Notice us 142(1).
This query is : Resolved
11 October 2013
Dear experts,
My client had purchased an agricultural land in the year 2004 for an amount of Rs.25 lacs and got it registered in her name.she has filed return of income till AY.2004-05, declaring rental income below taxable limit.subsequently my client sold the said agricultural land which came under dispute to a prospective purchaser in as in where is condition for an amount of Rs.85 lacs, but whereas the guidance value fixed by the stamps department was at Rs.1.84 crores and since the purchaser paid the stamp duty on the guidance value and got it registered on 2007.my client recieved the sale consideration of Rs 85 lacs as mentioned in the sale deed.
Now last month my client has recieved a notice from the ITO that she has sold the property at Rs.1.84 crs and she is liable to pay up capital gains.
my question is
1)since the sale consideration was just Rs.85 lacs and the guidance value was fixed by the authorities at Rs.1.84 crs whether my client is liable for the sale consideration in actuals or the guidance value ?
2) she has not filed the return of income since the income was below taxable limits, and now how do we compute the same ?
3) The ITO says the capital gains is to be paid on the difference of 1.84 crs minus 25 lacs purchase and is asking to file a return of income for 2007-08 and 2008-09.
pls suggest and help me out in dealing with this issue.
Regards.
My client had purchased an agricultural land in the year 2004 for an amount of Rs.25 lacs and got it registered in her name.she has filed return of income till AY.2004-05, declaring rental income below taxable limit.subsequently my client sold the said agricultural land which came under dispute to a prospective purchaser in as in where is condition for an amount of Rs.85 lacs, but whereas the guidance value fixed by the stamps department was at Rs.1.84 crores and since the purchaser paid the stamp duty on the guidance value and got it registered on 2007.my client recieved the sale consideration of Rs 85 lacs as mentioned in the sale deed.
Now last month my client has recieved a notice from the ITO that she has sold the property at Rs.1.84 crs and she is liable to pay up capital gains.
my question is
1)since the sale consideration was just Rs.85 lacs and the guidance value was fixed by the authorities at Rs.1.84 crs whether my client is liable for the sale consideration in actuals or the guidance value ?
2) she has not filed the return of income since the income was below taxable limits, and now how do we compute the same ?
3) The ITO says the capital gains is to be paid on the difference of 1.84 crs minus 25 lacs purchase and is asking to file a return of income for 2007-08 and 2008-09.
pls suggest and help me out in dealing with this issue.
Regards.
12 October 2013
Ya as far as capital gain is concerned on agriculture land guidance value will be considered for capital gain calculation.
and now you can't file return of year 2007-08, 2008-09.
and now you can't file return of year 2007-08, 2008-09.
12 October 2013
Thanks a lot sir, but my question was is capital gains is applicable ? and if applicable then at what rate as it is a short term. and again can we include expenses incurred over the land after purchase ?
what is the way out to minimise the capital gains in this case or escape the same pls advise.
what is the way out to minimise the capital gains in this case or escape the same pls advise.
04 August 2024
### Addressing Capital Gains Tax on Agricultural Land Sale
Here’s how to address the issues related to the sale of agricultural land and the notices received:
#### 1. **Sale Consideration vs. Guidance Value**
**Capital Gains Tax** is generally based on the actual sale consideration received by the seller, not the guidance value set by the stamp duty authorities, unless the sale consideration is significantly lower than the guidance value to evade tax.
**Points to Consider:**
- **Actual Sale Consideration:** Since your client received ₹85 lakhs as per the sale deed, this amount should be considered the sale consideration for calculating capital gains.
- **Guidance Value:** The guidance value is used for calculating stamp duty and does not directly affect the sale consideration for tax purposes unless it is deemed a clear attempt to evade tax.
#### 2. **Filing Return and Capital Gains Calculation**
**Filing of Return:**
- **For AY 2007-08 and AY 2008-09:** If the sale occurred in FY 2006-07 and the actual sale consideration was ₹85 lakhs, the return should be filed for the assessment year corresponding to that financial year.
