TMI Blog2021 (10) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... ,90,415/-. Thus, in our view, as discussed supra, capital gain accruing to the assessee till the date of diversion using fair market value of ₹ 68,90,415/- shall be exempt from tax. Further, we are of the view that fair market value of ₹ 68,90,415/- as on the date of diversion shall be considered as cost of acquisition for the purpose of determination of the amount of capital gain chargeable to tax during the year under consideration. The indexed cost of acquisition of land comes to ₹ 91,00,000/- for the FY 2013-14 (AY 2014-15). We are of the view that the findings of ld. CIT(A) deserve to be set aside and accordingly, we delete the addition of ₹ 88,78,365/- made on account of long-term capital gain on sale of land. Thus, ground nos.1 to 3 raised in the appeal of the assessee are allowed. Long-term capital gain on compulsory acquisition of land - HELD THAT:- Once it is established that land compulsorily acquired by the Government was agricultural land, it makes no difference whether the said land is rural or urban since compensation received on compulsory acquisition of rural agricultural land is not chargeable to tax under the IT Act, 1961 whereas c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ural land in the head assets in the balance-sheet on the ground that during the course of assessment proceedings, in the statements u/s 131 of the I.T. Act, recorded by the Assessing Officer, the assessee failed to explain the source of the investment and also failed to produce books of accounts and any other documentary evidences in support of the claimed liability - HELD THAT:- Assessee categorically explained that corresponding adjustment in respect of addition made to agricultural land was not routed through the capital account but rather the amount of cash to the extent of ₹ 12,86,090/- was transferred from the books of accounts of the business to the personal books of accounts of the assessee. Thus, the source of agricultural land purchased by the assessee was duly explained. We also find that the agricultural land under consideration was purchased during the AY 2013-14 and not during the AY 2014-15. Addition is not sustainable on this count also. In view of these facts, the order of ld. CIT(A) on this issue deserves to be set aside. Accordingly, we delete the addition made u/s 68. Estimation of N.P. @ 8% - assessee could not produce his books of accounts during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made before him. 3. That on tile facts and in tile circumstances of the case and in law, the Ld CIT(A) grossly erred in maintaining the entire addition of₹ 88,78,365/- as made to the total income of the appellant on account of long-term capital gain earned on sale of land more so when the said land in question was diverted only in the Financial Year 2010-11 and therefore, the said land in question was not a capital asset till the Financial Year 2010-11 and capital gain earned till the date of diversion was not liable to tax under the provisions of the Income-Tax Act, 1961. 4. That on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in maintaining the addition of ₹ 9,25,047/- as made to the total income of the appellant on account of long-term capital gain earned on the compulsory acquisition of land without properly appreciating the facts of the case and submissions made before him. 5. That on the facts and in the circumstances of the case and in law, the Ld CIT(A] erred in maintaining the addition of ₹ 3,42,358/ - as made to the total income of the appellant on account of long-term capital gain earned on the compulsor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loping residential plots. Still aggrieved, the assessee is in appeal before this Tribunal. 4. ld. Counsel for the assessee, reiterating the submissions made before Revenue Authorities, submitted that the capital gain accruing to the assessee till the date of diversion of land is exempt from tax as the land in question was not a capital asset as per the provision of section 2(14)(iii) of the Act till the date of its diversion. Thereafter, capital gain computed considering the fair market value of land on the date of diversion of ₹ 68,90,415/- comes to NIL and as such, no capital gain is chargeable to tax in the hands of the assessee during the AY 2014-15 in respect of sale of land in question. 5. Per contra, ld. Sr. DR relied upon the orders of the Revenue Authorities. 