his “revised” return of income had admitted “Long Term Capital Gain” (LTCG) of Rs.6,04,32,280/- arising from the sale of agricultural lands situated at Village: Manchirevula falling within the Rajendranagar Municipality. The A.O. observed that the assessee had against the LTCG of Rs.6.04 crore (approx.) claimed exemptions under Section 54B of Rs.3,14,19,300/- and Section 54F of Rs.2,53,56,201/-.

On being queried, the assessee to support his claim for exemption under Section 54B of the Act filed with the A.O. copies of the sale deeds/sale agreements evidencing investments in agricultural lands of Rs.1,17,75,000/-. However, the assessee despite sufficient opportunity, failed to place on record any evidence of investment made by him towards the purchase or construction of a residential house in support of his claim for exemption raised under Section 54F of the Act. Apart from that, the A.O. in the absence of any evidence substantiating the assessee’s claim for deduction of expenditure incurred both towards acquiring and improving the subject land, viz. (i). commission expenditure (claimed to have been paid at the time of purchase of land): Rs.10 lacs; and (ii). Indexed cost of development: Rs.82,05,632/-, disallowed the same.

Ostensibly, the assessee during the course of the assessment proceedings came up with a new claim, wherein based on a revised statement of computation of income that was filed with the A.O. on 29.08.2010, it was claimed by him that as the agricultural land situated at Village: Manchirevula was not a “capital asset” within the meaning of Section 2(14) of the Act, therefore, the profit/gain arising on the transfer of the same was not exigible to tax. For the sake of clarity, the claim of the assessee that the gain arising on the transfer of agricultural land situated at Village: Manchirevula was not liable to be taxed is culled out as under:

However, the aforesaid claim of the assessee that the subject land i.e. agricultural land situated at Village: Manchirevula was not a “capital asset” did not find favour with the A.O. The A.O. observed that the State Government of Andhra Pradesh had on 16.04.2007 issued a Notification (published on the same date in A.P. Gazette under G.O.Ms.No.261) as per which the limits of the erstwhile Hyderabad Municipal Corporation (for short, “HMC”) were altered by including areas covered by 12 adjacent Municipalities and Greater Hyderabad Municipal Corporation (for short, “GHMC”) was constituted. It was observed by him that “Rajendranagar Municipality” was one such Municipality that was included within GHMC. The A.O. based on his aforesaid observation was of the view that as the subject land, i.e. agricultural land situated at Village: Manchirevula as per the aforesaid notification dated 16.04.2007 was included within GHMC, therefore, the same fell within the meaning of “capital asset” as per the express provisions of Section 2(14)(iii)(a) of the Act. Also, the A.O. observed, that now when the agricultural land situated at Village: Manchirevula on 07.09.2007 was situated within GHMC, and thus, a “capital asset” u/s 2(14)(iii)(a) of the Act, therefore, the contentions of the assessee regarding the wrong application of distance of 8 Kms from the municipal limits of HMC were no more relevant. Apart from that, the A.O. observed that though the subject agricultural land was outside the municipal limits at the time of purchase but at the time of sale fell within the extended municipal limits of GHMC, therefore, the same was brought within the meaning of a “capital asset” u/s 2(14)(iii)(a) of the Act. Accordingly, the A.O. based on his aforesaid observations, concluded that as the agricultural land sold by the assessee at the time of sale was an “urban land” and hence, a “capital asset” within the meaning of Section 2(14)(iii)(a) of the Act, therefore, the gain arising on the sale of the same was exigible to tax. Accordingly, the A.O. based on his aforesaid deliberations, reworked out the LTCG on the sale of the subject agricultural land at Rs.5,69,67,912/-.

Apropos the assessee’s claim for deduction of the cost of improvement of Rs.39,20,100/- and Rs.15,80,000/-, the CIT(A) observed that in the absence of any documentary evidence to substantiate the aforesaid claim for deduction, the same did not merit acceptance. At the same time, the CIT(A) was of the view that as the assessee had at the time of purchase of the subject land incurred the commission expenditure of Rs.10 lac through two cheques drawn on ABN Amro Bank, viz. (i). Cheque No. 625970, dated 20.08.2002: Rs. 5,00,000/-; and (ii). Cheque No. 626178, dated 28.08.2002, directed the A.O. to allow the same while working out the Indexed cost of acquisition. Accordingly, the CIT(A) based on his aforesaid deliberations partly allowed the appeal.

