TaxTMI 
TaxTMI 
TaxTMI 
2024 (11) TMI 573
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....yle 'M/s Fashion Club Global', had filed her return of income on 30.09.2013, declaring total income of Rs. 2,64,51,220/-. The return was processed under Section 143 (1) of the Act and was selected for scrutiny under Computer Assisted Scrutiny Selection (CASS). A notice under Section 143 (2) of the Act was issued on 10.09.2014 and was duly served on the assessee. On 19.08.2015, a notice under Section 142 (1) of the Act was issued with a questionnaire forming part of it. 4. In response to the aforesaid notices, the assessee informed the learned Assessing Officer [hereafter 'the AO'], inter alia, that she had earned long term capital gain of Rs. 10,72,76,180/- on sale of agricultural land, which was situated beyond the prescribed limits of Sohna District in Haryana. To support the same, she had enclosed a certificate issued by Tehsilar, Sohna, which, as claimed by her, was to the effect that the land was situated beyond 8 kms of the municipal limits. The prescribed limit for Sohna District was 5 kms. Thus, the assessee claimed that the land did not qualify as a capital asset defined under Section 2 (14) of the Act, and was thus exempt from capital gains. 5. An order dated 07.12.2015....
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....to why the order passed by the AO be not modified or set aside under Section 263 of the Act by the PCIT. 8. During the course of proceedings, the PCIT found that necessary details regarding the land were not sought by the AO from the District Town Planner (Planning), Gurugram [hereafter 'DTP, Gurugram']. The PCIT noted that the report of DTP, Gurugram confirmed that the land was within both the old and extended municipal limits of Gurugram, contradicting the assessee's claim of land being agricultural land. When confronted with this evidence, the assessee could not provide any satisfactory explanation. The PCIT also highlighted that the land was sold to one M/s Vallabham Buildcon Pvt. Ltd. [hereafter 'Vallabham Buildcon'] for Rs. 17,96,15,625/-, and the same was being aggregated for township development. Additionally, the sale deed executed between the assessee and Vallabham Buildcon mentioned that the land was not fit for agricultural purposes. The PCIT concluded that the evidence provided by the assessee had no evidentiary value compared to the substantial evidence possessed by the department, which proved that no agricultural operations had been conducted by either the assessee....
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....on behalf of the assessee and explained the case and submitted all the details as called for during the proceedings. It is evident from the assessment order that the assessee was provided ample opportunities and the ld. counsel for the assessee appeared over various dates of hearing i.e. 21.07.2015, 19.10.2015, 05.11.2015 and on other dates as per the order sheet. The Assessing Officer further mentioned in the' assessment order that details were provided on behalf of the assessee which were checked and verified on test check basis and were placed on record. It is further noticed that a letter was filed by the assessee in the assessment proceedings giving explanation about the non-taxability of the capital gain of Rs. 2,10,72,76,180/- arising on the sale of subject land. It was explained in the letter placed at page 54 and 55 of the paper books that the subject agricultural land was situated beyond prescribed limits of Sohna and that it was not a capital asset as the land was situated beyond the prescribed limit of concerned municipal limit and thus capital gain arising on the sale of such agricultural land is exempt. It is also noticed that assessee filed purchase deed of this ....
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....replies given on behalf of the assessee and then in paras 18 to 20 of the order u/s 263, CIT held that the objections raised by the assessee as regards the invocation of section 263 of the Act are not tenable. There is no finding recorded by the ld. CIT (A) after the receipt of the replies from the assessee that the assessment order was erroneous and prejudicial to the interest of the revenue. Therefore, absence of such finding is also fatal to the validity of the order u/s 263 and we are fortified by Guwahati High Court decision in the case of Smt. Lila Chaudhary Vs. CIT 289 ITR 226, Hon'ble Bombay High Court in the case of Jewel of India Vs. CIT 325 ITR 92, Hon'ble Delhi High Court in CIT Vs. International Travel House Ltd reported in 344 ITR 554, Hon'ble Delhi High Court in CIT Vs. Bharat Aluminum Co. Ltd 303 ITR 256, therefore, from this stand point also, order passed u/s 263 is not sustainable and is therefore, quashed. 7. Appellant's counsel Dr. Rakesh Gupta raised one more issue that CIT could not have taken upon himself to deny the exemption and best power of CIT could have to set aside the order. The decisions relied upon were ACIT Vs Manas Salt lodization In....
