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Facts
The assessee sold land for Rs. 9.5 crores and claimed it as rural agricultural land, thus not a capital asset. The Assessing Officer, however, treated it as a capital asset under Section 2(14) after the assessee failed to provide legible evidence and a notification showed the land was within eight kilometers of municipal limits. The assessee subsequently claimed deductions under Sections 54F and 54B, which were largely disallowed by the AO due to insufficient evidence and joint ownership of the new assets, leading to a recomputation of long-term capital gains.
Held
The Tribunal upheld the CIT(A)'s order, confirming that the assessee failed to prove the land was rural agricultural land, thus justifying its treatment as a capital asset liable for long-term capital gains. The deductions claimed under Sections 54F and 54B were also properly disallowed due to factual deficiencies, including illegible evidence, joint property ownership, and lack of proof for construction within the stipulated period.
Key Issues
The primary issue concerned the classification of land sold as a capital asset under Section 2(14) and the eligibility for deductions under Sections 54F and 54B for reinvestment in new assets, considering factual discrepancies and joint ownership.
Sections Cited
2(14), 147, 148, 143(2), 54F, 54B, 271(1)(c), 271F, 139(1)
AI-generated summary — verify with the full judgment below
This is an appeal filed by the Assessee against the order of the Ld. CIT(A)/ NFAC, Delhi dt 16/08/2024 for the Assessment Year 2011-12.
In the present appeal the sole effective ground raised by the assessee read as under:
The Ld. AO has erred in law and on facts in understanding that the agricultural land sold by the appellant is not a capital asset as per section 2 (14) of the act.
Briefly, the facts of the case are that the proceedings were initiated under section 147 of the Income-tax Act, 1961 after recording of reasons and obtaining the requisite approval of the Principal Commissioner of Income-tax, Gurgaon. Accordingly, notice under section 148 dated 30/03/2018 was issued and duly served upon the assessee. In response thereto, the assessee filed his return of income on 01/09/2018 declaring total income of Rs.22,37,610/- along with agricultural income of Rs.75,000/-. Thereafter, notice under section 143(2) was issued on 25/09/2018 and the reasons recorded for reopening were supplied to the assessee on 27/09/2018.
3.1 During the course of assessment proceedings, it was noticed that the assessee had sold land for a consideration of Rs.9,50,00,000/- during the year under consideration. The assessee was required to explain the taxability of capital gains arising from the said transaction. The assessee claimed that the land sold was rural agricultural land and, therefore, not a capital asset liable to capital gains tax. In support of the claim, a distance certificate was furnished; however, the same was found to be illegible and the stamp as well as the name of the issuing authority were not visible despite repeated opportunities.
3.2 The Assessing Officer observed that the assessee failed to substantiate the claim that the land was rural agricultural land. Relying upon section 2(14) of the Act, the Assessing Officer noted that even agricultural land would constitute a capital asset if it is situated within the municipal limits or within a distance of eight kilometers therefrom, as notified by the Central Government. The assessee was confronted with Notification No. 18/1/95/2008-3C1 dated 20/03/2010, which showed that the land in question was situated within eight kilometers of the nearest Municipal Corporation limits. In the absence of any cogent rebuttal or legible documentary evidence from the assessee, the Assessing Officer held that the land constituted a capital asset and treated the sale consideration of Rs.9,50,00,000/- as giving rise to long-term capital gains.
3.3 Thereafter, the assessee claimed deduction under sections 54F and 54B on the ground that the sale proceeds were invested in residential property and agricultural land, thereby implicitly accepting that the asset sold was a capital asset. The total deduction claimed amounted to Rs.10,65,18,984/-. In respect of the claim under section 54F, the Assessing Officer found that the assessee failed to produce any documentary evidence to establish that construction of a residential house had actually been carried out or completed within the prescribed period of three years. Mere bank withdrawals reflected in the ledger were held to be insufficient. Further, the residential plot was purchased jointly in the name of the assessee and his son, which disentitled the assessee from claiming the full benefit under section 54F.
