ITO, WARD-3(3)(3), SURAT V. KANUBHAI A. MONPARA, SURAT

ITA 574/SRT/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2057 (ITAT-SURAT)
• Duration Of Justice: 2 year(s) 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 17-05-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 16-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SAPNESH SETH
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Earning of tax free income; Question of law; Fair market value; Competent authority; Set aside
• Section: 63; 2(14)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 574/SRT/2019 (AY: 2014-15) (Hearing in Virtual Court) I.T.O. Ward- 3(3)(3), Surat, Vs. Shri Kanubhai A Monpara, 99, Mamta Park Society-2, Kapodra Police Station, Varachha, Surat-395006. PAN : AARPM 4481 E APPELLANT RESPONDEDNT Department by Shri H.P. Meena, CIT-DR Assessee by Shri Sapnesh Seth, CA Date of hearing 18/05/2022 Date of pronouncement 18/05/2022 Order under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. The appeal filed by the Revenue is directed against the order of the learned Commissioner of Income Tax (Appeals)-3, Surat [in short ‘ld.CIT(A)] dated 09/10/2019for the Assessment Year (A.Y.) 2014-15.The Revenue in its appeal has raised following grounds of appeal: “1. Whether on the facts and circumstances of the case as well as law on the subject, the ld. CIT(A) has erred in deleting the addition of Rs. 3,37,19,531/- made by the AO on account of LTCG by treating non agricultural land sold by assessee as agricultural land? 2. Whether on the facts and circumstances of the case as well as law on the subject, the ld. CIT(A) has erred in treating the land in question as agricultural land inspite of the fact that the character of land had become non agricultural prior to the sale of the same, in view of the permission granted by the Dy. ITA 574/SRT/2019 ITO Vs Sh. Kanubhai A Monpara 2 Collector under Section 63 of the Bombay Tenancy and Agricultural Lands Act, 1948 on 25/11/2013? 3. Whether on the facts and circumstances of the case as well as law on the subject, the ld. CIT(A) has erred in deleting the above addition without appreciating the fact that the assessee has failed to establish with documentary evidences that the lands sold were agricultural lands? 4. On the facts and circumstances of the case and in law, the ld. CIT(A) ought to have upheld the order of the AO. It is, therefore, prayed that the order of the ld. CIT(A) may be set aside and that of the A.O. may be restored.” 2. Brief facts of the case are that during the assessment proceedings, the Assessing Officer noted that in the relevant financial year, the assessee had sold two parcel of land situated in block No. 143 and block No. 247 at village-Shah, Taluka- Mangrol, Surat. The assessee claimed exemption of the sale proceeds being agricultural land. In order to verify the claim, the Assessing Officer asked the assessee to prove that the agricultural activities being carried out in the land immediately preceding two years before the date of transfer. In response to notice, the assessee filed his reply dated 12/09/2016. In the reply, the assessee stated that both the lands are situated outside the Municipal limit or Cantonment Zone having population of 10,000 or more and does not fall within such distance as per Section 2(14) of the Income Tax Act, 1961 (in short, the Act). Both the parcel of lands are covered under rural agricultural land and are not capital asset, so the capital gain tax is not applicable on both the parcel of lands. As proof of agricultural activities, the assessee furnished copy of conveyance deed of both the agricultural land and Form 7/12 extract, 8A and Form No. 6- ITA 574/SRT/2019 ITO Vs Sh. Kanubhai A Monpara 3 Hakpatrak statement showing agricultural activities carried out over the said land immediately two years before the date of transfer. The assessee also furnished the certificate of Talati that the land has not situated within 8 KM from Municipal limit. The assessee also relied upon the decision of Hon'ble Gujarat High Court in the case of CIT Vs Siddharth J Desai (1982) 10 Taxman 1 (Guj). The reply of assessee was not accepted by the Assessing Officer. The Assessing Officer further issued a show cause notice dated 15/11/2016. The contents of show cause notice is reproduced in para 6.1 of the assessment order. In the said show cause notice, the Assessing officer recorded that in response to earlier notice, the assessee furnished copy of registered conveyance deed wherein it is mentioned that an agreement to sell was already executed with purchaser i.e. M/s Gujarat Agro Infrastructure Mega Food Park Pvt. Ltd. on 27/05/2013. In the sale deed, it is mentioned that requisite permission under Section 63 of Bombay Tenancy and Agricultural Lands Act was obtained prior to sale. As per schedule of payment, the purchaser party started making payment of consideration one year from the date of sale of land. The land was sold to non-agriculturist