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....ror by not considering clause (a) of Explanation 2 to Section 263 of the Act, which provides that jurisdiction can be exercised by the PCIT in case the AO has passed the order without making inquiries or verification which should have been made. It is argued that a perusal of the order passed by the AO would reveal that it did not conduct inquiries with regard to the claims of the assessee, and did not obtain information from concerned authorities for verification of distance of the land in question from the municipal limits, which is essential for determining whether it is a capital asset. 16. He states that the certificate issued by Tehsildar, relied upon by the assessee, was not a certificate, which was issued after conducting any inquiry by Tehsildar in respect of the land in question, and the AO ought not to have relied upon the said certificate which, in effect, contained no information, and thus, the reliance placed by the AO on the Tehsildar's certificate, which lacked essential information regarding the land's distance from the municipal area, was misplaced. Therefore, Sh. Chawla contended that the AO did not conduct the inquiry as he was required to conduct, and rather, ....
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....d situated beyond prescribed distance from Sohna District in Haryana. It is also contended that though the PCIT had issued notice under Section 263 of the Act and sought a response from the assessee, once the replies were filed, the PCIT did not specifically hold that the order passed by the AO was erroneous and prejudicial to the interests of the Revenue. She argues that unless such twin findings are recorded by the PCIT, after the receipt of response from the assessee, a valid order under Section 263 of the Act could not be passed. 21. Ms. Chopra also contends that the certificate issued by the Tehsildar is unequivocal and unambiguous, and once it is issued by the said authority, there was no need for the AO for seeking any further corroboration by way of any other evidence or documentary proof. It is stated that the certificate clearly mentions that the land in question is agricultural land and, therefore, it was rightly held by the learned ITAT that in absence of any proof that the land was non-agricultural land, the same could not have been assessed or brought to tax under capital gains. 22. It is also contended that Explanation 2 to Section 263 of the Act was inserted in th....
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.... fall within the meaning of 'capital assets'. 27. The assessee had claimed that the land in question was agricultural land, and thus not a capital asset, and she had earned long-term capital gain from its sale, which was exempt from tax. In support of this claim, the assessee had placed reliance on the certificate issued by the Tehsildar in the year 2012. Notably, a perusal of the said certificate reveals that the same is a letter written by the assessee to the Tehsildar in which she had herself mentioned that she resided at Araji Waka Mauza Sohna, Tehsil Sohna, District Gurugram, and was requesting the Tehsildar to order the Patwari to give "certificate of distance from Sohna border of the above municipality of Araji". Under normal circumstances, upon receiving such a letter, it would be the duty of the Tehsildar to undertake an inquiry and then to tender information or certify as to what is the distance of the land from the municipal limit. However, in the present case, the Tehsildar's certificate, which is only in the form of two liner endorsement beneath the application made by the assessee requesting for issuance of such certificate, would reveal that he has not even mentione....
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....oes not, in itself, verify the land's classification as agricultural for the taxation purposes. Therefore, heavy reliance on the sale deed to establish the agricultural character of the land would be misplaced. However, even if we consider the contents of the sale deed, it shall be important to note that though the sale deed dated 20.04.2012 executed between the assessee and Vallabham Buildcon mentioned the land as 'agricultural land', it was specified in the contents of the sale deed itself that the land was not beneficial for the purposes of sowing and cultivation. This fact was also taken note of by the PCIT, alongwith the fact that the Vallabham Buildcon, in its reply, had informed the PCIT that it was in process of aggregating the land for the development of integrated township and group housing projects at Sohna. 31. Further, the assessee had purchased the land on 03.05.2011 and sold the same on 20.04.2012 i.e. within nine months from the date of purchase. Undisputedly, the assessee did not show any agricultural income for the AY 2013-14 in her return. The PCIT observed that these facts were not taken into account by the AO. 32. Moreover, the DTP, Gurugram had also informed....
