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Facts
The assessee sold an immovable property, which the AO treated as non-agricultural land based on stamp duty value and added Rs. 61,37,250/- as Long Term Capital Gains u/s 147/144, asserting a portion was converted for residential/commercial use. The assessee contested this, claiming the land remained agricultural and that they were denied a reasonable opportunity to present their case and evidence at the assessment and first appellate stages.
Held
The tribunal found that the AO was not justified in refusing the assessee's adjournment request, thus denying reasonable opportunity of being heard. It further noted that the NFAC/CIT(A) failed to appreciate the assessee's evidence (Khatauni, Patwari records) and legal arguments regarding the land's agricultural status under Section 2(14). Consequently, the order of the CIT(A) was set aside, and the matter was restored to the AO for a de-novo assessment.
Key Issues
Whether the land sold by the assessee qualified as agricultural land exempt from capital gains tax under Section 2(14) and whether the assessment order was valid given the denial of reasonable opportunity of being heard to the assessee.
Sections Cited
147, 144, 148, 2(14)
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Income Tax Appellate Tribunal, DELHI BENCH, ‘A’: NEW DELHI
Before: SHRI KUL BHARAT & SHRI BRAJESH KUMAR SINGH
ORDER PER BRAJESH KUMAR SINGH, AM,
This appeal by the assessee is directed against the order of the National Faceless Appeal Centre (NFAC), Delhi, dated 05.07.2023 pertaining to Assessment Year 2012-13.
The grounds of appeal raised by the assessee reads as under:-
“1. That the order is null & void and against the principal of natural justice. 2. That the assessee has filed return of income on 17.11.2019 declaring a income of Rs. 14,340/-.
3. That learned C.I.T. Appeal has not gone into the facts and has passed the order as it was passed by the learned A.O u/s.144 without giving reasonable opportunity.
4. That the land was never converted to residential or commercial space. 5. That the assessee reserves this right to resort any other ground at the time of hearing of appeal.” 2.1. All the above grounds are against the addition of Rs.61,37,250/- under the head Long Term Capital Gains on account of sale of an immovable property.
Brief facts of the case: In this case, the assessment order dated 13.11.2019 for AY 2012-13 was passed u/s 147/144 making an addition of Rs.61,37,250/- under the head Long Term Capital Gains (in short ‘LTCG’) in respect of a sale of an immovable property. The AO noted that during the year as per information available with the Department, the assessee had sold an immovable property for a consideration of Rs.29,51,000/- in FY 2011-12 on which stamp duty was paid on Circle rate of Rs.1,41,71,024/-. The AO on this basis, recorded reasons that income had escaped assessment on the LTCG on this transaction and issued notice u/s 148 of the Act dated 29.03.2019. Thereafter, the AO issued further notices as stated on page -1 of the assessment order, to which, there was no compliance. The AO noted that the assessee had 50% share in the said immovable property and that out a part of the land, 1700 sq. mts. was converted to residential use and also on which commercial shops were made as appearing in the photograph of the site available on the registered deed. The AO further noted that no evidence of agricultural activity on this land was filed by the assessee. According to the AO, the exemption granted by the Act is for benefit of the farmers or persons engaged in the agricultural activity and thus section 2(14) of the Act removes agricultural land from the purview of definition of capital asset. In view of these findings, the AO was of the view that the land had been converted into residential land and on which commercial shops had been constructed and therefore the assessee was not entitled to claim the said land as agricultural land and exempted as capital asset as per section 2(14) of the Act. Accordingly, a final show-cause notice was issued on 11.10.2019 to the assessee on the above lines proposing to tax an amount of Rs.61,37,250/- as per the following calculation.
Date of purchase of property 09.10.1998 {CII-351} Date of sale of property 11.04.2011 {CII-785} Total cost of purchase Rs.8,48,000/- 50% share of Sh. Amit Kumar Rs.4,24,000/- Yadav Cost after indexation Rs.4,24,000 x (785/351) = Rs.9,48,262 Sale consideration on which stamp duty paid as per circle rate: Rs.70,85,512/- [being 50% of Rs.1,41,71,024] Long Term Capital Gain Rs.61,37,250/- (Rs.70,85,512-Rs.9,48,262/-)
3.1. As there was no response from the assessee, the assessment was completed making addition of Rs.61,37,250/- under the head LTCG.
Aggrieved with the order, the assessee filed an appeal before the NFAC/ld. CIT(A). During the appellate proceedings also, none appeared on behalf of the assessee, however, a written submission was filed. In the written submission, it was submitted that the agricultural land was not a capital asset u/s 2(14) of the Act and in support, filed a copy of Khatoni dated 26.03.2015 issued by the Patwari of Kotpuli, Rajasthan. In their submission, the assessee submitted that he had applied for conversion of 1700 sq. mts. as residential land but the same was not executed and the land is still an agricultural land. The NFAC did not agree with this submission of the assessee on the ground that from the copy of the sale deed submitted by the assessee, it is observed that the observation and decision of the AO is correct in as much the sale deed consists of having the residential usable area and the same was also registered.