We have heard the learned Authorized Representatives of both parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that were pressed into service by the ld.AR to drive home his contentions.

Shri K.C. Devdas, Advocate, learned Authorized Representative (for short, “ld. AR”) for the assessee, at the threshold of hearing, submitted that as the agricultural land situated at Village: Manchirevula, Rajendranagar Mandal, Ranga Reddy District was not a “capital asset” u/s 2(14) of the Act, therefore, the profit/gain arising on the sale of the same could not have been brought to tax under the head “Long Term Capital Gain ” (LTCG). Elaborating on his contention, the Ld. AR submitted that as Village: Manchirevula falls within Rajendranagar Revenue Mandal, therefore, it could not have been taken as a part and parcel of Hyderabad Municipal Corporation. The Ld. AR submitted that “Rajendranagar” is also one of the Municipal Corporation. Elaborating further on his contention, the Ld. AR submitted that as the agricultural land at Village: Manchirevula was admittedly situated in Rajendranagar Revenue Mandal, which falls within Rajendranagar i.e. one of the Municipal Corporation, therefore, there was no justification for the A.O. to have applied the 8 Kms.

On merits, the Ld. AR submitted that the CIT(A) had arbitrarily restricted the assessee’s claim for exemption under Section 54B to Rs.1,07,07,115/-. Elaborating on his contention, the Ld. AR submitted that the authorities below had grossly erred in restricting the assessee’s claim for exemption on two counts, viz. (i). that the investments made by the assessee for the purchase of agricultural lands through “agreements to sell” had not been considered; and (ii). though the CIT(A) had observed that it was established that the assessee had made payments/invested to the extent mentioned in the “agreements to sell”, but had thereafter most arbitrarily concluded that the exemption was to be allowed only to the extent of the value reflected in the corresponding registered sale deeds.

The Ld. AR further submitted that the authorities below had erred in not appreciating the facts in the right perspective, and had most arbitrarily restricted the assessee’s claim for exemption u/s 54F to an amount of Rs.1,62,00,000/-

Apart from that, the Ld. AR submitted that both the authorities below have without any justification scrapped the assessee’s claim for deduction of the indexed cost of improvement amounting to Rs.82,50,632/-.

Per contra, Dr. Sachin Kumar, the learned Senior Departmental Representative (for short “ld. DR”) relied upon the orders of lower authorities. The Ld. DR submitted that on 16.04.2007, GHMC was formed, by merging 12 Municipalities and 8 Gram Panchayats with the Municipal Corporation of Hyderabad. It was submitted by him that “Rajendranagar Municipality” was, inter alia, one of the 12 municipalities that was merged into GHMC. Elaborating further on his contention, the Ld. DR submitted that as on the date when the assessee had sold the agricultural land i.e. on 07.09.2007 the “Rajendranagar Municipality” was no more in existence and had merged with GHMC, therefore, there was no substance in the ld. AR’s claim that the A.O. had erred in treating the agricultural lands as a “capital asset” for the reason that the same was within a distance of 8 Km. from the municipal limits of Hyderabad. The Ld. DR submitted that as the agricultural land sold by the assessee was within a distance of 8 Kms. from the municipal limits of Hyderabad (GHMC), therefore, the same had rightly been held by the CIT(A) as a “capital asset” u/s 2(14)(iii)(b) of the Act. On merits, the Ld. DR relied upon the orders of lower authorities.

We have thoughtfully considered the contentions advanced by the Ld. Authorized Representatives on the aforesaid issues in the backdrop of the orders of the lower authorities.

Controversy involved in the present appeal is two-fold i.e. (i). that whether or not the agricultural land at village: manchirevula (supra) sold by the assessee during the subject year was on the date of sale i.e 07.09.2007 a “capital asset”?; and (ii). that whether or not the CIT(A) is right in law and facts of the case in restricting the assessee’s claim for exemption u/ss. 54B and 54F of the Act, and also declining his claim for deduction of Indexed cost of acquisition?.

