2024 (2) TMI 213 - AT - Income Tax

Tribunal Orders Reassessment of Capital Gains and Agricultural Income, Emphasizes Fair Market Value and Deductions.

The Tribunal allowed the appeal for statistical purposes, directing the Assessing Officer to reassess the appellant's long-term capital gains and ... Addition as long term capital gains and addition as agricultural income - eligibility of exemption u/s 54 - co-ownership in land - HELD THAT:- What we understand is that the family sold the impugned land. Being the daughter of the family, the assessee also received 1/5th share, but out of sheer love and affection, she gave her share to her brother The fact of payment to Brother has also been mentioned by the AO in the assessment order. Rs. 47 lakhs was given to Anshu. The lady says that her brother has since deceased and, therefore, she has no evidence with her, as her sister-in-law does not allow her to enter the house. Although the Assessing Officer has mentioned the names of all the co-owners and has computed the capital gains on the total land holding and attributed 1/5th share to the assessee, but nowhere he has mentioned the status of assessment in the hands of the co-owners. The appellant lady before us stated that her brother has purchased some agricultural land out of the consideration given by her but showed her inability to furnish documents as the same are available with her sister-in-law who does not allow her to enter into the house. On such peculiar facts of the case, bank account of the assessee has been freezed by the officers, making her life more miserable. We do not want the illiterate lady to suffer in the hands of the revenue but at the same time we also feel helpless as we cannot do anything for this illiterate lady. In the interest of justice and humanity, we restore the issue to the file of AO to verify the status of the assessment/appeal of the co-owners as mentioned by him in his assessment order. AO is also directed to verify from the sister in law [wife of the deceased brother of the assessee] whether the deceased had purchased agricultural land out of consideration received from the assessee. AO must exercise all his powers to get information from that lady and if he finds that the brother had purchased agricultural land from the sale consideration given by the assessee, then allow claim of exemption u/s 54. ISSUES PRESENTED AND CONSIDERED 1. Whether the Assessing Officer's addition of a portion of sale proceeds as long term capital gains by adopting a minuscule market value as on 01.04.1981 was correct in the absence of proper determination of Fair Market Value of agricultural land situated within Municipal Corporation limits. 2. Whether reliance on non-comparable Government award/compensation instances from distant villages to determine FMV as on 01.04.1981 for the subject land was appropriate. 3. Whether principles of natural justice were complied with in making the assessment and confirming the addition on appeal. 4. Whether the assessee was entitled to exemption under section 54 on the facts alleged (payment/use of consideration for purchase of agricultural land by a co-owner/deceased brother) and whether such claim required verification. 5. Whether, in view of the peculiar facts (illiterate assessee, alleged transfer of her share to a brother, alleged subsequent purchase of agricultural land out of her consideration, lack of documentary proof), the matter should be remitted to the Assessing Officer for further enquiry and verification (including status of co-owners' assessments/appeals) and appropriate decision. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of LTCG addition based on FMV as on 01.04.1981 Legal framework: Long term capital gains on transfer of land are computed by reference to indexed cost of acquisition; where land was acquired prior to 01.04.1981, Fair Market Value (FMV) as on 01.04.1981 is relevant for computation under the governing tax provisions. Precedent Treatment: No specific precedents were cited or applied by the authorities below in the impugned orders as presented to the Tribunal. Interpretation and reasoning: The Tribunal noted that the AO computed capital gains for the entire holding and attributed 1/5th to the assessee without satisfactorily determining FMV as on 01.04.1981 for the parcel sold. The Tribunal observed factual constraints - the land lay within Municipal Corporation limits (making it chargeable to capital gains) and the assessee was unable to produce documentary valuation evidence. Given the lack of a clear FMV determination and the particular factual matrix (co-ownership, family disposition of proceeds), the Tribunal did not sustain the mechanical adoption of a miniscule value but found that further verification was necessary before a final conclusion on FMV and resultant LTCG could be drawn. Ratio vs. Obiter: Ratio - Where FMV as on statutory date is not satisfactorily established and the assessment attributes gains without appropriate inquiry into valuation and related facts, reassessment or remand for verification is warranted. Obiter - commentary on the assessee's illiteracy and humanitarian concerns. Conclusions: The Tribunal refused to finally uphold the AO's addition on the existing record and directed remand for proper verification of valuation and related matters. Issue 2 - Use of non-comparable awards from distant villages to fix FMV Legal framework: FMV/valuation for capital gains must be determined on relevant and comparable data; awards or compensation values used for reference must be comparable in location, accessibility and other material characteristics. Precedent Treatment: The record shows the authorities relied upon awards from lands located in distant villages; no precedents were invoked to validate such non-comparable reliance. Interpretation and reasoning: The Tribunal highlighted that the AO and CIT(A) adopted values based on awards in villages