Agricultural land is exempt from Section 50C

Fact and issue of the case

This appeal is filed by the Assessee against order dated 18.01.2018 passed by the CIT(A)-6, Ahmedabad for the Assessment Year 2012-13

The Assessee has raised the following grounds of appeal :-

The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO in reopening the assessment u/s 147 of the Act. On the facts and circumstances of the case, learned CIT(A) ought to have held that the action of reopening is without jurisdiction and not permissible either in law or on facts

The learned CIT(A) has erred both in law and on the facts of the case in confirming that the land is a capital asset u/s.2(14) of the Act despite land being situated beyond the prescribed limits from the local limits of the Bhavnagar Municipal Corporation and being non-agricultural land as on date of agreement to sell

The learned CIT(A) has erred both in law and on the facts of the case in not following a binding order of the Income Tax Appellate Tribunal, Ahmedabad Bench

The learned CIT(A) has erred both in law and on the facts of the case in confirming Assessment Order which was passed despite pendency of report from DVO u/s.50C of the Act

The learned CIT(A) has erred both in law and on the facts of the case in confirming the adoption of Rs.45,72,000/- as the value of the land as against actual sale consideration of Rs.7,73,020/- and the consequent addition u/s.50C of the Act

Alternatively and without prejudice, the market value as on the date of agreement to sell should be adopted u/s.50C of the Act

Alternatively and without prejudice, the learned CIT(A) erred both in law and on the facts of the case in not appreciating that AO erroneously did not deduct sale consideration of Rs.7,73,020/- while revising assessed income at the time of rectification u/s.154 of the Act

Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed

The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s.234A/B/C of the Act

The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in initiating penalty u/s.271(l)(c) of the Act

The assessee filed return of income on 18.03.2013 declaring total income at Rs.2,43,398/- and the return was processed under Section 143(1) of the Income Tax Act, 1961. The Assessing Officer observed that the assessee sold immovable property for Rs.7,73,020/- vide registered sale deed dated 11.10.2011 as against the stamp duty value of Rs,.63,93,600/- under Section 50C of the Act. The assessee filed return of income for Assessment Year (A.Y.) 2012-13 in which capital gain/income from dealing with the property in question was not found. Notice under Section 148 of the Act was issued on 05.06.2014 and served upon the assessee. In response thereto, the assessee filed return of income declaring capital loss from the sale of the property on 05.06.2014. Thereafter, the case was selected for compulsory scrutiny and statutory notice under Section 143(2) of the Act alongwith reasons for reopening of the case. The assessee filed submissions before the Assessing Officer which was taken on record and the Assessing Officer made addition of Rs.55,65,565/- as Long Term Capital Gain (LTCG) under Section 50C of the Act

Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee

As regards to ground no.1 relating to reopening under Section 147 of the Act, the Ld. AR submitted that reopening was only on the ground of stamp valuation of the land in question is higher than the consideration appearing in conveyance deed

The Ld. DR relied upon the Assessment Order and the order of the CIT(A) and submitted that the reopening was justifiable and reasons for reopening was properly conveyed to the assessee

Heard both the parties and perused all the relevant material available on record. No discrepancies were pointed out by the Ld. AR as regards to reasons for reopening or approval for reasons for reopening under Section 147 of the Act. Therefore, ground no.1 is dismissed