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..... On Appeal, a Constitution Bench of this Court held that; (a) inasmuch as agricultural land is exempted from the purview of the definition of the expression "assets", it is "impossible to adopt so wide a test as would obviously defeat the purpose of the exemption given". The idea behind exempting the agricultural land is to encourage cultivation of land and the agricultural operations. "In other words this exemption had to be necessarily given a more restricted meaning than the very wide ambit given to it by the Full Bench of the Andhra Pradesh High Court", (b) What is really required to be shown is the connection with an agricultural purpose and user and not the mere possibility of user of land by some possible further owner or possessor, for an agricultural purpose. It is not the mere potentiality but its actual condition and intended user which has to be seen for purposes of exemption, (emphasis added), (c) "The person claiming an exemption of any property of his from the scope of his assets must satisfy the conditions of the exemption." (d) "The determination of the character of land, according to the purpose for which it is meant or set apart and can he used, is a m....
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....rect point of view, it was remitted to the High Court for a fresh decision. The decision of Gujarat High court in Commissioner of Income Tax, Gujarat-II v. Siddharth J. Desai 139 I.T.R. 628, relied upon strongly by the learned Counsel for the appellant, reviewed the several earlier decisions of the Gujarat High Court as well as the decision of this Court in Begumpet Palace and has evolved the following 13 factors/indicators applying which the question has to be answered. The 13 factors are the following : (1) Whether the land was classified in the revenue records as agricultural and whether it was subject to the payment of land revenue? (2) Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time? (3) Whether such user of the land was for a long period or whether it was of a temporary character or by way of a stop-gap arrangement? (4) Whether the income derived from the agricultural operations carried on in the land bore any rational proportion to the investment made in purchasing the land? (5) Whether, the permission under Section 65 of the Bombay Land Revenue Code was obtained for the non-agricultural use of the land? If....
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....ed by the Nagpur Improvement Trust Scheme. In August 1966 he obtained permission to convert the said land to non-agricultural use. In June 1968 he entered into an agreement with a Housing Cooperative Society to sell three acres out of it. The sale-deed was executed in October 1968. In this assessment proceedings the assessee claimed that the surplus income arising from the sale of land was exempt from tax inasmuch as it was agricultural land at the time of its sale. The matter reached the High Court. The Division Bench referred to several facts established from the record. Some of them supported the assessee's stand while some others militated against his contention. The facts found in favour of the assessee were: (1) at the time of its purchase by the assessee, the Ajni land was agricultural land; (2) it had been under cultivation by the assessee till the date of its sale, (3) it continued to be assessed to land revenue as agricultural land until it was sold, (4) the intention of the assessee, when he purchased it, was to acquire agricultural land for agricultural purposes, (5) the assessee's use of it was the normal use by an agriculturist, (6) it was nor....
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....e owner's intent to use it for agriculture plays a crucial role. However, conversion of the land to non-agricultural use, selling it for housing development, and the absence of agricultural activities for several years weigh against it being classified as agricultural land. 35. In the backdrop of the above-noted principles discussed by the Hon'ble Supreme Court, we note that following facts were brought to light during the proceedings before the PCIT: (i) The Tehsildar who had issued the certificates in favour of the assessee did not appear before PCIT to provide any documents in support of the certificate issued by him. (ii) The land in question, which had been sold by the assessee to Vallabham Buildcon, was being aggregated for development projects by Vallabham Buildcon. (iii) The DTP, Gurugram confirmed that the land was within the extended municipal limits of Gurugram and was marked on the sectoral plan of Sohna, indicating that no agricultural operations were possible. 36. We are also of the view that the following facts, apparent from the record, were completely overlooked by the AO while passing assessment order under Section 143 (3) of the Act: (i) The Tehsildar's....
