TMI Blog2022 (9) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... sset under section 2(14)(b) as it was situated in the State of Himachal Pradesh. Also noticed that the land situated in the Himachal Pradesh had not been notified up to the A.Y. 2013-14 in the Official Gazette. Moreover brother of the assessee Shri Vijay Garg had grown Pine and Deodar trees on the land in question which was Ghasni Land and used for grazing of animal, the said activity had been held as pasture of land and was an agricultural activity as defined by the Himachal Pradesh Tenancy and Land Reforms Act, 1972. In the present case the department alleged that the assessee obtained change in land use certificate, however, the document placed at page no. 24 of the assessee s compilation, clearly revealed that M/s Gable Promoters Pvt. Ltd. applied for change of land use and not the assessee. No valid ground to interfere with the detailed findings given by the Ld. CIT(A) in the impugned order on this issue and accordingly do not see any merit in this appeal of the Department. - ITA NO. 388/Chd/2019 - - - Dated:- 10-8-2022 - SHRI. N.K.SAINI, VP AND SHRI. SUDHANSHU SRIVASTAVA, JM Assessee by : Shri Tejmohan Singh, Advocate Revenue by : Shri Rohit Sharma, CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration of Rs. 12,00,00,000/-. 3.2 The agreement to sell this land was entered into with M/S Gables Promoters Pvt. Ltd on 19.03.2012 whereas the registry was done on 24.07.2012. Both agreement and Registry are placed on record. 3.3 The land in question was transferred in the name of the assessee Sh. Rajinder Pal Garg by his brother Sh. Vijay Garg in the form of Gift on 28.09.2011. The gift deed dated 28.09.2011 was produced by the assessee and is placed on record. Sh. Vijay Garg purchased this land on 27.02.2006 for a consideration of Rs. 24,00,00/- only. Since the land was gifted by Sh. Vijay Garg to the assessee therefore no consideration was paid by the assessee to Sh. Vijay Garg. 3.4 After receiving the land as gift from his brother Sh. Vijay Garg in 2011, the assessee sold this land to its company M/S Gables Promoters Pvt. Ltd on 24.07.2012 for consideration of Rs. 12,00,00,000/-. The company has paid consideration to the assessee by issuing 1,20,00,000 equity shares @Rs.l0 per shares totaling to Rs. 12,00,00,000 on 24.07.2012. The total shareholding of the assessee in M/s Gables Promoters Pvt. Ltd therefore increased to 1,31,95,000 number of equity share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd was an agricultural land. The Assessee explained that this was a cattle grazing land called Ghasni where he did not do any agricultural activity as such. The assessee explained that there were Deodar and Pine trees on this land. The AO asked the assessee as to whether he had earned any agricultural income on this land, the assessee explained that no agricultural income had been earned by him. The AO reproduced the extract of statement of the assessee recorded on 18/03/2016 at page no. 7 8 of the assessment order, for the cost of repetition the same is not reproduced herein. 4.3 The AO observed that there was no agricultural activity done by the assessee on the land in question which was a Ghasni and was used for the grazing of the cattles, so, it could not be said to be an agricultural land. The AO to ascertain whether this land falls under the definition of agricultural land wrote a letter to the Divisional Commissioner, Chotta Shimla on 03/03/2016 asking therein as to whether this land was lying within the 8 kms of the Municipal Limits. In response the SDO(C) Shimla Rural vide letter dt. 26/03/2016 intimated that the said land was located at a road distance of 7 kms 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the seller. The book value of the shares held by the promoters thereby underwent skyrocketing appreciation. Finally, the shares held by the promoter shareholders were transferred to another concern i.e. M/s Mahindra Hotels Resorts Ltd. effectively implying the transfer of the land to the said concern. In the process, the cost of the land as acquired by the assessee for Rs. Nil was inflated through as series of artificial mosaic of \ steps to Rs. 12.00 Crores which resulted in the artificial increase in the value of shares associated with such asset. Finally when the shares were ultimately transferred, the tax liability on such transfer was minimized on , account of such artificial inflation of the cost of such shares. 4.6 The AO observed that as per the aforesaid report the assessee was found to be making book entries by getting himself issued shares of M/s Gable Promoters Ltd. as sale consideration of land and further transferred those shares to M/s Mahindra Hotels Resorts Ltd. Therefore the assessee was found to have earned capital gains on transfer of land to M/s Gable Promoters Ltd. 4.7 The AO pointed out that the statement of Shri Vijay Garg brother of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stance of 7.6 Km from Municipal Limits. c) The interest of the appellant was to draw benefit for purpose of construction of Hotel Resort and such land cannot be held to be an agriculture land. The above observation of Assessing Officer is totailv illegal and unfounded. The land in question sold by the appellant was agriculture land and outside the definition of Capital Assets u/s 2(14)(b) of Income Tax Act, 1961. The appellant's brother had grown Pine and Deodar trees on above land and grass for fodder of animals. Moreover the land was in the state of Himachal Pradesh and outside the preview of Capital asset u/s 2(14)(b) Of Income Tax Act, 1961. Section 2(14(b) of Income Tax Act, 1961 is reproduced here under:- Section 2(14)(b) of Income Tax Act,1961 In any area within such distance, not being more than eight kilometer, from the local limits of any municipality or cantonment board referred to in item as the Central Government