KUSUM YADAV,INDORE vs. ITO 1(2), INDORE

This appeal has been filed by the assessee against the order of the ld. CIT(A) passed u/s 250 (6) of the Act, 1961, dated 30.11.2023 for A.Y. 2014-15 which has emanated from the order of the AO Ward-1(2), Indore dated 13.12.2019 passed u/s 143(3)/263 of the Act 1961( hence forth referred to as the Act ).

2. The grounds of appeal taken by the assessee in Form No. 36 are as follows:

“1 That the learned CIT(A) erred in dismissing the ground of wrong invocation of provisions of Section 263. That invocation of section 263 was illegal and wrong, the order passed u/s 143(3)/263 may very kindly be quashed.

That the invocation of provisions of Section 263 being illegal and wrong, the order passed u/s 143(3)/263, therefore may very kindly be quashed.

3 That the learned CIT(A) erred in confirming addition of Rs.39,83,693/- made by the AO as alleged short term capital gain. That the land being rural agricultural land was not a’ capital asset as per provision of Section 2(14)(iii). The addition made, therefore may very kindly be deleted.

4 That the learned CIT(A] erred in maintaining addition

Rs.20,00,000/- made u/s 68. The addition so made being illegal and wrong, the same may very kindly be deleted.

5 That the learned C1T(A) erred in maintaining addition u/s 68 of Rs.20,00,000/- inspite of the fact that since the assessee does not maintain any books of account, the question of addition of Rs.20,00,000/- u/s 68 does not arise. The addition so made may very kindly be deleted.”

4.1 The said land was purchased by the assessee on 07.09.2010 (as fifty percent co-owner ) cost of acquisition being Rs.35,49,075/- , a part of which ( measuring 8,070 sq ft land area ) has been sold now , on 05.06.2013 ( proportionate cost of acquisition determined at Rs.6,26,307/- ) within a time frame being less than a period of three years, resulting in short term capital gains. The government value of the said sale ( circle rates ) adopted by the registration authorities was Rs.74,10,000/- ( assessee portion ), resulting in short term capital gains of Rs. 67.83 lakhs (Rs.74,10,000/- minus Rs.6,26,307/-) .

Further, the assessee during the year under consideration has purchased another agricultural plot of land on 05.09.2013 for Rs.28 lac ( twenty eight lakhs ) and has claimed deduction u/s 54B of the Act 1961 and after allowing the said deduction, short term capital gains has been determined by the AO at Rs.39,83,693/-.

The claim of the assessee on this issue is that since it is a sale of rural agricultural land, the said land sold , does not fall under the definition of capital asset and as such, the capital gain on such sales, will be NIL, because the land is situated more than eight km ( 8 kilometre ) outside local municipal limit where the population of the areas is less than ten thousand .

4.2 The second issue in this case, is that an amount of Rs.20 ( twenty ) lacs has been deposited by the assessee in cash in his bank account during the FY , which according to the assessee has been received from one Mr. Rajesh Patidar , as advance , against an agreement for sale of agricultural land executed on 4th April, 2013 in between the parties. However, the said sale of agricultural land did not materialise ( because of the inability of the proposed buyer to pay the entire amount as per agreement ) and the agreement has been cancelled ( vide separate deed of cancellation on 21st May, 2013 ), and subsequently the said amount of Rs.20 lakhs lying with the assessee has been refunded to the proposed buyer Mr. Rajesh Patidar partly through bank and partly in cash. In course of assessment proceedings , enquiries were conducted by the AO and summons u/s 131 of the Act were issued on the said Mr Rajesh Patidar and also on both the witnesses stated in the agreement for sale , and in absence of any response from any one, coupled with the assessee’s inability to physically produce either of them , before the AO , the cash deposit of Rs.20 lakhs in bank account , claimed to have been deposited by the assessee , out of receipts from Mr Patidar , has been disbelieved and added back u/s 68 of the Act as unexplained deposit .