Thereafter, the relevant extract of the sale deed was reproduced by NFAC in its order on pages 11 to 15. The NFAC held that in view of the above findings as evident in the registered deed, there was no evidence and logic in support of assessee’s claim of AO’s order being null and void and against the principle of natural justice. The NFAC further held that rather the submission of the assessee vis-à-vis the grounds of appeal was ambiguous and baseless in as much as the assessee failed to make necessary compliance during the assessment proceedings despite availing multiple opportunities of hearing mentioned in the assessment order. The NFAC, by an order dated 05.07.2023, agreeing with the findings of the AO, dismissed the appeal of the assessee.
5. Against the order of the NFAC/Ld. CIT(A), the assessee is in appeal before us.
The ld. AR filed a written submission before us along with a paper book. In the written submission, it was submitted that the finding of the AO and confirmed by the NFAC that the said agricultural land was converted into residential was only applied for, which is clearly evitable from the sale deed submitted in paper book at page-13. It was submitted that the decision of the AO was upheld by the NFAC due to wrong interpretation of facts assuming that out of 5300 sq. mts., 1700 sq. mts. was converted into residential, whereas, it is clearly written in the deed as the said portion is ‘�योजनाथ�’. It was further submitted that the NFAC neither commented about the Jamabandi receipt produced and patwari records, according to which the said land holds nature of agricultural land even after three years of sale. It was submitted that NFAC never considered their submission and upheld what was observed by the AO. It was also stated that the NFAC did not consider the provisions of section 2(14) of the Act, which defines a capital asset and it could be seen from the orders of the AO that he was nowhere covered u/s 2(14) of the Act and relied upon following case laws:-
i. N. Jayamurgan v. Dy. CIT [2016] 70 taxmann.com 24 (Chennai Trib.) ii. M.S. Srinivasa Naicker vs ITO [2008] 169 Taxman 255 (Madras) iii. ITO vs Nathamuni Krishaswami Balaji [2017] 85 taxmann.com 201 (Chennai-Tib.) iv. Smt. Chalasani Naga vs ITO [2017] 79 taxmann.com 104 (Visakhapatnam-Trib.)
6.1. In this regard, the written submission dated 09.06.2023 filed by the assessee before the Ld. CIT(A) is reproduced as under:-
6.2. It was further submitted that the order passed by the AO was ex-parte in spite of the request by the assessee seeking seven days time to make its submissions. It was also submitted that the last date of passing the assessment order was 31.12.2019 and no proper time was given by the AO. It was also stated that in the last notice, the AO gave only three days time to make the submissions and placed the said show cause notice dated 08.11.2019 on pages 23 of the paper book. In this regard, the AO has placed the adjournment letter filed to the show-cause notice dated 06.11.2019 on page 22 of the paper book, which is reproduced as under:-
6.3 However, the same was rejected by the AO, which is placed on page-24 of the paper book by stating as under:-
“Please refer to your request for adjournment. At this juncture is not possible to allow you much time. Therefore, you are requested to file your complete submissions including ITR by 11.11.2019.” 7. The ld. DR strongly relied upon the orders of the authorities below.
We have heard both the parties and perused the records material available on record. On perusal of the materials placed on record, it is seen that the AO was not justified in refusing the adjournment sought by the assessee vide adjournment letter as reproduced above in the given facts of the case and thus reasonable opportunity of being heard was denied to the assessee. Thereafter, the NFAC also failed to appreciate the other evidences in the form of Khatauni receipt and Patwari receipt submitted before the NFAC as certified in the paper book by the assessee to have been filed before the NFAC and also did not deal with the submissions of the assessee that the conversion of 1700 sq. mts. Out of 5300 sq. mts. was proposed for ‘�योजनाथ�’ as mentioned in the sale deed and the said land was still an agricultural land even after three years of the sale deed. Further, the NFAC did not deal with the case laws filed in the written submission dated 09.06.2023 before the NFAC claiming that the said land was not a capital asset u/s 2(14) of the Act. Therefore, the order of the NFAC also cannot be sustained in as much as the submissions filed by the assessee including the vital fact about the conversion only being proposed was not considered by him. As can be seen that the assessee was denied a reasonable opportunity to present his case before the AO. Considering the overall fact that proper opportunity of being heard was not provided by the AO and the learned CIT(A) dismissed the assessee's appeal without considering the submissions of the assessee in entirety , in order to subserve the interests of natural justice and to provide an opportunity to the assessee to effectively represent his case, the order of learned CIT(A) is set aside and the matter is restored to the file of AO for framing of assessment de-novo after providing reasonable opportunity of being heard to the assessee. Grounds are allowed for statistical purposes.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 07th June, 2024.