Delhi High Court
Pr. Commissioner Of Income Tax Delhi -11 vs Ms. Sangeeta Jain on 8 November, 2024
Author: Swarana Kanta Sharma
Bench: Vibhu Bakhru, Swarana Kanta Sharma
IN THE HIGH COURT OF DELHI AT DELHI
% Judgment delivered on: 08.11.2024
+ ITA 1092/2018
PR. COMMISSIONER OF INCOME TAX
DELHI -11 .....Appellant
Through: Mr. Aseem Chawla, SSC with
Ms. Pratishtha Chaudhary,
Advocate.
versus
MS. SANGEETA JAIN .....Respondent
Through: Ms. Rashmi Chopra, Advocate.
CORAM
HON'BLE MR JUSTICE VIBHU BAKHRU
HON'BLE MS JUSTICE SWARANA KANTA SHARMA
JUDGMENT
SWARANA KANTA SHARMA, J.
1. The Revenue has preferred the present appeal under Section
260A of the Income Tax Act, 1961 [hereafter „the Act‟] impugning
the order dated 15.02.2018 [hereafter „the impugned order‟] passed
by the learned Income Tax Appellate Tribunal [hereafter „the learned
ITAT‟] in ITA No. 3888/Del/2017, in respect of the assessment year
(AY) 2013-14.
FACTUAL BACKGROUND
2. For the adjudication of the case, it is essential to provide a
concise overview of the background facts that culminated in the
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passing of the impugned order and the subsequent filing of the present
appeal.
3. The assessee, Ms. Sangeeta Jain, who carries her business
through a proprietary concern under the name and style „M/s Fashion
Club Global‟, had filed her return of income on 30.09.2013, declaring
total income of ₹2,64,51,220/-. The return was processed under
Section 143(1) of the Act and was selected for scrutiny under
Computer Assisted Scrutiny Selection (CASS). A notice under
Section 143(2) of the Act was issued on 10.09.2014 and was duly
served on the assessee. On 19.08.2015, a notice under Section 142(1)
of the Act was issued with a questionnaire forming part of it.
4. In response to the aforesaid notices, the assessee informed the
learned Assessing Officer [hereafter „the AO‟], inter alia, that she had
earned long term capital gain of ₹10,72,76,180/- on sale of
agricultural land, which was situated beyond the prescribed limits of
Sohna District in Haryana. To support the same, she had enclosed a
certificate issued by Tehsilar, Sohna, which, as claimed by her, was to
the effect that the land was situated beyond 8 kms of the municipal
limits. The prescribed limit for Sohna District was 5 kms. Thus, the
assessee claimed that the land did not qualify as a capital asset defined
under Section 2(14) of the Act, and was thus exempt from capital
gains.
5. An order dated 07.12.2015 was passed by the AO under Section
143(3) of the Act. The AO held that the assessee had debited expenses
of ₹4,244/- under the head „Challan and Penalty‟ and the amount,
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being non-business in nature, was to be disallowed under Section 37
of the Act. The AO also held that the assessee was not able to
establish that certain expenditure claimed by her was incurred
exclusively for the purpose of business activity, and thus, considering
the nature of transactions and volumes of expenses, it was reasonable
to disallow 15% of such expenses, i.e. ₹2,93,276/-, under Section 37
of the Act. The income of the assessee was thus assessed at
₹2,67,48,740/-.
6. The Principal Commissioner of Income Tax-11 [hereafter „the
PCIT‟], on examination of the assessment record of the assessee
pertaining to the AY 2013-14, issued a show cause notice on
25.09.2016 under Section 263 of the Act, since the PCIT, upon
perusing the records, was of the opinion that the order dated
07.12.2015 passed by the AO was erroneous in so far as it was
prejudicial to the interests of revenue.
7. In the show cause notice, the PCIT noted that the AO had
framed the assessment on the same day the assessee had submitted the
documents, and the AO had accepted the assessee‟s version of long-
term capital gains viz. the land in question, without verifying the
records. The PCIT mentioned that the AO should not have relied
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 for AY 2013-14, and that she had purchased the land for
₹7,74,80,250/- on 03.05.2011 and sold it on 20.04.2012, i.e. within a
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period of nine months, indicating that there was no intention to use the
land for agricultural purposes. Therefore, the gains from the sale could
not be treated as long-term capital gains, but short-term capital gains.
The PCIT also observed that the assessee had wrongly claimed the
said income as exempt income on the ground 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, other than
Sohna District. Thus, the assessee was given an opportunity of being
heard and to show cause as to why the order passed by the AO be not
modified or set aside under Section 263 of the Act by the PCIT.
8. During the course of proceedings, the PCIT found that
necessary details regarding the land were not sought by the AO from
the District Town Planner (Planning), Gurugram [hereafter „DTP,
Gurugram‟]. The PCIT noted that the report of DTP, Gurugram
confirmed that the land was within both the old and extended
municipal limits of Gurugram, contradicting the assessee‟s claim of
land being agricultural land. When confronted with this evidence, the
assessee could not provide any satisfactory explanation. The PCIT
also highlighted that the land was sold to one M/s Vallabham
Buildcon Pvt. Ltd. [hereafter „Vallabham Buildcon‟] for
₹17,96,15,625/-, and the same was being aggregated for township
development. Additionally, the sale deed executed between the
assessee and Vallabham Buildcon mentioned that the land was not fit
for agricultural purposes. The PCIT concluded that the evidence
provided by the assessee had no evidentiary value compared to the
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substantial evidence possessed by the department, which proved that
no agricultural operations had been conducted by either the assessee
or the buyer on the land.
9. Thus, the PCIT, by an order dated 21.04.2017 passed under
Section 263 of the Act, held that the assessee was liable for short term
capital gain of ₹10,72,76,180/- and the AO was directed to modify the
order passed by it under Section 143(3) of the Act.
10. Consequently, an order under Section 263 read with 143(3) of
the Act was passed on 26.04.2017, and addition was made to the
income of the assessee by the AO, on account of short-term capital
gain to the tune of ₹10,72,76,180/-, and the total income of the
assessee was assessed at ₹13,40,24,920/-.
The Impugned Order
11. Aggrieved by the order of the PCIT, the assessee preferred an
appeal, i.e., ITA No. 3888/Del/2017, before the learned ITAT. By way
of the impugned order, the learned ITAT allowed the said appeal and
quashed the order dated 21.04.2017 passed by the PCIT.
