Loading judgment…
Facts
The assessee sold agricultural land and claimed exemption from capital gains. The Assessing Officer (AO) initially accepted the claim, but the Principal Commissioner of Income Tax (PCIT) invoked revisionary powers under Section 263 of the Income-tax Act, 1961, holding the AO's order erroneous and prejudicial to revenue. The PCIT's action was based on the classification of the land as residential in sale documents and government records, suggesting the assessee was not eligible for exemption.
Held
The Tribunal held that the PCIT was not justified in invoking Section 263. The AO had already examined the issue, accepted the assessee's claim based on submitted evidence, and it was not a case of lack of inquiry. The land was recorded as agricultural, and the initial assessment, though reopened, eventually accepted the return without additions, indicating the issue was considered.
Key Issues
Whether the Principal Commissioner of Income Tax was justified in invoking Section 263 of the Income-tax Act, 1961, to revise an assessment order where the Assessing Officer had previously examined and accepted the assessee's claim regarding capital gains exemption on agricultural land.
Sections Cited
263, 143(3), 147, 80G, 54B(1), 2(14), 144B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI JAGADISH
आदेश / O R D E R PER JAGADISH, A.M : Aforesaid appeal filed by the assessee for Assessment Year (AY) 2016-17 arises out of the revision order of Learned Principal Commissioner of Income Tax, Chennai-1 [hereinafter “PCIT”] passed u/s. 263 of the Income-tax Act,1961 (hereinafter “the Act”) dated 30.03.2024.
The effective ground of appeal in this appeal of assessee is against order of Ld. PCIT holding the order passed by the A.O u/s. 147 r.w.s 144B of the Act is erroneous and prejudicial to the interest of revenue u/s. 263 of the Act.
1. 3. The assessee has filed return of income on 16.10.2016 declaring total income of Rs.83,58,060/-. Subsequently, the case was selected for the scrutiny, where one of the issue identified for examination was whether capital gain/loss on sale of property has been shown correctly in the return of income. The A.O has passed order u/s. 143(3) of the Act assessing total income of Rs. 83,92,110/- only disallowing the claim of Section 80G of the Act of Rs. 34,047/-. Subsequently, the A.O has reopened the assessment recording the following reasons:
“The assessee has filed return of income on 16.10.2016 declaring an income of Rs.83,58,060/-. The assessment was completed u/s 143(3) on 18.12.18.On a review of the assessment record, It is found that the assessee had sold a property for an extent of 2.19 acres for Rs.1,75,20,000/-, under the jurisdiction of Sub Registrar CHEYYUR, in Pararmankeni Village considered as agricultural land and offered exempted from capital gain income. In support of that the assessee had submitted the Chita/Patta (village accounts) relating to the year 2012 which was 4 years earlier to transfer took place. From the sale document, as well as confirmed from the TNREGINET the said land was classified as Residential Class I, Type I and carried the guideline rate @ Rs.350/sqt. The assesses has not satisfied the conditions provided u/s 54B(1) Therefore, the assessee is not eligible to claim exempt on capital gain arising from transfer of capital assets being agricultural land.
The A.O in the reassessment order passed u/s 147 of the Act has accepted the return of income after considering the reply of assessee, without making any addition.
The Ld. PCIT assuming the jurisdiction u/s 263 of the Act called for the assessment record and found that the AO only relied on copy of sale deed and Encumbrance Certificate and completed the assessment without verifying from the local body that the said land was agriculture in nature. The Ld. PCIT has issued a show cause notice that the FAO has completed the assessment without due verification of the facts as prescribed in Section 54B(1) of the Act. The Ld. AR before Ld. PCIT has submitted that it is not a case of claim u/s. 54B of the Act, but a claim made u/s. 2(14) of the Act itself. The Ld. PCIT therefore issued another show cause notice on 21.03.2024 fixing the date of hearing on 25.03.2024 requesting the assessee to file details of crop being grown and how it qualifies for being agricultural land. He further requested to file evidence that the land is not within the jurisdiction of any municipality or within the limit prescribed in section 2(14) of the Act. The Ld. PCIT passed order holding the assessment order passed by the AO u/s 147 of the Act erroneous and prejudicial to the interest of revenue as no one appeared on the said date. The Ld. PCIT has held that it is a fit case to invoke provisions of Section 263 of the Act since, the A.O has failed to make a verification and enquiry with respect to aspect discussed.
The Ld. AR before us has argued that the Ld. PCIT has issued show cause notice for Section 54B(1) of the Act though the assessee has claimed exemption on agriculture income u/s. 2(14) of the Act.
