Capital Gain computation in case of diversion of Agricultural Land from gram panchayat to municipality

Krishna Mohan Choursiya Vs ITO (ITAT Indore)

We find that there is a clear distinction between a municipality and a gram panchayat as also enunciated in the judgment of Hon’ble Madras High Court in the case of CIT v. P.J. Thomas as reported in [1995] 211 ITR 897 (MAD.), therefore, we are of the view that the land in question was not situated within the limit of any municipality or cantonment board. Thus, in view of these facts and circumstances of the case, we find that the agricultural land initially purchased by the assessee was not a capital asset as per section 2(14)(iii) of the Act. Accordingly, the amount of capital gain accruing to the assessee till the diversion of agricultural land on 25.11.2010 shall not be eligible to tax. Further, for the purpose of computation of the amount of capital gain that shall be exempt from tax, the assessee submitted that fair market value on the date of diversion shall be considered as full value of consideration and such fair market value shall be considered as cost for determination of the amount of capital gain chargeable to tax subsequent to diversion of land. The assessee filed detail regarding 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 Rs. 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 Rs.72,72,000/-(Rs.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 Rs.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.)
• Mina Deogun v. ITO [2008] 19 SOT 183 (Kol.)
• Pfizer Ltd. v. Dy. CIT [2015] 56 com 260/ 153 ITD 433 (Mum.)
• CIT v. Ashven Datla [2013] 37 com 261/ 218 Taxman 74 (Mag.)(AP)

On consideration of above, we find force in the contention of the ld. Counsel for the assessee that fair market value of land as on the date of diversion i.e. on 25.11.2010 shall be taken as Rs.68,90,415/-. Thus, in our view, as discussed supra, capital gain accruing to the assessee till the date of diversion using fair market value of Rs.68,90,415/- shall be exempt from tax. Further, we are of the view that fair market value of Rs.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.

FULL TEXT OF THE ORDER OF ITAT INDORE

The above captioned appeal filed at the instance of the Assessee for Assessment Year 2014-15 is directed against the order of Ld. Commissioner of Income Tax(Appeals) [in short ‘Ld. CIT(A)’], Ujjain dated 01.09.2017 which is arising out of the order u/s 143(3) of the Income Tax Act 1961(In short the ‘Act’) dated 28.12.2016 framed by ITO Rajgarh. The Assessee has raised the following revised grounds of appeal in ITANo.853/Ind/2017:

“REVISED GROUNDS OF APPEAL

1. That on the facts and in the circumstances of the case and in In w, the Ld Assessing Officer erred in adopting the Fair Market Value of Land as on 01-04-1981 arbitrarily without determining the Fair Market Value of Land as on 01-04-1981 using the Reverse Indexation Method which is a well settled method of determination of fair market value.

2. That on tile facts and in the circumstances of the case and in Jaw, the Ld CIT(A) erred in maintaining the addition of Rs. 88,78,365/ – as made to the total income of the appellant on account of long-term capital gain earned on sale of land without properly appreciating the facts of tile case and submissions 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 ofRs. 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 Rs. 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 Rs.3,42,358/ – as made to the total income of the appellant on account of long-term capital gain earned on the compulsory acquisition of part of tile house without properly appreciating the facts of the case and submissions made before him.

6. That on the facts and in tile circumstances of the case and in law, the Ld CIT(A) erred in maintaining the addition of Rs. 12,86,090/- as made to the total income of the appellant by treating it as unexplained credit under section 68 of the Income-Tax Act, 1961 without properly appreciating the facts of the case and submission made before him even when the said agricultural land was purchased in tile previous year 2012-13 relevant to the Assessment Year 2013-14.

7. That on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in maintaining the addition of Rs. 4,12,148/- as made to the total income of the appellant on account of estimation of net profit @ 8% without properly appreciating the facts of the case and submissions made before him.”

Ground Nos.1 to 3

2. In ground nos. 1 to 3, the assessee has challenged the finding of Ld. CIT(A) confirming the addition of Rs.88,78,365/-made by the Ld. Assessing Officer on account of long-term capital gain on sale of land. Brief facts as culled out from the orders of Revenue Authorities are that the Assessing Officer noted that the assessee sold land for the consideration of Rs.91 lacs on 02.5.2013. The Assessing Officer treated the land as capital asset as per sec. 2(14) of the I.T. Act but the assessee contended that the land is agricultural, therefore, not chargeable as capital gain.

3. 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 land is situated at a distance of 1.5 km from the bus stand, Kurawar Gram Panchayat, therefore, the land is a capital asset. Ld. CIT(A) further noted from the perusal of sale deed that the sold land was diverted land for the purpose other than agricultural, therefore, the land is capital asset and thus, the distance from municipality or gram panchayat had no bearing. The ld. CIT(A) also noted that the Assessing Officer recorded the statement of the assessee during the course of assessment proceedings wherein in reply to question no.2 and 15, the assessee admitted that the land has been transferred for the purpose of developing residential plots. Still aggrieved, the assessee is in appeal before this Tribunal.

