Deduction u/s. 54B & Advance for purchase of agricultural land

IN THE ITAT HYDERABAD BENCH ‘A’

Smt. Gousia Begum

v/s.

Deputy Commissioner of Income-tax

IT APPEAL NOS. 1024 TO 1027 AND 1268 TO 1271 (HYD.) OF 2011

[ASSESSMENT YEARS 2002-03 TO 2004-05, 2006-07 AND 2008-09]

NOVEMBER 16, 2011

ORDER

Chandra Poojari, Accountant Member

This is a bunch of eight appeals. The appeals of the assessees for the assessment year 2008-09 are directed against similar but separate orders of the CIT(A) I, Hyderabad dated 16.3.2011, whereas the other appeals of the assessee, Shri Mirza Mustafa Baig for the assessment years 2002-03 to 2004-05 and 2006-07 are directed against a common order of the CIT(A)-I, Hyderabad dated 15.3.2011. Since common issues are involved, all these appeals are being disposed off with this consolidated order for the sake of convenience.

2. Facts in brief facts are that there was search action in the case of the assessee at her residential premises on 17-10-2007. The assessee filed her return of income for the assessment year under consideration at Rs. 30,98,620/-and agricultural income of Rs. 8,400/-. In the course of assessment proceedings, the assessing officer made disallowance of Rs. 8,400/- treating the agricultural income as non-agricultural income. He also made disallowance of Rs. 21,000/-claimed by the assessee under section 80C of the Income-tax Act. Further, the assessee along with three others, who are also appellants before us, had sold 5 acres 6 ghuntas of agricultural land situated in survey No. 218, 219 and 225 of Narsingi Village, Rajendra Nagar Mandal, Hyderabad to Sun Breeze Estates & Developers Ltd. and received consideration of Rs. 33,25,00,000. The assessee was having 1/4th share therein. The assessee claimed that no capital gains arose out of the said transaction, as the land sold was of agricultural nature, and hence not a capital asset in terms of S.2(14)(iii) of the Income-tax Act. However, the Assessing Officer rejecting the contention of the assessee, proceeded to bring to tax long term capital gains arising out of the sale of the said land.

3. The assessee also claimed exemption under S.54B of the Act on account of purchase of agricultural lands, which were registered at Yenkepally Village, Pudur Mandal, R.R. District of Rs. 1,05,08,220 from the amount received by way of capital gains. Similarly, assessee also claimed exemption under S.54B in respect of the advance paid for purchase of agricultural lands at Puppalaguda Village, Rajendra Nagar Mandal of Rs. 96,62,500. The assessing officer observed that mere payment of advance for purchase of agricultural lands without possession and without registration, does not entitle the assessee to exemption under S.54B. He noted that as per the provisions of S.54B of the Act, if the assessee has within a period of two years from the date of sale of agricultural land, purchases another agricultural land, exemption is available. He further noted that if the amount is not used for purchase of the agricultural lands before the due date of filing return of income, the same should be deposited in capital gain account. Relying on the decisions of Madras High Court in the case of CIT v. Smt. Jayalakshmi Rajendran [1985] 152 ITR 744; of the A.P. High Court in the case of CIT v. Mrs. Shahzada Begum [1988] 173 ITR 397  and of the Kerala High Court in the case of P.K. Kesavan Nair v. CIT [1988] 174 ITR 253  , and observing that a purchase is complete only when the property is conveyed by a registered deed, the assessing officer held that the assessee is not entitled for exemption under S.54B, in respect of purchase of agricultural lands for which neither there is a registration nor possession of the lands.

4. Without prejudice to the above finding, the assessing officer also rejected the claim of the assessee for relief under S.54B of the Act, on the ground that the land sold was not an agricultural land. In this behalf, it may be noted that in the absence of any evidence filed by the assessee in that behalf, to verify the claim of the assessee regarding the cultivation of the land and fulfillment of conditions mentioned in S.54B, the assessing officer obtained copies of Pahani Patrika from Dy. Collector and Tahsildar, who mentioned that there was no cultivation during the financial year 2005-06. During the assessment proceedings, the assessee had also filed affidavit form Village Revenue Officer who mentioned that due to pressure of work, he had not filled in the column of ‘cultivation’ in the Pahani Patrika. However, relying on the evidence collected by him, and taking note of the disputes that were existing with regard to the ownership of the land between the assessee and others, the assessing officer concluded that the land sold by the assessee was not agricultural use. Hence, for this reason also, the assessing officer rejected the claim of the assessee for relief under S.54B of the Act, observing it is not allowable unless the land sold was agricultural land.