12. As revealed from the impugned order, the learned ITAT was of
the opinion that the issue regarding the taxability of capital gain was
considered while carrying out the assessment and the view taken by
the AO, as to the non-taxability of such gains, was found evident. The
learned ITAT further held that there was no finding recorded by the
PCIT, after the receipt of the replies from the assessee, that the
assessment order was erroneous and prejudicial to the interest of the
Revenue. Further, the learned ITAT held that in view of the decision
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of the Hon‟ble Supreme Court in the case of Malabar Industrial Co.
Ltd v. CIT: (2000) 243 ITR 83, the action of the PCIT in passing the
order under Section 263 of the Act was not in accordance with law. It
was also held by the learned ITAT that the certificate issued by the
Tehsildar in this case could not have been disbelieved by the AO,
inter alia, for the reason that the Tehsildar is also a public officer and
certificates issued by public officers are generally believed by the
other officers. The relevant extracts from the decision of learned ITAT
are reproduced hereunder:
“6. We have considered the rival arguments made by both the
sides, perused the orders of the A.O. and the ld. CIT(A) and the
paper-book filed on behalf of the assessee. We have also
considered the various decisions relied upon by both the sides.
Assessment order in this case was passed u/s 143(3) of the Act
on 07.12.2015, which mentions that the ld. counsel for the
assessee appeared on behalf of the assessee and explained the
case and submitted all the details as called for during the
proceedings. It is evident from the assessment order that the
assessee was provided ample opportunities and the ld. counsel
for the assessee appeared over various dates of hearing i.e.
21.07.2015, 19.10.2015, 05.11.2015 and on other dates as per
the order sheet. The Assessing Officer further mentioned in the’
assessment order that details were provided on behalf of the
assessee which were checked and verified on test check basis
and were placed on record. It is further noticed that a letter was
filed by the assessee in the assessment proceedings giving
explanation about the non taxability of the capital gain of Rs.
2,10,72,76,180/- arising on the sale of subject land. It was
explained in the letter placed at page 54 and 55 of the paper
books that the subject agricultural land was situated beyond
prescribed limits of Sohna and that it was not a capital asset as
the land was situated beyond the prescribed limit of concerned
municipal limit and thus capital gain arising on the sale of such
agricultural land is exempt. It is also noticed that assessee filed
purchase deed of this land which is at pages 56 to 62 of the
paper book and at page 56 it is specifically mentioned ‘Kisan –
Chahi [Krishi Bhoomi]. Assessee also filed copy of sale deed
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as agricultural land and ‘Chahi’. Copy of certificate from
Tehsildar was also placed certifying the distance from the
municipality. Paper book page 108 to 110 also copy of
Jamabandi which show the subject land as Chahi [irrigated].
Thus, it is evident that during the course of assessment
proceedings issue about the taxability of capital gain was
considered in assessment and a view was taken by the
Assessing Officer as to the non taxability of such gain.
Therefore, when the claim of the assessee was accepted in
assessment order after due consideration of the facts, it cannot
be said that the assessment order was erroneous as assessment
was passed after application of mind. It has been held in the
case of CIT Vs. Nirav Modi 390 ITR 292 [Born] that the
Assessing Officer having raised queries and perused evidences
and having been satisfied with the claim a revision by the CIT
was not justified. Hon‟ble Delhi High Court in the case of
Oracle Systems Corporation Vs. ADIT 380 ITR 232 have held
that when assessment order is passed u/s 143(3) of the Act,
there is presumption that assessment order has been passed
after application of mind. Reliance is also placed on CIT Vs.
LIC Housing Finance Ltd 367 ITR 458 [Born]; CIT Vs.
Kelvinator of India Ltd 332 ITR 231 [Del]; CIT Vs. DLF
Power Ltd 329 ITR 289 [Del] which hold that an order cannot
be said to be erroneous and prejudicial if Assessing Officer
takes a possible view and Assessing Officer taking one of the
two possible views, assessment order cannot be treated as
erroneous. In this case, as mentioned above, Assessing Officer
after considering the submissions of the assessee and
considering the evidence reached to the conclusion that capital
gain was exempt. Therefore, in view of the above decisions,
and in view of the Hon‟ble Supreme Court decision in the case
of Malabar Industrial Co. Ltd vs CIT reported in 243 ITR 83,
the action of the ld. CIT in passing the order u/s 263 of the Act
cannot be said to be in accordance with law and the order
passed u/s 263, thus is bad. Moreover, it is seen that the ld. CIT
in first 15 pages of the order has mentioned about the show
cause notices, replies given on behalf of the assessee and then
in paras 18 to 20 of the order u/s 263, CIT held that the
objections raised by the assessee as regards the invocation of
section 263 of the Act are not tenable. There is no finding
recorded by the ld. CIT(A) after the receipt of the replies from
the assessee that the assessment order was erroneous and
prejudicial to the interest of the revenue. Therefore, absence of
such finding is also fatal to the validity of the order u/s 263 and
we are fortified by Guwahati High Court decision in the case ofSignature Not Verified
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Smt. Lila Chaudhary Vs. CIT 289 ITR 226, Hon’ble Bombay
High Court in the case of Jewel of India Vs. CIT 325 ITR 92,
Hon’ble Delhi High Court in CIT Vs. International Travel
House Ltd reported in 344 ITR 554, Hon’ble Delhi High Court
in CIT Vs. Bharat Aluminum Co. Ltd 303m ITR 256,
therefore, from this stand point also, order passed u/s 263 is not
sustainable and is therefore, quashed.
7. Appellant‟s counsel Dr. Rakesh Gupta raised one more issue
that CIT could not have taken upon himself to deny the
exemption and best power of CIT could have to set aside the
order. The decisions relied upon were ACIT Vs Manas Salt
lodization Industries Pvt. Ltd 169 TTJ 172 [Guwahati] and
Bharat petroleum 350 ITR 44 [Mumbai]. Since we have
quashed the order u/s 263, we do not think to deal with this
contention raised.
8. The ld. CIT [DR] relied upon the Hon’ble Supreme Court
decision reported in 243 ITR 83 and ITAT Delhi decision in
the case of Surya Jyoti Software which were distinguished by
the ld. counsel for the assessee on facts. Explanation 2 to
section 263 inserted by Finance Act 2015 cannot be interpreted
in a manner which would make the enquiries unending. If
Explanation 2 to section 263 is invoked by the Commissioner
in such a manner as applied in the present case, in our
considered opinion, the process of enquiry would be unending
and no assessment order can be said to be final as all the
assessment order can be found fault on the ground that
enquiries should have been made more elaborate. Certificate
issued by Tehsildar in the instant could not be disbelieved by
the Assessing Officer inter alia for the reason that the Tehsildar
is also a public officer. Certificates issued by the public
officers are generally believed by the other officers as public
duty unless there is some material, which suggest that such
certificate has been obtained under fraud etc. Therefore, we do
not agree with the contention of the ld. CIT in the order u/s 263
of the Act that Tehsildar’s certificate should have been
corroborated with other evidence. Accordingly, the order
passed by the ld. CIT u/s 263 of the Act for the above stated
reasons is hereby set aside and quashed. Since we have
quashed the order u/s 263 of the Act, we do not deal with the
merit of the claim of the assessee.
