Exemption U/S 54B Available for Purchase of Agricultural Land in Son’s Name

Balu Vitthal Kharate Vs ACIT (ITAT Pune)

Amendment to section 55A is effective from 01.07.2012 and the same doesn’t have retrospective effect. Exemption u/s 54B cannot be denied on the base that the land was purchased in son’s name when the new land was used for agricultural purpose.

FACTS –

Assessee, along with 5 other members, sold agricultural land for total consideration of INR 48,33,334. Cost of acquisition adopted as INR 40,10,616 as per the approved valuer report.

AO made reference to DVO to determine the FMV of the land as on 01.04.1981. DVO determined valuation at INR 48 per square meter. AO completed assessment u/s 143(3) determining total income as INR 7,50,080 by making addition on account of LTCG. AO also denied exemption u/s 54B alleging that the new agricultural land was purchased in the son’s name.

HELD –

With regard to scope of amendment of section 55A, in the case of Puja Prints, Hon’ble Bombay HC has held that amendment to section 55A is effective from 01.07.2012. The parliament has not given retrospective effect to the amendment. Thus the same is not applicable to the present case since case pertains to AY 2011-12.

With regard to exemption claimed u/s 54B when new land was purchased in assessee’s son name, judgment of Gurnam Singh was referred, wherein, the Hon’ble HC held that merely because in sale deed assessee’s son name is mentioned as co-owner, it doesn’t make any difference since the purchased land is being used by the assessee for agricultural purpose.

FULL TEXT OF THE ITAT JUDGMENT

These two appeals preferred by the different assesses emanates from the separate orders of the Ld. CIT(Appeal)-1, Nashik for assessment year 2011-12 as per grounds of appeal on record.

2. At the time of hearing, the Ld. AR of the assessee for the cases, appraised the Bench that facts and circumstances and issues are common in both the cases. Therefore, ITA No.1596/PUN/2017 may be taken as lead case. Hence, these cases were heard together and since facts common, issues similar, these cases are being disposed of in this consolidated order. We shall take up the lead case in ITA No.1596/PUN/2017 for both the assessees cases as per following grounds of appeal on record:

“1.On the basis of facts and in the circumstances of the case and as per law, the Commissioner of Income Tax (Appeal)-1, Nashik is not justified in confirming the action of the AO of making reference for valuation of property to the DVO u/s.55A of the Act.

2. On the basis of facts and in the circumstances of the case and as per law, the addition of Rs.5,02,459/- made by the AO on account of Long Term capital Gain by confirming the substitution of the Valuation of DVO as on 01.04.1981 against the valuation adopted by the appellant of agriculture land situated at Gat No.151 Makhmalbad, Nashik.

3. On the basis of facts and in the circumstances of the case and as per law, the Commissioner of Income Tax (Appeal)-1, Nashik is not justified in confirming the disallowance made by the AO on account of exemption claimed by the appellant u/s.54B of the Act.

4. The appellant craves for addition to deletion, alteration, modification, change any of the grounds.”

3. The brief facts in this case are that the assessee is an individual and derives income from capital gain, interest, etc. It is observed by the Assessing Officer that the assessee had filed his return of income manually in paper for the A.Y. 2011-12 on 19/12/2013 which is beyond due date for filing return of income for A.Y. 2011-12. Thereafter, the Assessing Officer issued notice u/s. 148 of the Act on the assessee on 02/03/2015. Accordingly, the assessee filed his return of income on 23/03/2015 in response to notice issued u/s 148 of the Act declaring total income at Rs.2,66,030/ – and offered Long Term Capital Gain at Rs.8,22,717/ -. During the year under consideration, the assessee along with other 5 members sold agricultural land situated in Gat No. 150 & 151 (i.e. S. No. 150 of 39800 sq. m. and S. No. 151 of 59300 sq. m.), Makhmalabad, Nashik to Suyojit Group for total consideration of Rs.48,33,334/ – wherein the share of the assessee was 13.72%. The said land is situated within 8 kilometers of the municipal limits of Nashik Municipal Corporation, the same is a capital asset within the meaning of section 2(14) of the Act as such the gain out of sale of agriculture land is chargeable to Income-tax. The said land was ancestral land, the deemed cost of acquisition was to be taken the fair market value of the said land as on 01/04/1981. The assessee took the cost of acquisition at Rs.40,10,616/- as per the report of approved valuer. The Assessing Officer did not accept the valuation of the approved valuer. Further, the Assessing Officer made reference to Departmental Valuation Officer to determine the fair market value of the said land as on 01/04/1981. The DVO has determined the valuation is Rs.48 per square metre. The Assessing Officer completed assessment u/s.143(3) r.w.s147 of the Act determining total income of the assessee at Rs.7,50,080/-by making addition on account of Long Term Capital Gain as per additions/disallowance appearing in the Assessing Officer’s order.

