Agricultural Land Distance from City Limits Decides Section 2(14) Exemption

Phool Singh Raghav Vs Assessing Officer (ITAT Delhi Bench)

Agricultural Land Cannot Remain Eight Kilometres Away While the City Moves Closer: Exemption u/s 2(14) Remanded

Summary:

Background

The assessee, an agriculturist aged over 80 years, sold ancestral agricultural land situated at Village Badha, Tehsil Manesar, Gurgaon for ₹4,05,22,222 during FY 2010-11. He did not file a return u/s 139, claiming that the land was rural agricultural land outside the definition of “capital asset” u/s 2(14).

Based on AIR information concerning the transaction, the AO issued NMS notices. The assessee stated that the income was exempt but did not furnish complete supporting particulars.

The AO recorded reasons, obtained approval u/s 151 & issued notice u/s 148 on 23.03.2018. Relying upon a Haryana Government notification dated 20.03.2010, he concluded that the land fell within eight kilometres of the expanded municipal limits of Gurgaon.

The AO allowed only ₹1 lakh as cost of acquisition & assessed LTCG of ₹4,04,22,222.

The CIT(A) confirmed the assessment. The assessee approached the Tribunal with a delay of ten days, which was condoned considering his age, medical condition, illiteracy & unfamiliarity with electronic proceedings.

Reopening & Sanction Upheld

The assessee challenged the reopening, alleging absence of tangible material & inconsistency in the figures recorded by the AO.

The ITAT rejected the challenge. The assessee had sold property worth ₹4.05 crore without filing a return. His bare response to the NMS notice that the income was exempt was unsupported by complete evidence.

At the reopening stage, the AO needed only a prima facie belief, not conclusive proof, that income had escaped assessment. The AIR information, absence of a return & substantial property transaction provided a live nexus for forming that belief.

Since the notice was issued within six years from the end of AY 2011-12 & no original assessment existed, the Tribunal upheld the proceedings u/ss 147/148.

The challenge to approval u/s 151 was also rejected. The Pr. CIT had considered the detailed reasons recorded by the AO & granted approval on 15.03.2018. The ITAT found no mechanical exercise of sanctioning power.

Which Municipal Boundary Governs the Eight Kilometres?

On merits, the assessee relied upon Central Government Notification No. 9447 dated 06.01.1994, as amended in 1999. He produced a certificate from the Tehsildar, based upon a survey conducted by Vision Engineering Consultants, stating that the land was approximately 14.2 kilometres from Gurgaon’s municipal limits.

The sale deed also described the property as agricultural land situated outside the municipal area. Revenue records such as jamabandi & girdawari were produced to establish its agricultural character.

The Revenue relied upon the Haryana Government notification dated 20.03.2010, under which the administrative boundaries of the Municipal Corporation of Gurgaon had been expanded by including several surrounding village areas.

The Tribunal held that the definition of capital asset was dynamic, not static. As population, urbanisation & municipal boundaries expand, the point from which the notified distance is measured also moves outward.

For AY 2011-12, the expanded limits of the Municipal Corporation of Gurgaon existing on the date of transfer were therefore relevant. The eight-kilometre distance had to be measured from the outer municipal boundary applicable on that date.

Distance Certificate Rejected

The Tribunal found that the Tehsildar’s certificate dated 26.12.2018 was based upon the consultant’s measurement from the outer limits of the erstwhile Municipal Council as they existed in 1996.

Since the municipal limits had expanded before the land was transferred, the certificate did not measure the distance from the legally relevant boundary. It was therefore rejected as ex facie erroneous.

The AO was directed to conduct fresh enquiries & determine the correct distance from the limits of the Municipal Corporation of Gurgaon as they existed on the date of transfer. The assessee’s evidence must be admitted & considered after granting a proper opportunity of hearing.

Bounced Cheque Plea Becomes Infructuous

The assessee claimed that out of the stated consideration, a cheque for ₹3,03,91,667 had bounced. He had initiated proceedings under the Negotiable Instruments Act & filed a civil suit seeking cancellation of the sale deed.

During the Tribunal hearing, however, counsel acknowledged that a compromise had subsequently been reached with the purchaser. The registered sale deed dated 03.03.2011 was never cancelled.

Consequently, the argument based upon non-receipt of part consideration became infructuous.

Indexed Cost & Deduction u/s 54F

The assessee contended that the land was ancestral & that indexed cost of acquisition had not been properly granted. The ITAT accepted the claim in principle but directed the assessee to produce the relevant inheritance, valuation & ownership records. The AO must verify the claim & allow indexed cost in accordance with law.

The claim for deduction u/s 54F, arising from the purchase of a residential plot from HUDA & construction of a residential house, was also restored. The assessee must establish satisfaction of every statutory condition.

The appeal was allowed for statistical purposes.