3.4 With regard to the claim under section 54B, the Assessing Officer noted that the agricultural land was purchased jointly in the name of the assessee and his wife. Relying upon the judicial precedents of the Hon’ble Punjab & Haryana High Court in the case of Jai Narain Vs. ITO 306 ITR 335 the Assessing Officer held that exemption under section 54B is allowable only when the new agricultural land is purchased in the name of the assessee himself and not in the name of a third person, including spouse or children. Consequently, the exemption claimed in respect of such jointly purchased properties was disallowed. The Assessing Officer also corrected the cost claimed for a particular agricultural land by restricting it to the assessee’s proportionate share as per the registered deed.
3.5 After allowing only the admissible portion of deductions under sections 54B and 54F and reducing the indexed cost of acquisition, the Assessing Officer recomputed the long-term capital gain at Rs.1,13,56,916/-. The said amount was added to the returned income, and the total assessed income was determined accordingly. The Assessing Officer also initiated penalty proceedings separately under section 271(1)(c) for concealment of income and under section 271F for failure to file the return of income under section 139(1) of the Act.
Against the order of the AO the assessee went in appeal before the Ld. CIT(A).
The CIT(A) noted that the appeal was filed with a delay of 66 days, as the assessment order was served on 20/12/2018 whereas the appeal was e- filed on 26/03/2019. The explanation offered was that the copy of the assessment order was not made available in time by the Chartered Accountant acting as attorney holder. Placing reliance on the principles laid down by the Hon’ble Supreme Court in Collector, Land Acquisition vs. Mst. Katiji and N. Balakrishnan vs. M. Krishnamoorthy, the CIT(A) held that the delay was neither deliberate nor mala fide. Being satisfied with the explanation, the delay of 66 days was condoned.
5.1 On merits, the CIT(A) examined the addition of Rs.1,13,56,916/- made by the Assessing Officer on account of long-term capital gains. The CIT(A) observed that the additions were made due to the assessee’s failure to furnish complete and satisfactory replies during the assessment proceedings. It was further noted that, even at the appellate stage, the assessee failed to file any cogent documentary evidence or a petition under Rule 46A to controvert the findings of the Assessing Officer.
5.2 The CIT(A) held that the assessee did not substantiate the claim that the land sold was rural agricultural land nor could he support the deductions claimed under sections 54F and 54B with proper evidence. The submissions made before the appellate authority were found to be unsubstantiated and insufficient to rebut the findings recorded by the Assessing Officer.
5.3 In view of the above facts, the CIT(A) concluded that the assessment order was a well-reasoned and speaking order passed in accordance with law. Accordingly, the addition of Rs.1,13,56,916/- was confirmed and all the grounds raised by the assessee were dismissed.
Against the order of the Ld. CIT(A) the assessee preferred in appeal before the Tribunal.
During the course of the hearing, no one appeared on behalf of the assessee. Therefore, the issue is decided on the basis of the material available on record and after hearing the arguments of the learned DR.
Per contra, the Ld. DR relied upon the orders of the lower authorities.
We have heard the Ld. DR and perused the material available on record. The sole ground raised by the assessee relates to the taxability of the land sold and the consequent addition on account of long-term capital gains.
9.1 At the outset, we find that the reassessment proceedings were validly initiated under section 147 of the Act after due recording of reasons and obtaining the requisite approval. The notices under sections 148 and 143(2) were duly served and the assessee participated in the proceedings. Hence, the allegation of violation of principles of natural justice is without merit.
9.2 On merits, the assessee failed to substantiate the claim that the land sold was rural agricultural land not falling within the definition of “capital asset” under section 2(14) of the Act. The distance certificate produced was illegible and no cogent documentary evidence was furnished either before the Assessing Officer or before the Ld. CIT(A). On the contrary, the Assessing Officer rightly relied upon the relevant statutory notification showing that the land was situated within the prescribed municipal limits. In the absence of any effective rebuttal, the treatment of the land as a capital asset is justified.
9.3 We further note that the assessee himself claimed deductions under sections 54F and 54B, which presupposes the existence of a capital asset. The partial disallowance of these deductions by the Assessing Officer was based on factual findings, including failure to prove construction within the prescribed period and joint purchase of properties, and the same has been duly confirmed by the Ld. CIT(A). The assessee also failed to file any additional evidence or Rule 46A application before the first appellate authority.
9.4 In view of the above facts and circumstances, we find no infirmity in the order passed by the Ld. CIT(A). Accordingly, the order of the Ld. CIT(A) is upheld and the appeal of the assessee is dismissed.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the open Court on 30.12.2025