5. Though the assessing officer raised no dispute with regard to the sale consideration received on the sale of land, which was adopted at Rs. 33,25,00,000, he disputed the cost of acquisition of land as on 1.4.1981 disclosed by the assessee at Rs. 7,21,000, i.e. Rs. 1,40,000 per acre, and called upon the assessee to furnish necessary evidence with regard to adoption of Rs. 1,40,000 per acre as on 1.4.1981. Since the assessee failed to furnish such evidence, the assessing officer adopted the rate per acre at Rs. 10,000 based on the rate adopted by other persons selling land to DLF group in the same area. The assessing officer also observed in this behalf that persons of Md. Kareemuddin group, Md. Khairuddin group and Md. Gayasuddin group who had sold land in the same area to the same group to whom assessee had sold land, had shown market value of the land as on 1.4.1981 at Rs. 10,000. The assessing officer also observed that as per the certificate obtained from the sub- registrar, the market value as on 1.4.1981 was about Rs.2 per sq. yard, which is even less than Rs. 10,000 per acre. Assessing officer, therefore, adopted the market value of Rs. 10,000 per acre to work out the indexed cost of acquisition and computed the long term capital gains as follows-

6. On appeal, the CIT(A) confirmed the view taken by the assessing officer, not only with regard to rejection of the claim of the assessee for relief under S.54B of the Act, but also with regard to computation of capital gains.

7. Hence, assessee is in second appeal before us.

8. Let us first take up for consideration the appeal for the assessment year 2008-09.

9. The first effective grievance of the assessee in the appeal for assessment year 2008-09, relates to disallowance of agricultural income declared by the assessee, which has been treated by the assessing officer as income from other sources.

10. For the assessment year 2008-09, as already noted, while narrating the facts for that year herein above, assessee has declared agricultural income of Rs. 8,400. The assessing officer disallowed the claim of the assessee in the absence of any evidence filed by the assessee in support of such agricultural income or agricultural activities carried on by the assessee, and treated the agricultural income declared as income from other sources. On appeal, the CIT(A) confirmed the view by the assessing officer, following his order for the assessment years 2002-03 to 2004-05 and 2006-07 dated 15.3.2007, which is also impugned before us.

11. We heard both sides. The contention of the authorised representative of the assessee is that the agricultural operations were carried out in the land under consideration. During the course of proceedings before the assessing officer, the assessee requested the assessing officer to inspect the lands at that stage. The assessee also filed pahani patrika for the financial year 2006-07, the slab pass-book issued by the Electricity Board before the lower authorities. It was also submitted that there was an open well in the land and water was supplied to the crop through electric motor pumping. Even after the request of the assessee the assessing officer not carried out any enquiry and drew adverse inference against the assessee. Further, the learned AR of the assessee stated before us that the assessee being an agriculturist and not carrying out any business activity and not maintained any books of account. Thus, the assessee failed to maintain sale-bills, purchase bills and bills towards purchase of fertilizers. Further, it was observed that the assessee in the course of statement recorded under section 132(4) of the Act stated that the paddy and the vegetables were grown and the same was used for self consumption. The assessing officer without bringing any evidence against the assessee, disallowed the claim of the assessee. Further, for disbelieving the contention of the assessed, the lower authorities relied on the pahani patrika obtained from Dy. Collector and Tahsildar. It was mentioned therein that there was no cultivation during the financial year 2005-06. Later, there was an affidavit filed from the Village Revenue Officer, Narsing Village who mentioned that due to pressure of work, he did not fill the columns of “cultivation” in the pahani patrika during the financial year 2005-06 for all the lands in the entire village. This fact also brought to the knowledge of the lower authorities. However, no enquiries were carried out in this regard. On the other hand, there was information from the Dy. Collector that the land was under cultivation for the financial years 2006-07 and 2004-05 and in earlier years. However, the affidavit filed by the VRO shows that the land was under cultivation in the asst. year under consideration also. Further, the lower authorities observed that there was a dispute regarding the ownership of the agricultural land and there cannot be any agricultural operations. This finding of the lower authorities goes against the revenue records which show that the land was under cultivation during the financial year 2006-07 and for 2004-05 and also against VRO’s Certificate. Being so, in our opinion, the certificate issued by the VRO, who is concerned revenue authority to issue the said certificate has to be relied upon and it is not possible to reject the same without examining the deponent. In this behalf, we place reliance on the decision of the Supreme Court in the case of Mehta Parikh & Co. v. CIT [1956] 30 ITR 181 wherein held that when the persons who gave the affidavits were not cross-examined, it was not open to the revenue to challenge the correctness of the statement made in the affidavits. In view of this, we are inclined to hold that the agricultural income declared by the assessee is to be accepted as agricultural income only.

