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Income Tax Appellate Tribunal, ‘C’ BENCH, BANGALORE
Before: SMT. ASHA VIJAYARAGHAVAN & SHRI INTURI RAMA RAOShri G.M.Soloman Raju,
Per INTURI RAMA RAO, AM :
This is an appeal filed by the assessee directed against the order of the CIT(A), Bengaluru-6, Bengaluru, dated 29/02/2016 for the assessment year 2008-09.
The assessee raised the following grounds of appeal:
ITA No.459/Bang/2016 Page 2 of 11 1. “The order of the CIT (Appeal) is against the fact of the case and bad in law.
On the fact and circumstances of the case and under the provisions of the law, the authorities below erred in levying the capital gain tax on sale of agricultural land, though there was no notification from the Central Government for fixing the limit of Municipality u/s 2(14)(111)(b) of this Income Tax Act 1961 and even though the appellant is offered the income wrongly which is against the provisions of the law.
On the fact and circumstances of the case, the CIT (Appeal) erred in not following the principle of natural justice, without providing an opportunity to the appellant against the remand report of the AO which is bad in law and the order is liable to be squashed.
For these and other reasons which may be adduced at the time of hearing, the appellant prays before this Honorable Bench to cancel the taxability of capital gain on sale of agriculture land which is offered by the appellant due to ignorance of law.
The appellant craves, leaves to add, to alter, to amend and to delete any of the grounds during the course of hearings. ”
Briefly facts of the case are that the assessee is an individual and filed return of income on 05/10/2012. Admittedly, there was no scrutiny assessment against the original return.
ITA No.459/Bang/2016 Page 3 of 11 Subsequently, notice u/s 148 of the Income-tax Act, 1961 [‘the Act’ for short] dated 18/12/2012 was issued requiring the assessee to file return of income. In response to the same, assessee submitted that that the return submitted may be treated as return filed in response to notice u/s 148 of the Act. Against the said return of income, assessment was completed by the Income-tax Officer [ITO], Ward 6(4), Bangalore, vide order dated 27/01/2014 of the Act. While doing so, the AO had made addition on account of income from sale of property bearing survey Nos.14/2 and 17/2 at Ananthapura village, Bangalore. The circumstances surrounding the addition are as under: The assessee purchased agricultural land at Ananthapura village of Bangalore North Taluk, Yelahanka at survey No.14/2 to the extent of 27 guntas and survey No.17/2 to the extent of 37 guntas on 20/12/2003 for a total consideration of Rs.8 lakhs. The same was sold during the previous year relevant to assessment year under consideration i.e. on 27/06.2007 for a consideration of Rs.80 lakhs. In the return of income filed, the same was offered to tax under the head ‘capital gains’. However, during the course of assessment proceedings, the said gain arising out of sale was claimed exempt from capital gains as, according to the assessee, the property sold was in the nature of agricultural land and therefore not a capital asset within the meaning and scope of the provisions of sec.2(14) of the Act. Further, it was claimed that the land was situated in Yelahanka Hobli Panchayat which was not
ITA No.459/Bang/2016 Page 4 of 11 a municipality or urban area. The assessee also placed reliance on the decision of the jurisdictional High Court in the case of CIT vs. Madhukumar (208 Taxman 394) wherein it was held that though the land was located within 8 KMs of city/municipal corporation, in the absence of notification by the Central Government under the provisions of sec.2(14)(iii)(b) of the Act, the same cannot be treated as a capital asset. Rejecting this, the AO brought to tax capital gains arising out of sale of property addition of a sum of Rs.63,60,870/- was made.
