2025 (7) TMI 756 - AT - Income Tax

Nature of land sold - levy of income-tax u/s 2(14) - capital gains tax on agricultural land - calculation of distance from municipal limits - whether subject agricultural land was not a capital asset being situated more than 8 kms. away from the last municipal limit of Gurgaon city Haryana at the time of its sale? - HELD THAT - We observe that assessee has sold an agricultural land along with other co-owners of the property namely Surender Saini and Jitender Saini s/o late Shri Kanwal Singh Saini. The case of Shri Jitender Saini and assessee s case were selected for reassessment proceedings by issue of notice u/s 148 and both the assessee s filed a certificate from the Nayab Tehsildar Municipal Corporation Gurgaon with the certificate of distance as per which the land was situated 8 kms. outside the last municipality of the Gurgaon region. It is brought to our notice that in the case of Shri Jitender Saini the same certificate of distance was accepted by the AO and completed the assessment in his case whereas in the case of assessee the same certificate was rejected and held that the case of the assessee falls within 8 kms. from the last municipality of Gurgaon. There cannot be two reasons to evaluate the same set of facts of the same transaction in the hands of two assessee s. As relying on Ashish Gupta 2024 (6) TMI 655 - ITAT DELHI we are inclined to adjudicate that the facts in the case of Shri Jatinder Saini is exactly same and it is established that it is situated beyond 8 kms. from the municipality and supported by the certificate issued by Tehsildar. The above certificate was accepted by the other Assessing Officer reaches the finality. There cannot be two views for the same transaction and accordingly we allow the grounds raised by the assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

• Whether the agricultural land sold by the assessee qualifies as a capital asset under section 2(14) of the Income-tax Act, 1961, specifically whether it falls within the ambit of section 2(14)(iii)(b) concerning the distance from the municipal limits.
• Whether the distance for determining the applicability of capital gains tax on agricultural land should be measured from the last municipal limits as per the notification dated 06.01.1994 or as per any subsequent expansions of municipal limits.
• Whether the reassessment proceedings initiated under section 147 read with section 148 of the Act were valid and whether the addition of capital gains income was justified.
• Whether the investment made by the assessee in agricultural land and residential house qualifies for exemption under sections 54B and 54 respectively.
• Whether the penalty notice issued under section 271(1)(c) was validly issued without proper satisfaction recorded by the Assessing Officer.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Classification of Agricultural Land as Capital Asset under Section 2(14)(iii)(b)

Relevant Legal Framework and Precedents: Section 2(14) of the Income-tax Act defines "capital asset" and includes agricultural land situated within specified distances from municipal limits. Section 2(14)(iii)(b) excludes agricultural land situated beyond 8 kilometers from the local limits of any municipality with a population exceeding 10 lakhs from being treated as a capital asset, thereby exempting it from capital gains tax. The Finance Act, 2013 amended this provision w.e.f. 01.04.2014, but the applicability to AY 2012-13 was contested.

Precedents relied upon include coordinate bench decisions such as Amar Singh vs. ITO, Khusahl Infraproject Industries India Ltd. vs. DCIT, Ashish Gupta vs. ITO, and M/s Buniyad Developers Pvt. Ltd. vs. ITO, which held that the distance for exemption must be measured based on the municipal limits as per the last notified boundaries before the relevant assessment year.

Court's Interpretation and Reasoning: The Tribunal examined the certificates issued by the Nayab Tehsildar and Halka Patwari, which certified that the agricultural land was situated beyond 8 kilometers (specifically 8.7 to 10 kilometers) from the last municipal limits of Gurgaon as per the notification dated 06.01.1994. The Tribunal noted that the Assessing Officer accepted the same certificate in the case of a co-owner of the land but rejected it in the assessee's case, leading to inconsistent treatment.

Relying on the coordinate bench decision in Ashish Gupta vs. ITO, the Tribunal held that the municipal limits for the purpose of section 2(14)(iii)(b) must be reckoned as per the last official notification and not subsequent expansions unless notified. The Tribunal observed that the notification dated 06.01.1994 was the last relevant notification and no further notification altering the municipal limits was issued before the sale.

