SHRI RAVJIBHAI BECHARBHAI DHAMELIYA,,SURAT vs. THE PRINCIPAL COMMISSIONER OF INCOME TAX, -1, SURAT

By way of these three appeals, the different assessees have challenged the correctness of the separate orders passed by the Learned Principal Commissioner of Income Tax-1, Surat (in short “ld. PCIT”] dated 21.03.2022, 17.03.2022 & 16.03.2022, under section 263 of the Income Tax Act, 1961, for the assessment year 2017-18.

Since the issues involved in these three appeals are common and identical; therefore, these appeals have been heard together and are being disposed of by this consolidated order. For the sake of convenience, the grounds as well as the facts narrated in in the case of Dakshaben Shailesh Dhameliya, for assessment year 2017-18, have been taken into consideration for deciding the above appeals en masse.

The grounds of appeal

In response to the above show cause notice dated 25.02.2022, the assessee submitted her reply on 02.03.2022 before the ld PCIT. The important point of reply of the assessee (as stated in revision order of ld PCIT) are as follows:

However, ld PCIT has rejected the contention of the assessee and observed the the previous owner of the land Shri Natvarbhai Dolatbhai Desai had applied for conversion of part of land into non-agriculture and sold it to other entity after N.A conversion and the remaining part was purchased by the assessee as agriculture land. However, the assessing officer has not inquired, whether the land was purchased by the assessee was an agricultural land or non-agricultural land. Further, Assessing Officer has not inquired whether at time of sale of land, the impugned land at Block No.627/A, 628/A, 629/A, TP84 FP 223, Moje Mota Varachha, Surat City was sold as non-agricultural after N.A conversion. The assessee had sold the above said land to a partnership firm M/s Build tech Enterprise on 18.10.2016. Further on verification of the details filed in income tax return for A.Y. 2015-16 and 2016-17 it is observed that the assessee has not shown any agriculture income in her return of income. Which proves that no agricultural activities carried out on the land sold during the preceding two year from the date of transfer of the said land. Further, the assessee also not furnished copy of 7/12 received from the Revenue Authority, therefore type of crop grown, means of irrigation etc., was not verified by the assessing officer. Therefore, ld PCIT noted that during the course of assessment proceedings, the Assessing Officer has not made inquiries with respect to the claim of deduction made by the assessee amounting to Rs.1,99,09,516/-. The Assessing Officer has failed to consider that the entire claim was liable to be disallowed in absence of proper evidence regarding the use of land sold at Moje Mota Varachha for agricultural purposes during the period of two years, immediately preceding the date on which transfer took place. This shows non application of mind by the Assessing Officer while completing the assessment proceedings. Therefore, the assessment order passed u/s 143(3) of the Act dated 05.12.2019 for A.Y. 2017-18 was treated as erroneous as well as prejudicial to the interest of Revenue. -112/SRT/2022 A.Y.17-18

Aggrieved by the order of Ld. PCIT, the assessee is in appeal before us.

Shri Sapnesh R Sheth, Learned Counsel for the assessee submitted that during the assessment proceedings, the Assessing Officer issued notice u/s 142(1) of the Act, (which is placed at page No.-51 of the paper book), wherein, the Assessing Officer has raised the same query as raised by ld PCIT in his revision order under section 263 of the Act. In response to notice under section 142(1) of the Act, the assessee submitted its reply with documentary evidences such as expenditure incurred by the assessee on agricultural activities, bills and vouchers, the crop grown by the assessee on land etc. The Assessing Officer has examined these documentary evidences, applied his mind and then framed the assessment order, therefore such assessment order which was framed after making due enquiry should not be erroneous and prejudicial to the interest of Revenue.

Shri Sapnesh R Sheth, also submitted that in case of one of the co-owners, namely, Shri Ravjibhai Becharbhai Dhamelia, the appeal effect of the order passed u/s 263 was given by the Assessing Officer vide order dated 06.03.2023 passed by the Assessing Officer u/s 143(3) r.w.s. 263 of the Act, wherein while giving the appeal effect of the order of ld PCIT, the Assessing Officer has allowed deduction under section 54B of the Act, as claimed by the assessee. Therefore, Ld. Counsel contended that the Revenue has accepted the claim of deduction u/s 54B of the Act, in case of one of the co-owners of assessee, therefore, other co-owners of case should not be treated differently. This way, ld Counsel prays the Bench that order passed by ld PCIT under section 263 of the Act, may be quashed.