9. In the result, the appeal of the assessee in ITA No.
3888/DEL/2017 is allowed.”
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13. The aforesaid findings of the learned ITAT have been assailed
by the Revenue in the present appeal.
14. On 07.10.2024, this Court framed the following question of law
for consideration:
„Whether the ITAT was justified in setting aside the
order passed by the PCIT under Section 263 of the
Act, on the ground that the assessment order is
erroneous, inasmuch as it is prejudicial to the interest
of the Revenue?‟SUBMISSIONS ON BEHALF OF THE PARTIES
Submissions on Behalf of the Revenue
15. Sh. Aseem Chawla, the learned counsel appearing for the
Revenue assailed the impugned order on the ground that the learned
ITAT has committed an error by not considering clause (a) of
Explanation 2 to Section 263 of the Act, which provides that
jurisdiction can be exercised by the PCIT in case the AO has passed
the order without making inquiries or verification which should have
been made. It is argued that a perusal of the order passed by the AO
would reveal that it did not conduct inquiries with regard to the claims
of the assessee, and did not obtain information from concerned
authorities for verification of distance of the land in question from the
municipal limits, which is essential for determining whether it is a
capital asset.
16. He states that the certificate issued by Tehsildar, relied upon by
the assessee, was not a certificate, which was issued after conducting
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any inquiry by Tehsildar in respect of the land in question, and the AO
ought not to have relied upon the said certificate which, in effect,
contained no information, and thus, the reliance placed by the AO on
the Tehsildar‟s certificate, which lacked essential information
regarding the land‟s distance from the municipal area, was misplaced.
Therefore, Sh. Chawla contended that the AO did not conduct the
inquiry as he was required to conduct, and rather, there is a total
absence of inquiry before declaring the land in question as agricultural
land, and therefore, the PCIT had rightly exercised jurisdiction under
Section 263 of the Act as the order passed by the AO was erroneous.
In support of his contentions, he also relies on the decision of this
Court in Gee Vee Enterprise v. Additional Commissioner of Income
Tax: (1975) 99 ITR 375.
17. It is also contended that the learned ITAT has committed error
in substituting its own findings to justify the order passed by the AO,
without recording any findings on the issues pointed out by the PCIT
while passing the order under Section 263 of the Act. Sh. Chawla also
submits that decision of the Hon‟ble Supreme Court in Sarifabibi
Mohmed Ibrahim & Ors. v. CIT: (1993) 204 ITR 631 is fully
applicable in the present case.
18. He argues that the learned ITAT has erred in ignoring the
findings returned by the PCIT, that the land was „non-agricultural
land‟ falling within the purview of definition of „capital assets‟ as per
the Act and, therefore, gains from sale of the land was chargeable to
capital gains tax. In addition, it is the case of the Revenue that ITAT
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had committed an error in law and facts by holding that a certificate
issued by any authority, such as Tehsildar in the present case, is to be
relied upon by the AO without making any enquiry or verification. It
is also stated that the certificate issued by the Tehsildar was contrary
to the report of the DTP, Gurugram as received by the PCIT during
the proceedings under Section 263 of the Act.
19. On these grounds, the Revenue prays that the impugned order
passed by the learned ITAT be set aside.
Submissions on Behalf of the Assessee
20. Ms. Rashmi Chopra, the learned counsel appearing for the
assessee argues that there is no infirmity in the impugned order passed
by the learned ITAT. She states that the jurisdiction assumed by the
PCIT under Section 263 of the Act was bad in law since the order
passed by the AO could not be said to be erroneous and prejudicial to
the interests of the Revenue since a proper inquiry was conducted by
the AO and the issue of exemption from capital gain was considered
while framing the assessment. It is stated that the AO had taken a
particular view in this regard on the basis of facts and documents
presented before it, which revealed that the land in question was
agricultural land situated beyond prescribed distance from Sohna
District in Haryana. It is also contended that though the PCIT had
issued notice under Section 263 of the Act and sought a response from
the assessee, once the replies were filed, the PCIT did not specifically
hold that the order passed by the AO was erroneous and prejudicial to
the interests of the Revenue. She argues that unless such twin findings
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are recorded by the PCIT, after the receipt of response from the
assessee, a valid order under Section 263 of the Act could not be
passed.
21. Ms. Chopra also contends that the certificate issued by the
Tehsildar is unequivocal and unambiguous, and once it is issued by
the said authority, there was no need for the AO for seeking any
further corroboration by way of any other evidence or documentary
proof. It is stated that the certificate clearly mentions that the land in
question is agricultural land and, therefore, it was rightly held by the
learned ITAT that in absence of any proof that the land was non-
agricultural land, the same could not have been assessed or brought to
tax under capital gains.
22. It is also contended that Explanation 2 to Section 263 of the Act
was inserted in the year 2015 and since the present case pertains to
AY 2013-14, the said Explanation, which explains the scope of order
being „erroneous insofar as it is prejudicial to the interests of the
Revenue‟, could not be invoked in the present case. Therefore, it is
argued on behalf of the assessee that the PCIT had wrongly assumed
jurisdiction under Section 263 of the Act, since the AO had conducted
sufficient enquiries and verification and its order could not be held as
erroneous. Thus, the order passed by the PCIT under Section 263 of
the Act was bad in law, and the same was rightly quashed by the
learned ITAT.
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ANALYSIS & FINDINGS
23. The Revenue has challenged the impugned order by way of
which the learned ITAT has set aside the order passed by the PCIT
under Section 263 of the Act. In a nutshell, the Revenue contends that
the order passed by the AO under Section 143(3) of the Act was
erroneous insofar as it was prejudicial to the interests of the Revenue,
since the AO had failed to conduct enquiries into certain critical
aspects and verify the claim of the assessee that the land in question
was indeed agricultural land and thus exempt from capital gains tax.
24. In the present case, the taxability of capital gains hinges upon
whether or not the land in question qualifies as an agricultural land.
25. A „capital asset‟ is defined under Section 2(14) of the Act.
Short-term capital gains tax applies to gains arising from transfer of
short-term capital assets; whereas long-term capital gains tax applies
to gains arising from transfer of long-term capital assets. Section 2(14)
also provides as to what assets would not fall within the meaning of
„capital assets‟ which includes agricultural land. The sale of
agricultural land does not make an assessee liable to pay capital gains
tax, either short-term or long-term.
