2025 (5) TMI 182 - AT - Income Tax

LTCG - determination of cost of acquisition and consequent indexed cost of acquisition being the transfer of long term capital asset while computing the capital gains - AO has adopted the cost of acquisition of the land being the fair market value of land as on 01/04/1981 based on a registration sale deed No. 2354 executed on 27.06.1981 in respect of land situated in Village Jaroda Tehsil Jagadhri which has been contested by the assessee and infact the AO in his remand report submitted during the appellate proceedings has himself stated that the Fair Market Value adopted by the AO at the time of assessment is also not considered to be correct logical being adopted on the basis of land situated in some other village. HELD THAT - The reasoning adopted by the AO is that Villages Kansapur and Ratauli are situated closely and there is no much distance/difference between the both however the exact distance has not been specified whereas the assessee has submitted that the aerial distance between village Kansapur and Village Bhatauli is only 2.4 kms and in the case of the assessee s son who had also sold his share of agricultural land at village khansapur the proximity/distance between the two villages has been considered and basis the same value of land at village Bhatuali has been considered and accepted by the ld CIT(A) in a latter decision to arrive at the fair market value and the said matter has attained finality in absence of further appeal by the Revenue. Given the parity of facts where the assessee and his son have sold land situated at same village during the same period to the same party we don t see any justifiable basis to deviate and adopt two different valuations and our view is fortified by the ratio laid down in case of Ravinder Kaur 2014 (8) TMI 1082 - PUNJAB AND HARYANA HIGH COURT wherein it was held that it would not be appropriate to adopt two different valuations in respect of identical shares in the same property for the same period. We find merit in the contention advanced by the ld AR that the price which an asset can fetch in an open market auction rather than privately negotiated transaction would be a better determinant of the fair market price of the asset as so held in case of Manjit Singh 2013 (9) TMI 636 - ITAT CHANDIGARH as well and in that view of the matter the fair market value of the land basis fird/intkal as so submitted by the assessee relating to transaction through open auction in nearby Village Bhatauli Tehsil Jagadhri whereby Ministry of Defence Government of India had purchased 4 Kanal 10 Marla land on 03/11/1981 would be a better determinant of the fair market value of the land that was sold by the assessee. AO is accordingly directed to adopt the said value being the fair market value of the land as on 01/04/1981 for the purposes of determining the cost of acquisition and resultant indexed cost of acquisition while computing the capital gains in the hands of the assessee. In the result the ground of the assessee s appeal is allowed. Deduction u/s 54B - Agriculture land has been purchased in the name of wife of the assessee - claim was not made in the return of income or during the course of assessment proceedings however such a claim was made for the first time during the appellate proceedings before the CIT(A) and necessary documentation in support thereof were submitted and remand report was called from the AO - HELD THAT - Being a legal claim there is nothing under law for the impugned assessment year 2007-08 which prevented the ld CIT(A) in examining such a claim more so where the AO has not objected to such a claim in his remand report except where the agriculture land has been purchased in two instances in the name of wife of the assessee. There is no estoppel under law to acquire agriculture land in the name of wife of the assessee for stated social and economic reasons however the assessee cannot claim any deduction under section 54B as so held by the Hon ble High Court. In view of the same the AO is directed to allow the claim of deduction u/s 54B as far as the agriculture land which has been purchased in the name of the assessee for a consideration of Rs 1, 12, 82, 000/- and as far as the agriculture land purchased in the name of the wife of the assessee for a consideration of Rs 36, 70, 000/- is concerned the assessee shall not be eligible for claim of deduction under section 54B of the Act. In the result ground no. 4 of the assessee s appeal is partly allowed.

Summary

The core legal questions considered in this appeal include:

1. Whether the reopening of the assessment under section 147 was justified and lawful.

2. Whether the addition of Rs. 2,49,21,043/- on account of long-term capital gain arising from the sale of agricultural land was correctly made.

3. Whether the cost of acquisition of the land was correctly computed by the Assessing Officer (AO) and the learned CIT(A) by adopting the fair market value (FMV) of land as on 01/04/1981 based on sale deeds of land situated in a different village, rather than the value claimed by the assessee.

