Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI B.M. BIYANI & SHRI PARESH M. JOSHI
आदेश/O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by order of first appeal dated 10.07.2023 passed by learned Commissioner of Income-Tax (Appeals)-NFAC, Delhi [“CIT(A)”] which in turn arises out of assessment-order dated 29.12.2016 passed by learned ITO-2(4), Bhopal [“AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2014-15, the assessee has filed this appeal.
The background facts leading to present appeal are as under:
Page 1 of 30 – AY 2014-15 (i) The assessee-individual filed his return of income of AY 2014-15 u/s 139 declaring a total income of Rs. 10,81,630/- and agricultural income of Rs. 2,11,500/-. The case of assessee was selected for scrutiny under ‘CASS’ and the AO issued statutory notices u/s 143(2)/142(1) which were complied by assessee. During scrutiny proceedings, the AO found that the assessee made two transactions of sale of land which have not been disclosed in the return. These transactions are (i) land measuring 2.50 acres sold on 29.08.2013 for a consideration of Rs. 1,00,00,000/- and (ii) land measuring 3 acres sold on 06.03.2014 for a consideration of Rs. 1,50,00,000/-. Ld. AR pointed out that both sale transactions, involving aggregate area of 5.50 acres [2.50 acres + 3 acres], are relatable to the very same land situated at ‘Kotra Block, Phanda Tehsil, Huzur’. The AO further found that the valuation done by Stamps Authority were Rs. 1,09,30,000/- and Rs. 1,50,00,000/- respectively for the impugned transactions. The AO questioned the assessee regarding taxability of gain arising from impugned transactions. In response, the assessee filed a reply making two-fold claims. Firstly, the main claim of assessee was that the land sold by him was an ‘agricultural land’ not situated within the prescribed area/distance in section 2(14)(iii)(a)/(b) and hence excluded from the definition of ‘capital asset’ in terms of section 2(14)(iii), therefore the resultant capital gain was not taxable. Secondly, the assessee made an alternative claim that the sale consideration
Page 2 of 30 – AY 2014-15 received had been invested in a new agricultural land and therefore he was entitled to exemption u/s 54B. However, the AO rejected both claims of assessee by assigning reasons that (i) the land was situated within 8 kms’ prescribed distance of section 2(14)(iii)(b), and (ii) the assessee sold land to a builder after obtaining diversion for non- agricultural use, therefore the land was not ‘agricultural’. Ultimately, the AO completed assessment after assessing a long-term capital gain of Rs. 1,04,95,230/- and Rs. 1,49,41,169/- respectively from impugned transactions, thereby making an aggregate addition of Rs.
2,54,36,399/- to the returned income and accordingly determining the total income at Rs. 2,65,18,029/-. The AO, however, accepted agricultural income of Rs. 2,11,500/- as declared by assessee in the return of income.
(ii) Aggrieved by AO’s order, the assessee went in first-appeal. During first-appeal, the assessee raised various grounds including the aforesaid twin-claims as made before AO. The CIT(A) although did not allow the twin-claims of assessee but, however, granted a small relief in the matter of first transaction of sale by accepting that the full value of consideration, for the purpose of working long-term capital gain, shall be actual consideration of Rs. 1,00,00,000/- and not the Stamps Authority Valuation of Rs. 1,09,30,000/- adopted by AO, since the difference between two figures was less than permissible
Page 3 of 30 – AY 2014-15 limit of 10% [Para 6 of order of CIT(A)]. Accordingly, with this limited relief, the CIT(A) allowed assessee’s appeal partly.
(iii) Still aggrieved, the assessee has come before us in next appeal.
The grounds raised by assessee are as under:
“1.Ground No. 1 - The learned CIT(A) erred in rejecting the claim of assessee that Land in question was situated beyond the Municipal limits of 8 kilo Meter from Bhopal. The CIT(A) and AO not accepted the Ground Report made by Patwari in which he confirms the Location of land beyond 8 KM. They have relied on the letter issued by Tehsildar which is not very clear and speaking. If the Report of Patwari is considered, the land will be out of the definition of Capital assets and no capital Gain will arise.
2. Ground No. 2 - The learned CIT(A) erred in rejecting the claim u/s 54B since the land was not used as Agriculture for 2 years, whereas the assessee has cultivated the land and shown the income aroused therefrom.
3. Ground No. 3 - The learned CIT(A) erred in rejecting the ground of the assessee that land in question was sold before the Diversion of Land. The assessee submitted Various evidences that Diversion was applied by the ultimate buyer and the assesse handed over the possession of land prior to Application filed for Diversion. The Possession handed over in Apr-13, diversion done on 31/05/2013 and Final Sale-Deed was registered in Aug 2013. Thus, in terms with Income tax law the sale was completed on Apr-13.
4. Ground No. 4 - The assessee craves to Add, Modify, Alter or withdraw any Ground(s) on or before the date of hearing.”
Ground No. 1 & 3:
4. Precisely stated, in Ground No. 1, the assessee claims that the land situated beyond the prescribed area/distance in section 2(14)(iii)(a)/(b) and in Ground No. 3, the assessee claims that the land sold by assessee was ‘agricultural’. By means of these grounds, the assessee basically claims that the land sold by him satisfied the conditions for exclusion from definition of Page 4 of 30 – AY 2014-15 ‘capital asset’ in terms of section 2(14)(iii) and consequently, the capital gain arising therefrom was not taxable.