12. The next effective grievance of the assessee in this appeal relates to computation of capital gains, treating the land sold by the assessee as non-agricultural land.

13. Learned counsel for the assessee, reiterating the contentions urged before the lower authorities submitted that the land sold, being agricultural in nature and falling outside the notified area, does not represent the capital asset of the assessee. In this behalf, he placed reliance on the decision of the Hyderabad Bench of the Tribunal in the case of Srinivas Pandit (HUF) v. ITO [2010] 39 SOT 350 . Further, it is submitted that the land sold is an agricultural land, and the consideration received on the sale of land in question was utilized for the purchase of agricultural lands only, and as such the assessee is very much entitled for relief under S.54B of the Act, and the lower authorities were not justified in rejecting the claim of the assessee. He submitted that the lower authorities were not justified in treating the lands of the assessee giving rise to the capital gains in dispute, as of non-agricultural nature. It is submitted that even though there were disputes about the ownership of the property sold, the lands sold were in the possession of the assessee, who was carrying on agricultural operations on the same. He also submitted that the assessee has also filed before the assessing officer, an affidavit of the Village Revenue Officer, who mentioned that due to pressure of work, he had not filled in the column of ‘cultivation’ in the Pahani Patrika. The assessing officer did not give due weightage to this valuable piece of evidence, and proceeded to determine the lands in question as of non-agricultural nature. He also disputed the conclusion of the assessing officer in denying the assessee the relief under S.54B on the ground that payment of advances for purchase of land would not entitle the assessee to relief under S.54B, and submitted that the assessee ultimately concluded the transaction of purchase within time allowed by the statute, and possession of the lands in question was taken on 10.7.2009, viz. within a period of two years, and consequently, the assessee is entitled to relief under S.54B of the Act. He also disputed the rate taken into consideration by the assessing officer, for arriving at the cost of acquisition, by adopting the market value of the land as on 1.4.1981 at Rs.10,000 per acre as against Rs.1,40,000 per acre pleaded by the assessee, and submitted that the rate of Rs.1,40,000 per acre disclosed by the assessee is quite reasonable.

14. The Learned Departmental Representative on the other hand, strongly supported the orders of the lower authorities. He submitted that the lands in question were not of agricultural nature, and they were not put to cultivation, as clearly evident from the material taken into consideration by the assessing officer. He further submitted that even though the land in question was outside the specified area of 8 KMs of Rajendranagar Municipality, it is within specified area of 8 KMs of the Hyderabad Municipal Corporation, and hence, notwithstanding the fact the land in question falls within the Revenue jurisdiction of Rajendranagar Mandal and more than 8 KMs away from the Rajendranagar Municipal limits, it is an urban land since it falls within 8 KMs of Hyderabad Municipal Corporation limits, and as such, it is a capital asset giving rise to capital gains on its sale. He submitted that if the property is within the specified area of 8 KMs of any municipality, not necessarily within the jurisdiction of the Revenue authority, the property assumes the character of urban land. He placed reliance on the unreported decision dated 1.3.2011 of the Hon’ble Punjab and Haryana High Court in the case of CIT v. Smt. Anjana Sehgal [Income-tax Appeal No.276 of 2004], duly filing a copy thereof before us, in support of this proposition. He also submitted that mere payment of advances for purchase of lands, would not entitle the assessee to relief under S.54B of the Act, and what is required to be complied with to fulfil the conditions prescribed under S.54B is the actual purchase of the agricultural lands within the time stipulated. He also submitted that the cost of acquisition arrived at and reported by the assessee is excessive, and the assessee could not substantiate the claim in this behalf, by producing necessary evidence in the form of comparable cases of the relevant time, notwithstanding opportunity given by the assessing officer for that purpose.