Being aggrieved, an appeal was filed before the CIT(A). The CIT(A) had confirmed the addition vide paras.10 and 11 as under: “10. It is noted that the appellant had not claimed benefit u/s 54B in his original return filed on 05/10/2012 nor in return filed in response to notice u/s 148 of the Act. It is also noted that when asked by AO to produce evidence for incurring development expenditure during the course of assessment proceedings, the appellant filed a letter dated 24/10/2014 stating that he was withdrawing claim of development expenditure. The appellant also failed to submit any prove of carrying out agricultural activities. Further it is noted that he has failed to explain whether reinvestment was made during stipulated period. Even during appellate proceedings the appellant failed to produce any evidence to substantiate his claim. Therefore the claim of appellant u/s 54B which was disallowed by AG is justifiable and hence sustained. 11. It is seen that during assessment proceedings the appellant was unable to produce evidence that agricultural activity was carried out on the land acquired by him during financial year 2003-04 and sold during financial year 2007 relevant to AY under appeal. Now during appellate proceedings he claims that the land was outside limits of municipal authority and therefore it is not a capital asset u/s 2(14) of the Act. All these go to show that the appellant has
ITA No.459/Bang/2016 Page 5 of 11 no evidence which he can file in order to substantiate his claim either before the AO during assessment proceedings or during appellate proceedings. Therefore in view of the facts and circumstances of the case, it is held that since the appellant has failed to file any evidence to prove that agricultural activities were carried out on the said land, the action of AO is found to be in order and no interference is called for. The appellant’s ground claiming the land to be agricultural in nature is hereby dismissed.”
From reading of the above order, it is clear that the CIT(A) had confirmed the action of the AO on the ground that the assessee had failed to produce evidence in support of the contention that agricultural activity was carried out on the land sold by him during the financial year 2007-08, The CIT(A) also denied the benefit u/s 54B as the same was not claimed in the original return of income and the same cannot be claimed in the proceedings u/s 148.
Being aggrieved, assessee is before us in the present appeal. 5.1 Learned AR of the assessee vehemently argued that the property which was sold was not a capital asset within the meaning of section 2(14)(iii) of the Act, as no notification was issued by the Central Government notifying Yelahanka Hobli. Learned AR of the assessee further contended that agricultural activity was carried on the said property and therefore no capital gains tax is exigible on the surplus arising out of sale of the said property. In support of this contention, he relied on the decision of the jurisdictional High Court in the case of CIT vs. Madhukar N
ITA No.459/Bang/2016 Page 6 of 11 HUF(208 Taxman 394), and ITAT, Jaiur Bench decision in the case of Dr.Subha Tripathi vs. DCIT. 5.2 On the other hand, learned Departmental Representative relied on the orders of the lower authorities.
We head rival submissions and perused the material on record. The only issue arising in the present appeal is whether capital gains tax is exigible on the sale of property situated at survey No.14/2 and 17/2, Ananthapura village, Yelahnka Hobli. The Yelanka Hobli is merged with BBMP limits by virtue of notification issued on 16/01/2007. Therefore, area in which the said lands are situated, fall within the limits of BBMP. The Central Government, by notification dated 6/1/1994 notified that the land situated within radius of 8 KMs, BBMP are ‘capital asset’. The said notification reads as under:
INCOME-TAX ACT, 1961: NOTIFICATION UNDER SECTION 2(1A)©, PROVISO, CLAUSE (II)(B) AND SECTION 2(14)(III)(B) : URBANISATION OF AREAS Notification No. ISO 94471 (File No. 164/3/87-ITA.I)J, dated. 6-1-1994
Whereas a draft notification was published by the Central Government in exercise of the powers conferred by item (B) of clause (ii) of the proviso to sub-clause (c) of clause (IA), and item (b) of sub-clause (iii) of clause (14), of section 2 of the Income-tax Act, 1961 (43 of 1961), in the Gazette of India, Extraordinary, Part II, section 3, sub-section (ii), dated February 13, 1991, under the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. S.O. 9 1(E), dated February 8, 199 1, for specifying certain areas for the purposes of the said clauses and objections and suggestions were invited from the public within a period of 45 days from the date the copies of the Gazette of India containing such notification became available to the public; And whereas copies of the said Gazette were made available to the public on February 13, 1991