4. Whether the claim for deduction under section 54B of the Income Tax Act, 1961, amounting to Rs. 1,49,52,000/-, was rightly disallowed.

5. Whether the claim for deduction under section 54F of Rs. 35,00,000/- was rightly disallowed.

6. Whether the learned CIT(A) erred in confirming the additions by observing non-filing of details by the assessee during appellate proceedings.

7. Whether the order under section 250 was passed without adherence to principles of natural justice.

Issues 1, 2, 6, 7, and 8 were either not substantially argued or were general in nature and thus do not require detailed adjudication.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147

The reopening was challenged on grounds of legality and facts. The AO issued two notices under section 148 based on information that the assessee had sold agricultural land situated within 8 km of the municipal limits, thereby classifying it as capital asset under section 2(14). The AO determined the FMV of the land as on 01/04/1981 by relying on sale deeds from the Sub Registrar's office relating to land in Village Jaroda, distinct from the assessee's land in Village Kansapur. The assessee did not respond to notices or file returns, leading to assessment under section 144 read with 147.

The Court noted that the reopening was based on material indicating escapement of income and was supported by reasons recorded. The assessee did not dispute the nature of land as capital asset or the sale consideration. The reopening was therefore held to be valid and in accordance with law.

2 & 3. Computation of Cost of Acquisition and Indexed Cost of Acquisition

The AO computed the indexed cost of acquisition by adopting the FMV of land as on 01/04/1981 based on sale deeds of land situated in Village Jaroda, which was challenged by the assessee. The assessee contended that:

• The AO's reliance on sale deeds from a different village without providing copies to the assessee violated principles of natural justice and was bad in law.
• The FMV should be based on a transaction where the Ministry of Defence, Government of India, had purchased land in nearby Village Bhatauli by open auction, which was a more reliable indicator of FMV.
• Further, in a similar case involving the assessee's son, the CIT(A) had accepted the FMV based on the Ministry of Defence purchase in Village Bhatauli, which had attained finality.
• The principle of consistency and parity demanded that the same FMV be adopted for the assessee.

The AO's remand report acknowledged that the FMV adopted initially was not logical and proposed to adopt FMV of land in Village Ratauli, closer to Village Kansapur. However, the AO rejected the FMV based on Village Bhatauli, citing distance from the assessee's land.

The Court observed that no material was available on record for FMV of land in Village Kansapur itself, and the AO's proposal to adopt FMV of land in Village Ratauli was not supported by specific distance metrics. The assessee submitted aerial distance maps showing Village Bhatauli was only 2.4 km from Village Kansapur, closer than the AO's chosen Village Jaroda (6.7 km by road, 2.9 km aerial). The Court found merit in the assessee's contention that the FMV based on the Ministry of Defence's open auction purchase was a better and more credible indicator of FMV than private sale deeds, which are often understated.

The Court further relied on the principle of parity as established by the Punjab & Haryana High Court, which prohibits adopting two different valuations for identical shares in the same property for the same period. Since the assessee's son's case had accepted the FMV based on Village Bhatauli, the same should apply here.

Accordingly, the Court directed the AO to adopt the FMV of land as on 01/04/1981 based on the Ministry of Defence purchase in Village Bhatauli for computation of cost of acquisition and indexed cost of acquisition.

4. Claim for Deduction under Section 54B

The assessee claimed deduction under section 54B for Rs. 1,49,52,000/- on purchase of agricultural land out of sale proceeds of the original agricultural land. This claim was made for the first time during appellate proceedings, supported by documentary evidence including registered sale deeds.

The AO and CIT(A) disallowed the claim, primarily on the ground that the assessee had not filed a return of income and that some of the purchased lands were in the name of the assessee's wife, not the assessee himself. The AO relied on the Punjab & Haryana High Court decision in Jai Narain vs. ITO, which held that deduction under section 54B is not admissible if the new capital asset is purchased in the name of any other family member.

The assessee argued that:

• The restriction on claim in absence of filing return of income was not applicable for the relevant assessment year (2007-08), as the amendment to section 139(6th proviso) was effective only from AY 2020-21.
• The purchase of agricultural land in the name of the wife was for social and financial security reasons, and the wife was a homemaker without independent income.
• The entire investment was made from the sale proceeds of the original land.

