2024 (6) TMI 1359 - AT - Income Tax

ITAT remands agricultural land verification under Section 2(14) despite revenue record conversion before sale

Tejabhai Nagjibhai Makwana Versus Income Tax Officer, Ward-4, Palanpur, Gujarat

Tejabhai Nagjibhai Makwana Versus Income Tax Officer, Ward-4, Palanpur, Gujarat - TMI Issues Involved:1. Whether the land sold by the assessee qualifies as a capital asset and is subject to Section 50C of the Income Tax Act, 1961.2. Denial of exemption claims under Sections 54B and 54F of the Income Tax Act.3. Permission to raise additional grounds of appeal regarding the exemption claims under Sections 54B and 54F.Issue-wise Detailed Analysis:1. Land as a Capital Asset and Application of Section 50C:The primary contention revolves around whether the land sold by the assessee qualifies as a capital asset, thereby invoking Section 50C of the Income Tax Act, 1961. The Assessing Officer (AO) treated the land as a capital asset and used the Jantri value of Rs. 3,73,32,000 for stamp duty purposes, leading to an addition of Rs. 1,23,97,837 to the assessee's income. The AO rejected the assessee's argument that the land was agricultural and had been used for agricultural purposes up to the date of sale. The CIT(A) partially allowed the appeal by adjusting the valuation to Rs. 2,86,21,000 as determined by the Departmental Valuation Officer (DVO), but upheld the AO's treatment of the land as non-agricultural.2. Denial of Exemption Claims under Sections 54B and 54F:The assessee claimed exemptions under Sections 54B and 54F, arguing that the sale proceeds were invested in constructing a residential house and purchasing agricultural land. The AO did not address these claims in the assessment order. The CIT(A) noted that the issue was raised during the assessment proceedings but was not included in the grounds of appeal in Form No. 35. Consequently, the CIT(A) directed the AO to verify and allow the deductions under Sections 54B and 54F if the conditions were met.3. Permission to Raise Additional Grounds of Appeal:The assessee argued that the CIT(A) erred in denying permission to raise additional grounds of appeal regarding the exemption claims under Sections 54B and 54F. The CIT(A) acknowledged that the issue was raised during the assessment proceedings but did not formally address it due to its absence in the grounds of appeal.Tribunal's Findings:The Tribunal considered the following key points:- The Department did not dispute that the assessee was carrying out agricultural activities on the land up to the date of sale.- Citing precedents from the Gujarat High Court (CIT v. Vajulal Chunilal and Manilal Somnath), the Tribunal held that the land's agricultural character is not lost merely due to its conversion to non-agricultural use before the sale.- The Tribunal noted that the AO did not analyze whether the land qualified as agricultural under Section 2(14) of the Act.Conclusion and Directions:The Tribunal set aside the issue to the AO to verify if the land meets the conditions of Section 2(14) of the Act, allowing the assessee to produce supporting documents. The Tribunal upheld the CIT(A)'s direction to the AO to verify and allow deductions under Sections 54B and 54F after due verification. The appeal was partly allowed for statistical purposes.Result:The appeal of the assessee was partly allowed for statistical purposes, with directions for further verification by the AO. The Tribunal pronounced the order in open court on 15/02/2024.