The first issue raised in Ground No. 1 which calls for our adjudication is whether or not the impugned land sold by assessee was situated within the prescribed area/distance of section 2(14)(iii)(a)/(b).
6. We have heard learned Representatives of both sides on this issue and carefully perused the orders of lower-authorities as also the documents held on record. The AO has dealt this issue in Para No. 5 to 7 of assessment- order. On perusal of same, we find that when the AO questioned assessee, the assessee instantly, vide letter dated 04.11.2016, informed AO that the impugned land was situated beyond the prescribed distance and also requested the AO to get the distance verified from Tehsildar. Accordingly, the AO sent letter dated 07.11.2016 to Tehsildar, Bhopal [the AO’s letter is scanned on Page 3 of assessment-order]. In response, vide letter No. 1063/Kanungo/2016 dated 06.12.2016, the Tehsildar reported the location of land at a distance of 4 kms from ‘Nagar Nigam, Bhopal’ [the Tehsildar’s letter is scanned on Page No. 5 of assessment-order]. The AO supplied Tehsildar’s letter to assessee and invited assessee’s reply. In response, the assessee filed reply-letter dated 13.12.2016 pointing out that the Tehsildar has mistakenly measured distance from ‘Nagar Nigam, Bhopal’ whereas the ‘Kolar Nagar Palika’ existed upto 06.09.2014 before merger of same with ‘Nagar Nigam, Bhopal’ and the assessee sold impugned land during financial year 2013-14 i.e. before merger of ‘Kolar Nagar Palika’ into ‘Nagar Nigam,
Page 5 of 30 – AY 2014-15 Bhopal’. The assessee also filed copy of relevant notification issued by Govt. declaring merger. Therefore, the assessee claimed that the distance of impugned land was required to be measured from ‘Kolar Nagar Palika’ and not from ‘Nagar Nigam, Bhopal’. In his reply, the assessee also requested the AO to re-call information from Tehsildar. Acting uponassessee’s reply, the AO sent another letter dated 14.12.2016 to Tehsildar to provide correct distance from ‘nearest Nagar Nigam / Nagar Palika’. In response, the Tehsildar sent a new report dated 19.12.2016 vide letter No.
1106/Kanungo/2016 re-confirming that the impugned land was situated within 4 kms [the Tehsildar’s letter is re-produced on Page No. 5 of assessment-order]. Subsequently, the Tehsildar sent another letter No. 1121/Kanungo/2016 dated 23.12.2016 to AO accompanied by a report of Patwari dated 16.12.2016 [the Tehsildar’s letter and Patwari’s Report are re- produced on Page No. 6 of assessment-order]. We re-produce below the aforesaid letters dated 19.12.2016 & 23.12.2016 sent by Tehsildar as well as Patwari’s Report for an immediate reference:
Page 6 of 30 – AY 2014-15 Page 7 of 30 – AY 2014-15 (These copies are not properly readable due to multiple scanning.
However, we would be narrating contents of these documents in subsequent discussions).
On a careful reading of above documents in open court in the presence of learned Representatives, we find that in letter dated 19.12.2016,
Page 8 of 30 – AY 2014-15 the Tehsildar has categorically reported that there is no ‘authentic record’ available in his office to certify distance, however he has given a ‘general information’ that the distance was 4 kms. But subsequently, the Tehsildar has sent another letter dated 23.12.2016 and forwarded Patwari’s Report dated 16.12.2016 to AO. The Patwari has made following reports on location of assessee’s land:
“��त �ीमानतहसीलदारमहोदय तह. हुजूर, भोपाल �वषय– �ामकोटराक�भू�मक�नगर�वकाससीमासेदूर�बाबत। संदभ�- आपकेप��. 1103 �द. 1512/16 महोदय, �नवेदनहै�कसंद�भ�तप�केमा�यमसे�ामकोटराप. नं. 27 क�भू�म ख.न. 135, 135/190, 136 क�दूर�नगरपा�लका/�वकाससीमासेवष�2013-14 क�ि�थ�तम�जानकार�चाह�गईहैइससंबंधम���तवेदनइस�कारहै:- वत�मानम�नगर�नगमभोपालकेवाड��मांक84 क�बा�यसीमासे 1. ��नाधीनभू�मक�दूर�4 K.M. है। वष�2013-14 �दनांक3/12/14 केपूव�नगर�नगमभोपालके�मसरोदक� 2. बा�यसीमासे��नाधीनभू�मक�दूर�लग. 9 (नौ) K.M. है। नगरपा�लकामंडीद�पिजलारायसेनसे��नाधीनभू�मक�दूर�लग. 4 K.M 3. है। ��तवेदनसादर��तुत।”
Page 9 of 30 – AY 2014-15 Thus, in Point No. 1, the Patwari has reported ‘current’ distance of 4 kms from ‘Nagar Nigam, Bhopal’ which is exactly same reporting as was made by office of Tehsildar in very first letter No. 1063/Kanungo/2016 dated 06.12.2016 [discussed in Para 6 of this order]. However, this Point No. 1 is not relevant since, as discussed earlier, the assessee sold land in the year 2013-14 before merger of municipalities into ‘Nagar Nigam, Bhopal’ w.e.f.