On the other hand, Ld. CIT-DR for the Revenue, supported the order passed by Ld. PCIT and stated that in order to claim the deduction u/s 54B of the Act, the assessee should demonstrate that she was engaged in agricultural activities for previous two years. The ld DR pointed out that the said condition has not been fulfilled by assessee therefore deduction u/s 54B of the Act, should not be allowed to the assessee. The Ld. CIT-DR for the Revenue also submitted that at the time when assessee sold the said land, the assessee was not doing agricultural -112/SRT/2022 A.Y.17-18 activity as the land was converted into non-agricultural land. Therefore, land so sold by the assessee, was not used for the purpose of agricultural activities, therefore deduction u/s 54B of the Act should not be allowed to assessee. The Ld. CIT-DR further pointed out that just to submit Form 7/12 extract, is not a conclusive proof that assessee was doing agricultural activity. Therefore, assessee has not fulfilled the condition for claiming deduction u/s 54B of the Act, hence, the order passed by the Ld. PCIT should be upheld.

We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. We note that during the assessment proceedings, the Assessing Officer issued notice u/s 142(1) of the Act, (which is placed at page No.-51 of the paper book), wherein, the Assessing Officer has asked the assessee several questions and in response to notice under section 142(1) of the Act, the assessee submitted its reply with documentary evidences such as expenditure incurred by the assessee on agricultural activities, bills and vouchers, the crop grown by the assessee on land etc. Besides, Assessing Officer also asked the assessee to provide the details of agricultural products and the complete address of agricultural land and crop grown on land. In response to such notice, the assessee submitted reply to the Assessing Officer which is placed at page 55-68 of paper book, wherein assessee has submitted the details regarding sale of agricultural produce and the sale deed of joint ownership of such agricultural land etc. The Assessing Officer has issued another notice u/s 142(1) of the Act, which is placed at page No. 59 of the paper book wherein the Assessing Officer made enquiry about the issue raised by the Ld.PCIT. In response to said notice, assessee submitted her reply, which is placed at page No.62 of the paper book, wherein assessee has explained and narrated the facts about exemption u/s 54B of the Act in respect of agricultural land so sold by her. The Assessing Officer has also issued notice u/s 142(2) of the Act, dated 15.01.2019, which is placed at page No. 64 of the paper book, wherein the Assessing Officer made enquiry about the exemption/deduction u/s 54B of the Act. Thus, we note that assessee has produced adequate proof and evidences -112/SRT/2022 A.Y.17-18 before Assessing Officer. The Assessing Officer, after making detailed enquiry framed the assessment order.

We note that in case of one of the co-owners, namely, Shri Ravjibhai Becharbhai Dhamelia, the appeal effect of the order of ld PCIT passed u/s 263 of the Act, was given by the Assessing Officer, vide order dated 06.03.2023 passed by the Assessing Officer u/s 143(3) r.w.s. 263 r.w.s. of the Act, wherein the Assessing Officer has allowed deduction under section 54B of the Act, as claimed by the assessee. Therefore, we note that when the Department (Revenue) has accepted the claim of deduction u/s 54B of the Act, in the case of one co-owner, then in that situation the other co-owners of the same land should not be treated differently.

We have examined the fact that in case of one of the co-owners, namely Shri Ravjibhai Becharbhai Dhamelia, the appeal effect order was passed by the Assessing Officer and assessment order was framed u/s 143(3) r.w.s. 263 on 06.03.2023, wherein the Assessing Officer held as follows:

The assessee was issued notice u/s 142[1]as per the above dates for giving details by giving copy of sale deed of agricultural land, copy of purchase deed of agricultural land, ledger account, copy of bank account for transaction done for amount of sale and purchase of land. The entire working of capital gain with deduction u/s 54B by justifying his claim. The total agricultural land as on 06.05.2006 was 22764 square meter and out of this the previous owner Shri Natvarbhai Dolatbhai Desai has converted 5509 square meter as non-agriculture land vide order no355/2066 dated 06.05.2006 and this land was sold to M/s Princess Palace Construction Pvt. Ltd., the balance land was 117255 square meter was left as agricultural land and this land was sold by all the three co- owners as agricultural land. The assessee has also submitted copy of the agricultural land purchased to justify his claim for deduction u/s 54B of the I.T. Act 1961.”