ITA No.459/Bang/2016 Page 7 of 11 And whereas the objections and suggestions received from the public on the said draft notification have been considered by the Central Government Now, therefore, in exercise of the powers conferred by item (B) of clause (ii) of the proviso to sub-clause (c) of clause (1A) and item (b) of sub- clause (iii) of clause (14) of section 2 of the Income-tax Act, 1961 (43 of 1961), and in supersession of the notification of the Government of India in the erstwhile Ministry of Finance (Department of Revenue and Insurance) No. S.O. 77(E), dated February 6, 1973, the Central Government having regard to the extent of, and scope for rbanization of the areas concerned and other relevant considerations, hereby specifies the areas shown in column (4) of the schedule hereto annexed and falling outside the local limits of municipality or cantonment board, as the case may be, shown in the corresponding entry in column (3) thereof and against the State or Union Territory shown in column (2) thereof for the purposes of the above mentioned provision of the Income-tax Act, 1961 (43 of 1961). Schedule Sl. Name of the State Name of the Details of areas falling No. or Union Territory municipality or outside the local limits of Cantonment Board municipality or cantonment falling in the Board etc., mentioned State/Union under column (2) Territory mentioned under column (3) 1. ....... ......... .......... 2. ....... ......... .......... 3. ....... ......... .......... 4. ....... ......... .......... 5. ....... ......... .......... 6. ....... ......... .......... 11. Karnataka 1.Bangalore Areas upto a distance of 8 kms. from the municipal limits in all directions. Once Yelahanka is merged with BBMP, notification issued in respect of BBMP applies equally to land situated in Yelahanka Hobli also. No separate notification is required to be issued in respect of Yelahanka Hobli area. Therefore, the contention that there is no notification in respect of Yelahanka Hobli by the Central Government cannot be accepted. It is not the contention of the assessee that the lands were situated beyond 8 KMs radius from the end of the limits of BBMP. Further, the ratio laid down
ITA No.459/Bang/2016 Page 8 of 11 by the Hon’ble jurisdictional High Court in the case of Madhukar(supra) is not applicable to the facts of the present case. Further there is one more dimension to the issue. In the original return filed, there was no claim of exemption from capital gains in respect of sale of this land. It was only during the re- assessment proceedings that this claim was made before the AO. It is settled principle of law that re-assessment proceedings cannot be used by the assessee for his benefit. New claims/deductions cannot be allowed in the re-assessment proceedings. The issue concluded in original assessment proceedings cannot be re-agitated in the re-assessment proceeding as held by the Hon’ble Supreme Court in the case of Sun Engineering Works Pvt. Ltd.(1992)(198 ITR 297). The relevant part of the judgment is as under: "Indeed, in the reassessment proceedings for bringing to tax items which had escaped assessment, it would be open to an assessee to put forward claims for deduction of any expenditure in respect of that income or the non-taxability of the items at all. Keeping in view the object and purpose of the proceedings under section 147 of the Act which are for the benefit of the Revenue and not an assessee, an assessee cannot be permitted to convert the reassessment proceedings as his appeal or revision in disguise, and seek relief in respect of items earlier rejected or claim relief in respect of items not claimed in the original assessment proceedings unless relatable to 'escaped income', and reagitate the concluded matters. Even in cases where the claims of the assessee during the course of reassessment proceedings relating on the escaped assessment are accepted, still the allowance of such claims has to be limited to the extent to which they reduce the income to that originally assessed. The income for purposes of 'reassessment' cannot be reduced beyond the income originally assessed."