As regards to ground nos.2, 3, 4, 5, 6 & 7 are concerned, the Ld. AR submitted that the Assessing Officer as well as the CIT(A) was not right in confirming the adoption of Rs.45,72,000/- as the value of the land as against actual sale consideration of Rs.7,73,020/-. The Ld. AR submitted that the addition was made pending the report of DVO determining fair market value of the land in question. As per DVO’s report, fair market value of the land in question was Rs.45,72,000./- and the Assessing Officer passed order under Section 154 adopting the said fair market value as against fair market value adopted while framing assessment. The Ld. AR submitted that Section 50C is not applicable since the land in question, being an agricultural land, does not fall within the ambit of capital asset, as defined under Section 2(14) of the Act. In order to invoke provisions of Section 50C, the essential pre-requisite is that the underlying asset must be a capital asset. The land in question is situated at Village Nesda which is located at a distance of almost 19 kilometres from Bhavnagar which is nearest Municipality. The land in question is undoubtedly situated beyond 8 kilometres from the local limits of Municipality. Further, the revenue records being 7/12 and 8/A extracts reveal that the land in question was used for cultivation of cotton. Thus, the land in question was agricultural land and accordingly, it was outside the ambit of capital asset, as defined under Section 2(14) of the Act. The Ld. AR relied upon the decision of CIT vs. Smt. Sanjeeda Begum (2006) 154 Taxman 346 (Allahabad). AR further submitted that agreement to sell in respect of the land in question was entered into and one of the conditions mentioned therein was the land in question must be converted into non-agricultural land. This was so because the buyer was not an agriculturist and as per the local laws, only an agriculturist can buy an agricultural land. Pursuant to such agreement to sale the land was converted into non-agricultural land and thereafter the final sale deed was executed. However such an arrangement was for a specific purpose, as stated above, and the same would not change the character of the land in question i.e. agricultural land. The Ld. AR further submitted that the characterisation of the land in the revenue records would not be sole criteria for determining the nature of land. The Ld. AR relied upon the decision in the case of ITO vs. Vaijay Shah (2017) 82 taxmann.com 277 (Chennai). Addition under Section 50C of the Act is not justifiable in view of the newly inserted proviso to Section 50C vide Finance Act, 2016. The assessee entered into two agreement to ale on 27.09.2010 for sale of two pieces of the land in question and the consideration was determined at Rs.3,90,520/- and Rs.3,82,500/- respectively. Part consideration of Rs.1,50,000/- (in both the cases) was received through account payee cheque. Such agreement to sale were executed at the then prevailing Jantri rates. The Ld. AR submitted that the agreement to sale were executed on 27.09.2010 and registered on 27.09.2010. Part payment has been received by account payee cheque and sale consideration as on the date of execution of agreement to sale was at the prevailing Jantri Rates. These facts were undisputed by the revenue as per the proviso to Section 50C inserted by the Finance Act, 2016 where the date of agreement fixing the amount of consideration and the date of registration for transfer of capital asset are not the same, value adopted or assessed or assessable by stamp valuation authority on the date of agreement may be taken for computing full value of consideration. The Ld. AR relied upon the decision of Ahmedabad Tribunal in case of Dharamshibhai Sonani vs. ACIT (2016) 161 ITD 627 (Ahmedabad) which was followed in ACIT vs. Bimladevi Agarwal (ITA No.130/Ahd/2017) and ITO vs. Kanubhai N. Patel (ITA No.527/Ahd/2017). Since agreement to sale was executed at the prevailing Jantri Rates, no addition can be made under Section 50C of the Act. The Ld. AR further submitted that the CIT(A) has not given any categorical finding despite raising these issues and, therefore, addition made be deleted

As regards to ground nos.8 to 10 the same are general in nature

The Ld. DR submitted that the Sale Deed was registered in October 2011 and therefore, the Assessing Officer as well as the CIT(A) has rightly taken the amount which was mentioned in the registered documents and the assessee cannot take a different view. The Ld. DR further submitted that Section 50C of the Act is applicable in assessee’s case when the land was converted into non-agricultural land and it is a capital asset. The Ld. DR submitted that the Assessing Officer as well as the CIT(A) rightly made the addition of Rs.55,65,565/- which thereafter rectified at Rs.45,72,000/-as adopted by the DVO

Observation of the court

Heard both the parties and perused all the relevant material available on record. As regards to ground nos.2 to 5, it is pertinent to note that the land which was sold by the assessee was agricultural land. But the said property was sold to M/s. Inducto Cast Private Limited vide two separate registered agreement dated 27.09.2010 mentioning that it was a sale agreement for sale of non-irrigated agricultural land and the sale deed was finalised for a consideration of Rs.3,90,520/-and Rs.3,82,500/-. Advance payment of Rs.1,50,000/- each was received by the assessee by account payee cheque and the rest was to be received after the conversion of the said land into non-agricultural use. The conversion expenses from agricultural land to non-agricultural land were to be borne by the buyer M/s. Inducto Cast Private Limited. Final registered Sale Deed was executed on 11.10.2011 but the original Banakat Sale Deed was dated 27.09.2010 at the Jantri rate prevailing at that point of time. The assessee has sold agricultural land and, therefore, the same cannot be termed as capital asset and will not come under the purview of Section 50C of the Act. The reference to DVO by adopting Fair market Value was not justified in the present case as the said report whether has taken the aspect of Sale Deed of agricultural land or not has not been pointed out by the Assessing Officer. In the present case, the addition in respect of Section 50C is not justifiable since the agricultural land sale was executed on 27.09.2010 at the prevailing Jantri Rate. The registration of the sale deed was after the addition/contractual obligation relating to agricultural land converting into non-agricultural land was completed and the expenses were borne by the buyer and not by the assessee. Therefore, the addition made by the Assessing Officer does not sustain. Hence, ground nos.2 to 5 are allowed

As regards to ground nos. 6 & 7 which are alternate arguments and hence the same will not be adjudicated as ground nos.2 to 5 has been decided in favour of the assessee

As regards to ground nos. 8, 9 & 10, the same are general in nature and hence no adjudication is needed at this juncture

In the result, appeal of the assessee is partly allowed. Order pronounced in the open Court on this 17th day of March, 2023