may, having regard to the extent of, and scope for urbanization of that area and other relevant considerations specify in this behalf by the notification in the Official Gazette. Even the notification of CBDT ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld. CIT(A) observed that Finance Act 2013 made an amendment in Section 2(14)(iii)(b) of the Act with effect from 01/04/2014 which read as under: (b) in any area within the distance, measured aerially,- (I) not being more than two kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh ;or (III) not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh. [Explanation- For the purposes of this sub-clause, population means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year. 5.4 The Ld. CIT(A) on the basis of the aforesaid amendment was of the view that up to A.Y 2013-14 if the land was not notified in the Official Gazette then the same was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total payment of Rs. 13,49,48,864/- in two parts i.e. (i) On 04.06.2012 Rs. 5,00,00,000/-, (ii) On 27.08.2012 Rs. 8,49,48,864/-. RPG filed copy of notice for meeting of the Board of Director for passing resolution regarding increasing the authorized capital of the company and copy of the Form No. 5 for the intimation of the Board meeting to the Registrar of companies. Meaning thereby that the assessee has intimated the Registrar of Companies that the authorized share capital of the company has been increased from Rs.1,00,000/- to Rs. 13.50 crores. On the basis of this increased authorized share capital, the shares were allotted to Sh. Rajinder Pal Garg which were then transferred to Mahindra Holidays Resorts India Ltd. for a consideration of Rs. 13.49 crores. AO recorded statement of the RPG wherein he stated that since the land in question is an agricultural land no capital gains has been shown. He also explained that this land is a cattle grazing land called 'Ghasnie' where he does not do any agricultural activity as such. There are Deodar and Pine trees on this land. He further explained that no agriculture income has been earned by him. For this assessee submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land in question was located on road distance of 7.6 Km from Municipal Limits, and c) The interest of the appellant was to draw benefit for purpose of construction of Hotel Resort and such land cannot be held to be an agriculture land. He further submitted that the land in question sold by the appellant was agriculture land and outside the definition of Capital Assets u/s 2(14)(b) of Income Tax Act, 1961. The appellant's brother had grown Pine and Deodar trees on above land and grass for fodder of animals. Moreover, the land was in the state of Himachal Pradesh and outside the preview of Capital Asset u/s 2(14)(b) of Income Tax Act, 1961. The Arial distance from municipal limits is not applicable to the state of Himachal Pradesh as the notification of CBDT excluded the State of Himachal Pradesh within the definition of capital asset. The same has been brought in the statute w.e.f A.Y 2014-15. Land has been defined by the Himachal Pradesh Tenancy and Land Reforms Act, 1972 as Ghasnie. Thus the land in question is Agriculture Land. Even, otherwise it is outside the preview of definition of capital asset u/s 2(14)(b) of Income Tax Act, 1961 and not liable to tax at all. The case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Financial Commissioner-cum Secretary Revenue (HP) No. Reve-B-F(10) 168/2012 dt. 09/07/2012 for the purposes of construction of a Hotel Resort and that the Zamabandi filed revealed that the land in question was Ghasnie land. He further observed that the AO had never brought any contrary evidence against the evidence filed by the assessee during the assessment proceedings and that how the report of the DIT(I CI) rebuts the claim of the assessee that the said land was agriculture land. The Ld. CIT(A) also observed that the claim of the assessee that his brother had grown Pine and Deodar trees on above land and grass for fodder of animals, had never been controverted by the AO which was not akin to wild life growth of trees in forest, and the said land was not left lying fallow. 5.9 As regards to the issue of book entries of transfer of shares by M/s Gable Promoters Pvt. Ltd. to the assessee and finally to M/s Mahindra Hotels Resorts Ltd. was concerned, the Ld. CIT(A) mentioned that the respective AO of M/s Gable Promoters Pvt. Ltd. in the case of said company relevant to the A.Y. 201314 had assessed the income at returned income. 5.10 The Ld.CIT(A) held that the land u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruction of Hotel as stated by the assessee himself, therefore, the capital gain was chargeable to tax on this transaction and the Ld. CIT(A) was not justified in deleting the addition without appreciating the facts in right perspective. It was further submitted that the AO had given the reasoning for his view as the land was not used for agriculture purposes and it was a commercial land. Therefore the capital gain was chargeable on the sale of land. 8. In his rival submissions the Ld. Counsel for the assessee reiterated the observations made by the CIT(A) particularly in para 4.2 to 4.9. It was submitted that the land in question does not fall in the definition of capital asset as defined by Himachal Pradesh Tenancy and Land Reforms Act, 1972, the land in question was outside the purview of capital asset under section2(14)(b) of the Act. It was further submitted that the assessee never applied for change of land use, a reference was made to page no. 24 of the assessee s compilation and it was stated that the company M/s Gable Promoters Pvt. Ltd. only applied for change of land use and not the assessee. 9. We have considered the submissions of both the parties and perused th ..... 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