Author’s Comments

The ruling highlights that a distance certificate is only as reliable as the municipal boundary from which it begins. A measurement from an outdated boundary may be factually precise but legally irrelevant.

The Tribunal treated the notified distance as moving with subsequent expansion of municipal limits. This proposition may require careful examination in other cases with reference to the exact language of the applicable Central Government notification & jurisdictional precedents.

For AY 2011-12, the method of measuring distance also deserves attention because the statutory requirement of aerial measurement was introduced only prospectively from AY 2014-15, a distinction recognised in CBDT Circular No. 17/2015.

The assessee has not yet lost the exemption claim, but he must now establish the correct distance from the municipal limits existing on 03.03.2011. In rural-land litigation, the decisive question is not merely how far the land lies—but where the municipal measuring tape legally begins.

Cases Discussed

• Collector, Land Acquisition, Anantnag v. Mst. Katiji & Ors.; 1987 (2) SCC 107
• National Thermal Power Company Limited v. CIT; (1998) 229 ITR 383 (SC)
• Commissioner of Customs (Import), Mumbai v. Dileep Kumar & Co.; AIR 2018 SC 3606
• ACIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd.; (2007) 291 ITR 500 (SC)
• Sheel Kumar & Ors. v. State of Haryana; Civil Writ Petition No. 20775 of 2011, dated 05.08.2011

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT DELHI

This appeal in ITA No. 3556/Del/2023 for Assessment Year: 2011-12 has been filed by the assessee which has arisen from the learned CIT(A)’s appellate order u/s 250 of the Income-tax Act, 1961 (in short “1961 Act”), dated 29.09.2023 in DIN & Order No: ITBA/NFAC/S/250/2023-24/1056667641(1) , which appeal in turn has arisen from the assessment order dated 06.12.2018 passed by the learned AO u/s 143(3) read with sections 147 of the 1961 Act.

2. The Grounds of Appeal raised by the assessee in Memo of Appeal filed with the Income-Tax Appellate Tribunal, Delhi Benches, New Delhi, reads as under:-

“Ground No. 1 Legality of Notice issued u/s 148 -That the Ld. AO /CIT(A) has failed to appreciate that there was no specific, relevant, reliable and tangible material on record to form a reason to believe that income of the appellant had escaped. The Ld.A O recording of reason income escaped shown Rs. 39811222/-. As per reason of issue of notice u/s 148 dated 23/03/2018 of Ld. AO assumed LTCG of Rs. 4042222200/-(sic. Rs. 4,05,22,222/-) income of assessee. So the legality of notice issued under section 148 is totally incorrect and bad in law. So the assessment order as passed by Ld. A O needs to be set aside on the basis of above ground.

Ground No. 2 Legality of Approval u/s 151:-That the procedure for approval of case is totally bad in law in the light of legality. The AO as well as Pr.CIT, Gurgaon did not follow the right procedure and given approval without application of mind. There is not mentioned proper details of approval when approval was given by Pr. CIT, Gurgaon. Only mention in reason recorded “Fit case” is not a right procedure to given approval u/s 151. That based on the facts and circumstance of the case bad in law, the approval granted under section 151 of the income tax Act, 1961 was not in accordance with law as it was accorded in a mechanical manner without application of mind and hence reassessment proceedings initiated is bad in law and liable to be quashed.

Ground 3. Agriculture Land is not Capital Assets:-The learned A O / CIT(A) has wrongly been added Rs 4,04,22,222/- in the income of the assessee on account of sale consideration of agriculture land. The learned A O has wrongly been charged capital gain on this sale consideration while same was exempt from capital gain. This agriculture land was in possession of father of assessee before 1980 and same was situated more than 8 km from last municipal limit of Gurgaon. According to notification no. 9447 dated 06/01/1994 this land was situated more than 14 km from last municipality limit of Gurgaon. So agriculture as sold by assessee is not capital assets and exempt from capital gain. The learned A O ignored the notification no 9447 dt. 06/01/1994 at the time of making assessment. At the time of sale it was outside the municipal limit of Gurgaon. The learned A O has wrongly been applied state government notification no. 18/1/95/2008-3CI dated 20/03/2010 on the assessee. No copy of said notification provide to assessee at the time of assessment proceeding to raise an objection against this notification which is not applicable on assessee. The said state government notification is not applicable to assessee because this notification was as per Gurgaon Municipal Corporation which was comes in existence in the year 2008. Before Municipal Corporation there was Municipal Committee in the Gurgaon City. The ag.land is not capital assets because its situated outside the municipality limit. Some facts/grounds/docs in supported here is under:

Agriculture Land: Assessee was owner of this ancestral agriculture land during the year and he was cultivated this ag land before 1980. In support of ownership and nature of ag.land in revenue record jamabandi,girdawari already submitted.

a. Situation of Ag. Land as on date of sale was Outside M C Area as per Sale Deed: Assessee sold his ag . land not within in municipal limit as per registration sale deed dated 03-03-2011 which is clearly mention by the Revenue Authority Gurgaon that land is situated outside the MC Limit of Gurgaon city.