26. However, to qualify as an agricultural land, the land must meet
specific criteria, including its distance from the municipal areas, as
stipulated under Section 2(14)(iii)(b) of the Act. As per the said
provision (as it stood prior to its amendment i.e. at the time of AY
2013-14), if a land is situated within the distance of 8 kms from the
local limits of any municipality, it would be treated as a capital asset
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and the assessee would be liable to pay the capital gains tax;
otherwise, the land would be treated as agricultural land, which does
not fall within the meaning of „capital assets‟.
27. The assessee had claimed that the land in question was
agricultural land, and thus not a capital asset, and she had earned long-
term capital gain from its sale, which was exempt from tax. In support
of this claim, the assessee had placed reliance on the certificate issued
by the Tehsildar in the year 2012. Notably, a perusal of the said
certificate reveals that the same is a letter written by the assessee to
the Tehsildar in which she had herself mentioned that she resided at
Araji Waka Mauza Sohna, Tehsil Sohna, District Gurugram, and was
requesting the Tehsildar to order the Patwari to give “certificate of
distance from Sohna border of the above municipality of Araji”.
Under normal circumstances, upon receiving such a letter, it would be
the duty of the Tehsildar to undertake an inquiry and then to tender
information or certify as to what is the distance of the land from the
municipal limit. However, in the present case, the Tehsildar‟s
certificate, which is only in the form of two liner endorsement beneath
the application made by the assessee requesting for issuance of such
certificate, would reveal that he has 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 Sohna Municipal Corporation. The said letter and the
Tehsildar‟s endorsement is reproduced below:
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28. Before the PCIT, the assessee had also placed reliance on
another certificate, which was issued by the Tehsildar in the year
2016. However, the said certificate would reveal that it has been
issued on the basis of the prior certificate issued in 2012, which has
been discussed in the preceding paragraph. The certificate issued in
2016, which was sought to be relied upon by the assessee before the
PCIT, only mentioned that the Tehsildar had already given his
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findings regarding the distance of the land from the municipal limits
in 2012, and it reiterates the same. Notably, the certificate issued by
Tehsildar in 2016 draws upon the assessment made in 2012; however,
since the 2012 certificate did not mention the distance of the land from
the municipal limits, the 2016 certificate would suffer from the same
deficiency inasmuch as it merely reiterates the earlier assessment
without addressing the fundamental requirement of Section 2(14)(iii)
of the Act. In other words, since no findings were given in the year
2012 itself, the finding given in the certificate issued in 2016, which
was issued on the basis of certificate of 2012, is of no relevance. In
any view, the said certificate was issued after the AO had passed the
assessment order.
29. We also note 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.
30. The assessee had also relied upon the sale deeds pertaining to
the land in question. It is to be noted that 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. A sale deed primarily
reflects the transaction between the parties and the terms of sale, but it
does not, in itself, verify the land‟s classification as agricultural for the
taxation purposes. Therefore, heavy reliance on the sale deed to
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establish the agricultural character of the land would be misplaced.
However, even if we consider the contents of the sale deed, it shall be
important to note that though the sale deed dated 20.04.2012 executed
between the assessee and Vallabham Buildcon mentioned the land as
„agricultural land‟, it was specified in the contents of the sale deed
itself that the land was not beneficial for the purposes of sowing and
cultivation. This fact was also taken note of by the PCIT, alongwith
the fact that the Vallabham Buildcon, in its reply, had informed the
PCIT that it was in process of aggregating the land for the
development of integrated township and group housing projects at
Sohna.
31. Further, the assessee had purchased the land on 03.05.2011 and
sold the same on 20.04.2012 i.e. within nine months from the date of
purchase. Undisputedly, the assessee did not show any agricultural
income for the AY 2013-14 in her return. The PCIT observed that
these facts were not taken into account by the AO.
32. Moreover, the DTP, Gurugram had also 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 of Gurugram. The
assessee, however, failed to give any reply in this regard. The DTP,
Gurugram had also informed that the land in question was shown on
the sectoral plan of Sector 2, 35 and 36 of Sohna, meaning thereby
that the land had been developed into sectors, and thus, no agricultural
operations could be carried out on the land.
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33. In this background, it shall also be apposite to consider the
guidelines/criteria laid down by the Hon‟ble Supreme Court,
regarding the land being defined as agricultural land, in the case of
Sarifabibi Mohmed Ibrahim (supra). The relevant portion of the
decision is extracted hereunder:
“Whether a land is an agricultural land or not is essentially a
question of fact. Several tests have been evolved in the
decisions of this Court and the High Courts, but all of them are
more in the nature of guidelines. The question has to be
answered in each case having regard to the facts and
circumstances of that case. There may be factors both for and
against a particular point of view. The Court has to answer the
question on a consideration of all of them – a process of
evaluation. The inference has to be drawn on a cumulative
consideration of all the relevant facts.
The first decision of this Court which considered the meaning
of the expression “agricultural land” is in Commissioner of
Income Tax v. Raja Benoy Kumar Sahas Roy 32 I.T.R. 466.
But the question there was whether the income from forest land
derived from sal and piyasal trees, ‘not grown by human skill
and labour’ constitutes agricultural income? The decision that
directly considered the issue, though under the Wealth Tax
Act, is in C.W.T., Andhra Pradesh v. Officer-in-charge (Court
of Wards),Paigah (hereinafter referred to as to ‘Begumpet
Palace case’) reported in (105 I.T.R. 133). It was an appeal
from a Full Bench decision of the Andhra Pradesh High Court.
The High Court had taken the view, following a decision of the
Madras High Court in Sarojini Devi v. Sri Krishna that the
expression “agricultural land ” should be given the widest
meaning. It held that the fact that the land is assessed to land
revenue as agricultural land under the State Revenue Law is a
strong piece of evidence of its character as an agricultural land.
On Appeal, a Constitution Bench of this Court held that; (a)
inasmuch as agricultural land is exempted from the purview of
the definition of the expression “assets”, it is “impossible to
adopt so wide a test as would obviously defeat the purpose of
the exemption given”. The idea behind exempting the
agricultural land is to encourage cultivation of land and the
agricultural operations. “In other words this exemption had to
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wide ambit given to it by the Full Bench of the Andhra Pradesh
High Court”, (b) What is really required to be shown is the
connection with an agricultural purpose and user and not the
mere possibility of user of land by some possible further owner
or possessor, for an agricultural purpose. It is not the mere
potentiality but its actual condition and intended user which
has to be seen for purposes of exemption, (emphasis added), (c)
“The person claiming an exemption of any property of his from
the scope of his assets must satisfy the conditions of the
exemption.” (d) “The determination of the character of land,
according to the purpose for which it is meant or set apart and
can he used, is a matter which ought to be determined on the
facts of each particular case.” (e) The fact that the land is
assessed to the Land Revenue as agricultural land under the
State Revenue Law is certainly a relevant fact but if is not
conclusive.
