2018 (7) TMI 2256 - AT - Income Tax

Tribunal Remits Land Classification Issue for Reconsideration

The Tribunal remitted the issue of whether the land sold was agricultural back to the Assessing Officer for proper consideration, allowing the appeal for ... Disallowance of a claim u/s.54F on long term capital gains - CIT(Appeals) declined to admit her claim that the land sold which gave rise to the gains was an agricultural one and hence outside the ambit of levy of capital gains tax - HELD THAT:- It is not disputed by the assessee that nature of land which was sold giving rise to the gains was never an issue before AO nor raised by her before him. It is also true that assessee herself had computed capital gains from the sale of such property and claimed deduction u/s.54F of the Act in her return of income. Nevertheless, assessee did prefer a claim before the ld. CIT (Appeals) that the land sold was agricultural in nature and would not be capital asset within the meaning of Section 2(14). In support of this assessee placed before ld. Commissioner of Income Tax (Appeals) a number of records to substantiate such claim. Ld. Commissioner of Income Tax (Appeals) declined to admit the claim made by the assessee, citing a reason that Rule 46A did not permit admission of additional evidence, due to assessee’s failure to produce the evidence before the ld. Assessing Officer . However, a reading of the assessment order clearly show that assessee’s representative had mentioned loss of documents provided by the client to him in the Chennai floods. If the land sold by the assessee was indeed agricultural in nature, gains arising from such sale would not be exigible for capital gains tax, since agricultural land is not a capital asset under Section 2(14) of the Act. We are of the opinion that the question whether the land sold was agricultural or not was a fundamental issue and this claim ought not have been brushed aside by the ld. Commissioner of Income Tax (Appeals), citing Rule 46A of the Income Tax Rules, 1962. When a particular receipt is not taxable under the Act, it would not become taxable solely for a reason that an assessee returned such income on a wrong understanding of law. Whether a receipt is taxable is to be determined by testing it against the provisions of the Act. Considering the facts and circumstances, we are of the opinion that assessee’s claim that land sold was agricultural in nature requires consideration. We therefore set aside the orders of the lower authorities and remit the issue whether land sold by the assessee was agricultural or not and whether it was exigible to capital gains to the file of the Assessing Officer for consideration in accordance with law. Appeal of the assessee is allowed for statistical purpose Issues:1. Disallowance of claim under Section 54F of the Income Tax Act, 1961 on long term capital gains.2. Denial of claim that the land sold was agricultural and hence not subject to capital gains tax.Analysis:1. The appellant challenged the disallowance of a claim made under Section 54F of the Income Tax Act on long term capital gains. The Assessing Officer noted discrepancies in the evidence provided by the assessee to support the claim, such as delayed construction start date and inadequate property tax payment. An inspection report revealed that the land purchased did not have the claimed building structure. The Assessing Officer concluded that the construction was insufficient to qualify as a residential house, thus denying the deduction under Section 54F.2. The appellant also contested that the land sold was agricultural and therefore not subject to capital gains tax. The appellant presented various records to support this claim, including certificates, property receipts, and revenue records. However, the Commissioner of Income Tax (Appeals) refused to consider this fresh claim, citing Rule 46A of the Income Tax Rules, as the appellant failed to produce this evidence before the Assessing Officer. The Commissioner upheld the Assessing Officer's decision to deny the deduction under Section 54F.3. The Tribunal considered both contentions. While the nature of the land sold was not raised before the Assessing Officer, the appellant argued before the Commissioner that the land was agricultural based on substantial evidence. The Tribunal found that the Commissioner erred in dismissing the claim under Rule 46A, as the appellant had faced challenges due to natural disasters in producing the necessary documents. The Tribunal emphasized that if the land sold was indeed agricultural, it would not be subject to capital gains tax. Therefore, the Tribunal remitted the issue of the land's nature back to the Assessing Officer for proper consideration, allowing the appeal for statistical purposes.In conclusion, the Tribunal acknowledged the significance of determining whether the land sold was agricultural and directed a reassessment by the Assessing Officer. The judgment highlighted the importance of substantiating claims with evidence and the need for fair consideration of all relevant factors in tax assessments.