At the threshold, we may herein observe that the ITAT, Hyderabad Bench “B” in the case of Shri Srinivas Pandit (HUF) Vs. ITO, Ward 7(4), Hyderabad, dt. 23.04.2010, for A.Y 2003-04 had observed, that since Rajendranagar Municipality was not admittedly notified by the Central Government, therefore, the agricultural land in the case before them which was within the administrative jurisdiction of “Rajendranagar Municipality” could not be held to be a “capital asset”, based on the fact that the same was situated within the notified distance of 8 Kms from the Hyderabad Municipality i.e a separate municipality. As observed hereinabove, the Tribunal, while so concluding had drawn support from the order of ITAT, Amritsar in the case of DCIT Vs. Capital Local Area Bank Limited (2009) 123 TTJ 918 (Amritsar). For the sake of clarity, the observations recorded by the Tribunal in the case of Shri Srinivas Pandit (HUF) Vs. ITO, Ward 7(4), Hyderabad are culled out as under:

As is discernible from the record, the aforesaid order of the Tribunal had thereafter been upheld by the Hon'ble High Court of Andhra Pradesh and the appeal filed by the Revenue was dismissed. For the sake of clarity, the observations of the Hon’ble High Court are culled out as under:

We respectfully follow the aforesaid judgment of the Hon'ble High Court in the case of CIT Vs. Sri Srinivas Pandit (HUF) (supra), wherein the order of the Tribunal disposing off the assessee’s appeal for A.Y 2003-04 stands approved. The Tribunal in its order had observed, that as the agricultural land in the case before them was situated within Rajendranagar Mandal and Rajendranagar is a separate Municipal Corporation, which though was not notified by the Central Government for the purpose of Section 2(14)(iii)(b) of the Act, the subject agricultural land could not be held to be a “capital asset” based on the fact that the same is situated within the notified distance of 8 Kms from the Hyderabad Municipality i.e a separate municipality. However, we are of the view that as the facts involved in the case before us are distinguishable, therefore, the reliance placed by the ld.AR from the aforesaid judicial pronouncement will not assist his case for the reasons stated hereinafter.

On 16.04.2007, the Government of Andhra Pradesh vide its Notification published in the A.P. Gazette, dated 16.04.2007, had abolished 12 municipalities which, inter alia, included Rajendranagar Municipality. That pursuant to the Notification dated 16.04.2007 (supra) the areas covered by the aforesaid 12 municipalities were included in the limits of “Hyderabad Municipal Corporation” (HMC), so as to constitute the “Greater Hyderabad Municipal Corporation” (GHMC). For the sake of clarity, the G.O.Ms.No.261, dated 16.04.2007 along with the Notification issued by the Government of Andhra Pradesh is culled out as under:

Accordingly, w.e.f. 16.04.2007 the Rajendranagar Municipality was abolished. On verification, we find that as a step towards broader administrative restructuring the Village Manchirevula was transferred from “Rajendranagar Mandal” to “Gandipet Mandal” which was also in Ranga Reddy District. However, we find that “Gandipet Mandal” unlike Rajendranagar was not a separate municipality in the year 2007 but an area falling in the periphery of GHMC.

Apropos the Ld. ARs claim that the Government of Andhra Pradesh - Notification dated 16.04.2007 abolishing 12 municipalities which, inter alia, included “Rajendranagar Municipality”, had thereafter been canceled vide G.O.Ms No. 12, dated 07.01.2014 for giving effect to the orders of the Hon’ble High Court, dated 26.09.2013 in W.P No. 26350 of 2013 and batch cases, Page 5-6 of APB, we find that the said contention in itself is based on the misconceived and incorrect set of facts.

Admittedly, it is a matter of fact borne from the record that the Government of Andhra Pradesh, vide its Notification dated 16.04.2007 had abolished 12 municipalities including “Rajendranagar Municipality”, and had included the areas covered by the said erstwhile municipalities in the limits of “Hyderabad Municipal Corporation” (HMC), so as to constitute the “Greater Hyderabad Municipal Corporation” (GHMC).