4. 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 Rs.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

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 Ramnath, Halka no. 58, Village Kurawar, Narsinghgarh, Rajgarh admeasuring 0.772 hectares during the FY 1988-89. Out of the agricultural land situated at Survey no. 83 admeasuring 2.529 hectares, agricultural land admeasuring 2.312 hectares was diverted on 25.11.2010 and out of the diverted land, land admeasuring 1.147 hectares was sold during the year. Similarly, agricultural land situated at Survey no. 82/6 admeasuring 0.772 hectares was diverted on 25.11.2010 and out of the diverted land, land admeasuring 0.368 hectares was sold during the year. Thus, the assessee sold 1.515 hectares (1.147 hectares + 0.368 hectares) of diverted land during the year for a consideration of Rs.91,00,000/-. The assessee filed the following details:

From the perusal of the above, we find that agricultural lands purchased during the FYs 1978-79 and 1988-89 were rural agricultural lands and were not capital assets as per section 2(14)(iii) of the Act as all these documentary evidences filed by the assessee and contents appearing therein have not been found to be incorrect by the Revenue Authorities at any stage. The Revenue Authorities made/confirmed the addition on account of long-term capital gain on sale of land merely on the basis of sale deed wherein it was mentioned that the sold land was diverted 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 2(14)(iii) of the Act shall not be applicable to the facts of the present case. On the other hand, the Ld. Counsel for the assessee categorically emphasized that section 2(14)(iii) of the Act refers to inclusion as capital assets of agricultural land situated in India 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. Ld. Counsel for the assessee re-iterated that land in question was situated within the jurisdiction of a panchayat and not within the jurisdiction of a municipality and that panchayat is to be understood as distinct and different from municipality. For ready reference, the provision of section 2(14)(iii) of the Act are reproduced hereunder: –

2………..

………….

(14) “capital asset” means—

…………

…………

but does not include—

…………

…………

(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; or

(b) in any area within the distance, measured aerially,—

(I) not being more than two kilometres, 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 kilometres, 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 kilometres, 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;

On perusal of records filed before us, we find that the land in question was situated at a distance of 2.5 kms from the panchayat office 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 (whether known as municipality or municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment, which has a population of not less than 10,000 according to the last preceding census. In order that the benefit of exclusion of agricultural land as capital asset may not be available, the land should be situated within the jurisdiction of a municipality or a cantonment board as stated earlier and is also related to the population. Though the expression, “municipality, municipal corporation, notified area committed town area committee, town committee”, etc., have been used they refer only to certain specific entities either known by that name or by any other name and that cannot be taken to apply to a panchayat which is and has also always been understood as distinct and different from municipality, etc. In the absence of clear or specific words in the section to take in a panchayat, we are unable to countenance the argument of learned counsel for the Revenue. We are satisfied that the Tribunal was quite justified in deleting the tax arising on capital gains on account of the sale of the agricultural lands by the assessee. The tax case petition is dismissed. There will be no order as to costs.”

In light of the facts re-iterated above and after going through the findings of the Hon’ble Madras High Court (supra), we find that there is a clear distinction between a municipality and a gram panchayat as also enunciated in the judgment (supra), therefore, we are of the view that the land in question was not situated within the limit of any municipality or cantonment board. Thus, in view of these facts and circumstances of the case, we find that the agricultural land initially purchased by the assessee was not a capital asset as per section 2(14)(iii) of the Act. Accordingly, the amount of capital gain accruing to the assessee till the diversion of agricultural land on 25.11.2010 shall not be eligible to tax. Further, for the purpose of computation of the amount of capital gain that shall be exempt from tax, the assessee submitted that fair market value on the date of diversion shall be considered as full value of consideration and such fair market value shall be considered as cost for determination of the amount of capital gain chargeable to tax subsequent to diversion of land. The assessee filed detail regarding 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 Rs. 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 Rs.72,72,000/-(Rs.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 Rs.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.)
• Mina Deogun v. ITO [2008] 19 SOT 183 (Kol.)
• Pfizer Ltd. v. Dy. CIT [2015] 56 com 260/ 153 ITD 433 (Mum.)
• CIT v. Ashven Datla [2013] 37 com 261/ 218 Taxman 74 (Mag.)(AP)

On consideration of above, we find force in the contention of the ld. Counsel for the assessee that fair market value of land as on the date of diversion i.e. on 25.11.2010 shall be taken as Rs.68,90,415/-. Thus, in our view, as discussed supra, capital gain accruing to the assessee till the date of diversion using fair market value of Rs.68,90,415/- shall be exempt from tax. Further, we are of the view that fair market value of Rs.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 Rs.91,00,000/- for the FY 2013-14 (AY 2014-15) which is as under:

Fair market value of land as on 25.11.2010 i.e. during FY 2010­11 which is considered as cost of acquisition for the purpose of computation of capital gain – Rs.68,90,415/-

Cost inflation index for the FY 2010-11 – 711 Cost inflation index for the FY 2013-14 – 939

Indexed cost of acquisition – Rs.91,00,000/- (Rs.68,90,415/- * 939/711)

Sale consideration – Rs.91,00,000/-

Thus, effectively there shall be no capital gain chargeable to tax in the hands of the assessee during the AY 2014-15 in respect of sale of land in question. 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 Rs.68,90,415/- comes to NIL and as such, capital gain is chargeable to tax in the hands of the assessee. In view of these facts in the light of the judicial pronouncements (supra), we are of the view that the findings of ld. CIT(A) deserve to be set aside and accordingly, we delete the addition of Rs.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.

Ground No.4

7. In ground no.4, the assessee has challenged the finding of Ld. CIT(A) confirming the addition of Rs.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 Rs.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 Rs.9,25,047/- made by the Assessing Officer is justified. Still aggrieved, the assessee is in appeal before this Tribunal.

9. 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 the Act. Accordingly, compensation received by the assessee on compulsory acquisition of its rural agricultural land shall not be chargeable to tax under the IT Act, 1961. Per contra, ld. Sr. DR relied upon the orders of the Revenue Authorities.

10. We have heard rival contentions of both the parties and perused material available on record. We find that the Government compulsorily acquired land admeasuring 0.180 hectares out of the land admeasuring 0.217 hectares which was not diverted which makes it clear that the land compulsorily acquired by the Government was agricultural land and not diverted land. We find that in the order dated 25.11.2010 issued by SDM, Narsinghgarh dated 25.11.2010 placed on Page No. 114-116 of the paper book, it is mentioned that the land admeasuring 2.312 hectares was only diverted out of the total area of land admeasuring 2.529 hectares situated at Survey no. 83, Village Lasudalya Ramnath, Halka no. 58, Village Kurawar, Narsinghgarh, Rajgarh. We have also gone through the list of land compulsorily acquired by the Government along with the detail of compensation provided thereon placed on Page No. 64 of the paper book wherein also it has been mentioned that the land acquired by the Government was ‘irrigated land’. In view of these facts, we are of the view that the land compulsorily acquired by the Government was agricultural land and not diverted land. As already discussed while adjudicating ground nos. 1 to 3 of the appeal, the land purchased by the assessee was a rural agricultural land and not a capital asset as per section 2(14)(iii) of the Act, therefore, the compensation received by the assessee on compulsory acquisition of its rural agricultural land shall not be chargeable to tax under the IT Act, 1961. Even otherwise, 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 compensation received on compulsory acquisition of urban agricultural land is exempt from tax as per section 10(37) of the Act subject to conditions specified therein. However, since land compulsorily acquired by the Government in the present case was a rural agricultural land, there arises no question of taxability of capital gain on compulsory acquisition of such land. Accordingly, we set aside the findings of Ld. CIT(A) and delete the addition of Rs.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 Rs.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 Rs.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, the assessee is in appeal before this Tribunal.

13. Counsel for the assessee, reiterating the submissions made before Revenue Authorities, submitted that the 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. With regard to compulsory acquisition of plot area of 250 Sq Fts, the ld. Counsel for the assessee submitted that the assessee merely received an amount of Rs. 15,840/- as compensation in lieu of compulsory acquisition of plot area which was less than the cost of acquisition of the said plot area, therefore, no capital gain was chargeable in the hands of the assessee even in respect of compulsory acquisition of plot area. Per contra, ld. Sr. DR relied upon the orders of the Revenue Authorities.

14. We have heard rival contentions of both the parties and perused material available on record. We find that the assessee owned a house situated at Ward No. 7, Village Kurawar, Narsinghgarh, Rajgarh wherein the plot area was 1,250 Sq Fts and constructed area was 5,000 Sq Fts. The Government compulsorily acquired plot area of 250 Sq Fts against which compensation of Rs. 15,840/- was awarded to the assessee and also demolished constructed area of 1,000 Sq Fts (250 Sq Fts * 4 floors) against which compensation of Rs. 7,87,201/- was awarded to the assessee thereby totaling to Rs. 8,03,041/-. The cost of house appearing in the balance sheet of the assessee was of Rs.10,45,000/- and accordingly the proportionate cost of part of the house demolished and compulsorily acquired by the Government comes to Rs.2,09,000/- (Rs. 10,45,000/­ * 1,000/5,000). We find that the Assessing Officer worked out the amount of capital gain on compulsory acquisition of part of the house of the assessee as under:

Full value of consideration i.e. compensation received on compulsory acquisition of part of house – Rs.8,03,041/-

Proportionate cost of part of the house demolished and compulsorily acquired by the Government – Rs. 2,09,000/-

Cost inflation index for the FY 2001-02 – 426 Cost inflation index for the FY 2013-14 – 939

Indexed cost of acquisition – Rs.4,60,683/- (Rs.2,09,000/- * 939/426)

Long-term capital gain – Rs.3,42,358/-

On consideration of above, we find that the Government 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 Rs. 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 Rs.49,331/- (Rs. 2,25,000/- (+) Rs. 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 the hands of the assessee even in respect of compulsory acquisition of plot area. Further, the assessee incurred substantial repair and renovation expenses to the tune of Rs.5,23,817/- to bring back the house to a suitable condition for living subsequent to demolition done by the Government. Thus, it is clear that the assessee did not earn any long-term capital gain. In view of these facts and circumstances, we set aside the findings of ld. CIT(A) and delete the addition of Rs.3,42,358/- made on account of long-term capital gain on compulsory acquisition of a part of the house of the assessee. Accordingly, ground no.5 raised in the appeal of the assessee is allowed.

Ground No.6

15. In ground no.6, the assessee has challenged the finding of ld. CIT(A) confirming the addition of Rs.12,86,090/- made by the Assessing Officer on account of unexplained/bogus liability by treating it as unexplained credit u/s 68 of the IT Act, 1961. Brief facts as culled out from the orders of Revenue Authorities are that an amount of Rs.12,86,090/- was added by the Assessing Officer on account of agricultural 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.

16. 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 on the ground that the assessee failed to discharge the burden of proof by not establishing the source of investment. Still aggrieved, the assessee is in appeal before this Tribunal.

17. Before us, the ld. Counsel for the assessee, reiterating the submissions made before Revenue Authorities, submitted that corresponding adjustment in respect of addition made to agricultural land was not routed through the capital account rather the amount of cash to the extent of Rs.12,86,090/- was transferred from the books of accounts of the business to the personal books of accounts of the assessee and the agricultural land in question was purchased during the A.Y. 2013-14 and not during the AY 2014-15. But, the Assessing Officer made the addition on mere surmises and conjectures. Per contra, ld. CIT-DR 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 Rs.11,00,000/- during the AY 2013-14. The assessee further paid stamp duty of Rs.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 Rs.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 agricultural land was not routed through the capital account but rather the amount of cash to the extent of Rs.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. Therefore, addition of Rs.12,86,090/- 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 of Rs.12,86,090/- made u/s 68 of the I.T. Act, 1961. Thus, ground no.6 raised in the appeal of the assessee is allowed.

Ground Nos.7

19. In ground no.7, the assessee has challenged the finding of Ld. CIT(A) confirming the addition of Rs.4,12,148/- made by the Assessing Officer on account of estimation of N.P. @ 8%. Brief facts as culled out from the orders of Revenue Authorities are that the Assessing Officer estimated the n.p. at 8% as the Assessing Officer was of the view that in the absence of books of accounts, the assessee failed to explain the income earned from the business.

20. 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 on the ground that in the absence of books of accounts, the Assessing Officer had no option but to estimate the income of the assessee by adopting reasonable n.p. Still aggrieved, the assessee is in appeal before this Tribunal.

21. Counsel for the assessee, reiterating the submissions made before Revenue Authorities, submitted that books of accounts of the business carried out by the assessee were misplaced. However, the assessee was subject to tax audit for the AY 2014-15 under consideration and his books of accounts were duly audited by an independent Chartered Accountant and the financial results of the assessee for the year ended 31.03.2014 were comparable with the results of the preceding as well as subsequent years. Per contra, ld. CIT-DR relied upon the orders of the Revenue Authorities.

22. We have heard rival contentions of both the parties and perused material available on record. We find that the Assessing 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 Rs.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 Assessing Officer/ld. CIT(A) did not consider the fact that the financial results of the assessee for the year ended 31.03.2014 were comparable with the results of the preceding as well as subsequent years. Further, the Chartered Accountant who audited the books of accounts also did not give any adverse findings regarding the books of accounts maintained by the assessee. In view of these facts and circumstances, the addition is not justified. Thus, the findings of Ld. CIT(A) deserves to be set aside. Accordingly, we delete the addition of Rs.4,12,148/- made on account of estimation of N.P. @ 8%. Therefore, ground no.7 raised in the appeal of the assessee is allowed.

23. In the result, the assessee’s appeal i.e. ITA No.853/Ind/2017 is allowed.

Order pronounced as per Rule 34 of ITAT Rules, 1963 on 30.9.2021.