Facts of the Case

The Revenue filed an appeal under Section 260A of the Income-tax Act challenging the order dated 15.02.2018 passed by the Income Tax Appellate Tribunal for Assessment Year 2013-14. The assessee, Ms. Sangeeta Jain, filed her return declaring income of ₹2,64,51,220 and claimed exemption on long-term capital gains of ₹10,72,76,180 arising from sale of land, contending that the land was agricultural land situated beyond the prescribed municipal limits and therefore not a capital asset under Section 2(14).

The assessment was completed under Section 143(3) on 07.12.2015, wherein the Assessing Officer accepted the assessee’s claim primarily relying on a certificate issued by the Tehsildar. Subsequently, the Principal Commissioner of Income Tax invoked revisionary jurisdiction under Section 263 on the ground that the Assessing Officer had accepted the exemption without making proper inquiry or verification regarding the nature and location of the land.

By order dated 21.04.2017, the PCIT held that the assessment order was erroneous and prejudicial to the interests of the Revenue and directed the Assessing Officer to treat the gains as short-term capital gains. The ITAT set aside the Section 263 order, leading to the present appeal by the Revenue.

Issues Involved

Whether the Assessing Officer had conducted sufficient inquiry before allowing exemption on sale of land claimed as agricultural land, whether the order passed under Section 143(3) was erroneous and prejudicial to the interests of the Revenue, and whether the PCIT was justified in exercising jurisdiction under Section 263.

Petitioner’s Arguments

The Revenue argued that the Assessing Officer had mechanically accepted the assessee’s claim without verifying crucial facts such as distance of the land from municipal limits and its actual agricultural use. It was contended that reliance on a vague and incomplete Tehsildar certificate without corroboration from competent authorities amounted to lack of inquiry, justifying revision under Section 263.

Respondent’s Arguments

The assessee contended that the Assessing Officer had examined the issue during assessment proceedings and had taken a plausible view based on documents submitted. It was argued that the PCIT had merely substituted his own opinion for that of the Assessing Officer, which is impermissible under Section 263. It was further contended that Explanation 2 to Section 263 inserted in 2015 was not applicable to Assessment Year 2013-14.

Court Order / Findings

The Delhi High Court examined the assessment records and found that the Assessing Officer had failed to conduct any meaningful inquiry before granting exemption. The Tehsildar certificate relied upon did not specify the actual distance of the land from municipal limits, which is a mandatory requirement under Section 2(14)(iii). The Court noted that no verification was sought from the District Town Planner, Gurugram, whose report subsequently confirmed that the land fell within municipal limits and was earmarked for urban development.

The Court held that this was a clear case of lack of inquiry and not merely inadequate inquiry. Relying on settled principles laid down in Malabar Industrial Co. Ltd., Gee Vee Enterprises, Sarifabibi Mohmed Ibrahim, and Sunbeam Auto, the Court held that the assessment order was erroneous and prejudicial to the interests of the Revenue, thereby justifying invocation of Section 263.

The Court further held that even prior to insertion of Explanation 2 to Section 263, revision was permissible where the Assessing Officer failed to apply his mind or conduct basic verification.

Important Clarification

The High Court clarified that acceptance of a claim without verifying essential statutory conditions amounts to lack of inquiry, empowering the PCIT to invoke Section 263. Certificates issued by local authorities must be examined for completeness and relevance, and cannot be blindly relied upon without independent verification.

Final Outcome

The appeal filed by the Revenue was allowed. The Delhi High Court set aside the order of the ITAT and upheld the revisionary order passed by the Principal Commissioner of Income Tax under Section 263, holding that the original assessment order was erroneous and prejudicial to the interests of the Revenue.

Link to download order - https://www.mytaxexpert.co.in/uploads/1769856753_PR.COMMISSIONEROFINCOMETAXDELHI11VsMS.SANGEETAJAIN.pdf

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