06.09.2014 whereas this Point No. 1 gives current distance of impugned land after merger. In next Point No. 2 of Report, the Patwari has informed distance of assessee’s land at 9 Kms from ‘Nagar Nigam, Bhopal’ in the year 2013-14 i.e. at the relevant time when the assessee sold impugned land. In last Point No. 3 of Report, the Patwari has informed distance of assessee’s land at 4 kms from another municipality ‘Nagar Palika, Mandideep’. Thus, the Report of Patwari gives an authentic information and Point No. 2 & 3 of same are relevant to us according to which there were two nearest municipalities to assessee’s land, namely ‘Nagar Nigam, Bhopal’ and ‘Nagar Palika, Mandideep’ from which the assessee’s land was situated at distances of 9 Kms. and 4 kms. respectively.
Having found thus, we now refer the provision of section 2(14)(iii) which is relevant in present case:
“2. ……….. (14) "capital asset" means— ………...... but does not include—
Page 10 of 30 – AY 2014-15 …………... (iii) agricultural land in India, not being land situate— (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand; or (b) in any area within the distance, measured aerially,— (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or (III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh. Explanation.—For the purposes of this sub-clause, "population" means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year; [emphasis supplied] 9. From the submissions made by Ld. AR which goes unrebutted by revenue, we at first find that the impugned land is not situated in ‘any area comprised within the jurisdiction of municipality or a cantonment board’, therefore section 2(14)(iii)(a) is not applicable. Now what remains is to examine from the angle of section 2(14)(iii)(b). There are three limbs in section 2(14)(iii)(b), viz. (I), (II) and (III). The highest distance is prescribed in limb (III) which is 8 kms from outer limit of municipality but the assessee’s land is situated at 9 kms from ‘Nagar Nigam, Bhopal’. Another nearest
Page 11 of 30 – AY 2014-15 municipality to assessee’s land as per Patwari’s Report is ‘Nagar Palika, Mandideep’. The Ld. AR has filed following document downloaded from official website of ‘Nagar Palika, Mandideep’ to show that the population available as per latest census 2011 was only 59,654 which is less than one lakh:
Page 12 of 30 – AY 2014-15 Therefore, the limb (I) would apply and accordingly, the prescribed distance is 2 kms but the assessee’s land is 4 Kms from ‘Nagar Palika, Mandideep’ as Page 13 of 30 – AY 2014-15 per Patwari’s Report. Therefore, after a careful examination of provision of section 2(14)(iii)(a)/(b) and the submissions made before us and the documentary evidences held on record, we find that the assessee’s land was outside the area/distance prescribed in section 2(14)(iii)(a)/(b). We therefore accept assessee’s claim in Ground No. 1.
Now, we turn to the second issue raised in Ground No. 3 which calls for our adjudication as to whether or not the impugned land sold by assessee was ‘agricultural’?
The AO has noted in Para 11 of assessment-order that the assessee sold impugned land through registered-deeds dated 29.08.2013/06.03.2014 to purchaser ‘M/s Parsvnath Builders & Developers India Pvt. Ltd.’ and in registered-deeds, it is clearly mentioned that the land was a ‘diverted land’ as per Judicial Order No. 73/A-2/2012-13 dated 30.05.2013. The AO has also scanned relevant pages of registered-deeds in assessment-order.
Accordingly, the AO concluded that the land sold by assessee was not an agricultural land. During first-appeal, the assessee made submissions which are re-produced by CIT(A) on Page No. 5 to 7 of order of first-appeal. It was a submission of assessee that the diversion of land for development of residential colony was got done by purchaser and not by assessee and that the status of land sold by assessee was ‘agricultural’. However, the CIT(A) rejected assessee’s contention stating thus:
Page 14 of 30 – AY 2014-15 “In view of the categorical mention in the Sale Deed that the land has been diverted on the date of the sale deed, the contention of the appellant cannot be accepted.”
Before us, Ld. AR for assessee made submissions on the same lines as made before CIT(A) and referred following documents filed in Paper-Book:
(i) Page 7 to 8 of Paper-Book – A ‘Development-Agreement’ dated
05.02.2013 entered by assessee with purchaser ‘Shri Parasnath
Builders and Developers India Pvt. Ltd.’ whereunder the assessee granted authority to purchaser to develop a residential colony over assessee’s land.
(ii) Page 9 to 12 of Paper-Book – A registered ‘Power of Attorney’ dated
22.02.2013 executed by assessee in favour of purchaser giving various authorities to purchaser.
