2025 (1) TMI 442 - AT - Income Tax

Land within 5km of municipality not capital asset without notification under section 2(14)

ITAT Delhi held that land located in village Garhi Alawalpur, District Rewari, situated within 5 km of Dharuhera Municipality, cannot be treated as ... LTCG - Nature of land sold - Disallowance of deduction u/s. 54B - re-investment by assessee in his wife and daughter and daughter-in-law’s name - DR has submitted that the village -Gahri, Alawalpur to 2.3 KM from the Municipal limit of Dharuhera and hence it should be considered as a capital asset. He has submitted that the google map depicting the distance HELD THAT:- In the instant case the land in question is undisputedly situated in the village Garhi Alawalpur situated in the District Rewari which is within 5 Kms of the present Municipality “Dharuhera”. We find that this Municipality has not been mentioned in the said notification. The revenue could not bring to our notice any other notification issued wherein the Municipality “Dharuhera” situated in District Rewari is mentioned for the purpose of provisions of section 2(14). The coordinate Bench held that the land which is situated at Garhi Alawalpur Municipality “Dharuhera” of District Rewari cannot be treated as the capital asset and not liable to tax under the head “Long Term Capital Gains”. The amendment in the said section has been brought w.e.f 01-04-2014 and the land in question was sold on 21-03-2013 pertaining to A.Y. 2013-14. Since the proceeds cannot be treated as taxable in the hands of assessee. The issues of deduction u/s 54F and u/s 54B becomes academic in nature. 1. ISSUES PRESENTED and CONSIDEREDThe legal judgment addresses several core issues:Whether the disallowance of deduction under Section 54B of the Income Tax Act, 1961, for reinvestment in the names of the assessee's wife, daughter, and daughter-in-law was justified.Whether the assessment was based on conjectures and surmises.The correctness of charging interest under Sections 234A and 234B of the Income Tax Act, 1961.The initiation of penalty proceedings under Section 271(1)(c) of the Act.The validity of the notice under Section 148 and the assessment under Section 147 of the Income Tax Act.Whether the agricultural land in question qualifies as a capital asset under the Income Tax Act, 1961, considering its location relative to municipal limits.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Disallowance of Deduction under Section 54BLegal Framework and Precedents: Section 54B of the Income Tax Act allows for exemption from capital gains tax on the sale of agricultural land if the proceeds are reinvested in agricultural land. The precedent cited was the Punjab and Haryana High Court decision in CIT vs. Dinesh Verma.Court's Interpretation and Reasoning: The court examined whether the reinvestment in the names of family members was permissible under Section 54B.Key Evidence and Findings: The court considered the reinvestment details and the precedent case.Application of Law to Facts: The court applied the legal provisions to determine the eligibility for deduction under Section 54B.Treatment of Competing Arguments: The court weighed the appellant's arguments against the precedent case cited by the revenue.Conclusions: The court found that the deduction under Section 54B was not allowable as the reinvestment was not in the assessee's name.Issue 2: Assessment Based on Conjectures and SurmisesLegal Framework and Precedents: The assessment must be based on concrete evidence rather than assumptions.Court's Interpretation and Reasoning: The court scrutinized the basis of the assessment to ensure it was grounded in factual evidence.Key Evidence and Findings: The court reviewed the evidence presented by the assessing officer.Application of Law to Facts: The court applied the standard of evidence required for assessments.Treatment of Competing Arguments: The court considered the appellant's claim that the assessment was speculative.Conclusions: The court found that the assessment was not solely based on conjectures and surmises.Issue 3: Charging of Interest under Sections 234A and 234BLegal Framework and Precedents: Sections 234A and 234B deal with interest for defaults in furnishing return and payment of advance tax, respectively.Court's Interpretation and Reasoning: The court examined whether the interest was correctly levied.Key Evidence and Findings: The court assessed the timelines and amounts involved in the tax payments.Application of Law to Facts: The court applied the relevant sections to the facts of the case.Treatment of Competing Arguments: The court evaluated the appellant's objections to the interest charges.Conclusions: The court upheld the charging of interest under Sections 234A and 234B.Issue 4: Initiation of Penalty Proceedings under Section 271(1)(c)Legal Framework and Precedents: Section 271(1)(c) pertains to penalties for concealment of income or furnishing inaccurate particulars.Court's Interpretation and Reasoning: The court analyzed whether the initiation of penalty proceedings was justified.Key Evidence and Findings: The court considered the details of the alleged concealment or inaccuracies.Application of Law to Facts: The court applied the criteria for penalty initiation to the case facts.Treatment of Competing Arguments: The court reviewed the appellant's defense against the penalty proceedings.Conclusions: The court found that the initiation of penalty proceedings was not warranted.Issue 5: Validity of Notice under Section 148 and Assessment under Section 147Legal Framework and Precedents: Sections 147 and 148 deal with reassessment and the issuance of notice for income escaping assessment.Court's Interpretation and Reasoning: The court examined whether the notice and assessment were legally valid.Key Evidence and Findings: The court reviewed the notice and the reasons recorded for reassessment.Application of Law to Facts: The court applied the procedural requirements for valid reassessment.Treatment of Competing Arguments: The court considered the appellant's challenge to the notice and assessment.Conclusions: The court found the notice and assessment to be procedurally valid.Issue 6: Classification of Agricultural Land as Capital AssetLegal Framework and Precedents: Section 2(14) of the Income Tax Act defines a capital asset, excluding certain agricultural lands based on proximity to municipal limits.Court's Interpretation and Reasoning: The court analyzed the location of the land in relation to municipal limits and relevant notifications.Key Evidence and Findings: The court considered the geographical location and government notifications.Application of Law to Facts: The court applied the definition of capital asset to the land in question.Treatment of Competing Arguments: The court evaluated the appellant's claim that the land was not a capital asset.Conclusions: The court concluded that the land did not qualify as a capital asset and was not subject to capital gains tax.3. SIGNIFICANT HOLDINGSVerbatim Quotes of Crucial Legal Reasoning: 'The land which is situated at Garhi Alawalpur cannot be treated as the capital asset, ergo the proceeds are not liable to tax under the head 'Long Term Capital Gains'.Core Principles Established: The judgment reinforces the principle that agricultural land outside specified municipal limits is not a capital asset for tax purposes.Final Determinations on Each Issue: The appeal was allowed, with the court ruling that the land was not a capital asset and the proceeds were not taxable. Other issues, such as the disallowance of deductions and the initiation of penalty proceedings, were rendered academic or unjustified.