JANNO,JAIPUR vs. ITO, ALWAR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR Jh HkkxpUn] ys[kk lnL; ds le{k BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER vk;dj vihy la-@ITA No. 776/JP/2016 fu/kZkj.k o"kZ@Assessment Year : 2011-12 cuke Smt. Janno The ITO Vs. W/o late Shri Mamman Khan Ward- 1(2) R/o Village Tuleda, Distt. Alwar Alwar LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AZJPJ 9511 B vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@Assessee by: Shri P.C. Parwal , CA jktLo dh vksj ls@ Revenue by :Smt. Poonam Rai, DCIT- DR lquokbZ dh rkjh[k@ Date of Hearing : 08/02/2017 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 15/02/2017 vkns'k@ ORDER PER BHAGCHAND, AM The assessee has filed an appeal against the order of the ld. CIT(A), Alwar dated 28-06-2016 for the assessment year 2011-12 raising therein grounds of appeal as under:- ‘’1. The ld. CIT(A) has erred on facts and in law in upholding the validity of order passed u/s 147 even when the notice u/s 148 is not served on the assessee

2 ITA No. 776/JP/2016 Smt. Janno vs. ITO, Ward- 1(2), Alwar 2. The ld. CIT(A) has erred on facts and in law in allowing the indexed cost of acquisition and improvement at Rs. 7,46,508/- as against Rs. 12,02,592/- claimed by the assessee.

2.1 Apropos Ground No. 1 of the assessee, the facts as emerges from the order of the ld. CIT(A) is as under:- ‘’4.5 I have perused the assessment order as well as remand report of the AO, submissions made including judicial citations given therein and find that the AO has issued notice to the appellant before initiating reassessment proceedings. Notices issued by the AO were refused to be received by the appellant. Her son and co-owner of the property attended the proceedings once in his case and filed the details of the property sold by them. Reassessment proceedings were started on the basis of material available on record.

4.6 However, the case law relied on by the appellant does not have applicability to the facts of the case as the service of notice was duly effected. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an in-built idea of fairness to taxpayer (Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 291 ITR 500 (SC). In determining whether commencement of reassessment proceedings is valid, the Court has only to see whether there is prima facie some material on the basis of which the Department opened the case. The sufficiency or correctness of the material is not a thing to be considered at this stage as held by the Supreme Court in the case of Raymond Woollen Mills Ltd. vs. ITO (1999) 236 ITR 34 (SC), Great Arts (P) Ltd. vs. ITO (2002) 257 ITR 639 (Del.). The assessee cannot challenge

3 ITA No. 776/JP/2016 Smt. Janno vs. ITO, Ward- 1(2), Alwar sufficiency to belief – ITO vs. Lakhmani Mewal Das (1976) 103 ITR 437 (SC)

4.7 Hon'ble Supreme Court has laid down in the case of Kelvinator India 320 ITR 561 that AO has power to reassess, only if there is a tangible material and the procedure laid down in the case of GKN Drivershaft has been followed by the AO. The AO has discharged the duty which lay upon him before initiating the reassessment proceedings.

4.8 Thus in view of these facts, I hold that AO had rightly initiated the proceedings u/s 147/148 of the I.T. Act.’’

2.2 After hearing both the parties and perusing the material available

on record, I find no merit in the arguments advanced by the ld. AR of the

assessee at the time of hearing before the Bench. Hence, the Ground No.

1 of the assessee is dismissed.

3.1 As regards Ground Nos. 2 and 3 of the assessee, the facts as emerges from the order of the ld. CIT(A) is as under:-

‘’5.12 As regards the issue of cost of acquisition is concerned, the AO in his remand report after examining in detail the evidence filed by the appellant has accepted that fair market value (FMV) as on 01-04-1091of the property based on DLC rates comes to Rs. 69,015/- per bigha. The appellant has claimed cost of acquisition at Rs. 60,483/- as on 01-04-1981 which has been accepted by the AO for indexation purposes. Further, with regard to the claim of the appellant for having paid settlement cost of Rs. 10 lacs which was paid before the Court of District Collector on 02- 0320, the proportionate share of each co-owner (1/7) of Rs.