(iii) Page 6 of Paper-Book – A ‘Confirmatory-Letter’ issued on purchaser’s letter-head certifying that the agricultural land of 5.50 acres was purchased from assessee during financial year 2013-14 for development of a residential colony and the possession of land was taken over in last week of April, 2013 and thereafter the purchaser got diversion of land for residential purpose in May, 2013.
(iv) Page 46 of Paper-Book – Page 2 of the Registered sale-deed dated 29.08.2013 of 2.50 acres of land which contains the Payment Schedule of consideration revealing that part-payments of Rs.
Page 15 of 30 – AY 2014-15 5,00,000/- and 5,00,000/-, aggregating to Rs. 10,00,000/-, were made through cheques during the month of February, 2013. This is to demonstrate that the part-payment was made before giving possession of land to purchaser in last week of April, 2013.
(v) Page 32 of Paper-Book – Page 2 of Registered sale-deed dated
06.03.2014 of 3 acres of land which contains the Payment Schedule of consideration revealing that part payments of Rs. 10,00,000/-,
5,00,000/- and 10,00,000/-, aggregating to Rs. 25,00,000/-, were made through cheques during the month of April, 2013. This is to demonstrate that the part-payment was made before giving possession of land to purchaser in last week of April, 2013.
(vi) Page 13 to 14 of Paper-Book – Copy of Judicial Order No. 73/A-
2/2012-13 dated 30.05.2013 [relied by AO in assessment-order] by which the diversion of land was approved. Referring to contents of order, Ld. AR submitted that the diversion was applied by purchaser
‘M/s Parsvnath Builders and Developers India Pvt. Ltd.’ as Power of Attorney Holder and not by assessee.
(vii) Page 15 to 18 of Paper-Book – Copies of challans dated 31.05.2013 of diversion fee paid. Ld. AR submitted that fee was also paid by purchaser and not by assessee.
(viii) Page 20 to 26 of Paper-Book – Copy of Bank Guarantee issued by HDFC Bank in favour of Sub-Divisional Officer (Revenue) for Page 16 of 30 – AY 2014-15 furnishing security deposit for obtaining permission of diversion. Ld.
AR submitted that bank guarantee was also obtained and submitted by purchaser and not by assessee.
Thus, on the strength of above documents, Ld. AR submitted that the assessee in fact sold agricultural land to purchaser in terms of Development Agreement dated 05.02.2013; executed Power of Attorney dated 22.02.2013 to enable the purchaser to undertake necessary exercise of diversion as the purchaser’s purpose of purchasing assessee’s land was to develop a residential colony; and also handed over possession of land to purchaser in last week of April, 2013 as is evident from Confirmatory-Letter. Thereafter, it is the purchaser who applied for diversion; made necessary financial payments; and obtained diversion from authorities on 30.05.2013. Finally, the registered sale-deeds were executed on 29.08.2013/06.03.2014. Ld. AR submitted that the entire chain of events was so undertaken that the assessee could sell its agricultural land to purchaser and fetch a proper price. Ld. AR also narrated that the assessee used impugned land for agricultural purposes till sale to purchaser and earned agricultural income also, which is very much declared in the return of income filed by assessee and accepted by AO. Further, there are copies of statutory record “Form P- II-Khasra”, attached with the registered sale-deeds, which clearly shows the agricultural crops cultivated by assessee on impugned land and also the irrigated nature of land (Paper-Book Pages 40-43). Further, in all documents including the registered sale-deeds, the impugned land is clearly mentioned
Page 17 of 30 – AY 2014-15 as ‘agricultural land’ and accepted as such by authorities. Ld. AR also pointed out that at no stage before sale to purchaser, the assessee used the impugned land for non-agricultural purpose and furthermore no developmental activity was done over impugned land before sale to purchaser.
With above submissions, Ld. AR prayed that in so far as the land sold by assessee is concerned, it was an ‘agricultural’ land only and the status of agricultural land must be accepted and since the land was not situated in the area/distance prescribed in section 2(14)(iii)(a)/(b), the capital gain arising therefrom must be held to be exempt/non-taxable. Without prejudice, Ld. AR also submitted that the capital gain arising upto the date of diversion must be accepted as arising from sale of agricultural land.
15. Per contra, Ld. DR for revenue opposed the submissions of Ld. AR with following contentions:
(i) There are various infirmities in the ‘Development-Agreement’ dated
05.02.2013 filed by assessee at Page 7-8 of Paper-Book, namely (a) in first line of agreement, the date of agreement is mentioned as ‘05.02.2013’ but at the end of agreement only ‘02/2013’ is mentioned and date is absent, (b) there is no witness on agreement, (c) the agreement is not notarized. Therefore, the agreement relied by assessee should not be recognized. On legal side, the Ld. DR also submitted the Hon’ble Supreme Court decided Suraj Lamp and Page 18 of 30 – AY 2014-15 Industries Pvt. Ltd. Vs. State of Harayana and Anr., vide order dated 11.10.2011, profoundly making serious adverse observations against the practice of making unregistered agreements and also concluding that the unregistered agreements do not have any legal recognition. He submitted that the Hon’ble Supreme Court has re- cited its earlier decision of Suraj Lamp in a recent case of R.B.A.N.M.S. Educational Institute (2025) 173 taxmann.com 586
(SC). Hence, the unregistered ‘Development Agreement’ dated
05.02.2013 made by assessee, even after decision of Suraj Lamp in Oct. 2011, does not have any legal existence also.