b. Outside MC Village Badha- Rate List Notification of Deputy Commissioner , Gurgaon: That Village Badha is outside the MC area as per notification list by Deputy Commissioner, Gurgaon because Village Badha not in list of MC area.

c. Population of Municipal Corporation Gurgaon: That population of the city was less than 10 lacs. As per last Census . The population of the city as per last Census of India 2001 was total 8876969. So when population of city was 1 lac to 10 lanc than distance of ag.land should be measured – 6 km.

d. Outside M C Area as per DGPS Machine Mesurement: Assessee ag. land situated far from the municipal limit because the distance as measured by DGPS machine by a reputed certified company like: M/S. Vision Engineering Consultant Gurgaon. As per their report the Ag. land is situated about 14.2 km from MC the limit of Gurgaon.

e. Distance Cerificate from Sub-Registrar cum Tehsildar and Patwari: In the Haryana state the Sub-registrar cum Tehsildar and Halka Patwari is authorized person to issue distance certificate. Distance from the gurgaon city to this ag. land is about 14.02 km as measured by Revenue Deptt Gurgaon .TheTehsildarManesar issued certificate of distance on the basis of report as prepared by HalkaPatwari. Tehsiladar of concerned Tehsil Manesar, Gurgaon and HalkaPatwari is authorized person to issue distance certificate in the state of Haryana. Now the Village of the assessee is situated in the Tehsil Manesar, Distt Gurgaon (HR) new Tehsil of Gurgaon City. So, the position of lands as is obtained as on 06.01.1994 rather than the present position is to be taken into account.

So land sold by assessee is exempt u/s 2(14)(iii)(b). the learned AO has wrongly put the burden of tax on the head of an agriculturist. So it is requested that return filed by assessee should be accepted and addition made in income needs to be deleted.

Ground 4. Sale Consideration not received of Rs. 30391667/-.

The assessee did not received the full value of sale consideration due to cheque dishonored /bounce of Rs. 30391667/- of the purchasing party. After non -payment of sale consideration of agriculture land assessee approached to court of law for full sale consideration or for cancellation of sale deed. It was also submitted that the matter had contested under the Negotiable Instruments Act for dishonor of cheques and separately suit filed before the Civil Court for cancellation of sale deeds due to breach of contract and also applied for stay order for possession of said land. District and session Court, Gurgaon directing the status quo ( stay order) in relation to impugned land. The assessee filed a civil suit against the purchaser for cancellation of sale deed due to non- payment of sale consideration. In the absence of full sale consideration not received, there is no capital gain arise on full value in this situation. Against the received payment of Rs. 10130555/- assessee invested Rs. 90 lac in construction of residential house under section 54 of the income tax act, 1961.

Ground 5. Exemption u/s 54 :Rs. 10130555 cheque received on dt. 01.03.2011
Rs. 30391667 cheque bounced and assesse filed court case

That assesse received only Rs. 10130555/- sale consideration amount. The learned A O did not given benefit of cost of construction of residential house Rs. 90 lacs appx which is constructed during the year from this amount of sale consideration. Copy of valuation report of the said property is attached herewith. Asseesse also paid for purchase of residential plot of Rs. 14,58,044/-appx to HUDA Deptt. Haryana as per details/receipt attached. So addition of Rs. 90 lac + 1458044 may be deleted from the total addition on account of purchase and construction of residential house under section 54 of Income Tax Act, 1961.

Ground 6. Cost of Acquisition Index Ignored:- That Ld. AO himself admit that value of ag. land was Rs 1 lac as on year 1981 when recorded reason, but not given cost of index relaxation during the assessment. Asseessee had ancestral ag .land since 1961. Asseessee have right to get benefit of cost of index relaxation . The Ld AO accept itself in the recorded reason that cost of acquisition of the property was Rs.7.11 lac as on year 1981 but allow only Rs. 1 lac during the assessment year 2011-12. The Ld. AO make to hurry finalization the assessment and made unnecessary addition to the assesse income which is bad in law. Your honor in the absence of proper assessment procedure of Income Tax Act 1961 , the addition made by Ld AO and order needs to be set aside.

7. Prayer: It is therefore prayed before your honor that additions as made by Ld AO as upheld by Hon’ble CIT(A) be deleted from the income of assessee and appeal of the appellant should be allowed in full.”