4. The matter, thereafter, travelled upto the First Appellate Authority and the assessee had filed detailed submissions before the Ld. CIT(Appeal). The Ld. CIT(Appeal) after considering the assessment order, submissions of the assessee, upheld the order of Assessing Officer and dismissed the appeal of the assessee.

5. Being aggrieved, the assessee is in appeal before us by raising grounds as extracted in the preceding paragraph.

6. The Ld. AR of the assessee at the time of hearing submitted that there are three grounds of appeal. Ground No.1 and 2 refers to the scope of Section 55A of the Act regarding reference to DVO in case of cost of acquisition as on 01.04.1981. The Ld. AR submitted that the Hon’ble Jurisdictional High Court in the case of CIT Vs. Pooja Prints, reported as 360 ITR 697 (Bom.) has held that such reference cannot be made prior to the amendment to Section 55A of the Act. In para 8 of the said order Hon’ble Court specified that law to be applied for Section 55A shall be as existing during the relevant assessment year. The copy of the said judgment is enclosed at page 1 to 3 of the legal compilation submitted before us. The Ld. AR further submitted that following this judgment in assessee’s group concern, the Hon’ble Pune ITAT has also considered this reference as beyond the power of the Assessing Officer, respective orders are attached at page 4 to 6, in case of Bhima Dada Kharate for assessment year 2009-10 and page 7 to 19 in the case of Arjun Dada Kharate and Parvatibai Kharate for assessment year 2009-10.

6.1 That with regard to the ground No.3, we had asked the Ld. AR of the assessee to furnish compilation of dates in case of the assessee as well as in case of other cases on the assessee relies. The said compilation of dates is as under:

6.2 Thereafter, the Ld. AR of the assessee submitted that the sub-ordinate Authorities have further denied the exemption u/s. 54B in case of assessee for reason that the eligible agriculture land has been purchased in the name of assessee’s Sons. In this regard learned Assessing Officer has relied upon judgment of Hon’ble Bombay High Court in the case of Prakash Vs ITA (2008) 173 Taxman 311 (BOM). The distinguishing factor in this case with that judgment is that the said judgment is in the context of Section 54F which applies to purchase of New House Property, whereas the assessee has relied on the following judgments:

i) Laxmi Narayan Vs. Commissioner of Income Tax, (2018) 89 com334 ( Rajasthan)

ii) Commissioner of Income Tax Vs. Gurnam Singh (2008) 170 taxman 160 ( Punjab & Haryana)

iii) Jagpal Singh Vs. Income Tax Officer (2010) 186 Taxman 26 ( Delhi) (Mag.)

The aforesaid judgments exclusively deals with the exemption u/s. 54B of the Act and it has been held by these judicial pronouncements that such deduction shall be allowed even if the new agriculture land is purchased in the name of family members. The Ld. AR of the assessee further submitted that the basic purpose of Section 54B of the Act was to support the agriculturist families so to provide new boost in their livelihood.

6.3 The Ld. AR of the assessee further relied on the decision of the Hon’ble Apex Court in the case of CIT Vs. Vegetable Products Ltd., reported as 88 ITR 192 where, the proposition that the view favourable to the assessee need to be taken in the case of conflicting opinions.

7. On the other hand, the DR relied on the orders of sub-ordinate Authorities.

8. We have perused the case record and considered the judicial pronouncements placed before us in the form of paper book filed. With regard to ground No. 1 and 2 regarding scope of Section 55A, two propositions come out from the judgments of the Hon’ble Courts:

(i) Reference to DVO u/s.55A is to be made only when value of property disclosed by assessee is less than the fair market value. If the value adopted by the assessee of the property is much more than the fair market value, there is no question of reference to DVO.

(ii) That the amendment to Section 55A is effective only from 1^st July, 2012 and this amendment was not retrospectively applicable.

