ASHOK SOMNATH SONAWANE,NASHIK vs. ITO WARD 2(1) NASHIK, NASHIK MAHARASHTRA

It is a case of reopening of assessment. Initially, the assessment was completed u/s 143(3) of the Income Tax Act, 1961 (the “Act”) on 19.01.2016 by the then Ld. Assessing Officer accepting the return of income of the assessee wherein the assessee’s claim of deduction u/s 54B of the Act was allowed based on the evidence/information submitted by the assessee during the assessment proceedings. Subsequently, the case was reopened by the Ld. Assessing Officer (“AO”) u/s 147 of the Act by issuing notice u/s 148 of the Act on 19.11.2018 with the prior approval of the Jt. CIT, Range-2, Nashik u/s 151(2) of the Act. In response thereto, the assessee filed his return of income for the AY 2013-14 on 08.05.2019 declaring total income at Rs.8,84,066/-. The reason recorded by the Ld. AO for reopening of assessment is that the assessee has claimed exemption u/s 54B but at the same time failed to adhere to the provisions of section 63 of the Bombay Land Revenue Code. The assessee sold the agricultural land to a person who intended to use it for non-agricultural purposes. The assessee claimed the exemption u/s 54B treating the land as agricultural which is not true in this case. Since the assessee had not truly and fully disclosed material facts necessary for his assessment for the year under consideration, it has necessitated the re-opening u/s 147 of the Act. Accordingly, notice u/s 142(1) of the Act along with questionnaire were issued and served upon the assessee. In response thereto, the assessee filed its reply along with copies of certain documents such as 7/12 extracts

Before the Ld. AO, the assessee submitted that he has 50% share in the above said immovable properties sold by the assessee and that the land sold is not a capital asset as it is a agricultural land at the time of sale and even till date it is not used/converted for any non-agricultural purposes. It was further contended that sale for the purpose of prospective non- agricultural use does not alter the character of the land. The fact that the land in question was purchased by a developer cannot be a determining factor for treating the land to be converted for any purposes.

The Ld. AO was of the opinion that as per section 63 of the Bombay Tenancy & Agricultural Land Act, 1948, the sale of agricultural land is not valid if it is sold to non-agriculturist. Applying the decision of Hon’ble Supreme Court in the case of Smt. Sarifabibi Mohamed Ibrahim & Others, 204 ITR 631 (SC), the Ld. AO concluded that the agricultural land sold for non-agricultural purpose cannot be exempt for capital gain tax. The Ld. AO accordingly issued a show cause notice to the assessee to explain as to why the difference in sale consideration received on market value amounting to Rs.2,74,53,736/- as per stamp value authority should not be treated as short term capital gain (“STCG”) u/s 50C of the Act treating it as a capital asset. The assessee filed its submissions in response to the said show cause notice. However, the submissions of the assessee were not found to be acceptable by the Ld. AO and he completed the assessment u/s 143(3) r.w.s. 147 of the Act vide his order dated 19.12.2019 making an addition of Rs.2,74,53,736/- to the income of Rs.8,84,066/- returned by the assessee resulting in assessed income of Rs.2,83,37,800/-.

Aggrieved, the assessee carried the matter before the Ld. CIT(A)/NFAC who dismissed the appeal of the assessee by observing as under : “3.7 On perusal of the stated agreement for sale and on perusal of the decision of the Assessing Officer made in the assessment order two distinct issue had come up for decision in the present appeal.

8 Regarding the first issue of whether the sold land is to be considered as capital asset we find two contradictory statements from the submitted documents. At one hand, through a certificate dated 12.07.2016, the Tahsildar and Executive Magistrate of Shahapur, District- Thane, Maharashtra, certified that the sold land are agricultural lands and in use as agricultural lands as on 12.07.2016. Secondly, in such certificate, it was mentioned that the distance of the agricultural land sold through two separate deeds of agreement were situated beyond 8 Kms. of the nearest Municipal boundary.