(ii) The ‘Power of Attorney’ dated 22.02.2013 issued by assessee in favour of purchaser is not a document making any sale or conferring any right of ownership on purchaser.
(iii) There are various infirmities in the ‘Confirmatory-Letter’ filed by assessee at Page 6 of Paper-Book, namely (a) who has signed? (b) whether the signing person had any authority? (c) date is not mentioned, (d) this confirmatory-letter was not filed before AO as the AO has nowhere discussed the same in assessment-order. Therefore, the Confirmatory-Letter should not be recognized.
(iv) That the ‘diversion order’ is in the name of assessee. Further, the ‘challans of fee paid’ are also in the name of assessee.
Page 19 of 30 – AY 2014-15 (v) That the part-consideration paid by purchaser before last week of April, 2013, was a mere advance-payment. It is further supported from the fact that the Confirmatory-Letter filed by assessee at Page 6 of Paper-Book does not contain the amount of consideration.
With above contentions, Ld. DR submitted that it is clear-cut case wherein the assessee was owner of ‘non-agricultural/diverted’ land through diversion order dated 30.05.2013 and it is that ‘non-agricultural/diverted land’ which the assessee sold to purchaser through registered sale-deeds dated 29.08.2013/06.03.2014. Ld. DR strongly submitted that the assessee did not sell ‘agricultural’ land as being claimed. Hence, the benefit of exclusion from definition of ‘capital asset’ in terms of section 2(14)(iii) is not available to assessee and the same has been rightly denied by lower authorities.
In rejoinder, Ld. AR for assessee submitted that the Confirmatory- Letter bears the seal of purchaser company and signature of director of purchaser. Further, he re-emphasized that the diversion-order as well as challans of diversion fee include the name of purchaser as ‘POA holder’.
Further, all financial payments including bank guarantee were made by purchaser and not by assessee. Therefore, the assessee sold agricultural land to the purchaser.
We have heard learned Representatives of both sides on this issue and carefully perused the orders of lower authorities as also the documents held
Page 20 of 30 – AY 2014-15 on record. The controversy between the assessee and revenue authorities is whether the land sold by assessee was agricultural or non-agricultural?
While the assessee is claiming that he sold ‘agricultural land’, the revenue authorities hold a view that the assessee sold land after obtaining diversion for residential colony and therefore the sold land was ‘non-agricultural’. So far as this controversy is concerned, we find that the assessee purchased one piece of land measuring 2.50 acres on 20.05.1992 and sold the same for Rs. 1,00,00,000/- through registered sale-deed dated 29.08.2013. Further, the assessee purchased another piece of land measuring 3 acres on 29.05.2010 and sold the same for Rs. 1,50,00,000/- through registered sale-deed dated 06.03.2014. Both of the pieces of land, aggregating to 5.50 acres, are situated at the same location. The assessee held this land for agriculture since purchase in the year 1992/2010 and it was used for agricultural purposes before obtaining diversion; this fact is not disputed by revenue. In fact, there is a statutory document “Form P-II, Khasra” attached with the registered sale-deeds showing agricultural crops cultivated on the land and also showing the irrigated nature of land (Paper-Book Pages 40 – 43). Furthermore, the assessee has shown agricultural income in the return of income of AY 2014-15 under consideration and the AO has also assessed the same without raising any objection or doubt. Therefore, the nature and use of impugned land being ‘agricultural’ is not doubted by authorities.
However, the AO and CIT(A) have merely held that since there was a diversion into non-agricultural use obtained through judicial order dated
Page 21 of 30 – AY 2014-15 30.05.2013 and the assessee sold land through registered sale-deeds dated 29.08.2013/06.03.2014 thereafter, hence the assessee sold ‘non-agriculture’ land. The Ld. AR for assessee has relied upon three documents, viz. (i)
Development-Agreement dated 05.02.2013, (ii) Power of Attorney dated 22.02.2013 and (iii) undated Confirmatory-Letter of purchaser confirming that the possession of land was handed over in last week of April, 2013.
Based on these documents, the assessee is claiming in Ground No. 3 that the sale of impugned land was completed in April, 2013. Additionally, Ld. AR has also attempted to show that the diversion was applied for, arranged and obtained by the purchaser and not by assessee. However, on a careful consideration of the pleadings made by learned Representatives of both sides which we have noted in earlier Para No. 12 to 17 of this order, we are inclined to accept the submission made by Ld. DR as noted by us in Para No.