The second proposition of the judicial pronouncement of the Hon’ble Court is applicable in the instant case. The present case pertains to assessment year 2011-12 i.e. F.Y. 2010-11 and the amendment to Section 55A is brought into effect from 1^st July, 2012 i.e. effective from assessment year 2012-13.

8.1 We also find that in ITA No.1582/PUN/2015 for the assessment year 2009-10 in assessee’s group concern, in the case of Assistant Commissioner of Income Tax, Circle-1, Nashik Vs. Shri Bhima Dada Kharate, this issue was observed in detailed and it was held by the Co-ordinate Bench of the Tribunal that the applicability of amendment so far as Section 55A is concerned, it cannot be applicable retrospectively. The relevant part of the order is as under:

“11. I have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before us. I find the assessee in the instant case has sold a piece of land and has adopted the fair market value of the land as on 01-04-1981 on the basis of the report of the approved valuer which was Rs.2,80,705/- per acre. The AO made reference to the DVO who valued the fair market value as on 01-04-1981 at Rs.1,94,852/- per acre. Since the fair market value adopted by the assessee on 01-04-1981 was higher than the fair market value adopted by the DVO, the AO computed the long term capital gain at Rs.48,18,644/- as against Rs.4,86,023/-declared by the assessee as long term capital gain. I find the Ld.CIT(A) vide order dated 14-09-2015 following the decision of Hon’ble Bombay High Court in the case of Puja Prints (Supra) deleted the addition made by the AO on account of long term capital gain by holding that the AO should not have referred the matter to the DVO u/s.55A of the I.T. Act. I find subsequently the Ld.CIT(A), based on the request of the AO to rectify the order u/s.154, issued notice u/s.154 to the assessee. Since none appeared on behalf of the assessee and observing that the reference to the DVO in the instant case was made by the AO after 01-07-2012, i.e. the date from which the amendment in section 55A came into operation, upheld the action of the AO in making a reference to the DVO.

12. It is the submission of the Ld. Counsel for the assessee that full facts were already before the CIT(A) as well as before the AO during the remand proceedings. Further, when the assessment year involved is 2009-10 and the amendment was brought in the statute book w.e.f. 01-07-2012 and when the Hon’ble Bombay High Court in the case of Puja Prints (Supra) has already held that such amendment brought to the statute is not retrospective, therefore, whether a reference can be made to the DVO after 01-07-2012 for an assessment year prior to A.Y. 2012-13 is a highly debatable issue.

13. I find merit in the above submission of the Ld. Counsel for the assessee. Admittedly, the assessee has made elaborate submission during the appellate proceedings which has already been reproduced at para 8 of this order. The Ld.CIT(A) has called for a remand report from the AO by forwarding the submission and the AO has not commented upon this issue.

14. It has been held in various decisions that once the Commissioner (Appeal) has recorded his findings for or against the assessee the Commissioner (Appeal) is not competent to review its own order on the basis of same facts in garb of powers vested u/s.154 of the I.T. Act. All issues which involve prolonged arguments and are debatable and where two views are possible fall outside the scope of the powers u/s.154 of the I.T. Act.

15. I find the Hon’ble Bombay High Court in the case of Puja Prints (Supra) at Para 8 of the order has observed as under :

“8. The contention of the revenue that in view of the amendment to Section 55A(a) of the Act in 2012 by which the words “is less than the fair market value” is substituted by the words ” “is at variance with its fair market value” is clarifactory and should be given retrospective effect. This submission is in face of the fact that the 2012 amendment was made effective only from 1 July 2012. The Parliament has not given retrospective effect to the amendment. Therefore, the law to be applied in the present case is Section 55A(a) of the Act as existing during the period relevant to the Assessment Year 2006-07. At the relevant time, very clearly reference could be made to Departmental Valuation Officer only if the value declared by the assessee is in the opinion of Assessing Officer less than its fair market value.”