for non agricultural purpose. On the basis of such observation, the Assessing officer issued show cause notice as to why the land sold during the year should not be treated as ‘capital asset’ and the capital gain arises on sale of such asset should be treated as long term capital gain with consideration of fair market value as per stamp duty value and taxed accordingly. ITA 574/SRT/2019 ITO Vs Sh. Kanubhai A Monpara 4 3. The assessee again filed its reply which has been recorded in para 7 of assessment order. In the reply, the assessee reported that the land was actually and originally used for agricultural purpose at or about relevant time. The revenue records shows that the land was used only for agricultural purpose and it was also shown that the crops were grown. The assessee further stated that the application under Section 63 of Bombay Tenancy and Agricultural Lands Act was made to obtain permission to sell the land to a Private Limited Company or non-agriculturist person and that permission was granted with conditions. The mere fact that such permission was obtained by the assessee does not mean that the land is ceased to be agricultural in character. Since the permission for non-agricultural use of land under Section 65 was still not obtained from the competent authority, such permission was never obtained by the assessee. It was obtained by the vendee/purchaser after sale was completed. The land was sold as agricultural land at a rate applicable for agricultural land. 4. The reply of assessee was not accepted by the Assessing Officer. The Assessing officer recorded that the assesse could not establish with evidentiary proof about the actual agricultural activities were carried out in the land immediately preceding the date of transfer and repeatedly making emphasis that the land is rural agricultural land. The Assessing Officer further recorded that as per record of extract in 7/12 form, the crop of Jwar and Tuwar are shown to be cultivated in the land. These crops are commercial in nature, beyond the consumption requirement of the family. The permission to transfer the land was granted by ITA 574/SRT/2019 ITO Vs Sh. Kanubhai A Monpara 5 Deputy Collector on 15/11/2013 i.e. just prior to sale of land. The Assessing Officer treated the said piece of land as ‘capital asset’ and surplus earned on sale thereof was treated as capital gain and accordingly made addition of Rs. 3.37 crores to the income of the assessee under the head ‘long term capital gain’. 5. Aggrieved by the order of assessment, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee made similar submission as made before the Assessing officer. The assessee in addition to his other submission, submitted that he is a farmer and not doing business or dealing in land. The land situated is beyond 8 KM of Municipal limit and is not agricultural land. These facts are not denied by the Assessing Officer. The land does not fall under the provision of Section 2(14)(iii) of Income-tax Act. The land was not subjected to any conversion as a non-agricultural land by the assessee or any other person. The permission obtained by assessee under Section 63 of Bombay Tenancy and Agricultural Lands Act is only the conditional permission and if the same is not fulfilled, the same is cancelled. Merely obtaining the permission does not mean that the land ceased its character to be agricultural land. The ld. CIT(A) after considering the submission of assessee recorded that the assessee is a farmer and not in the business of dealing of land. The land sold by the assessee is beyond 8 KM of the Municipal limit and the same is agricultural land, which is not disputed by the Assessing Officer. As per the revenue records, the specification is agricultural land and is not changed to any conversion from agricultural to non- agricultural purposes. The revenue records clearly shows that the land was used ITA 574/SRT/2019 ITO Vs Sh. Kanubhai A Monpara 6 for agricultural purposes. The Assessing Officer himself recorded crops in the land. The Assessing Officer wrongly treated the land as non-agricultural land. The assessee factually proved that it was an agricultural land. The reasoning of the Assessing Officer that the land is a capital asset is very strange. The theory propounded by the Assessing officer is not supported by any facts or evidence that the land was a capital asset. On the aforesaid observation, the ld. CIT(A) allowed the grounds of appeal thereby deleting the addition made by the Assessing officer. Aggrieved by the order of ld. CIT(A), the revenue has filed the present appeal before this Tribunal. 