“9. Ground No. 2 and 3 are effectively agitating the addition made to the tune of Rs. 39,83,693/- by the Assessing Officer on account of short-term capital gains. 9.1. Apparently, the Assessing Officer has worked out the taxable short term capital gains at Rs.67,83,693/- being the net of market value as per the registration authorities fixed at Rs.74,10,000/- minus the cost of acquisition of the said land at Rs.6,26,307/- Out of the net taxable short term capital gains, the AO has allowed deduction to the tune of Rs.28,00,000/- u/s.54B of the Act after verifying the details. The only dispute here is whether the lands involved were a capital asset within the meaning of Section 2( 14)(iii) of the Act or otherwise. 9.2. The assessment order, the averments made by the appellant in this regard and the material available on the record were carefully gone through. Claim of the appellant is that the land being agricultural rural land situated beyond 8 kilometers from the limits of municipality and therefore the same was not liable to capital gain tax. 9.3. To resolve this controversy it is relevant to discuss the provisions of section 2(14)(/77) of the LT. Act, 1961 which defines the agricultural land and reads as under "‘Agricultural land’ in India, not being land situate— (a)ln any area which is comprised within the jurisdiction of a municipality (whether known as 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 according to the last preceding census of which the relevant figures have been published before the first day of previous year; or (b) ln any area with such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant considerations, specify in this behalf by notification in the Official Gazelle." 9.4. In the instant case, it is not in dispute that the land in question was situated beyond the limits of Municipal Ward No.79 ie. Sukhniwas and situated in the village Hukmakhedi. The Assessing Officer also did agree that the impugned lands are situated beyond 8 kms from the municipal limits. The contention as per the Assessing Officer is that the averment of the appellant assessee stating that the population of Gram Hukmakhedi was 2500 for F.Y.2013-14 is not correct and as per the Census 2011 itself the population of Hukmakhedi Village was 10165 and it was a town situated in Indore district. It is further noticed from the assessment order that the village Hukmakhedi itself is in Municipal Ward No.79 ie. Sukhniwas w.e.f.01-04- 2013. On the contrary, the appellant rests her case solely on the certificate from Gram Panchayat Hukmakhedi dated 01-04-2013 stating that the land is situated beyond 8 kilometer from the limits municipality and the population was 2500 during the F.Y.2013-14. The census data for 2011 is verified and it is ascertained that the total population of Hukmakhedi Gram Panchayat was 10165 as on 2011. A screenshot of the data from the official census data of government of India is extracted as under: 9.4.1 Thus, the averment of the appellant that the population of the Gram Panchayat is below 10,000 cannot be accepted. 9.5. As per the sub-clause (a) of clause (///) of section 2(14) it is clear that- the agricultural land in India means the land which is not situated in any area which is comprised within the jurisdiction of "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." From the above, it is clear that following two conditions should be fulfilled to qualify to consider the land in question as an agricultural land. (1) the land should not be situated in the jurisdiction of Municipality/ Municipal Corporation, etc. (2) the population should be less than ten thousand. 9.6. In the instant case the first condition is apparently fulfilled based only on the certificate claimed to have been issued from Gram Panchayat Hukmakhedi dated 01.- 04-2013, but the second condition is not fulfilled as the land in question is situated in a village, whose population 10,165 as per Population Census 2011. Now the question arises as to whether both the conditions should be fulfilled or any of the condition is sufficient to consider the land as agricultural land or non-agricultural land. To overcome this controversy, it is relevant to discuss the judgment of the Hon’ble Supreme Court in the case of G.M. Omer Khan which the Assessing Officer has also relied upon in the assessment order wherein-the facts were that Mr. G.M.