3. At the outset, it is observed that this appeal is filed belatedly by the assessee by 10 days beyond the time stipulated u/s 253(3) of the 1961 Act. The assessee has filed application for condonation of delay supported by Medical Certificate/Prescription of ‘Aman Hospital and Surgical Centre’ , Gurugram. It is stated in the aforesaid condonation application filed by the assessee that the assessee is a Senior Citizen, aged more than 80 years, suffering from various ailments. It is further stated that the assessee is a illiterate farmer not having knowledge of email, messaging, checking of IT portal etc. , and also not aware of the technicalities and legalities of the 1961 Act. It is prayed that delay of 10 days in filing this appeal belatedly be condoned. After considering the entire materials on record and hearing the arguments. , we condone the aforesaid delay , and proceed to adjudicate this appeal on merits. When substantial justice is pitted against technicalities, the courts will lean towards advance of substantial justice, unless malice is at writ large or there is gross negligence. We do not see any malice on the part of the assessee or gross negligence on the part of the assessee in filing this appeal belatedly by 10 days beyond the time prescribed u/s 253(3) of the 1961 Act, as the assessee is not likely to gain anything by filing this appeal belatedly by 10 days beyond the time prescribed u/s 253(3) of the 1961 Act. Reliance is placed on judgment and order of Hon’ble Supreme Court in the case of Collector, Land Acquisition, Anantnag v. Mst. Katiji & Ors. 1987 (2) SCC 107.

4. The brief facts of the case are that the assessee did not filed return of income u/s 139 of the 1961 Act. Based on the AIR information, that the assessee had sold immovable property of Rs. 4,05,22,222/- during the year under consideration, various NMS notices were issued and a compliance window was also created on e-filing portal. The assessee submitted that it was an exempt income. Proceedings u/s 147/148 of the 1961 Act were initiated by the AO against the assessee after taking prior approval of the ld. PCIT, Gurugram , as is required u/s 151 of the 1961 Act. Statutory notice u/s 148 of the 1961 Act , dated 23.03.2018 was issued by the AO to the assessee, which was claimed by the AO to have been duly served on the assessee. Statutory notice u/s 142(1) dated 10.07.2018 along with questionnaire was issued by the AO to the assessee along with request to file return of income in pursuance to notice u/s 148 of the 1961 Act. Further statutory notices were also issued by the AO u/s 143(2) and 142(1) of the 1961 Act, during the course of assessment proceedings , the details of which are recorded in assessment order. It is stated by the AO that notices were generated electronically through ITBA Portal, as well sent through emails and by post. The AO also issued notice u/s 133(6) to Sub-Registrar , HSIIDC Building, IMT Manesar, Gurugram, seeking copy of sale deed executed by the assessee. The AO observed that the assessee has sold property of Rs. 4,05,22,222/- . The said property is situated at Village Bhada, Tehsil Manesar, Gurugram, and the assessee is owner of the said property through jamabadi no. 2002-2003. The assessee claimed that income is exempt as the land being agriculture land. The AO confronted assessee with notification no. 18/1/952008-03CI dated 22.03.2010 issued by department of Urban Local Bodies, Haryana Government that the land falls within 8 kms from the end of MC limit of Gurugram, and is a capital asset and chargeable to income-tax as income from capital gains . The assessee was show caused by the AO as to why capital gains earned from the transactions taking indexed value as recorded in the reasons for reopening of the assessment, be not brought to income-tax. The assessee submitted that the assessee has invested in the construction of house and land. The AO observed that the assessee has not filed any documents/evidences to substantiate the same. The AO allowed cost of acquisition of the property at Rs. 1,00,000/- as on sale of property and the long term capital gains on sale of land estimated at Rs. 4,04,22,222/- (Rs. 4,05,22,222/- -Rs. 1,00,000/-) was brought to income-tax by the AO as undisclosed income of the assessee being undisclosed long term capital gains of the assessee, vide assessment order dated 06.12.2018 passed by the AO u/s 147 r.w.s. 143(3) of the 1961 Act.