approximately 38 kms away and did not demonstrate comparability. The Tribunal underscored that values of better-located land cannot be equated with distant, non-comparable award instances; therefore, the AO should have sought FMV from similarly located lands in the vicinity or otherwise applied established valuation principles rather than rely on remote awards without justification. Ratio vs. Obiter: Ratio - FMV must be based on comparable instances; use of remote/non-comparable awards without justification renders the valuation undetermined and warrants further enquiry. Obiter - suggestion that nearby similar land should have been used. Conclusions: The Tribunal directed the AO to re-examine FMV determination using appropriate comparable evidence and valuation principles on remand. Issue 3 - Compliance with principles of natural justice Legal framework: Assessment proceedings must adhere to principles of natural justice, including giving parties opportunity to produce evidence and be heard. Precedent Treatment: The proceedings showed the assessee, being illiterate and unable to attend, was disadvantaged; no specific corrective procedural steps had been recorded by the AO/CIT(A). Interpretation and reasoning: The Tribunal observed that the assessee could not effectively participate in proceedings and could not furnish documents. While the Tribunal declined to set aside the assessment solely on procedural grounds, it recognized the practical inability of the assessee to defend her position and therefore directed remand and active verification by the AO, implicitly recognizing the need to afford fair opportunity and take steps to elicit information (including from third parties such as the deceased brother's widow). Ratio vs. Obiter: Ratio - Where a taxpayer truly cannot participate or produce evidence due to incapacity or other impediments, the revenue must use its powers to verify material facts and ensure fair adjudication. Obiter - expressions of sympathy and humanitarian concern. Conclusions: The Tribunal remitted the matter for further proceedings, directing the AO to exercise powers to obtain necessary information and to be sympathetic in practical dealings with the assessee. Issue 4 - Entitlement to exemption under section 54 based on alleged purchase of agricultural land by co-owner/deceased brother Legal framework: Exemption under section 54 is available where capital gains are invested in specified capital assets within prescribed time and conditions; claim requires proof of such investment/transaction and nexus to the assessee's capital gain. Precedent Treatment: No conclusive finding on entitlement was reached by lower authorities; the Tribunal found factual assertions (payment to brother, alleged purchase of agricultural land from proceeds) but no documentary proof available before it. Interpretation and reasoning: The Tribunal accepted the assessee's assertion that she transferred her share to her brother and that consideration was paid (noting AO's admission of payment to the brother). Given the brother's subsequent death and the assessee's inability to retrieve documents from his widow, the Tribunal held that verification from the widow and scrutiny of co-owners' records was necessary to ascertain whether investment occurred such that section 54 exemption could apply. Ratio vs. Obiter: Ratio - A claim to deduction/exemption predicated on reinvestment by a co-owner requires factual verification; where on-record there are plausible indications, the matter should be investigated rather than summarily disallowed. Obiter - direction to be sympathetic where practical. Conclusions: The Tribunal directed the AO to verify whether the deceased brother purchased agricultural land out of the assessee's consideration and, if established, to allow section 54 exemption in accordance with law. Issue 5 - Need for remand and scope of AO's inquiry (including co-owners' assessment status) Legal framework: Tribunal may remit matters to the Assessing Officer for factual verification and fresh adjudication where record is incomplete or factual issues requiring fact-finding remain. Precedent Treatment: The authorities below had not examined the assessment/appeal status of co-owners nor pursued third-party verification from the deceased brother's widow. Interpretation and reasoning: Considering: (a) the AO computed gains for the entire holding but did not clarify assessment status of co-owners; (b) the assessee's assertion of transfer of her share and alleged reinvestment by brother; and (c) absence of documentary proof due to factual impediments, the Tribunal found remand necessary. The Tribunal directed the AO to verify co-owners' assessment/appeal status, to obtain information from the deceased brother's widow, and to exercise powers to secure relevant documents and evidence. The Tribunal explicitly instructed the AO that if purchase by the brother from the assessee's consideration is established, section 54 relief should be allowed and the issue decided afresh in accordance with law, being sympathetic to the assessee insofar as practical. Ratio vs. Obiter: Ratio - Where factual disputes and third-party documents are material to tax liability and the record is incomplete, the proper course is remand with specific directions to the AO to make factual inquiries and re-decide; conclusions on valuation and exemptions should not be finalized without such inquiry. Obiter - humanitarian exhortation to be sympathetic. Conclusions: The matter was restored to the file of the Assessing Officer with precise directions to verify co-owners' assessment status, obtain evidence from the deceased brother's widow, examine any land purchased out of the assessee's consideration, determine eligibility for section 54 exemption if supported by proof, reassess FMV in accordance with comparable evidence, and decide the issues afresh; the appeal was allowed for statistical purposes.