16. Once it is held by the Jurisdictional high Court that such amendment to provisions of section 55A(a) is not retrospective and prospective, therefore, merely because the AO has made a reference to the DVO after the date of such amendment for an assessment year prior to the amendment is a highly debatable issue. The Hon’ble Supreme Court in the case of T.S. Balaram, ITO Vs. Volkart Brothers and Others reported in 82 ITR 50 has held that a mistake apparent on the record must be an obvious patent mistake and not something which can be established by a long run process of reasoning on points on which there may be conceivably two opinions. A decision on a debatable point of law is not a mistake apparent from the record. Since in the instant case the issue as to whether the AO can make a reference to the DVO u/s.55A(a) of the I.T. Act after the amendment brought in the statute book w.e.f. 01-07-2012 but for an assessment year prior to that date where the fair market value adopted by the assessee as on 01-04-1981 is more than the fair market value determined by the AO is a highly debatable issue, therefore, following the decision of Hon’ble Supreme Court in the case of T.S. Baralam, ITO Vs. Volkart Brothers and Others (Supra) I hold that the CIT(A) was not justified in passing the order u/s.154 of the I.T. Act in the instant case which in my opinion is a highly debatable issue. Accordingly, I set aside the order of the CIT(A) passed the order u/s.154 of the I.T. Act. Grounds raised by the assessee are accordingly allowed.”

Respectfully, following the aforesaid judicial pronouncement, we set aside the order of the Ld. CIT(Appeal) and allow the ground No. 1 and 2 raised in appeal by the assessee.

9. With regard to the ground No. 3, we find that exemption u/s.54B of the Act in the case of assessee was not allowed by the Revenue Authorities. Since the land was purchased in the name of the assessee’s son. Now it has to be examined as per judicial pronouncements whether exemption/s.54B of the Act can be allowed even if the new agricultural land is purchased in the name of family members.

In the case of Laxmi Narayan Vs. Commissioner of Income Tax (supra.), the Hon’ble Rajasthan High Court dealt with the same issue wherein assessee sold an agricultural land and out of sale proceeds purchased another agricultural land in the name of his wife. He claimed deduction u/s.54B of the Act but same was disallowed as land was purchased by assessee in the name of his wife. The question was whether the assessee had invested sale proceeds of agricultural land in purchase of new land, the assessee could not be denied deduction u/s.54B since the new property was not in his name but in the name of his wife. The Hon’ble Rajasthan High Court observed that the contentions which have been raised by the department are that the investment has to be made by the assessee in his own name but the Legislature has not used specific language with precision and the Hon’ble Delhi High Court in CIT Vs. Kamal Wahal reported as 351 ITR 4 has also held that it can be in the name of wife. In that view of the matter contention raised by the assessee is required to be accepted with regard to section 54B regarding investment.

In the case of Commissioner of Income Tax Vs. Gurnam Singh (supra.), the Hon’ble Punjab & Haryana High Court held wherein the assessee sold an agricultural land and out of sale proceeds purchase another agricultural land in his name and in name of his only son, he claimed deduction u/s. 54B, but the same was disallowed by the Assessing Officer on ground that land was purchased by assessee in the name of his son as co-owner. The Hon’ble Punjab & Haryana High Court further observed that no substantial question of law arises for consideration since the Tribunal has recorded findings and dismissed the appeal of the Revenue. The Hon’ble High Court has held that the assessee had sold agricultural land which was used by him for agricultural purposes. Out of sale proceeds of the said sale, the assessee has purchased other piece of land in his name and in the name of his only son who was bachelor and was dependent upon him, for being used for agricultural purposes within the stipulated time. Further it was not the case of the Revenue that from the sale proceeds of the agricultural land earlier owned by the assessee, the land in question was purchased for any other purpose than the agricultural purpose. The purchased land was being used by the assessee for agricultural purpose and merely because in the sale deed his only son was also shown as co-owner, the Hon’ble ITAT has rightly come to the conclusion that it does not make any difference because the purchased land is being used by the assessee for agricultural purposes.

10. On the other hand, Ld. DR did not bring out any evidence on record to demonstrate that the said land of the assessee was used for any other purpose other than agricultural purpose. The Assessing Officer referred to the judgment of Hon’ble Bombay High Court in the case of Prakash Vs. ITO (supra.) but the facts are substantially different from the case of the assessee in hand. Further, we have also considered the decision in the case of CIT Vs. Vegetables Products Ltd. (supra.), therein the view also favorable to the assessee that has to be taken, in case of conflicting opinions.

11. That on entire examination of the judicial pronouncements and facts on record, we set aside the order of the Ld. CIT(Appeal) and allow the ground No. 3 raised in appeal by assessee.

12. In the combined result, appeal of the assessee is allowed.