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Income Tax Appellate Tribunal, “A”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH, JM
O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT(A), Mumbai, dated 21-1-2016, for the assessment year 2011-2012, wherein following grounds have been taken by the assessee :- ADDITION OF INCOME: Under the facts and circumstances of the case, the learned Commissioner of Income tax (Appeals) ('the Ld. CIT(A)')was not justified in upholding addition of Rs.5,71,41, 146/- made to the income of the Appellant. 1.2. ADDITION AS "LONG TERM CAPITAL GAIN" 1.2.1. Under the facts and circumstances of the case, the learned CIT(A) was not justified in considering surplus from sale of exempt from tax under the provision of the Act. 1.2.2. Under the facts and circumstances of the case, the learned CIT(A)was not justified in considering agricultural land as capital assets under section 2(14) of the Act. 1.3. Without prejudice: 1.3.1. Without prejudice to the above, under the facts and circumstances of the case, the learned CIT(A) was not justified in confirming the addition of gains arising out of lands sold in an earlier assessment year, to the income of the current assessment year. 1.3.2. Without prejudice to the above, under the facts and circumstances of the case, the learned CIT(A) was not justified in confirming the adoption of the sale value as per section 50C of the Act, by ignoring the fact that the difference between actual sale price and market value was not more than 10% of the sale value. 1.3.3. Without prejudice to the above, under the facts and circumstances of the case, the learned CIT(A)was not justified in confirming the adoption of wrong indexation of cost of purchase resulting in a lower cost of purchase and a higher Capital Gain.?
2. Rival contentions have been heard and record perused. Facts in brief are that the assessee is engaged in the business of construction from the year 1983 under the name and style of a proprietary concern M/s Periera Juchandra Land Developers (PJLD). During the course of scrutiny assessment the AO observed that information was received through AIR module that the assessee had entered into a number of transactions relating to immovable property during the year. None of these transactions were declared either in the original or revised return of income. Details of transactions in immovable property were called for as part of the assessment proceedings. The AR submitted a computation sheet in which a 'surplus' of Rs.7,32,03,178/- on sale of agricultural land was shown alogwith another amount of Rs. 3,25,0001- claimed as 'receipts from sale of agricultural products'. Both these were claimed as exempt 'agricultural income', includible for rate purposes only in the enclosure to the assessee's letter dated 12/02/2014. On going through the list of land-sale transaction and the corresponding documents submitted by the AR, it was observed that the following three transactions which were reported in the AIR information were not included in the list of 17 transactions. Srl.No Date of Transaction as per AIR Value as per AIR 1. 01/05/2010 Rs.1,37,00,000/- 2. 21/04/2010 Rs. 50,00,000/- 3. 20108/2010 Rs.40,00,000/- (assessee’s share only) These three transactions are added to the list of 17 transactions submitted by the assessee. Thus, there are in all 20 sale transactions during the year and the profits arising from these 20 transactions were subjected to tax. The assessee claimed that the plots of land sold during the year are agricultural land on the ground that he has continued agricultural operations after acquiring them and therefore the surplus from sale of land is agricultural income and exempt from tax as per the provisions of I.T.Act vis. Section 2(1A) and section 2(14). The assessee’s contention was not accepted by the AO. The AO observed that it is clear that the plots of land under consideration are falling directly within the area covered by WMC and on the borders thereof and therefore they are 'capital asset' u/s 2(14) and the income from sale of such land is not exempt agricultural income u/s 2(1A). Moreover, as per the Explanation 1 to that section 2(1A) reproduced above, the income from sale of such land, is not falling under the definition of exempt 'agricultural income'. The AO further held that the assessee has sold many plots of land some of which are in his name as per land records and for some he holds the Sathe-Karars or Agreement to Sale. In view of the discussions as above, both these are 'capital assets' as per the provisions of section 2(14) and profits/gains arising from transfer of these land forms part of taxable income. Thus, the entire profit arising on sale of land was brought to tax net under the head long term capital gains.
3. By the impugned order the CIT(A) confirmed the action of AO, against which assessee is in further appeal before us.
4. It was contended by ld. AR that the plots of land sold during the year are 'agricultural land' on the ground that he has continued agricultural operations after acquiring them and therefore the surplus from sale of land is 'agricultural income' and exempt from tax as per the provisions of the I. T. Act viz. Section 2(1A) and section 2(14). In support thereof he relies on 7/12 extracts from Land Revenue records and that he has sold such land on as-is-where-is basis without doing any development work.