Accordingly, we hold that the ‘Development-Agreement’ suffers from various infirmities as pointed out by Ld. DR and also the same is an un- registered document which does not have any existence in the eyes of law in terms of decision of Hon’ble Supreme Court in Suraj Lamp (supra). Further, the ‘Power of Attorney’ given by assessee to purchaser is not a document for sale of land, it only gave certain authorities to the POA holder to act on behalf of assessee. Further, the ‘Confirmatory-Letter’ also suffers from certain infirmities pointed out by Ld. DR and the same was never brought before AO. Going further, we also find that the diversion of land was obtained on 30.05.2013 and the registered sale-deeds were executed on Page 22 of 30 – AY 2014-15 29.08.2013 / 06.03.2014, after gap of several months and after receipt of full consideration from purchaser. The part payments of Rs. 10,00,000/- and Rs. 25,00,000/- made by purchaser before last week of April, 2013 are very nominal as compared to the full consideration of Rs. 1,00,00,000/- and Rs. 1,50,00,000/- and the Ld. DR for revenue has rightly claimed that they are mere advance-payments. Therefore, in the situation, it is difficult for us to accept that the assessee sold impugned land to purchaser in the month of April, 2013 as being claimed in Ground No. 3. The only rational and conceivable conclusion, having regard to various facts as discussed, is that the assessee sold ‘diverted/non-agricultural land’ to the purchaser through registered sale-deeds dated 29.08.2013/06.03.2014. Accordingly, we hold that the land was agricultural upto the date of diversion (i.e. 30.05.2013) but thereafter it became non-agricultural/diverted land.
However, so far as the treatment of assessee’s transactions for Income-tax purpose is concerned, we find that the case of assessee is well covered by pre-existing decision of ITAT, Indore in Krishna Mohan Choursiya Vs. ITO, Rajgarh (2021) 133 taxmann.com 15 (Indore – Trib.) for AY 2014-15, the relevant paras of order of ITAT are re-produced below:
“Ground Nos. 1 to 3: 2. In ground nos. 1 to 3, the assessee has challenged the finding of Ld. CIT(A) confirming the addition of Rs. 88,78,365/-made by the Ld. Assessing Officer on account of long-term capital gain on sale of land. Brief facts as culled out from the orders of Revenue Authorities are that the Assessing Officer noted that the assessee sold land for the consideration of Rs. 91 lakhs on 2-5-2013. The Assessing Officer treated the land as capital asset as per section 2(14) of the IT Act but the assessee contended that the land is agricultural, therefore, not chargeable as capital gain.
Page 23 of 30 – AY 2014-15 3. Being aggrieved, the assessee challenged the action of the Assessing Officer before the ld. CIT(A) who having gone through the facts/circumstances, material and submissions confirmed the addition. The ld. CIT(A) noted that the land is situated at a distance of 1.5 km. from the bus stand, Kurawar Gram Panchayat, therefore, the land is a capital asset. Ld. CIT(A) further noted from the perusal of sale deed that the sold land was diverted land for the purpose other than agricultural, therefore, the land is capital asset and thus, the distance from municipality or gram panchayat had no bearing. The ld. CIT(A) also noted that the Assessing Officer recorded the statement of the assessee during the course of assessment proceedings wherein in reply to question nos. 2 and 15, the assessee admitted that the land has been transferred for the purpose of developing residential plots. Still aggrieved, the assessee is in appeal before this Tribunal.
Ld. Counsel for the assessee, reiterating the submissions made before Revenue Authorities, submitted that the capital gain accruing to the assessee till the date of diversion of land is exempt from tax as the land in question was not a capital asset as per the provision of section 2(14)(iii) of the Act till the date of its diversion.Thereafter, capital gain computed considering the fair market value of land on the date of diversion of Rs. 68,90,415/- comes to NIL and as such, no capital gain is chargeable to tax in the hands of the assessee during the AY 2014- 15 in respect of sale of land in question.