4 ITA No. 776/JP/2016 Smt. Janno vs. ITO, Ward- 1(2), Alwar 1,42,857/- in F.Y. 2008-09 has been accepted by the AO for indexation. Besides, the proportionate share of agriculture custodian cost of Rs. 9,93,678/- paid to Government of Rajasthan on 29-06-2010 in which each co-owner (1/7) share of Rs. 1,41,953/- in F.Y. 2010-11 has been accepted by the AO for indexation. The claim of land leveling expenses of Rs. 20,000/- having incurred by the appellant was found by the AO to be without any supporting evidence and hence was rejected.

5.13 Considering the above facts as stated by the AO in the remand report, I hold that the cost of acquisition and cost of improvement as computed by the AO have to be taken into account for computation of Long term capital gains on sale of land. In the absence of any evidence being filed by the appellant in the cross reply, I reject the claim of land leveling expenses made by the appellant.

5.14 As regards the claim of deduction u/s 54 of the I.T. Act is concerned, the AO in his remand report has stated that the appellant is entitled to the claim of deduction under this section to the extent of investment made by her for purchase of agricultural land in her name, solely or jointly. The appellant in this case has purchased agricultural land for Rs. 9,00,100/- on 01-10-2010 for which claim of deduction uu54B of the I.T. Act has been accepted by the AO. Further, appellant has purchased land of Rs. 5,20,050/- on 26-08- 2006 for which claim of deduction u/s 54B of the I.T. Act has not been accepted by the AO in the remand report. No deduction will be available to the appellant for the land purchased in her name in F.Y. 2006-07 as the provisions of sub-section (1) of Section 54B of the I.T. Act require that investment of Long term capital gains on sale of agricultural land has to be made for the purchase of new agricultural land within two years from the date of transfer of the original asset (agricultural land). In this case, the land purchased in her name is much more i.e. 04 years before the sale of agricultural land whose profits are subject matter of taxation.

5 ITA No. 776/JP/2016 Smt. Janno vs. ITO, Ward- 1(2), Alwar Therefore, I hold that no deduction u/s 54Bof the I.T. Act against this purchase of land would be available to the appellant.

5.15 Thus, in view of the above discussion, AO is being directed to compute the Long term capital gains in the hands of the appellant by taking the sale consideration of Rs. 23,26,071/- after giving a deduction for cost of acquisition (as discussed in para 5.10 & 5.11) and cost of improvement. Further, deduction u/s 54B of the I.T. Act may be given for investment of Rs. 9,00,100/- made in the name of self (as discussed above).’’

3.2 During the course of hearing, the ld. AR of the assessee prayed for

allowance of both the grounds i.e. Ground No. 2 and 3 for which the ld.

AR of the assessee filed the following written submission. In respect of

each of the issue, the assessee’s explanation is as under:

(a) Indexed Cost of Acquisition The assessee has considered the F.M.V. of the land as on 01.04.1981 at Rs. 1,21,000/-. For this purpose she relied on a sale deed dated 10.07.1985 of a house of 52.14 sq. yard sold for Rs. 12,000/- giving a rate of Rs. 222/- per sq. yard. The land sold by the assessee and her sons is 2 Hectare and 11 Aire which works out to 25,249 sq. yard (1 Hectare=11,959 sq yard and 25 Aire = 3,025 sq. yard). Therefore the assessee’s 1/7th share in the total land works out to 3,607 sq. yard and the value by adopting a rate of Rs. 222/- per sq. yard comes to Rs. 8,00,754/-. Considering this fact, assessee adopted the FMV of the land at Rs. 1,21,000/- which is quite reasonable and justified. The AO took the value as on 01.04.1981 at Rs. 60,483/- by observing that the DLC value of agricultural land at village Tuleda as on 05.08.1998 is Rs. 2,00,200/- per bhiga and accordingly the land value of 1.21 bhiga of the assessee comes to Rs. 2,42,242/- per bhiga and applying reverse indexation it comes to Rs. 69,015/-. But

6 ITA No. 776/JP/2016 Smt. Janno vs. ITO, Ward- 1(2), Alwar assessee accepted in reply dated 16.05.2016 that same may be considered at Rs. 60,483/-.