5. He invited our attention to the submission made by the assessee before the lower authorities to the effect that the assessee himself has stated that the quality of soil is not good in these villages as it is mixed with salt-water which adversely affects the yield of crops. Secondly, he has invested in land despite the fact that a Thermal Power Station was to be set up in the locality. However, the AO did not accept assessee’s subject of 'Adverse Impact on Agriculture/Horticulture' due to setting up of Thermal Power Stations which the assessee must be well aware of. (Extracts from one such case study is appended as Annexure-C). Thus, there is an apparent contradiction in his claims that he has acquired these lands for agricultural purposes because no person would invest huge money in agricultural land where the potential yield is low and cultivation is not a viable option. Therefore, the assessee claims that he has invested in land in this area with the intention of carrying on cultivation is baseless, illogical and lacks credibility. On the subject of Vasai-Virar Municipal Corporation (WMC), the AO did not accept Assesses contention and discussed the details and sequence of events culminating the formation of VVMC as below: • Notification regarding the formation of VVMC, was issued and published by Government of Maharashtra vide No.MIS2306/412/CR-223/2006/UO-24 dated 14th September 2006 and placed in public domain inviting suggestions from all concerned. Subsequent to this, on 3rd July 2009 the VVMC was constituted vide Notification bearing same number as above. Thereafter, vide Notification no. VVM.2009/88/CR- 244/09/UD-23 dated 31st May 2011, the Government of Maharashtra clarified that due to further demands voiced by the local people, the area covered under the Municipal Corporation of Vasai-Virar is revised and the revised boundaries shall be as per Schedule III and IV (of the said notification) respectively. • From the above, it is clear that the notification dated 31st May 2011 cannot be read in isolation but has to be read with the original notification dated 3rd July 2009. In other words, the revised notification dated s:" May 2011 merges into the original notification dated 3rd July 2009. • CBOT had already notified Vasai Municipal Council and Virar Municipal Council under the provisions of section 2(14){iii){b) in 1994. • As regards the argument that the finality of the Notification is not reached due to a petition pending which is before the High Court, the same is not tenable since as on-date, the present notifications are final and have already taken effect. Relying on these notifications of the Government of Maharashtra, large-scale urbanization, rapid development of high-rise housing structures, transport facilities, etc. have found a place in and around the areas mentioned in the notification. These cannot be denied nor reversed. Therefore, it is only proper that the said vii/ages and the land located within, be construed as forming part of the 'larger urban area' as per the Notifications. Moreover assessments and tax need not be held up, pending finality of other legal proceedings since Income tax assessments, are time-bound which have to made every year and cannot be held-up until the final outcome of other legal proceedings are pronounced.”
6. However the contention of AR was that the VVMC has been formed only on 31st May 2011; and therefore was not in place during the period in which he has sold the land. It was further argued by ld. AR that the plots of land sold by him are not 'capital asset' since they do not fall within the definition of 'capital asset' given in section 2(14) of the I. T. Act and that the profits on sale of such land which are not includible as 'capital asset' is agricultural income as per section 2(1A) and therefore eligible for exemption. It was further argued that the assessee has been purchasing agricultural lands since 1987-88 up to the year 19 4-95 and thus came to be in possession of Agricultural Land of about 450 acres. He sold in all 60 acres to M/s Citizen co-op Society spread over AY's 1992-93, 1998-99 & & 2001-02 and has not sold any further land till FY 2007-08. These facts are essential to appreciate the facts that the appellant is not in the business of Real Estate & acquired agricultural lands with sole intent & purpose of carrying on agricultural activities. Ld. AR drew our attention to the three sale transaction dated 22-6-2008, 10-11-2008 and 15-3-2010, which was sold in the earlier year and also possession given but the AO has included the same while computing the capital gain for the year under consideration amounting to Rs.1,59,659/-, details of which are given as under :- Date of Date of Total cost Indexed Sale value Sale value Alleged sale and registration cost as per section LTCG handing agreement 50C over possession 02.06.2008 01.05.2010 1340400 3624038 13700000 13700000 10075962 10.11.2008 21.04.2010 578500 1463605 5000000 5034500 3567895 15.03.2010 20.08.2010 982000 2692198 4000000 4000000 1307802 14951659 As per ld. AR the above transaction of sale of agricultural land took place in earlier years in AY 2009-10 & A. Y. 2010-11 and possession was also given in those years. Only the Sale Deed came to be executed and registered in A. Y. 2011-12. Without considering the same, the AO had considered the same as agricultural land sold during the year under consideration. Our attention was also invited to the relevant agreements to demonstrate that the possession was given in the respective/years and not in A. Y. 2011-12.