6. We have heard the submissions of learned Commissioner of income-tax – departmental representative (ld.CIT-DR) for the Revenue and the Ld. Authorised Representative (AR) for the assessee. The ld. CIT-DR submits that the assessee obtained permission to sell the land to non-agriculturist. The moment permission was obtained to sell the land to non-agriculturist, the land loose its character. The assessee after obtaining permission under Section 63 of Bombay Tenancy and Agricultural Lands Act, transferred the said land to a private limited company. Thus, the Assessing Officer was correct in treating the said land as capital asset and surplus earned on sale thereof is taxable as capital gain. On the basis of aforesaid submission, the ld. CIT-DR submits that he fully supports the order of Assessing Officer. 7. On the other hand, the ld. AR of the assessee submits that the Assessing Officer has grossly erred in treating the exempt income arising on sale of agricultural ITA 574/SRT/2019 ITO Vs Sh. Kanubhai A Monpara 7 land by treating it as taxable long term capital gain. The assessee is a farmer and was doing agricultural activities in the said land. This fact is accepted by the Assessing officer. The observation of Assessing Officer that the crop of Jwar and Tuwar are commercial crop is based on his misconception. The Assessing Officer has not denied the fact that the land situated beyond 8 KM from the Municipal limit. The assessee filed sufficient document to prove the agricultural activities carried out by the assessee in the said land. The ld. AR further submits that in the ratio of decision in the case of CIT Vs Siddharth J Desai (supra) is clearly applicable on the facts of the present case. The Assessing Officer failed to appreciate the ratio of the said decision. The Hon'ble Gujarat High Court in the case of CIT Vs Siddharth J Desai (supra) clearly held that even the permission under Section 63 of Bombay Tenancy and Agricultural Lands Act was obtained by the assessee to sell the land to a cooperative society and permission was granted subject to condition that the land should be used for residential purpose. It was further held that mere fact that a permission was obtained does not mean that the land ceased to be agricultural use of land under Section 65 of Bombay Land Revenue Code was not obtained by the competent authority. The ld. AR submits that the permission under Section 65 of Bombay Land Revenue Code was never obtained by assessee in the present case. Similarly in the case of CIT Vs Siddharth J Desai (supra), the similar permission under Section 65 of Bombay Land Revenue Code was not obtained by assessee in that case and was obtained by vendee after sale was completed. Thus, the ratio in the aforesaid decision is ITA 574/SRT/2019 ITO Vs Sh. Kanubhai A Monpara 8 clearly applicable and the grounds of appeal raised by the revenue are covered against them. 8. We have considered the rival submissions of both the parties and have gone through the orders of the authorities below. We find that the Assessing Officer treated the agricultural land as ‘capital asset’ by taking a view that the assessee failed to prove the agricultural activities and that the crop shown in the revenue records are commercial in nature. The Assessing Officer further held that the assessee obtained necessary permission for transfer of land to a non- agriculturist. The ld. CIT(A) on considering the submission of assessee, held that the Assessing officer has used very strange and questionable reasoning to held that the land is a ‘capital asset’, is not supported by any fact or evidence that the land sold by the assessee was a capital asset. Before us, the ld. AR of the assessee vehemently submitted that there is no dispute that the assessee obtained necessary permission under Section 63 of Bombay Tenancy and Agricultural Lands Act and would submit that mere obtaining the permission, the land would not cease its character. We find that on almost similar set of facts, the Hon'ble Gujarat High Court in Siddharth Desai (supra) while considering the similar question of law held that when permission under Section 63 of Bombay Tenancy and Agricultural Lands Act was obtained by assessee to sell the land to a cooperative housing society and that permission was granted with the condition that the land should be used for residential purpose. The permission was necessary only because the land was agricultural land and because it was ITA 574/SRT/2019 ITO Vs Sh. Kanubhai A Monpara 9 governed by the provisions of Bombay Land Revenue Code. The mere fact that such permission was obtained, does not mean that the land ceased to be agricultural land. We find that the ratio laid down in the aforesaid decision is clearly applicable on the facts of the present case. Therefore, with this additional observation, we affirm the order of the ld. CIT(A) and the grounds raised by the revenue is dismissed. In the result, the grounds of appeal raised by the revenue is dismissed 9. In the result, this appeal of the Revenue is dismissed. Order pronounced on 18/05/2022, in open court and result was also placed on notice board. Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated:18 /05/2022 *Ranjan Copy to: 1. Assessee – 2. Revenue - 3. CIT(A) 4. CIT 5. DR 6. Guard File By Order Sr. Private Secretary, ITAT Surat