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......." 40. Section 263 of the Act, as it reads on date, including Explanation 2 inserted by virtue of Finance Act, 2015, is extracted hereunder: "263. Revision of orders prejudicial to revenue. (1) The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer or the Transfer Pricing Officer, as the case may be, is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including,- (i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or (ii) an order modifying the order under section 92CA; or (iii) an order cancelling the order under section 92CA and directing a fresh order under the said section. *** Explanation 2.- For the purposes of this section, it is hereby declared that an order passed by the Assessing Offic....
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.... was also 'prejudicial to interests of the Revenue', the scope of these words was explained by the Hon'ble Supreme Court and the Coordinate Benches of this Court in various decisions. It will be useful to refer to a few decisions, without burdening the present judgment with all the authorities on the said issue. 45. The Hon'ble Supreme Court, in case of Malabar Industrial Co. Ltd. (supra) has ruled that an order passed by an assessing officer can be deemed erroneous if it is based on incorrect assumption of facts or an incorrect application of law, and also if it is passed without applying the principles of natural justice or without application of mind. In the case of Malabar Industrial Co. Ltd. (supra), a resolution passed by the board of the appellant-company was not placed before the assessing officer and it was held that there was no material to support the claim of the appellant therein, and the assessing officer had accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. 46. This Court, in Gee Vee Enterprise (supra), held that the Commissioner can regard the order as erroneous on th....
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....d that the order was erroneous and prejudicial to the interest of the revenue. However, on appeal, the Tribunal had held that the penalty proceedings were not dropped casually by the assessing officer but after verification of full facts disclosed by the assessee in the reply. This Court, in judgment dated 02.04.2008 held that the order passed by the assessing officer was cryptic and non-reasoned. The relevant observations are extracted below: "10. We are unable to appreciate this reasoning given by the Tribunal simply because that the Assessing Officer himself did not say any such thing in his order. There is no doubt that the proceedings before the Assessing Officer are quasi-judicial proceedings and a decision taken by the Assessing Officer in this regard must be supported by reasons. Otherwise every order such as the one passed by the Assessing Officer, could result in a theoretical possibility that it may be revised by the CIT under section 263 of the Act. Such a situation is clearly impermissible. 11. It is also necessary for the parties to know the reasons that have weighed with the Adjudicating Authority in coming to a conclusion. The order passed by the Assessing Offic....
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.... not even mention the distance of the land from the municipal limits which is a criteria for determining the agricultural status of land under the Act, nor sought any additional evidence or document from the relevant authorities like the DTP, Gurugram, undoubtedly, suggests that the AO failed to undertake any inquiry or even apply his mind to the documents submitted by the assessee to arrive at the conclusion regarding the long-term capital gains exemption. 52. There is no cavil that the PCIT would not have jurisdiction to pass an order under Section 263 of the Act solely for the reason that he held a different opinion with the AO. If the AO has applied his mind and had arrived at a plausible view, the same would not be amenable to a revision under Section 263 of the Act. 53. However, if the AO has not applied his mind and had come to an erroneous conclusion without making any enquiries, the CIT may be well within his jurisdiction to pass an order under Section 263 if he finds that the assessment order is erroneous and prejudicial to the interest of the revenue. In Rampyari Devi Saraogi v. Commissioner of Income-Tax, West Bengal & Ors: (1968) 67 ITR 84, the Commissioner found tha....
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....iple that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open......" (Emphasis added) 56. In the present case, the AO had issued a questionnaire to the assessee on 19.08.2015. The assessee responded to the said questionnaire by claiming that she had earned long term capital gains of Rs. 10,72,76,180/-, which was not chargeable to tax as the agricultural land was beyond the prescribed distance from the municipal limits of Sohna district. She also enclosed therewith a document described as a certificate issue....