5. Aggrieved, the assessee filed first appeal before ld. CIT(A). The assessee submitted before ld. CIT(A) that the assessee is an agriculturist and his income during the year under consideration was below taxable limits, and hence return of income was not filed by the assessee. The assessee submitted that the capital gain arising from sale of agricultural land is not taxable as the said agricultural land is not a capital asset u/s 2(14) of the 1961 Act, and hence it is fully exempt from income-tax. It was submitted by the assessee before ld. CIT(A) that the said agricultural land is in possession of the assessee since 1980 , and situated more than 8 kms from last municipal limit of Gurgaon according to Notification No. 9447 dated 06.01.1994. The assessee submitted that this is an ancestral land, and he cultivated the same since 1985. The copy of Girdwari, Zamabandi were submitted by the assessee before ld. CIT(A). The assessee submitted that population of Gurgaon is 876900 as per 2011 Census , and the land is not within 6 kms of Municipal limits of Gurgaon, Since population of Municipality is less than 10 lacs, distance is to be measured 6 kms from the city limits. The assessee drew attention to Sale deed executed by him in favour of buyer where it is mentioned that the said land is an agricultural land being outside MC area. The copy of sale deed was enclosed. It was submitted that the agricultural land is situated far from municipal limits because the distance measured by a DGPS machine by a reputed private certified company M/s. Vision Engineering Consultant , Gurgaon, and as per their report the said land is situated 14.2 kms from the city limits of Gurgaon. The assessee enclosed distance certificate/report. It was submitted that the Revenue Department, Gurgaon vide report prepared by Halka Patwari and Tehsildar of Teshsil Manesar , Gurgaon has also certified that distance from city to agricultural land of the assessee is 14kms. The assessee enclosed certificate of Tehsildar-Revenue department , Haryana. The assessee, thus, contended that the land sold is exempt u/s 2(14)(iii)(b) of the 1961 Act. Thus, the assessee submitted that the assessee was wrongly charged to tax by the AO. The assessee further submitted that the assessee did not received the entire sale consideration, as the cheque for Rs. 3 crores bounced . It was submitted that the assessee has filed a case against purchaser for cancellation of sale deed due to non payment of sale consideration . Thus, it was submitted that in the absence of sale consideration , no capital gains have arisen which could be brought to tax. It was further submitted that the AO has not given benefit of cost of construction of residential house to the tune of Rs. 90 lacs which was built by the assessee during the period. The assessee claimed that he paid Rs. 14,58,044/- to HUDA for residential plot. The assessee enclosed copy of purchase deed for residential plot and copy of home valuation report along with site photo. The ld. CIT(A) rejected the contentions of the assessee. The ld. CIT(A) observed that the assessee has submitted copy of report prepared by Halka Patwari and Tehsildar Manesar, Gurgaon, wherein Tehsildar has submitted that the distance of the land from end of the Municipal Corporation Gurgaon is 14.02km which was measured by Vision Engineering Consultant. The ld. CIT(A) further observed that the Tehsildar of Tehsil Manesar has not measured the land distance from the end of the Municipal Corporation Gurgaon. He has only submitted report based on certificate prepared by Vision Engineering Consultant. The ld. CIT(A) observed that the report dated 24.12.2018 of Vision Engineering Consultant is not signed by any authority. Therefore ,as per ld. CIT(A), this does not establish the genuineness to prove that the land is an agricultural land.Thus, the ld. CIT(A) held that the land sold by the assessee is not an agricultural land and it is with in the municipal corporation limit, and thus, the assessment order passed by the AO was upheld, and the appeal filed by the assessee stood dismissed by ld. CIT(A).

6. Still aggrieved , the assessee has now filed second appeal with the Tribunal. The ld. Counsel for the assessee opened arguments before the Bench. It was submitted that the assessee is an agriculturist. It was submitted that the assessee has sold an agricultural land which is situated beyond the 8 kms of municipal limits of Gurgaon. It was submitted that Govt Notification No. 9447 dated 06.01.1994 is applicable. It was submitted that Tehsildar has issued distance certificate, which showed that the said land is 14kms from Municipal Corporation, Gurgaon. The assessee has filed certificate issued by Tehsildar which is based on distance certificate issued by Vision Engineering Consultant, which are reproduced hereunder:

It was submitted that the ld. CIT(A) has not adjudicated legal grounds raised by the assessee before ld. CIT(A). It was submitted by ld. Counsel for the assessee that the assessee raised legal challenge before ld. CIT(A) to invocation of Section 148 of the 1961 Act as well grant of approval u/s 151 of the 1961 Act, but these grounds were not adjudicated by ld. CIT(A). It was submitted that the entire consideration was not received as cheque of Rs. 3,03,91,667/- bounced , and the assessee filed civil suit for cancellation of sale deed as well criminal case was filed against buyer for bouncing of the cheque. It was submitted that payment of Rs. 1,01,30,555/- was received. The total sale consideration was Rs. 4,05,22,222/-. It was submitted that now compromise has been entered into by the assessee with the buyers. Prayers were made to allow appeal filed by the assessee , and delete the additions.

6.2. The ld. Sr DR submitted that the certificate issued by M/s Vision Engineering Consultants was not signed. It was submitted that proper measurement was not done. It was submitted that notification of 1994 is not applicable. It was submitted that notification dated 20.03.2010 is applicable. The copy of said notification is filed by ld. Sr. DR in the paper book filed by Revenue, which is reproduced herewith :

It was submitted by ld. Sr. DR that the said land is within 8 km of municipal limit of Gurgaon. It was submitted that the assessee is relying on report of private party viz. Vision Engineering Consultant. The Tehsildar relied upon the report of the aforesaid private party, while issuing certificate. The ld. Sr. DR submitted that the assessee never raised any legal grounds before ld. CIT(A) challenging invocation of Section 148 and /or challenging approval granted by ld. PCIT u/s 151 of the 1961 Act , and it was submitted by ld. Sr. DR that wrong contentions are raised before the Bench. It was submitted that these legal grounds are raised for the first time before the Tribunal. It was submitted by ld. Sr. DR that sale deed was never cancelled. Prayers were made by ld Sr. DR to uphold the appellate order passed by ld. CIT(A).