Independent of the aforesaid, the Government of Andhra Pradesh had thereafter come up with (i). G.O.Ms No. 407, MA & UD (Elec. II) Dept. dated 31.08.2013; (ii). G.O.Ms No. 410, MA & UD (Elec. II) Dept., dated 03.09.2013; and (iii). G.O.Ms No. 416, MA & UD (Elec. II) Dept., dated 05.09.2013, wherein orders were issued notifying the inclusion of areas covered by 36 Gram Panchayats which, inter alia, included Gram Panchayat of Village: Manchirerevula (Rajendranagar Manda) into the limits of GHMC. However, pursuant to the Hon’ble High Courts orders, dated 26.09.2013 in W.P. No. 26350 of 2013 and batch cases, the Government vide G.O.Ms No. 12, dated 07.01.2014 canceled the merger of the aforesaid 36 Gram Panchayats into GHMC, Page 5- 6 of APB. It was, thus, the G.O.Ms No. 407, 410 & 416 MA & UD (Elec. II) Dept. of the Government of Andhra Pradesh ordering the inclusion of 36 Gram Panchayats into GHMC that had been canceled, and not the G.O.Ms No. 261, dated 16.04.2007 abolishing the 12 Municipalities (including “Rajendranagar Municipality”) and including their the areas covered by the said erstwhile municipalities in the limits of “Hyderabad Municipal Corporation” (HMC) so as to constitute the “Greater Hyderabad Municipal Corporation” (GHMC). For the sake of clarity, Government of Andhra Pradesh – G.O.Ms No. 12 and Notification, dated 07.01.2014, (Page 5-6 of APB) as per which it had canceled its Notifications issued in viz., (i). G.O.Ms No. 407, MA & UD (Elec. II) Dept. dated 31.08.2013; (ii). G.O.Ms No. 410, MA & UD (Elec. II) Dept., dated 03.09.2013; and (iii). G.O.Ms No. 416, MA & UD (Elec. II) Dept., dated 05.09.2013 on the merger of thirty six (36) Gram Panchayats into GHMC is culled out as under:

Be that as it may, pursuant to the Government of Andhra Pradesh Notification dated 16.04.2007 the “Rajendranagar Municipality” (being one of the 12 municipalities) was abolished. Also, as observed by us hereinabove, pursuant to the broader administrative restructuring the Village: Manchirevula (supra) was shifted from “Rajendranagar Mandal” to “Gandipet Mandal” w.e.f 16.04.2007. As the Rajendranagar municipality was abolished on 16.04.2007 and Village: Manchirevula (supra) had become a part of Gandipet mandal (which did not have a separate municipality) but was an area falling in the periphery of GHMC, therefore, unlike as in the case of CIT Vs. Sri Srinivas Pandit (HUF) (supra), wherein the subject land at the relevant point of time was in Rajendranagar mandal, which had a separate municipality i.e Rajendranagar municipality, the assessee in the present case before us cannot claim that as the subject land i.e at Village: Manchirevula (supra) was within a “Mandal” which had a separate administrative municipality, therefore, there was no justification for the A.O. to have applied the 8 Kms. radius that was notified by the Government under Section 2(14)(iii)(b) of the Act, vide “Notification No. S.O……..,dated January 06, 1984” for the municipal limits of Hyderabad (GHMC) and bring the same within the meaning of a “capital asset”.

We thus, are of the view that as on the date when the assessee had sold his land at Village: Manchirevula, vide sale deed dt.07.09.2007, the same was in “Gandipet Mandal” which was not a separate municipality (i.e unlike Rajendranagar), but an area falling in the periphery of GHMC i.e. erstwhile Hyderabad Municipal Corporation (HMC) – a Municipality notified by the Central Government vide its “Notification No. So..….,dt. January, 06, 1994” for purpose of Section 2(14)(iii)(b) of the Act, therefore, no infirmity arises from the view taken by the CIT(A), who had rightly concluded that the subject agricultural land is to be held as a “capital asset” if the same was located within 8 Kms radius from the municipal limits of GHMC. However, we are of the view that as the distance of the subject agricultural land at Village: Manchirevula from the municipal limits of GHMC is neither discernible from the record; nor any details establishing the same was there before the CIT(A), therefore, the matter requires to be restored to the file of A.O. The A.O. is directed to verify the distance of the subject agricultural land at Village: Manchirevula from the municipal limits of GHMC on the date of sale i.e. on 07.09.2007. In case, the agricultural land is found to be within the notified area limit of 8 Kms. from the municipal limits of Hyderabad Municipality (now known as GHMC), then the view taken by the CIT(A) that the same is a “capital asset” under Section 2(14)(iii)(b) of the Act will stand approved.