That was a case where the question arose with respect to a
large extent of 105 acres situated in the city of Hyderabad. The
land was enclosed by a boundary wall, wherein there were two
wells. The land was abutting Hussain Sagar Tank. The Full
Bench of the Andhra Pradesh High Court evolved the
following eight indicators to determine whether a land is in
agricultural land, viz.,:
(1) The words ‘agricultural land’ occurring in Section
2(e)(i) of the Wealth-tax Act should be given the same
meaning as the said expression bears in entry 86 of List I
and given the widest meaning;
(2) the said expression not having been defined in the
Constitution, it must be given the meaning which it
ordinarily bears in the English language and as understood
in ordinary parlance;
(3) the actual user of the land for agriculture is one of the
indicia for determining the character of the land as
agricultural land;
(4) land which is left barren but which is capable of being
cultivated can also be ‘agricultural land’ unless the said land
is actually put to some other non-agricultural purpose, like
construction of buildings or an aerodrome, runway, etc.,
thereon, which alters the physical character of the land
rendering it unfit for immediate cultivation;
(5) if land is assessed to land revenue as agricultural land
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of its character as agricultural land;
(6) mere enclosure of the land does not by itself render it a
non-agricultural land;
(7) the character of the land is not determined by the nature
of the products raised, so long as the land is used or can be
sued for raising valuable plants or crops or trees or for any
other purpose of husbandry;
(8) the situation of the land in a village or in an urban area
is not by itself determinative of its character.
The court characterised the indicator Nos. 6,7 and 8 as merely
negative in character. It disagreed with (1) and (4) and
observed that only the 5th indicator was a relevant one though
not conclusive. There was no controversy regarding indicator
No. 3. Inasmuch as the matter was not examined from the
correct point of view, it was remitted to the High Court for a
fresh decision.
The decision of Gujarat High court in Commissioner of Income
Tax, Gujarat-II v. Siddharth J.Desai 139 I.T.R. 628, relied upon
strongly by the learned Counsel for the appellant, reviewed the
several earlier decisions of the Gujarat High Court as well as
the decision of this Court in Begumpet Palace and has evolved
the following 13 factors/indicators applying which the question
has to be answered. The 13 factors are the following :
(1) Whether the land was classified in the revenue records
as agricultural and whether it was subject to the payment of
land revenue?
(2) Whether the land was actually or ordinarily used for
agricultural purposes at or about the relevant time?
(3) Whether such user of the land was for a long period or
whether it was of a temporary character or by way of a
stop-gap arrangement?
(4) Whether the income derived from the agricultural
operations carried on in the land bore any rational
proportion to the investment made in purchasing the land?
(5) Whether, the permission under Section 65 of the
Bombay Land Revenue Code was obtained for the non-
agricultural use of the land? If so, when and, by whom (the
vendor or the vendee)?
Whether such permission was in respect of the whole or a
portion of the land? If the permission was in respect of a
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portion of the land and if it was obtained in the past, what
was the nature of the user of the said portion of the land on
the material date?
(6) Whether the land, on the relevant date, had ceased to be
put to agricultural use? If so, whether it was put to an
alternative use? Whether such cesser and/or alternative user
was of a permanent, or temporary nature?
(7) Whether the land, though entered, in revenue records,
had never been actually used for agriculture, that is, it had
never been ploughed or tilled? Whether the owner meant or
intended to use it for agricultural purposes?
(8) Whether the land was situate in a developed area?
Whether its physical characteristics, surrounding situation
and use of the lands in the adjoining area were such as
would indicate that the land was agricultural?
(9) Whether the land itself was developed by plotting and
providing roads and other facilities?
(10) Whether there were any previous sales of portions of
the land for non-agricultural use?
(11) Whether permission under Section 63 of the Bombay
Tenancy and Agricultural Lands Act, 1948, was obtained
because the sale or intended sale was in favour of a non-
agriculturist? If so, whether the sale or intended sale to
such no-agriculturist was for non-agricultural or
agricultural user?
(12) Whether the land was sold on yardage or on acreage
basis?
(13) Whether an agriculturist would purchase the land for
agricultural purposes at the price at which the land was sold
and whether the owner would have ever sold the land
valuing it as a property yielding agricultural produce on the
basis of its yield?
At the risk of repetition, we may mention that not all of these
factors would be present or absent in any case and that in each
case one or more of those factors may make appearance and
that the ultimate decision will have to be reached on a balanced
consideration of the totality of circumstances.
In Commissioner of Income-Tax v. V.A. Trivedi [1988] 172
I.T.R. 95 a Division Bench of the Bombay High Court, of
which one of us (S.P. Bharucha, J.) was a member, considered
this question again. In this case the assessee had purchased the
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land of an extent of seven acres in February 1966. The land
was covered by the Nagpur Improvement Trust Scheme. In
August 1966 he obtained permission to convert the said land to
non-agricultural use. In June 1968 he entered into an agreement
with a Housing Cooperative Society to sell three acres out of it.
The sale-deed was executed in October 1968. In this
assessment proceedings the assessee claimed that the surplus
income arising from the sale of land was exempt from tax
inasmuch as it was agricultural land at the time of its sale. The
matter reached the High Court. The Division Bench referred to
several facts established from the record. Some of them
supported the assessee’s stand while some others militated
against his contention. The facts found in favour of the
assessee were: (1) at the time of its purchase by the assessee,
the Ajni land was agricultural land; (2) it had been under
cultivation by the assessee till the date of its sale, (3) it
continued to be assessed to land revenue as agricultural land
until it was sold, (4) the intention of the assessee, when he
purchased it, was to acquire agricultural land for agricultural
purposes, (5) the assessee’s use of it was the normal use by an
agriculturist, (6) it was nor within any Town Planning Scheme,
and (7) no materials has been produced to show any
development or building activity surrounding it. The facts
which militated against the assessee’s stand were three in
number – namely: (1) the location or the Ajni land within the
Corporation and the improvement trust limits; (2) the action of
the assessee in obtaining on August 8, 1966, permission to
convert the user of the Ajni land to non-agricultural purposes,
and (3) the agreement to sell and the sale of the Ajni land for
non-agricultural, i.e., building purposes.