7. We have considered rival contentions and perused the material on record. Brief facts are that the assessee did not file return of income originally u/s 139 of the 1961 Act. Based on the AIR information, that the assessee had sold immovable property of Rs. 4,05,22,222/- during the year under consideration, various NMS notices were issued and a compliance window was also created on e-filing portal. The assessee submitted in response thereof that it was an exempt income. No other details were furnished by the assessee in response to aforesaid notice. Proceedings u/s 147/148 of the 1961 Act were initiated by the AO against the assessee , and Notice u/s 148 of the 1961 Act was issued by the AO to the assessee, on 23.032018 . Other statutory notices were also issued by the AO during reassessment proceedings, the details are recorded in assessment order. The AO observed that the assessee has sold property of Rs. 4,05,22,222/- . The said property is situated at Village Bhada, Tehsil Manesar, Gurugram, and the assessee is owner of the said property through jamabadi no. 2002-2003. The assessee claimed that the income arising on sale/transfer of aforesaid land is exempt from capital gains, as the land being agriculture land is situated beyond 8 Kms from the Municipal limits of Gurgaon. The AO confronted assessee with notification no. 18/1/952008-03CI dated 22.03.2010 issued by department of Urban Local Bodies, Haryana Government that the land falls within 8 kms from the end of MC limit of Gurugram, and is a capital asset and chargeable to income from capital gains . The assessee on the other hand relied upon the Notification No. 9447 dated 06.01.1994 to contend that the said land which is an agricultural land falls beyond 8Km from the Municipal limits of Gurgaon and hence the same is exempt from income-tax. The assessee relied upon distance certificate dated 26.12.2018 issued by Tehsildar, Manesar (PB/Page 18-19), who in turn relied upon the distance certificate dated Nil issued by Vision Engineering Consultant( who hold Enlistment Certificate issued by Municipal Corporation, Gurugram) bearing Memo No. EE-VIII/MCG/2018/25975 dated 12.06.2018. Both the authorities below viz. AO and ld. CIT(A) rejected the contentions of the assessee by holding that the said land falls within 8 Kms of Municipal Limit of Gurgaon by relying on Notification of 2010.

7.2 The first legal challenge raised by the assessee is that the notice issued by the AO u/s 148 of the 1961 Act is bad in law. The assessee did not raise the aforesaid challenge in its appeal filed with ld. CIT(A), but the ground being legal , we allow the same . Reference is drawn to judgment and order of Hon’ble Supreme Court in the case of National Therma Power Company Limited v. CIT, reported in (1998) 229 ITR 383(SC) We have observed that the assessee did not file his return of income originally u/s 139 of the 1961 Act. The assessee has sold his property for Rs. 4.05 crores during the year under consideration, while no return of income was filed by the assessee. The assessee claimed before the AO in response to NMS notice that the said income is exempt from tax. If the assessee is claiming income from sale of property to be exempt, onus is on the assessee to prove that the said income is exempt from income-tax within the purview and mandate of the provisions of the 1961 Act , and the assessee has to establish that it has strictly complied with all the conditions of the statutory provisions of the 1961 Act granting exemption from income-tax. Exemption provisions are to be strictly construed. Reference is drawn to the judgment and order of Constitutional Bench of Hon’ble Supreme Court of India in the case of Commissioner of Customs(Import), Mumbai v. Dileep Kumar & Co., reported in AIR 2018 SC 3606. The AO recorded detailed reasons for reopening of the assessment. We have carefully gone through the reasons recorded by the AO on 12.03.2018, which are placed in paper book at page 4-5(also reproduced in this order). The AO has elaborately recorded in the reasons that information has been received which is recorded in Information Management System of the ITD, downloaded from AST that the assessee has sold land/immovable property situated under the revenue village Bada for Rs. 4,05,22,222/- on 14.02.2011, got registered with Sub-Registrar , Manesar. The assessee has not filed return of income for the year under consideration, while it sold property for huge amount of Rs. 4,05,22,222/-. Thus, the tax liability on LTCG on sale of immovable property remains unsubstantiated especially in the absence of return of income . The AO has recorded that NMS notice was issued to the assessee on 30.01.2018 requiring assessee to furnish response. The assessee submitted that no return of income was filed as the there was no taxable income during the year. The assessee did not file any other details regarding sale of property /land. Thus, in our considered view, the AO rightly invoked provisions of Section 147/148 against the assessee by reopening the assessment on the ground that income has escaped assessment as there is live link between information received and forming of a belief by the AO that income has escaped assessment. Moreover, at the stage of invocation of provisions of Section 147 of the 1961 Act, prima facie view is required to be formed that income has escaped assessment , and there is no requirement that there should be conclusive evidences before the AO that the income has escaped assessment. Reference is drawn to the judgment and order of Hon’ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers Private Limited, reported in (2007) 291 ITR 500(SC) . The assessee has not filed return of income originally u/s 139 of the 1961 Act. The assessee has sold land for Rs. 4.05 crores. The notice u/s 148 of the 1961 Act was issued by the AO on 23.03.2018 i.e. within six years from the end of the assessment year. First proviso to Section 147 of the 1961 Act is not applicable. In our considered opinion, the AO has rightly invoked provisions of Section 147/148 of the 1961 Act as the assessee has sold property for Rs. 4.05 crores during the year under consideration and no return of income was originally filed u/s 139. The said sale of land has not suffered taxation nor it was demonstrated with cogent evidences that the capital gains were exempt from income-tax as no return of income was filed nor in response to NMS notice, no details were furnished. Thus, even to NMS notices issued by Revenue, the assessee did not come forward and submitted complete details of sale of land and evidences supporting/justifying claim of exemption. If the assessee is claiming income from sale of property to be exempt, onus is on the assessee to prove that the said income by way of capital gains are exempt from income-tax within the purview and mandate of the provisions of the 1961 Act , and the assessee has to establish that it has strictly complied with all the conditions of the provisions of the 1961 Act granting exemption from income-tax. Exemption provisions are to be strictly construed. Reference is drawn to the judgment and order of Constitutional Bench of Hon’ble Supreme Court of India in the case of Commissioner of Customs(Import), Mumbai v. Dileep Kumar & Co., reported in AIR 2018 SC 3606. Thus, we uphold invocation of Section 148 of the 1961 Act. We order accordingly.