It is submitted that assessee sold the land to a builder. The land has thus a commercial potential. Accordingly assessee determined the FMV of the land as on 01.04.1981 considering the sale instance of land dated 10.07.1985 in the same village. The lower authorities have not contradicted the said evidence. Therefore, the FMV as determined by the assessee should be accepted. Further, even as per the DLC value of the agricultural land dated 05.08.1998 and applying the reverse indexation, the FMV as on 01.04.1981 works out to Rs. 69,015/-. Therefore, there is no reason to take the same at Rs. 60,483/- even if the Ld. AR of the assessee agrees to take the FMV as on 01.04.1981 at Rs. 60,483/-. This apart the land of the assessee being on the main road and having commercial potential, the value as determined by the AO as on 01.04.1981 for an agricultural land at least should be doubled which gives the value at Rs. 1,21,000/-. Therefore, the value adopted by the assessee as on 01.04.1981 at Rs. 1,21,000/- should be accepted and the AO be directed to allow the indexation benefit accordingly. (b) Indexed Cost of Improvement The assessee has claimed cost of improvement of Rs. 20,000/- on account of land levelling expenses in the FY 2007-08. This expenditure was incurred for removing the Kacchi dol and the Nali before selling the land. This work was done by utilising the JCB. This expenditure is very reasonable. There is no finding of the lower authorities that such expenditure is not incurred. Therefore, even if the evidence is not filed, considering the explanation of the assessee the same should be accepted and the capital gain be directed to be worked out after allowing the same. (c) Deduction u/s 54 B on agricultural land purchased The assessee claimed it as deduction u/s 54B on agricultural land purchased on 26.08.2006 for Rs. 5,20,050/- (PB 25-30). This claim is not accepted by the AO in the remand report and also by the Ld. CIT(A) that this land is purchased by the assessee 4 years prior to the execution of sale deed and therefore the same is not allowable u/s 54B.

In denying the above claim both the authorities ignored the fact that assessee entered into an agreement to sale the agricultural land on 18.03.2006 to Shri Jagdish s/o Inder Singh Beniwal and in pursuance to that agreement assessee received Rs. 9,17,000/- by 26.06.2006 (PB 17). This agreement was substituted by agreement dated

7 ITA No. 776/JP/2016 Smt. Janno vs. ITO, Ward- 1(2), Alwar 11.05.2007 with M/s Cross Bridge Developers Pvt. Ltd. The sale deed could be executed only on 03.08.2010 because of dispute in the ownership of the land which was settled by the assessee after making payment of settlement / relinquishment to the daughters as per the court order and depositing the custodian charges to the government. Under these circumstances, the assessee purchased the agricultural land for Rs. 5,20,050/- on 26.08.2006 immediately after she received part consideration. This is within the period prescribed u/s 54B and therefore the same is eligible under deduction as held by the Supreme Court in case of Sh. Sanjeev Lal Etc. vs. CIT (2014) 365 ITR 0389. In this case the appellants entered into an agreement to sell the house on 27th December, 2002 and received a sum of Rs. 15 lakhs as earnest money. Another house was bought by them on 30th April, 2003. In the meanwhile, a dispute arose regarding the property and matter went into court. The appellants were restrained from executing the sale deed till the matter was decided. Thus, the sale deed was executed on 24th September, 2004. The AO disallowed the claim u/s 54 for the reason that the transfer of the original asset, i.e. the residential house, had been effected on 24th September, 2004 whereas the appellants had purchased another residential house on 30th April, 2003 i.e. more than one year prior to the execution of the sale deed. On these facts it was held as under: “23. Consequences of execution of the agreement to sell are also very clear and they are to the effect that the appellants could not have sold the property to someone else. In practical life, there are after executing an agreement to sell an immoveable property in favour of one person, tries to sell the property to whose favour the right provision has been incorporated in the Act, is also very clear that events when a person, even another. In our opinion, such an act would not be in accordance with law because once an agreement to sell is executed in favour of one person, the said person gets a right to get the property transferred in his favour by filing a suit for specific performance and therefore, without hesitation we can say that some right, in respect of the said property, belonging to the appellants had been extinguished and some right had been created in favour of the vendee/transferee, when the agreement to sell had been executed. 24. Thus, a right in respect of the capital asset, viz. the property in question had been transferred by the appellants in favour of the vendee/transferee on 27th December, 2002. The sale deed could not be executed for the reason that the appellants had been prevented from dealing with the residential house by an order of a competent court, which they could not have violated.