15. We have considered the rival submissions. We do not find merit in the contention of the assessee. The land in question giving rise to capital gain was, in fact, urban land though agricultural operations have been carried out on them. The assessee placed before the lower authorities pahani patrika, VRO’s Certificate and details of electricity Bill/slab pass Book etc. We have held on that basis in earlier paras that the assessee derived agricultural income. But, the question still remains whether the impugned land come within the meaning of “capital asset”. The land is situated at Narsing Village of Rajendra Nagar Mandal, R.R. District which is within the municipal limits of Rajendra Nagar. According to the learned counsel for the assessee, Rajendra Municipality is not notified by the Central Government and therefore the agricultural lands which fall under the jurisdiction of the Rajendra Nagar Mandal cannot be considered as capital asset within the meaning of section 2(14) of the Income-tax Act. But, the fact is that this is urban land akin to the Hyderabad Municipality situated within 8 KM from the local limits of Hyderabad Municipal Corporation. In similar circumstances, the jurisdictional High Court in the case of CIT v. Bolla Ramaiah [1988] 174 ITR 154  held that the capital gains arising out of sale of land situated within 8 KM of local limits of Hyderabad Municipality, is liable for tax on capital gains irrespective of the fact whether it falls under the limits of Rajendra Nagar Mandal or otherwise. Further, mere fact that the land in question was agricultural land cannot be a ground to claim for exemption under section 2(14) of the Act as the land is situated within the local limits of Hyderabad Municipal Corporation. Further, it was held recently by the Hon’ble Punjab & Haryana High Court in the case of Smt. Anjana Sehgal (supra) that the expression “from the local limits of any municipality” used in section 2(14)(iii)(b) of the Income-tax Act denotes “any municipality or municipality of the District in which the land is situated”. Further, capital gains arising from the transfer of agricultural land situated in municipal or other urban areas or notified adjoining areas will be liable to income-tax. In this view of the matter, and considering the facts and the circumstances of the present case, in our considered view, the lower authorities are justified in determining the land in question, as capital asset liable for income-tax. With regard to determination of cost of acquisition of the land disposed of, we are of the opinion that considering the proximity of the land to the city, it is reasonable to fix the value of as on 1.4.1981 at Rs. 30,000 per acre, instead of Rs. 10,000 determined by the Assessing Officer, as against Rs. 1,40,000 claimed by the assessee. One of the reasons for which the claim of the assessee for relief under S.54B was rejected by the assessing officer was that what was paid by the assessee was only an advance for purchase, and unless it is actual purchase of land, assessee would not be entitled for relief under S.54B. There is some merit in this reasoning of the assessing officer. However, in terms of S.54B of the Act, assessee has to purchase the agricultural land within a period of two years. Hence, though mere payment of advance does not entitle the assessee for relief under S.54B of the Act, if ultimately whole transaction of purchase of land was completed within a period of two years as contemplated under S.54B of the Act, assessee is entitled for relief under S.54B of the Act. In this view of the matter, we set aside the orders of the lower authorities, and restore this issue to the file of the assessing officer for verifying whether the assessee has purchased the agricultural lands within a period of two years, so as to qualify for relief under S.54B of the Act, and accordingly re-decide this issue in accordance with law and after giving reasonable opportunity of hearing to the assessee. Grounds of the assessee on this issue are allowed for statistical purpose.

16. The next grievance of the assessee which arises for consideration relates to charging of interest under S.234B and 234C of the Act. Assessee’s ground in this behalf reads as follows-

“8. The learned Commissioner of Income-tax (Appeals) erred in charging interest u/s. 234B and u/s. 234C of the I.T. Act. The learned Commissioner of Income-tax (Appeals) ought to have seen that the department seized cash and, therefore, interest u/s. 234B and 234C is not chargeable.”

The levy of above interest is merely consequential and mandatory in nature and accordingly, this ground is rejected.

17. In the result, assessee’s appeal for assessment year 2008-09, being ITA No.1025/Hyd/2011 is partly allowed for statistical purposes.

18. As regards the other appeals of the assessee, being ITA Nos.1268 to 1271/Hyd/2011 for the assessment years 2002-03 to 2004-05 and 2006-07, facts in brief are that consequent upon the search action which took place, as noted above, notices were issued under S.153A of the Act. In response to the same, the assessee filed returns of income admitting the incomes as follows-

19. During the assessment proceedings for the above years, the assessee was called upon to file the receipts and payments account for the agricultural income claimed in the return of income and also documentary evidence relating to the agricultural income. Since the assessee failed to produce any evidence regarding the agricultural income, the assessing officer treated the agricultural income shown by the assessee as non-agricultural income and completed the assessment accordingly, vide orders of assessment dated 18.12.2009 passed under S.143(3) read with S.153A of the Act.