The Bench observed that to ascertain the true character and the
nature of the land, it must be seen whether it has been put to
use for agricultural purposes for a reasonable span of time prior
to the relevant date and further whether on the relevant date the
land was intended to be put to use for agricultural purposes for
a reasonable span of time the future. Examining the facts of the
case from the said point of view, the Bench held that the
agreement entered into by the assessee with the Housing
Society is the crucial circumstance since it showed that the
asses-see agreed to sell the land to Housing Society admittedly
for utilisation for non-agricultural purposes. The sale-deeds
were executed four months after the agreement of sale and
even if any agricultural operations were carried on within the
said span of four months, – the Bench held – it was evidently in
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the nature of a stop-gap arrangement. On the date the land was
sold, the Bench held, the land was no longer agricultural land
which is evident from the fact that the assessee had obtained
permission even in August 1966 to convert the said land to
non-agricultural purposes.”
34. Thus, the Hon‟ble Supreme Court in Sarifabibi Mohmed
Ibrahim (supra) had discussed various factors and precedents to
clarify the criteria for identifying agricultural land. It was held that the
classification of land as agricultural depends on multiple factors, not
just one. It was emphasized that each case must be evaluated based on
its specific facts. A wide range of indicators would include the actual
use of the land, whether the land is classified as agricultural in
revenue records, and whether it is used for agriculture over a long
period of time. Factors such as the land being under cultivation, being
assessed as agricultural in revenue records, and the owner‟s intent to
use it for agriculture plays a crucial role. However, conversion of the
land to non-agricultural use, selling it for housing development, and
the absence of agricultural activities for several years weigh against it
being classified as agricultural land.
35. In the backdrop of the above-noted principles discussed by the
Hon‟ble Supreme Court, we note that following facts were brought to
light during the proceedings before the PCIT:
(i) The Tehsildar who had issued the certificates in favour of the
assessee did not appear before PCIT to provide any documents
in support of the certificate issued by him.
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(ii) The land in question, which had been sold by the assessee to
Vallabham Buildcon, was being aggregated for development
projects by Vallabham Buildcon.
(iii) The DTP, Gurugram confirmed that the land was within the
extended municipal limits of Gurugram and was marked on the
sectoral plan of Sohna, indicating that no agricultural
operations were possible.
36. We are also of the view that the following facts, apparent from
the record, were completely overlooked by the AO while passing
assessment order under Section 143(3) of the Act:
(i) The Tehsildar‟s certificate of 2012, heavily relied upon by the
assessee, did not mention the distance of the land from the
nearest municipal limits, which is a critical requirement under
Section 2(14)(iii) of the Act. Further, the certificate did not
contain even the name or seal of the Tehsildar concerned.
(ii) The sale deed dated 20.04.2012 executed between the assessee
and Vallabham Buildcon, though mentioning the land as
agricultural, stated that the land was not beneficial for
cultivation and agricultural purposes.
(iii) The assessee had not declared any agricultural income from the
said land during the relevant year.
37. The above-mentioned facts make it clear that no inquiry, in fact,
was conducted by the AO before passing the assessment order under
Section 143(3) of the Act.
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38. During the course of arguments, the learned counsel for the
assessee contended that even if this Court arrives at an opinion that the
AO did not conduct a proper inquiry, it can at best be a case of
insufficient inquiry, but it cannot be termed as a case of absence or
lack of inquiry, so as to empower the PCIT to exercise jurisdiction
under Section 263 of the Act. It was also contended that the PCIT
could not have exercised jurisdiction in the manner as exercised since
the AY in the present case is 2013-14 and the amendment to Section
263 of the Act, by which Explanation 2 was inserted in the provision,
was brought in the year 2015. Therefore, since the said Explanation
came to be incorporated after the AY in question, the earlier
provisions of Section 263 of the Act will govern the adjudication of
the present case.
39. Prior to dealing with the above contentions, the relevant portion
of Section 263 of the Act is set out hereunder for reference:
“263. Revision of orders prejudicial to revenue.
(1) The Principal Commissioner or Commissioner may call for
and examine the record of any proceeding under this Act, and
if he considers that any order passed therein by the
Assessing Officer is erroneous in so far as it is prejudicial to
the interests of the revenue, he may, after giving the assessee
an opportunity of being heard and after making or causing to
be made such inquiry as he deems necessary, pass such order
thereon as the circumstances of the case justify, including an
order enhancing or modifying the assessment, or cancelling the
assessment and directing a fresh assessment…”
40. Section 263 of the Act, as it reads on date, including
Explanation 2 inserted by virtue of Finance Act, 2015, is extracted
hereunder:
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“263. Revision of orders prejudicial to revenue.
(1) The Principal Chief Commissioner or Chief Commissioner
or Principal Commissioner or Commissioner may call for and
examine the record of any proceeding under this Act, and if he
considers that any order passed therein by the Assessing
Officer or the Transfer Pricing Officer, as the case may be, is
erroneous in so far as it is prejudicial to the interests of the
revenue, he may, after giving the assessee an opportunity of
being heard and after making or causing to be made such
inquiry as he deems necessary, pass such order thereon as the
circumstances of the case justify, including,–
(i) an order enhancing or modifying the assessment or
cancelling the assessment and directing a fresh assessment;
or
(ii) an order modifying the order under section 92CA; or
(iii) an order cancelling the order under section 92CA and
directing a fresh order under the said section.
***
Explanation 2.– For the purposes of this section, it is hereby
declared that an order passed by the Assessing Officer [or
the Transfer Pricing Officer, as the case may be, shall be
deemed to be erroneous in so far as it is prejudicial to the
interests of the revenue, if, in the opinion of the Principal
Chief Commissioner or Chief Commissioner or Principal
Commissioner or Commissioner,–
(a) the order is passed without making inquiries or
verification which should have been made;
(b) the order is passed allowing any relief without inquiring
into the claim;
(c) the order has not been made in accordance with any
order, direction or instruction issued by the Board under
section 119; or
(d) the order has not been passed in accordance with any
decision which is prejudicial to the assessee, rendered by
the jurisdictional High Court or Supreme Court in the case
of the assessee or any other person.”
(Emphasis added)
41. As far as the above-noted contention of the assessee is
concerned, the same appears merited. The AY qua which the notice
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was issued by the AO is 2013-14. The said notice was issued under
Section 143(2) on 10.09.2014. However, the Explanation 2 to Section
263 of the Act was inserted by virtue of Finance Act, 2015 with effect
from 01.06.2015. The proceedings in this case were initiated in the
year 2014, i.e. prior to insertion of Explanation 2 in Section 263 of the
Act.