Key Evidence and Findings: The certificate of distance from the Nayab Tehsildar, the GPS aerial distance certificate from Vision Engineering Consultant, and the acceptance of similar certificates in co-owner's assessment were critical evidences.

Application of Law to Facts: Since the land was beyond 8 kilometers from the last municipal limits as per the relevant notification, it did not qualify as a capital asset liable to capital gains tax under section 2(14)(iii)(b) for AY 2012-13.

Treatment of Competing Arguments: The Revenue argued that the distance should be measured from the current municipal limits, which had expanded, thus bringing the land within 8 kilometers. The Tribunal rejected this, emphasizing the mandatory nature of the notification dated 06.01.1994 and the absence of any subsequent notification for the expansion.

Conclusion: The agricultural land is not a capital asset under section 2(14)(iii)(b) for AY 2012-13, and the capital gains addition made by the Assessing Officer and sustained by the CIT(A) was incorrect.

Issue 2: Validity of Reassessment Proceedings and Addition of Capital Gains Income

Relevant Legal Framework: Sections 147 and 148 of the Income-tax Act empower the Assessing Officer to reopen assessments if there is reason to believe that income has escaped assessment.

Court's Interpretation and Reasoning: The Tribunal noted that the reassessment proceedings were initiated after recording reasons and obtaining prior approval as required. However, the fundamental issue was whether the income was rightly assessed as capital gains income.

Given the finding that the land was not a capital asset, the addition of Rs. 4,33,39,960/- as capital gains income was not sustainable.

Application of Law to Facts: The reassessment was validly initiated, but the substantive addition was not justified due to the incorrect classification of the asset.

Conclusion: The reassessment order is liable to be set aside to the extent of capital gains addition.

Issue 3: Allowability of Investment under Sections 54B and 54

Relevant Legal Framework: Section 54B provides exemption on capital gains arising from transfer of agricultural land if the assessee invests in agricultural land within two years. Section 54 provides exemption on capital gains arising from transfer of a capital asset if invested in residential house property.

Court's Interpretation and Reasoning: The Tribunal noted that the assessee claimed investment in agricultural land and residential house during the year and sought exemption under these sections. However, since the capital gains addition itself was disallowed, the question of exemption under these sections became moot.

Conclusion: No separate adjudication was necessary on this issue as the capital gains income was not taxable.

Issue 4: Validity of Penalty Notice under Section 271(1)(c)

Relevant Legal Framework: Section 271(1)(c) imposes penalty for concealment of income or furnishing inaccurate particulars. The Assessing Officer must record satisfaction before issuing penalty notice.

Court's Interpretation and Reasoning: The assessee contended that the penalty notice was issued without recording the Assessing Officer's satisfaction. The Tribunal did not specifically delve into this issue in the judgment, focusing primarily on the substantive issue of capital gains.

Conclusion: The issue was raised but not specifically adjudicated; however, since the capital gains addition was disallowed, the basis for penalty would also be undermined.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"There cannot be two reasons to evaluate the same set of facts of the same transaction in the hands of two assessee's. ... The land in question at Village Masuri is not a capital asset. The above proposition is duly supported by the case laws relied upon by the ld. counsel for the assessee. Hence, in the background of aforesaid discussion and precedent, we set aside the orders of the authorities below and decide the issue in favour of the assessee."

Core principles established include:

• The distance for exemption under section 2(14)(iii)(b) must be measured from the last notified municipal limits as per the relevant government notification, not subsequent expansions without notification.
• Consistency in treatment is essential when the same facts and transactions are involved for co-owners.
• Certificates issued by competent authorities like Nayab Tehsildar and GPS-based distance measurements are acceptable evidence for determining distance.
• Reassessment proceedings must be supported by proper application of law to facts; substantive additions cannot be sustained if the fundamental classification of the asset is incorrect.

Final determinations on each issue were:

• The agricultural land sold by the assessee does not qualify as a capital asset under section 2(14)(iii)(b) for AY 2012-13.
• The capital gains addition made by the Assessing Officer and sustained by the CIT(A) is set aside.
• The appeal filed by the assessee is allowed.