20. On appeal, the CIT(A) confirmed the disallowance of agricultural income made by the assessing officer, in the following manner-

“05.0….. I find that the assessing officer has discussed the issue of agricultural income in the assessment order for AY 2008-09 while disallowing the claim of exemption u/s. 54B of the Act. Apparently the AO had obtained the Pahani Patrika from the Dy. Collector and Tahsildar, Rajendranagar Mandal to verify the claim of the appellant about cultivation. The Pahani obtained from Tahsildar indicated the land were not cultivated during 2005-06. Incidentally the land on which agricultural income is being claimed was under dispute with another group of appellant’s relative. Mirza Iqbal Ahmed and his brother. Surprisingly Mirza Iqbal and group had also claimed to be doing agricultural operation on the same piece of land. They had also produced the same type of evidence as that the appellant has produced. It is not possible that two different group of individuals both claiming right over the same land can do agricultural operation on the same piece of land during the same period. In such a situation, a land in which there are several claimants, it is unimaginable that one of the claimants can carry on the agricultural operation to the detriment of others interest and others would be silent spectators. It is also worthwhile to mention that the Assessing officer had treated the agricultural income as non-agricultural income for the Assessment years 2005-06 and 2007-08 also but no appeal seems to have been preferred against the said decision of the AO meaning thereby that the appellant has accepted in principle the stand taken by the AO treating agricultural income as non-agricultural income. Thus, considering the fact and circumstances of the case I am not inclined to accept the contention of the appellant that he had derived agricultural income from the disputed land. In other words, the addition made by the AO treating the agricultural income as non-agricultural income for all the above mentioned assessment years is confirmed.”

21. Aggrieved by the orders of the CIT(A) confirming the action of the assessing officer in treating the agricultural income disclosed by the assessee as income from other sources, assessee preferred second appeals before us on this issue.

22. We heard both sides. In view of our findings in para-11, in the context of assessee’s appeal for assessment year 2008-09, wherein we have held that agricultural income declared by the assessee to be accepted as agricultural income, accordingly we direct the assessing officer to accept the agricultural income in these cases also. We accordingly allow the ground taken by the assessee.

23. In the result, these four appeals of the assessee, being ITA Nos. 1268 to 1271/Hyd/2011 for the assessment years 2002-03 to 2004-05 and 2006-07, are allowed.

APPEALS OF OTHER ASSESSEES:-

ITA.No.1024/Hyd/2011 of Smt. Gousia Begum:

ITA No.1026/Hyd/2011 of Shri Mirza Nader Baig,

ITA No.1027/Hyd/2011 of Shri Shri Mirza Yousuf Baig

24. Now turning to these appeals for the assessment year 2008-09, facts of the case, issues involved are identical to those considered while dealing with the appeal of Shri Mirza Mustaf Baig for the assessment year 2008-09, hereinabove, viz.

(a) Disallowance of agricultural income

(b) Assessment of long term capital gains on sale of land

(c) Disallowance of claim for relief under S.54B

(d) Charging of interest under S.234B and 234C

As already noted above, appellants herein jointly hold the land in question, which yielded the alleged agricultural income and capital gains, and led to the claim of the assessees for relief under S.54B and ultimate assessment of capital gains by the assessing officer, rejecting the claim for exemption under S.54B. Consequently, facts of the case, contentions of the parties are in all these matters are identical with those considered by us herein above while dealing with the appeals of Shri Mirza Mustafa Baig.

25. Accordingly, we hold that the capital gains arising on the sale of the land in question are assessable as long term capital gains, and for the detailed reasons discussed in that context in para 15 hereinabove, we set aside the orders of the lower authorities, and restore this issue to the file of the assessing officer for verifying whether the assessees have purchased the agricultural lands within a period of two years, so as to qualify themselves for relief under S.54B of the Act, and accordingly re-decide this issue in accordance with law and after giving reasonable opportunity of hearing to the assessees. Grounds of the assessees on this issue are allowed for statistical purpose.

26. Assessees have also raised common ground in these appeals against charging of interest under S.234B and 234C of the Act. Assessee’s grounds on this issue are consequential and mandatory and accordingly, grounds on this issue in all these appeals are rejected.

27. In the result, these three appeals are partly allowed for statistical purposes.

28. To sum up, out of these eight appeals, while ITA Nos.1268 to 1271/Hyd/2011 are allowed, other four appeals are partly allowed for statistical purposes.