7.3 Further, the assessee has challenged to the approval granted u/s 151 of the 1961 Act by ld. PCIT. The copy of reasons recorded, approval granted by ld. PCIT u/s 151 of the 1961 Act and notice u/s 148 issued by the AO, are filed by the assessee in the paper book filed with the Tribunal, which are reproduced hereunder:

7.3.2.It is observed that ld. PCIT has vide orders dated 15.03.2018 on consideration of the reasons recorded by the AO , has given approval u/s 151 of the 1961 Act to issue notice u/s 148 to the assessee. The AO has duly recorded detailed reasons on 12.03.2018 for reopening of the assessment u/s 147/148 of the 1961 Act(copy is reproduced above). The ld. PCIT has based on the reasons recorded by the AO for reopening of the assessment, has given approval after due application of mind , on 15.03.2018. Thus, this contention of the assessee is also rejected.We order accordingly.

7.4 Coming to the merits of the issue in this appeal, the assessee has contended that the aforesaid land was an agricultural land which was situated beyond 8Kms of municipal limits of Gurgaon, and hence the same is not a capital asset as defined u/s 2(14) of the 1961 Act. It was stated that since the aforesaid land is not a capital asset as defined u/s 2(14) of the 1961 Act, capital gains arising from the sale of said land cannot be brought to tax under Chapter IV-E dealing with Capital Gains. The assessee is relying on the notification No. SO(10E) [ No. 9447(F.No. 164/3/87-ITA-I], dated 06.01.1994 as amended by Notification No. SO 1302(E)(F.No. 164/1/96-ITA-1), dated 28.12.1999. The assessee has also relied upon distance certificate issued by Tehsildar, Manesar. The Revenue on the other hand is relying on notification dated 20.03.2010 issued by Government of Haryana. We have carefully considered the entire material on record. It will be relevant here to reproduce Section 2(14) of the 1961 Act as were applicable during the relevant assessment year, which is reproduced hereunder:

Definitions. 2. In this Act, unless the context otherwise requires,—

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14) “capital asset” means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include—

(i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession ;

[( ii) personal effects , that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes—

(a) jewellery;

(b) archaeological collections;

(c) drawings;

(d) paintings;

(e) sculptures; or

(f) any work of art.

Explanation.—For the purposes of this sub-clause, “jewellery” includes—

(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel;

(b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel;]

[( iii) agricultural land in India, not being land situate—

(a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year ; or

(b) in any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette ;]