5. Per contra, ld. Sr. DR relied upon the orders of the Revenue Authorities.
We have heard rival contentions of both the parties and perused material available on record. We find that the assessee purchased agricultural land situated at Survey no. 83, Village Lasudalya Ramnath, Halka no. 58, Village Kurawar, Narsinghgarh, Rajgarh admeasuring 2.529 hectares during the FY 1978-79. The assessee also purchased agricultural land situated at Survey no. 82/6, Village Lasudalya Ramnath, Halka no. 58, Village Kurawar, Narsinghgarh, Rajgarh admeasuring 0.772 hectares during the FY 1988-89. Out of the agricultural land situated at Survey no. 83 admeasuring 2.529 hectares, agricultural land admeasuring 2.312 hectares was diverted on 25-11-2010 and out of the diverted land, land admeasuring 1.147 hectares was sold during the year. Similarly, agricultural land situated at Survey no. 82/6 admeasuring 0.772 hectares was diverted on 25-11-2010 and out of the diverted land, land admeasuring 0.368 hectares was sold during the year. Thus, the assessee sold 1.515 hectares (1.147 hectares + 0.368 hectares) of diverted land during the year for a consideration of Rs. 91,00,000/-. The assessee filed the following details: XXX From the perusal of the above, we find that agricultural lands purchased during the FYs 1978-79 and 1988-89 were rural agricultural lands and were not capital assets as per section 2(14)(iii) of the Act as all these documentary evidences filed by the assessee and contents appearing therein have not been Page 24 of 30 – AY 2014-15 found to be incorrect by the Revenue Authorities at any stage. The Revenue Authorities made/confirmed the addition on account of long-term capital gain on sale of land merely on the basis of sale deed wherein it was mentioned that the sold land was diverted land and therefore, the sold land, being non-agricultural land, fell under the definition of capital asset u/s 2(14) of the IT Act, 1961.But, the Revenue Authorities failed to note that the assessee never disputed the fact that the land sold by the assessee was a diverted land. The only contention of the assessee was that the agricultural land which was initially purchased by the assessee was a rural agricultural land till the date of diversion i.e. till 25-11-2010 and as such, capital gain till the date of diversion was not liable to be taxed. Therefore, the only issue which requires consideration now is whether the land initially purchased by the assessee was a rural agricultural land and if it was so, how much of the amount of capital gain shall be treated as exempt on that count. We find that the Assessing Officer observed that the land sold by the assessee was situated at a distance of 1.5 km (approx.) from the bus stand of kurawar gram panchayat having population of more than 10,000. Thus, the Assessing Officer was of the view that the land in question was already a capital asset and there would be no impact of distance of land and accordingly, provisions of section 2(14)(iii) of the Act shall not be applicable to the facts of the present case. On the other hand, the Ld. Counsel for the assessee categorically emphasized that section 2(14)(iii) of the Act refers to inclusion as capital assets of agricultural land situated in India within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand. Ld. Counsel for the assessee reiterated that land in question was situated within the jurisdiction of a panchayat and not within the jurisdiction of a municipality and that panchayat is to be understood as distinct and different from municipality. For ready reference, the provision of section 2(14)(iii) of the Act are reproduced hereunder: — 2. ……….. (14) "capital asset" means— ………...... but does not include— ………….. (iii) agricultural land in India, not being land situate— (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand; or (b) in any area within the distance, measured aerially,—
Page 25 of 30 – AY 2014-15 (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or (III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh. Explanation.—For the purposes of this sub-clause, "population" means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year; On perusal of records filed before us, we find that the land in question was situated at a distance of 2.5 kms from the panchayat office of Village Lasudalya Ramnath which is a gram panchayat having a population of 4,115 as per the census of 2011. Further, distance of Village Kurawar from Village Lasudalya Ramnath was 4 kms which is also a gram panchayat and both Village Lasudalya Ramnath and Village Kurawar are gram panchayats and these villages are neither municipalities nor cantonment boards. Hon'ble Madras High Court in the case of CIT v. P.J. Thomas [1995] 211 ITR 897 (Mad.) has held that: " ___________Even as regards the second question, it is seen that under section 2(14) of the Income-tax Act, 1961, the exclusion of agricultural land as capital asset, would be applicable to land within the limits of a municipality and not a panchayat. The land sold by the assessee was situate in Koshancherry town and that was only a panchayat. Though learned counsel for the Revenue strenuously contended that a panchayat would also be comprehended within section 2(14) of the Income-tax Act, 1961, we are unable to accept the contention. Section 2(14)(iii) refers to the exclusion as capital asset of agricultural lands situate in an area which is comprised within the jurisdiction of a municipality (whether known as municipality or municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment, which has a population of not less than 10,000 according to the last preceding census. In order that the benefit of exclusion of agricultural land as capital asset may not be available, the land should be situated within the jurisdiction of a municipality or a cantonment board as stated earlier and is also related to the population. Though the expression, "municipality, municipal corporation, notified area committed town area committee, town committee", etc., have been used they refer only to certain specific entities either known by that name or by any other name and that cannot be taken to apply to a panchayat which is and has also always been understood as distinct and different from Page 26 of 30 – AY 2014-15 municipality, etc. In the absence of clear or specific words in the section to take in a panchayat, we are unable to countenance the argument of learned counsel for the Revenue. We are satisfied that the Tribunal was quite justified in deleting the tax arising on capital gains on account of the sale of the agricultural lands by the assessee. The tax case petition is dismissed. There will be no order as to costs." In light of the facts reiterated above and after going through the findings of the Hon'ble Madras High Court (supra), we find that there is a clear distinction between a municipality and a gram panchayat as also enunciated in the judgment (supra), therefore, we are of the view that the land in question was not situated within the limit of any municipality or cantonment board. Thus, in view of these facts and circumstances of the case, we find that the agricultural land initially purchased by the assessee was not a capital asset as per section 2(14)(iii) of the Act. Accordingly, the amount of capital gain accruing to the assessee till the diversion of agricultural land on 25-11-2010 shall not be eligible to tax. Further, for the purpose of computation of the amount of capital gain that shall be exempt from tax, the assessee submitted that fair market value on the date of diversion shall be considered as full value of consideration and such fair market value shall be considered as cost for determination of the amount of capital gain chargeable to tax subsequent to diversion of land. The assessee filed detail regarding rate of compensation determined by the Government in respect of compulsory acquisition at Page No. 64 of the paper book for determination of fair market value of land. The fair market value of land determined by the Government was Rs. 48,00,000/- per hectare. The assessee sold land admeasuring 1.515 hectares during the year and thus, fair market value of the said land as on the date of diversion was Rs. 72,72,000/- (Rs.48,00,000/- × 1.515 hectares). Alternatively, the Ld. Counsel for the assessee submitted that fair market value shall be determined on the basis of reverse indexation method. The fair market value of land computed on the basis of reverse indexation method comes to Rs. 68,90,415/-. The reverse indexation method for determination of fair market value of a capital asset is duly accepted and approved in the following judgments: • DeenDayal Rathi v. ITO [SA No. 25 (Jodh.) of 2013, dated 4-4-2013] • Prem Bhai Kanji Bhai Tandel v. ITO [IT Appeal No. 192 (Ahd.) of 2016, dated 30-8-2016 • Dy. CIT v. Rajendra Kumar Singhvi [IT Appeal No. 313 (Jodh.) of 2010, dated 10-7-2013 • Dashrathbhai G Patel v. Dy. CIT [2020] 116 taxmann.com 229/182 ITD 327 (Ahd. - Trib.) • Smt. Mina Deogun v. ITO [2008] 19 SOT 183 (Kol.) • Pfizer Ltd. v. Dy. CIT [2015] 56 taxmann.com 260/153 ITD 433 (Mum.)