From the above it is abundantly clear that in case of one of the co-owners, namely, Shri Ravjibhai Becharbhai Dhamelia, the Assessing Officer accepted the claim of the assessee and allowed the deduction u/s 54B of the Act. Therefore, other co-owners (assessees) should not be treated differently. Hence, we are of the view that other co-owners should also be allowed deduction u/s 54B of the Act.

We note that before us assessee has submitted following documents and evidences:

From the above documents and evidences, it is clear that Assessing Officer made detailed enquiry before passing the assessment order. Therefore, it cannot be said that Assessing Officer has not applied his mind. Besides, the assessee was doing agricultural activities, prior to sale of land, hence land was being used for agricultural purposes for more than two years, prior to its sale, hence assessee is eligible to claim deduction under section 54B of the Act. On the same identical facts, our view is fortified by the judgment of Jurisdictional High Court of Gujarat in the case of Commissioner of Income Tax vs. Siddharth J Desai (1981) 49 CCH 0646 (Guj), wherein it was held as follows: “11. On a conspectus of these cases, several factors are discernible which were considered as relevant and which were weighed against each other while determining the true nature and character of the land. It may be useful to extract from those decisions -112/SRT/2022 A.Y.17-18 some of the major factors which were considered as having a bearing on the determination of the question. Those factors are: (1) Whether the land was classified in the Revenue records as agricultural and whether it was subject to the payment of land revenue? (2) Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time? (3) Whether such user of the land was for a long period or whether it was of a temporary character or by way of a stop-gap arrangement? (4) Whether the income derived from the agricultural operations carried on in the land before any rational proportion to the investment made in purchasing the land? (5) Whether the permission under s. 65 of the Bombay Land Revenue Code was obtained for the non-agricultural use of the land? If so, when and, by whom (the vendor or the vendee)? Whether such permission was in respect of the whole or a portion of the land? If the permission was in respect of a portion of the land and if it was obtained in the past, what was the nature of the user of the said portion of the land on the material date? (6) Whether the land, on the relevant date, had ceased to be put to agricultural use? If so, whether it was put to an alternative use? Whether such cesser and/or alternative user was of a permanent, or temporary nature? (7) Whether the land, though entered in revenue records, had never been actually used for agriculture, that is, it had never been ploughed or tilled? Whether the owner meant or intended to use it for agricultural purposes? (8) Whether the land was situated in a developed area? Whether its physical characteristics, surrounding situation and use of the lands in the adjoining area were such as would indicate that the land was agricultural? (9) Whether the land itself was developed by plotting and providing roads and other facilities? (10) Whether there were any previous sales of portions of the land for non-agricultural use? (11) Whether permission under s. 63 of the Bombay Tenancy and Agricultural Lands Act, 1948, was obtained because the sale or intended sale was in favour of a non- agriculturist? If so, whether the sale or intended sale to such non-agriculturist or for non-agricultural or agricultural user? (12) Whether the land was sold on yardage or on acreage basis? (13) Whether an agriculturist would purchase the land for agricultural purposes at the price at which the land was sold and whether the owner would have ever sold the land valuing it as a property yielding agricultural produce on the basis of its yield? At the risk of repetition, we may mention that not all of these factors would be present or absent in any case and that in each case one or more of those factors may make appearance and that the ultimate decision will have to be reached on account of balanced consideration of the totality of circumstances.