7.4.2 Thus, as could be seen from Section 2(14) of the 1961 Act , capital asset would include property of any kind held by the assessee whether or not connected with his business or profession , but does not include agricultural land in India , not being a land situated in any area comprised with in the jurisdiction of municipality or a cantonment board and which has population of not less than ten thousand as per last published census before the first day of previous year or in any area distance , not being more than eight kilometers, from the local limits of any municipality or cantonment board, as the Central Government may having regard to urbanization of that area and other relevant considerations , specify in this behalf by notification in the official Gazette. The Central Government has issued Notification No. 9447 dated 06.01.1994 which was amended by notification dated 28.12.1999, wherein Gurgaon Municipality found place under State of Haryana(9) at S no. 20 wherein it stipulated to be an ‘Areas falling outside the local limits of Gurgaon Municipality is an area upto a distance of 8kms from the municipal limits in all directions.” , meaning thereby that all the areas which falls within 8 kms from the municipal limits of Gurgaon Municipality in all directions , agricultural land shall be a capital assets , chargeable to income-tax on transfer of such agricultural land under the head income from capital gains. But , if the said agricultural land falls outside 8 kms of Gurgaon Municipality, the same shall not be chargeable to income-tax on the capital gains arising on sale/transfer. The definition is not static but dynamic, as with the ever increasing population and urbanization taking place , the Municipalities itself are expanding from time to time, so do the coverage of the agricultural land which falls within capital assets as defined u/s 2(14) of the 1961 Act become chargeable to capital gains tax on transfer. Vide Gazette Notification No. 18/1/95/2008-3CI dated 02.06.2008 issued by Haryana Government u/s 3(2) of Haryana Municipal Corporation Act, 1994(16 of 1994) , Municipal Council Gurgaon was declared as Municipal Corporation, Gurgaon. Vide another notification dated 20.03.2010 , administrative boundaries of Municipal Corporation, Gurgaon were extended , and the area of the various gram panchayats have been included in the Municipal Limits of Municipal Corporation, Gurgaon, wherein areas of various village panchayats namely Ghata, Tigara, Badsbahpur, Begumpur Khatola, Kherki Daula, Sihi, Harsaru, Gadauli Kalan, Basai, Dhawnwapur, Tikampur, Daultabad, Pawla Khusrupur, Chomma Khera etc. were included in the municipal limits of Municipal Corporation Gurgaon. Thus, with the aforesaid change brought on 20.03.2010, the Municipal limits of Gurgaon has expanded and extended , and with this so the areas upto 8 kms distance from the municipal limits have extended. The distance of 8kms is to be computed from outer limit of municipal corporation, Gurgaon in all directions. In this context reference is drawn to judgment and order of Hon’ble Punjab and Haryana High Court in the case of Sheel Kumar & Ors v. State of Haryana, dated 05.08.2011m in Civil Writ Petition No. 20775 of 2011, wherein these notifications were considered by Hon’ble Punjab and Haryana High Court. We are concerned with assessment year 2011-12, and hence expanded and extended administrative boundaries of Municipal Corporation, Gurgaon shall apply. It is observed that the assessee has produced distance certificates from Tehsildar dated 26.12.2018 which is based on the certificate issued by Vision Engineering Consultants which has been prepared by taking outer limits of Municipal Council Gurgaon of the year 1996, and hence ex-facie erroneous as it ought to have taken outer limit of Municipal Corporation , Gurgaon as on the relevant date of transfer/sale of the aforesaid land , so the said certificate of Tehsildar dated 26.12.2018 stands rejected. The AO is directed to make necessary enquiries and verifications with respect thereto to determine the correct distance in order to decide whether the said land falls within the distance of 8kms from Municipal Corporation, Gurgaon as it existed on the date of transfer or otherwise, so that accordingly assessments can be framed on merits in accordance with law. It will also be relevant here to refer to circular number 17/2015 [F.No. 279/MISC./140/2015-ITJ], dated 06.10.2015, issued by CBDT , which is binding. Thus, the matter is restored to the file of the AO for denovo determination of the matter on merits in accordance with law, in accordance with our aforesaid directions. The AO shall give proper opportunity of being heard to the assessee in accordance with principles of natural justice.The evidences filed by the assessee in its defense shall be admitted by the AO and adjudicated on merits in accordance with law. It is once again reiterated that exemption provisions are to be strictly construes and onus is on the assessee. So far as claim of the assessee that the cheque of Rs 3,03,91,667/- towards sale consideration stood bounced , and suit for cancellation of sale deed was filed as well criminal proceedings were launched against the buyer, the ld. Counsel for the assessee has during the course of hearing stated that compromise was reached with the buyer. The sale deed was executed in favour of buyer by the assessee on 03.03.2011 which was never cancelled, and hence the said pleadings wrt bouncing of cheque have become infructuous. We order accordingly.

7.5 The assessee has raised an issue that the said land was inherited by him as being ancestral land, and the assessee is entitled for deduction of indexed cost of acquisition. We , in principal, agree with the contentions of the assessee. We direct assessee to place all relevant material in this regard before the AO. The AO is directed to examine, verify and make necessary enquiries as to the claim of the assessee for the indexed cost of acquisition , and allow the same on merit in accordance with law. We order accordingly.

7.6 The assessee has also raised an issue that it has invested in purchasing of residential plot from HUDA and constructed residential house, for which he is entitled for deduction u/s 54F. The assessee is directed to place on record all necessary and relevant material to that effect before the AO, and the AO is directed to verify and examine the claim of the assessee, and allow the same on merits in accordance with law. The assessee is claiming deduction/exemption u/s 54F, the onus is on the assessee that it meets all the requirements/conditions as stipulated u/s 54F. We order accordingly.

8. In the result, appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open Court on 01.09.2026.