Page 27 of 30 – AY 2014-15 • CIT v. AshvenDatla [2013] 37 taxmann.com 261/218 Taxman 74 (Mag.) (AP) On consideration of above, we find force in the contention of the ld. Counsel for the assessee that fair market value of land as on the date of diversion i.e. on 25-11-2010 shall be taken as Rs. 68,90,415/-. Thus, in our view, as discussed supra, capital gain accruing to the assessee till the date of diversion using fair market value of Rs. 68,90,415/- shall be exempt from tax. Further, we are of the view that fair market value of Rs. 68,90,415/- as on the date of diversion shall be considered as cost of acquisition for the purpose of determination of the amount of capital gain chargeable to tax during the year under consideration. The indexed cost of acquisition of land comes to Rs.91,00,000/- for the FY 2013-14 (AY 2014-15) which is as under: Fair market value of land as on 25-11-2010 i.e. during FY 2010-11 which is considered as cost of acquisition for the purpose of computation of capital gain - Rs. 68,90,415/- Cost inflation index for the FY 2010-11 - 711 Cost inflation index for the FY 2013-14 - 939 Indexed cost of acquisition - Rs. 91,00,000/- (Rs.68,90,415/- × 939/711) Sale consideration - Rs. 91,00,000/- Thus, effectively there shall be no capital gain chargeable to tax in the hands of the assessee during the AY 2014-15 in respect of sale of land in question. The capital gain accruing to the assessee till the date of diversion of land is exempt from tax as the land in question was not a capital asset as per the provision of section 2(14)(iii) of the Act till the date of its diversion. Thereafter, capital gain computed considering the fair market value of land on the date of diversion of Rs. 68,90,415/- comes to NIL and as such, capital gain is chargeable to tax in the hands of the assessee. In view of these facts in the light of the judicial pronouncements (supra), we are of the view that the findings of ld. CIT(A) deserve to be set aside and accordingly, we delete the addition of Rs. 88,78,365/- made on account of long-term capital gain on sale of land. Thus, ground nos. 1 to 3 raised in the appeal of the assessee are allowed.” [emphasis supplied] 20. Therefore, respectfully adopting the pre-existing view of ITAT, Indore we too hold that the ‘fair market value of land as on the date of diversion’ i.e. on 30.05.2013 shall be computed and the capital gain accruing to the assessee till the date of diversion using such fair market value shall be Page 28 of 30 – AY 2014-15 exempt/non-taxable. Further, we are of the view that such ‘fair market value of land as on the date of diversion’ shall be considered as ‘cost of acquisition’ and shall be deducted from sale consideration of Rs. 1,00,00,000/- and Rs.
1,50,00,000/- for the respective transactions of sale for the purpose of determination of the amount of capital gains chargeable to tax during the year under consideration arising from ‘diverted/non-agricultural’ land. For this working, there is a necessity of ascertaining ‘fair market value of land as on the date of diversion’ i.e. on 30.05.2013 which the AO would do with the support of Valuation Officer. Hence, we remand this matter back to the file of AO for carrying out necessary exercise and pass order afresh in tune with the above view. Needless to mention that the AO shall also grant necessary opportunities of hearing to assessee and consider the submissions as may be made by assessee to him.
Ground No. 2:
In this ground, the assessee claims that the exemption u/s 54B be allowed.
As we have held that the capital gain relatable to ‘agricultural land’ upto the date of diversion shall be exempt/non-taxable, there would be no necessity for assessee to claim exemption u/s 54B against such portion.
Further, since we have held that the capital gain after the date of diversion shall be chargeable to tax during the year under consideration as arising from ‘diverted/non-agricultural land’, the exemption u/s 54B would not be Page 29 of 30 – AY 2014-15 available to assessee against such portion because the section 54B grants exemption only against capital gain arising from agricultural land.
Consequently, the Ground No. 2 raised by assessee become infructuous and dismissed therefore.
Resultantly, this appeal is allowed for statistical purposes.