Omer Khan was owner of the property known as Khader Bagh comprising buildings and land measuring more than 45 acres. That property was situated in a village which had population of less than ten thousand but that village was part of the Hyderabad Municipality. The land was acquired by the Government. The appellant claimed inter alia that land was agricultural land and it was not a capital asset because it was situated in a village with a population of less than ten thousand. The Hon’ble Andhra Pradesh High Court in its judgment in Addl. CIT v. G.M. Omarkhan [1979] 116 ITR 950 held as under: "Municipality may comprise of several localities, areas, villages or wards. The moment they fall within the area of a municipality, the assets situate in that village or area fall within the meaning of "capital asset" as defined under section 2(14)(iii) of the I.T. Act. Though the village, Gudimalkapur, is known by its distinct name and population of that village is less than 10,000 the same being constituent of the Hyderabad Municipality, the lands situate in the said village are attracted by section 2(14)(iii)(a) of the Income-tax Act. What has to be taken into consideration is not the population of each constituent part of ward of a municipality but the population of the Municipal Corporation or cantonment board as a whole". 9.7. The Hon’ble Supreme Court has affirmed the judgment of the Hon’ble Andhra Pradesh High Court in the aforesaid referred to case. The Hon’ble Supreme Court in the said case also approved the judgment of the Hon’ble Madras High Court in the case of S. Hidhayathullah Sahib (supra) wherein the Hon’ble High Court had observed as under: "A close reading of section 2(14)(iii)(a) suggest that it is the population of the municipality that has to be taken into account for the purpose of that section and not the population of any area within the municipality. If the Legislature meant to fix a minimum limit of population of any area within the municipality of cantonment board, it would have specified a particular area, such as village, ward, street, etc., and since the Legislature had left the area in a municipality undefined, it would have prescribed the limit of population such as unspecified or undefined or undefined area within the municipality." 9.8. The Hon’ble High Court further held: "That the expression "which has got a population of more than 10,000 in section 2(14)(iii)(a) would qualify only "the municipality or cantonment" and not the expression "area" and therefore, the capital gains arising out of the sale of the land in question could not be exempted under section 2(14)(iii)(a)." 9.9. From the above, ratio laid down by the Hon’ble Andhra Pradesh High Court, Hon’ble Madras High Court and the Supreme Court, it is crystal clear that the expression ‘which has got a population of more than 10,000, under section 2(14)(iii)(a) would qualify only the municipality and cantonment and not the expression ‘area’. No contrary judgment of the Hon’ble Apex Court was cited by the appellant. Therefore, in view of the aforesaid judgment of the Hon’ble Apex Court on this issue, it has to be held that the capital gain earned by the assesses in the present case cannot be considered as exempt since the land situated in the village Hukmakhedi which is despite falling beyond 8 kms from the limits of Municipality Ward No.79, but has a population of more than ten thousand and as such the agricultural land was a capital asset within the meaning of section 2(74)(/77) of the I.T. Act and was liable to be taxed on the capital gain arising out of the sale proceeds of that land. In view of the above discussion, Ground No. 2 & 3 are dismissed.”

“12.Under the circumstances, it is well established that the prima facie onus is always on the assessee to prove the cash credit entry found in the books of account of the assessee. The law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee, is on him. Where the nature and source thereof cannot be explained satisfactorily, it is open to the Assessing Officer to hold that it is the income of the assessee and no further burden is on the revenue to show that the income is from any particular source. It may also be pointed out that the burden of proof is fluid for the purposes of Section 68. Only after the assessee has submitted basic documents relating to identity, genuineness of transaction and creditworthiness, then AO can conduct some inquiry to call for more details to invoke Section 68.

13. In the instant case, admittedly the appellant has identified the source of the amount i.e. From one Sri. Rajesh Patidar and attributed the receipt as share application money. However, that doesn't absolve the appellant from satisfying the three conditions stipulated under Section 68 of the Act.