ITA No.459/Bang/2016 Page 9 of 11 The ratio laid down by the Hon’ble Supreme Court in the case of Sun Engineering Works Pvt. Ltd.(supra) was followed by the Hon’ble jurisdictional High Court in the case of CIT vs. Sangeetha Granites Ltd., (2010)(326 ITR 324) wherein after referring to the observations of the Hon’ble Supreme Court in the case of Sun Engineering Works Pvt. Ltd.(supra) held as follows:
“In unequivocal terms their Lordships have held that in the reassessment proceedings the assessee cannot be permitted to convert the same as his appeal or revision in disguise and seek relief in respect of items earlier rejected or accepted. In the instant case, we find that reassessment proceedings were initiated in respect of escaped assessment, i.e., the claim made towards sale proceeds convertible foreign exchange which had not been received. Now, the contention of the assessee that the entire deduction claimed under section 80HHC was exempted under section 10B. Even if it were be so, we are not inclined to accept such submission in view of the judgment of CIT Vs. Sun Engineering Works P. Ltd. [1992] 198 ITR 297 as enumerated in paragraph 27 hereinabove. What is to be looked into by the authorities for the purpose of computation under reassessment proceedings would be escaped assessment and it is not original proceedings which can be gone into in the reassessment proceedings. It is that income which has escaped assessment from the purview of tax that the assessee would be entitled to take all contentions including the contention regarding taxability of the said income. Thus, the assessee cannot now contend in the revised return for the first time that the entire income is outside the purview of taxability in view of section 10B of the Act. At the most, the assessee can claim exemption in respect of that part of income derived under section 80HHC by pressing into service section 10B of the Act which is sought to be revised and not on the entire income. In view of the above discussion, we have to hold question No. 1 formulated hereinabove partly in favour of the Revenue since the said question is concluded which encompasses within itself the entire income and
ITA No.459/Bang/2016 Page 10 of 11 hence we will have to clarify here that it is only escaped income which is the cause of action for issuing notice under section 148 which can be the subject-matter of consideration and the assessee would be fully justified in raising all such claims including the taxability of the income to the extent of reopening of assessment. Clarifying this aspect, we answer question No. 1 in the negative formulated hereinabove, i.e., in favour, of the Revenue, and against the assessee to the extent hereinabove. In so far as question No. 2 is concerned, having perused the judgment of the hon'ble Supreme Court in Sun Engineering Works P. Ltd. case [1992] 198 ITR 297 we have no hesitation to hold that in a reassessment proceedings which relate to the income which has escaped assessment where the assessee would be entitled to put forward the claims for deduction of any expenditure in respect of that income (that income which is referable to escaped income) and also about the taxability of items which were sought to be taxed in the reassessment proceedings only can be agitated and not to income which was not the subject-matter of reassessment. If the contention of the learned counsel Sri Kulkarni were to be accepted which is to the effect that income which has been assessed and accepted by the assessee can also be gone into in the reassessment proceedings, it would be leading to an incongruous situation inasmuch as the assessee would under the guise of questioning the taxability would in effect convert it as his appeal or revision in disguise which is impermissible in law particularly having accepted the assessment orders. Hence, we are of the considered opinion that in view of Sun Engineering Works P. Ltd. case [1992] 198 ITR 297, the Tribunal was in error in holding that the question regarding taxability of the entire income can be gone into in the reassessment proceedings. Accordingly, we answer question No. 2 in the negative, i.e., in favour of the Revenue and against the assessee. ”
Applying the above legal position to the facts of the present case, the claim for exemption from capital gains or deduction u/s 54B of the Act, in respect of which there were no claims in the original return of income, cannot be allowed in the re-assessment
ITA No.459/Bang/2016 Page 11 of 11 proceedings. Hence, all the grounds of appeal raised by the assessee are dismissed.
In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the open court on 13th July, 2016
Sd/- sd/- (ASHA VIJAYARAGHAVAN) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Place : Bangalore D a t e d : 13/07/2016 srinivasulu, sps Copy to : 1 Appellant 2 Respondent 3 CIT(A)-II Bangalore 4 CIT 5 DR, ITAT, Bangalore. 6 Guard file By order Assistant Registrar Income-tax Appellate Tribunal Bangalore