6. We have heard rival contentions of both the parties and perused material available on record. We find that the assessee purchased agricultural land situated at Survey no. 83, Village Lasudalya Ramnath, Halka no. 58, Village Kurawar, Narsinghgarh, Rajgarh admeasuring 2.529 hectares during the FY 1978-79. The assessee also purchased agricultural land situated at Survey no. 82/6, Village Lasudalya Ramna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iverted land and therefore, the sold land, being non-agricultural land, fell under the definition of capital asset u/s 2(14) of the IT Act, 1961. But, the Revenue Authorities failed to note that the assessee never disputed the fact that the land sold by the assessee was a diverted land. The only contention of the assessee was that the agricultural land which was initially purchased by the assessee was a rural agricultural land till the date of diversion i.e. till 25.11.2010 and as such, capital gain till the date of diversion was not liable to be taxed. Therefore, the only issue which requires consideration now is whether the land initially purchased by the assessee was a rural agricultural land and if it was so, how much of the amount of capital gain shall be treated as exempt on that count. We find that the Assessing Officer observed that the land sold by the assessee was situated at a distance of 1.5 km (approx.) from the bus stand of kurawar gram panchayat having population of more than 10,000. Thus, the Assessing Officer was of the view that the land in question was already a capital asset and there would be no impact of distance of land and accordingly, provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice of Village Lasudalya Ramnath which is a gram panchayat having a population of 4,115 as per the census of 2011. Further, distance of Village Kurawar from Village Lasudalya Ramnath was 4 kms which is also a gram panchayat and both Village Lasudalya Ramnath and Village Kurawar are gram panchayats and these villages are neither municipalities nor cantonment boards. Hon ble Madras High Court in the case of CIT v. P.J. Thomas as reported in [1995] 211 ITR 897 (MAD.) has held that: _____________Even as regards the second question, it is seen that under section 2(14) of the Income-tax Act, 1961, the exclusion of agricultural land as capital asset, would be applicable to land within the limits of a municipality and not a panchayat. The land sold by the assessee was situate in Koshancherry town and that was only a panchayat. Though learned counsel for the Revenue strenuously contended that a panchayat would also be comprehended within section 2(14) of the Income-tax Act, 1961, we are unable to accept the contention. Section 2(14)(iii) refers to the exclusion as capital asset of agricultural lands situate in an area which is comprised within the jurisdiction of a municipality (wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng rate of compensation determined by the Government in respect of compulsory acquisition at Page No. 64 of the paper book for determination of fair market value of land. The fair market value of land determined by the Government was ₹ 48,00,000/- per hectare. The assessee sold land admeasuring 1.515 hectares during the year and thus, fair market value of the said land as on the date of diversion was ₹ 72,72,000/- (₹ 48,00,000/- * 1.515 hectares). Alternatively, the Ld. Counsel for the assessee submitted that fair market value shall be determined on the basis of reverse indexation method. The fair market value of land computed on the basis of reverse indexation method comes to ₹ 68,90,415/-. The reverse indexation method for determination of fair market value of a capital asset is duly accepted and approved in the following judgments: Deen Dayal Rathi Vs ITO-3(4), Jodhpur ITA No. 108/Jodh/2013 Prem Bhai Kanji Bhai Tandel Vs ITO ITA No. 192/Ahd/2016 DCIT Vs Shri Rajendra Kumar Singhvi ITA No. 313/Jodh/2010 Dashrathbhai G Patel Vs DCIT 182 ITD 327 (Ahd-Trib.) Smt. Mina Deogun v. ITO [2008] 19 SOT 183 (Kol.) Pfiz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition of ₹ 9,25,047/- made by the Ld. Assessing Officer on account of long-term capital gain on compulsory acquisition of land. Brief facts as culled out from the orders of Revenue Authorities are that the assessee received the compensation due to compulsory acquisition of land out of survey no.83 for which the Assessing Officer made addition of ₹ 9,25,047/-. 8. Being aggrieved, the assessee challenged the action of the Assessing Officer before the ld. CIT(A) who having gone through the facts/circumstances, material and submissions confirmed the addition. The ld. CIT(A) noted that the assessee received the compensation due to compulsory acquisition of land out of survey no.83 for which the taxability has already been decided against the assessee and since the land has been held as capital asset, the addition of ₹ 9,25,047/- made by the Assessing Officer is justified. Still aggrieved, the assessee is in appeal before this Tribunal. 