Revision u/s 263 was correct as AO did not conduct any enquiry to verify if land sold was beyond prescribed Municipal Limits – High Court.
In a recent judgment, Hon’ble Delhi High Court held that the assessment order passed by the Assessing Officer (AO) was erroneous in so far as it was prejudicial to the interests of revenue as the AO had not conducted any enquiry to verify whether the land sold by the assessee was beyond the prescribed distance from the Municipal Limits.
ABCAUS Case Law Citation:
4314 (2024) (11) abcaus.in HC
Case laws relied upon by the Parties:
Malabar Industrial Co. Ltd v. CIT: (2000) 243 ITR 83
Gee Vee Enterprise v. Additional Commissioner of Income Tax: (1975) 99 ITR 375
Sarifabibi Mohmed Ibrahim & Ors. v. CIT: (1993) 204 ITR 631
Commissioner of Income-tax v. Toyota Motor Corporation: (2008) 306 ITR 49,
In the instant case, the Pr. Commissioner of Income Tax (PCIT) had challenged the order passed by Income Tax Appellate Tribunal (ITAT/Tribunal) by which it quashed the revisionary order passed u/s 263 of the Income Tax Act, 1961 (the Act) by the PCIT.
The return of the respondent assessee was processed under Section 143(1) of the Act and was later selected for scrutiny under Computer Assisted Scrutiny Selection (CASS). A notice under Section 142(1) of the Act was issued with a questionnaire forming part of it.
In response, the assessee informed the AO inter alia, that she had earned long term capital gain on sale of agricultural land, which was situated beyond the prescribed municipal limits and hence was exempt from long term capital gains. To support the same, she had enclosed a certificate issued by Tehsilar.
The AO completed the assessment inter alia accepting the assessee’s version that the land was agricultural land and sale proceeds thereof were not taxable.
Subsequently, Pr.CIT noted that the AO had accepted the assessee‟s version by relying solely on the certificate issued by the Tehsildar, which was issued in a routine manner and without any corroborative evidence. It was also noted that the assessee did not show any agricultural income in her return. Also, the assessee had sold the land within a short period of nine months indicating that there was no intention to use the land for agricultural purposes.
The PCIT also observed that the assessee had wrongly claimed that the land was situated beyond 8 kms of the municipal limits, in respect of which too, no verification was conducted by the AO. Even the AO had not taken into account the distance from any other municipality limit.
Accordingly, after providing the assessee an opportunity of being heard, the PCIT passed under Section 263 of the Act, holding that the assessee was liable for short term capital gain and the AO was directed to modify the order passed by it under Section 143(3) of the Act.
Aggrieved by the order of the PCIT, the assessee preferred an appeal before the ITAT. By way of the impugned order, the ITAT allowed the said appeal and quashed the order passed by the PCIT.
The Hon’ble High Court observed that the assessee had written a letter to the Tehsildar requesting him to order the Patwari to give “certificate of distance from border of the municipality of the land, The Tehsildar’s certificate, which was only in the form of two liner endorsement beneath the application made by the assessee showed that he had not even mentioned the distance of the land from the municipal limit, which is a fundamental criterion under Section 2(14)(iii) of the Act to determine whether the land qualifies as agricultural land or not, for seeking exemption from capital gains tax, but has merely mentioned that the land is out of the boundary of the concerned Municipal Corporation.
The Hon’ble High Court further observed that the PCIT had issued summons under Section 131 of the Act to Tehsildar, Sohna, requesting him to bring the relevant documents on the basis of which the certificate had been issued and to also produce the documents on the basis of which the land had been reported as fit for agricultural use. However, the Tehsildar never joined the proceedings before the PCIT.
The Hon’ble High Court further opined that the assessee had also placed reliance upon the sale deeds pertaining to the land in question. However, a sale deed is not a document issued by the revenue authorities or any government authority which would certify the agricultural nature of the land.
The Hon’ble High Court also noted that the Town Planner had informed the PCIT that the land in question was within 2.6 km from the old municipal limit and within 1.8 km of the extended municipal limit. The assessee, however, failed to give any reply in this regard. Further the land was shown on the sectoral plan meaning thereby that the land had been developed into sectors, and thus, no agricultural operations could be carried out on the land.
The Hon’ble High Court opined that the AO neither read the contents of the certificate issued by the Tehsildar, which was discernible from the fact that the certificate did not even mention the distance of the land from the municipal limits which is a criteria for determining the agricultural status of land under the Act, nor sought any additional evidence or document from the relevant authorities like the District Town Planner, suggesting that the AO failed to undertake any inquiry or even apply his mind to the documents submitted by the assessee to arrive at the conclusion regarding the long-term capital gains exemption.
The Hon’ble High Court observed that the AO had not applied his mind to the relevant point whether the asset sold by the assessee was the agricultural land situated 5 kms / 8 kms beyond the boundary limits of the municipal limit. The Tehsildar’s noting was clearly not to the aforesaid effect. Thus clearly that this was not a case where the enquiries conducted by the AO were inadequate but a case of lack of enquiry as the AO had not conducted any enquiry to verify whether the land sold by the assessee was beyond the prescribed distance from the boundary of Municipal Corporation. It was apparent that no enquiry to the said effect was conducted by the AO and there was no material before the AO, other than the self serving statement of the assessee, to corroborate the same.
It was held that the instant case was one with the absence of any effective inquiry and a total non-application of mind by the AO was evident, and thus, the order passed by the AO would clearly fall within the meaning of an “erroneous order‟. The order is also, undisputedly, prejudicial to the interests of the Revenue inasmuch as it resulted in loss of the Revenue in the form of tax.
The Hon’ble High Court opined that ITAT erred in setting aside the order passed by the PCIT under Section 263 of the Act on the ground that the PCIT had wrongly exercised jurisdiction under Section 263 of the Act.
Accordingly, the Hon’ble High Court set aside the impugned order passed by the ITAT.
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