42. Therefore, while deciding the question as to whether or not the
jurisdiction was rightly exercised by the PCIT under Section 263 of
the Act, we would have to take into consideration the provisions of
Section 263 of the Act as they stood prior to the amendment in the
year 2015 i.e. sans Explanation 2 which has elucidated the cases
where the order can be held as erroneous and prejudicial to the
interests of the Revenue.
43. However, undisputedly, Section 263 of the Act, even prior to
the said amendment, stipulated the mandatory requirement of the
order being „erroneous‟ as well as „prejudicial to the interests of the
Revenue‟. Therefore, what manifests from the above is the fact that
the twin conditions have to be met for assuming jurisdiction under
Section 263 of the Act, and the PCIT has to form an opinion that the
order passed by the AO is „erroneous‟ and „prejudicial to the interests
of the Revenue‟.
44. Further, even prior to the amendment, though it was not
explicitly explained in the Act as to how the PCIT will reach a
conclusion that the AO had passed an „erroneous‟ order which was
also „prejudicial to interests of the Revenue‟, the scope of these words
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was explained by the Hon‟ble Supreme Court and the Coordinate
Benches of this Court in various decisions. It will be useful to refer to
a few decisions, without burdening the present judgment with all the
authorities on the said issue.
45. The Hon‟ble Supreme Court, in case of Malabar Industrial Co.
Ltd. (supra) has ruled that an order passed by an assessing officer can
be deemed erroneous if it is based on incorrect assumption of facts or
an incorrect application of law, and also if it is passed without
applying the principles of natural justice or without application of
mind. In the case of Malabar Industrial Co. Ltd. (supra), a resolution
passed by the board of the appellant-company was not placed before
the assessing officer and it was held that there was no material to
support the claim of the appellant therein, and the assessing officer
had accepted the entry in the statement of the account filed by the
appellant in the absence of any supporting material and without
making any inquiry.
46. This Court, in Gee Vee Enterprise (supra), held that the
Commissioner can regard the order as erroneous on the ground that in
the circumstances of the case the officer should have made further
inquiries before accepting the statements made by the assessee in the
return. The relevant portion of the decision is reproduced hereunder:
“….These two decisions show that it is not necessary for the
Commissioner to make further inquiries before cancelling the
assessment order of the Income-tax Officer. The
Commissioner can regard the order as erroneous on the
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accepting the statements made by the assessee in his
return.
The reason is obvious. The position and function of the
Income-tax Officer is very different from that of a civil court.
The statements made in a pleading proved by the minimum
amount of evidence may be accepted by a civil court in the
absence of any rebuttal. The civil court is neutral. It simply
gives decision on the basis of the pleading and evidence which
comes before it. The Income-tax Officer is not only an
adjudicator but also an investigator. He cannot remain
passive in the face of a return which is apparently in order
but calls for further inquiry. It is his duty to ascertain the
truth of the facts stated in the return when the
circumstances of the case are such as to provoke an
inquiry. The meaning to be given to the word “erroneous” in
section 263 emerges out of this context. It is because it is
incumbent on the Income-tax Officer to further investigate the
facts stated in the return when circumstances would make
such an inquiry prudent that the word “erroneous” in section
263 includes the failure to make such an inquiry. The order
becomes erroneous because such an inquiry has not been
made and not because there is anything wrong with the order
if all the facts stated therein are assumed to be correct.”
(Emphasis added)
47. In case of Commissioner of Income-tax v. Toyota Motor
Corporation: (2008) 306 ITR 49, the assessing officer had passed an
order dropping the penalty proceedings initiated in the assessee’s case.
The Commissioner had exercised powers under Section 263 of the Act
and concluded that the assessing officer had not verified several issues
and facts as mentioned in the order passed by him, nor had he carried
out necessary investigations to come to a conclusion that penalty was
not leviable. Consequently, he had found that the order was erroneous
and prejudicial to the interest of the revenue. However, on appeal, the
Tribunal had held that the penalty proceedings were not dropped
casually by the assessing officer but after verification of full facts
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disclosed by the assessee in the reply. This Court, in judgment dated
02.04.2008 held that the order passed by the assessing officer was
cryptic and non-reasoned. The relevant observations are extracted
below:
“10. We are unable to appreciate this reasoning given by the
Tribunal simply because that the Assessing Officer himself did
not say any such thing in his order. There is no doubt that the
proceedings before the Assessing Officer are quasi-judicial
proceedings and a decision taken by the Assessing Officer in
this regard must be supported by reasons. Otherwise every
order such as the one passed by the Assessing Officer, could
result in a theoretical possibility that it may be revised by the
CIT under section 263 of the Act. Such a situation is clearly
impermissible.
11. It is also necessary for the parties to know the reasons that
have weighed with the Adjudicating Authority in coming to a
conclusion. The order passed by the Assessing Officer should
be a self-contained order giving the relevant facts and reasons
for coming to the conclusion based on those facts and law.
12. We find that the order passed by the Assessing Officer is
cryptic to say the least, and it cannot be sustained. The
Tribunal cannot substitute its own reasoning to justify the order
passed by the Assessing Officer when the Assessing Officer
himself did not give any reason in the order passed by him.”
48. The aforesaid decision was affirmed by the Hon‟ble Supreme
Court in Toyota Motor Corporation v. Commissioner of Income-tax:
(2008) 306 ITR 52.
49. Therefore, it is clear that the Hon‟ble Supreme Court and the
Coordinate Benches of this Court had also dealt with the scope of
„erroneous orders‟ for the purpose of Section 263 of the Act, even
when Explanation 2 had not been inserted in the said provision, and
had held that an erroneous order would include an order which is
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passed without conducting sufficient inquiries or without application
of mind.
50. In the present case, while invoking the provisions of Section
263 of the Act against the order passed by the AO under Section
143(3) of the Act, the PCIT emphasized that the AO did not scrutinize
the critical documents, particularly those concerned with the claim of
the assessee with respect to the land being agricultural in nature and
its sale being exempt from capital gains tax. Specifically, the PCIT
noted that the AO relied on a certificate issued by the Tehsildar, but
failed to obtain corroborative evidence from other important and
necessary authorities like the DTP, Gurugram. The AO, according to
the PCIT, accepted the assessee‟s claim without proper verification,
which amounted to no-inquiry. Ultimately, the PCIT took a view that
the land sold by the assessee was not agricultural land, and thus, the
assessee was not entitled for long-term capital gains tax exemption.