Against the aforesaid background, let us turn to the question whether, on the facts and in the circumstances of the present case, the land in question was an agricultural land. The land, when jointly purchased by the assessee from an agriculturist about four years prior to its present sale, was admittedly agricultural. It was and it continued to be listed in the Revenue records as agricultural land subject to the assessment of land revenue. For a period of three years immediately after its purchase, agricultural activity was carried on in the land which yielded agricultural produce. For the first two years, the crop of pulse (tuver) was raised and for the third year green grass was grown. Of course, quantitatively the yield was not much and there was no sale of the produce resulting in any profit to the assessee. However, the nature of exploitation of the land for the major part of the period during which the ae held it would indicate that not only its physical characteristics but the user also was agricultural. It is not shown that such user was of a temporary character or as and by way of a stop-gap arrangement. Even though the land was not actually put to agricultural use since about one year prior to the sale, there is no evidence to establish that it was converted to any other use. It is true that permission under s. 63 of the Bombay Tenancy and Agricultural Lands Act, 1948, was obtained by the assessee to sell the land to a co-operative housing society and that the permission was granted subject to the condition that the land should be used for residential purposes. This circumstance does not, however, militate against the land continuing to be agricultural on the date of its sale. The permission, in the instant case, weas obtained only about two and a half months prior to the sale. The permission was necessary only because the land was agricultural and because it was governed by the provisions of the Bombay Tenancy and Agricultural Lands Act, 1948. The mee fact that such a permission was obtained does not mean that the land ceased to be agricultural in character since permission for the non-agricultural use of the land under s. 65 of the Bombay Land Reve Code was still not obtained from the competent authority. Such permission was, in fact, never obtained by the assessee in its obtained by the vendee after the sale was completed. Till the land was held by the assessee, therefore, its character as agricultural land was not changed either as a result of its reclassification in the Revenue records or by the actual alteration of its use. If, for any reason the sale transaction had not gone through or the conditions laid down in the permission issued under s. 63 had not been satisfied, the permission would have been treated as cancelled. There is no evidence on record to show that there was any development in the surrounding area or that the land itself was developed prior to its sale. The land is located on the outskirts of the Billmora town but it was not situated within the municipal limits. The land must, therefore, be to the date of its sale. There is no evidence or material on record to indicate that the price offered for the land by the vendee, even proceeding on the basis that the intended user on his part was non-agricultural, would not have been offered by an agriculturist who wanted to purchase the land for purely agricultural user. There being no evidence on record as regards the nature of the soil, its fertility, its suitability and -112/SRT/2022 A.Y.17-18 adaptability for raising cash crops, the irrigation facility and such or similar factors which, as earlier pointed out, have a great bearing on the valuation of an agricultural land, it would be hazardous to come to the conclusion that the price offered was such that no agriculturist would have paid the same if he wanted to purchase the land for purely agricultural purposes. The evidence on record does not show whether the sale was on acreage or yardage basis. Ethe extract from the ale deed reproduced in the Tribunal’s order shows that the land was sold as an “agricultural land”. Having regard to the totality of circumstances, we are of the view that the conclusion reached by the Tribunal, after taking into account all the relevant circumstances and upon on a balance consideration of the entire evidence and on the application of the correct legal test, is just and correct.

In the result, the questions referred for our opinion are answered as follows Question No.1: Answer: In the affirmative, i.e., against the Revenue and in favour of the assessee. Question No.2: Answer: In the negative, i.e., against the Revenue and in favour of the ae. The CIT will pay the cots of this reference to the assessee.”

Let us take the guidance of judicial precedents laid down by the Hon’ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the Assessing Officer can be held to be erroneous order, that is (i) if the Assessing Officer’s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii) Assessing Officer’s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the Assessing Officer has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the Assessing Officer can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon’ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. Page | 14 -112/SRT/2022 A.Y.17-18

Thus, from the assessee`s facts, it is abundantly clear that during the assessment stage, the Assessing Officer asked the assessee to furnish the details and documents which are placed in paper book. In response, the assessee submitted reply which is placed at paper book. Thus, all the documents, details and the explanations required by the Assessing Officer were submitted by the assessee. Just because the Assessing Officer does not bring these documents and details in his assessment order does not mean that assessing officer has not conducted proper enquiry during the assessment stage. In fact, assessing officer has applied his mind. The Learned Counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. Therefore, in the assessee`s case, it cannot be said that it is a case of 'lack of inquiry'.

In view of the facts of the case and judicial pronouncements relied upon, it is well established that the impugned order passed u/s. 143(3) of the Act, was passed by Assessing Officer, after calling for relevant information and after detailed examination of the same. The Assessing Officer has passed the Page | 15 -112/SRT/2022 A.Y.17-18 assessment order after calling for details on the issue and after considering the reply and documents and after verification of the same and after due application of mind passed the assessment order, so it cannot be termed as erroneous and prejudicial to the interest of the revenue. So, the Ld. PCIT’s finding fault, with the order of the Assessing Officer is erroneous as well as prejudicial to the interest of revenue, on account of lack of inquiry, has to fail. Based on these facts and circumstances, we quash the order passed by the ld PCIT under section 263 of the Act

Since we have adjudicated the issue by taking the lead case in for A.Y. 2017-18, and in other two remaining assessees’ appeals, viz: ITA No.110 & 112/SRT/2022, for same assessment year 2017-18, the identical and similar facts exist (as they are co-owners of the same land), therefore our instant adjudication in ITA No.111/SRT/2022, shall apply mutatis mutandis to other two appeals of assessees also.