**Calculation of Capital Gains:**
- **Short-Term vs. Long-Term:** Agricultural land is generally considered a long-term capital asset if held for more than 2 years. However, if it was sold within 2 years of purchase, it would be a short-term capital asset.
- **Cost of Acquisition and Improvement:** You can claim the cost of acquisition and any improvements made to the land as part of the cost of the asset.
**Capital Gains Calculation Formula:**
\[ \text{Capital Gains} = \text{Sale Consideration} - \text{Cost of Acquisition} - \text{Cost of Improvement} \]
**In this case:**
- **Sale Consideration:** ₹85 lakhs
- **Cost of Acquisition:** ₹25 lakhs
- **Cost of Improvement:** Include any expenses related to leveling, development, construction of the wall, etc.
#### 3. **Minimizing or Escaping Capital Gains**
**Ways to Minimize Capital Gains:**
- **Claim Deductible Expenses:** Ensure all expenses related to the improvement of the land are included.
- **Exemptions:** Check if any exemptions under Sections 54 or 54B of the Income Tax Act apply. For example, if the proceeds are reinvested in another agricultural property or specified assets, exemptions may be available.
**Steps to Take:**
1. **File the Return:**
- Prepare the return for the relevant assessment years, incorporating the correct sale consideration and claiming allowable expenses and deductions.
2. **Respond to the Notice:**
- Draft a formal response to the notice from the ITO, providing a detailed explanation of the actual sale consideration and any justifiable expenses.
3. **Document All Relevant Details:**
- Keep records of the sale deed, registration documents, and all expenses incurred on the property.
4. **Seek Professional Help:**
- Consult a tax professional or a Chartered Accountant to ensure accurate filing and to explore possible exemptions or deductions.
### Sample Response to the Notice
---
**[Your Company’s Letterhead]**
**Date: [Insert Date]**
**To,
The Income Tax Officer,
[Income Tax Office Address],
[City, State, PIN Code].**
**Subject: Response to Notice under Section 142(1) for AY 2007-08**
Dear Sir/Madam,
I am writing in response to your notice dated [Insert Date], regarding the sale of agricultural land for which capital gains tax is sought.
1. **Sale Consideration:** The sale consideration received for the property was ₹85 lakhs, as per the sale deed dated [Insert Date]. This is the amount actually received from the buyer.
2. **Guidance Value:** The guidance value of ₹1.84 crores set by the stamp duty authorities is relevant for stamp duty calculation but should not affect the actual sale consideration used for computing capital gains.
3. **Cost of Acquisition and Improvement:** The property was acquired for ₹25 lakhs, and additional expenses totaling [Specify Amount] were incurred for leveling, development, and construction. These expenses are claimed as part of the cost of acquisition and improvement.
4. **Capital Gains Calculation:** The capital gains are calculated based on the actual sale consideration, with allowable expenses deducted. We are in the process of preparing the return for AY 2007-08 and will ensure all applicable details are included.
Please find enclosed the relevant documents, including the sale deed, receipts for expenses, and a draft of the revised return.
We request you to review the details and kindly advise on any further actions required from our end.
Thank you for your understanding and cooperation.
Yours faithfully,
**[Your Name]**
**[Your Designation]**
**[Your Company Name]**
**[Contact Information]**
---
### Important Notes:
- **Compliance:** Ensure compliance with all tax obligations and accurately represent all financial transactions.
- **Timeliness:** Respond promptly to notices to avoid penalties or further complications.
Here’s how to address the issues related to the sale of agricultural land and the notices received:
#### 1. **Sale Consideration vs. Guidance Value**
**Capital Gains Tax** is generally based on the actual sale consideration received by the seller, not the guidance value set by the stamp duty authorities, unless the sale consideration is significantly lower than the guidance value to evade tax.
**Points to Consider:**
- **Actual Sale Consideration:** Since your client received ₹85 lakhs as per the sale deed, this amount should be considered the sale consideration for calculating capital gains.