13.1. In the case of Sumati Dayal v. CIT [1995] 80 Taxman 89/214 ITR 801 Hon’ble Supreme Court held that: "if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory, there is prima facie evidence against the assessee, vis., the receipt of money, and if he fails to rebut the same, the said evidence being unrebutted can be used against him by holding that it is a receipt of an income nature. While considering the explanation of the assessee, the department cannot, however, act unreasonably". 13.2. In CIT v. P. Mohankala [2007] 161 Taxman 169/291 ITR 278 the Apex Court held that: 'A bare reading of section 68 of the Income- tax Act, 1961, suggests that (i) there has to be credit of amounts in the books maintained by the assessee; (ii) such credit has to be a sum of money during the previous year; and (Hi) either (a) the assessee offers no explanation about the nature and source of such credits found in the books or (b) the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory. It is only then that the sum so credited may be charged to Income-tax as the income of the assessee of that previous year. The expression "the assessee offers no explanation" means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The burden is on the assessee to take the plea that, even if the explanation is not acceptable, the material and attending circumstances available on record do not justify the sum found credited in the books being treated as a receipt of income nature.' 13.3. In this regard, further reliance is placed on in the case of C.V Ravi Vs. Income-tax Officer in [2021] 129 taxmann.com 44 (SC). In the said case, involving A.Y. 2009-10, the Assessee therein had claimed to have taken loan of huge amount from an entity. Assessing Officer held that said loan received by assessee was bogus and accordingly, made additions under section 68 to income of assessee. The Hon’ble High Court by impugned order held that since assessee had failed to produce any confirmation from said alleged creditor or produce its owner in person for cross- examination and also failed to establish identity of creditor and genuineness of alleged loan transaction, impugned additions under section 68 was justified. Upon considering the question as to Special Leave Petition against said impugned order was to be dismissed, Honourable Supreme Court held the matter in favour of revenue and dismissed the Special Leave Petition. 13.4. Reliance is also placed on a more recent judgement dated 06-04-2023, where Hon’ble Supreme Court has dismissed the SLP filed by the appellant against the order of the Hon’ble High Court of Allahabad in [2023] 152 taxmann.com 346 (SC) in the case of Rupal Jain vs. Commissioner of Income tax. The matter involved therein was, after the Hon’ble High Court held that where assessee though had disclosed source of deposit but could not establish nature thereof, three conditions required to be proved by assessee as per section 68 could not be proved and thus, such deposit was rightly treated as unexplained credit under section 68, whether SLP was to be dismissed against impugned order of High Court, the matter was decided in favour of the Revenue, wherein the Supreme Court dismissed the SLP filed by the appellant.

9. Ground number - 3 relates to the issue of addition of Rs. 39,83,693/- on account of capital gains arising on sale of land, which the assessee has claimed to be sale of rural agricultural lands and the same being not covered by the definition of “ capital asset” , as per provisions of section 2(14)(iii) of the Act 61 , the addition is disputed by the assessee , being wrongly made on the basis of incorrect assumption of facts and law.

10.1 It is submitted by the Ld AR , that the AO has proceeded on incorrect assumption of facts that the said land situated in the village of Hukmakhedi falls under Indore Municipal ward No. 79, Sukhniwas, ( as observed by AO in page -3 para 3.1 of assessment order ) , when actually it is not, and subsequently, after examining all materials on record the Ld CIT ( A ) in his order appellate order, has admitted the fact, that the said land is situated beyond eight km of the municipal limits of Ward No 79 ie Sukhniwas , and is located in the village Hukmakhedi ( page – 35 para 9.4 of appeal order ).

10.2 Thereafter, the Ld. CIT (A) relying on the Hon’ble Apex court judgment in the case of CIT vs G M Omer Khan reported in 116 ITR 950, arrived at a conclusion that the population of Hukmakhedi, is 10,165 ( which is more than the ten thousand limit) as prescribed in clause (iii)(a) of Section 2(14), and as such the land sold is a “capital asset”.

10.3 On this issue the Ld. AR submitted that the facts of the case cited by the first appellate authority CIT vs G M Omer Khan( supra ) , is entirely different, because in that case, the concerned village fell within the municipality of Hyderabad, and the plea of the assessee, in cited case, was that even though his village was falling in the municipal area of Hyderabad , it retained its identity as a village and hence the word “any area” as mentioned in sub clause (a) of section 2(14)(iii) , is to stand apart for the purpose of the section, a plea which was ultimately dismissed by the Hon’ble Court , but in the instant case, before us , under appeal, it is to be noted that the village Hukmakhedi was itself outside the municipal limits of Indore ( and was never an area within the Indore municipality ), on the date of sale and as such it is the population of the village that is to be taken into consideration ( stated to be 2500 by the gram panchayat ) and not the population of the municipality as a whole.

10.4 The Ld. AR further pointed out that the observation of the AO ( in page – 3 of assessment order ) is factually incorrect , where it is observed , that the village Hukmakhedi is in municipal ward – 79 , Sukhniwas , with effect from 1st April, 2013, and since the agricultural land is situated in village which comes within a municipality , then the population of the municipality is to be considered ( and not the population of the village ) and according to the AO , since the population of the municipality is more than ten thousand , the land in dispute is a capital asset.

