2021 (8) TMI 904 - AT - Income Tax

Tribunal segregates land compensation: cultivated portion exempt, non-cultivated taxable. A.O. to compute tax liability.

ITO Ward – 2 Phagwara Versus Sh. Sucha Singh S/o. Sh. Bikar Singh, VPO Mansupur, Goraya

ITO Ward – 2 Phagwara Versus Sh. Sucha Singh S/o. Sh. Bikar Singh, VPO Mansupur, Goraya - TMI Issues Involved:1. Deletion of addition made by the Assessing Officer (A.O.) as Capital Gain on the acquisition of land.2. Admission of additional evidence by the Commissioner of Income Tax (Appeals) [CIT(A)].3. Assessment of whether the land in question was used for agricultural purposes.4. Determination of the correct exemption amount under Section 10(37) of the Income Tax Act, 1961.5. Request to set aside the order of the CIT(A) and restore the order of the A.O.Detailed Analysis:Issue 1: Deletion of Addition as Capital GainThe Revenue challenged the CIT(A)'s order, which deleted the addition of Rs. 7,48,60,293 made by the A.O. as Capital Gain on the acquisition of land. The A.O. had concluded that the land was within the urban limit and thus considered it a capital asset, making the compensation received taxable as capital gain. The CIT(A) disagreed, holding that the land was used for agricultural purposes and thus exempt under Section 10(37) of the Income Tax Act, 1961.Issue 2: Admission of Additional EvidenceThe Revenue argued that the CIT(A) erred in admitting additional evidence without appreciating that the A.O. had provided multiple opportunities to the assessee to furnish evidence. The CIT(A) considered the additional evidence, which included certificates from the Revenue Authority and Khasra Girdawari records, to support the claim that the land was used for agricultural purposes.Issue 3: Agricultural Use of the LandThe A.O. had relied on a report from the SDM stating that no crops were standing on the land at the time of the award, suggesting it was not used for agricultural purposes. The CIT(A) found that the land was used for agricultural purposes based on certificates and Khasra Girdawari records, which showed cultivation of crops like wheat and pulses. The Tribunal noted that only part of the land (8 Kanal 30 Marla) was under cultivation, not the entire land (22 Kanal 15 Marla).Issue 4: Correct Exemption Amount Under Section 10(37)The CIT(A) granted total exemption under Section 10(37), but the Tribunal found that only the compensation for the cultivated portion of the land (8 Kanal 30 Marla) should be exempt. The remaining compensation should be taxed as capital gain. The Tribunal directed the A.O. to compute the compensation accordingly and provide the exemption only for the cultivated portion.Issue 5: Request to Set Aside CIT(A)'s OrderThe Tribunal partially allowed the Revenue's appeal, remanding the matter back to the A.O. with specific directions to segregate the compensation for the cultivated and non-cultivated portions of the land and tax them accordingly. The Tribunal also directed the A.O. to compute the pro-rata interest earned on the compensation and provide consequential benefits to the assessee.Conclusion:The Tribunal modified the CIT(A)'s order by segregating the land into cultivated and non-cultivated portions. The compensation for the cultivated portion was exempt under Section 10(37), while the compensation for the non-cultivated portion was taxable as capital gain. The Tribunal remanded the matter back to the A.O. to compute the tax liability accordingly. The assessee's cross-objection was dismissed as infructuous.