Apropos the merits of the case, we find no infirmity in the view taken by the CIT(A) who had based on the documentary evidence as was available before him, viz. (i). registered sale deed dated 23.07.2011: Rs. 90 lacs; and (ii). unregistered construction agreement dated 18.04.2008: Rs. 72 lacs, had after observing that the assessee had invested an amount of Rs.1.62 crore in the new house, allowed his claim of exemption under Section 54F of the Act to the said extent. At the same time, we are unable to concur with the CIT(A), who had observed that the payments made by the assessee towards investment in the new house property were to be allowed only to the extent the same were made by him before the “due date” for filing of his return of income. We say so, for the reason that Section 54F of the Act, inter alia, contemplates the utilization of the “net consideration” towards the purchase or construction of the new house before the “date of furnishing the return of income under section 139”, and does not mandate the utilization of the same before the “due date” for furnishing the return of income under Section 139 of the Act. Therefore, it can safely or rather inescapably be inferred that the same takes within its meaning the time available with the assessee for filing a delayed return of income under sub-section (4) of Section 139 of the Act. Our aforesaid view is supported by the judgment of the Hon'ble High Court of Punjab and Haryana in the case of CIT-II Vs. Ms. Jagriti Aggarwal in ITA 176 of 2011 dt.03.10.2011. The Hon'ble High Court after drawing support from the judgment of the Hon'ble High Court of Karnataka in the case of Fatima Vs. ITO 32 DTR 243 (Kar), and that of the Hon'ble High Court of Gauhati in the case of CIT Vs. Rajesh Kumar Jalan (2006) 286 ITR 274 (Gauhati), had held, that sub-section (4) of Section 139 of the Act, is in fact, a proviso to sub-section (1) of Section 139 of the Act. It was thus, held that the period available to the assessee for making the investment u/s 54 of the Act will be available up to the period contemplated under sub-section (4) of Section 139 of the Act. We thus, in terms of our aforesaid observations, direct the A.O. to allow the investment made by the assessee in the new house property up to the date of filing of the delayed return of income under sub-section (4) of Section 139 of the Act applicable in his case.

Apropos the assessee’s claim for exemption under Section 54B of the Act, we are of the view that no infirmity arises from the observation of the CIT(A). Although the CIT(A) had observed that as per the “agreements to sell” it was an established fact that the payments/investments made by the assessee in agricultural lands were higher than the sale consideration reflected in the sale deeds, but the value reflected in the registered sale deeds which were executed subsequent to the “agreements to sell” was only to be considered. Accordingly, we are of the view that the CIT(A) had adopted a fair approach and allowed the assessee’s claim for exemption under Section 54B of the Act of Rs.1,01,07,115/-, viz. (i). agricultural lands purchased by the assessee in his own name (as per the value stated in the registered sale deed): Rs.29,50,155/-; and (ii). agricultural lands that were though purchased by the assessee from his own sources but the registered sale deeds were executed in the name of his wife: Rs. 71,56,960/- . We thus, in terms of our aforesaid observations, uphold the view taken by the CIT(A), wherein he had restricted the assessee’s claim for exemption under Section 54B of the Act to an amount of Rs.1,01,07,115/- (supra).

Apropos the assessee’s grievance that the CIT(A) had erred in declining his claim for deduction of the Indexed cost of improvement of Rs.82,50,632/-, we find no substance in the same. Although, the assessee had as per his computation of income claimed to have incurred expenditure towards the improvement of the subject lands, viz. (i) Financial Year 2001-02: Rs.39,20,100/-; and (ii). Financial Year 2002-03: Rs.15,80,000/-, but he had failed to place on record any material that would substantiate his aforesaid claim for deduction. As the assessee had raised the aforesaid claim based on the notings in his rough note book, therefore, the authorities below had declined to consider the same while computing the capital gain.

We have thoughtfully considered the observations of the CIT(A) and find no infirmity in the same. Ostensibly, in the absence of any material based on which the authenticity of the aforesaid claim of the assessee of having incurred the subject expenditure towards the improvement of subject lands could be established, the authorities below could not have allowed the same. We thus, uphold the order of the CIT(A) on the aforesaid issue.

In the result, the appeal filed by the assessee is partly allowed for statistical purposes in terms of our aforesaid observations.