- **Guidance Value:** The guidance value is used for calculating stamp duty and does not directly affect the sale consideration for tax purposes unless it is deemed a clear attempt to evade tax.
#### 2. **Filing Return and Capital Gains Calculation**
**Filing of Return:**
- **For AY 2007-08 and AY 2008-09:** If the sale occurred in FY 2006-07 and the actual sale consideration was ₹85 lakhs, the return should be filed for the assessment year corresponding to that financial year.
**Calculation of Capital Gains:**
- **Short-Term vs. Long-Term:** Agricultural land is generally considered a long-term capital asset if held for more than 2 years. However, if it was sold within 2 years of purchase, it would be a short-term capital asset.
- **Cost of Acquisition and Improvement:** You can claim the cost of acquisition and any improvements made to the land as part of the cost of the asset.
**Capital Gains Calculation Formula:**
\[ \text{Capital Gains} = \text{Sale Consideration} - \text{Cost of Acquisition} - \text{Cost of Improvement} \]
**In this case:**
- **Sale Consideration:** ₹85 lakhs
- **Cost of Acquisition:** ₹25 lakhs
- **Cost of Improvement:** Include any expenses related to leveling, development, construction of the wall, etc.
#### 3. **Minimizing or Escaping Capital Gains**
**Ways to Minimize Capital Gains:**
- **Claim Deductible Expenses:** Ensure all expenses related to the improvement of the land are included.
- **Exemptions:** Check if any exemptions under Sections 54 or 54B of the Income Tax Act apply. For example, if the proceeds are reinvested in another agricultural property or specified assets, exemptions may be available.
**Steps to Take:**
1. **File the Return:**
- Prepare the return for the relevant assessment years, incorporating the correct sale consideration and claiming allowable expenses and deductions.
2. **Respond to the Notice:**
- Draft a formal response to the notice from the ITO, providing a detailed explanation of the actual sale consideration and any justifiable expenses.
3. **Document All Relevant Details:**
- Keep records of the sale deed, registration documents, and all expenses incurred on the property.
4. **Seek Professional Help:**
- Consult a tax professional or a Chartered Accountant to ensure accurate filing and to explore possible exemptions or deductions.
### Sample Response to the Notice
---
**[Your Company’s Letterhead]**
**Date: [Insert Date]**
**To,
The Income Tax Officer,
[Income Tax Office Address],
[City, State, PIN Code].**
**Subject: Response to Notice under Section 142(1) for AY 2007-08**
Dear Sir/Madam,
I am writing in response to your notice dated [Insert Date], regarding the sale of agricultural land for which capital gains tax is sought.
1. **Sale Consideration:** The sale consideration received for the property was ₹85 lakhs, as per the sale deed dated [Insert Date]. This is the amount actually received from the buyer.
2. **Guidance Value:** The guidance value of ₹1.84 crores set by the stamp duty authorities is relevant for stamp duty calculation but should not affect the actual sale consideration used for computing capital gains.
3. **Cost of Acquisition and Improvement:** The property was acquired for ₹25 lakhs, and additional expenses totaling [Specify Amount] were incurred for leveling, development, and construction. These expenses are claimed as part of the cost of acquisition and improvement.
4. **Capital Gains Calculation:** The capital gains are calculated based on the actual sale consideration, with allowable expenses deducted. We are in the process of preparing the return for AY 2007-08 and will ensure all applicable details are included.
Please find enclosed the relevant documents, including the sale deed, receipts for expenses, and a draft of the revised return.
We request you to review the details and kindly advise on any further actions required from our end.
Thank you for your understanding and cooperation.
Yours faithfully,
**[Your Name]**
**[Your Designation]**
**[Your Company Name]**
**[Contact Information]**
---
### Important Notes:
- **Compliance:** Ensure compliance with all tax obligations and accurately represent all financial transactions.
- **Timeliness:** Respond promptly to notices to avoid penalties or further complications.
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