The Court examined the relevant case law extensively. It noted that while some High Courts (e.g., Delhi and Karnataka) have taken a liberal view allowing deduction even if the new asset is purchased in the name of spouse or family member, the jurisdictional Punjab & Haryana High Court has consistently held otherwise. The Court cited the decisions in Jai Narain, Dinesh Verma, and Kamal Kant Khamboj, which uniformly held that the new asset must be purchased in the name of the assessee himself for claiming exemption under section 54B.

The Court distinguished cases where the legal representative completed the purchase after the death of the assessee (where the benefit of section 54 was allowed), noting that in the instant case, the purchase was made by the grandson in his own name, not as a legal representative, and the assessee had expired shortly after the sale.

Consequently, the Court held that the deduction under section 54B is allowable only to the extent of agricultural land purchased in the name of the assessee (Rs. 1,12,82,000/-) and disallowed the deduction in respect of land purchased in the name of the wife (Rs. 36,70,000/-).

5. Claim for Deduction under Section 54F

The assessee claimed deduction under section 54F of Rs. 35,00,000/-, but no arguments were advanced before the Tribunal. The claim was accordingly dismissed.

6, 7 & 8. Other Grounds

Grounds relating to confirmation of additions due to non-filing of details, alleged violation of natural justice in passing order under section 250, and general grounds were not substantially argued and were dismissed or left unadjudicated.

Significant Holdings:

"The land has been held as capital asset by the AO in terms of section 2(14) of the Act as the same was situated within 8 kms from the Municipal Limits of Yamuna Nagar. The said facts and findings of the AO have not been disputed by the assessee. Therefore, as far as the nature of the land being sold, it is not in dispute that the same qualifies as capital asset and gains arising on its transfer are liable for tax under the head 'capital gains'."

"The price which an asset can fetch in an open market auction rather than privately negotiated transaction would be a better determinant of the fair market price of the asset as so held by the Coordinate Bench in case of Manjit Singh (supra) as well and in that view of the matter, the fair market value of the land basis fird/intkal as so submitted by the assessee relating to transaction through open auction in nearby Village Bhatauli, Tehsil Jagadhri whereby Ministry of Defence, Government of India had purchased 4 Kanal 10 Marla land on 03/11/1981 would be a better determinant of the fair market value of the land that was sold by the assessee."

"It would not be appropriate to adopt two different valuations in respect of identical shares in the same property for the same period."

"A consistent view has been taken by the Hon'ble Punjab & Haryana High Court in the matter and the ld. AR failed to draw my attention towards any other subsequent decision rendered by the Hon'ble Punjab & Haryana High Court in favour of the assessee on this issue. It is a settled position that once the jurisdictional High Court decides a particular issue in a particular manner, that manner has to be mandatorily followed by all the authorities acting under it so long as it holds the field and is not reversed by the Hon'ble Supreme Court."

"Deduction u/s 54B of the Income Tax Act, 1961 is not admissible if the new capital asset is purchased in the name of any other family members of his family."

"The AO is accordingly directed to adopt the said value being the fair market value of the land as on 01/04/1981 for the purposes of determining the cost of acquisition and resultant indexed cost of acquisition while computing the capital gains in the hands of the assessee."

"The AO is directed to allow the claim of deduction u/s 54B as far as the agriculture land which has been purchased in the name of the assessee for a consideration of Rs 1,12,82,000/- and as far as the agriculture land purchased in the name of the wife of the assessee for a consideration of Rs 36,70,000/- is concerned, the assessee shall not be eligible for claim of deduction under section 54B of the Act."

"Ground no. 3 of the assessee's appeal is allowed."

"Ground no. 4 of the assessee's appeal is partly allowed."

"Ground nos. 1 and 5 are dismissed."

In conclusion, the Court upheld the reopening of assessment and the addition of capital gains but modified the computation of indexed cost of acquisition by directing adoption of FMV based on open auction purchase by the Ministry of Defence in Village Bhatauli. The claim for deduction under section 54B was allowed only to the extent of agricultural land purchased in the name of the assessee, disallowing the portion purchased in the name of the wife, in line with binding jurisdictional High Court precedents. The claim under section 54F and other grounds were dismissed or left unadjudicated due to lack of arguments.