Without prejudice to the above it was argued that the learned AO has considered sale value as per section 50C of the Act without considering the facts that the difference between market value and sale value was not more between 1%-4% of the sales value. The learned AO has not considered first proviso of the section 32A( 4) of the Bombay Stamp Act 1958, whereas the 10% difference in the value stamp duty value and agreement value is allowed. For this purpose, reliance was placed on the decision of Hon. Pune Bench in the case of Rahul Constructions Vs. Dy. CIT (2010) 38 DTR 19 wherein the Tribunal directed the assessing officer to take the consideration at Rs.70 lakhs against the estimated value by valuation officer at RS.75,76,712/- as the value of the property so estimated that a difference of +-10% which is because of the opinion of the individual valuation officer. No one is expected to value the property accurately since some of the items are to be valued on guess work or nationality. This being so, the difference of +/- less than 10% is to be ignored. As per ld. AR the Agricultural land were held by the assessee since the year 1989, as per tribunal order No. (2008) 23 SOT 459 (Mumbai) onwards has been the same in nature and no improvements thereon have been made, more over they have been sold on a where is basis and surplus arising out of sale of Agricultural Land have been shown in assessee’s accounts. The said agricultural land was sold under the compulsion, which involves lots of litigation and involvement of influential third parties interest; otherwise assessee would not have sold any of the land possessed by him. The third party's interest has come into presence due to proposed VVMC, which finally, came into existence on 31.05.2011 As such, since date of purchase of land till FY 2007-08, the assessee sold any land except land sold to Citizen in FY 1991-92.It was further stated that if had an intention for sale of agricultural land then the assessee would have sold the said agricultural land after the existence of VVMC, wherein the assessee would have got the price 5 land during the current year. As such, the agricultural land sold was under the compulsion and there was no intention to sell the agricultural land. He further contended that VVMC came into existence on 31.05.2011 after the Govt. of Maharashtra concluded the hearing of the people affected by the Notification announcing formation of VVMC. Hence, the nature of agricultural land held by the assessee remained the same till 31.05.2011.
On the other hand, ld. DR contended that Notification of May 2011 is not yet final as civil suits are pending before the High Court. The AO has rebutted this plea of the assessee Notification regarding the formation of VVMC was issued and published by Govt. of Maharashtra, vide No.MIS2306/412/CR-223/2006/UD-24 dated 14th September 2006 and placed in public domain inviting suggestions from all concerned; subsequently on 3rd July 2009, the VVMC was constituted vide Notification bearing same number as above and thereafter, vide Notification No,VVM,2009/88/CR-244/09/UD-23 dated 31st May 2011, the Govt. of Maharashtra clarified that due to further demands voiced by the local people, the area covered under Municipal Corporation of Vasai-Virar is revised and the revised boundaries shall be as per schedule III and IV (of the said Notification) respectively. Therefore, it is clear that the notification dated 31st May 2011 cannot be read in isolation but has to be read with the original Notification dated 3rd July 2009. CSDT has already Vasai Municipal Council and Virar Municipal Council under the provisions of section 2(14)(iii)(b) in 1994. The assessee plea that since pending tenable since as on date, the present notification are final. Therefore, assessee's argument that the VVMC has been formed only on 31st May 2011 is factually incorrect.
We have considered rival contentions and carefully gone through the orders of authorities below. From the record we found that the land so sold by assessee was not within the jurisdiction of any of the municipality and further the agricultural lands sold are not situated within 8 Km from any of the municipality i.e. Vasai Municipal Council, Navgarh Manikpur Municipal Council, Nalasopara Municipal Council and virar Municipal council. Out of the said municipalities, only Virar and Vasai municipalities were notified vide Notification: No. SO10(E), dated 06/01/1994, as amended by Notification No. SO 1302, dated 28/12/1999). Since the land is not within the 8 km from the limits of notified municipalities, hence, the surplus from the agricultural land is exempt from tax. In so far as Vasai Virar mahanagar council (VVMC) is concerned the said municipality is not Notified under Income Tax Act and as far as State Government Notifications are concerned we found that the first Draft Notification was published by Government of Maharashtra on 14th September 2006 which proposed creation of a larger Council viz. Vasai Virar Mahanagar Council by combining then existing smaller independence municipal councils of 1. Vasai Municipal Council 2. Navghar Manikpur Council 3. Nalasopara Municipal Council 4. Virar Municipal Council and also 53 specified villages. The villages Juchandra, and other Villages, wherein the impugned Agricultural Land are situated are all more than 8km in distance from the