However, the learned ITAT in the impugned order opined in the
present case that the AO had considered the issue of capital gains
taxability and had accepted the submissions of the assessee.
51. However, the critical issue remains whether the inquiry made
by the AO in this case can be actually considered as an inquiry
required to be conducted by the AO. The fact that the AO neither read
the contents of the certificate issued by the Tehsildar, which is
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
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any additional evidence or document from the relevant authorities like
the DTP, Gurugram, undoubtedly, suggests 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.
52. There is no cavil that the PCIT would not have jurisdiction to
pass an order under Section 263 of the Act solely for the reason that
he held a different opinion with the AO. If the AO has applied his
mind and had arrived at a plausible view, the same would not be
amenable to a revision under Section 263 of the Act.
53. However, if the AO has not applied his mind and had come to
an erroneous conclusion without making any enquiries, the CIT may
be well within his jurisdiction to pass an order under Section 263 if he
finds that the assessment order is erroneous and prejudicial to the
interest of the revenue. In Rampyari Devi Saraogi v. Commissioner
of Income-Tax, West Bengal & Ors: (1968) 67 ITR 84, the
Commissioner found that the assessee had given an incorrect
residential address and had also given her name in reverse order so as
to fall within the jurisdiction of a particular Income Tax Officer (ITO).
Accordingly, the CIT concluded that the ITO did not have the
jurisdiction to pass the assessment order. The CIT held that it was
apparent that the assessee had given a fictitious address and revered
the order of her name, as a camouflage to fall within the jurisdiction of
a particular ITO. Accordingly, the CIT passed an order under Section
263 of the Act. The High Court upheld the said decision. In the appeal
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preferred by the assessee, the Hon‟ble Supreme Court observed that
“there was ample material to show that the Income Tax Officer has
made the assessments in undue hurry”. The assessment was made
without any enquiry or evidence whatsoever and the order of
assessment was erroneous and prejudicial to the interest of the
revenue.
54. Similarly in the case of Tara Devi Aggarwal v. Commissioner
of Income-Tax, West Bengal, Calcutta: (1973) 88 ITR 323, the
Hon‟ble Supreme Court upheld the finding of the CIT that the
assessments made by the ITO “were made in post haste without
making any enquiry or investigation into the antecedents of the
assessee”.
55. A Coordinate Bench of this Court in Commissioner of Income
Tax v. Sunbeam Auto Ltd.: (2011) 332 ITR 167 had highlighted the
necessity to bear in mind the distinction between “lack of inquiry” and
“inadequate enquiry”. We consider it apposite to refer to the following
passage from the said decision:
“17. We have considered the rival submissions of the counsel
on the other side and have gone through the records. The first
issue that arises for our consideration is about the exercise of
power by the Commissioner of Income-tax under section 263
of the Income-tax Act. As noted above, the submission of
learned counsel for the Revenue was that while passing the
assessment order, the Assessing Officer did not consider this
aspect specifically whether the expenditure in question was
revenue or capital expenditure. This argument predicates on the
assessment order, which apparently does not give any reasons
while allowing the entire expenditure as revenue expenditure.
However, that by itself would not be indicative of the fact that
the Assessing Officer had not applied his mind on the issue.
There are judgments galore laying down the principle that theSignature Not Verified
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Assessing Officer in the assessment order is not required to
give detailed reason in respect of each and every item of
deduction, etc. Therefore, one has to see from the record as to
whether there was application of mind before allowing the
expenditure in question as revenue expenditure. Learned
counsel for the assessee is right in his submission that one has
to keep in mind the distinction between “lack of inquiry”
and “inadequate inquiry”. If there was any inquiry, even
inadequate that would not by itself give occasion to the
Commissioner to pass orders under section 263 of the Act,
merely because he has a different opinion in the matter. It is
only in cases of “lack of inquiry” that such a course of action
would be open……”
(Emphasis added)
56. In the present case, the AO had issued a questionnaire to the
assessee on 19.08.2015. The assessee responded to the said
questionnaire by claiming that she had earned long term capital gains
of ₹10,72,76,180/-, which was not chargeable to tax as the agricultural
land was beyond the prescribed distance from the municipal limits of
Sohna district. She also enclosed therewith a document described as a
certificate issued by Tehsildar, Sohna to the aforesaid effect.
However, a plain reading of the said document indicates that it did not
certify that the land in question was beyond the prescribed distance
from the municipal limits as claimed by the assessee. Notwithstanding
the same, the AO passed the assessment order on the same date. It is
thus apparent 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
corporation. The noting made by the Tehsildar on 24.04.2012, which
the assessee claims to be a certificate, merely stated that the land in
question was “outside the border of Sohna Municipal Corporation”.
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The question is not whether the land in question was outside the
municipal limits but whether it was an agricultural land that was
located 5 kms. / 8 kms. beyond the municipal limits. The Tehsildar‟s
noting is clearly not to the aforesaid effect. It is thus clear that this is
not a case where the enquiries conducted by the AO were inadequate;
this is 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 Sohna Municipal
Corporation. It is apparent that no enquiry to the said effect was
conducted by the AO and there is no material before the AO, other
than the self serving statement of the assessee, to corroborate the
same.
57. The assessment order passed by the AO under Section 143(3) of
the Act even records no reasons for accepting the version of the
assessee that the land was agricultural land, and not capital asset, and
thus exempt from capital gain. In fact, there is no mention of this
aspect at all in the order passed by the AO under Section 143(3) of the
Act. Thus, it is not clear as to what had weighed in the mind of the AO
since the order passed by the AO is totally silent on this aspect.
58. Therefore, the present case would be one where the absence of
any effective inquiry and a total non-application of mind by the AO is
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 results in loss
of the Revenue in the form of tax.
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59. We are thus of the view that the PCIT had exercised the
jurisdiction under Section 263 of the Act correctly and legally, in view
of the fact that the order passed by the AO was erroneous and
prejudicial to the interest of the Revenue since the same was passed
without conducting any enquiries and applying mind to the claims of
the assessee. We are also of the view that the learned 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.
60. In view of the above, we set aside the impugned order dated
15.02.2018 passed by the learned ITAT in ITA No. 3888/Del/2017 in
as much as for the reasons mentioned in the preceding paragraphs, it is
writ large that the order passed by the AO was prejudicial to the
interest of the Revenue which is the foundational requirement of
exercising jurisdiction under Section 263 of the Act. Consequently,
the jurisdiction exercised by the PCIT cannot be found fault with.
61. Accordingly, the appeal is disposed of in the above terms.
SWARANA KANTA SHARMA, J
VIBHU BAKHRU, J
NOVEMBER 08, 2024/A
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