9. ld. Counsel for the assessee, reiterating the submissions made before Revenue Authorities, submitted that the land purchased by the assessee was a rural agricultural land and not a capital asset as per section 2(14)(iii) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of capital gain on compulsory acquisition of such land. Accordingly, we set aside the findings of Ld. CIT(A) and delete the addition of ₹ 9,25,047/- made on account of long-term capital gain on compulsory acquisition of land. Thus, ground no.4 raised in the appeal of the assessee is allowed. Ground No.5 11. In ground no.5, the assessee has challenged the finding of Ld. CIT(A) confirming the addition of ₹ 3,42,358/- made by the Assessing Officer on account of long-term capital gain on compulsory acquisition of a part of his house. Brief facts as culled out from the orders of Revenue Authorities are that the assessee received the compensation of ₹ 8,03,041/- due to compulsory acquisition of part of house. The Assessing Officer noted that the part of house is nothing but a capital asset because in the year 2001, the assessee had taken the permission from Gram Panchayat for building construction which was approved by the Gram Panchayat. 12. Being aggrieved, the assessee challenged the action of the Assessing Officer before the ld. CIT(A) who having gone through the facts/circumstances, material and submissions confirmed the addition. Still aggrieved, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment merely acquired 250 Sq Fts of plot area and demolished the constructed area of house of the assessee built upon such plot area at the time of compulsory acquisition. We find force in the arguments of the Ld. Counsel for the assessee that part of the house of the assessee was merely demolished and that there was no transfer of any capital asset so as to attract capital gains tax in the hands of the assessee. Thus, we are of the view that there was no transfer as per section 2(47) of the Act at the time of demolition of part of the house of the assessee and accordingly, no capital gain is taxable in the hands of the assessee in respect of demolition of part of his house. So far as the compulsory acquisition of plot area of 250 Sq Fts is concerned, we find that the assessee merely received an amount of ₹ 15,840/- as compensation in lieu of compulsory acquisition of plot area which was way less than the cost of acquisition of the said plot area which comes to ₹ 49,331/- (₹ 2,25,000/- (+) ₹ 21,655/- *250/1,250) as is evident from the purchase registry which has been filed on Page No. 52-58 of the paper book. Therefore, no capital gain was chargeable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y 2014-15. But, the Assessing Officer made the addition on mere surmises and conjectures. Per contra, ld. CITDR relied upon the orders of the Revenue Authorities. 18. We have heard rival contentions of both the parties and perused material available on record. We find that the assessee purchased an agricultural land situated at Village Lasudalya Ramnath, Halka no. 58, Village Kurawar, Narsinghgarh, Rajgarh on 30.03.2013 for a basic consideration of ₹ 11,00,000/- during the AY 2013-14. The assessee further paid stamp duty of ₹ 1,64,820/- and incurred various other expenses in connection with purchase of the said land. Thus, total cost of land for the assessee came to ₹ 12,86,090/- which though pertained to AY 2013-14 but was incorporated in the books of accounts only during the AY 2014-15. But, the Assessing Officer presumed that there was a strong possibility of bogus liability since the assessee could not furnish any explanation regarding the corresponding adjustment entry in the liability side of the balance sheet. However, we find that the ld. Counsel for the assessee categorically explained that corresponding adjustment in respect of addition made to agricu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer estimated the N.P. @ 8% since the assessee could not produce his books of accounts during the course of assessment proceedings and accordingly added the differential amount of ₹ 4,12,148/- to the total income of the assessee. From the perusal of the copy of N.C.R. (Non Cognizable Offence Information Report) filed in the Hanumanganj Police Station, Bhopal placed on Page No. 78-79 of the paper book, we find that it was claimed that books of accounts of the business carried out by the assessee were misplaced. However, we find that books of accounts for the assessment year 2014-15 under consideration were duly audited by an independent Chartered Accountant. Therefore, the assessee cannot be put in a disadvantageous position merely for the reason that his books of accounts were misplaced after the audit was conducted by an independent Chartered Accountant. We are of the view that the Assessing Officer/ld. CIT(A) failed to bring on record any evidence to controvert the financial results as per the audited final accounts of the assessee for the year ended 31.03.2014 rather the Assessing Officer estimated the net profit of @ 8% in adhoc manner which is not justified. The As ..... X X X X Extracts X X X X X X X X Extracts X X X X
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