The Ld. AR submitted that the issue has been verified by the A.O during the assessment proceedings u/s. 143(3) of the Act, and subsequently, u/s. 147 and all the documents were submitted before the A.O. Therefore, Ld. PCIT was not justified to hold the order of A.O erroneous and prejudicial to the interest of revenue. The Ld. AR has submitted that the land is recorded as agriculture land in the Government record and the assessee has been showing the agriculture income in the return of income. The Ld AR relied upon the case of PCIT v. KPR Developers Ltd. of Hon’ble Madras High Court and other case laws that once land has been categorized as agriculture land by Tahsildhar merely because any agriculture activity could not be done it does not seized to be a agriculture land and thus could not be considered as a capital asset as per Section 2(14) of the Act. The Ld.AR has also relied on the order of Co-ordinate Bench of this Tribunal in the case of M/s. RK Investments v. DCIT in dated 12.08.2024.
The Ld. Departmental Representative (DR), on the other hand, has relied on the orders of lower authorities.
We have heard the rival submissions, and perused the materials available on record. The assessee has sold 2.19 acres of land at Paramankeni Village for a value of Rs. 1,75,20,000/- on 21.01.2016 and claimed it agriculture land, exempt from capital gain. The A.O in the assessment order passed u/s. 143(3) of the Act has accepted the claim of the assessee. Subsequently, the case was reopened u/s 147 of the Act recording the reasons that as per the sale documents as well as official website TNREGINET the said land was classified as residential class-I, Type-1 and carried the guidelines rate @ 350/- sq.ft. and the assessee has not satisfied the condition provided u/s. 54B(1) of the Act therefore, the assessee is not eligible to claim exempt capital gain arising from transfer from capital assets.
However, in the order passed u/s. 147 of the Act, the A.O after calling for explanation on the issue of reopening has accepted the return of income. The Ld. PCIT initially has issued show cause notice for the reason on which the case was reopened u/s. 147 of the Act, but subsequently on being pointed out that the claim has not made u/s. 54B of the Act, but u/s. 2(14) of the Act, he has issued another show cause notice as how 2(14) of the Act exemption was available in his case and called for certain other details. As no one appeared within the four days time granted, the Ld PCIT held the order passed by AO u/s 147 accepting return of income erroneous and prejudicial to the interest of revenue.
The assessee before the A.O during assessment proceedings u/s. 143(3) and 147 of the Act has submitted purchase deed, sale deeds and other relevant details called for and the A.O has accepted the capital gain on sale of agriculture land exempt. The PCIT has held the assessment order erroneous, in so far as it is prejudicial to the interest of revenue on the issue which has been examined by AO twice. The Co-ordinate Bench in the case of M/s. RK Investments v.
DCIT, supra, on a similar facts, where the assessment order was held to be erroneous and prejudicial to the interest of revenue has observed as under:
“8. In the light of above stated factual matrix, the inevitable conclusion would be that the assessee’s case was specifically reopened to examine the claim of deduction with respect to agricultural land and the assessee furnished sufficient documentary evidences in support of the same. After due consideration, Ld. AO accepted the claim of the assessee which was in line with settled judicial precedents as cited by the assessee which clearly supported the case of the assessee. Therefore, it could not be said that the impugned issue was not examined by Ld. AO and necessary enquiries were not made by Ld. AO while framing the assessment. The Ld. AO, in our considered opinion, duly considered the submissions of the assessee, perused various case laws and finally accepted the claim of the assessee with due application of mind. The Ld. AO, having satisfied with assessee’s claim, thought it fit not to make any further enquiries in this regard. The same was one of the possible views which is not shown to be contrary to any law. We do not find any lack of enquiry as alleged in the impugned order. Therefore, Explanation-2 to Sec.263 would not apply in the present case. Another factor to be noted is that the assessee has offered agricultural income of Rs.3.50 Lacs in the return of income which has duly been accepted by Ld. AO and no disturbance thereof has been made by Ld. Pr. CIT to that effect in the impugned order. Therefore, considering the facts and circumstances of the case, the revision of the order could not be held to be justified. Therefore, we quash the impugned order and allow the appeal of the assessee.”
In view of the above and after considering the facts of the case, we are of the opinion that the Ld. PCIT was not justified to invoke jurisdiction u/s. 263 of the Act and accordingly quash the order.
In the result, the appeal of the assessee is allowed.
Order pronounced on 27th November, 2024.