limits of above 4 municipal councils. In the same draft Notification. dated 14th September 2006, 53 specified villages were proposed to be included, with Village Juchandra at the Serial No. 19 in the said Draft Notification. We had also perused the said draft Notification dated 14th September 2006 was placed on record. The second notification was published by Govt. of Maharashtra on 3rd July 2009 which once again proposed creation of the larger council viz. Vasai Virar Mahanagar Council by combining the existing independent municipal councils of 1 Vasai Municipal Council 2. Navghar Maikpur Council 3. Nallasopara Municipal Council 4. Virar Municipal Council and 53 specified villages. Thereafter due to public demand of the local people and based on representations made to the State Government, to exclude 53 peripheral villages (including juchandra ) from the area of the said large urban area, the Government of Maharashtra vide notification dated 5th April 2010 published the Third Draft Notification and invited objections and suggestions. After hearings, suggestions and objections the Government of Maharashtra finally issued notification on 31st May 2011 after excluding 29 villages out of 53 villages and included 2 more villages. Thus it is clear that the 53 villages were only proposed for notification and the out of these 53 villages only 24 of them came to be notified on & from 31st May 2011. Hence the agricultural land situated in village Juchandr remained as a rural area and became an Urban Land only on & from 31st May 2011. Vasai Virar Mahanagar Council (VVMC) had finally came into existence vide Final notice dated 31st May 2011 i.e. A.Y. 2012-13. This is further fortified by the fact that the VVMC started collecting taxes in its name only on & from the financial year 2011-12 i.e. A.Y. 2012-13. Further as per the revenue records the Juchandra Village is shown as a separate entity till 31.05.2011.It is therefore clear that the impugned agricultural land was not situate within jurisdiction of VVMC during the impugned assessment year. We also find that VVMC was also not a notified municipality during the impugned assessment year, as per last available notification no. 8010(E) dated 6th 1994 as amended by notification no. SO 1302 dated 28th Dec 1999. In fact the Vasai Virar Municipal Corporation is still not notified under Income Tax Act, even as on date since it is not in the list of Municipalities as per last available notification no. 8010(E) dated 6th 1994 as amended by notification no. S.O. 1302 dated 28th Dec 1999, under Income Tax Act. There is no dispute to the fact that at the time of Sale the subject agricultural land is situated in the village Juchandra of Taluka Vasai, the population of which was 5,912 as per the census, so is less than 10,000. We have also verified the following documents as placed on record: A. Population certificate of village Juchandra Grampanchayat dated 02/06/2008. B. Map showing location of 4 municipalities Vasai, Navghar, Nalasopara and Virar along with population density which clearly shows village Juchandra is yet not populated. C. Distance from relevant municipalities to village Juchandra issued by P.W.D dated 16/09/2005, village Juchandra is more than 8 KMS from the 4 existing municipalities. We had also gone through the 1st , 2nd , & 3rd draft notification dt. 14/09/2006, 03/07/2009 and 05/04/2010 respectively proposing that the Municipal Council of Vasai Virar Mahanagar Palika be constituted. However vide final notification dt. 31/05/2011 the City of Vasai Virar Mahanagar Palika came to be constituted. Since the sale deed pertaining to the subject Agricultural land were executed by assessee between 19/04/2010 to 04/01/2011, the same cannot be said to be non agricultural land during the relevant period. We also found that Vasai-Virar Municipal corporation has started collecting LBT (local body tax) with effect from 1st April, 2011. Even as per the ready reckoner rate for valuation purpose of registration of lands situate in Juchandra village for the years 2008-09, 2010-11 & 2011-12, we found that the ready reckoners demonstrate that Juchandra was a village having a separate and independent status on and from 2011-12 and is shown as Vasai Virar Mahanagar Palika. The Agricultural land sold were on AS is where IS basis and were forming part of Junchandra village at the time of sale and was not part of Vasai Virar mahanagar Palika as sought to be made out by the AO.
In view of the above we do not find any justification in the order of lower authorities for not treating the land sold as Agricultural land thus the AO and CIT(A) was not justified in considering Agricultural land as capital asset under section 2(14) of the Act. We also found that Mumbai Tribunal in Assessee’s own case for the AY 1992-93, 1998-99 and 2001-02 in & 1721/Mum/2002 and ITA No. 8197/Mum/2004 has decided similar issue in favour of assessee vide its order dt. 30/05/2008. The Tribunal held that out of 450 Acres of land, the assessee had sold 60 Acres to a Cooperative Society, the land so sold was Agricultural land situated beyond 8 Km from municipal limit. Respectfully following the order of the Tribunal in assesse’s own case, we do not find any merit in the order of AO for holding that the land was situated beyond 8 Km form municipal limit.
In the result, appeal of the Assessee is partly allowed.