9 On the other hand, in the deed of agreement for sale, the registering authority mentioned that the sold land were agricultural land and the purchaser who is buying the company is a farmer company but the purchaser intends to use the land mentioned for residential and commercial purpose. The said agreement for sale also mentioned that to avoid paying stamp duty again on non-agricultural value in future, if the property is classified as non-agricultural, the amount of stamp duty as per non- agricultural valuation as on date of agreement of sale i.e. 24.10.2010 is being paid by the purchasing company. The said deeds of agreement of sale also mentioned that since the purchasing company is itself a farmer and purchasing the property for purpose for residence and commercial purpose, it is not required to take permission from the Industrial Commissioner u/s.63A of Maharashtra Revenue Act.

10 Following the above stated facts in the documents, the first observation of the Assessing Officer that there was a violation of section 63 of the Bombay Tenancy and Agricultural Act 1948 does not stand good. However, the Assessing Officer also mentioned the case law of the Hon’ble Supreme Court reported in 204 ITR 631, which held that if the agricultural land was sold for non-agricultural purpose, there cannot be any exemption for capital gains tax.

11 The assessee during the appellate stage has given a comparative chart of facts of the mentioned Supreme Court decision and the facts of the appellant’s case, which is narrated as follows:- Facts in the Appellant’s Case 1. The land was situated within the municipal limits of Surat City and was situated at a distance of one KM from Surat Railway Station 1. The land situated at Village Shirgaon in Shahapur Taluka at a distance of 9 KMs from Shahapur Municipality. 1. A part of the land was converted into Non agricultural purposes on 28/03/1958. And land sold was also converted to NA purpose after sale deed 1. No part of land was converted for Non agricultural use ever. As on date also the land is agricultural in nature and no application for conversion into Non agricultural is made. 2. Application for permission under Section 63 of Bombay Tenancy and Agri Lands Act 1948 before execution of Sale deed in May 1969. 1. No permission under section 63 was applied or taken. 1. The land was sold on per sq. yard basis 1. Land is sold on acreage basis. 1. Construction activities was started by purchasing party within 1. No construction is started or done as on date and the land is still Agricultural in character.

12 I have perused the submitted documents and I have also perused the distinction made by the assessee of his case with that of the decision of Hon’ble Supreme Court and I conclude as follows:- There is no doubt that the sold land was earmarked as an agricultural land and situated beyond 8 Kms of Municipal boundary but there is no documentary evidence put forward by the assessee to show that he had undertaken any agricultural activity on the said pieces of land since purchase of the land on 22.07.2010. It is clearly understood that although the purchasing company registered itself as a farmer company but it had the clear intention to use the land for non-agricultural purpose and therefore it was ready to pay additional stamp duty as applicable for non-agricultural purpose. It is true that as per certificate issued by the Tahsilder even up to July, 2016 there is no activity on behalf of the purchaser to initiate any activity for construction of residence and commercial building. However, the mere fact that the intention was not to engage in farming was crystal clear from the documentary evidences. The purchasing company did not engage the land for any agricultural purpose is also from clear as there was no such claim made by either of the parties.

13 Therefore, I fully agree that the sold properties are not exempted capital asset as per section 2(14) of the Act. Therefore, I hold no hesitation in accepting the decision of the Assessing Officer that the sold property was not agricultural property and therefore it is clearly liable for capital gains tax. Now once it is decided that the sold property is in the nature of land or building the attraction of section 50C is clearly inevitable and as per such provision of the Act the value of the sale consideration has to be accepted as per the valuation made of the property for stamp duty calculation. In this case since stamp duty was paid at a much higher rate and the registered documents itself has given the market price on which actual stamp duty was paid and collected is given, such value has to be adopted as sale consideration irrespective of actual valuation for which the lands were transferred. Therefore, I agree to the Assessing Officer that the consideration of sale has to be 50% of the value assessed by the stamp duty assessor in case of the assessee and the ground of appeal in this regard is rejected.