10.5 On this issue the Ld. AR of the assessee, clarified the misconception , referred to in the notification published in the Madhya Pradesh Gazette , ( placed in pb page 56 to 59 ) dated, Bhopal the 20th November, 2014 , where in exercise of the powers conferred by section 405(3) of the Madhya Pradesh Municipal Corporation Act 1956 ( no 23 of 1956 ) the Hon’ble Governor of Madhya Pradesh, has included the whole of the area of village Hukmakheri , within the limits of INDORE town with effect from the date of publication of the notification in the Madhya Pradesh gazette , and the date of publication is 20th November, 2014. (The notification was in public domain on the date of the assessment order in December, 2019). 10.6 As such, the AR submitted that the factual aspect is very transparent , that prior to 20th November, 2014 , the village land was never within Indore municipality and in the instant case the sale transaction was effected during FY 2013-14 , vide registered deed of conveyance , much earlier to the effect of the above notification , and as such for all practical purpose the said land was village land outside municipal limits of more than eight km and population count of the village was only 2500 , and does not qualify as a capital asset , on the date of sale and he prays that the addition on account of capital gains sustained by the first appellate authority on incorrect assumption of facts may please be deleted.

(v) Anandram Raitani Vs. CIT 223 ITR 544 (Gau)

(vi) Baladin Ram Vs. CIT 7 ITR 427 (SC).

12.2 He rests his arguments praying for deletion of the addition of Rs.20 lakhs, made u/s 68 of the Act 61.

14. Regarding the issue of the advance of Rs. 20 lakhs received from Mr Rajesh Patidar, against the agreement for sale of agricultural land and its subsequent cancellation he relied on the findings of the AO and submitted that original documents were never produced and even though the identity of the person is established the creditworthiness of the concerned person is not established considering the fact that the sale agreement was cancelled within 46 days and under the circumstances the basic necessity was enquiry and verification of the proposed buyer for which notices u/s 131 was issued along with notice for examination of witness , but unfortunately the same could not be done , because of non-appearance of the persons on the date of hearing , resulting in the disallowance . He prayed for sustaining the appellate order.

15.1 We find from the gazette notification No 110-F-1-3-2012-XVIII-3 published in M P Gazette , dated 20th November, 2014, ( a copy of which is made a part of the order ) the intention to include certain areas within the limits of Indore town was published on 17th February, 2012 u/s 405(1)of the Madhya Pradesh Municipal corporation Act 1956 and a public notice was also published in local newspapers on the 6th of February, 2014, and the villages of Hukmakhedi and sukhniwas ( appearing in serial no 11 and 12 of the notification ) were also a part of the said notice .

15.2 In respect to the said public notice, objections were raised by effected residents before the collector, as per provisions of section 405(2), of the MPMC Act 56, and after duly considering the said objections the Hon’ble Governor has passed the order u/s 405(3) , including the area as specified in schedule-1, contained in the Madhya Pradesh Gazette, to fall within the limits of Indore town . However, it is specifically stated that this notification shall come into force from the date of its publication in the Madhya Pradesh gazette, and the date of publication in this case is 20th November, 2014. We also take note that the earlier intention to include certain areas , published in the Gazette on 17th February, 2012, cannot be accepted as the valid date of publication , because the same was published in violation of the provisions of section 405(2) of the said Act 56, without considering the objections submitted to the Collector and the publication dated 20th November, 2014 , is done after considering the objections submitted to the Collector and complying with proper procedure in terms with section 405(2) and 405(3) of the Act 1956.

Patidar) or any of the witness mentioned in the agreement, due to delayed submission of the notice. We also find that the notice for personal appearance was issued with a time gap of four days which is not as per proper SOP and thereafter the order has been passed within a period of seven days from the date of issue of notice, which violates the principles of natural justice. We are of the opinion that in the instant case proper opportunity was not granted to the assessee and the creditor Mr Rajesh Patidar, to explain his case, and as a result we set aside this ground back to the jurisdictional AO, for fresh consideration and order, only in respect of this ground of appeal, after affording proper and reasonable opportunity of being heard to the assessee. This two grounds of appeal No 4 and 5 and set aside back to the JAO for fresh adjudication on merits. As a result, these two grounds are allowed for statistical purpose. partly allowed

Order pronounced on 24.04.2025 under Rule 34(4) of the Income Tax Appellate Tribunal Rules 1963.