8 ITA No. 776/JP/2016 Smt. Janno vs. ITO, Ward- 1(2), Alwar 25. In view of the aforestated peculiar facts of the case and looking at the definition of the term ‘transfer” as defined under Section 2(47) of the Act, we are of the view that the appellants were entitled to relief under Section 54 of the Act in respect of the long term capital gain which they had earned in pursuance of transfer of in Chandigarh and used for purchase of a new property being House No. 267, Sector 9-C, situated asset/residential house. 26. The appeals are, therefore, allowed with no order as to costs. The impugned judgments are quashed and set aside and the Authorities are directed to re-assess the income of the appellants for the Assessment Year 2005-2006, after taking into account the fact that the appellants were entitled to the relief, subject to fulfilment of other conditions”. The facts of the assessee’s case are similar to the facts of the case of Sanjeev Lal and therefore, AO be directed to allow the claim of deduction u/s 54B for purchase of agricultural land for Rs. 5,20,050/-. ‘’

3.3 On the other hand, the ld. DR relied on the order of the CIT(A). 3.4 I have heard the rival contentions and perused the materials

available on record. As regards Ground 2 of the assessee for indexed cost

of acquisition and improvement at Rs. 7,46,508/- as against Rs.

12,02,592/- claimed by the assessee, it is observed that this difference has

arisen for two reasons. The first reason is that the lower authorities have

taken the fair market value of land as on 01-04-1981 at Rs. 60,483/- by

backward indexing of the DLC rates as on 5-08-1998 of the agricultural

land and thereby indexing it to Rs. 4,30,034/- as against the assessee's

claim of fair market value of the land as on 01-04-1981 at Rs. 1,21,000/-

based on sale deed of house dated 10-07-1985 and thereby indexing it to

9 ITA No. 776/JP/2016 Smt. Janno vs. ITO, Ward- 1(2), Alwar Rs. 8,60,310/-. The second reason is that the land levelling charges of Rs.

20,000/- claimed to be incurred in F.Y. 2007-08 which is indexed to Rs.

25,808/- is not allowed for want of evidence. Taking into consideration

all the facts of this ground, I find that the fair market value of the land as

on 01-04-1981 determined by the assessee at Rs. 1,21,000/- on the basis

of sale deed dated 10-07-1985 (PB 20-22) of a house of 52.14 sq. yard

sold for Rs. 12,000/- is more reasonable. This is because as per this sale

deed the rate works out at Rs. 222/- per sq. Yard. The assessee's land is

3,607 sq. yard and adopting this rate its value comes to Rs. 8,00,754/- but

assessee has only considered approximately 15% of this value i.e. Rs.

1,20,113/- which is rounded off by the assessee to Rs. 1,21,000/- as the

fair market value of the agricultural land as on 01-04-1981. Further, the

cost of improvement claimed on account of land levelling charges of Rs.

20,000/- to remove the Kachi Dol and to make the land even which

because of the irrigation nail was uneven by using the JCB is reasonable.

Therefore, the AO is directed to consider the indexed cost of acquisition

and improvement of the agricultural land sold by the assessee at Rs.

12,02,592/- as claimed by the assessee. Thus Ground No. 2 of the

assessee is allowed.

10 ITA No. 776/JP/2016 Smt. Janno vs. ITO, Ward- 1(2), Alwar 3.4.1 In respect of Ground No. 3, it is noticed that that the assessee

clamed deduction u/s 54 in respect of purchase of agricultural land for

Rs. 5,20,050/- which is stated to be out of the amount of Rs. 9,17,000/-

received upto 26-06-2006 as per the earlier agreement to sale dated 18-

03-2006. The lower authorities have not allowed this claim for the reason

that the sale deed of the agricultural land under consideration was

registered on 03-08-2010 and therefore, the agricultural land purchased

prior to the execution of sale deed is not entitled for deduction u/s 54B.

However, this claim of the Revenue is not tenable in view of the decision

of Hon'ble Supreme Court in the case of Sanjeev Lal vs. CIT 365 ITR

389 and also the decision of Hon'ble Mumbai High Court in the case of

Subhash Vinayak Supnekar 97 CCH 250 wherein it was held that where

the investment in purchase of residential house or investment in bond is

out of the amount received on agreement to sale, the deduction should be

allowed even if the sale deed is registered subsequently. However, I find that the assessee has only 1/7th share in the agricultural land sold and

therefore, to ascertain the availability of the amount with the assessee to

purchase the agricultural land of Rs. 5,20,050/-, the issue is set aside to

the file of the AO with the direction to allow the deduction u/s 54B in

11 ITA No. 776/JP/2016 Smt. Janno vs. ITO, Ward- 1(2), Alwar respect of the purchase of this agricultural land to the extent of availability of the funds with the assessee. Thus Ground No. 3 of the assessee is allowed for statistical purposes.

4.0 In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 15 -02-2017.

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