1 Coming to the second part of the issues mentioned earlier whether the assessee is eligible for any deduction u/s.54B, I find that the statue clearly says that where capital gain arises from sale of a land are two years immediately preceding the date on which the transfer took place was being used by the assessee for agricultural purpose, if the assessee purchased agricultural lands by using such capital gain a deduction u/s.54B is to be allowed to the assessee. In this particular case, there is no documentary evidence that the assessee had ever used the said plots of lands for agricultural activity although the land was certified to be agricultural land by the Tahsilder. In absence of documentary evidence that the assessee himself engaged in the activity of farming in the plots of land, the assessee is not 6

Overall, I accept the assessment made by the Assessing Officer in the reopened assessment u/s.147 of the Act and the appeal of the assessee is dismissed.”

Dissatisfied, the assessee is in appeal before the Tribunal and all the grounds of appeal relate thereto.

The Ld. AR, at the outset, submitted that the similar assessment was done in the case of the assessee’s wife Smt. Smita Ashok Sonawane and the Ld. CIT(A)/NFAC has allowed the appeal of the assessee’s wife vide order dated 30.08.2023. When the matter was challenged by the Revenue before the Pune Tribunal in the case of ITO Vs. Smita Ashok Sonawane, ITA No. 1119/PUN/2023 for AY 2013-14, the Tribunal vide its order dated 31.07.2014 has dismissed the appeal of the Revenue by directing the Ld. AO to delete the addition of Rs.2,74,53,736/- (being 50% of the value of impugned transaction) in the hands of the assessee’s spouse.

1 The assessee in Smita Ashok Sonawane’s case had raised the following effective ground of appeal : “i) Whether on the facts and in the circumstances of case, the Ld.CIT(A), NFAC was justified in directing the AO to delete the addition of Rs. 2,74,53,736/, ignoring the applicability of the Hon’ble Supreme Court decision in the case of Smt. Sarifabibi Mohamed Ibrahim & Others 204 ITR 63i(SC), the agricultural land sold for non- agricultural purpose cannot be exempt for capital gain tax.”

The Ld. DR relied on the order of the Ld. AO and Ld. CIT(A)/NFAC.

We have heard the Ld. Representatives of the parties, perused the material on record and paper book filed by the Ld. Counsel on behalf of the assessee. Admittedly, the assessee jointly with his wife sold the impugned land to one company, named Prospective Estate and Realty Logical Solutions Pvt. Ltd. vide registered agreement for sale dated 24.10.2012. We find that in the Revenue’s appeal in the case of the spouse of the assessee, i.e. ITO Vs. Smita Ashok Sonawane (supra), the Co-ordinate Bench of the Tribunal has decided the impugned issue for 50% of the transaction value and dismissed the appeal of the Revenue holding that the impugned lands were agricultural lands and no capital gain is payable for the transaction. The relevant observations and findings of the Tribunal in the said case are reproduced below :

On the said date, Shri Suhas A. Vadulekar, CA from M/s. Anand Bang &Associates, CAs duly authorised attended and the case was heard. Written submissions were filed on the said date and on 23/11/2016 and the issues involved were discussed at length. During the proceedings, the Authorized Representative of the assessee, in addition to the written submissions, has submitted copies of the certificate issued by the Tehsildar, Shahapur dated 12/07/2016, 7/12 extracts of the land sold, MO A of the purchaser Prospective Estate and Realty Logical Solutions Pvt. Ltd, copy of Google Map indicating location of the impugned land, population data

1 It was submitted by the Authorized Representative of the assessee that the impugned land is agricultural land situated at Mauje. Shirgaon Taluka: Shahapur, District: Thane, in Gat nos. 263,264,280,284 and 290 admg 1-H-36R. It is submitted that the assessee vide a registered sale agreement deed dated 22/07/2013(registered with the Sub-