CIT Vs Chandan Magraj Parmar (Bombay High Court)
The Revenue filed an appeal under Section 260A of the Income Tax Act, 1961 challenging the order of the Income Tax Appellate Tribunal (ITAT), which had quashed the Principal Commissioner’s revision order passed under Section 263. The appeal raised questions regarding whether the assessment order was erroneous and prejudicial to the interests of the Revenue, whether the Assessing Officer (AO) had conducted adequate inquiry into the capital gains claim, and whether the Tribunal had failed to consider the principles of preponderance of probability and Explanation 2 to Section 263.
The assessee had filed the return for Assessment Year 2011-12 declaring total income of ₹2,21,280. During assessment under Section 143(3), the AO determined the total income at ₹7,06,540. The assessee had disclosed Long-Term Capital Gain (LTCG) of ₹6,77,95,890 arising from the transfer of agricultural land and claimed it as exempt. The land had been purchased on 17 February 2010 for ₹54,87,320 and, within about two months, was introduced as capital contribution in a partnership firm at an agreed value of ₹7,32,83,210.
The Principal Commissioner initiated revision proceedings under Section 263, observing that the AO had not examined the substantial increase in the land value or the eligibility of the exemption. A show cause notice was issued stating that the AO had failed to inquire whether the land qualified for exemption under Sections 2(1A) and 2(14), particularly whether it was situated beyond eight kilometres from the limits of a municipality or cantonment board. Although the assessee submitted explanations and notifications showing that the land was outside the notified municipal limits, the Principal Commissioner held that the AO had not conducted adequate inquiry and set aside the assessment order.
